Tidewater Renewables Ltd

TSX:LCFS

Earnings Call Transcript

[Operator]

Good morning and afternoon, ladies and gentlemen, and welcome to the Tidewater Renewables 2025 Q1 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 8, 2025.

I would now like to turn the conference call over to our CFO of Tidewater, Mr. Ian Quartly. Please go ahead.

[Ian Quartly, executive]

Thank you, operator, and welcome, everyone, to Tidewater Renewables First Quarter 2025 Results Conference Call. On the call with me today is our Chairman and CEO, Jeremy Baines, who will provide an update on operations and regulatory updates during the quarter. I will follow with our financial results, and then we'll open the line for your questions.

Before we get started, I'd like to note that today's call is being recorded for the benefit of individual shareholders, the media and other interested parties who may want to review the call at a later time. The recorded call will be available through Cision.

This morning, we reported results for the first quarter ended March 31, 2025. A copy of our news release, financial statements and MD&A may be accessed on SEDAR+ or on our website.

Before passing the call over to Jeremy, I'll remind you that some of the comments made today may be forward-looking in nature and are based on Tidewater's current expectations, judgments and projections. Forward-looking statements we express today are subject to risks and uncertainties, which may cause actual results to differ from expectations.

Further, some of the information provided refers to non-GAAP measures. To know more about these forward-looking statements, non-GAAP measures and risk factors, please see the company's various financial reports, which are available on our website and on SEDAR.

I'll now turn the call over to Jeremy.

[Jeremy Baines, executive]

Thank you, Ian, and thanks to everyone for joining our Q1 results conference call today.

While the quarter was disappointing from a financial results point of view, our outlook is improving significantly in spite of what is hopefully only a delay on our trade case. Regulatory changes in British Columbia and improvements in U.S. import parity prices for renewable diesel coming into British Columbia are both supportive of our profitability go forward.

First, let me start by providing an update on our ongoing trade action. On May 5, 2025, the Canadian International Trade Tribunal issued a decision to terminate its preliminary injury inquiry regarding Tidewater Renewables' countervailing, anti-subsidy and antidumping duty complaint concerning imports of renewable diesel from the United States.

While we are disappointed with the Tribunal's decision, we want to be clear that Tidewater Renewables remains steadfast in its commitment to ensuring fair competition in Canada's renewable diesel market.

Our position remains unchanged. The evidence strongly supports the fact that unfair trade practices by the United States have led to a flood of subsidized, dumped renewable diesel into Canada. This influx has caused significant harm to Tidewater who is currently the sole Canadian producer of renewable diesel.

It is important to note that the CBSA initiated the investigation after confirming the validity of our concerns, recognizing that U.S. subsidies and dumping practices have distorted the Canadian market.

With the support of our external trade law counsel, we will thoroughly review the decision upon receiving the tribunal's reasoning on May 23, 2025. Based on that review, we will aggressively pursue all available legal remedies, including the possibility of filing an amended or a new complaint with the CBSA.

In spite of this hopefully temporary setback in our trade case, we are optimistic about the future of the Canadian renewable diesel market.

On February 27, 2025, the Government of British Columbia announced changes to the Low Carbon Fuels Act, which increased the renewable fuel requirement for diesel from 4% to 8% for the 2025 compliance period. And effective April 1, 2025, mandates that renewable fuel content be produced in Canada.

Since the announcement, there has been a significant increase in demand from customers who want to buy our Canadian renewable diesel in replacement of their historical volumes imported from the U.S. We have been having good success in selling our renewable diesel with the related emissions and Canadian content credits attached at reasonably profitable levels.

Additionally, U.S. D4 RINs values have increased over 70% during 2025, and California LCFS values have remained strong, which increases the import parity price of the competing U.S. renewable diesel that is imported into Canada. This ultimately sets the value of our Canadian emissions credits, and these favorable market dynamics are leading to improved Tidewater Renewables margins throughout the remainder of 2025 and beyond.

We are confident that these factors will drive significant value for our stakeholders and position us as a leader in Canada's renewable diesel industry.

Now turning to our operational performance at the HDRD complex for Q1 2025. For the 3 months ended March 31, 2025, the HDRD complex had average throughput of 2,239 barrels per day or 75% of design capacity. Utilization was lower during the first quarter as we managed inventory as there was an excess supply of diesel in the Western Canadian markets and somewhat muted demand, and inclement weather which affected feedstock coming into the plant by rail.

On April 1, there was a minor fire in the main renewable diesel process unit at the HDRD complex. The fire was swiftly extinguished by our operations team, utilizing firefighting equipment at site. There were no injuries reported. The damages -- the damage was minimal and could be required with spare parts on hand. Operations resumed on April 14, and the HDRD complex has been operating as expected since the outage.

Looking ahead, we estimate our maintenance capital expenditure for 2025 will be $8 million -- between $8 million and $10 million. A significant portion of this is allocated to the planned turnaround at HDRD complex during the third quarter. The turnaround is expected to last approximately 3 weeks. We will continue to sell renewable diesel from inventory during the turnaround.

The HDRD complex is expected to have a regular 2- and 4-year turnaround cycle. The year 2 turnaround is focused on the hydrodeoxygenation catalyst placement. The 4-year turnaround will be more comprehensive, including hydrodeoxygenation and dewax catalyst replacements, vessel inspections and targeted equipment upgrades.

As we progress through 2025, we are confident in the positive trends that are shaping the renewable diesel market. Regulatory changes, including the B.C. government's commitment to increasing the renewable fuel mandate and requiring Canadian production are expected to continue driving demand for domestic renewable diesel.

Our continued focus on operational efficiency, coupled with strategic investments in maintenance, will support our ongoing efforts to maximize throughput and profitability in the year ahead.

I'll now turn the call over to Ian, who will provide a more detailed review of our financial results for Q1 2025.

[Ian Quartly, executive]

Thanks, Jeremy. During the first quarter of 2025, Tidewater Renewables reported net income of $5.2 million, an increase of $8.6 million from the fourth quarter of 2024. This higher net income was primarily due to unrealized gains on derivative contracts and the high income contribution from the equity investments.

Adjusted EBITDA of $2.4 million for the first quarter of 2025 was a slight decrease from the $6 million adjusted EBITDA generated in the fourth quarter of 2024. The decrease in EBITDA is due to lower margins from the sale of renewable diesel and emissions credits, as the majority of sales were contracted before the Government of British Columbia announced the changes to the Low Carbon Fuel Act late February.

Subsequent to the quarter, on May 7, 2025, we successfully extended the maturity date of the senior credit facility by 1 year to February 28, 2027.

In combination with the amendments made to the first and second lien credit facilities at the end of March, the refinancing significantly enhanced Tidewater Renewables' financial flexibility, provide the additional capacity necessary to support the company's ongoing financial stability and extend the earliest debt maturity after February 2027.

Now I'll ask the operator to open the call for questions.

[Operator]

[Operator Instructions] Your first question comes from Robert from CIBC Capital Markets.

[Robert Catellier, analyst]

I wondered if you could first start by providing us with a more specific indication of what you're seeing in the April LCFS credit market following the onset of the market reforms.

[Jeremy Baines, executive]

Yes. It's a little bit of a competitive piece of disclosure, but we're seeing a full credit stack now that is in the -- on an import parity-based value, $450-plus sort of at today's market.

[Robert Catellier, analyst]

Okay. And then what do you understand of the reasoning behind the trade tribunal's decision to terminate the inquiry? And did it consider the U.S. bill that's aimed at retroactively extending the biodiesel tax credits?

[Jeremy Baines, executive]

We're not quite sure, to be honest, Rob. It's an awkward spot. We went through -- the CBSA took up her case. Our understanding is it's extremely rare when the CITT rejects that case as it happened. And we're waiting for the reasoning. Sometimes it's just a procedural thing. And when this happens, you refile and advance the claim.

And -- but we don't have any real insight to it because they don't release that -- their actual reasoning and decision until, what's the date there, 23rd or whatever it is. So we're still 2 weeks out from kind of knowing what the reasoning is, but we actually are -- we are preparing to refile just so we don't lose time here. So we'll see what happens there.

[Robert Catellier, analyst]

Yes, it's understandable. Last question for me is, how do you see support from the B.C. government changing following the tribunal determination? And has it done enough to ensure credit prices return to a level that can support the industry?

[Jeremy Baines, executive]

Yes. So what the B.C. government has said publicly is that they're monitoring the market. They will look at taking this up, the Canadian content as appropriate. And I think the reality is we think they're supportive of renewable diesel production and renewable diesel industry. They want to see the Canadian producers be successful and have a fair playing field to compete on, which it isn't today. And we expect they likely will take that Canadian mandate up. There's no guarantee of that, but we expect that.

And ultimately, in the long run, we see the Canadian market being balanced when you look at the amount of diesel that's consumed in British Columbia and the -- with the tightening CI requirements go forward, we think the -- what we expect the Canadian R&D production to be by the end of this year. The B.C. market is balanced, and we will back out the -- we'll compete well with those imports and the market will be balanced and productive for Canadian-produced renewable diesel.

[Operator]

[Operator Instructions] Your next question comes from Maurice from RBC Capital Markets.

[Maurice Choy, analyst]

I just want to come back to more of a big picture question here. So I think you mentioned that because of the B.C. government and because of, I guess, increased demand, some of the prices have actually recovered and, to some extent, the profit has returned.

So when I think about termination of the inquiry by the tribunal, if I take one step back, do we actually need it? And I'm sure it would be nice to have it, but in terms of the longevity of your business case, this business, is this still necessary? Or can investors move on?

[Jeremy Baines, executive]

Well, we're not ready to move on because we've been irreparably harmed. It's been a challenge based on the unfair trade. But to your point, there is clearly -- without it, with the support of the B.C. government, if they continue to do what they said they're going to do around the BC LCFS regulations, we do think that we've got a long and competitive profitable pathway even if we're not successful there.

We still -- we haven't seen the ruling, so it's hard for us to say. But we still will pursue a fair and level playing field, and that is an avenue that is there that we need to continue to pursue. But to your point, with the improvements in the import parity pricing with the improvements in the B.C. government regulations, we expect to be profitable and the remaining quarters of this year to be healthy.

[Maurice Choy, analyst]

That's really good to hear. And maybe just finishing up and sticking with the policy side of things. So when you think about the coming quarters, supposed it takes a few months for the federal government to be put in place and have mandate that is put out, can you just broadly discuss what policies, if maintained, is good? And perhaps what policy changes, if proposed, would be good for you and you're watching them for?

[Jeremy Baines, executive]

Yes. I think there's -- on the federal front, anything that tightens the CI around the federal credits is supportive of our business because we generate a significant amount of those credits as well. Depending on what the ruling is from the trade outcome, I do think that sort of an equal and offsetting federal similar type tax credit that -- to mimic the U.S. one to make for fair trade would be a good policy outcome from the RD side. And things around SAF could be supportive of our SAF project as well.

[Operator]

And there are no further questions at this time. I will now turn the call back over to our CEO of Tidewater, Mr. Jeremy Baines. Please continue.

[Jeremy Baines, executive]

Thanks, everyone, for joining us on the call today. Please do not hesitate to reach out to me or the team if you have any questions. Thank you.

[Operator]

Ladies and gentlemen, this concludes your call for today. We thank you for your participation, and ask that you do please disconnect. Have a great day.