Tidewater Renewables Ltd

TSX:LCFS

Earnings Call Transcript

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Tidewater Renewables 2024 Q4 and Year-End Financial Results Conference Call. [Operator Instructions].

This call is being recorded on Thursday, March 27, 2025. And I would now like to turn the conference over to Mr. Ian Quartly, Chief Financial Officer. Thank you. Please go ahead.

[Ian Quartly, executive]

Thank you, , and welcome, everyone, to Tidewater Renewables Fourth Quarter 2024 Results Conference Call. On the call with me today is our Chairman and CEO, Jeremy Baines, who will provide an update on operations and transactions during the quarter. I will follow with our financial results, and then we will 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 bodies and they want to review the call at a later time. The recorded call will be available through Cision.

This morning, we reported results for the fourth quarter and year ended December 31, 2024. A copy of our news release, financial statements, MDN AIS may be accessed on CEDAR+ or on our website. 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, transference and projections.

Forward-looking statements we express today are subject to risks and uncertainties which can 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 on 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 Q4 results conference call today. We are excited to share with you updates on the actions Tidewater Renewables has taken to improve the corporation's financial position and outlook.

To begin, I'll address our ongoing regulatory engagement efforts. Tidewater Renewables has been actively engaged in discussions with both the government of Canada and the government of British Columbia to explore appropriate adjustments to the low carbon fuel regulations and policy environment that will provide for a fair and level playing field for renewable diesel produced in Canada. We have raised concerns about the competitive disadvantage based by Canadian producers due to the ability of U.S. renewable diesel producers to export their products into British Columbia. This unfair advantage arises from U.S. subsidies at the point of production and the generation of emission credits at the point of sale in Canada, creating an unlevel playing field.

We are encouraged by recent developments in British Columbia. On February 27, 2025, the government of British Columbia announced amendments to the low carbon fuel. These changes include increasing the renewable fuel content requirement for diesel from 4% to 8% for the 2025 compliance periods and mandating the renewable fuel content be produced in Canada effective April 1, 2025. We view these amendments as a positive first step toward addressing the unfair trade environment and strengthening the Canadian biofuel sector. We believe these changes will help level the playing field, allowing us to compete as the lowest cost delivered renewable diesel producer in the British Columbia market and support Tidewater renewables and the broader Canadian renewable data history.

We will continue to collaborate closely with both the government of Canada and the government of British Columbia to ensure the right policies are in place to support growth and fair competition in the Canadian renewable fuels market. Next, I'll provide an update on our trade action. As part of our efforts to ensure competition in the renewable diesel market, Tidewater Renewables filed a trade remedy complaint with Canada Border Services at the end of 2024. This complaint addresses what we believe to be the unfair subsidization and pricing of U.S. renewable diesel imports, which are negatively impacting the competitiveness of our Canadian operations.

On March 6, 2025, Canada Border Services formally initiated an investigation into our allegations, confirming the validity of our concerns. We are confident in the likelihood of success in this process. Based on our analysis and legal advice, we expect that starting in June 2025, duties of attend an $0.80 per liter would be imposed on U.S. imports of renewable diesel to counteract the unfair trade practices. Final duties would be imposed from September 2025 and will be in place for 5 years. which will provide much needed stability for renewable decent market and our operations. Moving on to our fourth quarter operational performance. I am pleased to report that our HDRD complex continued to perform exceptionally well.

For Q4 2024, we achieved average daily throughput of 2,677 barrels per day. For perspective, when I started in January of 2024, the facility was struggling to run at approximately 2/3 capacity or approximately 2,000 barrels a day. The team has since done an admirable job in working out the commissioning challenges and being able to run the plant at capacity with industry appropriate reliability. On a full year basis, the HDRD complex achieved daily throughput of 2,643 barrels per day, which was above our full year target of 2,550 barrels per day and reflects the low rate of production we saw in Q1. Since the start of commercial operations in November 2023, Tidewater Renewables has produced and sold over 170 million dates of renewable diesel into the local British Columbia market.

This robust performance is a testament to the operational efficiency and effectiveness of our team, and it reflects our strong commitment to safety and environmental stewardship. Furthermore, during Q4, we were pleased to receive the final grant of LCFS credits from the BC government in recognition of achieving the 12-month operational milestone at the HDRD complex. In another positive development, Subsequent to year-end, on January 10, 2025, we completed the sale of Tidewater Renewables interest in the Rimrock Renewables partnership for total proceeds of $7.8 million. This was a great outcome as the partnership's proposed renewable gas projects and have cost tens of millions of dollars to complete positive cash flow and expected returns were below our standards and years away.

As we look forward to the rest of the year, our actions are starting to bear fruit. Demand domestically produce renewable diesel as well as pricing is showing signs of improvement alongside the associated emissions credits market. We believe that with the new Canadian renewable content mandate, LCFS regulation changes and a favorable outcome on the trade complaint, we are well positioned to see an improvement in profitability and a return to results more in line with what we had observed in the first half of the year at the HDRD facility. Looking forward, the recently enacted renewable content changes, a positive outcome on the trade action and the ongoing tightening carbon intensity mandate in BC are expected to create a more balanced and profitable market for renewable diesel.

In summary, we are pleased with the progress we've made on multiple fronts in the quarter and throughout the year, including regulatory engagement and positive regulation changes progress on the trade action and strong operational performance. These initiatives collectively position Tidewater renewables for long-term finances in the Canadian renewable diesel market. I'll now turn the call over to Ian, who will provide a more detailed review of our financial results for Q4 of 2024.

[Ian Quartly, executive]

Thanks, Jeremy. During the fourth quarter, Tidewater renewables drove an adjusted EBITDA of $6 million. This represents a decrease of 44% from the fourth quarter of 2023 and a 56% decrease from the third quarter of 2024. The decrease in adjusted EBITDA was primarily driven by the sale of EBITDA-generating assets to Tidewater during the third quarter of 2024. This transaction are positive in terms of reducing debt levels and interest costs. to a reduction in our EBITDA generating past. For the full year 2024, Tidewater Renewables generated adjusted EBITDA of $74.5 million, a 62% increase from 2023.

The increase was due to the first full year of operations on the HDRD complex, partially offset by the termination of take-or-pay contracts in connection with the Tidewater Midstream transaction and realized losses on the derivative contracts. Not for to year-end, on March 26, 2025, we took another significant step towards reinforcing our financial position by funding our credit facilities. Albeit availability to the first lien credit facility increased by $10 million to $40 million. The second lien tranche C facility was also increased by a corresponding $10 million. The amendments will supervise type with the option to pick the upcoming April interest payment a second lien tranche facility and have the $5 million balance added to the aggregate principal amount of the facility instead of making a cash payment. The maturity dates for both second lien tranche B facilities were extended from January 2026 to October 2027.

Finally, the financial covenants under both facilities have been waived for an additional two quarters out to March 31, 2026. Overall, the amendments to the credit facilities and the growing demand for renewable diesel and emissions credits as a result of the BC regulatory changes in the trade point and possibly impacted our coin financial virality. As such, the going concerns uncertainties that was disclosed in the third quarter financial statements has been removed from these financial statements. I'll now ask the operator to open the call for questions.

[Operator]

[Operator Instructions]. And your first question comes from the line of Maurice Choy from RBC Capital Markets.

[Maurice Choy, analyst]

Maybe just start off with the trade complaint here. the potential duties of $0.50 to $0.80 on per liter on U.S. imports. Is there a way to quantify that in terms of your EBITDA or put differently, suppose these things do come through, would you be in a position to provide the Street with EBITDA guidance for 2025 this year?

[Jeremy Baines, executive]

Yes. So thanks, Maurice, for the question. So that $0.50 to $0.80 per liter tariff really you need to translate that into the equivalent value of LCFS and CFR credits. Basically, over the years, it has priced itself in terms of import parity to U.S. markets, particularly the California market where they stack on the California LCFS and the RIN for value. It is very material. If you -- what level people were able to renewable diesel into the U.S. app last summer, call it, $1.60, $1.70 a liter. It is -- that would generate credit prices that were quite low.

LCFS equivalent of $200 out $100 CFR. That is significant. All of that would go to those prices. And basically, our view is where current California LCFS and D4 RINs are. And then if we get the $0.50 to $0.80 per liter tariff through the trade case, we will be back to levels that are very close to what we were in the first half of the year with a stack and CFR credit prices in that $600 kind of level.

[Maurice Choy, analyst]

I mean just a quick follow-up about the $0.50 to $0.80. Like I know that there's obviously a list of scenarios that could have emerged out of this. Where does the $0.50 to $0.80 land in terms of the potential scenarios that you envision in terms of duties.

[Jeremy Baines, executive]

Yes. It's -- I mean the $0.50 is pretty straightforward. That is a calculation-based subsidy that the U.S. producers get and the -- obviously, the unfair trade action that, that represents. The $0.80 is more related to the economic analysis that was part of our submission around actual dumping of products. It's right in line with what we think where it should be. And our view is it very much levels the playing field if we're successful there, and we'll allow for us to generate the types of cash flow that we expect from the facility forward.

[Maurice Choy, analyst]

And suppose this does come in June, as you mentioned, where the $0.50 to $0.80 are you possibly going to provide as guidance or likely based on all that certainty?

[Jeremy Baines, executive]

Yes. Right now, we're watching it, and we typically don't put guidance out until after our Q1 release. So we'll be making that decision as we go operationally. We expect to run at high utilization rates. Obviously, we're subject to diesel and credit prices. And I do think we have given the market enough information that you should be able to back into those.

[Maurice Choy, analyst]

Got it. And just to finish off with a question about going concern. The last Q3 results, you raised the potential that the company's ability to go and consume may be in jeopardy. A number of things were unsuccessful or regulatory changes don't emerge, how do you see that risk today?

[Jeremy Baines, executive]

Well, obviously, we think it is no longer there. We feel very good about the BC action, and we're already starting to see some good activity around diesel sales, renewable diesel sales and you have the associated emissions credits. We obviously feel very good about the increase in liquidity in the support of our lender, and we are cautiously optimistic, but based on our legal advice, we expect to be successful in the trade complaint. And we think with all of that, we have a strong positioned to be a leading renewable diesel provider and generate significant operability in the long term.

[Operator]

Your next question comes from the line of Robert Catellier from CIBC Capital Markets.

[Robert Catellier, analyst]

I just wanted to dig down a little bit on the some of the changes in the market. Specifically, your disclosures and comments referred to the changes in the low Carbon Fuels Act. It's a good first step in leveling in fair trade environment. What more do you need to see to ensure your financial stability and avoid compelling you to seek alternative strategies and to address liquidity.

[Jeremy Baines, executive]

Yes. I don't think there's anything we need to do more to address that front. Obviously, that change has put a significant underpinning demand for Canadian produced renewable diesel, which we are the only one in the market today. The liquidity support we received from our lender gives us along on that front. And we just think that the trade then being successful there are additive. And there's a few other things, obviously. We have the terrible forward purchase that was put on by former management that we're generating losses on our on that derivative in relation to our feedstock purchases. That is dropping off at the end of the year. And has been a significant drag on the company.

And so you put all of that together, we think we believe we're through the worst of it. We are appreciative of the BC government for supporting us as well. The federal government has continued to talk about support for renewable diesel. And so -- we think we're out of it to be -- to get you there, Rob, obviously, we would like the B.C. government to continue to monitor their LCFS regulations to ensure that the market stays in balance from a credit view.

[Robert Catellier, analyst]

Okay. And so what changes in market behavior have you observed since the Canada Border Service Agency initiated its investigation. And similar to that, what progress have you made or what visibility do you have on executing additional for credit sales at the levels that you need to ensure your ongoing liquidity.

[Jeremy Baines, executive]

Yes. So a few things on that front. Obviously, when you look at the total 4 billion-liter a year BC diesel market in 2024, about 1/3 of that market was renewable diesel and the vast majority of that came in from the U.S. And that's about the level that's needed to keep the market in balance for LCFS credit generation for the other conventional barrels that's needed to -- for them to stay in compliance. So with the -- by Canadian mandate that BC has implemented, we have seen significant outreach because we are one of the only ways to satisfy that right now. We also -- tradition last year, we were selling when I got here, diesel, renewable diesel just a straight up diesel in the diesel pool and selling credit separately. We will continue to do some of that.

But we have also with the Canadian content mandate, we are -- there's significant interest in buying what we call fully loaded barrels where the compliance obligations go with the barrels, and that's how we are moving our marketing program. So we are selling a diesel that includes the LCFS and the CFR credit that is related to that renewable barrel for people to be able to meet their compliance obligations. So that has had a significant uptick in then we have just -- we have one pretty solid customer last year. We have been diversifying that and adding a significant number of customers who are now aware that we have renewable diesel available and we can sell them barrel that's Canadian -- meets the Canadian renewable content mandate as well as provide them with the LCFS and CFR credits they need.

[Robert Catellier, analyst]

Okay. Last one for me. Obviously, it's a number of bad things to increase your available quite under your credit facility. But what's the impetus for that change?

[Jeremy Baines, executive]

Yes. I mean, like you say, you can never have too much liquidity. We have gone through the first quarter. We just wanted to make sure we had an appropriate amount of liquidity in the balance sheet to roll through it. Obviously, we started -- we communicated, we engaged with the government last year in, call it, July, we undertook the transaction in September with Tidewater Midstream to ensure our ability to reduce our debt and sell our compliance credits through the period. There's been a lot of political uncertainty, which I think has made it harder for the governments to react. So BC was in an election, and it took them a while. The federal government had been very supportive.

And obviously, with the probing of the Parliament, their ability to do things changed as well. And so with the announcement from BC that the regulation change on Canadian content would start April 1. That was a little bit later than we had hoped and envisioned. And with the trade case there was a bit of a few weeks delay versus where we wanted it to be. So just better to be safe and have enough liquidity. It's still -- with all of the tariff stuff that's going on. We have feedstock pricing that, hopefully, it's for us a positive with some of the trade implications given our position in buying Canadian canola. But between diesel price volatility and credit markets, it was just the right thing to do and make sure that we aren't too close to the line.

[Operator]

Thank you. There are no further questions at this time. I will now hand the call back to Mr. Jeremy Baines for any closing remarks.

[Jeremy Baines, executive]

Thanks, operator, and thanks, everyone, for joining us on the call today. Please don't hesitate to reach out to me or the team if you have any questions. Thank you.

[Operator]

Thank you. And this concludes today's call. Thank you for participating. You may all disconnect.