Tidewater Renewables Ltd. (LCFS) Earnings Call Transcript

Good afternoon, everyone, and thanks for joining the first quarter 2026 financial results conference call for Tidewater Midstream and Infrastructure and Tidewater Renewables. Right now, every line is in listen-only mode. After the presentation, we'll hold a question-and-answer session. Should anyone have trouble hearing the conference, just press *0 at any point to reach an operator for assistance. I'll now hand the call to Ian Quartly, the CFO. Please go ahead.

Thanks, Jennie, and welcome everybody to the joint conference call covering first quarter 2026 results for both Tidewater Midstream and Infrastructure Limited and Tidewater Renewables Limited. With me today is our CEO, Jeremy Baines, and he'll give an update on how we performed operationally, the regulatory tailwinds, and the favorable market conditions we've seen as the year got underway. After that, I'll walk through the financial results and the details behind the increased 2026 adjusted EBITDA guidance, and then we'll open up the line for your questions. This morning, Tidewater Midstream and Tidewater Renewables both reported results for the first quarter ended March 31st, 2026. Copies of the news releases, financial statements, and MD&As can be accessed on SEDAR+ or on the respective company websites. Before we begin, I'd like to point out that today's call is being recorded for the benefit of individual shareholders, the media, and other interested parties who may want to review it at a later time. The recorded call will be available through Cision. Certain comments made today may be forward-looking in nature and are based on Tidewater's current expectations, judgments, and projections. Any forward-looking statements we express today are subject to risks and uncertainties, which may cause actual results to differ from expectations.

Also, a portion of what we're providing relates to non-GAAP measures. For additional detail on these forward-looking statements, the non-GAAP measures, and risk factors, please refer to the company's various financial reports, which you can find on the company's websites and on SEDAR+. I'll now hand the call over to Jeremy.

Thanks, Ian, and I appreciate all of you for being with us today. I'll begin with Tidewater Renewables, where I'll go over regulatory, commercial, and operational developments. Starting on the regulatory side, in the first quarter of 2026, Tidewater Renewables obtained conditional approval from Natural Resources Canada for the biofuel production incentive program. That approval verified that funding through the incentive program would be accessible consistent with the HDRD complex's full annual production capacity. We anticipate that the contribution agreement will be signed in the second quarter of 2026, and after signing, Tidewater Renewables will get the cash incentive payments on a quarterly basis in arrears, which delivers a steady lift to our cash flow and liquidity. South of the border, on March 27th, the U.S. Environmental Protection Agency finalized record-high renewable volume obligations for 2026 and 2027. Importantly, the EPA finalized record levels of biofuels, which must be blended into the conventional fuel supply, along with a 70% reallocation of 2023 through 2025 exempted volumes from smaller refineries to large obligated parties. Beyond that, the EPA confirmed that the RIN multiplier for renewable diesel would stay at 1.7 times for 2026. This multi-year mandate represents a significant catalyst for Tidewater Renewables' realized margins. To put that in context, these regulatory changes, together with broader market and geopolitical shifts, have pushed market prices for D4 RINs up from less than U.S.

From $1.20 per RIN at the start of 2026, D4 RIN pricing climbed past U.S. $2 per RIN in May. Because D4 RIN prices are higher, Tidewater Renewables can sell renewable diesel — including all environmental attributes — at a higher price under the U.S. import parity offtake contracts we've signed. Turning to commercial activities, we've concentrated on locking in longer-term offtake contracts for renewable diesel, inclusive of all environmental attributes, so the business gains multi-year cash flow certainty. For 2026, more than 90% of forecasted renewable diesel production is currently committed under offtake agreements, and for each of 2027 and 2028, over 40% of forecasted production is likewise under contract. Most of these contracted offtakes use U.S. import pricing benchmarks, which ties pricing to prevailing U.S. market values at the time the renewable diesel is produced and sold. That contracting approach also helps the corporation by speeding up cash flows relative to selling British Columbia LCFS credits and Canadian CFR credits stripped from the renewable diesel. On operations, the HDRD complex averaged daily throughput of 2,837 barrels per day, a 95% utilization rate for the quarter. That speaks to our team's ability to run the facility at close to nameplate capacity right through the winter months, producing high-quality, low cloud point renewable diesel that satisfies the rigorous Canadian cold weather specifications.

Turning now to Tidewater Midstream, and beginning with the Prince George Refinery: throughput there came in at an average of 10,784 barrels per day during the first quarter, which represents a 9% gain versus the comparable stretch of 2025. After the Middle East conflict broke out in late February, conditions in refined product markets improved markedly. With the Strait of Hormuz blocked and worldwide refining capacity cut back because of feedstock limitations and infrastructure damage, a supply shock has hit the globe. Consequently, the Prince George crack spread came to an average of $102 per barrel across the first quarter of 2026, which is $8 per barrel above where it stood in the fourth quarter of 2025. Through April and the early portion of May, that Prince George crack spread has kept getting stronger, and that underpins the higher 2026 consolidated adjusted EBITDA guidance we issued this morning. As we look toward the second quarter, I'd like to point out that in April 2026 we carried out a scheduled maintenance outage at the Prince George Refinery successfully. It was a proactive and planned undertaking, intended to keep throughput at the refinery high until the next scheduled full refinery turnaround, presently slated for the spring of 2028.

In anticipation of that shutdown, we made a point of accumulating conventional diesel stocks through the back half of Q1. That way, we kept serving our core customers seamlessly even while the refinery was down. Operations at the refinery are now back to normal, and throughput has climbed steadily, returning to its design capacity of 12,000 barrels per day. Because of this, we are in a strong position to take advantage of today's robust refined product margins. At the BRC gas processing plant, average throughput reached 114 million cubic feet a day in the first quarter of 2026, which is 12% higher than the prior quarter. That gain came mainly from the long-term agreements we signed in January of this year — they locked in an existing 65 million cubic feet a day of natural gas for the facility for another five-year term, and also brought in an extra 10 million cubic feet per day of volume from dedicated producer locations. Utilization at the BRC fractionation facility was also high, at 90% in the first quarter, thanks to higher producer inlet volumes. The Ram River gas plant is still temporarily curtailed, though sulfur handling operations keep running. We view prevailing market prices as highly economic for sour gas producers, and we intend to restart the gas plant once production in the area comes back.

As we look forward, our attention stays fixed on achieving operational excellence, improving margins, and carrying out strategic initiatives—among them: getting the most utilization possible from the PGR and HDRD complex, reinforcing commercial platforms and offtakes, moving our SAF project forward while handling capital prudently, advancing sales of non-core assets to unlock liquidity, and continuing to push for a fair regulatory environment. Those building blocks, in our view, put us in position for revenue growth as well as margin expansion during 2026. With that, I'll hand things over to Ian for the financial review.

Thanks, Jeremy. Tidewater Renewables got off to a robust start this year, producing adjusted EBITDA of $24.1 million. Driving that result was the HDRD complex operating close to nameplate capacity, which let us take advantage of strengthening market prices through our offtake contracts indexed to U.S. import pricing benchmarks. Beyond that, Tidewater Renewables booked $6.1 million of anticipated funding under the biofuel production incentive, giving the gross margin an added boost. At Tidewater Midstream, consolidated adjusted EBITDA came in at $49.7 million, a substantial improvement over 2025. The main drivers there were wider crack spreads at the Prince George Refinery along with the higher adjusted EBITDA from the HDRD complex that I just walked through. Turning to the balance sheet, as we previously disclosed alongside the 2025 year-end results, we took a major step toward bolstering Tidewater's financial position by completing an amendment to the Tidewater Midstream senior credit facility on March 23rd, 2026. Through those amendments, the maturity on the $175 million operating and syndicated credit facilities moved out from September 2026 to August 2027. The amendments additionally permit Tidewater Midstream to calculate deconsolidated financial covenants on an annualized basis across Q1 to Q3 2026, capturing the step change in financial results we forecast for 2026.

On that note, I'm happy to say that Tidewater Midstream and Tidewater Renewables both met every financial covenant in full when the first quarter ended, and each company expects to stay within those covenants for all of 2026. Alongside this morning's first quarter financial results release, we also announced that our full-year 2026 adjusted EBITDA guidance has been raised. Consolidated adjusted EBITDA is now projected at $190 million to $210 million. For Tidewater Renewables, adjusted EBITDA guidance rose to $100 million to $110 million. That adjusted EBITDA guidance takes into account the proceeds anticipated from the biofuel production incentive, assuming full-year 2026 renewable diesel output of 150 million to 170 million liters at an incentive rate of 16 cents per liter. What mainly drives the higher adjusted EBITDA guidance is the better pricing environment stemming from the continuing geopolitical conflict in the Middle East and the U.S. biofuels regulatory changes that Jeremy mentioned earlier. Forecasted 2026 capital expenditures are unchanged, at $2 million to $3 million for Tidewater Renewables and $20 million to $25 million for Tidewater Consolidated. This capital guidance covers both growth and maintenance capital and is net of the BC LCFS credits we expect to receive under executed initiative agreements for capital projects.

Keeping our capital program disciplined means the free cash flow we generate will mainly go toward paying down debt. That wraps up our prepared remarks. Jennie, would you please open the line for questions?

Yes, thank you. Ladies and gentlemen, the question-and-answer portion of the call starts now. If you'd like to pose a question, on your touchtone phone please press the * key and then the 1. To withdraw your request, press the * key followed by the 2. Those of you on a speakerphone should lift the handset before pressing any keys. To repeat, that's *1 if you want to ask a question. Our first question comes from Rob Hope of Scotiabank. Your line is now open.

Hi everybody, and nice work on the raised guidance. I just have one question about that guidance. Could you give us a bit more detail, at least for the conventional side, on the levels where you've placed hedges in terms of pricing, and also the pricing range that the 2026 guidance assumes?

Hi Rob, thanks for that question. We've hedged roughly 50% of the Prince George crack spread for the rest of 2026. As we said earlier, we built those hedges in stages over the course of March, based on the market conditions prevailing at the time. Crack spreads are strong across the remainder of the year, and that's contributing to the margin. Pricing has gone up over the last few months, and yes, we anticipate some strong results at the refinery through 2026.

Okay, thanks for that. Maybe we can turn to Ram River now. Sulfur prices have risen, liquids are also stronger, while AECO remains weak. Could you perhaps lay out what conversations you're currently having with producers? As we head into spring, is a return to service in winter 2027 more probable than not, or do you think it could come back during the summer months?

Appreciate that, Rob. I hear you on AECO being low, but with sulfur prices where they are, sour gas producers around there find it highly worthwhile to keep producing. Quite a few discussions and negotiations are underway right now. Our view is that there's a strong likelihood the plant comes online during the second half of the year. We keep moving forward well. We don't yet have anything ready to announce, though we're very near that point.