Chemtrade Logistics Income Fund (CHEUN) Earnings Call Transcript & Summary

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chemtrade Logistics Income Fund Second Quarter 2022 Results Conference Call. [Operator Instructions] Thank you. Rohit Bhardwaj, Chief Financial Officer, you may begin your conference.

Thanks, Rob. Good morning, everyone, and thank you for attending our second quarter earnings conference call. Joining me today on the call is Scott Rook, our President and Chief Executive Officer. Please note that this call has an accompanying presentation available on our website. Second quarter of 2022 was another strong quarter for Chemtrade. We continue to capitalize on favorable market conditions across most of our product portfolio. The operational initiatives that we have undertaken in recent years are helping drive our performance. We are also enthusiastic about our organic growth projects, which we feel bode well for the future. Beginning today's call, I will first walk you through our second quarter results and the drivers of our strong performance. I will then highlight the latest increase to our guidance for this year that we announced yesterday. Following that, Scott will outline the ongoing positive market dynamics that we are seeing across our business. Scott will also provide an update on our exciting organic growth projects. We will then conclude by highlighting several aspects that we believe make Chemtrade an attractive long-term investment, including our defensive positioning for a potential economic downturn. Following our prepared remarks, we will open the call for analyst Q&A. Before proceeding, I would like to remind you that our presentation contains certain forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties, and actual results may differ materially. Further information identifying risks, uncertainties and assumptions and additional information on certain non-IFRS and other financial measures referred during this call can be found in the disclosure documents filed by Chemtrade with the securities, regulatory authorities available at sedar.com. One of the measures that we will refer to in this call is adjusted EBITDA, which is EBITDA modified to exclude only noncash items but an unrealized foreign exchange gains and losses. For simplicity, although our accompanying presentation will refer to adjusted EBITDA, we will just refer to it as EBITDA in our remarks as opposed to adjusted EBITDA. Non-IFRS and other financial measures are fully defined in our MD&A. Starting with our consolidated results for the second quarter of '22, we delivered strong year-over-year improvement across our key financial metrics. This included a 32% increase in revenue, a 25% increase in EBITDA and a 22% increase in distributable cash. Notably, this growth was realized despite the sale of our Specialty Chemicals business in Q4 '21, which contributed $4.5 million of EBITDA in Q2 of last year. In addition, we had $21 million of headwinds from the combined impact of the biannual maintenance turnaround of our North Vancouver chlor-alkali plant this quarter and costs relating to the decision to close our Beauharnois, Quebec sodium chlorate facility. The second quarter revenue and EBITDA in both business segments increased compared to Q2 of '21. This increase reflects the improved pricing and demand environment for many of our key products, strong operational execution across the business and our ongoing focus on productivity and efficiency. Go to outline, chemical fundamentals in particular have been very strong and have had a significant contribution to our performance. Our payout ratio and leverage metrics also improved during the quarter. This reflects the growth in EBITDA, strong cash generation and the numerous proactive steps we have taken to strengthen our financial position. Our $0.05 per month distribution remains well covered with a payout ratio of 60% this quarter and 47% on a trailing 12-month basis. And our leverage ratio ending the quarter was 3.2%, down from 6.1% a year ago. Moving to our segmental performance. In the Sulfur and Water Chemicals or SWC segment, we generated revenue of $269.5 million during the second quarter, an increase of $55.7 million over the same quarter of '21. EBITDA for the quarter was $54.8 million, an increase of $0.8 million compared to the second quarter of '21. Adjusting for the Specialty Chem business sold in Q4 of '21, EBITDA increased by $5.3 million relative to the last period. The increase in SWC revenue is attributed to higher selling prices that we achieved for merchant sulfuric acid, Regen acid and our Water Solutions products. The higher selling prices for our sulfur-based products reflect strong end market demand, tight industry supply and higher sulfur prices. The sulfuric acid product lines, we have been able to pass through the higher sulfur costs as they are realized. However, in our water chemicals business that relies mainly on annual 1-year fixed price contracts, our ability to pass through cost increases is typically lagged by about 6 months on average. We've done a good job of keeping pace with the increase over the last year, but there was another significant increase for sulfur during the second quarter. Given the magnitude of the increase in the second quarter, we have taken a more proactive approach to negotiating with our customers to pass through those elevated raw material costs. So we think we will be able to catch up faster than we had in previous quarters. We're also starting to see sulfur cost decline in the third quarter. And as costs come down in the water business, we typically see a benefit. Transitioning to our Electrochemicals or EC segment. This segment had a really strong quarter. Revenue of $176.9 million was up $53.4 million year-over-year and EBITDA of $50.7 million was up $27 million over-year-over-year. This was despite the negative impact of approximately $21 million related to the biannual maintenance turnaround at the North Vancouver plant in the second quarter and costs related to the planned closure of our Beauharnois Quebec facility. The higher revenue and EBITDA are attributed to higher selling prices that we achieved for each of our 3 chlor-alkali products, caustic soda, chlorine and hydrochloric acid. Now realized MECU netbacks during Q2 were up approximately $1,000 year-over-year with 55% of the increase coming from stronger cost of soda pricing and the remaining from higher chlorine prices and, to a lesser extent, higher hydrochloric acid pricing. We continue to benefit from strong chlor-alkali market dynamics with chlorine and hydrochloric acid demand, enabling us to run our North Vancouver facility at high operating rates and capitalize on the strong caustic soda pricing in the market. As I previously mentioned, this quarter, we completed the maintenance turnaround at our North Vancouver facility. I'm happy to say the turnaround was well executed, but it did result in the plant being offset for about 3 weeks, resulting in an approximately $17 million impact to EBITDA. Despite the impact of the turnaround, we still delivered exceptional growth in the EC segment this quarter. Our Brazil business also delivered strong results on a year-over-year basis during the second quarter as demand from our key customers was higher and in general, market fundamentals were strong. Sodium chlorate volumes were lower compared to a year ago, with ongoing softness related to decreased end-use demand for office paper. We are working to mitigate the impact of these declines as contracts come up to renewal. We have also outlined the steps we have taken to improve our cost structure in sodium chlorate, which Scott will reiterate shortly. Overall, it has been a truly extraordinary quarter for EC segment, and we believe that favorable market conditions will continue over the medium to long term. Turning to corporate costs. Our corporate costs for the second quarter of '22 were $23.8 million, $11.2 million higher than the same period of '21. The main driver of the year-over-year increase was threefold. First, our incentive and LTIP costs were higher by $4.6 million. Second, we recognized a foreign exchange loss of $400,000 in this quarter compared to a gain of $4.1 million in Q2 last year. And finally, we recognized a gain of $1 million for government support programs in Q2 of last year. Our operating costs are relatively consistent with the prior period, reflecting our ongoing focus on efficiency to try and offset the impact of higher inflation. Moving to our balance sheet. As I previously mentioned, our leverage ratios and liquidity continue to improve. This is due to the higher EBITDA from both our business segments as well as the initiatives we undertook to strengthen our balance sheet. This includes the recent sale of an idled sulfuric acid plant in Augusta, Georgia during the second quarter for cash proceeds of USD 10 million. At the end of the second quarter, we had approximately USD 248 million available on our senior credit facility, and we have no debt maturities until May '24. Recently amended certain terms of our credit facility to accommodate one of our growth projects, on which Scott will elaborate later. The steps we have taken to strengthen our balance sheet have been effective, and we intend to take additional steps to further improve our leverage and liquidity and to provide us with the flexibility to pursue economically attractive growth projects. We are continuing to evaluate the potential sale and leaseback of our North Vancouver real estate, but we do not have any further updates for you in that process at this time. Turning to our guidance. Yesterday, we announced a substantial increase to our '22 EBITDA guidance. We are now expecting EBITDA of $360 million to $380 million this year versus our prior guidance of $300 million to $330 million. This increase to our guidance reflects the strong results we delivered in the first half of the year and the ongoing strength in market fundamentals for most of our key products, including the chlor-alkali segments. We now forecast that the average Northeast Asia spot price of caustic soda, which should be a key determinant for our realized pricing in '22 will be USD 640 per ton. This is USD 350 per ton higher than in '21 and USD 65 per ton higher than our previous estimate. Recall that every USD 50 per ton change in pricing translates into approximately $10 million of incremental EBITDA for Chemtrade. The remainder of our key guidance assumptions are set out in the slide deck in our MD&A. Our revised EBITDA guidance indicates a record year for Chemtrade. The midpoint of '22 adjusted EBITDA guidance is $370 million, $121.5 million improvement over '21 after adjusting for the sale of the Specialty Chem business, which was roughly $14.2 million last year and the NATO Lawsuit settlement last year of roughly $17.7 million. This is also despite the combined $21 million impact of the North Vancouver turnaround and closure of the Quebec facility. And for some additional context, year-to-date, we generated $189.6 million in EBITDA compared to $120.6 million in '21, which reflects a $69 million improvement in the first half of the year. It validates sometimes difficult strategic decisions we have taken across the business in recent years. It also illustrates our focus on maximizing the value of our existing assets through our productivity and reliability initiatives. In addition, I would be remiss if I did not mention our employees across Chemtrade who continue to drive our company forward. Without them, none of these results would be possible. I will now hand this call over to Scott, who will walk you through some of the reasons why we believe Chemtrade's future remains bright.

Thank you, Rohit, and good morning, everyone. Thank you for joining us on today's call. I'm looking forward to discussing the continued strong momentum that we are delivering across our business lines and the initiatives that we are undertaking to ensure this momentum continues for years to come. This includes a continued emphasis on reliability and productivity across our facilities to increase our production rates, enhance safety, limit plant downtime and maximize margins. Starting with our sulfur products. Market fundamentals remain strong for all 3 forms of sulfuric acid that trade produces. Regen acid used in the production of gasoline has rebounded from 2022, supported by relatively high refinery utilization rates. We, however, continue to closely monitor potential impacts on driving activity from high gasoline prices. While this could have an impact on refinery utilization rates and therefore, demand for our regen acid, we would expect any impact to be very minor in the range of low single-digit percentages decline from current strong demand levels. For ultra-pure acid, we continue to be able to sell as much as we can produce. Demand remains very strong from the semiconductor industry. In the short term, we've been focusing on better reliability and increasing our production at our current facilities to capture the strong demand. And we now have 2 projects underway to add capacity over the next few years. These projects in Cairo, Ohio and Arizona will ensure we maintain our leadership position in North America for ultra-pure acid. I will elaborate more on these growth projects shortly. The supply-demand balance in the merchant acid market remains tight. Merchant acid has widespread industrial uses. As a result, pricing and demand continued to be strong during the second quarter. Moving on to our water treatment chemicals. Elevated sulfur prices remained a headwind in the second quarter with raw material prices still roughly double where they were last year. However, we have had success in the proactive negotiations we have handled with our customers to pass through these price increases. It will still take time to fully pass through these higher input costs, but we are making good strides in this area, and we are confident that we'll be past this headwind in short order. In the third quarter, we are also able to -- we're also seeing sulfur prices decline from the recent peaks. So if sulfur continues to decline, that should provide a nice lift to the water chemicals business. Demand for water chemicals continues to grow steadily, and we continue to position Chemtrade for this growing demand through various small organic growth projects, especially for PAC and ACH where demand is growing roughly 5% annually. Turning to the outlook for our EC segment. I'm pleased to say that we expect this to be a record year for this segment and by a pretty significant margin. Based on second quarter Northeast Asia spot prices for caustic soda, we also expect the third quarter to be a record quarter for this business. Caustic soda prices have come down from the recent highs in the second quarter, but remained elevated relative to the pricing we've seen in recent years. Northeast Asia spot index pricing in July was USD 585 per metric ton compared to USD 350 per metric ton 1 year ago. Industry consultants expect near-term pricing of caustic soda to remain supported by strong demand for aluminum and dislocations in the supply of aluminum in Eastern Europe, stemming from the Russia-Ukraine war. We maintain a bullish outlook for caustic soda, supported by continued demand growth for aluminum as well as for lithium-ion batteries and limited new capacity announced. One would expect that higher chlor-alkali pricing would be required before additional capacity is added to fulfill anticipated global demand growth in the coming years. Given Chemtrade's exposure of caustic soda prices, we stand to benefit should prices remain elevated, as is evident in our results this quarter. We also continued to generate robust margins in chlorine, taking advantage of current market tightness. We have seen strong pricing and demand for chlorine following the industry capacity rationalizations that took place last year and with industrial and construction demand having rebounded. It remains our expectation that pricing for chlorine will remain strong through the balance of this year and into 2023. The hydrochloric acid market is slowly becoming more favorable in terms of both volume and price. This is resulting from higher fracking activity in North America as seen in higher rig counts, which are now above the 5-year average. North American rig count was 950 in July 2022 compared to 606 on average in 2021 and 522 in 2020. We expect this trend to continue to improve as geopolitical conflicts drive increased exports of LNG from North America to Europe, resulting in higher fracking activity. As a reminder, caustic soda and chlorine are co-products and that we can upgrade chlorine to hydrochloric acid. Thus, strong fundamentals for chlorine and hydrochloric acid allow us to fully capture the benefits of higher caustic soda pricing. Recently, fundamentals for all 3 of these chemicals have been strong, resulting in -- and record results for our chlor-alkali business. Finally, moving on to sodium chlorate. Market demand for chlorate remains subdued, owing to softness in demand for office paper. However, with a broader return to the office, we have begun to see a modest pickup in demand. We are also optimistic that industry operating rates are poised to improve as a result of 2 factors: first, capacity rationalizations that are taking place in the industry; and second, with the ongoing conflict in Ukraine, there is potential for increased export volumes from North America to Europe, where electricity prices are highly elevated. Recall that on last quarter's conference call, we announced that we will be closing our Beauharnois facility by the end of this year, which will lead to an improved cost structure for our sodium chlorate business moving forward. Despite the current challenges facing this business, it remains a strong earnings and cash flow generator for Chemtrade. With that, I will now discuss 2 ultra-pure acid projects that we have announced to drive incremental organic growth in the coming years and generate additional value for our unitholders. As you have heard us discuss in past quarters, the largest single opportunity for organic growth that we see over the medium term is capturing the significant anticipated growth for ultra-pure acid. Demand for ultra-pure acid is expected to significantly increase over the next 5 years as the U.S. industry is committed to becoming self-reliant for microchip manufacturing. Several large semiconductor manufacturers have announced plans to increase semiconductor production in North America. A few weeks ago, we announced an exciting joint arrangement with Kanto Group to capture more of this market demand. This growth arrangement, which will be called KPCT Advanced Chemicals brings together Kanto Group's technology, which is currently being used by the leading semiconductor producers in Asia with Chemtrade's North America industry experience. The new plant will be built in Casa Grande, Arizona. Chemtrade will own 49% of the joint arrangement and the preliminary cost of the plant is expected to be between USD 175 million and USD 250 million. Chemtrade expects to achieve an IRR on this investment of at least 20%. We are continuing to make progress on our expansion project in Cairo, Ohio and remain on schedule for a 2024 startup. We now expect the capital cost for this project to be closer to USD 50 million. The combined total capacity for the 2 plants will be 130,000 metric tons of ultra-pure acid once both projects are completed. Our hydrogen project at Prince George, sodium chloride facility also continues to progress well and remains on schedule for a 2023 start-up. And we are continuing to evaluate options for a hydrogen project at our Brandon, Manitoba sodium Cora facility, which produces a larger volume of byproduct hydrogen. Hydrogen is expected to be a significant energy source and a low-carbon future. Chemtrade already produces the most desired form of hydrogen in green hydrogen, given our manufacturing process use hydroelectric power. In addition to ultra-pure and hydrogen, we continue to undertake a few smaller organic growth projects across our water business. This includes several projects to expand capacity of our higher growth PAC and ACH products, which see demand growth of more than 5% a year. These projects remain on track to be completed this year and will contribute to results next year. With the recent concerns expressed by economists of an economic slowdown or recession, I want to take this opportunity to review our defensive attributes. We continue to see robust market conditions across our business at this time and maintain a positive outlook. But if a downturn were to occur, we believe we are well positioned defensively. In the SWC segment, our water treatment chemicals are nondiscretionary products. We believe this segment's earnings would remain largely unaffected by a recession. And if raw materials decline, earnings should improve. Similarly, we would expect our Regen and ultra-pure acid business to see a limited impact from an economic downturn. Regen demand is tied to refinery utilization rates, which typically remain stable in recessions as the number of miles driven tends to remain steady. Ultra-pure demand, meanwhile, is expected to be supported over the coming years by expansions in the semiconductor industry. The primary area of our SWC segment, where we would expect to see an impact in recession is merchant sulfuric acid, which is widely used in many industries and is thus affected by a general recession. However, as previously mentioned, the North American industry is currently tight because of global supply dislocations, which could dampen the impact of any economic weakness. In our EC segment, the impact on chlor-alkali from a recession would be determined by the relative demand difference between co-products, caustic soda and chlorine. If a recession were to impact chlorines demand by a greater extent than caustic, we could, in fact, see a benefit in this business and vice versa. If caustic demand falls more than chlorine, there would be a negative impact. Finally, as discussed, demand for sodium chlorate is already subdued, and we would, therefore, expect any impact on demand for chlorate in a recession from current levels to be limited. As a result of these factors, while we are by no means immune to recessions, we believe we are well positioned should one occur. Finally, I wanted to highlight that Chemtrade published our latest sustainability report during the second quarter, and I would encourage you all to visit our website to review the document. We believe that the steps we are taking across the spectrum of environmental, social and governance will position Chemtrade as an ESG leader in the chemical industry. We look forward to providing increased visibility into our ESG performance moving forward. To conclude, we believe that we continue to demonstrate the power of our business and our strategy, one that's characterized by a unique and compelling combination of stability and growth. Chemtrade is a well-diversified business that is well positioned for current and future growth. However, never losing side what is important to our investors. We also remain focused on prudent capital allocation, balancing investing in growth with maintaining a strengthened balance sheet and continuing to return capital to unitholders through our distribution. We will also continue to take the necessary steps to transform Chemtrade into an ESG leader as well. With that, we will now open the call for Q&A, and Rohit and I would be happy to address any questions you may have at this time.

[Operator Instructions] Your first question comes from the line of Ben Isaacson from Scotiabank.

Congrats on the great progress that we're seeing. So I just have 2 questions. First question is on the distribution. So payout ratio is now sub 50% on an LTM basis. Outlook looks pretty good. Is there the possibility that you'll start to revisit that distribution? And not go back to where you were, but maybe give some increases each year going forward and just kind of reset expectations with the market in terms of that distribution growth?

So yes, I'll answer that. I would say that our distribution policy is set by our Board, but we would be evaluating options such as using the excess cash that we generate. We could increase our distributions to shareholders or if we find that we have good organic growth projects, we could use that money to continue to build our pipeline of growth projects. And so we will evaluate those options as we go forward quarter-by-quarter and make the best decisions that we think are in the long-term interest of shareholders.

That's great. And then just final question for me. Sulfur prices have come down really hard really quickly. I was hoping you could just kind of walk us through in the SW segment. What are the different moving pieces in terms of that sulfur price crash and how it impacts that part of the business in terms of the lag and the magnitude for various business lines within the SC segment?

Okay. So on the merchant pure acid side, the industry is well positioned to absorb ups and downs in sulfur and done in a pretty real-time basis. So we don't expect as sulfur coming down for any -- maybe we won't get any margin expansion just like we didn't take any margin contraction when sulfur went up. There may be some marginal benefits, but nothing significant. The water business is where we have lags and on average, it takes 6 months or so to catch up. So as raw materials come down, we actually stand to benefit because typically, when costs are coming down, producers are not rushing to drop pricing. So if you look historically, 18 months to 2 years after raw materials have stabilized and come down, margins tend to stay elevated and then things change. So I think we are still playing catch-up in Q2 because, as you know, Q2 spiked, but with Q3 also coming down and potentially going down further, we hope to see margin expansions into '23 and maybe a bit into '24 as well.

And then just on top of that, how is your inventory in terms of sulfur? I mean, do you have a lot of high-cost sulfur to work through?

No. we tend not to carry a lot of inventory. In fact, sulfur has been -- was very tight. So if anything, we've had very little inventory.

And then just final point for me is you said that you're being more proactive in terms of trying to renegotiate those contracts. But does the sulfur price crush make that mute now? I mean, you're going in with a bit of a weaker hands. You were talking about higher sulfur costs, but now that's kind of gone away. So how does that impact your proactive approach?

Yes. So I would -- so, well, our customers and our teams know that we have been playing catch-up with sulfur for well over, let's say, for 18 months or so. And our teams will pass through -- they'll pass through price increases, sulfur jumps up again. And we will -- that has repeated itself numerous time with these very high sulfur prices. So there are increases that I would say that the market is expecting, and those will continue to go up. Now our team will continue to emphasize those. But the point, I think, that we want to make is that in the water business going back historically, has tended to do pretty well once sulfur prices start to fall off. And so we expect that. That's I think that's a reasonable outlook and we're going to push hard to ensure that happens.

I can just add one thing, just one comment. Even though sulfur has come down in Q3, it's still elevated compared to where it was from historic levels. So I think there'll still be -- we're still putting pressure to increase prices because even at this level, it's higher than it was at the start of the year, for example. So there are some contracts that are still need to get higher pricing.

Our next question comes from the line of Nelson Ng from RBC Capital Markets.

Congrats on a strong quarter. My first question relates to the ultra-pure acid. So can you remind us what your market share is today? And with the Cairo expansion and the JV greenfield development with Kanto, like are you expected to grow your market share over the next few years? Or will demand be growing so much that your market share might be flat or even decline?

So our market share, what we have shared that the market share in terms of production in North America has been 80% or a little bit higher for Chemtrade over the past year. The market has been growing rapidly. And so although we have been targeting to increase our production over the past 18 months through increases, let's say, in operating better, we have not added -- we have not added capacity. And so with the capacity expansions, we have Cairo, Ohio, and we have the joint venture. So as the market has grown, the market has turned to imports. But longer -- well, what I'll say is we will target and we are targeting to continue to be the market leader. And so, that's about as specific as I'll get. We will be the market leader for ultra-pure, bringing on the capacity that we set 130,000 tons, that will meet most of the market growth demands, we think, for the next 2 to 3 years.

Okay. So in terms of the $130,000, what percentage increase of production, does that mean for you guys?

Well, we have not shared our production capacity. We have not shared specific capacity. So therefore, I won't comment on a percent increase. We'll just say that -- we'll continue to say about the new capacity we're bringing on is 130,000 tons.

Okay. And that meets the demand growth for the next 2 or 3 years, is your view? okay.

Yes, that's our view.

Okay. Great. And then just moving on to the EC segment. So obviously, caustic prices are kind of -- they were quite high. It looks like it peaked in Q2 and it's come down a bit in Q3. Given the lag in realized pricing, would you expect the EC segment's EBITDA to also kind of peak in Q3 this year?

Well, so keeping in mind Q2, we had the turnaround for North Vancouver, which we won't have in Q3. But at this stage, yes, we think that we -- based on kind of forecast, the current levels of pricing will probably be around for a while. But you're right, I think we don't expect at this stage that it goes back to the $650 plus pricing that we saw that was used for Q3.

Okay. And then just one last question. Sorry, Scott, you were going to say something?

Yes. No, I was just going to say, with that in mind, though, to answer your question, Q3 would be reasonable to say that that would be a record quarter, as far as this year.

Okay. And then just one last question on taxes. So your corporate structure has been relatively tax efficient. Do you see any impact from Biden's 15% corporate minimum tax? Or are you guys not large enough to -- for that tax to be applicable?

Yes. No, we don't see that having an impact on us. I mean we are subject to the BEAT Tax, but that's not as significant.

Your next question comes from the line of Steve Hansen from Raymond James.

I'm just curious if you could perhaps elaborate on your decision to take on a partner with the new ultra-pure project. It does strike me as a reasonable way to balance the capital outlay, but just curious as to how that partner development process evolved and where it came from and why take on a partner when you've got such a strong position already?

So the rationale for taking on a partner is this. I would say that the smallest chip production in the world takes place in Asia. And so therefore, the smaller the chip, the higher the purity of the acid it requires. And so with the smallest chips being produced in Asia, that also corresponds, we think, with the highest quality ultra-pure acid produced in the world. As those -- and so if you look at chip production in North America over the past 10 to 15 years, the size of the chip and the technology of the chip was -- of the chips is a little more older technology than what takes place in Asia. And so with the expansions that are coming to the U.S., the expansions in the fabs are going to be looking for smaller and smaller and smaller chips. And so I think the fabs were -- I think the fabs were interested in, let's say, a new technology. And as we looked at that, we felt that there was a lot of strength, let's say, in partnering with someone in Asia that say that has a long history of supplying some of the chip producers in Asia. And then it's putting together their, let's say, downstream technology and then our presence in North America, our infrastructure, our knowledge of the market and all that. And then from a balance sheet perspective as well, I think there were a lot of advantages for us on a balance sheet.

Okay. And if I'm just thinking back to the North Van facility again, I know the turnaround has just been completed and it sounds like went to plan. Can you just remind us whether or not there's going to be any additional requirements for turnarounds in the next year? And how should we think about that into the estimates?

I will say that turnaround is once every 2 years and so we don't -- next one will be scheduled for 2024.

Okay. And then just lastly, is just as you think about the leverage profile, which continues to improve here, down to 3.2x, I think, on the period. Where do you view that as sort of normalizing out in the target range may perhaps Rohit, just as you think about balancing some of your capital outlays with even the distribution question earlier on the call?

Yes. So I think our target is to be below 3x. But we also balance that in any period with what organic growth opportunity we have. As Scott mentioned, this expansion is a 20% return on capital, which is very attractive. So we do balance leverage versus opportunities on growth. But I think the key discretionary item was already brought up, is distribution, which, as Scott said, it's a Board decision. But I don't think there'll be any rush to increase that because we have -- Chemtrade's changing into organic growth business, and there's a lot of attractive organic growth. And we are mindful that we've got to keep on our leverage too, and that was one of the things that Scott mentioned on one of the reasons we took on a partner as well so. But the target -- our long-term target is to be below 3x.

Your next question comes from the line of Endri Leno from National Bank.

Congrats on the good quarter. The first question I wanted to ask is just a little bit on the ultrapure. Scott, you mentioned that with the added capacity, you'll be able to meet the demand for the next 2 or 3 years. Does that imply that as you're meeting demand, the market will continue to be tight as it is now? And would there be any interest or anything you're hearing that you or perhaps, or other players that might increase in capacity?

So we have not heard of -- we have not heard anyone adding capacity in North America. We are keeping a very close eye on that. But what I will say is that capacity is very tight right now, and we can sell every pound, every pinching that we can produce. And we are very focused on improving our reliability and our throughput at our plants so that we can meet the demand of our customers.

I'll just add one thing to that. You may have noticed that in our revised guidance, our maintenance CapEx number was increased. And one of the key reasons for that is to ensure we have even better reliability in the ultrapure business, because as Scott said, we can sell every pound there is and more, so.

That would have been my other question, Rohit, so good answer as well. For the ultrapure, and I don't know to the extent obviously that you can share, has all of the increased capacity being placed? Or are you still going through for those negotiations?

Yes. We won't comment on that at this time.