Chemtrade Logistics Income Fund (CHEUN) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Chemtrade Logistics Income Fund Q4 2025 question-and-answer session. This call is being recorded on Thursday, February 26, 2026. And I would now like to turn the conference over to Mr. Rohit Bhardwaj. Please go ahead.

Thank you, operator, and thank you for joining the Q&A session for Chemtrade's fourth quarter and full year 2025 results. I would like to remind everyone that today's call will contain certain forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties. Actual results may differ materially from those expressed or implied. Additional information regarding these risks, uncertainties and assumptions as well as information on certain non-IFRS and other financial measures referred to today, can be found in our disclosure documents filed with the securities regulators and available on sedarplus.com. One of the non-IFRS measures we will refer to today is adjusted EBITDA, which is EBITDA modified to exclude noncash items such as unrealized foreign exchange gains and losses. While our slide deck and disclosure documents refer to adjusted EBITDA, we may refer to it as EBITDA during the call. With that, we would now like to open the line up for your questions. Thank you. Operator?

[Operator Instructions] And your first question comes from the line of Nikolai Goroupitch from CIBC Capital Markets.

Given the margin pressures in high sulphur costs in the SWC segment, are you expecting some relief going forward as contracts renew? And do you think segment EBITDA margins can match 2025 levels of 23% this year?

Yes. So I'll give you some context for margin. So as you know, in 2025, we had cost escalations, particularly sulphur went up significantly. So what happened in that situation is we try and pass through the incremental cost to our customers, but it's hard to mark those costs up. So basically, we're trying to protect our EBITDA and passing costs, especially when they're so significant. So what the effect of that is it actually reduces the margin percentage because your revenue goes up and costs are dragged along with it. So that's -- generally in our business in SWC in particular, when costs are lower, the margin percentage tends to be higher and vice versa. So in 2026, we'll have to see how sulphur other costs progress. But that's kind of -- the general rule is when costs spike up, the margin percentage tends to come down, but we're protecting our EBITDA.

So -- and Rohit, just to add to that, I'll remind the listeners that in our water business, as we sell product to city municipalities across North America, we sell under -- we sell our product at fixed annual costs, and that's the way -- that's just the way this business operates and has operated for a long time. So we sell our products at fixed annual prices that are determined by bids. And so as when raw materials go up, we'll take the hit in the short-term on that, but it works vice versa as raw materials fall. We have contracts that roll in and out every month. So whenever sulphur has a significant increase, like what we've experienced over the last 6 months, it takes us a little time to work on that. So we'll -- our water business has margin pressure for a few months as we work through those price increases, but we make it up over time. On the counter to that, our merchant acid business does a better job and can react with more rapid price increases whenever sulphur goes up.

Okay. That makes sense. And with you guys breaking out the water chemicals into a separate segment going forward, help with some of our modeling? Are you able to provide some more detail on new segments revenue or EBITDA contribution or margins? And secondly, to confirm, 100% of the new segment is coming out of the SWC segment and nothing from EC, is that correct?

Yes. So yes, it's all coming from SWC. And at this stage, we are not ready to give you that breakout. But starting Q1, when we release Q1 in May, we will give you all the lines that you typically now see in our reporting [ segment ].

And your next question comes from the line of Joel Jackson from BMO Capital Markets.

I just wanted to play out the order of magnitude of what the year might look like. So is it like the last couple of years where sequentially Q1 EBITDA higher, sequentially Q2 EBITDA higher, sequentially Q3 EBITDA even higher than that, highest year, then a drop down seasonally in Q4? Is that order of magnitude the way to look at it?

So Q2 and Q3 tend to be our highest quarters. One thing to keep in mind this year is it's -- the North went through a turnaround here, which is in Q2. So Q2 will have the negative impact of those costs. And in terms of sequentially, Q1 and Q4 tend to be the weakest ones. And the other thing to keep in mind is a little bit depends on how caustic is evolving as well. So there's a seasonality impact is really Q3, Q4 being strong and the rest are specific factors that come into play in any given quarter around commodity pricing.

And Joel, to add to that, part of that is going to depend on what happens with sulphur. So that could play into it. And then obviously, as we're looking at caustic soda -- caustic soda, as we're in the first quarter, caustic soda is weaker than what we put in our assumptions. And so we are planning on the second half of the year being stronger for caustic than in the first half.

Okay. That's helpful. And then on corporate costs, what should they look like in '26 versus '25?

So in 2020 -- so firstly, the way we look at corporate costs are we look at in 2 buckets. One is kind of our -- what we call program expenses and the other is long-term incentive that fluctuates based on how the units are doing. 2025, as you know, unit appreciated considerably. So that resulted in higher LTIP costs. So once you normalize for all that, we expect 2026 corporate costs on the program line to be similar to 2025. And it's -- we've given you kind of our outlook for LTIP, but that really does change. And so you can -- we've given you that detailed assumption on LTIP between $22 million and $28 million, and we came in at around a little bit higher -- on the higher end of the range in 2025. So based on that, you can kind of model it out.

And your next question comes from the line of Zachary Evershed from National Bank Financial.

I was hoping you could give us some more detail on the timing and scope of the heavy maintenance plan for the SWC segment this year?

Look...

Yes. I can -- I'll do that. So we have -- on the SWC side, our Regen acid plants are tied in -- are tied into gasoline producers. And so we have -- we tend to take longer outages that are tied in with our customers. So we have one of our customers that does a significant turnaround every 5 years, but we have more heavy turnaround than what we've had the past couple of years. And so that's going -- it's not anything unusual compared to what we've done over the past 10 years, but our turnarounds can be a little bit lumpy. So our turnarounds in '26 are going to be a little heavier than what we saw over the last 2 years, but that's pretty much tied to the schedule for our significant customers.

Got you. And on the Tulsa facility upgrades, what drove the decision for those investments? And also if we tie in Cairo, how much of the future volume is currently spoken for?

Okay. So what came out of that is, so as we have -- as we work with our significant customers, the fabs and as we have brought up our Cairo facility, our fabs -- the fabs are also looking for redundancy in supply and trying to get as close to the quality at our Cairo facility as possible. So what drove it was requests from our major customers, the fabs, for redundancy of supply in between plants. So we've been operating the Tulsa facility for many, many years. And we took some of the learnings from Cairo and have made investments in Tulsa. And those investments, we're very pleased with the quality of what we've been able to achieve in Tulsa. So the Tulsa material is -- it's sampled. It's going through the approval process at the fabs, but that's really -- what drove it was request from the fabs for redundant supply, and we took some of the key learnings. Tulsa will not -- still Cairo will be our highest quality plant for sure, but we've made investments for Tulsa that we believe will meet advanced node quality. So we're pretty happy with the quality improvements there. And we're -- again, we're working closely with fabs and Alpha on approvals.

And then just circling back on that, how are those approval processes going for Cairo?

So far, so good. We have a lot of samples out. So we have a lot of samples out. I'll say the feedback we're getting is quite positive. Probably I won't share more other than the fact that we see -- we do see volume ramping up -- sales volume ramping up in the second half of the year. So that's kind of on plan. We're excited about that, and we'll have more details to come, but lots of samples out and starting sales in the second half.

[Operator Instructions] And your next question comes from the line of Gary Ho from Desjardins Capital Markets.

Sorry, I jumped on late if this was asked, but just on the caustic soda pricing environment, it feels like the spot pricing is a bit lower than the $450 you assumed in your guidance. I know there's some commentary in the prepared remarks. Can you maybe elaborate on your confidence level there will be a recovery in pricing in the back half of the year?

Gary, this is Scott. Rohit will add some color there, too. Yes, look, we're -- caustic soda is lower. It's lower than our assumptions, what we put in the assumptions. And the reason for that is tied to -- basically to some oversupply, particularly in China. It's tied to right now weaker production of aluminum -- alumina in Asia and also tied in with the overall weakness in pulp and paper. So -- but I think the -- what we're -- I hate to say what we're hoping for. I think that partly the reduced prices that we're seeing right now were based on some shipments right before Chinese New Year. And so I'm hopeful that after Chinese New Year, they'll come back and prices will rebound a bit. But I think it may take through second quarter to see a rebound, but we're planning on prices to return closer to our planned level in the second half of the year.

Yes. And we speak with the industry analysts, obviously, very frequently. And so the fundamentals that drive chlorine demand, which is mainly construction activity and caustic which is battery and alumina, the fundamentals have not changed. And so it's very difficult always in Q1 to get direction with the Chinese New Year holiday, which is pretty prolonged. But when we've talked to them, they believe -- they have a pretty strong belief that the trend that's there will resume and continue with cost stabilizing up over the next few years.

Okay. Great. And then second question, I listened in on the rezoning call from the Northland facility process earlier this week. I know it's early days, but assuming that gets approved, how does the growth CapEx look like there? At first glance, looking at some of the slides, it seems like it's a decent undertaking. Correct me if I'm wrong. There's additional chlorine railcar, loading, building. There's a removal of all existing liquid chlorine equipment amongst others. So how should we think about the magnitude of that? And I just want to make sure that the $35 million to $55 million of growth CapEx does not include any spend related to the Northland rezoning efforts?

So Gary, you are correct that the $35 million to $50 million of our growth CapEx does not assume any money associated with North Vancouver. So our plant is a -- we spend out of our typical $120 million to $130 million of sustenance capital, a fair amount of that goes to the North Vancouver plant. And over a 5, 6, 7-year period, I don't think there will be a noticeable difference in our sustenance capital budget tied to the safety upgrades. We will be -- as you call out, assuming that we -- that the rezoning is successful, we will be building a new chlorine loading facility. We'll be getting rid of liquid chlorine. But I think those projects tend -- will come close to being included in our standard sustenance CapEx budget for that site over a period of several years. So yes, again, I don't think it's going to be -- we're not expecting or planning on a noticeable increase in our sustenance CapEx budget tied to that.

Okay. Great. And maybe if I can sneak one more in. Rohit, just these releases were based on unaudited financials. I don't think that was the case last few years. Just wondering if you can provide a few comments on the reporting side of things?

Sure, sure. So when you have an audit versus a quarterly review, there's less leeway for auditors in completing their testing and their files. There's a lot more rigor to it. And every year, it's always a rush to get it all completed. And I think this year, the one additional factor which delayed it a little bit is the timing of the closing of Polytec. There's a lot more work that needs to be done when you do an acquisition in terms of -- yes, it's all -- it's nothing earth shattering, but there's just a lot of things you've got to do, including valuing their assets. And we only closed this deal towards the end of November, which didn't give much time and put a lot of pressure on the order that's already typically got pressure to it. But it's fairly innocuous. There's no -- the numbers -- we feel good about the numbers. This is why we released them, and we are hoping that the order will be included in short order, in which case then we file the whole -- all the full disclosure documents. But there's really no issues here. It's pretty [Audio Gap] innocuous.

And your next question comes from the line of Zachary Evershed from National Bank Financial.

When you guys refer to merchant and Regen acid pricing returning to historical ranges this year, is there a specific year or period that we should use as the baseline for comparison there?

So I think what -- so merchant, what happened was, as you mentioned, there were some disruptions with some of our competitors. And so we had some spot business that we picked up and got the higher pricing. And Regen was not as -- didn't have as much effect on it. But -- so I think Regen will be not much different than 2025. And merchant will be a bit lower. And again, it's hard to really point to a specific year because sulphur is such a big variable in pricing for merchant acid. But what you can assume is that the merchant acid will be off in '26 a little bit compared to '25. But again, we're talking at the margins here. We're not talking about anything too significant.

Yes. And what I'll say is that the -- I think it's important to continue to emphasize that our Regen business performance has been steadily improving, but -- not by leaps and bounds, but steadily improving year-over-year for several years. So -- and we expect that to continue. So very, very pleased with the performance there, tied in with our reliability, our production, tied in with the outlook for alkylate production in North America. So strong business, slight growth, but our business performance has been steadily improving step-by-step over the past many years. Merchant does tend to bounce around. And it's kind of hard to look at any -- certainly, last year was a very, very strong year for merchant. But as Rohit just said, that's tied to some of our competitors having outages. And with our reliability, we stepped in and supplied. But I think you probably go back and look at '23 and '24 at -- I think those were more normal years for merchant.

And it's good to remind you that about half of our volume in merchant acid is byproduct acid that we get from smelters. And the way we've structured those contracts is that the smelter or our supplier gets the lion's share of price less freight movements. So that business tends to be relatively stable. It's just the spot opportunities that came up that were unusual. So generally, the actual pricing is -- we are not as affected by pricing. We do take volume risk, but price tends to generally be passed through to our supplier.

Got you. And just one last one on the water chemical contracts in terms of sequencing through the year as you reprice with expiries, any particular quarters that we will see a larger volume or bigger clumps of renewals?

Well, not so much renewals, but there is seasonality there. So we do tend to get heavier in the summer months. So that's just normal seasonality, but not so much on the timing of contracts.

[Operator Instructions] And there are no further questions at this time. I will now hand the call back to Mr. Scott Rook for any closing remarks.

Well, thank you, operator. So I'd like to thank everyone for joining the call today. 2025 was a record year for Chemtrade. As I said in the remarks, I'd like to thank all of our employees for their hard work and great results in 2025. Thanks for attending the call today, and have a great day. Thank you.