Chemtrade Logistics Income Fund (TSX:CHE.UN) Q1 2026 Earnings Call

0:00 Good morning, ladies and gentlemen, and welcome to Camp Trade Logistics Income Fund first quarter 2026 Q&A portion of the conference call. At this time, all lines are in listen-only mode. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would now like to turn the conference call over to Rohit Bhardwaj, Chief Financial Officer. Go ahead.

0:29 Thanks, Operator. Thank you for joining the Q&A session of our first quarter 2026 results call. Our press release, financial statements, presentation, and prepared remarks have been posted on our investor relations website at www.campaigetradistics.com. Before we proceed, 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 security regulators and available on SEDARplus.com.

1:23 One of the non-IFRS measures referred to today is adjusted EBITDA, which is EBITDA modified to exclude certain non-cash items that have unrealized foreign exchange major 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 up the line for questions. Thank you. Operator? Ladies and gentlemen, we'll now begin the question and answer session. If you'd like to ask a question, just press star 1 on your telephone keypad. If you would like to withdraw your question, just press the pound key. Again, if you would like to ask a question, just press star 1 on your telephone keypad.

2:11 And correction, if you'd like to withdraw, just press star, then the number 2. Your first question comes from Hamir Patel from CIBC. Please go ahead.

2:23 Hi. Good morning. Scott, with respect to the North Van Council decision, can you speak more to what the company has done to address the Council's earlier concerns that may position you now, hopefully for a more favorable outcome when it's next considered by Council? Good morning, Hamir. So what I'll say is that we have been having active negotiations with the district, and we did modify our earlier proposal. That proposal will be coming out in public, but it's not out in the public yet.

3:10 But here's the... One of the issues that we addressed in there was related to the mayor's comments at the last vote in April where he discussed one of his major concerns was that this approval would have given Chemtrade the operating rights in perpetuity to produce liquid chlorine. So that was one of the major points that I think the mayor and the district had. And so that's been a point that we have negotiated. The details of that will be coming out, let's say, in about two weeks when the district makes that public. And so for right now, I don't want to comment on specifically what What's in there, but it's related to perpetuity, to having the right to produce liquid chlorine in perpetuity.

4:10 Right. Okay. Fair enough. I just want to ask about, you know, with the new water solutions segment breakdown, how much EBITDA... for water solutions is embedded in that full year $485 to $525 million guidance. And just given the rolling contract renewals there, and I know there's a reference to the next four to six quarters as a timeframe for capturing the higher sulfur input costs, what would sort of steady state EBITDA for water solutions look like once those costs are passed on?

4:49 So I think two things to say there. One is there is seasonality in the water business. Typically, Q3, the middle quarters are the strongest. Generally speaking, Q3 is the strongest. We have, you know, so in our guidance range, we have taken into account the higher sulfur levels. and another input cost like aluminum that has been factored in. And we have made some assumptions as to some moderation in sulfur as the year progresses. Right now, sulfur that are close to is not at an all-time high. So we have made some assumptions around it. I don't even want to get into specifics around what a run rate water EBITDA will be. But as we go through the year, we get a better sense of what the EBITDA is there.

5:46 Okay, great. Thanks. That's all I had. I'll turn it over. Thank you. Your next question comes from Nelson Ng from RBC Capital Market. Go ahead.

5:59 Great, thanks. Rohit, you talked about the elevator prices of sulfur and sulfuric acid. Can you just walk us through some of the kind of puts and takes related to that in your two segments, water and ASP? I presume it benefits your, or we've seen the benefits to your asset business. Um, yes. Sorry, go ahead. Yeah. Can you just talk about the sensitivity? Like I know that, uh, sulfur prices increase like particularly, uh, after the, the Iran conflict, but can you just talk about P1 versus what you're seeing in Q2?

6:40 Yeah. So firstly, uh, It's very difficult to give a precise sensitivity because there are many other factors that come into play. As a general statement, the ASP segment does have a slight benefit from higher sulfur. On the water side, it really depends on the volatility. So if it spikes up very quickly, then it's hard for us to pass that through in real time. We try and do it, but there's a bit of a lag. But keeping in mind that when it does moderate, then you make that profit on the back end. So over a cycle, you definitely come out okay and maybe a little bit ahead. In terms of where sulfur is today, so if you look at sulfur historically, there have been in the last 15 years a couple of spikes in sulfur.

7:28 Generally, those are very short-lived. They tend to be about two quarters, and then it starts to come off rapidly. This time, it's a little different because even pre-war, sulfur was starting to go up. And our initial thought was that it would come down pretty quickly. But then with the war and the fact that about 20% of the world's sulfur comes to the state of Hormuz, This is persisting at a higher level than would be typical for software. The industry experts are expecting that there will be some moderation in the back half of the year that it's coming down. Still above historic levels. We think it's going to take a bit longer because of this. This is a unique disruption that hasn't been experienced before. So it will probably stay, even though it will be off the peaks, we expect that and so will the industry experts.

8:14 It will still be quite a bit higher than historic levels.

8:19 Okay, got it. Thanks for the color. And then just in terms of capital allocation, you have about, I think, $25 million or so of your 2028 convertible debt outstanding. Can you just remind us whether you have the option of cleaning that up and calling the debt later this year?

8:38 Sure. So the hard call is only the last year, which would be 2027 July. There is a soft call provision. If you're trading a foot 20 trading days at 125% of the spike price or higher. Spike price is $12.85. So if you do the math on that, if you're trading above $16, you can call it for 20 trading days, you'd have the right to call them. And that can be done, they can be redeemed after June 30th this year if that condition is met. Recognizing that the most likely outcome in that scenario would be a conversion because Rationally, people shouldn't tender at par when it's trading at a – that debenture is trading at 140 right now. So anyway, so yeah, short answer is we stay at these current price levels. We will have the ability to call those in short order.

9:38 I think it's also fair to say that our strategic priority has been to unwind our convertible debentures. That's been an initiative for us, and so we plan to continue to keep that as an initiative. Great. Thank you both. I'll leave it there. Thank you. Your next question comes from Steve Hansen from Raymond James. Please go ahead. Hi, team. Thanks for the time. This is Robert for Steve. Just hoping to ask a question here on the UltraPure side. Just wanted to see if we could get some more color on the Cairo, Ohio ramp going and on what timeline we should kind of expect operations to be at full ramp rates there.

10:24 Thanks very much. Yeah. Hey, Robert. Good morning. So we're very happy with how Cairo, the Cairo line, let's say, is progressing today. We have shared, and I can share with you now, that we'll be selling to two of the fabs, two major fabs this year, so we're very excited. Very happy with that. And work is continuing to go on with other two as well. So we'll be selling this year, and that's into advanced node. Now the other material, we continue to sell into lower grade applications, but we built that plant really to achieve the quality for the advanced node. And so when I talk about how we've got qualified, that is for advance note. So we'll be filling up that line over the next, I'll just say, couple of years.

11:34 But I think we'll see pretty rapid pickup here over the next 12 months. Okay, great. Thanks for the color. And just wanted to flip to chlorine quickly. You mentioned that chlorine demand has improved here, sounds like for seasonal reasons. Just wondering if you could provide a bit more color here on some of the factors driving this improvement overall. And then should we expect prices to kind of remain stable here for the balance of 2026? Yes. So with chlorine, two things going on. We're going into We're going into the seasonally higher demand period for chlorine. So in the summer, so there's more water treatment as snowfall and rain over the winter melts. There's seasonally more demand.

12:22 Also, people are preparing pools, and all of that goes into water treatment. chlorine so that's part of it which is which is normal the other part is that due to the Middle East crisis Middle East crisis there is where there's an increased demand for PVC in the US and there's there's we've seen prices for PVC jump up It looks like the U.S. is beginning to see exports of PVC going over to Asia, going over to other regions. And so that's creating a pull for chlorine, particularly in the U.S.

13:08 And so that pull for chlorine is added to the seasonal demand for chlorine.

13:14 So just keep in mind one thing. If you look at our guidance assumptions, what we said is that in 2026, We expect our MECU net max, which is the combination of, you know, chlorine, HCL, and phosphate, to be $195 lower than last year. If you look at our assumption for Northeast Asia, which is a good guide to, you know, how we price our business, that's only down by $20 U.S. year over year. So you see that big disconnect between the $195 and the $20 U.S. That is coming from HCL and chlorine. And we give you a rough idea. For example, in Q1, that represented 70% of the railroad decline.

14:00 So our guidance does assume a weaker touring rate field for this year versus last year. Okay, great. Thanks for the color. I'll pass the line here. Your next question comes from Joel Jackson from BMO Capital Markets. Please go ahead. Hi, good morning. It's Evan on for Joel. Thanks for your time. I just wanted to ask on your caustic price assumption. You guys used the CMA forecast for the year, and obviously no one knows the award rate and et cetera and how this could be affected, but do you have a house view on if the caustic forecast from CMA are reasonable or conservative?

14:47 Well, it is. Yeah, the experts. Yeah, they are the experts. And so a couple things that I'll share about our view and CMA's view. What I can share, number one, is there is a lot of volatility that we and the world are seeing in caustic soda prices. So in Q1 of this year, what we all saw was that Northeast Asia was had an average price of about $350 per ton. That was about $100 below our assumption for the year. So that was obviously not a good thing. As the war progressed, we saw caustic soda prices in Asia jump $200 a ton. So it jumped up to $550.

15:40 And it looked like that they may stay there for a while. And so it looked like that may stay there for a while. But as this is playing out, China has increased, it looks like, their coal-based PVC production, of which caustic is a byproduct for that. So for a period of time, they've ramped up that. And there have been... deals done back at the $350 level, which was a surprise and a shock, I think, to a lot of people. In addition to that, the Korean government has stepped in with subsidies.

16:27 We understand. I understand CMA talks about this as well. The Korean government has put in subsidies to support They're PVC producers in the coral alkali industry because they, in particular Korea and Taiwan, are experiencing difficulties in getting natural gas coming from the Middle East. So they're really strained, and the Korean government in particular is helping them. So the bottom line is there's volatility there. a lot of volatility. And so we've chosen to use the CMA Outlook. That's the best information that we can get. So it's going to be very tricky to be accurate, I think, on a quarterly basis.

17:13 But I think the important message is that CMA and Argus both call out that by 2028, Their view is that caustic soda should be $200 or so higher than what it is, and so roughly $200 higher than what it is right now. And the timing of that's going to be, well, it'll be almost impossible to get the timing of that right, but that's the direction that it's headed in their view.

17:47 If you look at this year, our guidance assumptions for Northeast Asia index is about $415 U.S. And keeping in mind that when we price our classic, we have a roughly a quarter lag. So what that suggests when you look at that is that we are expecting the remainder of the year to be in line with where it is today, which is a roughly $450 mark. And so we're not expecting that the upswing which the industry experts are calling for in the longer run is just as much of a difficulty We need to predict over a very short period of time. So I think we are being quite realistic in kind of outlook for this year. There may be some upside, but again, we'll have to see how it plays out.

18:38 Okay, thanks so much for the color. Just on one more thing. So would you mind talking about the magnitude of increase you saw in cost of quarterly pricing in Q2? I guess you kind of just touched on it versus Q1. And then... what this might look like if spot prices holds okay so uh a couple things so uh as rohit called out um we well for for the in quarter two as we work with our customers to agree on prices for q2 that's based on the the average for caustic from the prior quarter now so in in q2 That would be based on what we saw, the higher prices in Q1, which the average would have been above $500. However, we had the turnaround in Q2.

19:28 So really, that had an impact for us of over four weeks of production. So you'll have to factor that in, the turnaround. We have used the CMA outlook as we look at the second half of this year.

19:44 And so we have an average... About 450, which is today's... So when you look at the spot price, there's typically a range that's given. And so we are looking at the midpoint. Currently, the range is as high as 550 on the high end, but I think closer to 390 on the lower end. So we are in the... Typically, we go close to the middle range. And we do have negotiations with customers, and so some a little bit above, some a little bit below, but it's safe to use the midpoint. So we are currently assuming that that midpoint remains in place. And just one comment on Q1, while prices spiked towards the end of the quarter, the first couple of months were pre-war, unaffected. So that did bring down the average for Q1 a little bit as well, so...

20:40 Your next question comes from Sherry Ho from Desjardins Capital Markets. Go ahead.

20:50 Thanks. Good morning. Thanks for taking my questions. The first one, you made a comment that while you kept your guidance, it's been a bit more challenging to forecast. I was just wondering if you can maybe elaborate whether that you're specifically addressing maybe one or two different chemicals, or is it just overall just wanted to get some update on that comment if possible? Yeah, sure. So this is Scott. The biggest, let's say the most difficult thing to forecast for us right now is caustic soda. And so we are relying on on the experts, the market experts for that. But by far, that would create, let's say, not volatility, but that's the hardest thing.

21:42 That could have the biggest impact on us. That's number one. As we move to the asset business, what I can share is that demand for a region is strong. Pricing is strong, so that's good. Our merchant acid business typically does better. When sulfur prices run up, we're able to recover and expand our margins in merchant acid. So we see that. We feel good about that. At some point, we do see sulfur prices. We think sulfur prices are going to drop dramatically. drop down, getting the timing of that because that's going to be a challenge. So Regen is very strong. Merchant will do better than average because of the run-up in sulfur prices.

22:34 Water, on the other hand, we have the acquisition in Polytech, and so that's going smoothly. We have our organic growth projects. Those are going well. So we feel good about the water business, but water is dealing with the significant increase in sulfur and also a significant increase in aluminum. So those two together Our team are passing on those price increases to our customers. And again, as we've said many times before, our prices are annual contracts. So they come in and come out every month. So our team's very actively involved with repricing materials to the customer. But that's a bit of a headwind between sulfur and aluminum.

23:21 And keep in mind on the ASP segment, we had said that the back half of 2025 did have some unusual benefits because some of our competitors had supply disruptions, so we were able to participate in the spot market and make higher margins. So when you're looking at the whole year, just keep that in mind as well, though. But that does provide a bit of an offset to the social benefits you're getting. Well, the other thing is that, as we've said, just reiterating, what's different this year is we had our turnaround in North Vancouver. The turnaround is over. It was a very successful turnaround. And then we also have upcoming turnarounds in our asset business in the second half of this year.

24:09 So we've called that out as well.

24:13 Okay, great. And then my second question, maybe you can elaborate on your capital allocation priorities. You've been very busy on your NCIB front. Also, maybe just giving us an update on your M&A pipeline. I know there's a preference for water solutions opportunities. Polytech, I think, was done at very attractive multiples, but I know there was an existing relationship there. Any other candidates like those within your pipeline? Well, so in terms of our capital allocation, we will – We continue to allocate capital, obviously, towards our distribution. We have been active in the NCIB. We have shared a long-term target in terms of bringing our unit count down to roughly 100 million units, and we're on that path as long as we believe that our units are undervalued, and we believe that's currently the case. So we'll continue with our NCIB.

25:13 We'll continue with our organic growth expenditures. We have been averaging roughly $50 million the last several years. That money previously went to our ultra-pure upgrades and expansions. Those are largely complete, and so for the past year or two, our focus has been more on the water side. Our plan is to continue to invest in organic growth opportunities, primarily water, and there could be some additional expenditures in ultra-pure, but those would be the two main focus segments. We had two acquisitions last year. Those acquisitions are going well, and then this year what we're doing is getting those integrated into our system, running well, and then our goal is to bring our leverage back down.

26:10 And then as our leverage comes down, then we will – look at another acquisition. We've shared that I don't see anything on the horizon this year that would be significant, but we could be looking at, could be, the next year or two in 27 or 28, but tied to bringing our leverage down. And so we do have a pipeline of opportunities that we're looking at pretty much all in water. And again, we'd like the water space. We see water becoming an even larger part of our portfolio, and that'll be enabled by our organic growth expenditures as well as some M&A.

26:55 And keep in mind that we've set our Target for leverage is two and a half times or lower. So at this stage, we're around that level. We have also said that for something strategic, we could let that get into the higher twos, so long as we have a view to bringing it down quickly after something. So next year, there should be some room. But we also said, as we're undervalued, we have no intention of raising equity. So that does put a bit of a governor on the size of something we can do. But at this stage, we have the flexibility to focus on the pillars that Scott mentioned, the distribution, the organic growth, and NCIP.

27:42 Great. Okay. Thank you very much. Thanks for those comments. Your next question comes from Zachary Evershed from National Bank Capital Markets. Please go ahead.

27:54 Good morning, everyone. Thanks for taking my questions. With the raw material cost pressures within the water segment, how are you balancing the pricing conversations in Polytech or with Thatcher customers? Given it's still the first year of integration, you might not want to rock the boat too much in terms of customer retention with the change in ownership. Well, I would say in the chemical industry, that's So I think that's a routine thing as your raw materials go up. I think regardless of who the owner of the business is, you have to pass those through. So yes, we have made those acquisitions.

28:40 Customers are new to us in those cases, but the relationships, even though we are new to Polytech, those relationships have been in place for many years. And the customers of Polytech and Thatcher understand that as raw materials go up, those have to be passed through. Those customers are also buying from other companies, so they're seeing those same exact increases. So you are right. We are spending more time, and the ChemTrade team, is spending plenty of time with the Polytech team. Our teams are fully integrated. But we have – ChemTrade, I think, has done a very good job, in my opinion and our opinion, with our pricing strategies and being effective with that with our customers. And so we're also – working with the Polytech team on that, but strengthening those relationships and focused on growth as well as, as, as, as pricing.

29:57 Gotcha. Thanks. And then with the turnaround at the van plant and North van plant successfully completed, what was the EBITDA impact there for the four week shutdown?

30:07 So we, we, We've given the guidance in the past that it's in that $15 million range. Now, some of it does depend on what's happening in caustic markets, et cetera. So that's probably still a good ballpark number to use. We will give you more insight when we release our Q2, but at this stage, you can use that as a rough guide. Perfect. Thank you very much. I'll turn it over. Don't know further questions. I'll turn the call back over to Scott. Well, I'd like to thank everyone for their time this morning. I will remind everyone that we have our annual shareholder meeting starting at 10 a.m. at the TSX Center. And so anyone that is available, we would invite you to come join us for that. Thank you for your time this morning.

30:58 I'd like to also say thanks to our ChemTrade employees and have a good rest of the day. Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect.