Chemtrade Logistics Income Fund (TSX:CHE.UN) Q2 2025 Earnings Call

0:00 Good morning, ladies and gentlemen, and welcome to the ChemTrade Logistics Income Fund second quarter 2025 conference call. I would now like to turn the conference call over to Rohit Bhardwa, Chief Financial Officer. Please go ahead. Hello, and welcome to ChemTrade Logistics Income Fund's earning conference call and webcast for the second quarter of 2025. Thank you all for joining us and for your continued interest in ChemTrade. Joining me on today's call is ChemTrade's president and CEO, Scott Rook. Please note that this call has an accompanying slide deck, which we may reference during our prepared remarks and Q&A.

0:45 This slide desk is available on our website and chemtradelogistics.com. On today's call, we will first give a recap of our strong Q2 2025 financial results including business segment performance, financial position, and updated full-year 2025 guidance. I will hand the call over to Scott, who will discuss our intention to acquire Polytech to announce alongside our financial results, as well as comment on our outlook. We'll then open the call to analysts for Q&A. Before proceeding, note that this call will contain certain forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties.

1:31 Actual results may differ materially from expectations. Further information identifying risks, uncertainties, and assumptions, and additional information on certain non-IFRS and other financial measures referred to today can be found in the distorted documents filed by ChemTrade with the securities and editorial authority available on cedarplus.com. One of the measures that we will refer to in this call is adjusted EBITDA, which is EBITDA modified to exclude non-cash items such as unrealized foreign exchange gains and losses. While our slide deck and other disclosure documents refer to adjusted EBITDA, we will simply refer to it as EBITDA in our prepared remarks. Looking at our overall results, the second quarter of 2025 was a continuation of the strong performance we delivered in the first quarter with double-digit year-over-year growth across revenue, EBITDA, and distributable cash.

2:32 This is thanks in large part to the continued focus and execution of our dedicated employees, operational excellence, and our diversified product mix. Second quarter revenue increased by 11%, while EBITDA increased by 20%, due to strong results in the electrochemicals or EC segment. Relative to last year, Q2 results benefited from a weaker Canadian dollar and from the biennial turnaround at the North Vancouver non-alcoholic facility that occurred last year. Excluding the benefit of these two items, revenue and EBITDA increased by 7% and 2% respectively year over year. We continue to generate strong cash flows supporting the return of capital to unit holders during the quarter, to an attractive monthly distribution and unit repurchases under a normal cost issuer bid, or NCIB.

3:29 Distributable cash after maintenance CapEx increased by approximately 50%, primarily due to the higher EBITDA. And distributable cash after maintenance CapEx on a per unit basis increased by 54% year over year. We also announced our intention to implement a new NCIB subject to approval from regulatory authorities as an earlier NCIB had expired. Additionally, we also announced the acquisition of Polytech, a provider of water treatment solutions, which Scott will discuss in more detail. Turning now to the segment's performance, including the impact of foreign exchange, the sulfur and water chemical segment, or SWC, revenue grew by 12%, driven primarily by higher prices and volumes, for merchant and region assets and water products.

4:20 SWC's EBITDA declined by 3% after excluding the impact of foreign exchange. This was due to lower margins on assets due to higher input costs and maintenance turnaround spending that were partially offset by higher selling prices. Additionally, higher selling prices more than offset higher input costs in water and sulfur products. Despite the price for sulfur, a key raw material in the SW segment almost tripling relative to 2024, we have been successful in largely offsetting it to improve pricing for several products, as well as the risk-sharing mechanisms we have in place on merchant asset. A notable exception in the SW segment has been sodium nitride business, where we recognized a $15 million non-cash impairment due to the lifting of U.S. anti-dumping protection, resulting in a lower outlook for this product.

5:17 We do have some initiatives to lower the operating costs of this business, which we expect to implement over the next few quarters. Then to the EC segment, excluding the impacts of foreign exchange and the North Vancouver maintenance turnaround in the prior year, EC revenue was similar to Q2 2024, while EC EBITDA increased by 8% year-over-year. A significant contributor to the strong underlying performance was higher realized caustic soda pricing. At NECU, net backs in Q2 25 were up approximately $1.65 year-over-year, led by higher net backs for caustic, while higher net back for HCL offset lower net back for chlorine. We've also realized higher selling prices of sodium chlorate year-over-year, helping to mitigate the impact of lower chlorate volumes from the customer production curtailments that took place in 2024. We also benefited from lower operating costs due to the consolidation of production from two sites into one. As you might recall, following the curtailment of production from our Prince George chlorate plant's primary customer last year, we made the decision to seize sodium chlorate production in that facility.

6:31 We converted the Prince George plant into a sodium chlorate dissolving operation while maintaining the optionality to restart production as market conditions improved. This quarter, our team concluded that the cessation of chlorate production at Prince George would be permanent, resulting in a $28.4 million non-cash impairment. To fulfill local demand, we will continue to dissolve sodium chlorate at this facility sourced from our large, low-cost Brandon, Manitoba, chlorate plant. On balance, the EC segment continues to deliver positive results and we are pleased with its performance in the second quarter and the first half of 2025. We remain positive on the overall outlook for the EC segment.

7:17 Corporate costs in Q2 2025 were slightly higher year-over-year at $30.3 million versus $28.2 million in Q2 2024. Compared to the prior year period, we recorded higher short-term incentive compensation and legal costs partially offset by lower long-term incentive plan costs and foreign exchange. This performance was broadly in line with our expectations. Moving on to our capital allocation and financial position at the quarter end, we remained disciplined in our balanced approach. Chem trade generated $71.5 million of distributable cash in Q2, up 50% year over year. Our cash generation continues to be well above our monthly distributions of 5.75 cents per unit, with our second quarter payout ratio at a very sustainable 27%, or 33% on a trailing 12-month basis.

8:13 During Q2, we repurchased 2.2 million units and bought back a total of 11.2 million units overall under the NCIB that expired in June, just close to the maximum amount authorized. We anticipate that unit repurchases will remain an important portion of Chemtrade's capital allocation strategy and have filed a notice of intention with the TSX to implement a new NCIB for up to 10% of the unit's outstanding. We also continue to invest in growth during the quarter. This included $11 million of growth capex incurred during Q2, primarily directed to our water chemicals and the ultracure acid businesses. During the second quarter, we also closed the previously announced acquisition of the water chemical customers of Thatcher Group for U.S.

9:01 $30 million, representing an attractive acquisition multiple of approximately five times expected annual EBITDA. The integration is going well, and we are pleased with its progress to date. Alongside this continued investment in long-term strategic growth and return of capital to unit holders, Chemtrade continues to maintain a strong balance sheet and significant financial flexibility. We exited the quarter with net debt to EBITDA of two times, which is below our targeted threshold, and available liquidity of approximately $700 million. I would like to highlight a successful leverage reduction strategy that has provided ChemTrade with the financial flexibility to successfully pursue growth opportunities such as Polytech while continuing to maintain a conservative balance sheet and leverage within our target range.

9:53 We remain on a strong financial footing to continue providing incremental unit holder value. Therefore, in addition to announcing the Polytech acquisition, we're also announcing our intent to redeem our 6.5% convertible debentures due October 31st, 2026, using funds from our credit facilities. In addition to continue to simplify and optimize our capital structure, the redemption will result in lower interest costs. Looking now at our updated guidance for the full year, Although global trade tensions persist, the anticipated weakness in our business has not materialized. Consequently, we have raised our adjusted EBITDA guidance for 2025 to a range of $475 to $500 million.

10:39 This excludes earnings from Polytech as timing of closing the acquisition is uncertain and is also not expected to have a material impact on adjusted EBITDA for 2025. The updated guidance midpoint represents an approximately 10% increase to our initial guidance midpoint disclosed in early 2025, and positions 2025 as the second highest EBITDA increase history. Alongside EBITDA guidance, we have also updated several of our assumptions for the remainder of 2025. While you will find the full range of assumptions in our disclosure documents, we will highlight that for 2025, We now expect North American VCU sales volume of 177,000 versus 168.5,000 prior, a net year-over-year VCU net back increase of $60 versus $30 prior, and sodium chloride volumes of 270,000 tons versus 254.5,000 tons prior.

11:36 2025 is positioned to be another very strong year for chem trade. Based on our updated guidance and assumptions, we expect to exit the year with a full year midpoint payout ratio of approximately 38%. I will now hand the call over to Scott to provide additional details on the outlook for ChemTrade moving forward. Thank you, Rohit, and thank you to all of our listeners for joining this morning's call. As Rohit just finished highlighting, ChemTrade continues to deliver on our strategy. We're focused on consistently meeting challenges while acting on value-add opportunities across our business, and executing with strength and diligence. We unveiled ChemTrade's vision 2030 earlier this year, aiming to grow the mid-economic cycle EBITDA to between $550 and $600 million by 2030.

12:32 On a per-unit basis, we expect growth to be further supplemented by additional unit repurchases. Unit holder returns will also be bolstered by our attractive monthly distributions. We plan to drive this incremental growth across our three areas, continued improvements and underlying business performance, organic growth, and strategic and accretive acquisitions. We are happy to announce today that we are advancing this vision with the acquisition of Polytech for US $150 million in cash in a debt-free transaction. A presentation outlining the transaction has also been posted on the investor relations section of our website. The acquisition has been approved by our board of trustees and subject to regulatory approvals and customary closing conditions is expected to close in the fourth quarter. This transaction represents an exciting step in ChemTrade's ongoing strategy of expanding and enhancing our water treatment offerings in North America.

13:37 The transaction price implies a multiple of approximately six and a half times last 12 months adjusted EBITDA. ChemTrade will finance the acquisition by drawing on its credit facility. Although leverage will tick up slightly, pro forma, and immediately following closing, we expect it to remain close to our long-term target of 2.5 times, with a clear line of sight of returning to the midpoint during 2026, considering any working capital variations in the interim. Following the transaction, Chemtrade maintains plentiful liquidity of approximately Canadian $500 million of pro forma available credit facility and Canadian $20 million of cash at hand.

14:24 The acquisition of Polytech represents an important step in advancing Chemtrade's vision 2030 through financially prudent acquisitions that grow our distributable cash per share. We are committed to increasing unit holder returns by realizing EBITDA and DCPU growth of 5% to 10% per year and returning capital for our unit holders through buybacks and sustainable distributions. Polytech brings a unique solutions platform, which will complement ChemTrade's line of water solution products. We intend to expand this platform and to generate synergies by leveraging our North American-wide customer footprint and internal business systems. There are multiple opportunities for cross-selling of products, as well as for more efficient management of overall business systems.

15:16 Polytech is a provider of turnkey water treatment programs. It has a diverse range of customers, primarily in the food processing industry, but also several municipalities in the southern and southeastern United States. Polytech's products and services include systems that can automate certain aspects of water treatment. Polytech was founded over 30 years ago by Jack Harmon, who continues to run the business. Jack will stay actively involved in the business in the months following closing to ensure a smooth transition for employees and customers. The addition of Polytech products aimed at supporting the food processing industry and the municipal water treatment represent a market expansion for ChemTrade.

16:02 These new offerings will allow Chemtrade to expand the range of products and solutions available to our existing customers. From its home base and headquarters in North Carolina, over the last 30 years, Polytech has grown to well-established locations in Arkansas, Georgia, and Virginia. Chemtrade will accelerate this footprint in the surrounding states and across its customer base. Overall, Polytech sales are well diversified with a mix of top-tier food processing, industrial customers, and municipalities. Lastly, Polytech has been a customer of ChemTrade for several years, and we know the team well. We are thrilled to welcome all of the Polytech employees to ChemTrade and look forward to learning from their expertise and enjoying their continued commitment.

16:52 As an example, magnesium hydroxide, is a product used primarily to lower acidity in water and to isolate heavy metals. It's a more efficient way to treat water when compared to other alternatives, but requires specialized handling and storing. Polytech provides and tailors this service for customers through unique technology to meet the specific requirements of municipal customers. In closing, the companies complement each other with multiple opportunities for cross-selling, synergies, and growth as Polytech becomes an important contributor towards delivering on the external growth pillar of ChemTrade's Vision 2030. We can't talk about our business outlook without discussing tariffs.

17:37 We're continuing to actively monitor any tariff and trade developments that may have an impact on our business. However, to date, we have not seen any material direct impact from incremental tariffs, particularly as our products are compliant with the USMCA trade agreement. While the situation is fluid, we remain confident that we'll be able to manage or mitigate any impacts on our business in the future. We are positioned so we can supply the majority of our US-based customers through our US-based facilities, and we continue to take proactive steps to manage through potential risks. We are optimistic that we'll be able to work with our customers and suppliers to manage any additional costs should they come to bear.

18:22 In the face of evolving macroeconomic and geopolitical dynamics, we remain focused on managing profitability with discipline and sustaining the high level of service our customers have come to expect. Looking at the back half of 2025 and into 2026, we remain positive given the strength, and resilience of our SWC segment. Stable in-market demand, strategic risk management, and long-term growth drivers continue to position SWC as core to ChemTrade's broader corporate strategy and long-term value creation. In water chemicals, demand remains strong across both municipal and private customers. These products are largely non-discretionary in nature and continue to see structurally increasing demand regardless of broader economic conditions.

19:17 While raw material costs, specifically sulfur, have increased in recent months, we have been successful in working with customers to pass through those higher costs. This is clearly evident in our Q2 performance. In the first half of this year, we have made good progress on the construction of the new specialty water chemical line in Augusta, Georgia. That being said, should sulfur costs continue to rise, we may see some short-term margin pressure until pricing resets through contract renewals. As we have seen previously, we expect any margin impact to normalize over time. Although still early, we are seeing encouraging early momentum from our recent Thatcher Group acquisition that closed in the second quarter.

20:05 As discussed, initial integration is progressing very well. further reinforcing our position as a leading supplier of coagulants in North America. Turning to our sulfuric acid businesses, we have previously communicated Q2 included more maintenance turnarounds activity compared to the prior year period. These turnarounds were completed successfully, and we expect turnaround activity to return to a more typical level in the second half of this year. For RegenAcid, the demand outlook remains steady, supported by healthy U.S. refining rates. This business has historically demonstrated resilience, even in periods of economic softness. Similarly, for Merchant Acid, we have risk-sharing agreements that help to insulate chem trade from significant swings in pricing or input costs and expect to see continued resilient financial performance.

20:59 Finally, our Ultra Pure Acid business remains a key long-term growth pillar as structural demand growth for North America semiconductor production capacity continues to increase. Our Cairo, Ohio expansion is our first large project to capitalize on these strong dynamics. The facility continues to progress through startup with commercial ramp-up expected towards the end of this year. We believe this asset will be an important value driver in the years ahead. Within our electrochemical segment, we continue to advance our efforts to secure the long-term future of our North Vancouver chloral alkali facility. In second quarter, we entered into a non-binding letter of intent with the Vancouver Fraser Port Authority to extend our land lease through to the end of 2044 under terms similar to the existing agreements.

21:55 We expect to submit our rezoning application to the District of North Vancouver during the third quarter, with the formal review process anticipated to begin in Q4. If approved, this would enable us to continue liquid chlorine production on the ChemTrade-owned portion of the site and allow us to move forward with targeted capital investments that improve safety and reliability. We view this as an important strategic initiative and will keep the market informed as developments progress. At a product level, the dynamics within the EC segment remain mixed, but supportive overall. Caustic soda pricing has remained at levels slightly above those of last year.

22:41 Industry forecast and contract pricing in Taiwan continue to point to a stable outlook for the balance of 2025. For the remainder of this year, our pricing will reflect an index level of roughly U.S. $440 per ton, which is up roughly $55 per ton year over year. For added context, every U.S. $50 per ton change in caustic soda pricing equates to approximately $13.8 million of incremental annual EBITDA, holding everything else equal. On the chlorine side, pricing has softened year-to-date, and we expect some continued softness over the balance of the year. As Rohit highlighted, for sodium chlorate, we now expect volumes to be in line with last year that, combined with price increases implemented earlier this year, have contributed to sodium chlorate remaining a strong cash flow generator for Kingfrey.

23:39 Overall, while market conditions remain dynamic across the electrochemicals portfolio, we believe the segment is well positioned for the balance of the year and beyond. Continued year-over-year improvements in caustic soda pricing, along with fracking-tied HCL demand, are helping to offset pressures facing other products. The strategic progress at our North Vancouver facility is also supportive of long-term value generation within the segment. As mentioned, we continue to invest in growth during Q2 to drive incremental long-term value for our unit holders. This included both internal growth projects as well as M&A. We also continue to evaluate additional opportunities for prudent and strategic growth investment with a particular focus on opportunities that strengthen our core capabilities and offer strong risk-adjusted returns.

24:36 In 2025, our organic growth investments are being primarily directed towards strategic projects in our water chemicals and ultra-pure acid business lines. These initiatives are well aligned with the secular demand growth and are expected to be cumulative to earnings over time. In our water chemicals business, we're expanding capacity for a range of products, seeing sustained demand growth. While many of these projects are modest in scale individually, they collectively represent a meaningful step forward in earnings power and market reach. One notable example is our new specialty water chemical line in Augusta, Georgia, where we expect construction to wrap up in Q4 with production startup later this year.

25:24 In ultrapure acid, our Cairo, Ohio expansion and upgrade continues to progress well. We are now in the validation phase, running quality trials with key semiconductor customers. As a reminder, we expect commercial ramp-up towards the end of this year, followed by initial earnings contribution. We continue to see this as a high-impact project aligned with structural demand growth from semiconductor manufacturing on shoring. Overall, our growth investments are grounded in strong market fundamentals, clear visibility to returns, and a focused approach to capital deployment that supports long-term shareholder value. We look forward to continuing to keep you appraised on these and other growth opportunities over time.

26:10 Before concluding, thank you all once again for your continued support and interest in ChemTrade. As you have heard today, ChemTrade continues to deliver strong financial and operational performance while maintaining a disciplined approach to capital allocation and a clear focus on long-term value creation. Our resilient business model, diversified portfolio, in leading market positions continue to serve us well in the face of evolving macroeconomic conditions. We are encouraged by the momentum across our key growth platforms, and we remain confident in the strategic direction we've set through Vision 2030. With a strong balance sheet, robust cash flow generation, and a healthy pipeline of organic and inorganic opportunities, ChemTrade is well positioned to continue building on our track record of execution and driving sustained growth in EBITDA, distributable cash, and unit holder value.

27:06 With that, we will now be happy to open the line for questions. Thank you. Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchstone phone. Should you wish to cancel your request, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your first question is from Ben Isaacson from Scotiabank. Your line is now open. Good morning and thank you very much. I have two questions. First question is on the deal. I may have missed it, but I didn't see a synergy target on that six and a half times multiple what do you think you can get that multiple down to over time? And the reason why I'm asking is because the deal multiple of six and a half times is a little higher than where the stock is trading on street estimates.

28:07 So is the right way to think about this deal that the water business is generally at a higher multiple and the commodity businesses are generally at a lower multiple, and that's what justifies the six and a half times? Thanks. Okay, so I'll start with, I think if you look at some deals that have happened in the water chemical space, Multiples are quite high relative to the rest of our business. The big deal that took place last year was actually closer to 10 times EBITDA. In our case, the six and a half is without factoring in synergies, and synergies are going to come mainly, I would say, as we expand the capabilities that we get with Polytech onto the rest of our business.

28:52 So, you know, we are not distorting a target right now, but, you know, you can expect that there will be synergies. Yes, Ben Scott here. I'll add to that. And so, yeah, we did not publish a synergy target. Obviously, we did that on purpose. We do believe, so the fundamental premise for this acquisition was that, you know, We believe that we can take Polytech products and services, which are primarily focused in the southern and southeast U.S., and we can introduce those products and services to our wide range of customers all across North America. So we think there's a nice opportunity to take his products and introduce those products to our customers.

29:41 And then in addition to that, there are several – organic growth opportunities that I don't want to get into the details of those now. But there are organic growth opportunities that collectively our teams will be working on for the future. I think the one thing I'll add is we are very well aware that it will be very difficult for us to buy anything at our multiples. So we knew that if we want to do some modest acquisitions, we would have to pay through our multiple. And, you know, we have been de-levering to create that dry powder to be able to do it using cash and leverage as opposed to diluting unit holders by having to issue equity. So we are very, you know, that was our strategy over the last couple of years to build up that dry powder, which we are now happy to use on such a strategic opportunity.

30:35 Great. And then just one more for me. I think your payout ratio is, you know, 30-35% in that kind of neighborhood and When I look at street estimates, they have EBITDA about flat year over year, and now you're adding the Polytech EBITDA on top of that. So at what point does that payout ratio start to become low and there's the possibility for an upside in your distribution? We have, as you know, over the last two years, raised distributions by 10% and then 5%. So we, you know, with the low payout ratio, we believe the dividend is very sustainable and our board and us discuss distribution strategy, so there's definitely room for it to grow modestly, but I think we'll leave it at that.

31:20 Okay, that's all for me. Thanks so much. Thank you. Your next question is from Hamir Patel from CIBC Capital Markets. Your line is now open. Hi, good morning. So I know you don't want to disclose the level of synergies that you expect from Polytech, but could you give us an indication of perhaps how long it would take to capture those synergies, which would sound like predominantly sales synergies? Yes. So, Amir, our belief is that with the acquisition of Polytech, we will be growing at or above market rates in the coming years. I'm not going to disclose an exact date, but we'll say it'll be sooner rather than later.

32:10 We believe that there are, again, some exciting opportunities for growth. That's the reason we did the deal. We think that we believe, as well as the Polytech organization, believe that Kim Trade was a very logical buyer, acquirer of this business. They've got a very strong growth record over the past 10 years, really over the past 30 years. And Kim Trade are a very good fit from a culture standpoint. And we've We believe that we'll continue the legacy that they've built with a lot of opportunities and synergies going forward.

33:02 Thanks, Scott. That's helpful. How does the EBITDA margin profile of the Polytech business compare with your SWC segment? That's not going to have a material impact on the SWC segment. You know, it would be in line with the SWC. You wouldn't see it actually make a material difference one way or the other. But it's in line with the SWC segment. Okay, great. That's all I had. I'll turn it over. Thanks. Thank you. Your next question is from Jill Jackson from CBMO Capital Markets. Your line is now open. Scott Rohrer, good morning. You know, in your vision 2030, you talked about, you know, looking for 10 to 50 million of EBITDA. You're at above the high end of the mid, excuse me, above the midpoint now.

33:53 Are you basically done right now? You've got other capital allocation priorities you've been announcing the last 24 hours. Are you happy now for M&A? Are you going to be dabbling here or do you want more serious M&A going forward? So, uh, uh, Joel, um, I would say that we're done for a period of time. We're going to take some time. We've had a small acquisition, obviously, with Thatcher at the end of Q1. Now we have a larger one with Polytech, and so our plan is to take some time and digest, bring these acquisitions into ChemTrade. We'll take some time, work on integration, building the teams. The answer to your question is that there's nothing on the horizon that's coming anytime soon.

34:43 But we'll take some time, work on these, and then it's certainly possible that as we get closer to 2030, there might be some in the longer term, but not anything short term. I think from a capital allocation, we continue to believe even more so that we are significantly undervalued. So while we've done, you know, we've got a two-pronged approach is grow earnings, but then also be aggressive on the NCIB. So we are looking to, you know, get the new one going in the next couple of days and continue buying under that. And I think to Scott's point, we expect to leverage to, you know, start coming down from the two and a half, which it will be at closing and which will give us more flexibility down the road.

35:31 Yeah. Second question. You're not going to guide us to 2026. but can you just give some building blocks, 2026? So I'll give some examples, right? If Polytech closes Christmas, you know, you're going to have, you know, an extra 30 something million, 30, 32, 33 EBITDA from that, maybe more. You're going to have maybe some more ultra pure sales, some Cairo. You're going to have the North fan turnaround that takes maybe what, 10 million out. Like you just give some building blocks. And as part of that, maybe you can talk about, different parts of the business that are over-earning, under-earning, or like Goldilocks are just right in 25? So I'll start, and then Scott may add to that. So firstly, North Vancouver is probably on EBITDA. On revenue, it's about $10 million, but on EBITDA, it's probably closer to $17, $18, well, let's say between $17 and $20 million.

36:18 So got to keep that in mind. Foreign exchange continues to be a variable, which is hard to call right now. You're right. And then the other thing is the caustic. We saw caustic rise at the beginning of the year. It's backed off a little bit now. So again, we'll have to, in the next couple of months, look at where the industry experts have caustic slated for next year. So that's a variable. Fracking in Canada seems to be strong. We'll have to look at, again, that's a variable because that drives HCL. And then finally, chlorine is also another variable where prices have peaked and they have backed off a little bit. So we'll have to watch carefully as to what happens there. But you're right on the other building blocks. Yes, we should have a full year of Polytech. We should start to see some ultra-pure EBITDA coming in next year.

37:07 And as of we can see, the regen demand stays stable. Merchant assets stay stable. Although sulfur has spiked, as we said, it's tripled, which is a very big spike. which so far we were able to withstand and offset, but that's something we're going to watch too. So yeah, there are a few moving parts, but I don't think there's anything major that's of concern here. But I'd like to know, Pat, if you want to add something to that. Yeah, so look, I think Rogue had pretty much covered it. You know, on the coral alkali, what we shared with the comments, caustic has been... has been doing fine, somewhat strong, and I think the outlook continues to look like that. HCl tied to fracking, still pretty good, pretty strong.

37:59 Chlorine has softened. I think our view is that that could continue to happen, but you put all that together. I think the biggest impact on coral alkali next year will be the turnaround. Chlorate We should expect to see similar slight reductions in volume, and we're working to offset that with price. The Regen and Merchant Acid are strong, but not growing that much, but still doing quite well. And then the growth next year, We have our organic growth projects and water we've executed on.

38:45 We'll continue to do that. We'll have the startup of our new specialty product, the new specialty line in Augusta, Georgia, and we'll have Polytech, and we'll have Thatcher, and we'll have some ultra-pure acid business that'll be coming in as well. And then the unknowns right now that we have to think about, unknowns would be what's going to happen with the USMCA, and it's possible that could get renegotiated. We don't know in summer of next year, but that's an unknown. And then watching the Canadian pulp and paper, that's a bit of an unknown as well. Thank you.

39:33 Thank you, and your next question is from Nelson from RBC Capital Bridges. Your line is open. Great. Thanks, and good morning, everyone. Good morning. I wanted to ask a few background questions on Polytech in terms of the acquisition. I presume it was a competitive auction process. Can you just talk about that and also why the business was being sold? Yes, so Polytech has been a longtime customer to Chemtrade. We've had an excellent relationship over the years, and we have known their owner and founder. I say we, including myself. We've known their owner and founder for many years.

40:19 Their owner and founder was looking to retire. I don't want to get into a lot of details, but he was looking to retire, and he And what I will say is that as we had discussions with him, we both felt that ChemTrade was a very, not only a logical buyer for his business, but also a great cultural fit. He was looking for a company to come in and buy the business, but to continue the strong growth trajectory that he's delivered over 30 years, bring in basically to have someone with a similar culture and that would have the focus on the growth projects that he's been working on.

41:06 And so I think he believed that Chemtrade would be a great partner. We believed the same. And so we were able to put that deal together. I can add just one thing. So you've got a picture of somebody who built a business from scratch and is now looking to retire and monetize. But the motivation of someone like that has many facets to it. Clearly, the money has to be appropriate. But as Scott said, building on the legacy that he has built is very important, as you can imagine, for someone who founded a business from scratch and who cares about their employees and all the other stakeholders. So it was just a perfect match here. The owner, Jack Harmon, has agreed to stay on and work with us for an undisclosed period of time.

41:58 So he's going to stay on actually full time for a period of time. And then after that period of time, we have an agreement that he will come in and help advise from time to time as we work on the growth projects together. So we're very happy about this acquisition. We think it's a great fit for Polytech and for Chemtrade and for the market. And we think it's going to be a very good deal for Chemtrade investors. Got it. That's great background. So it's more of a bilateral process. And I think, Rohit, you talked about the high water transaction multiples you've seen last year. I don't want to go into too many details, but Is there a reason why this multiple, like a fair price for this transaction, is a multiple that was much lower than we saw in the market last year?

42:58 I think, again, without getting into too many specifics, I think in this case, the multiple is appropriate because of the unique expectations and desires of the owner where it's more about building on the legacy. And so I think the water multiples are high. This is a very good quality business because actually it's providing solutions as opposed to just products. So I think it was a fair negotiation here and we ended up at a good price for both sides. So I think everyone's satisfied with the transaction. Okay. And then... You both talked about the long growth track record of this business. Can you just provide a bit of background on how, let's say, EBITDA has been growing in this business for the past five years or whatever period you think is appropriate?

43:56 So I don't think it's that appropriate to comment on the track record for this business prior to us having it, but let's say we were impressed with the growth trajectory, not only over the past five years, but really over 30 years. I think as Scott said, we expect to grow this at above market rates, so it's fair to assume that that was also occurring in the last many years. Okay, that makes sense. And then just I guess switching gears a little bit, in the U.S. we hear a lot about power demand, growth in power demand, particularly from data centers and pushing power prices higher. You obviously use a lot of power, especially on the electrochemical side. Are you seeing any pricing pressure from...

44:56 higher power prices? Obviously, your Canadian assets are doing well, but in the US, are you seeing any pressure? By far, the significant and dominant amount of our power comes from Canada, and it's Canadian hydroelectric power, and that's at our electrochemical facilities. And that is, we'll just say that's by far the majority of our power requirements. And so we're maybe seeing modest impact on utilities at the other sites, but it's not material for us on our bottom line, in terms of our earnings in material.

45:43 Yes, if I can add, I think Manitoba and BC are both regulated environments, hydroelectric There's a utilities commission that approves rates. They have been very stable, and we don't anticipate any changes there. In the U.S., our retail plants consume a bunch of natural gas, but our contracts with the retail customers pass through natural gas. So even though gas is relatively low right now, but as it rises, there is no issue because that's how contractly it's been structured. Okay. And then just one last kind of big picture question. You obviously move a lot of product on rail. Do you have any initial thoughts on the proposed Union Pacific Northwork Southern proposed merger? I know it's still early days.

46:33 I would say no, we don't see that as having a material impact. We work with all of the rail companies closely. And so, you know, we've heard that this will improve service, and we hope that's the case. And if rates do change, you know, these are industry-wide changes, and we actually think we are probably, you know, really good at optimizing freight. So, if anything, you know, we're not concerned because, in fact, everybody in meetings are pretty good at optimizing logistics. Okay, great. Thanks a lot. I'll leave it there. Thank you. Once again, please press star one should you wish to ask a question.

47:21 And your next question is from Steve Hansen from Raymond James. Your line is now open. Yeah, good morning. Thanks for the time. Just a couple of different items here. So Scott, I think you referenced the potential for rising sulfur prices to impact your SWC margins. That's all logical on the surface. But I think the most acute surge in sulfur really occurred through 2Q. We've actually seen and it didn't really seem to impact your numbers that much. I mean, are you worried about a further rise that would impact margins, or is there a lagging mechanism that we should be mindful of here that might roll into the numbers to the back half? No, look, sulfur prices have tripled, so we have absorbed those, and we certainly don't expect Calling sulfur is difficult, but we certainly don't expect any similar type of price increases with sulfur. So the sulfur prices have hit us, and our businesses work those through. The rising sulfur hits us primarily in the acid business, and then with region, that's passed through with our pricing mechanisms.

48:33 In our merchant acid, we have price sharing, and then we price on a shorter-term basis. The sulfur also has an impact on our water business, but we have annual contracts and we work to pass those through. I think we've absorbed the blow, so to speak, and I think we've come out pretty well. Our team is better and better at pricing strategy and I think passing through anticipated costs to customers. And frankly, you know, it's actually better when there's a big spike because it gets the attention of every industry player because these are not, you know, if it's a small hike, someone may be willing to absorb it, but then there's such dramatic moves, the market has to pay attention to them. And we factored that into our revised guidance as well.

49:29 Okay, that's helpful. If I'm just looking at Polytech for a minute and I look at the product set that they've got, you described some of the revenue synergies that are there. It just looks like on the surface anyways, there is a number of common products and also a number of incremental ones. What are the product lines specifically that you're most excited about here within the portfolio for cross-selling? The polymers, the bacterias and enzymes. I'm just trying to get a sense for where that incremental opportunity lies. So a couple things. They have a very strong position in food and industrial, so a stronger position in food than we have. We think it's a very nice opportunity for Chemtrade, let's say, to get more involved with our products in the food and industrial space.

50:21 And then, as I mentioned earlier, taking their products and services and then introducing those to our municipalities across North America, that's strong as well. So they sell coagulants, they sell flocculants, they have other chemicals that they sell and then their solutions provider to their customers And the solutions provider is a new space for ChemTrade, and I think we're very excited about opportunities for solution supplies to our customers. Just to understand that latter point, can you just simplify it or dumb it down for me.

51:09 What do you mean by solution provider? Customers, whether that's a poultry processing plant or a city, they'll need to, as they test their water, they'll need to add into their water a coagulant that's going to serve a certain purpose, a flocculant and there are two to three other chemicals to adjust the pH to do other clarifying agents, other things like that. So there are maybe two, three, four, five chemicals that need to be blended together and then blended with the water.

51:56 And so Polytech bring a system together to test the water, and then make the blends and treat the water. That's what I mean by solutions provider. And that is new and a nice opportunity for ChemTrade to grow. And if you think about it, we are one step removed. We are one step closer to the customer than us. So we supply the coagulants. In fact, in many cases, Polytech was buying those coagulants from us. But then they customized kind of the solution for the customer, so they have closer contact with the customer, adding more value than just a product supplier. So that's how, you know, if we can be hoping to take that and then do that across our customer base.

52:48 That's actually very helpful. Thank you for that. And just maybe a last one just on the related space. It's just like how fragmented – or sorry – With the footprint that you've bought, is there still geographical space that you don't have that you would want to replicate? They're very Southeast-centric. Can you still service and provide these additional services to other regions, or would you need to acquire, in theory, other white space for how well positioned this position is for the future? Yeah, so I understand. I think that for now, their four sites are in good shape to supply the customer base.

53:34 But as we go forward, there's certainly potential to expand in regions where we are strong and they are not. So we would not have plans in the next, you know, I'll just say in the short term to add any new Polytech site locations. But it's certainly possible that it could make sense in a couple of years. But that would be organic growth as opposed to M&A. We can just replicate these organically. I see. Okay. Very helpful. Thank you. Thank you. Thank you, and your next question is from Zachary Evershed from National Bank Financial. Your line is now open.

54:25 Good morning, everyone. Congrats on the quarter. Thank you. So following up on the previous question, is that Polytech blending solution equipment a bit of a razor blade model? It's got some similarities. I'd rather not discuss the details of the pricing strategy. I'd rather not discuss the pricing strategy. Let's just leave it that they're a solutions provider and they've been very successful with that model. Understood. Thanks. And you did mention some spare capacity in your network to service Thatcher Group's water customers. With the addition of Polytech, how do you see your utilization after the acquisition?

55:22 Yeah, so we still have plenty of capacity across our system. And so you're exactly right. With Thatcher, we picked up all of the volume with Thatcher with our existing capacity. And with the acquisition of Polytech, we're set as well. That being said, as we look at our organic growth projects over the next couple of years, part of that is continuing to add capacity and de-bottleneck across our network. I won't get more specific than that, but we'll keep the organic growth target at roughly the similar amount.

56:09 then we'll be de-bottlenecking where we need to. Understood. Thanks. Then last one for me. I'm very happy to hear about the early redemption of the 2026 converts looking out farther to 2027. Those are exercisable at $10 a unit. What are your thoughts around another SIB seeing as they're in the money? So, you know, I guess I'll start by saying that as we have articulated We want to get out of the convertible business, so we will be looking at ways to exit there. Right now, they are not in any hard call period, of course, and the soft call probably starts in a few months.

56:54 But, yeah, we're looking at all our options to see how we can eliminate all our convertible debentures. Thank you very much. I'll turn it over. Thank you. Your next question is from Gary Ho from Desjardins Capital Markets. Your line is now open. Thanks. Sorry, I jumped on the call late, so maybe this was asked already. So just on the M&A, it feels like there's a couple that you've done more recently. How's the pipeline? And second, when you look at the opportunity set, are you kind of staying within the product set that you're currently offering or potential clients or would you kind of branch out to other platforms as well?

57:41 Thank you. Hey Gary, Scott. Yeah, we actually did cover that a little bit earlier, but just to catch you up. So yes, this year we concluded the agreement with Thatcher and Polytech. And so for now, I would say we're done certainly for the short term. We're going to take some time and integrate those businesses. we will bring our leverage down so we've with this acquisition year we've let our leverage bump up a bit and so we're going to take some time bring that down and as we work off of you know as we bring our leverage down over the next you know couple of years we could begin to look at that we do have you know I will say we do have a pipeline of of potential people that we're speaking with, but that's not anything that we're going to execute or that we would plan to execute anywhere near the short term.

58:44 Can we continue to allocate capital to buying back? So we just are, you know, entering into new NCIB now for the next 12 months, so that remains a priority as well. Okay, great. That's my question. Thank you. Thank you. There are no further questions at this time. Please proceed. All right. So thank you, Jenny. I'd like to thank everyone for their time today. Thanks for your interest in ChemTrade and have a great rest of the day. Thank you. Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may all disconnect your lines.