Good morning, ladies and gentlemen, and welcome to Chemtrade Logistics Income Fund Q3 2025 conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. 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. Please go ahead.
Hello, and welcome to Chemtrade Logistics Income Fund's earnings conference call and webcast for Q3 2025. Joining me today is Scott Rook, our President and Chief Executive Officer. We appreciate your continued interest and participation. Please note that this call has an accompanying slide deck, which you may reference during our prepared remarks and Q&A. This slide deck is available on our website, chemtradelogistics.com. On today's call, we will first give you a recap of our Q3 2025 financial results, our record adjusted EBITDA, including business segment performance, financial position, and updated full-year 2025 guidance. I will then hand the call back to Scott, who will discuss updates on the outlook for our key products and growth initiatives. We will 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. 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 disclosure documents filed by Chemtrade with the Securities Regulatory Authority available on cdrplus.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, Q3 2025 was a continuation of the strong performance we have been delivering for a number of quarters.
It marks the highest quarterly EBITDA in Chemtrade's history, alongside double-digit year-over-year growth in revenue and distributable cash. This is thanks, in large part, to the continued focus and execution of our dedicated employees, operational excellence, and our diversified product mix. Q3 revenue increased by 12%, while EBITDA increased by 10% due to contributions from both segments. Foreign exchange was also a modest tailwind, excluding which revenue and EBITDA increased by 12% and 9%, respectively, year-over-year. Distributable cash after maintenance capex increased by approximately 18%, primarily due to higher EBITDA, and distributable cash after maintenance capex on a per-unit basis increased 24% year-over-year. Turning now to the segment's performance, excluding the impact of foreign exchange, the sulfur and water chemicals segment, our SWC's revenue grew by 19%, driven primarily by higher prices and volumes for merchant assets, water products, and region assets.
SWC's EBITDA increased by 17% after excluding the impact of foreign exchange, largely due to the same factors that contributed to revenue growth, which more than offset higher input costs. Turning to the electrochemicals, or EC segment, excluding the impact of foreign exchange, EC revenue was 2% higher, while EC EBITDA was 12% higher year-over-year, largely due to higher prices for caustic soda and chlorate, as well as higher volumes for chlorate, partially offset as expected by lower prices for chlorine. On a MCU basis, net BACs decreased by approximately $50, mainly due to lower net BACs for chlorine, partially offset by higher net BACs for caustic soda. Corporate costs for Q3 were higher year-over-year at CAD 34.7 million versus CAD 24.1 million in Q3 2024. The year-over-year increase is primarily due to higher short and long-term incentive compensation, as well as higher foreign exchange.
Legal costs were also higher year-over-year, with a significant amount of the increase attributable to the acquisition of Polytec. This performance was broadly in line with our expectations. Looking at our capital allocation and financial position, we remain disciplined in our balanced approach. Chemtrade generated $78 million of distributable cash in Q3, up 18% year-over-year, comfortably covering the monthly distributions with a sustainable payout ratio of 25% in Q3 and 32% on a trailing 12-month basis. In Q3, we repurchased approximately 1 million units under the NCIB, initiated in August 2025, bringing the total for 2025 to 7.1 million units. Unit repurchase remained an important portion of Chemtrade's capital allocation strategy. Alongside the investment sensitivity growth and the return of capital to unitholders, Chemtrade continues to maintain a strong balance sheet and significant financial flexibility.
We exited the quarter with net debt to EBITDA of 1.8 times, well below our target, and with ample liquidity of approximately $484 million. During and subsequent to Q3, we continued the optimization of our balance sheet by reducing the potential equity dilution inherent in convertible debentures by approximately 90%. We only have approximately $28 million of convertible debentures after these initiatives. These transactions were financed through a credit facility in conjunction with the proceeds of an offering of $250 million of long-tenor unsecured notes with a coupon of 5.75% that mature in 2032. Adding to the senior unsecured notes Chemtrade issued in 2024 and earlier this year, the new series of unsecured notes enhances our fixed income investment profile while optimizing our capital structure and effectively lowering our capital costs.
After the end of the quarter, we extended the maturity of our senior credit facility by two years to October 2030. Looking now at our guidance, although global trade tensions were prevalent through 2025 and still persist, Chemtrade's business has shown resilience and continues to deliver strong results, with market conditions for its products remaining favorable. This outlook, along with our focus on operational and commercial excellence, allows us to raise an adjusted EBITDA guidance for 2025. We now anticipate that 2025 will be a record adjusted EBITDA year surpassing 2023, when we generated adjusted EBITDA of $502.6 million. Alongside the updated EBITDA guidance, we have also updated several of our assumptions for the remainder of 2025.
While you'll find the full range of assumptions in our disclosure documents, we highlight that for 2025, we now expect North American MCU sales volumes of 173,000 versus 177,000 prior, a net year-over-year MCU net back increase of $70 versus $60 prior, and sodium chlorate volumes of 272,000 tons versus 270,000 prior. I will now hand the call over to Scott to provide additional detail on the outlook for Chemtrade moving forward.
Thank you, Rohit, and thank you to all of our listeners for joining the call. As Rohit highlighted, Chemtrade delivered a record adjusted EBITDA in Q3, and we're on track to deliver the highest-ever adjusted EBITDA for the full year 2025. This performance is well aligned with Chemtrade's Vision 2030, where we outline a clear framework for sustainable growth, targeting 5%-10% annual growth in EBITDA and distributable cash. We aim to achieve mid-cycle EBITDA of between $550 million and $600 million by 2030. While recognizing the significant achievements since introducing the Vision 2030 framework earlier this year, Chemtrade intends to provide an update to the strategic outlook once it has more clarity on the North America trade and CUSMA negotiations. As all of the products that Chemtrade exports to the U.S. from Canada are CUSMA compliant to date, we have not seen material direct impact from incremental tariffs.
We continue to closely monitor the fluid North America trade developments and will reassess in the event of any material changes. However, 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. Looking at the remainder of 2025, we are positive on the outlook for the SWC segment. We are seeing stability underpinned by consistent in-market demand, particularly in water and region assets. In water chemicals, demand remains strong across municipal and industrial customers due to the largely non-discretionary nature of these products. PAC and ACH experienced higher volume and pricing in Q3 as our investments in these products continue to bear fruit. Alum pricing was also a positive in Q3 and more than offset higher raw material costs.
As we have discussed in prior calls, although raw material costs could pressure margins in the short term, we have been successful in resetting price and normalizing margins through contract renewals. On the acquisition front, integration of the Thatcher Group is progressing very well, further reinforcing our position as a leading supplier of coagulants in North America. During Q3, we announced the acquisition of Polytec for $150 million, representing an attractive acquisition multiple of approximately 6.5 x expected annual EBITDA. We are looking forward to adding Polytec's turnkey water treatment solutions to Chemtrade's footprint. The closing of this transaction has been delayed due to the U.S. government shutdown, which has affected regulatory approvals. We expect to close the transaction shortly after resumption of the U.S. government activities.
In light of the Polytec acquisition, we are reviewing our reporting segments, and it's likely that water solutions will become a separate reporting segment starting in 2026. Turning to our sulfuric acid businesses, for region asset, the demand outlook remains steady, supported by elevated U.S. refining rates. This business has historically demonstrated resilience even in periods of economic softness. Merchant asset, while more cyclical given its wide industrial use, continues at a broadly steady pace and is further supported by risk-sharing agreements with our suppliers and customers. Chemtrade's continued focus on operational excellence and reliability allows us to respond to dynamic market conditions. Finally, our ultrapure acid business remains a long-term growth vector as structural demand for North America semiconductor production capacity continues to increase. Our Cairo, Ohio plant is our first large ultrapure acid project to capitalize on the expansion of advanced chip manufacturing in North America.
The facility continues to advance with progressive product quality improvements and a line of sight to commercial ramp-up. We believe that ultrapure acid will be an important contributor to Chemtrade's growth and Vision 2030 targets. Within our electrochemical segment, we continue to progress through the rezoning process at the North Vancouver chlor-alkali facility. We submitted the rezoning application to the District of North Vancouver in late Q3 and hosted a community information meeting shortly thereafter. We anticipate the formal review process to continue during Q4. We'll keep the market informed as developments progress. Our performance in the EC segment was positive and reflective of the investments and operational excellence we've implemented at all of our facilities over the last few years.
Both the higher volume and prices for sodium chlorate and higher prices for caustic soda supported Q3 results, despite the expected softness in chlorine price that is likely to continue. Industry forecasts and contract pricing in Taiwan point to a flat to moderately improving caustic soda price into 2026. For the remainder of this year, our pricing will reflect an index level of roughly $435 per ton, which is up $50 per ton compared to 2024. For added context, every $50 per ton change in caustic soda pricing equates to approximately $14 million of incremental annual EBITDA, holding everything else equal. As Rohit highlighted earlier, we expect sodium chlorate 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 Chemtrade.
Overall, while market conditions remain dynamic across the electrochemicals portfolio, the supportive outlook for caustic soda pricing, paired with fracking-tied HCl demand, have offset pressures in other products. We believe this segment is well positioned for the remainder of this year. We continue to invest during Q3 and subsequent to quarter-end in organic growth projects, as well as M&A with the announcement of the Polytec acquisition. As discussed in prior updates, our 2025 organic growth investments are primarily directed towards strategic projects in the water chemicals and ultrapure acid business lines. These initiatives are well aligned with the secular demand growth and are expected to be cumulative in earnings over time. In our water chemicals business, we're expanding the capacity for products, and we're seeing strong demand. While many of these projects are modest in scale individually, they collectively represent meaningful earnings potential.
A notable example is our new specialty water chemical line in Augusta, Georgia, where we expect construction to wrap up in early Q1, with production startup to follow. In ultrapure acid, our Cairo, Ohio expansion and upgrade continue to advance as we progress through certification with major customers. Commercial ramp-up is expected during 2026. We continue to see this as a high-impact project aligned with the ongoing North America onshoring of semiconductor manufacturing. Overall, our growth investments are grounded in strong market fundamentals, clear visibility to returns, and a focused approach to capital deployment. Before concluding, thank you once again for your continued support and interest in Chemtrade. Our strong Q3 results build on several quarters of industry-leading performance that highlight the consistency and strength of our execution alongside continued demand for our products and services.
Our disciplined approach to capital allocation, our strong balance sheet, and our robust cash flow generation position Chemtrade to drive long-term sustained growth in EBITDA, distributable cash, and unit holder value. With that, we would now be happy to open the line for questions.
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 touch-tone phone. Should you wish to cancel your request, please press the star followed by the two. If you are 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 Nikolai Gorupich from CIBC Capital Markets. Your line is now open.
Hi, good morning. Margins in the SWC segment were quite healthy, even with the sulfur costs going up. Looks like pricing was strong, as you mentioned. Can you maybe share a bit more about how those price increases unfolded? Were they mostly cost pass-throughs in new contracts, or was there more to it? As sulfur prices continue to climb, how do you see SWC margins shaping up in Q4?
Yeah, sure. Good morning. I'll take that. As you said, sulfur prices went up, particularly in Q3. That has an impact on the business. We saw our margins increase primarily in what we call the merchant asset segment, but we also saw strength in the region business. With the merchant asset business, we benefit as sulfur goes up, our team is able to pass through prices. Prices in the merchant asset segment range from spot deals all the way up to quarterly prices. We were able to—our team was able to pass through those price increases quickly. We also benefited in Q3 by having strong reliability. We did see that the market saw outages from our competitors in production, and we saw an increase in volume, which we were able to meet.
It was really the increase in volume coupled with the pricing that led to a very strong Q3. As we understand, our competitors—and it was more than one—have solved their operational issues. We do not know for sure, but what I am hearing is that they are back online. Q4 may be a little softer from a volume standpoint. That was one reason for the strong Q3, was merchant. We also are continuing to see just very healthy, strong demand in the region business. It looks like US refineries are running strong. There is strong demand there. We have good reliability, and we would expect that to continue.
Nikolai, maybe I can just add a couple of things because when you look at our SWC segment, sulfur is actually an input cost. Typically, you'd expect it to be a headwind when it goes up. That is true in our water business because there we see input costs going up. Our team was successful in offsetting that with pricing initiatives, so we were able to pass those through. If you look at our merchant asset business, we get a significant portion as byproduct assets, which does not require sulfur to be produced. It is a byproduct. When sulfur goes up, we are able to offset it in the business where we make it, but we get some benefit in the business where it is a byproduct. All those things combined with the operational issues that our competitors faced contributed to this performance.
Okay. Thanks. That's very helpful. It seems sodium chlorate performed well this quarter as well. With pulp mills facing fiber challenges and soft pricing, do you anticipate a slowdown in demand for sodium chlorate going forward?
Yeah. We see a very modest decline in sodium chlorate demand. Maybe our estimates are down maybe 1%-1.5% on an annual basis. Yeah, I mean, that's what we're expecting. Sometimes it's a little better than that. Sometimes it's a little worse, but we're anticipating a very modest impact. Canada has announced some initiatives to support the Canadian pulp and paper industry, so we're hopeful that those will have a positive impact on the industry going forward.
Okay. Thanks. That's all I had. I'll turn it over.
Thank you. Your next question is from Joel Jackson from BMO Capital Markets. Your line is now open.
Hi. Good morning, Scott. Good morning, Rohit.
Hey, Joel.
I only hear positive commentary from you in general, just puts and takes of positive commentary. If I take your $503 million, at least $503 million guidance for the full year, that means you're expecting contraction in the fourth quarter after getting double-digit EBITDA growth in the first three quarters. Which businesses are most likely to contract in the fourth quarter?
Joel, at Chemtrade, as you know, you've been following us for a long time. We see stronger Q2s and Q3s, and we see weaker Q4s and Q1s.
Sorry. Sorry, Scott, to interrupt. Sorry, Scott. I'm talking about year-over-year because you get—of course, you get—I'm sorry to interrupt. Of course, you get seasonally lower in Q4. If I believe your guidance, I believe that your business is about to go from double-digit EBITDA growth for the first three quarters to decent contraction in the fourth quarter year-over-year. Which business is most likely to contract year-over-year in the fourth quarter?
The business, we'll see some contraction in chlorine that we've talked about. I think that's what we'll see: contraction there. On a year-over-year, that's probably the biggest place that we would see. In the EC segment and with chlorine products.
That would be the only part of the business that would contract year-over-year, is chlorine?
Joel, maybe I'll just give you one data point that might help. If you look at our Q3 results, we've said that on a year-to-date basis, net back, MECU net back went up, but in Q3, they actually declined by $50. We've seen chlorine backing off through the year, and it kind of crossed over in Q3 to pulling the entire MECU down. That is expected to continue in Q4. That'll be the biggest area, as Scott said, of decline. You can see it kind of in the numbers in Q3. Q3 was very strong in merchant and region and a few other places that offset it.
Sorry. So chlorine would be the only part of business you would expect to contract year-over-year in the fourth quarter?
In terms of anything meaningful, there might be a little bit here and there, but that is the meaningful one.
That's the only thing I think that's going to be that would be noticeable.
Okay. I appreciate that. Finally, when you think about 2026, obviously, you do not get 2026 guidance usually until about January. Can you give me high-level talk about the puts and takes we might see in 2026? Obviously, you are going to have Polytec, a little more integration with Thatcher. I think you have the North Bend trade around next year. You have the new ultrapure plant. You talked about Augusta also. Can you add in puts and takes for 2026, commodity prices, things that we should think about?
Yeah. Look, as you said, again, we'll be careful about this. I'm not going to give 2026 guidance, but here's what I will share. As we look at 2026, probably the biggest change year-over-year will be the fact that there will be a turnaround in North Vancouver. That is number one. Number two, I mentioned that the merchant acid segment was very strong in Q3 of this year due to competitive outages, and we would not anticipate seeing those competitor outages next year. I think that is a change. I think it is likely that we will continue to see some weakness in chlorine, partially offset by modest increases in caustic and HCl. The only other one in there is that from time to time, large US refineries will take outages.
I will not make a comment on that, but it is possible that there might be a U.S. refinery too that we supply that takes an outage, and that might have a modest impact. As you said, that will be offset by—we will have Thatcher, we will have Polytec, we will have other organic growth projects, we will have ultrapure, and projects happening in water that will offset those.
I think one thing to add, Joel, is it's hard to predict the Canadian dollar for foreign exchange. If you look at the current commentary around interest rates in Canada, there's more than speculation that Bank of Canada goes on hold. There's actually even some surveys that show that Bank of Canada might raise rates next year, and the U.S. is expected to start their easing cycle. Again, we are not economists, but that is one I'll point out is it is possible that there'll be some headwinds from FX, but we have a hedging program, but we still have some exposure.
Thank you very much.
Thank you. Your next question is from Ben Isaacson from Scotiabank. Your line is now open.
Thank you very much, and good morning, everyone.
Good morning.
Maybe just a little bit different question to the one that Joel's asking, or maybe asking it in a different way. If I take your $500 million, roughly speaking, guidance for 2025, and then if I add the 5%-10% growth that you talk about in the future, in 2030, I'm getting $640 million-$800 million, and you guys are at $550 million-$600 million. A few ways to look at that. Number one is that you're over-earning this year, which I think is part of the answer. Number two, it implies that your growth rate is much lower, or you're going to kind of raise that aspiration in 2030. The first question is, can you talk about that disconnect?
Yeah. Ben, hey. The Vision 2030 that we shared in March of this year, I stated that the goal was to grow earnings by roughly 5%-10% on an average rate from 2020, from the initial guidance of 2025, which our initial guidance was roughly $440 million. We said, as that as a starting point, our Vision 2030 was to grow that number on average 5%-10% through 2030, which would be roughly between $550 million-$600 million. Given the $500 million where we are now, we're certainly ahead of that target, and we've closed on Polytec. We've closed—well, sorry, we have not closed. We hope to be closing very quickly with Polytec and Thatcher, and we have all of that.
We are anticipating that as we're talking about that five-year projection, that what's fueling that is half of that growth is coming from our organic growth projects. The other half is coming from acquisitions that we plan to make. There could be some pullback in some of the materials that we've talked about. There could be chlorine, could be pullback in other areas. As we put all of that together, we're looking at that on average 5%-10%. It is true, just as you said, that through this year, we are ahead—we're ahead of the line if you draw the line from 2025 to 2030. It's too early to go out and revise a 2030 number right now. We want to be successful with our organic growth, be successful with the acquisitions, and we'll continue to look at that number going forward.
The starting point for that, again, to emphasize was the ultrapure guidance at the beginning of this year.
That's actually really helpful, Scott. Thank you for that. Just my last question is, with sulfur prices moving, can you assess how much is kind of local operational downtime versus what's been happening in Russia, drone strikes taking offline a lot of capacity, and now there's an export ban? How do we parse out the difference between local temporary things and then kind of the bigger structural issue in Russia? How are you thinking about that going forward?
Yeah. Look, that is—I think that's an excellent question. That's a tough question. I don't know that I'm—I would say that there's certainly part of that. Part is coming from both. I can share my opinion, and Rohit may have an opinion as well. I think there's more of it that has to do probably with some of the trade barriers and things going on in the fertilizer market, part of which is tied in with Russia. Yeah, the sulfur market does move around a lot. I think you can look at this recent increase and say that's not unusual if you look at what's happened in sulfur over a 15-year period. That would take out the Russia part of the equation. Yeah, my feeling is, yeah, it was a pretty big spike in sulfur.
It was not really forecasted, and maybe that has to do with some of the trade discussions and tariffs associated with fertilizer. That is probably all I can share. Rohit, anything you want to add to that?
Yeah. I think if you look at sulfur over even a 20-year period, it tends to be kind of a midpoint that you kind of gravitate towards. You get these spikes. They tend not to last very long, and then they reverse themselves pretty quickly. When you look at the Tampa Index, it really comes about due to negotiations between the large producers and large fertilizer consumers. It is a little opaque, and it can move around quite a bit. I mean, the bottom line is that we do get a bit of a lift when sulfur goes up, but we are generally fairly immune to sulfur moves. We do not really face that much downside when it goes down. Again, this quarter, the bigger influence was really the supply tightness that came in that drove pricing higher and not necessarily.
You get a bit of a lift from sulfur, but it's not that significant.
Rohit, just last question. Sorry. Just to extrapolate on what you just said, I would have thought that the timing of the sulfur spike right now would be perfect for your contracting in the water treatment business because you're contracting at presumably a higher cost, and then if this temporary spike comes off, then you get some margin expansion. Is that the wrong way to think about it? Is that not right?
What you're suggesting, and I think that is that if we lock in pricing with a customer, a municipal customer for 12 months now, keeping in mind where sulfur is, and then if sulfur eases off, we get the benefit, that is a true statement. That is a true statement. We don't just look at today's sulfur price. We do try and take a look in the future because, frankly, there's a competitive marketplace, and we need to also be cognizant of what other data points are out there in the marketplace that all market participants look at. Also keeping in mind we don't have—it's not like we have December contracts in the water business. These come up every week. They're rolling. You'll get some benefit, but there are puts and takes because it's not like some businesses have a December kind of contracting season.
Water is not like that. Municipalities put it out to tender.
Doesn't all reset January 1st?
No.
Okay. That's helpful. Thank you very much.
Thank you. Once again, please press star one should you wish to ask a question. Your next question is from Gary Ho from Desjardins Securities. Your line is now open.
Morning, Gary. We can't seem to hear you.
I think Ben just disconnected his line from the queue. Ben, if you'd still like to ask a question, you may press star one. Okay. It seems we have no more questions. Please proceed with the closing remarks.
I think if you got disconnected, feel free to give us a call, and we'll try and help you out if you got disconnected by mistake. Sorry, Scott. Go ahead.
Yeah. Yeah. All right. Yeah. No, this is the fewest questions that we've had, yeah, just as Rohit said. If there's any others, feel free to reach out at any time. I'd like to thank everyone for joining the call today, and I'd like to, as always, add my thanks to the Chemtrade employees for delivering very strong results in Q3. Thanks, everyone. Have a great day.
Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may all disconnect your lines.