Good day, ladies and gentlemen, and welcome to the Rockpoint Gas Storage Inc. second quarter fiscal 2026 results conference call and webcast. All participants' lines are in a listen-only mode at this time. Following the prepared remarks, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Toby McKenna, Chief Executive Officer of Rockpoint Gas Storage. Toby, you may begin.
Thank you, Janice. Good morning, everyone, and thanks for joining Rockpoint's first earnings call, reporting on our second quarter 2026 earnings. As introduced, my name is Toby McKenna, and I'm the Chief Executive Officer of Rockpoint Gas Storage. I'm joined today by our Chief Financial Officer, Jon Syrnyk , and a few of our other colleagues. I'll begin today's call with a few opening remarks. I'll then hand the call over to Jon to walk through our second quarter financial and operating results. I will conclude by discussing a positive outlook for the natural gas market and our outlook for the business. Before we begin, please note that today's discussion may include forward-looking statements, which are subject to a number of risks and uncertainties. Future results may differ materially from our expectations.
For further information on known risk factors, we would encourage you to review our supplemented long-form PREP prospectus, which is available on our website and on SEDAR. We're very pleased to report a strong second quarter that highlights the quality of our assets and resilience of our business model. This was a milestone quarter for our company as we completed our initial public offering, the largest on the TSX since 2022, which was significantly oversubscribed, reflecting strong investor confidence in our business and our strategy. Turning to our operational performance this quarter, I'm pleased to report that we've had yet another quarter without experiencing any serious safety-related incidents. This achievement reflects our unwavering commitment to the safety of all of our employees. This core value at Rockpoint is paramount to our business and guides every decision that we make.
Our gas storage business continues to benefit from strong fee-for-service contracts and our ability to successfully capitalize on favorable market conditions, including enhanced market volatility and lower summer natural gas prices in Alberta. These factors have been driven largely by LNG Canada's startup and by inelastic liquids-rich production. Our ability to take advantage of these evolving market dynamics demonstrates Rockpoint's unique positioning in the energy value chain and the strategic value of our platform. Our strong operational execution translated directly into solid financial results this quarter, which Jon will take you through in more detail.
Thank you, Toby, and good morning, everyone. It's great to be speaking with you on our inaugural earnings call. I'll start with a few reminders for our listeners. Rockpoint operates on a fiscal year ending March 31st, and therefore we are reporting our second quarter results for the period ending September 30th, 2025.
We do this to align with a standard gas year, given natural gas injections typically occur in the summer from April through October, while withdrawals are typically in the winter from November through March. Also note that Rockpoint is a U.S. functional currency business, and therefore all figures are presented in U.S. dollars unless otherwise noted. Until such time as we're able to consolidate the financial information of RGSI and the OpCos, we have undertaken to file audited financial statements and unaudited interim financial statements for the OpCos and related MD&A. We note that since RGSI had not completed the acquisition of its interest in the OpCos as of September 30th, 2025, RGSI continues to have a nil balance sheet and income statement. Since there are no financial results for RGSI, the MD&A only discusses the OpCos on a 100% basis.
At Rockpoint, we evaluate financial performance by monitoring our adjusted gross margin, adjusted EBITDA, and distributable cash flow metrics. Given the moderate seasonality in our business, we tend to monitor and evaluate our financial performance on a last 12-month basis. In comparison to our take-or-pay contracting, where revenue is earned evenly over a fiscal year, our short-term service and optimization revenue streams are typically weighted higher to our Q3 and Q4 winter withdrawal periods. Last 12 months' performance is being compared to our fiscal year 2025 performance, given the availability of the preceding six quarters of financial information prepared under the current scope of consolidating combined entities. Adjusted gross margin is a useful measure of profitability in our business because it presents our residual earnings after deducting cushion gas costs from our fee-for-service and realized optimization revenue.
We utilize this measure to compare and contrast gross margin contributions from our three revenue strategies. Our last 12 months' adjusted gross margin at September 30th was $444 million, 8% higher than fiscal year 2025. This increase was largely driven by $24 million higher take-or-pay gross margin and $14 million higher optimization gross margin recognized in the period. The increase in our take-or-pay gross margin was driven by a 25% increase in take-or-pay rates realized across the portfolio in the first half of fiscal year 2026, as take-or-pay contracts executed last year for service in fiscal year 2026 and beyond reflected strong seasonal spreads and a higher insurance component of total storage value.
Breaking this down further, weighted average take-or-pay fees realized across the portfolio were $2.32 per decatherm for the six months ended September 30th, 2025, compared to $1.86 per decatherm for the six months ended September 30th, 2024. This take-or-pay gross margin of $209 million, combined with gross margin from our short-term storage services of $165 million over the last 12 months, generated fee-for-service revenue of $374 million, representing 84% of our total adjusted gross margin. We strive to generate the vast majority, or 85%, of our gross margin from fee-for-service contracts and have successfully achieved this target since fiscal 2024, demonstrating the high quality of our cash flow.
The take-or-pay and SGS contracts that make up our fee-for-service gross margin are with investment-grade or otherwise high credit-worthy counterparties, providing cash flow stability and reducing the capital intensity of our business as our customers carry the cost of gas inventory themselves. Rockpoint has generated adjusted EBITDA of $370 million over the last 12 months as of September 30th, 2025, representing a 9% increase relative to fiscal year 2025's EBITDA of $339 million. As mentioned, this was largely driven by the six months of take-or-pay revenue realization at higher fees per unit and prudent cost control. In terms of costs, our OpEx and G&A are largely fixed in nature, but we do incur variable costs such as fuel, power, property tax, and certain lease arrangements. As such, our business is operating leverage and saw EBITDA margins improve marginally for the last 12 months ended September 30th, 2025, sitting at 83%.
Distributable cash flow is a meaningful financial metric we highlight as it presents our cash earnings that are available for reinvestment, distribution, or other accretive uses to drive shareholder value. Distributable cash flow over the last 12 months ended September 30th, 2025, was $234 million, in line with DCF over fiscal year 2025, as the growth in EBITDA was offset by higher debt service costs from the full-year impact of our $1.25 billion term loan, as well as higher maintenance CapEx. With these positive quarterly results, our business remains on track to meet our internal adjusted gross margin, adjusted EBITDA, and distributable cash flow targets for the full-year fiscal year ended March 31st, 2026. Now, touching on our capital structure and liquidity, we continue to maintain a strong balance sheet and ample liquidity.
We ended the quarter with $214 million in available liquidity and a net debt-to-adjusted EBITDA ratio of 3.3 x, which is now below our 3.5 x long-term leverage target. Following the IPO, our team has continued to progress and execute various strategic initiatives to help drive value, optimize our capital structure, and position us well for future growth. Our finance and accounting teams have been busy. As concurrent with the IPO transaction on October 15th, 2025, we replaced our $250 million asset-backed loan with a $350 million revolving credit facility, bolstering our liquidity and providing the business greater financial flexibility. Further, subsequent to the IPO, we successfully repriced our $1.25 billion term loan, reducing borrowing costs by 50 basis points, saving over $6 million in interest expense annually going forward, and improving the terms of the excess cash flow suite.
Lastly, consistent with our conservative financial policy, we hedged the remaining floating rate exposure of the term loan, locking in a fixed rate of 5.9% through maturity, which in combination with the reprice has improved our overall cost of capital. Commercially, our open take-or-pay contract season for fiscal 2027 service and beyond is seeing strong early engagement from customers in both Alberta and California. Our commercial teams executed on eight take-or-pay contracts in Q2 for fiscal year 2027 service, and we're encouraged by strong take-or-pay customer activity continuing in October in both our markets. It is still early days in our open contract take-or-pay season, which runs through to the end of March. Contract term length and rates are tracking in line with management's expectations. We are also advancing brownfield capital projects across our facilities to increase working gas capacity and enhance injection and withdrawal capability.
These projects are low-risk, high-return investments that support our customers' growing demand and expand our competitive advantage. We have previously communicated a target of $50 million-$150 million of growth capital deployment related to our pipeline of brownfield projects and remain confident in our ability to execute on that deployment over the near to medium term. Overall, we're entering the back half of our fiscal 2026 year with solid momentum supported by strong fundamentals, robust in-place fee-for-service contracts, and are well prepared to capitalize on market opportunities within the winter months should they arise. Our balance sheet is strong, and we've executed on several initiatives, as mentioned, to reduce our cost of capital and improve our liquidity position as well going forward. That concludes my prepared remarks this morning.
I'll now turn the call back over to Toby, who will highlight the attractive backdrop for the natural gas market and our outlook for the business.
Thanks, Jon. I'll wrap it up with a few thoughts on the market and what lies ahead for Rockpoint. Natural gas fundamentals remain supportive heading into the winter 2025-2026. With relatively high levels of inventory heading into the winter withdrawal season, the market's not expecting high prices throughout the winter, absent prolonged cold weather or pipeline disruption. Should we see a cold winter, Rockpoint and its customers are well positioned to deliver gas into the markets in which we operate. If we see a warm winter, we're also well positioned to keep gas in the ground, avoiding the costs associated with refilling next summer.
As global natural gas demand continues to grow, the role of gas storage in balancing supply and demand variations has become even more important. Storage levels across North America are full, and LNG feed gas demand averaged 16.3 BCF per day, up nearly 4 BCF from last year. Production remains robust also at 107 BCF per day, and demand from AI-driven data centers is emerging as a meaningful long-term growth driver in our business. Regionally, Alberta benefited from wide seasonal spreads due to downstream maintenance and higher-than-normal production. In fact, we were a bit surprised this year at the lack of elasticity to low prices this summer, emphasizing the possible new trend of storage benefiting from lower price drops as producers now target liquids-rich natural gas wells versus the older, less economic dry gas drilling targets. In California, we experienced temporary price rebounds tied to system outages.
With the decommissioning of the PG&E T&S to compressor last year, less gas is available for gas injections into storage in the state, where we could see more frequent price spikes with less gas generally available. Minimal new gas storage development is creating scarcity value for the existing assets, translating into higher storage rates across our portfolio. Our assets are strategically located within North American natural gas logistical network and provide critical service to a diversified mix of customers. Looking forward, we remain excited around the fundamental supporting gas storage across North America as the asset class continues to demonstrate how essential we are in balancing supply and demand across North American markets.
All in all, while short-term outlook will continue to be shaped by weather, power demand, and LNG market dynamics, the long-term fundamentals for gas storage remain very strong, and our assets are well positioned geographically, operationally, and commercially to benefit from these structural trends. Lastly, I'm pleased to announce that our Board of Directors has declared the inaugural quarterly dividend of $0.22 per common A share payable at the end of December to shareholders of record at the close of business on December 15th. This is in line with our stated payout ratio target, reflecting our confidence in the strength and sustainability of Rockpoint's cash flows. That concludes my remarks for this morning, and I'll now pass it back to Janice, our operator, to open the line for questions. Thank you.
Ladies and gentlemen, if you have a question at this time, please press star one on your touchstone telephone. We ask you to please limit yourself to one question and one follow-up. Your first question is coming from the line of Jeremy Tonet from JP Morgan. Please go ahead.
Hi. Good morning.
Hey, Jeremy.
Hi. Thanks for all the color this morning. We're just wondering if we could dig in a little bit more, I guess, to market conversations. As Canada LNG continues to ramp here, just wondering if you're seeing any kind of change in tone or thought process from customers in the market as far as what their needs are overall or just any thoughts on that topic in general.
Yeah. Broadly speaking, Jeremy, I would say that we continue to see a lot of momentum in the Alberta market. The customers, especially LNG customers, continue to e valuate what their needs may be as the ramp-up starts to affect the market in different ways. Given how new LNG ramp-up is to this market, we haven't seen an overall trend sort of emerge yet, but we do know, based on our Gulf of Mexico experience, coupled with our own experience operating storage assets in that region under previous assets, that we can continue to expect a variety of disruptions. In fact, as you see LNG emerge, and if it does look at all like the Gulf of Mexico did as LNG started to ramp up in that region, around 86% or so runtime is what can be expected as LNG ultimately ramps up to beyond its commissioning into full service. That represents 15% or so of volatility that's going to be introduced into our market.
Of course, based on the new demand that comes from LNG and how it's getting that supply, we continue to expect to see tightening of supply-demand fundamentals adding to the story of volatility here. Big picture, still early days is what I would say. We have observed that they have announced a second train ramp-up. We do expect LNG Canada to continue to ramp up into as early as late into next year and into Q1 2026. That is going to obviously have an impact on the supply-demand balance here. It does impact, obviously, the way that customers are looking at how they contract in Alberta, as you've witnessed, of course, by some of the contracting announced by some of our competitors. We are highly encouraged by what we're seeing, and it's still early days.
Got it. That's helpful. Thank you for that.
Appreciating the dividend announcement today. I was just wondering if you might be able to dive in a little bit more on your current thoughts for capital allocation. Seems like there could be some nice growth opportunities, little bolt-ons there, and just wanted to see how you think about that versus potentially even acquisitions or dividend growth in general.
Yeah. Absolutely. Thanks, Jeremy. With the announcement, that represents roughly 50% of our DCF via the $0.22 dividend. In terms of further capital allocation, we view, again, and consistent with previous messaging, those brownfield accretive opportunities as the first priority of that incremental deployment. As mentioned, we have that $50 million-$150 million targeted deployment based on an array of brownfield projects aimed at increasing working gas capacity at several of our facilities, as well as enhancing the deliverability.
In addition to just general efficiency debottlenecking initiatives and plant-side improvements. In terms of the pace of that deployment, I think as we've continued to prioritize our brownfield project stack, as you can imagine, in an increasing spread environment. That will continue to be a huge focus for our team. You can expect the pace of that capital deployment to accelerate over the next one to three years, but we're feeling very confident in that $50 million-$150 million. That then leaves excess cash flow of that remaining 50% post-dividend. I think there, Jeremy, what I'd say is quarter to quarter, we'll assess as a team in concert with our board as to the most accretive uses of that excess cash to drive value through the business and for our shareholders. That will just be an opportunistic quarterly discussion with our board.
Got it. Understood. That's helpful.
I'll leave it there. Thanks.
Thanks, Jeremy.
Again, if you have any questions, please press star and then one key on your touch-tone telephone. I'm not showing any further questions at this time. I would now like to turn the call back over to Toby McKenna for any closing remarks. Please go ahead.
Thanks, Janice. Before we wrap up, I just want to thank our team for all their hard work this quarter and to our investors for your continued trust and support as we start this new chapter as a public company. We're committed to delivering safe and reliable natural gas storage services in our premium storage markets, and we're confident Rockpoint is well positioned to capture the opportunities ahead. Thank you again for joining us today on our first earnings call and for your support of Rockpoint Gas Storage Inc.
We look forward to updating you next quarter and for an exciting quarter that lies ahead.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may now disconnect. Everyone, have a great day.