LCFS Tidewater Renewables Ltd

CALGARY, AB, Aug. 15, 2024 /CNW/ - Tidewater Renewables Ltd. ("Tidewater Renewables" or the "Corporation") (TSX: LCFS) is pleased to announce that it has filed its condensed interim consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2024.

SECOND QUARTER HIGHLIGHTS

• Net income attributable to shareholders was $4.9 million during the second quarter of 2024, compared to net income of $2.7 million in Q2 2023.
• During the second quarter of 2024, Tidewater Renewables generated record Adjusted EBITDA⁽¹⁾ of $29.6 million, an increase of 17% from the previous quarter.
• Net cash provided by operating activities totaled $32.5 million and the Corporation generated record distributable cash flow⁽¹⁾ of $20.3 million in the second quarter of 2024.
• Tidewater Renewables' second quarter 2024 results were driven by the improvements in throughput and reliability at the Renewable Diesel & Renewable Hydrogen Complex ("HDRD"). During the second quarter of 2024, the HDRD Complex averaged daily throughput of 2,925 bbl/d, representing a 98% utilization rate.
• During the second quarter of 2024, Tidewater Renewables continued to make meaningful progress on the front-end engineering design ("FEED") of its proposed 6,500 bbl/d sustainable aviation fuel ("SAF") project. The SAF project remains subject to a final investment decision which is expected in 2025.

SUBSEQUENT EVENTS

• The Special Committees and Board of Directors of both Tidewater Renewables and Tidewater Midstream ("the Parties") have approved entering into a related party purchase and sale agreement, whereby Tidewater Midstream will acquire from Tidewater Renewables its canola co-processing infrastructure, the fluid catalytic cracking co-‎processing infrastructure, working interests in various other Prince George refinery units, and a natural gas storage facility co-located at Tidewater Midstream's Brazeau River Complex. Consideration for this related party transaction will consist of a cash payment by Tidewater Midstream of $129.7 million, and a commitment to purchase a minimum of $80.7 million for BC LCFS credits, as they are produced by Tidewater Renewables, over the next nine months, if the HDRD Complex continues to operate at over 90% utilization (the "Proposed Transaction"). The Proposed Transaction is expected to close during the third quarter of 2024, pending regulatory and lender approvals. The Corporation will use the net proceeds from the Proposed Transaction to repay amounts on its Senior Credit Facility, which will provide an immediate improvement to Tidewater Renewables' liquidity issues and leverage profile and a reduction to cash interest costs going forward. 
• On August 14, 2024, the Corporation entered into a definitive purchase and sale agreement for the sale its used cooking oil feedstock assets for $10.5 million, subject to certain adjustments prior to and following the closing of the transaction. The sale is expected to close in September, 2024. Net proceeds of this transaction will be used to repay outstanding debt balances.

Selected financial and operating information are outlined below and should be read with the Corporation's condensed interim consolidated financial statements and related MD&A for the three and six months ended June 30, 2024, which are available under the Corporation's profile on SEDAR+ at www.sedarplus.ca and on its website at www.tidewater-renewables.com.

Financial Highlights

OUTLOOK AND CORPORATE UPDATE 

Tidewater Renewables' primary focus continues to be on maintaining a high and consistent utilization rate at the HDRD Complex. The Corporation expects the HDRD Complex to exceed an average 2024 throughput of 2,550 bbl/d, inclusive of the 2,522 bbl/d of throughput in the first half of 2024. During 2024, the Corporation also expects to optimize the HDRD Complex's operating costs and progress the engineering design on its announced SAF project.

In line with its objectives, Tidewater Renewables expects to execute a restrained 2024 capital program significantly offset by government funding. The Corporation's 2024 maintenance capital expenditures are expected to be approximately $4.4 million.

RELATED PARTY ASSET SALES AND FORWARD CREDIT SALES

During the first and second quarters of 2024, Tidewater Renewables forward sold BC LCFS credits at an average price of approximately $450 per credit to various counterparties. Towards the end of the second quarter of 2024, when the Corporation approached numerous counterparties to contract BC LCFS credit sales for the third quarter of 2024, it was unable to secure any bids. BC LCFS credit sales prices for July 2024 transactions, reported by the Government of British Columbia in August 2024, confirmed that only two BC LCFS credit sales transactions occurred at an average price of $207 per credit. This sharp decline in BC LCFS credit prices is believed to be a function of large volumes of subsidized US renewable diesel physically moving out of the oversupplied US renewable fuel market and into the higher value BC market. Aggravating the situation is, in management's view, overlapping US and Canadian low carbon fuel policies which allow US renewable diesel producers to take advantage of US and state compliance credits, which are generated at the point of production, then import their volumes to Canada and generate BC LCFS emission credits at the point of sale.

In the long-term, the Corporation believes that the combination of supply demand fundamentals forcing the shut-in of high-cost US renewable fuel production, tightening California LCFS compliance obligations, and tightening BC LCFS compliance obligations is expected to ease the pressure on BC LCFS credit prices. In addition, cold weather diesel specifications are expected to limit physical imports of renewable diesel in the fourth quarter of 2024 and first quarter of 2025.

However, the current market situation has created a liquidity issue for the Corporation. Tidewater Renewables relies heavily on revenue generated from environmental attributes such as the BC LCFS and CFR credits. The Corporation has approached the BC Government to discuss potential changes the government could make to the BC LCFS credit market in an attempt to improve liquidity and pricing stability for BC LCFS capital and operating emission credits.

As the Corporation had no forward sales contracted for BC LCFS credits expected to be generated from renewable diesel sales during the third quarter of 2024, management has been evaluating alternative liquidity sources for the Corporation, including the Proposed Transaction, while the sector awaits a longer-term solution. In connection with the Proposed Transaction, the Corporation's Board of Directors established an independent special committee (the "Renewables Special Committee") to evaluate the Proposed Transaction and negotiate the terms thereof with the independent special committee established by the Board of Directors of Tidewater Midstream (the "Midstream Special Committee") and to assess alternative liquidity sources. The Renewables Special Committee has retained a financial advisor and legal counsel in connection with the Proposed Transaction.

The Special Committees and Board of Directors of both Tidewater Renewables and Tidewater Midstream have approved entering into a related party agreement whereby Tidewater Midstream will acquire various assets and commit to future BC LCFS credit purchases from Tidewater Renewables, in exchange for total potential proceeds consisting of $129.7 million and a commitment by Tidewater Midstream to purchase a minimum of $80.7 million for BC LCFS credits as they are produced by Tidewater Renewables over the next nine months, if the HDRD Complex continues to operate at over 90% utilization. The estimated proceeds will be used to repay amounts outstanding on the Senior Credit facility, which will provide an immediate improvement to Tidewater Renewables' liquidity issues, leverage profile and a reduction to go forward cash interest costs.

The assets to be divested include Tidewater Renewables' canola co-processing infrastructure, the fluid catalytic cracking ("FCC") co-‎processing infrastructure and steam methane reformer, working interests in various other Prince George refinery units, and a natural gas storage facility co-located at Tidewater Midstream's Brazeau River Complex (the "Divestiture Assets").

The Divestiture Assets generated annual Adjusted EBITDA⁽¹⁾ of $40.0 million to $50.0 million through previously contracted take-or-pay or operating agreements with Tidewater Midstream. Upon close of the Proposed Transaction, the contracted take-or-pay and operating agreements will be terminated.

The completion of the Proposed Transaction is contingent upon Tidewater Renewables securing all requisite regulatory consents and approvals, both Tidewater Renewables and Tidewater Midstream obtaining financing approval, and the completion of final documentation. Tidewater Renewables is exempt from the valuation and majority of the minority approval requirements stipulated in Section 5.4 and 5.6 of Multilateral Instrument 61-101, Protection of Minority Security Holders in Special Transactions ("MI 61-101"), due to the "financial hardship" exemption provided in Section 5.5(g) and 5.7(1)(e) of MI 61-101.

CONFERENCE CALL

In conjunction with the earnings release, investors will have the opportunity to listen to Tidewater Renewables' senior management review its second quarter 2024 results via a conference call on Thursday, August 15, 2024 at 10:00 am MDT (12:00 pm EDT). A question and answer session for analysts will follow management's presentation.

To join the conference call without operator assistance, please register here approximately 5 minutes in advance to receive an automated call-back when the session begins.

Alternatively, you can dial 800-836-8184 (toll-free in North America) or 289-819-1350 to reach a live operator who will place you into the call.

For those accessing the call via Cision's investor website, we suggest logging in at least 15 minutes prior to the start of the live event. For those dialing in, participants should ask to be joined into the Tidewater Renewables Ltd. earnings call.

A live audio webcast of the conference call will be available here, and archived for 90 days.

ABOUT TIDEWATER RENEWABLES

Tidewater Renewables is a multi-faceted energy transition company. The Corporation is focused on the production of low carbon fuels, including renewable diesel. The Corporation was created in response to the growing demand for renewable fuels in North America and to capitalize on its potential to efficiently turn a wide variety of renewable feedstocks (such as tallow, used cooking oil, distillers corn oil, soybean oil, canola oil and other biomasses) into low carbon fuels. Tidewater Renewables' objective is to become one of the leading Canadian renewable fuel producers. Additional information relating to Tidewater Renewables is available on SEDAR+ at www.sedarplus.ca and at www.tidewater-renewables.com.

NON-GAAP AND OTHER FINANCIAL MEASURES

Throughout this press release and in other materials disclosed by the Corporation, Tidewater Renewables uses a number of non-GAAP financial measure, non-GAAP ratios, capital management measures and supplementary financial measures when assessing its results and measuring overall performance which do not have standardized meanings as prescribed under International Financial Reporting Standards, which are also generally accepted accounting principles ("GAAP") for publicly accountable entities in Canada. Such measures and ratios are considered non-GAAP financial measures ("non-GAAP measures") and non-GAAP financial ratios ("non-GAAP ratios"), respectively. The intent of non-GAAP measures and non-GAAP ratios is to provide additional useful information to investors and analysts as further described below. These non-GAAP measures and non-GAAP ratios are unlikely to be comparable to similar measures presented by other entities. As such, these measures should not be considered in isolation or used as a substitute for measures of performance prepared in accordance with GAAP. For more information with respect to the Corporation's non-GAAP measures, non-GAAP ratios, capital management measures and supplementary financial measures, including reconciliations to the closest comparable GAAP measure for any non-GAAP measures and non-GAAP ratios, see the "Non-GAAP and Other Financial Measures" section of Tidewater Renewables' MD&A which is available on SEDAR+ at www.sedarplus.ca.

Non-GAAP Financial Measures

The non-GAAP financial measures used by the Corporation are Adjusted EBITDA and distributable cash flow.

Adjusted EBITDA

Adjusted EBITDA is calculated as income (or loss) before finance costs, taxes, depreciation, share-based compensation, unrealized gains and losses on derivative contracts, transaction costs, and other items considered non-recurring in nature, plus the Corporation's proportionate share of Adjusted EBITDA in its equity investment.

Adjusted EBITDA is used by management to set objectives, make operating and capital investment decisions, monitor debt covenants and assess performance. The Corporation issues guidance on Adjusted EBITDA and believes that it is useful for analysts and investors to assess the performance of the Corporation as seen from management's perspective. Investors should be cautioned that Adjusted EBITDA should not be construed as an alternative to net income, net cash provided by operating activities or other measures of financial results determined in accordance with GAAP. Investors should also be cautioned that Adjusted EBITDA as used by the Corporation may not be comparable to financial measures used by other companies with similar calculations.

The following table reconciles net income (loss), the nearest GAAP measure, to Adjusted EBITDA:

Distributable Cash Flow 

Distributable cash flow is calculated as net cash provided by (used in) operating activities before changes in non-cash working capital plus cash distributions from investments, transaction costs, non-recurring expenses, and after any expenditures that use cash from operations. Changes in non-cash working capital are excluded from the determination of distributable cash flow because they are primarily the result of seasonal fluctuations or other temporary changes, and are generally funded with short-term debt or cash flows from operating activities. Maintenance capital expenditures, including turnarounds, are deducted from distributable cash flow as they are ongoing recurring expenditures which are funded from operating cash flows. Transaction costs are added back as they vary significantly quarter to quarter based on the Corporation's acquisition and disposition activity. Distributable cash flow also excludes non-recurring transactions that do not reflect Tidewater Renewables' ongoing operations.

Management believes distributable cash flow is a useful metric for investors when assessing the amount of cash flow generated from the Corporation's normal operations. These cash flows are relevant to the Corporation's ability to internally fund growth projects, alter its capital structure, or distribute returns to shareholders.

The following table reconciles net cash provided by operating activities, the nearest GAAP measure, to distributable cash flow:

Non-GAAP Financial Ratios 

Distributable cash flow per common share (basic and diluted)

Distributable cash flow per common share is calculated as distributable cash flow over the weighted average number of common shares outstanding for the period.

Distributable cash flow is a non-GAAP financial measure. Management believes that distributable cash flow per common share provides investors an indicator of funds generated from the business that could be allocated to each shareholder's equity position.

Capital Management Measures

Net Debt

Net debt is defined as bank debt, less cash. Net debt is used by the Corporation to monitor its capital structure and financing requirements. It is also used as a measure of the Corporation's overall financial strength.

The following table reconciles net debt:

Supplementary Financial Measures

Growth Capital

Growth capital expenditures are defined as expenditures which are recoverable, incrementally increase cash flow or the earning potential of assets, expand the capacity of current operations, or significantly extend the life of existing assets. This measure can be used by investors to assess the Corporation's discretionary capital spending.

Maintenance Capital

Maintenance capital expenditures are generally defined as expenditures that support and/or maintain the current capacity, cash flow or earning potential of existing assets without the characteristic benefits associated with growth capital expenditures. These expenditures include major inspections and overhaul costs that are required on a periodic basis. This measure can be used by investors to assess the Corporation's non-discretionary capital spending.

Forward-Looking Information

Certain statements contained in this press release constitute forward-looking statements and forward-looking information (collectively referred to herein as, "forward-looking statements") within the meaning of applicable Canadian securities laws. Such forward-looking statements relate to future events, conditions or future financial performance of Tidewater Renewables based on future economic conditions and courses of action. All statements other than statements of historical fact may be forward-looking statements. Such forward-looking statements are often, but not always, identified by the use of any words such as "seek", "anticipate", "budget", "plan", "expect" and similar expressions. These statements involve known and unknown risks, assumptions, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Corporation believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this press release should not be unduly relied upon.

In particular, this press release contains forward-looking statements pertaining to, but not limited to, the following: the expected financial performance of the Corporation's capital projects and assets, including the HDRD Complex; the Corporation's ability to optimize the HDRD's operating costs; expectations regarding the Corporation's utilization rate and throughput at the HDRD Complex; the Corporation's continued ability to convert feedstock into low carbon fuels; the Corporation's ability to negotiate and enter into offtake agreements with investment grade counterparties, including with respect to the SAF project; the expectation that the Corporation will be able to grow its revenue, actively maintain and manage its capital projects and assets and achieve growth by selectively pursuing strategic business development opportunities; the Corporation's business plans and strategies, including the underlying existing assets and capital projects, and the success and timing of the projects and related milestones and capital costs; expectations related to the SAF facility including costs and regulatory approval thereof, timing of construction thereof and anticipated production therefrom; the ability to leverage existing infrastructure and engineering expertise of Tidewater Midstream regarding development of the Corporation's projects and product offerings; the future price and volatility of commodities; the Corporation's ability to execute a restrained 2024 capital program significantly offset by government funding; expectations related to the Corporation's maintenance capital program for 2024; the anticipated terms (including expected proceeds), timing and completion of the Proposed Transaction, the necessary approvals needed to complete the Proposed Transaction, the use of proceeds received under the Proposed Transaction and the operational and financial position and the results, and the liquidity and leverage position of the Corporation, following completion of the Proposed Transaction; and the Corporation's ability to negotiate and refinance its Senior Credit Facility and the Additional Debt Capacity under its Term Facility.

Although the forward-looking statements contained in this press release are based upon assumptions which management of the Corporation believes to be reasonable, the Corporation cannot assure investors that actual results will be consistent with these forward-looking statements. With respect to forward-looking statements contained in this press release, the Corporation has made assumptions regarding, but not limited to: Tidewater Renewables' ability to execute on its business plan; the timely receipt of all third party, governmental and regulatory approvals and consents sought by the Corporation; general economic and industry trends; operating assumptions relating to the Corporation's projects; expectations around level of output from the Corporation's projects, including assumptions relating to feedstock supply levels; the ownership and operation of Tidewater Renewables' business; regulatory risks; the expansion of production of renewable fuels by competitors; the future pricing of environmental credits; future commodity and renewable energy prices; sustained or growing demand for renewable fuels; the ability for the Corporation to successfully turn a wide variety of renewable feedstocks into low carbon fuels; changes in the credit-worthiness of counterparties; the Corporation's future debt levels and its ability to repay its debt when due; the Corporation's ability to continue to satisfy the terms and conditions of its credit facilities; the continued availability of the Corporation's credit facilities; the Corporation's ability to obtain additional debt and/or equity financing on satisfactory terms; the Corporation's ability to manage liquidity by working with its current capital  providers and other sources and through the sale of environmental credits; foreign currency, exchange, inflation and interest rate risks; and the other assumptions set forth in the Corporation's most recent annual information form available under the Corporation's profile on SEDAR+ at www.sedarplus.ca.

The Corporation's actual results could differ materially from those anticipated in the forward-looking statements, as a result of numerous known and unknown risks and uncertainties and other factors including, but not limited to: changes in supply and demand for low carbon products; general economic, political, market and business conditions, including fluctuations in interest rates, foreign exchange rates, supply chain pressures, inflation, stock market volatility and supply/demand trends; risks of health epidemics, pandemics and similar outbreaks, including COVID-19, which may have sustained material adverse effects on the Corporation's business, financial position, results of operations and/or cash flows; risks and liabilities inherent in the operations related to renewable energy production and storage infrastructure assets, including the lack of operating history and risks associated with forecasting future performance; competition for, among other things, third-party capital, acquisition opportunities, requests for proposals, materials, equipment, labour and skilled personnel; risks related to the ability to complete the Proposed Transaction on the terms (including proceeds) and timing expected or at all and the financial and operational, liquidity and leverage risks if the Proposed Transaction is not completed on such terms and timing or at all; risks related to the Corporation's ability to refinance its Senior Credit Facility and Term Debt Facility on acceptable terms; the risk that the Corporation's Senior Credit Facility and the applicable portions of the Term Debt Facility may not be renewed or extended beyond the August 18, 2024, or may not be renewed or extended at the same level; risks related to the environment and changing environmental laws in relation to the operations conducted with the Corporation's capital projects; risks related to and the other risks set forth in the Corporation's most recent annual information form available under the Corporation's profile on SEDAR+ at www.sedarplus.ca.

The foregoing lists are not exhaustive. Additional information on these and other factors which could affect the Corporation's operations or financial results are set forth in the Corporation's most recent annual information form, its MD&A and in other documents on file with the Canadian Securities regulatory Administrators available under the Corporation's profile on SEDAR+ at www.sedarplus.ca.

Management of the Corporation has included the above summary of assumptions and risks related to forward-looking statements provided in this press release in order to provide holders of common shares in the capital of the Corporation with a more complete perspective on the Corporation's current and future operations and such information may not be appropriate for other purposes. The Corporation's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do occur, what benefits the Corporation will derive from them. Readers are therefore cautioned that the foregoing list of important factors is not exhaustive, and they should not unduly rely on the forward-looking statements included in this press release. Tidewater Renewables does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable securities law. All forward-looking statements contained in this press release are expressly qualified by this cautionary statement. Further information about factors affecting forward-looking statements and management's assumptions and analysis thereof is available in the Corporation's most recent annual information form and other filings made by the Corporation with Canadian provincial securities commissions available under the Corporation's profile on SEDAR+ at www.sedarplus.ca.

Financial Outlook

This press release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about expectations regarding financial results for 2024 which are subject to the same assumptions, risk factors, limitations and qualifications as set out under the heading "Forward-Looking Information". The actual financial results of the Corporation may vary from the amounts set out herein and such variation may be material. The Corporation and its management believe that the financial outlook has been prepared on a reasonable basis, reflecting management's best estimates and judgments and the FOFI contained in this press release was approved by management as of the date hereof. However, because this information is subjective and subject to numerous risks, it should not be relied on as necessarily indicative of future results. Except as required by applicable securities laws, the Corporation undertakes no obligation to update such FOFI. FOFI contained in this press release was made as of the date hereof and was provided for the purpose of providing further information about the Corporation's anticipated future business operations on an annual basis. Readers are cautioned that the FOFI contained in this press release should not be used for purposes other than for which it is disclosed herein.

SOURCE Tidewater Renewables Ltd.