August 11, 2022 7:00 AM – Release here
CALGARY, AB – 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 month periods ended June 30, 2022.
SECOND-QUARTER 2022 HIGHLIGHTS
- Tidewater Renewables generated another solid quarter of Adjusted EBITDA(1) of $16.9 million and net income of $4.4 million during the second quarter of 2022. Net cash provided by operating activities totaled $13.9 million for the second quarter of 2022, with distributable cash flow(1) of $11.3 million.
- The Corporation has reached several important milestones on its 3,000 bbl/d Renewable Diesel & Renewable Hydrogen Complex (“HDRD Complex”) including the commencement and completion of various construction activities. Tidewater Renewables expects production of Renewable Diesel in the first quarter of 2023. As of June 30, 2022, the Corporation expects to receive an additional 140,926 British Columbia Low Carbon Fuel Standard (“BC LCFS”) under its Renewable Diesel Project Part 3 Agreement with the Government of British Columbia.
- On June 28, 2022, Tidewater Renewables announced a multi-year agreement with an investment-grade company to sell Federal Clean Fuel Regulation (“CFR”) credits that it will receive through the production and sale of renewable fuels produced at the HDRD Complex, adding previously unrecognized value and an incremental revenue stream to the Corporation. As part of the transaction, Tidewater Renewables agreed to sell a total of 45,000 CFR credits at $95 per credit. This multi-year agreement extends to June 30, 2025. At similar CFR credit values, Tidewater Renewables’ HDRD Complex has the potential of generating an incremental $30 million of Run Rate EBITDA(1) assuming other factors remain constant.
- Tidewater Renewables continues to expand its feedstock supply and marketing business to secure feedstock for its growth projects. During the quarter, the Corporation launched its strategic investment in Rimrock Cattle Company Ltd. (“RCC”). RCC is expected to generate material feedstock volumes for use in both the RNG and renewable fuels business units. The Corporation is also pleased with the continued outperformance and growth of its renewable feedstock collection business since its acquisition in Q4 2021. The Corporation continues to pursue partnership opportunities and long-term arrangements to secure a diversified supply of feedstocks.
- During the second quarter the Corporation made significant progress on its RNG business and has commenced preliminary engineering and design on its announced High River RNG Facility. This facility is expected to be backstopped by 10 to 20 year offtake agreements with an investment grade counterparty and has secured a long-term feedstock supply from the Corporation’s strategic partnership with RCC.
- The Corporation’s base business continues to exceed previous guidance and expectations with 2022 Adjusted EBITDA and 2023 Run Rate EBITDA(1) expected to be at the high end of the previously disclosed ranges of $50 – 55 million and $140 – 150 million, respectively (excluding any additional value from CFR credits).
| (1) | Adjusted EBITDA, distributable cash flow, net debt and Run Rate EBITDA used throughout this press release are non-GAAP financial measures or ratios. See the “Non-GAAP and Other Financial Measures” in this press release and the Corporation’s MD&A for information on each non-GAAP financial measure or ratio. |
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 month and six month periods ended June 30, 2022, which are available under the Corporation’s profile on SEDAR at www.sedar.com and on its website at www.tidewater-renewables.com.
Financial Highlights
| Three months ended June 30, | Six months ended June 30, | |||||||||
| (in thousands of Canadian dollars except per share information) | 2022 | 2021(1) | 2022 | 2021(1) | ||||||
| Revenue | $ | 19,730 | $ | – | $ | 36,980 | $ | – | ||
| Net income (loss) attributable to shareholders | $ | 4,363 | $ | (735) | $ | 21,877 | $ | (735) | ||
| Basic and diluted net income (loss) attributable to shareholders per share | $ | 0.13 | $ | – (3) | $ | 0.63 | $ | – (3) | ||
| Adjusted EBITDA (2,4) | $ | 16,902 | $ | – | $ | 29,639 | $ | – | ||
| Net cash provided by operating activities | $ | 13,903 | $ | – | $ | 33,188 | $ | – | ||
| Distributable cash flow (2) | $ | 11,274 | $ | – | $ | 19,190 | $ | – | ||
| Distributable cash flow per common share – basic and diluted (2) | $ | 0.32 | $ | – | $ | 0.55 | $ | – | ||
| Total common shares outstanding (000s) | 34,712 | – (3) | 34,712 | – (3) | ||||||
| Total assets | $ | 876,497 | $ | – | $ | 876,497 | $ | – | ||
| Net debt (2) | $ | 107,829 | $ | – | $ | 107,829 | $ | – | ||
| Notes: | |
| (1) | The comparable periods presented are from the date of incorporation, May 11, 2021, to June 30, 2021. |
| (2) | See “Non-GAAP and Other Financial Measures” in the Corporation’s press release and MD&A. |
| (3) | At June 30, 2021 only one common share was outstanding which was subsequently redeemed by the Corporation. |
| (4) | For the three and six months ended June 30, 2022, Adjusted EBITDA includes $642 from its proportionate share of RCC’s Adjusted EBITDA. |
OUTLOOK AND CORPORATE UPDATE
Tidewater Renewables is pleased to deliver its third full quarter of operations, generating solid Adjusted EBITDA of $16.9 million and distributable cash flow of $11.3 million. Tidewater Renewables continues to exceed prior guidance and expectations with 2022 Adjusted EBITDA and 2023 Run Rate EBITDA expected to be at the high end of the previously disclosed ranges of $50 – 55 million and $140 – 150 million, respectively (excluding any additional value from CFR credits).
Construction of the Corporation’s HDRD Complex continues to progress with multiple key milestones being achieved through summer. Tidewater Renewables expects the HDRD Complex to deliver $90 – 100 million of Run Rate EBITDA (excluding any additional value from CFR credits) once it is commissioned in the first quarter of 2023. The Corporation’s gross capital cost expectations remain unchanged from previous guidance, at approximately $235 million. The Corporation continues to monitor macro-economic conditions, including those that affect the global supply chain, and has proactively accelerated the ordering of certain long and medium-lead equipment to lock-in material costs and help mitigate any potential supply-chain disruptions.
The Corporation remains hedged on approximately 50% and 30% of the HDRD Complex’s feedstock requirements through 2023 and 2024 respectively, as well as the majority of its Canola Co-Processing feedstock.
CONFERENCE CALL
On July 27th, 2022 Tidewater Midstream, the Corporation’s majority shareholder and parent, announced its financing plan to fully fund the repayment of $125 million senior unsecured notes and $20 million second lien term loan. The note and second lien repayments will be funded through proceeds from the announced unit offering and draws on an expanded senior credit facility, in aggregate the Financing Plan (“Financing Plan”). During the period prior to Financing Plan close, securities regulation restricts issuers from certain marketing activities. To comply with this requirement, Tidewater Midstream and the Corporation will not be holding their regularly scheduled post quarter earnings calls and expect to resume the practice following their third quarter 2022 results. Management will be available for investor relations engagement following the Financing Plan close, currently expected to be on or about August 16, 2022.
ABOUT TIDEWATER RENEWABLES
Tidewater Renewables is traded on the TSX under the symbol “LCFS”. Tidewater Renewables is a multi-faceted, energy transition company. The Corporation is focused on the production of low carbon fuels, including renewable diesel, renewable hydrogen and renewable natural gas, as well as carbon capture through future initiatives. 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. The Corporation is pursuing this objective through the ownership, development, and operation of clean fuels projects and related infrastructure, utilizing existing proven technologies. Organically, Tidewater Renewables will seek to leverage the existing infrastructure and engineering expertise of Tidewater Midstream, its majority shareholder, regarding the development of the Corporation’s portfolio of greenfield and brownfield capital projects as well as the expansion of the Corporation’s product offerings. Additional information relating to Tidewater Renewables is available on SEDAR at www.sedar.com 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 financial measures when assessing its results and measuring overall performance. The intent of non-GAAP measures and ratios is to provide additional useful information to investors and analysts. Certain of these financial measures do not have a standardized meaning prescribed by GAAP and are therefore 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 financial measures which have not been defined by GAAP, including reconciliations to the closest comparable GAAP measure, see the “Non-GAAP and Other Financial Measures” section of Tidewater Renewables’ most recent MD&A which is available on SEDAR.
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 a non-GAAP measure. Adjusted EBITDA is calculated as income (or loss) before finance costs, taxes, depreciation, share-based compensation, unrealized gains/losses on derivative contracts, non-cash items, transaction costs, lease payments under IFRS 16 Leases and other items considered non-recurring in nature plus the Corporation’s proportionate share of EBITDA in its equity investment.
The following table reconciles net income, the nearest GAAP measure, to Adjusted EBITDA:
| Three months ended June 30, | Six months ended June 30, | |||||||
| (in thousands of Canadian dollars) | 2022 | 2021(1) | 2022 | 2021(1) | ||||
| Net income (loss) | $ | 4,363 | $ | (735) | $ | 21,877 | $ | (735) |
| Deferred income tax expense (recovery) | 1,919 | (265) | 8,362 | (265) | ||||
| Depreciation | 4,815 | – | 9,503 | – | ||||
| Finance costs | 1,410 | – | 2,184 | – | ||||
| Share-based compensation | 904 | – | 1,354 | – | ||||
| Unrealized loss (gain) on derivative contracts | 2,876 | – | (14,309) | – | ||||
| Transaction costs | 347 | 1,000 | 400 | 1,000 | ||||
| Adjustment to share of profit from equity accounted investments (2) | 268 | – | 268 | – | ||||
| Adjusted EBITDA | $ | 16,902 | $ | – | $ | 29,639 | $ | – |
| Notes: | |
| (1) | The comparable periods presented are for the date of incorporation, May 11, 2021 to June 30, 2021. |
| (2) | For the three and six months ended June 30, 2022, Adjusted EBITDA includes $642 from its proportionate share of RCC’s Adjusted EBITDA. |
Distributable Cash Flow
Distributable cash flow is a non-GAAP measure. Management believes distributable cash flow is a useful metric for investors when assessing the amount of cash flow generated from 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. Distributable cash flow is calculated as net cash provided by 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. Deducted from distributable cash flow are maintenance capital expenditures, including turnarounds, 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. It also excludes non-recurring transactions that do not reflect Tidewater Renewables’ ongoing operations.
The following table reconciles net cash provided by operating activities, the nearest GAAP measure, to distributable cash flow:
| Three months ended June 30, | Six months ended June 30, | ||||||||||
| (in thousands of Canadian dollars) | 2022 | 2021(1) | 2022 | 2021(1) | |||||||
| Net cash provided by operating activities | $ | 13,903 | $ | – | $ | 33,188 | $ | – | |||
| Add (deduct): | |||||||||||
| Changes in non-cash working capital | 1,896 | 1,000 | (4,764) | 1,000 | |||||||
| Transaction costs | 347 | (1,000) | 400 | (1,000) | |||||||
| Interest and financing charges | (446) | – | (1,002) | – | |||||||
| Payment of lease liabilities | (1,434) | – | (2,905) | – | |||||||
| Maintenance capital | (2,992) | – | (5,727) | – | |||||||
| Distributable cash flow | $ | 11,274 | $ | – | $ | 19,190 | $ | – | |||
| Notes: | |
| (1) | The comparable periods presented are for the date of incorporation, May 11, 2021 to June 30, 2021. |
Run Rate EBITDA
Run Rate EBITDA is defined as the expected Adjusted EBITDA to be generated by Tidewater Renewables’ specific Renewable Assets, or specific growth project, that corresponds to a full year of operations at full capacity. Run Rate EBITDA excludes non-cash items including depreciation and share-based compensation. The calculation of Run Rate EBITDA is based on certain estimates and assumptions. It should not be regarded as a representation, by the Corporation or any other person, that Tidewater Renewables will achieve such operating results. Investors should not place undue reliance on the Run Rate EBITDA and should make their own independent assessment of the Corporation’s future results or operations, cash flows and financial condition.
Run Rate EBITDA guidance related to the HDRD Complex includes various assumptions including a renewable refinery margin of $90/ bbl. The renewable refinery margin is derived from vegetable oil strip pricing for the Corporation’s feedstocks, which are 50% and 30% hedged through 2023 and 2024 respectively, current diesel strip pricing and average BC LCFS sale prices over the past 12-months. The renewable refinery margin currently excludes any incremental value from CFR credits.
Run Rate EBITDA guidance related to CFS credits, which is excluded from other guidance, assumes that CFS credits can be sold at an average price of $95/ credit, based on the Corporation’s previously announced forward sale.
Non-GAAP Financial Ratios
Distributable Cash Flow Per Common Share
| Three months ended June 30, | Six months ended June 30, | ||||||||||
| (in thousands of Canadian dollars except per share information) | 2022 | 2021(1) | 2022 | 2021(1) | |||||||
| Distributable cash flow | $ | 11,274 | $ | – | $ | 19,190 | $ | – | |||
| Distributable cash flow per share– basic and diluted (2) | $ | 0.32 | $ | – | $ | 0.55 | $ | – | |||
| Notes: | |
| (1) | The comparable periods presented are for the date of incorporation, May 11, 2021 to June 30, 2021. |
| (2) | At June 30, 2021 only one common share was outstanding which was subsequently redeemed by the Corporation. |
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:
| (in thousands of Canadian dollars) | June 30, 2022 | |
| Senior Credit Facility | $ | 110,000 |
| RNG Credit Facility | 7,900 | |
| Cash | (10,071) | |
| Net debt | $ | 107,829 |