FOURTH QUARTER 2022 HIGHLIGHTS
- Tidewater Renewables completed its first full year of operations with net income attributable to shareholders of $25.9 million, Adjusted EBITDA(1) of $62.4 million and distributable cash flow(1) of $38.1 million. The Corporation exited 2022 with strong fourth quarter results, including net income attributable to shareholders or $14.1 million, compared to $0.1 million in the fourth quarter of 2021. Adjusted EBITDA(1) also increased to $16.7 million in the fourth quarter of 2022, compared to $10.6 million in the fourth quarter of 2021, representing a 57% increase. Net cash provided by operating activities was $29.1 million for the fourth quarter of 2022, with distributable cash flow(1) of $9.4 million.
- On December 16, 2022, the Corporation executed a renewable diesel offtake agreement with an investment grade partner to sell approximately 50% of the HDRD Complex’s production through to the end of 2024.
- The Corporation anticipates that the HDRD Complex will scale up production gradually in the second half of 2023, with an average utilization rate between 75 – 80% of its design capacity. Based on this utilization, second-half 2023 corporate Adjusted EBITDA(1) is expected to range between $50 – 60 million, inclusive of $35 – 45 million of Adjusted EBITDA(1) from the HDRD Complex. When the HDRD Complex is operating at its design capacity, annualized corporate run rate EBITDA(1) is expected to range between $130 – 155 million.
- On October 17, 2022, the Corporation announced that it entered a 20-year RNG offtake agreement with FortisBC Energy Inc. (“FortisBC”), whereby FortisBC expects to purchase up to 100% of the Corporation’s production from its announced RNG Facility in Foothills County, Alberta (the “RNG Facility”). Tidewater Renewables continues to advance the facility’s engineering design and regulatory applications.
- On October 24, 2022, the Corporation announced the closing of a $150 million five-year senior secured second lien credit facility (the “AIMCo Facility”) with an affiliate of Alberta Investment Management Corporation (“AIMCo”). The AIMCo Facility initially bears interest of 6.50% per annum, increases by 37.5 basis points in year four & year five and is subject to certain inflation escalators. In conjunction with the AIMCo Facility, Tidewater Renewables issued 3.375 million warrants to AIMCo. Each warrant entitles the holder to purchase one common share of Tidewater Renewables at a price of $14.84, subject to certain adjustments, for a term of five years.
HDRD COMPLEX UPDATE
- Tidewater Renewables has safely completed an active year of construction on its HDRD Complex. Completion is expected by mid-April 2023, with commissioning beginning at the end of the first quarter and commencement of operations in the second quarter of 2023.
The HDRD Complex has endured material cost pressures, including a challenging labour market, supply chain issues, specialty metal shortages, select contractor underperformance and general cost inflation. The current estimated gross project cost, including commissioning, is approximately $342 million (vs. the previous estimate of $260 million). Gross project costs are expected to be offset by an estimated $125 million of BC LCFS credits issued by the Government of British Columbia, under a Part 3 agreement, for achieving certain construction milestones.
Tidewater Renewables expects to fund the remaining project costs through the sale of BC LCFS credits and with the support of its current capital providers, among other sources. During the first half of 2023, the Corporation expects to receive proceeds of approximately $53 million for the sale of BC LCFS credits, under executed agreements. Despite the cost pressures, the project’s economics remain attractive, and payback is expected in less than three years of operations.
- As the HDRD Complex ramps-up in the second half of 2023, it is expected to operate at between 75 – 80% of its design capacity and contribute approximately $35 – 45 million of Adjusted EBITDA ($70 – 90 million annualized). When the HDRD Complex is operating at its design capacity, it is expected to generate annualized run rate EBITDA of between $90 – 115 million.
(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 consolidated financial statements and related MD&A for the year ended December 31, 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 |
Year ended |
|||||||||
(in thousands of Canadian dollars except per share |
2022 |
2021 |
2022 |
2021(1) |
||||||
Revenue |
$ |
19,422 |
$ |
16,925 |
$ |
76,099 |
$ |
23,055 |
||
Net income attributable to shareholders |
$ |
14,132 |
$ |
80 |
$ |
25,942 |
$ |
2,763 |
||
Basic net income (loss) attributable to |
$ |
0.41 |
$ |
0.00 |
$ |
0.75 |
$ |
0.14 |
||
Diluted net income (loss) attributable to |
$ |
0.40 |
$ |
0.00 |
$ |
0.74 |
$ |
0.14 |
||
Adjusted EBITDA (2,3) |
$ |
16,717 |
$ |
10,635 |
$ |
62,440 |
$ |
15,965 |
||
Net cash provided by operating activities |
$ |
29,095 |
$ |
9,963 |
$ |
67,444 |
$ |
8,187 |
||
Distributable cash flow (2) |
$ |
9,433 |
$ |
7,880 |
$ |
38,060 |
$ |
11,820 |
||
Distributable cash flow per common share |
$ |
0.27 |
$ |
0.23 |
$ |
1.10 |
$ |
0.59 |
||
Distributable cash flow per common share |
$ |
0.27 |
$ |
0.23 |
$ |
1.09 |
$ |
0.59 |
||
Total common shares outstanding (000s) |
34,719 |
34,712 |
34,719 |
34,712 |
||||||
Total assets |
$ |
993,321 |
$ |
730,992 |
$ |
993,321 |
$ |
730,992 |
||
Net debt (2) |
$ |
211,232 |
$ |
58,978 |
$ |
211,232 |
$ |
58,978 |
||
Notes: |
|
(1) |
The comparable period presented is from the date of incorporation, May 11, 2021, to December 31, 2021. |
(2) |
See “Non-GAAP and Other Financial Measures” in the Corporation’s press release and MD&A. |
(3) |
For the three months and year ended December 31, 2022, Adjusted EBITDA includes $1,149 and $2,658 from its proportionate share of RCC’s Adjusted EBITDA, respectively. |
ANNUAL OUTLOOK AND CORPORATE UPDATE
For 2023, Tidewater Renewables continues to observe strong industry fundamentals including robust prices for renewable fuels, strong demand for environmental credits, durable government support and expanding environmental commitments & targets. The Corporation’s focus remains on safely and successfully commissioning Canada’s first renewable diesel facility. The incremental Adjusted EBITDA from the HDRD Complex is expected to launch the next phase of Tidewater Renewables’ growth.
During the first half of 2023, the Corporation plans to concentrate its capital program on the commissioning of the HDRD Complex and supporting the planned turnaround at PGR in the second quarter of 2023. Tidewater Renewables expects 2023 maintenance capital to range from $14 million to $16 million with the majority related to the planned turnaround of its renewable fuel assets at the Prince George refinery.
CONFERENCE CALL
In conjunction with the earnings release, investors will have the opportunity to listen to Tidewater Renewables’ senior management review its fourth quarter 2022 results via a joint conference call with Tidewater Midstream and Infrastructure Ltd. on Thursday, March 9, 2023 at 11:00 am MDT (1:00 pm EDT).
To access the conference call by telephone, dial 416-764-8659 (local / international participant dial in) or 1-888-664-6392 (North American toll free participant dial in). A question and answer session for analysts will follow management’s presentation.
A live audio webcast of the conference call will be available by following this link: https://app.webinar.net/wPl5R0OLOB4 will also be archived there for 90 days.
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.
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, that utilize existing proven technologies. Organically, Tidewater Renewables seeks to leverage the existing infrastructure and engineering expertise of Tidewater Midstream and Infrastructure Ltd., 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, distributable cash flow and run rate EBITDA.
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 |
Year ended |
||||||||
(in thousands of Canadian dollars) |
2022 |
2021 |
2022 |
2021(1) |
|||||
Net income |
$ |
14,132 |
$ |
80 |
$ |
25,942 |
$ |
2,763 |
|
Deferred income tax expense |
5,982 |
175 |
9,966 |
1,234 |
|||||
Depreciation |
5,062 |
4,592 |
19,443 |
6,707 |
|||||
Finance costs |
2,666 |
759 |
7,547 |
1,476 |
|||||
Share-based compensation |
740 |
425 |
3,217 |
680 |
|||||
Unrealized loss (gain) on derivative contracts |
(15,208) |
4,322 |
(7,076) |
1,552 |
|||||
Transaction costs |
304 |
282 |
964 |
1,553 |
|||||
Adjustment to share of profit from equity |
3,039 |
– |
2,437 |
– |
|||||
Adjusted EBITDA |
$ |
16,717 |
$ |
10,635 |
$ |
62,440 |
$ |
15,965 |
Notes: |
|
(1) |
The comparable period presented is from the date of incorporation, May 11, 2021 December 31, 2021. |
(2) |
For the three months and year ended December 31, 2022, Adjusted EBITDA includes $1,149 and $2,658 from its proportionate share of RCC’s Adjusted EBITDA, respectively. |
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 |
Year ended |
|||||||||
(in thousands of Canadian dollars) |
2022 |
2021 |
2022 |
2021(1) |
||||||
Net cash provided by operating activities |
$ |
29,095 |
$ |
9,963 |
$ |
67,444 |
$ |
8,187 |
||
Add (deduct): |
||||||||||
Changes in non-cash working capital |
(13,537) |
60 |
(8,713) |
5,895 |
||||||
Transaction costs |
304 |
282 |
964 |
1,553 |
||||||
Interest and financing charges |
(1,487) |
(569) |
(3,650) |
(790) |
||||||
Payment of lease liabilities |
(1,588) |
(1,435) |
(5,982) |
(2,147) |
||||||
Maintenance capital |
(3,354) |
(421) |
(12,003) |
(878) |
||||||
Distributable cash flow |
$ |
9,433 |
$ |
7,880 |
$ |
38,060 |
$ |
11,820 |
Notes: |
|
(1) |
The comparable period presented is from the date of incorporation, May 11, 2021 to December 31, 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 contains 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 40% hedged through 2023 and 2024, respectively, current diesel strip pricing, the Corporation’s previously announced Canadian Clean Fuel Regulation credit sales credit sales and average BC LCFS credits sale prices over the past 12-months.
Non-GAAP Financial Ratios
Distributable Cash Flow Per Common Share
Three months ended |
Year ended |
||||||||||
(in thousands of Canadian dollars except per share |
2022 |
2021 |
2022 |
2021(1) |
|||||||
Distributable cash flow |
$ |
9,433 |
$ |
7,880 |
$ |
38,060 |
$ |
11,820 |
|||
Distributable cash flow per share– basic |
$ |
0.27 |
$ |
0.23 |
$ |
1.10 |
$ |
0.59 |
|||
Distributable cash flow per share– diluted |
$ |
0.27 |
0.23 |
1.09 |
$ |
0.59 |
Notes: |
|
(1) |
The comparable periods presented is from the date of incorporation, May 11, 2021 to December 31, 2021. |
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) |
December 31, 2022 |
|
Senior Credit Facility |
$ |
72,611 |
Term Debt |
150,000 |
|
Cash |
(11,379) |
|
Net debt |
$ |
211,232 |