Operator: Good morning, ladies and gentlemen, and welcome to the Chemtrade Logistics Income Fund Second Quarter 2025 Conference Call. I would now like to turn the conference call over to Rohit Bhardwaj, Chief Financial Officer. Please go ahead.
Rohit Bhardwaj: Hello, and welcome to Chemtrade Logistics Income Fund's Earnings Conference Call and webcast for the second quarter of 2025. Thank you all for joining us and for your continued interest in Chemtrade. Joining me on today's call is Chemtrade's President and CEO, Scott Rook. Please note that this call has an accompanying slide deck, which we may reference during our prepared remarks and Q&A. This slide deck is available on our website and chemtradelogistics.com. On today's call, we will first give a recap of our strong Q2 2025 financial results, including business segment performance, financial position and updated full year 2025 guidance. I will hand the call over to Scott, who will discuss our intention to acquire Polytec to announce alongside our financial results as well as comment on our outlook. We'll 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 sedarplus.com. One of the measures that we will refer to in this call is adjusted EBITDA, which is EBITDA modified to exclude noncash 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, the second quarter of 2025 was a continuation of the strong performance we delivered in the first quarter with double-digit year-over-year growth across revenue, EBITDA 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. Second quarter revenue increased by 11%, while EBITDA increased by 20% due to strong results in the Electrochemicals or EC segment. Relative to last year, Q2 results benefited from a weaker Canadian dollar and from the biennial turnaround at the North Vancouver chlor-alkali facility that occurred last year. Excluding the benefit of these 2 items, revenue and EBITDA increased by 7% and 2%, respectively, year-over-year. We continue to generate strong cash flows, supporting the return of capital to unitholders during the quarter through our attractive monthly distribution and unit repurchases under our normal course issuer bid or NCIB. Distributable cash after maintenance CapEx increased by approximately 50%, primarily due to the higher EBITDA and distributable cash after maintenance CapEx on a per unit basis increased by 54% year-over-year. We also announced our intention to implement a new NCIB subject to approval from regulatory authorities as our earlier NCIB had expired. Additionally, we also announced the acquisition of Polytec, a provider of water treatment solutions, which Scott will discuss in more detail. Turning now to the segment's performance. Excluding the impact of foreign exchange, the Sulfur and Water Chemicals segment or SWC, revenue grew by 12%, driven primarily by higher prices and volumes for merchant and virgin acid and water products. SWC's EBITDA declined by 3% after excluding the impact of foreign exchange. This was due to lower margins on acid due to higher input costs and maintenance turnaround spending that were partially offset by higher selling prices. Additionally, higher selling prices more than offset higher input costs in water and sulfur products. Despite the price for sulfur, a key raw material in the SW segment almost tripling relative to 2024, we have been successful in largely offsetting it through improved pricing for several products as well as the risk-sharing mechanisms we have in place on merchant acid. A notable exception in the SW segment has been sodium nitride business, where we recognized a $15 million noncash impairment due to the lifting of U.S. antidumping protection resulting in a lower outlook for this product. We do have some initiatives to lower the operating cost of this business, which we expect to implement over the next few quarters. Turning to the EC segment, excluding the impact of foreign exchange and the North Vancouver maintenance turnaround in the prior year, EC revenue was similar to Q2 2024, while EC EBITDA increased by 8% year-over-year. A significant contributor to the strong underlying performance was higher realized caustic soda pricing. Our MECU netbacks in Q2 '25 were up by approximately $1.65 year-over-year, led by higher netbacks for caustic, while higher netbacks for HCl offset lower net debt for chlorine. We have also realized higher selling prices for sodium chlorate year-over-year, helping to mitigate the impact of lower chlorate volumes from the customer production curtailments that took place during 2024. We also benefited from lower operating costs due to the consolidation of production from 2 sites into 1. As you might recall, following the curtailment of production from our Prince George chlorate plants primary customer last year, we made the decision to cease sodium chlorate production in that facility. We converted the Prince George plant into a sodium chlorate dissolving operation while maintaining the optionality to restart production if market conditions improved. This quarter, our team concluded that the cessation of chlorate production at Prince Storage will be permanent, resulting in a $28.4 million noncash impairment. To fulfill local demand, we will continue to dissolve sodium chlorate at this facility sourced from our large low-cost Brandon, Manitoba chlorate plant. On balance, the EC segment continues to deliver positive results, and we are pleased with its performance in the second quarter and the first half of 2025. We remain positive on the overall outlook for the EC segment. Corporate costs in Q2 2025 were slightly higher year-over-year at $30.3 million versus $28.2 million in Q2 2024. Compared to the prior year period, we recorded higher short-term incentive compensation and legal costs, partially offset by lower long-term incentive plan costs and foreign exchange. This performance was broadly in line with our expectations. Moving on to our capital allocation and financial position as of the quarter end, we remain disciplined in our balanced approach. Chemtrade generated $71.5 million of distributable cash in Q2, up 50% year-over-year. Our cash generation continues to be well above our monthly distributions of $0.0575 per unit, with our second quarter payout ratio at a very sustainable 27% or 33% on a trailing 12-month basis. During Q2, we repurchased 2.2 million units and bought back a total of 11.2 million units overall under the NCIB that expired in June, is close to the maximum amount authorized. We anticipate that unit repurchases will remain an important portion of Chemtrade's capital allocation strategy and have filed a notice of intention with the TSX to implement a new NCIB for up to 10% of units outstanding. We also continue to invest in growth during the quarter. This included $11 million of growth CapEx incurred during Q2, primarily directed to our water chemicals and the ultrapure acid businesses. During the second quarter, we also closed the previously announced acquisition of the water chemical customers of Catcher Group for USD 30 million, representing an attractive acquisition multiple of approximately 5x expected annual EBITDA. The integration is going well, and we are pleased with its progress to date. Alongside these continued investments in long-term strategic growth and 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 2x, which is below our targeted threshold and available liquidity of approximately $700 million. I would like to highlight our successful leverage reduction strategy that has provided Chemtrade with the financial flexibility to successfully pursue growth opportunities such as Polytec while continuing to maintain a conservative balance sheet and leverage within our target range. We remain on a strong financial footing to continue providing incremental unitholder value. Therefore, in addition to announcing the Polytec acquisition, we're also announcing our intent to redeem our 6.5% convertible debentures due October 31, 2026, using funds from our credit facilities. In addition to continuing to simplify and optimize our capital structure, the redemption will result in lower interest costs. Looking now at our updated guidance for the full year. Although global trade tensions persist, the anticipated weakness in our business has not materialized. Consequently, we have raised our adjusted EBITDA guidance for 2025 to a range of $475 million to $500 million. This excludes earnings from Polytec as timing of closing the acquisition is uncertain and is also not expected to have a material impact on adjusted EBITDA for 2025. The updated guidance midpoint represents an approximately 10% increase to our initial guidance midpoint disclosed in early 2025 and positions 2025 as the second highest EBITDA in Chemtrade's history. Alongside EBITDA guidance, we have also updated several of our assumptions for the remainder of 2025. While you will find the full range of assumptions in our disclosure documents, we will highlight that for 2025, we now expect North American MECU sales volume of 177,000 versus 168,500 prior, a net year-over-year MECU netback increase of $60 versus $30 prior and sodium chlorate volumes of 270,000 tons versus 254,500 tons prior. 2025 is positioned to be another very strong year for Chemtrade. Based on our updated guidance and assumptions, we expect to exit the year with a full year midpoint payout ratio of approximately 38%. I will now hand the call over to Scott to provide additional details on the outlook for Chemtrade moving forward.
Scott William Rook: Thank you, Rohit, and thank you to all of our listeners for joining this morning's call. As Rohit just finished highlighting, Chemtrade continues to deliver on our strategy. We're focused on consistently meeting challenges while acting on value-add opportunities across our business and executing with strength and diligence. We unveiled Chemtrade's Vision 2030 earlier this year, aiming to grow the mid-economic cycle EBITDA to between $550 million and $600 million by 2030. On a per unit basis, we expect growth to be further supplemented by additional unit repurchases. Unitholder returns will also be bolstered by our attractive monthly distribution. We plan to drive this incremental growth across our 3 areas: continued improvements in underlying business performance, organic growth and strategic and accretive acquisitions. We are happy to announce today that we are advancing this vision with the acquisition of Polytec for USD 150 million in cash and a debt-free transaction. A presentation outlining the transaction has also been posted on the Investor Relations section of our website. The acquisition has been approved by our Board of Trustees and subject to regulatory approvals and customary closing conditions is expected to close in the fourth quarter. This transaction represents an exciting step in Chemtrade's ongoing strategy of expanding and enhancing our water treatment offerings in North America. The transaction price implies a multiple of approximately 6.5x last 12 months adjusted EBITDA. Chemtrade will finance the acquisition by drawing on its credit facility, although leverage will tick up slightly pro forma and immediately following closing, we expect it to remain close to our long-term target of 2.5x with a clear line of sight of returning to the midpoint during 2026, considering any working capital variations in the interim. Following the transaction, Chemtrade maintains plentiful liquidity of approximately CAD 500 million of pro forma available credit facility and CAD 20 million of cash at hand. The acquisition of Polytec represents an important step in advancing Chemtrade's Vision 2030 through financially prudent acquisitions that grow our distributable cash per share. We are committed to increasing unitholder returns by realizing EBITDA and DCPU growth of 5% to 10% per year and returning capital to our unitholders through buybacks and sustainable distributions. Polytec brings a unique solutions platform, which will complement Chemtrade's line of water solution products. We intend to expand this platform and to generate synergies by leveraging our North American-wide customer footprint and internal business systems. There are multiple opportunities for cross-selling of products as well as for more efficient management of overall business systems. Polytec is a provider of turnkey water treatment programs. It has a diverse range of customers, primarily in the food processing industry, but also several municipalities in the Southern and Southeastern United States. Polytec's products and services include systems that can automate certain aspects of water treatment. Polytec was founded over 30 years ago by Jack Harman, who continues to run the business. Jack will stay actively involved in the business in the months following closing to ensure a smooth transition for employees and customers. The addition of Polytec products aimed at supporting the food processing industry and the municipal water treatment represent a market expansion for Chemtrade. These new offerings will allow Chemtrade to expand the range of products and solutions available to our existing customers. From its home base and headquarters in North Carolina, over the last 30 years, Polytec has grown to well-established locations in Arkansas, Georgia and Virginia. Chemtrade will accelerate this footprint in the surrounding states and across its customer base. Overall, Polytec sales are well diversified with a mix of top-tier food processing, industrial customers and municipalities. Lastly, Polytec has been a customer of Chemtrade for several years, and we know the team well. We are thrilled to welcome all of the Polytec employees to Chemtrade and look forward to learning from their expertise and enjoying their continued commitment. As an example, magnesium hydroxide is a product used primarily to lower acidity in water and to isolate heavy metals. It's a more efficient way to treat water when compared to other alternatives, but requires specialized handling and storing. Polytec provides and tailors this service for customers through unique technology to meet the specific requirements of municipal customers. In closing, the companies complement each other with multiple opportunities for cross-selling synergies and growth as Polytec becomes an important contributor towards delivering on the external growth pillar of Chemtrade's Vision 2030. We can't talk about our business outlook without discussing tariffs. We are continuing to actively monitor any tariff and trade developments that may have an impact on our business. However, to date, we have not seen any material direct impact from incremental tariffs, particularly as our products are compliant with the USMCA trade agreement. While the situation is fluid, we remain confident that we'll be able to manage or mitigate any impacts on our business in the future. We are positioned so we can supply the majority of our U.S.-based customers through our U.S.-based facilities. And we continue to take proactive steps to manage through potential risk. 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. In the face of evolving macroeconomic and geopolitical dynamics, we remain focused on managing profitability with discipline and sustaining the high level of service our customers have come to expect. Looking at the back half of 2025 and into 2026, we remain positive given the strength and resilience of our SWC segment. Stable end market demand, strategic risk management and long-term growth drivers continue to position SWC as core to Chemtrade's broader corporate strategy and long-term value creation. In water chemicals, demand remains strong across both municipal and private customers. These products are largely nondiscretionary in nature and continue to see structurally increasing demand regardless of broader economic conditions. While raw material costs, specifically sulfur, have increased in recent months, we have been successful in working with customers to pass through those higher costs. This is clearly evident in our Q2 performance. In the first half of this year, we have made good progress on the construction of the new specialty water chemical line in Augusta, Georgia. That being said, should sulfur costs continue to rise, we may see some short-term margin pressure until pricing resets through contract renewals. As we have seen previously, we expect any margin impact to normalize over time. Although still early, we are seeing encouraging early momentum from our recent Thatcher Group acquisition that closed in the second quarter. As discussed, initial integration is progressing very well, further reinforcing our position as a leading supplier of coagulants in North America. Turning to our sulfuric acid businesses. We have previously communicated Q2 included more maintenance turnarounds activity compared to the prior year period. These turnarounds were completed successfully, and we expect turnaround activity to return to a more typical level in the second half of this year. For regen acid, the demand outlook remains steady, supported by healthy U.S. refining rates. This business has historically demonstrated resilience even in periods of economic softness. Similarly, for merchant acid, we have risk-sharing agreements that help to insulate Chemtrade from significant swings in pricing or input costs and expect to see continued resilient financial performance. Finally, our ultrapure acid business remains a key long-term growth pillar as structural demand growth for North America semiconductor production capacity continues to increase. Our Cairo, Ohio expansion is our first large project to capitalize on these strong dynamics. The facility continues to progress through start-up with commercial ramp-up expected towards the end of this year. We believe this asset will be an important value driver in the years ahead. Within our Electrochemicals segment, we continue to advance our efforts to secure the long-term future of our North Vancouver chlor-alkali facility. In second quarter, we entered into a nonbinding letter of intent with the Vancouver Fraser Port Authority to extend our land lease through to the end of 2044 under terms similar to the existing agreement. We expect to submit our rezoning application to the District of North Vancouver during the third quarter, with the formal review process anticipated to begin in Q4. If approved, this would enable us to continue liquid chlorine production on the Chemtrade-owned portion of the site and allow us to move forward with targeted capital investments that improve safety and reliability. We view this as an important strategic initiative, and we'll keep the market informed as developments progress. At a product level, the dynamics within the EC segment remain mixed, but supportive overall. Caustic soda pricing has remained at levels slightly above those of last year. Industry forecast and contract pricing in Taiwan continue to point to a stable outlook for the balance of 2025. For the remainder of this year, our pricing will reflect an index level of roughly USD 440 per ton, which is up roughly $55 per ton year-over-year. For added context, every USD 50 per ton change in caustic soda pricing equates to approximately $13.8 million of incremental annual EBITDA, holding everything else equal. On the chlorine side, pricing has softened year-to-date, and we expect some continued softness over the balance of the year. As Rohit highlighted for sodium chlorate, we now expect 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, we believe the segment is well positioned for the balance of the year and beyond. Continued year-over-year improvements in caustic soda pricing, along with fracking tide HCl demand are helping to offset pressures facing other products. The strategic progress at our North Vancouver facility is also supportive of long-term value generation within the segment. As mentioned, we continue to invest in growth during Q2 to drive incremental long-term value for our unitholders. This included both internal growth projects as well as M&A. We also continue to evaluate additional opportunities for prudent and strategic growth investment with a particular focus on opportunities that strengthen our core capabilities and offer strong risk-adjusted returns. In 2025, our organic growth investments are being primarily directed towards strategic projects in our water chemicals and ultrapure acid business lines. These initiatives are well aligned with the secular demand growth and are expected to be cumulative to earnings over time. In our Water Chemicals business, we're expanding capacity for a range of products seeing sustained demand growth. While many of these projects are modest in scale individually, they collectively represent a meaningful step forward in earnings power and market reach. One notable example is our new specialty water chemical line in Augusta, Georgia, where we expect construction to ramp up in Q4 with production startup later this year. In ultrapure acid, our Cairo, Ohio expansion and upgrade continues to progress well. We are now in the validation phase running quality trials with key semiconductor customers. As a reminder, we expect commercial ramp-up towards the end of this year, followed by initial earnings contribution. We continue to see this as a high-impact project aligned with structural demand growth from semiconductor manufacturing onshoring. Overall, our growth investments are grounded in strong market fundamentals, clear visibility to returns and a focused approach to capital deployment that supports long-term shareholder value. We look forward to continuing to keep you apprised on these and other growth opportunities over time. Before concluding, thank you all once again for your continued support and interest in Chemtrade. As you have heard today, Chemtrade continues to deliver strong financial and operational performance while maintaining a disciplined approach to capital allocation and a clear focus on long-term value creation. Our resilient business model, diversified portfolio and leading market positions continue to serve us well in the face of evolving macroeconomic conditions. We are encouraged by the momentum across our key growth platforms, and we remain confident in the strategic direction we've set through Vision 2030. With a strong balance sheet, robust cash flow generation and a healthy pipeline of organic and inorganic opportunities, Chemtrade is well positioned to continue building on our track record of execution and driving sustained growth in EBITDA, distributable cash and unitholder value. With that, we will now be happy to open the line for questions. Thank you.
Operator: [Operator Instructions] Your first question is from Ben Isaacson from Scotiabank.
Benjamin Isaacson: I have 2 questions. First question is on the deal. I may have missed it, but I didn't see a synergy target on that 6.5x multiple. What do you think you can get that multiple down to over time? And the reason why I'm asking is because the deal multiple of 6.5x is a little higher than where the stock is trading on Street estimates. So is the right way to think about this deal that the water business is generally at a higher multiple and the commodity businesses are generally at a lower multiple, and that's what justifies the 6.5x?
Rohit Bhardwaj: Okay. So I'll start with the -- I think if you look at some deals that have happened in the water chemicals space, multiples are quite high relative to the rest of our business. The big deal that took place last year was actually closer to 10x EBITDA. In our case, the 6.5x is without factoring in synergies and synergies are going to come mainly, I would say, as we expand the capabilities that we get with Polytec also the rest of our business. So we are not disclosing a target right now, but you can expect that there will be synergies.
Scott William Rook: Yes. So Ben, Scott here. I'll add to that. And so we did not publish a synergy target. Obviously, we did that on purpose. We do believe -- so the fundamental premise for this acquisition was that we believe that we can take Polytec products and services, which are primarily focused in the Southern and Southeast U.S., and we can introduce those products and services to our wide range of customers all across North America. So we think there's a nice opportunity to take his products and introduce those products to our customers. And then in addition to that, there are several organic growth opportunities that I don't want to get into the details of those now, but there are organic growth opportunities that collectively our teams will be working on for the future.
Rohit Bhardwaj: I think the one thing I'll add is we are very well aware that it will be very difficult for us to buy anything at our multiple. So we knew that if you want to do some modest acquisitions, we would have to pay through our multiple. And we have been delevering to create that dry powder to be able to do it using cash and leverage as opposed to diluting unitholders by having to issue equity. So we are very -- that was our strategy over the last couple of years to build up that dry powder, which we are now happy to use on such a strategic opportunity.
Benjamin Isaacson: Great. And then just one more for me. I think your payout ratio is 30%, 35% in that kind of neighborhood. And when I look at Street estimates, they have EBITDA about flat year-over-year, and now you're adding the Polytec EBITDA on top of that. So at what point does that payout ratio start to become low and there's the possibility for an upside in your distribution?
Rohit Bhardwaj: We have, as you know, over the last 2 years, raised distributions by 10% and then 5%. So we -- with the low payout ratio, we believe the dividend is very sustainable, and our Board and us discuss distribution strategy. So there's definitely room for it to grow modestly, but I think we'll leave it at that.
Operator: Your next question is from Hamir Patel from CIBC Capital Markets.
Hamir Patel: So I know you don't want to disclose the level of synergies that you expect from Polytec, but could you give us an indication of perhaps how long it would take to capture those synergies, which sounds like predominantly sales synergies?
Scott William Rook: Yes. So Hamir, well those -- we -- our belief is that with the acquisition of Polytec, we will be growing at or above market rates in the coming years. So I'm not going to disclose an exact date, but we'll say it will be sooner rather than later. We believe that there are, again, some exciting opportunities for growth. That's the reason we did the deal. We think that we believe as well as the Polytec organization believe that Chemtrade was a very logical buyer -- acquirer of this business. They've got a very strong growth record over the past -- past 10 years, really over the past 30 years. And Chemtrade are a very good fit from a culture standpoint. And we believe that we'll continue the legacy that they've built with a lot of opportunities and synergies going forward.
Hamir Patel: That's helpful. And how does the EBITDA margin profile of the Polytec business compare with your SWC segment?
Rohit Bhardwaj: That's not going to have a material impact on the SWC segment. So it will be in line with the SW, you wouldn't see it actually make a material difference one way or the other.
Scott William Rook: So in line with the SWC segment.
Operator: Your next question is from Joel Jackson from BMO Capital Markets.
Joel Jackson: When your Vision 2030, you talked about looking for $10 million to $50 million of EBITDA. You're at above the high end of the mid -- excuse me, above the midpoint now. Are you basically done right now? You've got other capital allocation priorities you've been announcing in the last 24 hours. Are you happy now for M&A? Are you going to be dabbling here? Or do you want more serious M&A going forward?
Scott William Rook: So Joel, I would say that we're done for a period of time. We're going to take some time. We've had a small acquisition, obviously, with Thatcher at the end of Q1. Now we have a larger one with Polytec. And so our plan is to take some time and digest -- bring these acquisitions into Chemtrade will take some time, work on integration, building the teams. And so the answer to your question is there's nothing on the horizon that's coming anytime soon. But -- so we'll take some time, work on these. And then it's certainly possible that as we get closer to 2030, there might be some in the longer term, but not anything short term.
Rohit Bhardwaj: And I think from a capital allocation, we continue to believe even more so that we are significantly undervalued. So while we've done -- we've got a two-pronged approach is grow earnings, but then also be aggressive on the NCIB. So we are looking to get the new one going in the next couple of days and continue buying under that. And I think to Scott's point, we expect to leverage to start coming down from the 2.5, which will be at closing and which will give us more flexibility down the road.
Joel Jackson: Second question, you're not going to guide us for 2026, but can you just give some building blocks 2026? So I'll give some examples, right? If Polytec closes Christmas, you're going to have an extra $30-something million, $32 million, $33 million EBITDA from that, maybe more. You're going to have maybe some more Ultrapure sales, some Cairo. You're going to have the North Van turnaround that takes maybe what, $10 million out. Like can you just give some building blocks? And as part of that, maybe you could talk about different parts of the business that are over-earning, under-earning or like Goldilocks are just right in '25.
Rohit Bhardwaj: So I'll start and then Scott may add to that. So firstly, North Vancouver is probably on an EBITDA -- on revenue, it's about $10 million, but on EBITDA, it's probably closer to $18 million. $17 million, $18 million -- let's say between $17 million and $20 million. So going to keep that in mind. Foreign exchange continues to be a variable, which is hard to call right now. You're right. And then the other thing is the caustic. We saw caustic rise at the beginning of the year. It's backed off a little bit now. So again, we'll have to, in the next couple of months, look at where the industry experts have caustic slated for next year. So that's a variable. Fracking in Canada seems to be strong. We'll have to look at -- again, that's a variable because that drives HCl. And then finally, chlorine is also another variable where prices had peaked and they have backed off a little bit. So we'll have to watch carefully as to what happens there. But you're right on the other building blocks, yes, we should have a full year of Polytec. We should start to see some ultrapure EBITDA coming in next year. And as far as we can see, the regen demand stays stable, merchant acid stays stable, although sulfur has spiked as we said it's tripled, which is a very big spike, which so far we were able to withstand and offset, but that's something we're going to watch too. So yes, there are a few moving parts, but I don't think there's anything major that's of concern here. But I'll let Pat if he wants to add something to that.
Scott William Rook: Yes. Look, I think Rohit pretty much covered it. On the chlor-alkali, what we shared with the comments, caustic has been doing fine, somewhat strong. And I think the outlook continues to look like that. HCl tied to fracking, still pretty good, pretty strong. Chlorine has softened. I think our view is that, that could continue to happen, but you put all that together, I think the biggest impact on chlor-alkali next year will be the turnaround. Chlorate, we should expect to see similar slight reductions in volume, and we're working to offset that with price. The regen and merchant acid are strong, but not -- they're not growing that much, but still doing quite well. And then the growth next year, we have our organic growth projects in water, we have executed on. We'll continue to do that. We'll have the start-up of our new specialty product, the new specialty line in Augusta, Georgia, and we'll have Polytec and we'll have Thatcher and we'll have some ultrapure acid business that will be coming in as well. And then the unknowns right now that we have to think about unknowns would be what's going to happen with the USMCA and it's possible that could get renegotiated. We don't know in summer of next year, but that's an unknown. And then watching the Canadian pulp and paper, that's a bit of an unknown as well.
Operator: And your next question is from Nelson Ng from RBC Capital Markets.
Nelson Ng: I was just -- I wanted to ask a few background questions on Polytec in terms of the acquisition. So I presume it was a competitive auction process. Can you just talk about that? And also what -- why the business was being sold?
Scott William Rook: Yes. So Polytec has been a long-time customer to Chemtrade. We've had an excellent relationship over the years. And we have known their owner and founder, I say we, including myself, we've known their owner and founder for many years. Their owner and founder was looking to retire. I don't want to get into a lot of details, but he was looking to retire. And what I will say is that as we had discussions with him, we both felt that Chemtrade was a very -- not only a logical buyer for his business, but also a great cultural fit. He was looking for a company to come in and buy the business, but to continue the strong growth trajectory that he has delivered over 30 years. Bring in basically to have someone with a similar culture and that would have the focus on the growth projects that he's been working on. And so I think he believes that Chemtrade would be a great partner. We believe the same. And so we were able to put that deal together.
Rohit Bhardwaj: I think I can add just one thing. So you got to picture somebody who built a business from scratch and is now looking to retire and monetize. But the motivation of someone like that is -- has many facets to it. Clearly, the money has to be appropriate. But as Scott said, building on the legacy that he has built is very important, as you can imagine, for someone who founded a business from scratch. And who cares about their employees and all the other stakeholders. So it was just a perfect match here.
Scott William Rook: Yes. The owner, Jack Harmon, has agreed to stay on and work with us for an undisclosed period of time. So he's going to stay on actually full time for a period of time. And then after that period of time, he -- we have an agreement that he will come in and help advise from time to time as we work on the growth projects together. So we're very happy -- we're very happy about this acquisition. We think it's a great fit for Polytec and for Chemtrade and for the market. And we think it's going to be a very good deal for Chemtrade investors.
Nelson Ng: Got it. That's great background. So it was more of a bilateral process. And I think, Rohit, you talked about the high water transaction multiples you've seen last year. I don't want to go into too many details, but is there a reason why like this multiple, like a fair price for this transaction is a multiple that was much lower than we saw in the market last year?
Rohit Bhardwaj: So I think, again, without getting into too many specifics, I think in this case, the multiple is appropriate because of the -- and I'd say the unique expectations and desires of the owner where it's more about building on the legacy. And so I think the water multiples are high. This is a very -- is a very good quality business because actually it's providing solutions as opposed to just products. So I think it was a fair negotiation here, and we ended up at a good price for both sides. So I think everyone is satisfied with the transaction.
Nelson Ng: Okay. And then you both talked about the long growth track record of this business. Can you just provide a bit of background on how, let's say, EBITDA has been growing in this business for the past, I don't know, like 5 years or whatever period you think is appropriate?
Scott William Rook: I would say -- so I don't think it's that appropriate to comment on the track record for this business prior to us having it. But let's say, we were impressed with the growth trajectory, not only over the past 5 years, but really over 30 years.
Rohit Bhardwaj: And I think as Scott said, we expect to grow this at above market rates. So it's fair to assume that, that was also occurring in the last many years.
Nelson Ng: Okay. That makes sense. And then just I guess, switching gears a little bit. in the U.S., we hear a lot about power demand, growth in power demand, particularly from data centers and pushing power prices higher. You obviously use a lot of power, especially on the electrochemical side. Are you seeing any pricing pressure from higher power prices? Obviously, your Canadian assets are doing well. But in the U.S., are you seeing any pressure?
Scott William Rook: So by far, the significant and dominant amount of our power comes from Canada, and it's Canadian hydroelectric power, and that's at our electrochemical facilities. And that is -- I will just say that's by far the majority of our power requirements. And so we're maybe seeing modest impact on utilities at the other sites, but it's not material for us on our bottom line -- yes, in terms of our earnings immaterial.
Rohit Bhardwaj: Yes, if I can add, I think Manitoba and B.C. are both regulated environments, hydroelectric. There's the Utilities Commission that approves rates. They have been very stable, and we don't anticipate any changes there. In the U.S., our regen plants consume a bunch of natural gas, but our contracts with the regen customers pass through natural gas. So even though gas is relatively low right now, but as it rises, there is no issue because that's how contractually has been structured.
Nelson Ng: Okay. And then just one last kind of big picture question. You obviously move a lot of product on rail. Do you have any initial thoughts on the proposed Union Pacific-Norfolk Southern proposed merger? I know it's still early days.
Scott William Rook: I would say no, we don't see that as having a material impact. We are -- look, we are -- we work with all of the rail companies closely. And so we don't -- look, we've heard that this will improve service, and we hope that's the case.
Rohit Bhardwaj: And if rates do change, these are industry-wide changes, and we actually think we are probably really good at optimizing freight. So if anything, we're not concerned because it's going to affect everybody, and we think they're pretty good at optimizing logistics.
Operator: [Operator Instructions] And your next question is from Steve Hansen from Raymond James.
Steven P. Hansen: Just a couple of different items here. So Scott, I think you referenced the potential for rising sulfur prices to impact your SWC margins. That's all logical on the surface. But I think the most acute surge in sulfur really occurred through 2Q. We've actually seen [indiscernible] and it didn't really seem to impact your numbers that much. I mean are you worried about a further rise that would impact margins? Or is there a lagging mechanism that we should be mindful of here that might roll into the numbers through the back half?
Scott William Rook: No. Look, I would -- sulfur prices have tripled. So we have absorbed those, and we certainly don't expect -- and calling sulfur is difficult, but we certainly don't expect any similar type of price increases with sulfur. So the sulfur prices have hit us and our businesses work those through. The rising sulfur hits us primarily in the acid business. And then with regen, that's passed through with our pricing mechanisms. In our merchant acid, we have price sharing and then we price on a shorter-term basis. The sulfur also has an impact on our water business, where we have annual contracts, and we work to pass those through. But -- so we have -- I think we've absorbed the blow, so to speak, and I think we've come out pretty well. Our team is better and better at pricing strategy and I think passing through anticipated costs to customers.
Rohit Bhardwaj: And frankly, it's actually better when there's a big spike because it gets the attention of every industry player because these are not -- if it's a small hike, someone may be willing to absorb it, but then there's such dramatic moves, the market has to pay attention to them. And we factored that into our revised guidance as well.
Steven P. Hansen: Okay. That's helpful. If I'm just looking at Polytec for a minute and I look at the product set that they've got, you described some of the revenue synergies that are there. It just looks like on the surface anyways, there is a number of common products and also a number of incremental ones. What are the product lines specifically that you're most excited about here within the portfolio for cross- selling? Is it the polymers, the bacteria and enzymes? I'm just trying to get a sense for where that incremental opportunity lies.
Scott William Rook: So a couple of things. They have a very strong position in food and industrial. So a stronger position in food than we have. We are -- we think that's a very nice opportunity for Chemtrade, let's say, to get more involved with our products in the food and industrial space. And then as I mentioned earlier, taking their products and services and then introducing those to our municipalities across North America, that's strong as well. So there -- they sell -- well, they sell coagulants, they sell flocculants. They have other chemicals that they sell and then they're a solutions provider to their customers. And the solutions provider is a new space for Chemtrade. And I think we're very excited about opportunities for solution supplies to our customers.
Steven P. Hansen: Just to understand that latter point, can you just simplify it or dumb it down from like what do you mean by solutions provider that...
Scott William Rook: Solutions provider [indiscernible] customers. -- so whether that is -- let's say, it's -- whether that's a poultry processing plant or a city, they will -- they'll need to -- as they test their water, they'll need to add into their water a coagulant that's going to serve a certain purpose, a flocculant and there are 2 to 3 other chemicals to adjust the pH to do other clarifying agents, other things like that. So there are maybe 2, 3, 4, 5 chemicals that need to be blended together and then blended with the water. And so Polytec bring a system together to test the water and then make the blends and treat the water. That's what I mean by solutions provider. And that is new and a nice opportunity for Chemtrade to grow.
Rohit Bhardwaj: And if you think about it, we are one step removed, but they are one step closer to the customer than us. So we supply the coagulants. In fact, in many cases, Polytec was buying those coagulants from us. But then they customize kind of the solution for the customer there so they have closer contact with the customer, adding a bit more -- adding more value than just a product supplier. So that's how -- that's -- if we can -- we're hoping to take that and then do that across our customer base.
Steven P. Hansen: That's actually very helpful. And just maybe a last one just on the related space is just like how fragmented -- or sorry, with the footprint that you've bought, is there still geographical space that you don't have that you would want sort of like to sort of replicate? They're very Southeast centric. Like can you still service and provide these additional services to other regions? Or do you need to -- would you need to acquire in theory, other white space to broaden the portfolio. Just trying to get a sense for how well positioned this position for the future.
Scott William Rook: Yes. So I understand. I think that for now, there is -- for now, their 4 sites are in good shape to supply the customer base. But as we go forward, there's certainly potential to expand in regions where we are strong and they are not. We do not have plans in the next -- let's say, in the short term to add any new Polytec site locations. But it's certainly possible that if you -- that it could make sense in a couple of years.
Rohit Bhardwaj: But that will be organic growth as opposed to M&A. We can replicate these organically.
Operator: And your next question is from Zachary Evershed from National Bank Financial.
Zachary Evershed: Congrats on the quarter. So following up on the previous question. Is that Polytec blending solution equipment a bit of a razor -- razorblade model?
Rohit Bhardwaj: It's got some similarities.
Scott William Rook: Yes. I'd rather not discuss the, let's say, details of the pricing strategy. So -- but yes, we'll just -- I'd rather not discuss the pricing strategy. Let's just leave it that they're a solutions provider, and they've been very successful with that model.
Zachary Evershed: Understood. And you did mention some spare capacity in your network to service Thatcher Group's water customers. With the addition of Polytec, how do you see your utilization after the acquisition?
Scott William Rook: Yes. So we still have plenty of capacity across our system. And so you're exactly right. With Thatcher, we picked up all of the volume with Thatcher with our existing capacity. And with the acquisition of Polytec, we're set as well. That being said, as we look at our organic growth projects over the next couple of years, we -- part of that is continuing to add capacity and debottleneck across our network. I won't get more specific than that, but we'll keep the organic growth target at roughly the similar amount, and we'll be debottlenecking where we need to.
Zachary Evershed: Understood. Then last one for me. very happy to hear about the early redemption of the 2026 converts. Looking out further to 2027, those are exercisable at $10 a unit. What are your thoughts around another SIB thing they're in the money?
Rohit Bhardwaj: So I guess I'll start by saying that as we have articulated, we want to get out of the convertible business. So we will be looking at ways to exit there. Right now, they are not in any hard call period, of course. And the soft call probably starts in a few months. But yes, we're looking at all our options to see how we can eliminate all our convertible debentures.
Operator: Your next question is from Gary Ho from Desjardins Capital Markets.
Gary Ho: Sorry, I jumped on the call late, so maybe this was asked already. So just on the M&A, it feels like there's a couple that you've done more recently. How is the pipeline? And second, when you look at the opportunity set, are you kind of staying within the product set that you're currently offering or -- potential clients? Or would you kind of branch out other platforms as well?
Scott William Rook: Gary, Scott, yes, we actually did cover that a little bit earlier, but just to catch you up. So yes, we -- this year, we concluded the agreement with Thatcher and Polytec. And so for now, we are -- I would say we are done certainly for the short term. We're going to take some time and integrate those businesses. We will bring our leverage down. So we -- with this acquisition, we've let our leverage bump up a bit. And so we're going to take some time to bring that down. And as we work off of -- as we bring our leverage down over the next couple of years, we could begin to look at that. We do have -- I will say we do have a pipeline of potential people that we're speaking with, but that's not anything that we're going to execute or that we would plan to execute anywhere near the short term.
Rohit Bhardwaj: And we continue to allocate capital to buying back. So we just are entering into a new NCIB now for the next 12 months. So that remains a priority as well.
Operator: There are no further questions at this time. Please proceed.
Scott William Rook: All right. Thank you, Jenny. I'd like to thank everyone for their time today. Thanks for your interest in Chemtrade, and have a great rest of the day. Thank you.
Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining.