South Bow Corporation Q2 FY2025 earnings call

Bevin's Remarks - South Bow demonstrated business resilience with $250M normalized EBITDA in the quarter, maintained debt metrics, advanced the Blackrod Connection Project, and optimized workflows post-ERP switch and near exit from transition service agreements. - Highlighted South Bow's agility as a standalone company in responding to challenges like Milepost 171. ### Richard's Remarks - Pipeline is safe to operate. The total incident cost, including response, repair, and cleanup, is estimated at ~$60 million, with insurance expected to cover most costs. The third-party root cause failure analysis is ongoing, expected in September. Completed 4 in-line inspection runs and 8 integrity digs, with more to be done. ### Van's Remarks - Reaffirmed 2025 normalized EBITDA at $1.01 billion. Revised distributable cash flow to $590 million. Reduced maintenance capital expenditures to $55 million. Expect exit 2025 with net debt to normalized EBITDA ratio of ~4.8x. Board approved a quarterly dividend of $0.50 per share payable on October 15.

South Bow generated $250 million of normalized EBITDA in the second quarter. Ninety percent of the normalized EBITDA is contracted. The company reaffirmed its 2025 normalized EBITDA outlook at $1.01 billion. Distributable cash flow was revised upward to $590 million from $535 million, driven by changes in U.S. tax legislation, interest income, and small wins during the first half of the year. Maintenance capital expenditures were reduced by $10 million to $55 million in 2025. South Bow expects to exit 2025 with a net debt to normalized EBITDA ratio of approximately 4.8x.

- Reaffirmed 2025 normalized EBITDA outlook at $1.01 billion. ### - Revised distributable cash flow to $590 million, up from $535 million. ### - Reduced maintenance capital expenditures by $10 million to $55 million in 2025. ### - Expect to exit 2025 with a net debt to normalized EBITDA ratio of approximately 4.8x. ### - Board approved a quarterly dividend of $0.50 per share payable on October 15.

- Uncertainty regarding the findings of the third-party root cause failure analysis for Milepost 171 and potential impacts on operations and remediation efforts. ### - Market volatility and operational downtime could potentially affect financial performance.

Q: Big picture on energy infrastructure in Canada and South Bow's plans A: Bevin stated South Bow's strategic corridor serves strong supply and demand markets, and they aim to leverage pre-invested capital in Alberta and Gulf Coast sections to provide incremental capacity solutions for customers in the coming years.

Q: Opportunities on exiting TSAs A: Bevin said exiting transition service agreements allows focus on core business, expecting to be off the last major TSA (SCADA systems) by the end of the quarter, enabling longer-term growth and more focus on South Bow's base business.

Q: Delay in third-party root cause analysis A: Richard said the root cause failure analysis is a dynamic process, took a bit longer initially to select and get PHMSA approval for the third party, but lab work is mostly done, with RCFA expected in September, and remedial activities like in-line inspection runs and integrity digs ongoing.

Q: Uncommitted capacity and TSAs A: Bevin mentioned uncommitted capacity demand is expected to remain low in the near term, but South Bow remains competitive for spot capacity by providing the highest netback and fastest delivery to strong markets. Richard added they recently ran a successful open season for market-linked system segments.

Q: Organic and inorganic growth A: Bevin said focus was on first-year objectives, now pursuing growth opportunities, with a balance of opportunities in Canada and the U.S., and progress on identifying such opportunities.

Q: Cash taxes and trajectory A: Van clarified the cash tax reduction is approximately $15 million due to U.S. tax changes, which will be used for distributable cash flow, either for growth capital or deleveraging.

Q: Metallurgical study and RCFA A: Richard said the metallurgical study was part of the third-party root cause failure analysis, showed an axial crack on the long-seam, but more details will come with the completion of the RCFA expected in September.