South Bow Q2 2025 Earnings Report

South Bow EPS Results

• Actual EPS: $0.42
• Consensus EPS: $0.38
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: N/A

South Bow Revenue Results

• Actual Revenue: $524.00 million
• Expected Revenue: $449.00 million
• Beat/Miss: Beat by +$75.00 million
• YoY Revenue Growth: N/A

South Bow Announcement Details

• Quarter: Q2 2025
• Date: 8/6/2025
• Time: After Market Closes
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 10:00AM ET

South Bow (NYSE:SOBO) Corp is a strategic liquids pipeline company. It is a new liquids-focused midstream infrastructure company. South Bow Corp is based in Canada.

South Bow Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: We generated $250 million of normalized EBITDA in Q2 and successfully maintained our debt metrics, underscoring the resilience of our commercial business and cash flows.
• Positive Sentiment: We reaffirmed our 2025 outlook of $1.01 billion normalized EBITDA and raised distributable cash flow guidance to $590 million—driven by U.S. tax changes and added interest income—while cutting maintenance CapEx.
• Negative Sentiment: The Milepost 171 pipeline failure remediation is estimated at ~$60 million (mostly insured), and a third-party root cause analysis is due in Q3 as remedial actions proceed under regulatory oversight.
• Positive Sentiment: Progress on the Blackrod Connection project continues, with expected cash flows starting in 2026 that will accelerate deleveraging from current financing levels.
• Positive Sentiment: Our Board approved a quarterly dividend of $0.50 per share for October, supported by 90% contracted EBITDA and stable cash flow generation.

Presentation

[Operator]

Good day and thank you for standing by. Welcome to the South Bow Quarter two Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone.

[Operator]

You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Martha, your first speaker for today. Please go ahead.

[Martha Wilmot, Director - IR at South Bow]

Thank you, Brianna, and welcome everyone to South Bow's second quarter twenty twenty five earnings call. With me today are Bevan Wursbah, President and Chief Executive Officer Van Dafoe, Senior Vice President and Chief Financial Officer and Richard Pryor, Senior Vice President and Chief Operating Officer. We also have additional members of our leadership team in the room to help with the question and answer session. Before I turn it over to Bevan, I'd like to remind listeners that today's remarks will include forward looking information and statements, which are subject to the risks and uncertainties addressed in our public disclosure documents available under SouthBow's SEDAR Plus profile and in SouthBow's filings with the SEC. Today's discussion will also include non GAAP financial measures and ratios, which may not be comparable to measures presented by other entities. With that, I'll turn it over to Bhavan.

[Bevin Wirzba, President, CEO & Director at South Bow]

Thanks, Martha, and good morning, everyone. We appreciate you joining us today. South Coast's second quarter financial results once again exemplified the resilience of our business with our strong commercial underpinnings protecting our cash flows from the market volatility and operational downtime. We generated $250,000,000 of normalized EBITDA in the period and for the second consecutive quarter successfully maintained our debt metrics as we prioritize strengthening our financial position. We also demonstrated our execution abilities by advancing our Blackrod Connection project and continuing to establish South Bow's capabilities as we transition from a large rate regulated entity to a more commercially focused and entrepreneurial organization.

[Bevin Wirzba, President, CEO & Director at South Bow]

Now that we are using our own ERP system and are close to substantially exiting our transition service agreements within a year of spinning, we are optimizing our workflows to ensure South Pole's long term competitiveness and success. Now regarding MILDOS 171, we expect to have the root cause failure analysis findings by the end of the third quarter. Richard will share more on that later. While we don't have all the answers yet, what I can share is that South Bow's agility as a standalone company has allowed us to respond, repair, recover and remediate quicker than before. This gives me the confidence that we are developing and executing a remedial action plan that will address the findings of the independent investigations and ensure the continued safe and reliable operations of our pipeline, all while maintaining our solid financial outlook for 2025.

[Bevin Wirzba, President, CEO & Director at South Bow]

While this year has had its fair share of challenges, I'm incredibly proud of the way our team continues prioritizing the safety of our operations and surrounding communities while remaining focused on the future as we work to enhance our value proposition of providing customers with the optimal path to the strongest demand markets. I will now ask Richard and Van to provide some additional details on our operational and financial outlook. Richard?

[Richard Prior, SVP & COO at South Bow]

Thank you, Bevan, and good morning. Today I'll provide updates on the progress we've made responding to Milepost one hundred seventy one and next steps as we address FINS' corrective action order and an independent third party continues the root cause failure assessment. The most important points to be made today are that one, the pipeline is safe to operate. Two, we are confident the independent third party investigation will identify causal and contributing factors to the incident and remedial steps will be taken that address these findings.

[Richard Prior, SVP & COO at South Bow]

And three, while we comply with the corrective action order, we are able to continue delivering on our contractual commitments of 585,000 barrels per day. Our operations and remediation crews completed the cleanup and reclamation of the site in early June. We estimate the total cost for the incident inclusive of the response, repair and cleanup will be approximately $60,000,000 owing to the rapid and well orchestrated initial response, which mitigated the environmental impacts of the incident. Our insurance policies are expected to cover most of these costs. As Bevan mentioned, the third party root cause failure analysis is ongoing, and we anticipate the results will be completed in the September timeframe.

[Richard Prior, SVP & COO at South Bow]

We can confirm that the mechanical and metallurgical testing completed to date concluded that the pipe and welds met industry standards for design, materials, and mechanical properties. The testing determined the source of the failure was an axial crack then initiated on the long seam weld, which propagated during operations until the failure occurred. The root cause investigation is a dynamic process and we will continue to learn more as it unfolds. In parallel, our engineering and pipeline integrity teams have worked closely with our integrity providers, and we've begun implementing remedial actions. We've already completed four in line inspection runs since April, with a preliminary finding of these tool runs indicating no injurious issues.

[Richard Prior, SVP & COO at South Bow]

We've also completed eight integrity digs in the vicinity of the failure location, again with no notable issues to report. Additional inline inspection tool runs and further integrity digs will be completed through the balance of 2025 and into 2026. As we conduct these activities, all findings will be reported to PHMSA as well as incorporated into our programs to strengthen our confidence in the integrity and reliability of the system, keeping our assets safely operating. Through this process, we will maintain transparency with the regulators, customers and industry peers. So with that brief operational update, I'll pass it over to Van to discuss South Pole's financial outlook for the remainder of the year.

[Van Dafoe, SVP & CFO at South Bow]

Thanks, Richard. Southpaw's base business remains largely unaffected by tariffs and market volatility with 90% of our normalized EBITDA contracted. We are reaffirming our 2025 outlook for normalized EBITDA of 1,010,000,000.00 Southwell expects to fulfill our committed throughput contracts for the remainder of the year, but we will have limited capacity to transport uncommitted or spot volumes on our Keystone system. We are revising our outlook for distributable cash flow to $590,000,000 up from $535,000,000 to reflect a few items. First are the positive impacts from changes in U.

[Van Dafoe, SVP & CFO at South Bow]

S. Tax legislation, which will contribute approximately $15,000,000 of our run rate current tax savings. Second is our modified definition of the measure, which now includes interest income of about $30,000,000 for 2025. The remainder is made up of small wins that came through the first half of the year. We are reducing our maintenance capital expenditures outlook by $10,000,000 bringing it down slightly to $55,000,000 in 2025, as we focus on prioritizing the remedial actions related to Milepost 171 that Richard just spoke to.

[Van Dafoe, SVP & CFO at South Bow]

With our outlook for normalized EBITDA remaining unchanged, we expect to exit 2025 with a net debt to normalized EBITDA ratio of approximately 4.8 times. Our deleveraging will begin as the cash flows associated with Black Rod start in the 2026 and increase through 2027. Finally, our Board of Directors have approved a quarterly dividend of $0.50 per share payable on October 15 to shareholders of record on September 29. I will now hand it back to Bevan for his closing remarks.

[Bevin Wirzba, President, CEO & Director at South Bow]

Thanks, Van. As we approach our one year anniversary as a stand alone company and look back at the priorities we initially set for our organization, I'm proud to say that the team is successfully delivering on our business objectives. First, financially, we are on track to meet our near term deleveraging targets, and our dividend, underpinned by our highly contracted cash flows, remains an important component of our total return proposition. Second, operationally, we are safely advancing our integrity and reliability work to achieve a timely resolution to the corrective actions from Milepost 171, while also making a significant progress on the Blackrod Connection project. And finally, strategically, we are optimizing our business to enable future growth to support our customers by providing them solutions that leverage our existing infrastructure in North America's most strategic energy corridor.

[Bevin Wirzba, President, CEO & Director at South Bow]

With that, I'll now ask the operator to open the line for questions.

[Operator]

Thank you. At this time, we will conduct the question and answer session. Our first question is from Maurice Choi of RBC Capital Markets. Your line is

[Maurice Choy, Director - Canadian Energy Infrastructure at RBC Capital Markets]

you and good morning everyone. Just wanted to have two questions. The first one is a big picture question about the headlines that we still see about building more energy infrastructure in Canada, including crude oil pipeline. With the assumption that we will indeed see higher crude oil production in the coming years through the end of the decade, specific to CELCO, can you speak to what you may be working on, how the timing of such projects could line up to some of the contracts that are expiring later at the start of the next decade. Just thoughts on what it means specifically to SOFO.

[Bevin Wirzba, President, CEO & Director at South Bow]

Thank you, Maurice. It's Bevan. So our strategic corridor serves the strongest supply basin to the strongest demand markets for heavy oil. And as you've noticed, we anticipate to see that supply grow over the coming years. Quite quietly over the last decade, we've seen heavy oil supply grow by a million barrels a day and with the startup of the TMX pipeline that served that market.

[Bevin Wirzba, President, CEO & Director at South Bow]

And so over the next couple of years, we anticipate that that supply will continue to grow and by the end of perhaps or by early twenty twenty seven, we'll be in a position again where we may see again constraint in the egress out of the basin given the strong demand for that heavy product. For South Bow, we remain committed to leveraging our pre invested capital that we have, not only in our Alberta systems and but also in our Gulf Coast section. And we're looking to work with customers to find solutions to provide incremental capacity solutions for them over the next number of years. Our initial focus as we've highlighted in the earlier remarks was to leverage our Grand Rapids corridor to provide a solution for IPC to bring on that production in the near term. And we continue to see like opportunities not only in Alberta, but throughout our system down through the Gulf Coast.

[Maurice Choy, Director - Canadian Energy Infrastructure at RBC Capital Markets]

So then if I could finish off with a question on the TSAs actually. Can you speak to what opportunities that may open up for you as you exit your final TSAs? And what, if anything, of that might be factored into the 2%, 3% EBITDA CAGR guidance that you have?

[Bevin Wirzba, President, CEO & Director at South Bow]

Yeah. Maurice, getting off the TSAs is really allowing us to focus solely on our business. We accelerated moving on to our new ERP system that came with some extra manual processes, but now we're able to start rebuilding some of the workflows in our business. And so what I mean by that is, we were having to operate under the processes of the previous systems until we switched over. So accelerating that just allows us to advance our business plans a little bit quicker.

[Bevin Wirzba, President, CEO & Director at South Bow]

By the end of this quarter, we hope to be off the last of those major TSAs, and that's our SCADA systems. And that will likely get us then in a position that within one year since our spin date, we'll be completely done with the TSAs. And we'll have repositioned our business for that longer term growth, so that our teams can legitimately just focus on South Bow's business going forward as opposed to the spin activities. So it doesn't change our 2% to 3% CAGR growth outlook, but it allows our team to be much more focused just on our base business, which will then in turn, I'm sure find opportunities for us to continue to grow and optimize our solutions for our customers.

[Maurice Choy, Director - Canadian Energy Infrastructure at RBC Capital Markets]

Well, that's great color. Thank you very much.

[Operator]

Thank you. Our next question is from Burke Censiviro of Wolfe Research. Your line is now open.

[Burke Sansiviero, Equity Research Senior Associate at Wolfe Research, LLC]

Hi, good morning. Just one for me today. It seems like there was a little bit of a delay on the third party root cause analysis. There Is anything in particular to call out on the timing lag? And can you just walk through any early takeaways in more detail on how you think the process might go from here?

[Richard Prior, SVP & COO at South Bow]

Yeah, I don't think there's too much of a delay as I'd see it. It's a dynamic process. Were probably it took us a little bit longer than anticipated at the very front end actually getting root cause failure analysis third party selected and having FINSA approve that. So that was maybe a very few weeks at the very front. But you know that process continues on.

[Richard Prior, SVP & COO at South Bow]

Lab has completed the majority of their work, all those follow-up things that they're working on with the RCFA provider. And I think that the way it's going to play out is we expect the analysis to be delivered in the September timeframe. And then as I mentioned in parallel, we've got a lot of activities on the remedial site already ongoing. We have completed four in line inspection runs. We've got two more scheduled.

[Richard Prior, SVP & COO at South Bow]

We've completed H integrity digs. We've got four more scheduled. And so that that work will take shape through September. And then once we have that RCFA, we'll work with PHMSA in developing a more detailed remedial work plan and we'll have that approved and then we'll continue that scope. But it's a little too early until we see the results of the RCFA to define exactly what that remedial work plan is going to look like and then what the duration of it's going to be.

[Burke Sansiviero, Equity Research Senior Associate at Wolfe Research, LLC]

Thanks. That's all for me.

[Operator]

Thank you. Our next question is from Robert Hope of Scotiabank. Your line is now open.

[Jessica Hoyle, Associate Director at Scotiabank]

Good morning. This is Jessica Hoyle on for Robert Hope. Thanks so much for taking my questions. So just to start, regarding the comment in the MD and A that demand for uncommitted capacity is expected to remain low in the near term. With Enbridge's mainline under apportionment, how do you envision uncommitted barrels returning to your system versus PMX?

[Bevin Wirzba, President, CEO & Director at South Bow]

Yeah. Thank you, Jessica. When we set guidance for 2025, that was ahead of a couple other headwinds that showed up. But for 2025 with the startup of TMX, we anticipated that we'd have lower demand for our walk up spot capacity. And just to remind folks, we have 94% of our Keystone system is fully contracted and flowing, and we have to reserve 6% for spot capacity.

[Bevin Wirzba, President, CEO & Director at South Bow]

So for that spot capacity, we remain extremely competitive as we serve the highest demand market in The Gulf Coast. And so as additional barrels, as supply starts to grow and exceed available capacity, we believe that we provide the most competitive route to the strongest market. And the most important thing that we manage is to improve the netback for our customers. And wherever the strongest netback is for those barrels is where those barrels will likely land. And so not only do we believe we provide the highest netback, we also are the only batch system and we deliver the barrels faster than any other system to those strongest markets.

[Bevin Wirzba, President, CEO & Director at South Bow]

So we haven't guided this year to anticipate much spot volumes coming onto our system. Obviously, we're under a de rate moving all 585,000 barrels a day of our contracted volumes out of the basin. And we anticipate that as we address the next steps of our integrity program that once we see supply later in '26 and '27, our goal is to have our system ready to accept those walk up barrels.

[Jessica Hoyle, Associate Director at Scotiabank]

Thanks for that. Then can you update us on your initiatives to add contracts to the Southern End Of Keystone?

[Richard Prior, SVP & COO at South Bow]

Yeah, on the the market link portion of the system, sure. So that really is at this point just an ongoing part of our business is, you know, we just recently ran another open season that closed successfully, like entirely within our expectations and our plans. I expect that we're going to continue to run open seasons throughout the year as we work with our customers on exactly what they're looking terms that they'll move domestic barrels from Cushing down into the Gulf Coast. And as you'll notice in our release that we've been keeping that segment of the system quite full. It's actually moved more barrels in the second quarter than it did in the first.

[Jessica Hoyle, Associate Director at Scotiabank]

Thank you.

[Operator]

Thank you. Our next question is from Sam Burwell of Jefferies. Your line is now open.

[Sam Burwell, Vice President at Jefferies]

Hey, good morning guys. Just curious how you'd characterize the organic and maybe inorganic growth opportunities for South Bow as things stand today? And any color on whether you see more attractive opportunities on the Canadian side versus The U. S. Side?

[Bevin Wirzba, President, CEO & Director at South Bow]

Yes, Sam, great question. You know, our focus, as per our earlier remarks was to get through our first year, get off our TSAs, get in a position where we were lined out to be able to start pursuing that additional growth both organically and inorganically. And so very happy that we've achieved our objectives on that front. When we initiated though, it wasn't as if we were waiting to start building that hopper of opportunities. And on Richard's team, they've been maturing quite a large list of opportunities, both organically and inorganically.

[Bevin Wirzba, President, CEO & Director at South Bow]

But those take time to mature and we intend to provide a bit more color at our Investor Day in November as to how those are progressing. What I would say is that we have noted slight increase in balance of opportunities on the Canadian side of the border, kind of balancing out now between The US and Canada, where earlier in our journey we probably articulated that we anticipated the balance to be more US focused. And so that's great to see because we're here to serve our customers in both jurisdictions and find those solutions. So those happy to say that you've got to have a lot of irons in the fire to get certain ones to the finish line and fortunately for us we're seeing that progress quite well.

[Sam Burwell, Vice President at Jefferies]

Okay, great. And then sort of somewhat related to that, looks like you're making great progress on the Blackrod project, but fair to say that the majority of that cash flow contribution in '26 and '27 goes toward deleveraging rather than growth CapEx?

[Bevin Wirzba, President, CEO & Director at South Bow]

So the way we think about growth CapEx, Sam, is our after after covering off our interest and and dividend obligations and tax, that leaves us roughly between a $101,130,000,000 U. S. Dollars a year to allocate against growth. That kind of component stays consistent year over year and the projects that we've identified like Blackrod, you know, on average are to underwrite that 2% to 3% growth CAGR, we need to spend roughly that $100,000,000 per year. Now how it gets spent, it's not going to be 100 exactly every year, it's a bit lumpy.

[Bevin Wirzba, President, CEO & Director at South Bow]

But we're just as we as those cash flows from BlackRock come on, the priority is to keep that consistent capitalization of the business and all the extra cash flow goes to our deleveraging targets to get to our within four years, get down to that four times level.

[Sam Burwell, Vice President at Jefferies]

All right. Got it. Thank you, guys.

[Operator]

Thank you. Our next question is from Praneeth Satish of Wells Fargo. Your line is now open.

[Praneeth Satish, Analyst at Wells Fargo]

Thanks. Good morning. Just on cash taxes. So I think you mentioned cash taxes come down $50,000,000 in 2025. I guess that's from January, so roughly from 100 to 50 because of the one big beautiful bill.

[Praneeth Satish, Analyst at Wells Fargo]

I guess how should we think about the cash tax trajectory in 2026 and beyond? Because if you're is it going to be at that $50,000,000 run rate going into 'twenty six if we assume the current pace of CapEx persists? Then, if so, that's quite a sizable reduction going from 100 down to 50 basically gives you 50,000,000 of extra free cash flow. So does that all go towards debt pay down? Or could that put you in a position to maybe increase your CapEx budget a bit and sanction more bolt on projects?

[Van Dafoe, SVP & CFO at South Bow]

Thanks, Puneet. It's Van here. I said $15,000,000 not $50,000,000 So, so it'll be $15,000,000 for the foreseeable future will be the reductions in current tax. And that's just a flip between current tax and deferred tax. And we'll use that that's just additional distributable cash flow that we'll use either for growth capital or ultimately deleveraging.

[Burke Sansiviero, Equity Research Senior Associate at Wolfe Research, LLC]

Gotcha. Okay. Maybe I guess I misheard that. That makes sense. And then maybe just switching gears.

[Burke Sansiviero, Equity Research Senior Associate at Wolfe Research, LLC]

So, can you elaborate on kind of you mentioned you ran a metallurgical analysis or with a third party and what those findings revealed and whether just broadly, do those findings kind of suggest that the rupture was an isolated manufacturing or installation issue rather than a systemic problem? And then just maybe broadly, like how does this study, how does that metallurgical study differ from the third party root cause analysis? And does the study, does the metallurgical study kind of help narrow the scope of potential remedial actions that could arise from the RCFA?

[Richard Prior, SVP & COO at South Bow]

Yeah, I think simply the lab report and analysis, which was also completed by a third party that was approved by FINSA. That ends up becoming a component of the root cause failure analysis and investigation. I just think like that's all the scientific lab work that they did to study the pipe and examine exactly what occurred. What it did determine is that it was an axial crack on the long seam, which propagated during operations until the failure occurred. I think to provide much more detail than that, we're going to have to wait for the RCFA to be completed, which should be in the September timeframe.

[Richard Prior, SVP & COO at South Bow]

But I would say that from everything that we've seen so far, we were not seeing evidence that this is a broad systemic issue that we're not going to be able to get our arms around through remedial actions that we were either completing now or that we add additionally once the RCFA is done or enhancements and additions that we make to our ongoing integrity program in the future.

[Praneeth Satish, Analyst at Wells Fargo]

That's helpful. Thank you.

[Operator]

Thank you. Our next question is from Aaron McNeil of TD Cowen. Your line is now open.

[Aly Hemraj, Equity Research Associate at TD Cowen]

Good morning, This is Ali on for Aaron McNeil. Thanks for taking my question. Bevan, the recent Alliance settlement is top of mind for investors, and this got us thinking about if other Canadian pipeline assets may experience some sort of negative toll revisions in the future. I can appreciate you can't directly link Alliance with Keystone, but I'd like to get your perspective on the differences. With contracting beyond the end of the decade, do you think there could be a resetting of revenue and cost assumptions in the future?

[Bevin Wirzba, President, CEO & Director at South Bow]

Yeah, thanks, Ali. With Keystone, we've negotiated market driven contracts with renewal provisions and terms already approved by the CER and FERC. So our market driven approach is really focused as per my earlier comments to provide the most competitive route to preserve the highest netback for our customers. And so we continue to see that our approach is actually quite a different circumstance than what some of our competitors' tolling mechanisms are. We feel quite confident that because we serve the strongest supply base and most directly to the strongest demand market that we'll be in a very good position to renegotiate our contracts with our customers.

[Bevin Wirzba, President, CEO & Director at South Bow]

Really focused again though on providing that strong netback for them and a great return for our shareholders.

[Aly Hemraj, Equity Research Associate at TD Cowen]

Fair enough. Thanks, Devin. I'll turn it over.

[Operator]

Thank you. This now concludes the question and answer session. I would now like to turn it back to Bevan for closing remarks.

[Bevin Wirzba, President, CEO & Director at South Bow]

Well, thank you all for joining us today. We look forward to connecting with you in November when we report our third quarter earnings and host our first Investor Day. Thank you all.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Participants

Executives

• Martha Wilmot, Director - IR
• Bevin Wirzba, President, CEO & Director
• Richard Prior, SVP & COO
• Van Dafoe, SVP & CFO

Analysts

• Maurice Choy, Director - Canadian Energy Infrastructure at RBC Capital Markets
• Burke Sansiviero, Equity Research Senior Associate at Wolfe Research, LLC
• Jessica Hoyle, Associate Director at Scotiabank
• Sam Burwell, Vice President at Jefferies
• Praneeth Satish, Analyst at Wells Fargo
• Aly Hemraj, Equity Research Associate at TD Cowen