Trecora Resources
Q1 2022 Earnings Call Transcript

Published: 8 May 2022

[Operator:]

Thank you all for standing by and welcome to the Trecora Resources First Quarter 2022 Earnings Conference Call. Please note that all lines will be in listen-only mode throughout the duration of today's conference call. Please also note that today's call is being recorded. I will now turn the call over to your host Jeremy Hellman. Sir, you may now begin.

[Jeremy Hellman:]

Thank you, operator, and good morning, everyone. Welcome to the Trecora Resources first quarter 2022 earnings conference call. Presenting on our call today will be Pat Quarles, President and Chief Executive Officer; and Sami Ahmad, Chief Financial Officer. Before we get started, I would like to review the safe harbor statement. Statements in this presentation that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon management's beliefs and expectations only as of the date of this teleconference, May 5, 2022. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks as well as others are discussed in greater detail in Trecora's filings with the SEC including the company's most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued after the close of the financial markets yesterday afternoon. I'd like to inform you that Trecora Resources intends to file a proxy statement and related proxy materials with the SEC in connection with the 2022 annual meeting of stockholders and in connection there with its directors and certain of its executive officers are participants in this solicitation of proxies from our stockholders in connection with such annual meeting. Stockholders at Trecora Resources are strongly encouraged to read such proxy statement and all other related materials filed with the SEC carefully and in their entirety when they become available as they will contain important information about the 2022 Annual Meeting. We will not comment on this call and the recent nominations made by Ortelius Advisors, L.P., together with its affiliate, Pangaea Ventures, L.P. The webcast is accompanied by a slide presentation that is available in the Investors section of the company's website, www.trecora.com. At this time, I'd like to turn the call over to Trecora's President and CEO, Pat Quarles.

[Pat Quarles:]

Thank you, Jeremy, and good morning, everyone. As always, we appreciate your interest in Trecora and are happy that you can join our call this morning. We are pleased with our first quarter results. We achieved $5.8 million of adjusted EBITDA for Trecora in the quarter, which exceeded our guidance. Specialty Waxes had a very strong quarter due to strong wax sales volumes and margins, along with solid custom processing revenues. Global supply chain disruptions continued to support our wax price increases as competitors are constrained in their imports to the U.S. We expect that to continue. Our Specialty Petrochemicals business saw solid volume growth, which is something we've been speaking to for a couple of quarters, as three of our customers have scheduled start-ups of new plants this year. We began shipping to two of those plants in the first quarter. You will recall that we have contractually won 95% of all new prime product demand in North America coming to the market from these new builds. In addition to this organic volume growth, we continue to be able to implement price increases for solvents and have been able to get ahead of feedstock inflation. On our last call, we noted that South Hampton's turnaround was taking place in March, and that is now complete. The maintenance costs were around $2.8 million, which was significantly higher than we expected. The costs were higher for two reasons

[Sami Ahmad:]

Thanks Pat, and good morning to everyone. I'll start my comments with a discussion of our debt, liquidity and cash flow, and then I'll discuss our first quarter 2022 performance in more detail. Our debt on March 31 stood at $40.9 million, and balance sheet cash was $31.9 million, resulting in net debt of $9 million. Additionally, our revolver was undrawn and has availability of approximately $75 million. Cash flow from operations for the first quarter was $7.7 million compared to $3.8 million in the first quarter of 2021. Operating cash flow in the current quarter was driven by strong operating results and inventory drawdown related to the plant turnaround outage in March. Operating cash flow during the first quarter of 2021 suffered from the significant negative impact of the Texas freeze event, which resulted in a net loss for that quarter of $4.4 million. Turning to CapEx. Total CapEx for this quarter was $4.9 million compared to $4.8 million in the first quarter of 2021. South Hampton's CapEx was approximately $4.1 million for the first quarter, of which we spent $1.5 million for the ongoing GSPL feedstock pipeline upgrade work. TC CapEx was $0.7 million for the first quarter. Our CapEx guidance for full year 2022 remains at $12 million to $14 million. We reported a net loss of $0.4 million or $0.02 per diluted share. This compares to net income in the fourth quarter of 2021 of $5.2 million or $0.22 per diluted share and a net loss of $4.4 million or $0.18 per diluted share in the first quarter of 2021. Adjusted EBITDA was $5.8 million for the first quarter compared with $5.2 million in the first quarter of 2021 and negative $0.1 million in the first quarter of last year. Recall that the first quarter 2021 results were significantly impacted by the Texas freeze event. We show the reconciliation to adjusted EBITDA in our earnings release as well as the slide deck. Note that adjusted EBITDA excludes nonrecurring costs, including costs for professional services related to strategic initiatives. In the first quarter, we had a onetime cost of $0.5 million for donation to the local fire department in Silsbee. The donation consisted of a small parcel of land adjacent to our South Hampton facility, along with a newly constructed firehouse. This donation is in line with Trecora's history of strong community engagement and support. The donation also provides for a high level of plant safety and ensures rapid emergency response. General and administrative expenses for the first quarter were $7.8 million compared to $7.6 million in the first quarter of 2021. G&A includes plant-level general and administrative expenses as well as corporate expenses. Income tax for the quarter was approximately $0.3 million compared to a tax benefit of $1 million for first quarter of 2021. We expect our book tax rate for 2022 to be approximately 21%. We do not expect to pay cash income taxes in 2022 as a result of our net operating loss position. Now let me walk you through our business segments, starting with Specialty Petrochemicals. Adjusted EBITDA for Specialty Petrochemicals in the first quarter was $5.9 million compared to $6.4 million in the fourth quarter of 2021 and $2.6 million in the first quarter of 2021. First quarter 2022 results for Specialty Petrochemicals included expenses associated with the large maintenance turnaround as noted by Pat. The turnaround was completed safely and successfully. The cost for the turnaround were greater than previously expected by approximately $1 million and totaled approximately $2.4 million in the first quarter. As Pat mentioned, the increase was mostly related to higher-than-expected contract labor costs as well as higher costs for certain repairs arising from inspections and discoveries. We've incurred a further $0.4 million of turnaround-related costs in April and the turnaround is fully complete. Specialty Petrochemicals total sales volumes in the first quarter of 2022 was 20.2 million gallons compared to 17.2 million gallons in the first quarter of 2021. Prime product sales volume in the first quarter was 16.6 million gallons compared to 14.7 million gallons in the first quarter of 2021. We're seeing strong demand across most of our end-use markets, including polyiso foam, polystyrene and polyethylene. Focusing further Specialty Petrochemicals feedstock, benchmark natural gasoline feedstock prices have followed a trend of continued increases since bottoming out in the summer of 2020. Since that point, natural gasoline prices have continued a steady increase. The December 2021 price was $1.72 per gallon, rising to $2.57 per gallon in March. The average benchmark natural gasoline price for the full first quarter was $2.21 per gallon. Recently, we've seen prices begin to moderate after initially spiking in response to the conflict in Ukraine. The average April price was $2.26 per gallon. Now moving on to byproducts. Byproduct sales volume was 3.7 million gallons in the first quarter. As a reminder, byproducts are produced as a result of prime product production, and their margins are significantly lower than margins for our prime products. The byproduct spread was $0.46 per gallon in the first quarter compared with $0.23 per gallon in the fourth quarter of 2021. Now moving on to Specialty Waxes segment. Specialty Waxes segment generated revenues of approximately $12.6 million in the first quarter compared to $9.1 million in the fourth quarter and $8.7 million in the first quarter of 2021. Revenue in the first quarter included $10 million of wax product revenues and custom processing revenues of $2.7 million. Specialty Waxes segment had adjusted EBITDA of $1.9 million in the first quarter compared to $0.2 million in the fourth quarter of 2021 and a negative $0.5 million in the first quarter of last year. First quarter was a solid quarter for TC as strong market demand allowed us to continue to increase wax pricing. Wax sales volumes grew nearly 2 million pounds from the fourth quarter. Average wax pricing increased 16% from the fourth quarter and more than 20% from the first quarter of last year. Custom processing fees were approximately $2.7 million in the first quarter of 2022, that's up from $1.8 million from the prior year's first quarter. This concludes the financial summary. I'll now turn the call back over to Pat.

[Pat Quarles:]

Thanks Sami. I want to spend a few minutes highlighting the drivers supporting our longer-term growth story and also cover our outlook for the rest of 2022. Recall last quarter that we outlined the primary elements underpinning our guidance. Those three drivers remain very much intact

[Q -:]

[Operator:]

This concludes today's conference call. Thank you all for joining. You may now disconnect.