Trecora Resources
Q4 2017 Earnings Call Transcript

Published: 8 Mar 2018

[Operator:]

Good day and welcome to the Trecora Resources’ Fourth Quarter and Full Year 2017 Earnings Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Jean Young, The Piacente Group. Please go ahead.

[Jean Young:]

Thank you very much and good morning, everyone. Welcome to the Trecora Resources' fourth quarter and full year 2017 earnings conference call. The earnings release was distributed over the wire services after the close of the financial markets yesterday afternoon. Presenting on our call today will be Simon Upfill Brown, President and Chief Executive Officer; and Sami Ahmad, Chief Financial Officer. Connie Cook, Vice President of Accounting and Compliance will be available for the Q&A session. Following management's prepared remarks, there will be a question-and-answer session. Before we get started, I would like to review the Safe Harbor statement, which is found on slide two. 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, March 8th, 2017. 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 Annual Report on Form 10-K for the year ended December 31st, 2016, and subsequent quarterly reports on Form 10-Q. The webcast is accompanied by a slide presentation that is available on the company's website, www.trecora.com. At this time, I'd like to turn the call over to Trecora's President and CEO, Simon Upfill Brown.

[Simon Upfill Brown:]

Thanks, Jean and thanks to everyone joining the call this afternoon. We are pleased to report solid financial results for our fourth quarter with total revenue increasing 21.7% compared to the same period last year, reflecting continued growth of prime product volume at SHR. Fourth quarter adjusted EBITDA increased 47% from a year ago to 8.5 million and adjusted net income for the quarter was 3 million or $0.12 a share. Reported net income in the fourth quarter reflected equity in earnings of AMAK of 0.9 million or an estimated 0.3 cents per diluted share on an after-tax basis. This was the first positive contribution to net income from AMAK since the third quarter of 2013. As we move to slide 3, before discussing details of the quarter, I would like to spend a few minutes describing the organizational changes we announced last night. At its core, these changes are intend to acknowledge the changing needs of our company and to create an organization that transitions our culture into one with operational excellence. First, I will be taking on the additional role of Chief Operating Officer, while retaining my responsibilities as CEO. This change will allow me to get closer to day-to-day operations and more quickly identify areas of the business that may need changes in people, processes or procedures to ensure success. In support of me in that effort, Nicholas Carter is named Executive Chairman, through no longer than the remainder of 2018. He brings his tremendous experience to the management team. While we have worked closely for a long time, I welcome Nick’s input as be leverage the work we've done in recent years to position the company for success. It will be great to have his support as we drive the necessary operational improvements forward. Next, we have eliminated the position of the Vice President of Manufacturing at TREC, thus providing me direct oversight of our manufacturing processes. Finally, we've made additional changes in the TC organization, including transitioning Peter Loggenberg formerly President of TC into a new role as Chief Sustainability Officer. I would speak more specifically to the changes at TC later in my remarks. As mentioned, these changes acknowledge the evolution of Trecora and I am excited to leverage the new structure to drive consistent, high-quality execution across our businesses. Now for the details of the quarter in slide four. At South Hampton, we recorded an increase of 8.7% in prime product sales volumes in the quarter. We saw robust demand across many end markets, especially in polyethylene. We continue to anticipate sizeable new demand from projects in 2018, including a piece of a second Canadian oil sands customer and a new polyethylene plant in North America. As we previously announced, the advanced reformer project experienced further delay caused by February the 14 fire during start-up and commissioning. The fire damaged equipment that will have to be replaced and we now expect this project to come online in the third quarter. We are certainly thankful that the accident didn't result in any injuries. But this is a disappointing setback and we are looking at it as a valuable learning experience for our team. Following an extensive analysis and investigation, it was determined that excessive heating of the heater coils due to loss of energy transfer resulted in the subsequent failure of those coils. It also became clear that the pre-startup safety review was not as thorough as it might have been, resulting in a number of contributing causes. The team has certainly learned from this experience and strict protocols have been implemented to upgrade our process safety management that ensures such an incident does not occur again. We are making quick progress in remediating the damage caused by the fire. As previously announced, we anticipate our insurance will cover any costs over the 1 million deductible. Replacement parts have been ordered and expected delivery and installation times build confidence in our targeted start-up timeline. Importantly, markets for byproducts that will be produced by the advanced reformer remains strong and margins high, so the business model is solid. As for TC, we continue to see sustained high demand for custom processing, while recording modest revenue growth year-over-year. Lower-than-expected revenue was primarily due to the slow ramp up of the new hydrogenation unit and production challenges impacting custom processing volumes. As I mentioned, we are at a point in the evolution of TC that requires a sharpened focus on production and day-to-day execution. As a result, we've made organizational changes that you see that we feel will ensure a more consistent performance from this business. And I will share some of the additional details later in my remarks. We also are pleased to report that AMAK contributed the 0.9 million in equity in earnings in the quarter, as modernization investments and operating improvements begin to pay dividends. 2017 was a year of transition and while we experienced some setbacks, our overall performance remained solid. And we are well-positioned to participate in the resurgence of the North American chemical industry, and we will complete our capital project in 2018 and continue to expect our investments to drive significant increases in EBITDA. Slide 5 shows the quarterly breakdown of total prime and byproduct volumes along with deferred sales at South Hampton resources. As I noted earlier, our revenue growth was driven primarily by an increase in quarterly prime product volume of 18.7% from a year ago period, and to a lesser extent, modestly higher prices. For the prime -- for the year, prime product volume was up 9.1% compared to 2016, despite the drop in volume from our primary Canadian oil sands customer. International sales volumes in 2017, excluding the oil sands, were up 8%, as we continued to grow business in Asia and the Middle East. We expect continued growth in 2018 due to the start-up of second oil sands customer in Q1 of this year and a new North American PE customer in the fourth quarter. We expect to see volumes from the second Canadian oil sands customer in mid-2018, although this customer is under contract with our competitor for the bulk of their volume. The [indiscernible] throughout the quarter allowed significant flexibility and reliability to operations. Meanwhile, A-Train continued to be used for the production of one new product. We've sold approximately a quarter of 1 million gallons of this product in 2017 and are off to a strong start in 2018. We have now proven that we can make this product more cost effectively using raw materials that are available on site. We also used A-Train to run a first step for a TC processing customer, which will result in good revenue there in the first quarter of 2018. We are now shipping volumes to a new PE customer in Asia and another in the Middle East. Two other PE products in Asia continue to use primarily local supplies, although we are shipping small volumes to one of these. We continue to work on approvals for our new products in Asia as well. Petrochemical capacity utilization in the fourth quarter was 61% compared with 43% in the fourth quarter of 2016 and 53% in the third quarter of ’17. Capacity utilization is based on 11,000 barrels per day of fresh feed for both years. Slide 6 shows our action plan to remediate and commission the advanced reformer. The photo shows that repairs are underway with scaffolding and cranes already in place. As I mentioned, we’re making quick progress and have already checked a few items on the plan. We are working closely with our insurance adjuster and delivering needed information to expedite the plan. We expect quick turnaround of repair costs of our 1 million deductible, minimizing the impact to cash flow. We are taking several steps to reduce the economic impact of the delay in the advanced reformer and including avoiding an extra byproduct mix and way possible storing extra reformer feed and short term lease rail costs. We will process these feed volumes when the reformer comes online, allowing us to ramp production and utilize capacity more quickly than we would otherwise have been able. We are also looking at various processing options on the existing reformer to get additional short term benefits while we are waiting for the new reformer to come online. Finally, the new unit startup in in sight, we will slow 10x speed and begin using safety stuff to further reduce byproducts until the unit is online. When the new unit is fully commissioned, we will ramp up rates to rebuild inventory and process the byproducts. The business model remains sound and with the learnings gained in recent weeks and the hard work that has been completed, I’m confident in our ability to safely commission the unit and begin production by the third quarter. Turning to an update on Trecora Chemical on slide 7. Trecora Chemical’s full year revenue increased 14% year over year and was essentially flat year over year in Q4. The hydrogenation unit continue to come online slowly and thus overall custom processing revenue was below expectations. Wax pricing continued to improve in the quarter as we upgrade to higher value products. We are excited about volume growth in the products we have specifically developed for hot melt adhesives and PVC lubricants. For example, we sold almost a quarter of a million pounds to a PVC customer in the fourth quarter of 2017, up from zero in the fourth quarter of 2016. PC offers the highest quality and purity standards in the industry and those standards have ensured demand for custom processing customers remain high. 2017 custom processing revenues increased 31% compared to last year, once adjusted for an unused use fee that occurred for the last time in 2016. We actually have four CPE customers empowering us to produce as much volume as we can. We are doing a good job on two of these, and although we are showing some improvement on the others, we're not where we want to be. One of these is on the hydrogenation unit where we had disappointing results in the fourth quarter. We continue to believe that with the appropriate focus on operational excellence, we will be able to get to the 6 million to 8 million annually in EBITDA run rate by the end of 2018. It is clear that the demand for our services is fair. Now turning to slide 8, I would like to describe some of the organizational changes we have made in recent months at TC. Peter Loggenberg has served as President of TC since we acquired the business in 2014. He led the acquisition of the B-Plant, a particularly beneficial addition to TC and the forging of strong and lasting customer relationships. We thank him for his vision. Over the last year, it became clear that the time is right to have a stronger focus on the day-to-day fundamental blocking and tackling of operational excellence. As such, we have identified changes in people and processes that both shape the culture of execution and production that will better position TC for future success. We have hired an experienced custom processing manager to lead the current operations team and we've created increased oversight for each shift to ensure consistency across the cost of production day. And we have added additional experience operators and engineers to focus on safety, customer quality and responsiveness. Finally, we've increased pay scales to ensure we've retained the strong team we are building for years to come. Our process changes are focused on equipment reliability and our design to ensure we take always reasonable steps to maintain cost effective production. This has included making investments to replace the repeat, increase our shortstop of critical spare parts and enhance training of maintenance and operation staff. Importantly, these investments, while hugely beneficial, come at a relatively low cost. We are really seeing changes in attitudes and clear signs of execution of production culture emerging at TC with safety always as the number one priority. I am confident that changes we have implemented will allow us to capitalize on the strong demand for custom processing and reliably meet our customers’ needs, while delivering solid returns for our shareholders. Turning to slide nine for an update on AMAK. Sales of concentrate were strong in the fourth quarter, with continued improvement in the quality of the concentrate. AMAK continue to have visibility with water quality and the high MgO in the ore previously mined by the Chinese in the quarter, these issues should be fully resolved by the middle of 2018. It is particularly exciting to have AMAK make a profit in the fourth quarter, resulting in 0.9 million in equity in earnings to track. The Guyan gold project continues to move ahead with plans to commission this in the first half of 2019. We have issued a reserves update in the 10-K. Time does not allow us to cover the details here, but approximately 700,000 tonnes of ore processed per annum, the copper and zinc mine has approximately 8 years of life. We expect to be able to expand this to 12 years by the end of 2018 through additional drilling. AMAK continues to make progress on the precious metal circuit and gold and silver dore sales are expected in the next couple of months. Slide 10 shows a steady improvement in concentrate production by AMAK. The drop in November with order quality had a particularly negative effect. There has been significant improvements since then. Slide 11 shows steady improvement over the last few months in mill throughput and metal recoveries. AMAK expects to be able to show sustained growth in the coming months and is optimistic that 2018 will be a good year. Now, I will turn the call over to our Chief Financial Officer, Sami Ahmad, for a more detailed update on the results.

[Sami Ahmad:]

Thanks, Simon and good morning to everyone. Moving to slide 12, slide 12 provides a brief financial summary of the fourth quarter of 2017 and the full year. Net income for the fourth quarter was $14 million or $0.56 per diluted share, compared with a net loss of $0.8 million, or $0.03 per diluted share for the fourth quarter of 2016. Net income for the fourth quarter includes equity and gains of AMAK with an estimated after-tax impact of $0.03 per diluted share, along with a non-cash tax benefit from the Tax Cut and Jobs Act of approximately $10.3 million or an estimated $0.41 per diluted share. In the year ago period, net income included equity losses for AMAK of $3.7 million or $0.10 per diluted share. Adjusted EPS, which excludes AMAK and the tax benefit was $0.12 per diluted share in the fourth quarter of 2017. Now, let me take a moment to discuss the impact of the tax cut act. As a result of the reduction in US corporate income tax rate from 35% to 21%, we revalued our year-end net deferred tax liabilities resulting in the one-time non-cash $10.3 million benefit. For the fourth quarter, we used an effective tax rate of 21% and we expect it to be the same for 2018. Additionally, under the new tax law, we will be able to expense for tax purposes, capital projects placed into service after September 27, 2017. Thus, we will be able to fully expense for tax the CapEx for the advanced reformer unit when it starts up. It is unlikely that we will be paying cash income tax in 2018, which of course is a significant benefit for cash flow. Adjusted EBITDA in the quarter, which excludes equity impact of AMAK was $8.5 million, representing a 12.8% margin compared with adjusted EBITDA of $5.7 million, representing a 10.6% margin for the same period a year ago. Adjusted EBITDA for the full year 2017 was 31.7 million compared to 31 million in 2016. Adjusted EBITDA margin declined from 14.6% last year to 12.9% in 2017. EBITDA margins at South Hampton Resources were about unchanged from 2016, while EBITDA margin at TC were sharply lower due to higher operating costs, primarily related to hydrogenation and distillation as well as the drawdown in sale of high cost inventory, wax inventory. Additionally, as we have previously discussed, hurricane Harvey had an impact to cost and revenues at both facilities. CapEx for the fourth quarter was $12.3 million and 51.6 million for the full year 2017. Nearly all of this expenditure was related to the advanced reformer at South Hampton and hydrogenation and distillation units at TC, which came online last year. Through 12/31/2017, we had spent about $44 million on the advanced reformer unit and our current estimate is that the project will cost approximately 58 million, including the 1 million insurance deductible when it is fully complete. G&A expense for the full year 2017 was approximately $22.6 million or 9.2% of revenues, compared with 9.6% of revenues in 2016. As of December 31, 2017, our total liquidity, which is cash plus availability under our revolver was approximately $28 million. Long-term debt, including current portion, but excluding loan fees, was 99.6 million as of year-end compared to 84 million at year end 2016. Revolver borrowings increased to $35 million at year-end 2017 from 9 million at year-end 2016. Turning to slide 13, which presents a summary of our quarterly petrochemical revenue and sales volumes broken out by prime product and byproduct volumes. Prime product volumes in the fourth quarter were approximately 17.1 million gallons and that compares to 16.7 million gallons in the third quarter and 14.4 million gallons in the fourth quarter of 2016. For the full year 2017, prime product volumes grew 9.5% from 58.4 billion gallons in 2016 to 64 million gallons in 2017. The year 2017, as you can see in the chart, we saw steady growth quarter-to-quarter as our customers across most market segments benefited from the strong economy. Due to the need to produce additional prime products to support the increase in sales, our byproduct volumes increased nearly 45% year-over-year in the fourth quarter. Byproduct volume was 5.7 million gallons in the fourth quarter, compared with 3.9 million gallons a year ago. The fourth quarter byproduct margin above feed were approximately $0.07 per gallon in the quarter, compared with 4.6 cents per gallon in the third quarter and a negative $0.07 per gallon in the fourth quarter of 2016. Margins for byproducts have expanded as prices for aromatics components in the byproducts have increased. As we have said before, we anticipate a significant margin uplift for the byproducts once our new advanced reformer unit comes online in the third quarter of 2018. Turning to slide 14, petrochemical feed stock summary, in this chart, we show the market price for natural gasoline and our process cost of feedstock on a relative basis. The spread reflects the delivery cost from our suppliers as well as any shortfall fees that we incurred when volumes were below contractual minimum amounts. Petrochemical feedstocks were 14.6% higher in the fourth quarter 2017, as compared to fourth quarter 2016. For the year, feedstock costs were nearly 18% higher than in 2016, with most of the increase happening in the second half of 2017 as natural gasoline prices moved up in line with crude oil. In a rising feedstock environment, margins on reformer priced prime products contracts can get squeezed as the contracts are based on the prior month’s feed average costs. Additionally, we can lose margin on stock non-formula business if we are unable to push through price increases. The impact of shortfall penalty payments to our suppliers for purchases below the contractual minimum amount was not material in the fourth quarter 2017. Moving to slide 15, wax volumes at Trecora Chemical were 7.1 million pounds in the fourth quarter, down 27% from a year ago and down 11.5% sequentially. Wax revenues were down 7.3% from the fourth quarter of 2016 and down 6.3% sequentially. As we have discussed, TC had production issues in the fourth quarter and build inventory of feedstock. For the full year, wax sales volumes were up 4.4%, while revenues increased more than 17%. Thus, average was pricing increased approximately 10%. The price uplift is mainly due to improving sales mix as TC sells more higher value waxes. TC drew down approximately 8 million pounds of inventory in 2017 to increase cash flow as well as mitigate the production issues that we faced in 2017. Although this was the right business decision, it did have a material impact to TC’s earnings in 2017. Slide 16 presents an overview of our custom processing revenues at South Hampton and TC. Custom processing at South Hampton was $6.9 million in 2017, compared with $8.8 million in the year ago period. The decrease in custom processing revenue was primarily due to a reduction in fees associated with a customer who reimbursed us for installation and construction expenses, plus a markup. Custom processing at TC was $10.9 million, a 9% increase compared to 2016. The 2016 figure also included for the last time $1.7 million in non-use fees with a particular customer. B plant revenues in 2017 were $2.8 million, compared to 0.6 million in 2016. Hydrogenation and distillation revenues were approximately $0.6 million in 2017. This concludes the financial review. And with that, I will turn the ball back over the Simon.

[Simon Upfill Brown:]

Thanks, Sami. To recap on slide 17, we delivered a solid quarter and the year, highlighted by prime product sales volumes increases at South Hampton, annual revenue growth at TC and positive momentum at AMAK. But we also faced certain challenges with our capital projects and custom processing revenue came in below our expectations. We announced yesterday personnel changes that acknowledge the transformation needed at our company to create an organization that allows our culture to evolve to one of operational excellence, a vision of safety, consistency, reliability, and responsiveness. Moving forward, we believe there are numerous opportunities within the industry and catalysts within the company to continue to fuel future growth. We expect to capitalize on our expanding petrochemical capacity on the Gulf Coast and stronger demand from polyethylene manufacturers in many parts of the world. We also look forward to some volume from the second Canadian oil sand customer in 2018. Our changes to people and processes at TC position it well to ramp custom processing production and capitalize on strong customer demand. All customers employing us to produce as much as we can is a good indication of demand. The Advanced Reformer unit while delayed will come online in the third quarter delivering significant EBITDA improvement while increasing the value of byproduct. The hydrogenation and distillation units are online and are generating revenue. With the startup delays behind us and operation of these units improving we expect solid revenue in 2018. AMAK delivered a profitable performance in Q4 and we remain optimistic about our ability to monetize our investment in AMAK in the not too distant future. This concludes my prepared remarks. At this time I'd like to ask the operator to open the call for Q&A.

[Operator:]

Thank you, sir. [Operator Instructions] And now we'll take our first person from the queue, Jon Tanwanteng from CJS Securities. Please go ahead, your line is now open.

[Jon Tanwanteng:]

Good morning, gentlemen; very nice quarter. How should we think of spreads heading into Q1 and 2018 and how quickly do you think you can catch up on a pricing basis?

[Simon Upfill Brown:]

Well, we've seen in the last few weeks a fairly dramatic increase in natural gasoline prices, even higher than crude oil prices. Crude oil price is trending down in the recent week and natural gasoline price is trending up. So it's hard to state, Jon, a lot depends on how things turn over the next six weeks or so. The lag always waxes a little bit on the formula pricing as Sami mentioned and we have to work hard on the spot pricing where we can to get the price increases as these raw material prices change, but we're just going to have to monitor it here a little bit over the next little while to see what happens exactly with natural gasoline pricing. Not clear actually to why it is increasing.

[Sami Ahmad:]

Yes, it's not clear and the other thing, Jon, as you know is that there is a competitive piece to it based on really what's going on in the gasoline market relative to our competition. So, that's going to play into how that unfolds as well.

[Jon Tanwanteng:]

Okay, great. Thanks for the color. And then can you talk about the SG&A run rate? Is what we saw on Q4 what we should be looking at going forward on a quarterly basis, was there anything strange in there, I know you're doing some management changes, how does that impact SG&A and any color on all of that would be appreciated.

[Sami Ahmad:]

I don't think it will be -- the management changes and those things will have a material impact, I mean, in the fourth quarter we were running at roughly $5 million a quarter. I think, using the 2017 number should probably be certainly as a percent of revenue is a good marker.

[Jon Tanwanteng:]

Okay, great. And then, Sami, just a little more color on the cash flow, the free cash flow you expect to generate this year, given the net impact of the tax changes and the delays of the reformer? Is debt pay down still a priority for the cash windfall?

[Sami Ahmad:]

Yes, I mean first priority, as Simon mentioned, is to get projects completed safely and hopefully at a level -- expenditure level that we talked about. And then when that project is completed, that will generate cash flow. As I mentioned, we shouldn't have cash taxes this year. Working capital, we may build up some inventory going into the startup of the reformer, but that shouldn't be material. The wax inventory reduction, that's just about fully complete. So, we won't see cash coming out of that like we did in 2017. And then, post the start of the reformer, we should have free cash flow that we would apply to debt reduction.

[Jon Tanwanteng:]

Okay, great. And then, finally Simon, just any more color on how you expect the AMAK monetization to play out for you guys now that they have demonstrated profit. I know there are some milestones hit, but any updated thoughts there?

[Simon Upfill Brown:]

Yeah. I mean we are now -- Jon, I think we are in a position that we have something to sell, right? Because we do have a reserves update. We are expecting more reserves expansion as we continue to drill. As we do more on the Guyan Gold project, that becomes more and more realistic added value to AMAK. And now that copper and zinc prices look good. Copper prices look particularly stable and production rates have ramped up nicely, we have something to sell. So, we will be thinking of that process in earnest in the next few weeks.

[Jon Tanwanteng:]

Okay, great. Thank you very much.

[Simon Upfill Brown:]

Thanks, Jon.

[Sami Ahmad:]

Thanks, Jon.

[Operator:]

Thank you. And now we will take our next question from Joseph Reagor from ROTH Capital Partners. Please go ahead. Your line is now open.

[Joseph Reagor:]

Thanks, and good morning, guys. Thanks for taking the questions.

[Sami Ahmad:]

Hey, Joe.

[Simon Upfill Brown:]

Good morning, Joe.

[Joseph Reagor:]

Good morning. So, couple of things. I guess first one on the improvement in the AMAK profitability for the quarter. Were there any adjustments in the valuation or was that just straight just shy of million dollars on your 30 whatever percent?

[Connie Cook:]

Now, that was just straight, we didn't make any adjustment other than that's placed on the PJ that will be record that was done over there.

[Joseph Reagor:]

Okay, that's good. And then, Simon, if you could remind us, how many quarters of positive profitability are you allowed before you acquired two IPOs of the business?

[Simon Upfill Brown:]

I think it's two years.

[Joseph Reagor:]

Two years?

[Simon Upfill Brown:]

Yes.

[Joseph Reagor:]

Okay. We still had a while before your hand would be forced; obviously you guys I think would stay right to exit it sooner than later, but…

[Simon Upfill Brown:]

Late 2019, early 2020 under that we will -- we don't have to wait for that.

[Joseph Reagor:]

Yes, fair enough. I just kind of wanted to get a long term scenario if they are worried about it.

[Simon Upfill Brown:]

Yes.

[Joseph Reagor:]

Kind of shifting gears; you very briefly mentioned that disappointing quarter from the hydrogenation unit. Could you elaborate on that further?

[Simon Upfill Brown:]

Yes. We have -- this is one of the customers that's begging us -- employing as to make as much volume as we can through what's that unit and that stuck with us through our sort of lack throughput rate. But the issue has been is understanding the changes in their product because their product is not all that consistent. And then also understanding exactly how this system is optimized. And we continue to work on optimization. And we continue to increase throughput rates, Joe. We are getting very, very close now to what we expect them to run the unit at. But through the course of the fourth quarter and the first couple of weeks of this year, we haven't done -- met the rates that we were expecting. So it's part of starting up a new unit a little bit. We had to make some changes. We had a heat exchanger that's fared on us, which result in us getting wax throughout our cooling system, our fin fans, and that takes a long time to get this material that is solid at room temperature out of older tubes and everything. So those kinds of setbacks have just delayed us. But every day, it's looking better and better and at this point, it's running fairly well almost where we wanted to be.

[Joseph Reagor:]

Okay. And then kind of just one I guess big picture question, what do you think were the reasons for kind of the shortcomings and the way management were handling things that resulted in the changes you guys made today like what were the biggest issues that you saw that you felt needed attention?

[Sami Ahmad:]

There are few things as we mentioned in the call, primarily one of the things was resources, we did not have enough resources involved in the day-to-day operation, we mentioned we've been adding operators and engineers, run engineers to ensure that things are set-up properly that we have enough people on the ground to take care of things. I think it turns out I think we were expecting folks to do way too much without giving the resources that they needed and that's behind us, we continue to have a few open positions that we did. The change in attitude that I mentioned on the call we're seeing I think is a big part of it, it's just important to have the right capabilities in place and I think we missed some of that. But one of the primary ones was sufficient resource basically in the number of operators and in the number of engineers.

[Joseph Reagor:]

Okay, and then, one quick follow-up on that, any idea on potential impact on G&A from the changes and additions?

[Sami Ahmad:]

Those changes in terms of operators and engineers and so on won't affect G&A that will be in operating expense, the G&A impact once plus or minus it's not going to be material, it's not going to be material.

[Joseph Reagor:]

Okay, and on the operating expense on dollars per year kind of number?

[Sami Ahmad:]

Yes, operating expense will creep up particularly at TC relative to the full-year with because of additional labor cost and so on, I think the way to think about that is look at the fourth quarter in terms of operating costs and tweak that up a little bit. But remember the key at TC is that the operating leverage is extremely high, so Simon mentioned with the four CP customers aligned once we get our operating situation underway their CP revenues the margins are 90 plus percent, so that will really all fall to the gross profit line.

[Simon Upfill Brown:]

One of the other things we'll be doing is reducing, we're reducing over time, we are working a lot of over time when we were under resource there. So I think there will be some offsetting changes.

[Joseph Reagor:]

Okay, thanks. I'll turn it over.

[Sami Ahmad:]

Thanks.

[Simon Upfill Brown:]

Thank you.

[Operator:]

Thank you. And our next person from the queue is Sarkis Sherbetchyan from B. Riley FBR. Please go ahead. Your line is now open.

[Sarkis Sherbetchyan:]

Thanks for taking my questions and good morning everyone.

[Simon Upfill Brown:]

Good morning.

[Sarkis Sherbetchyan:]

What was the operating cash flow on the fourth quarter?

[Sami Ahmad:]

Well operating cash flow well you see in the K when we filed the K let's look it up for you straight now. We're trying to file the K next week.

[Sarkis Sherbetchyan:]

Okay.

[Sami Ahmad:]

For the year and you can back into it for the quarter based on the third quarter Q, for the year net cash from operating activities was $30.8 million.

[Sarkis Sherbetchyan:]

Got it. Thanks for that and I think you mentioned CapEx for the quarter was $12.3 million, is that right?

[Sami Ahmad:]

Yes, that's in that financial summary slide.

[Sarkis Sherbetchyan:]

Perfect. So obviously signaling here that there were operational challenges, I mean if we were to just kind of summarize it were you guys trying to essentially do too many things in the very compressed timeframe and then as you kind of think throughout or help us understand that deploying additional resources, does that change any of the EBITDA ranges and timeframes communicated for the projects that you've undertaken?

[Sami Ahmad:]

I don't think so, Sarkis. It's we definitely need this people as mentioned earlier we're going to cut back on certain things like over time that we were using and all those things. So we remain very optimistic with the EBITDA targets that we put out there. You might be delayed a quarter or two but I don't think even that is going to happen.

[Sarkis Sherbetchyan:]

Understood, and then if I can circle back to the hydrogenation unit obviously highlighted at it, what was struggling and now that you're kind of addressing some of those issues encountered, can you help us understand if it were an asset issue, people's issue or a materials issue or some combination of the above that you've addressed?

[Simon Upfill Brown:]

I will tell little bit of the combination. We discovered how would you describe it and failure pieces of equipment connected to the reactants and service were not appropriately sized, we had to change some of those things, so that was a design issue, we had an equipment failure on the heat exchanger that I mentioned to you that was more around how we were operating the unit causing a little vibration in the heat exchanger which resulted in huge upturn very lengthy process to clean the wax out of the fin fan system and then it was also a function of having the right people monitoring how the unit was running et cetera, et cetera. So it really is a combination of things that impacted us. The basic design of the reactor system is sound. I think earlier on we had mentioned we had some catalyst issues caused by the way we were running the system through experience and all that. So it's been a combination of things and that's the basic structure and everything else is very, very sound and the cost that we had to spend to get this thing operating properly has not been all that significant but there is things like piping sizes or ton sizes or side stream on the distillation side stream cooler sizes all those kind of things which are relatively straightforward to fix. I think looking back obviously which one want to learn from these things obviously is we probably should have spent a little bit more time on the design phase, our mindset is often being get it done and maybe a little bit more time on design would have done some but sometimes you just had to go through those start-up process to find out where you might have missed things and what needs to be upgraded. And so, we're optimistic that that part of it we're putting behind us now.

[Sami Ahmad:]

And I would add to that, I don't think it will alter our CapEx guidance for TC that was the points that Simon made were still excluding the Paramax CapEx still talking about $8 million per year in maintenance planned health CapEx for the two sites combined.

[Sarkis Sherbetchyan:]

Thanks for that color, certainly helpful there. And if I can switch gears here to South Hampton obviously pretty good prime product growth, it sounds like you're expecting at least for the year additional volume growth on the prime side is that the right way to think about it?

[Sami Ahmad:]

Yes, as Simon mentioned, there are the customers are expanding the second Canadian oil sands customer in the sometimes we should start getting some volume new polyethylene facility coming online towards the end of the year, we will get full years’ worth of volume now that the polyethylene unit that came online in the third quarter of last year and then the other thing I would point out is when you look at our sales across the end used markets are not just polyethylene but the other polyurethane other markets depend poly there is growth across all those markets. Yes, Canadian oil sands continue to be depressed but we will see little more volume there, so we're optimistic about reasonable volume growth whether it's at the level that we saw in the fourth quarter, I mean that was pretty robust. But I think we're optimistic about growth.

[Sarkis Sherbetchyan:]

Good. And then, just touching on the byproduct margins, it seems like it was positive again in 4Q, do you expect that to continue in the near term given where the pricing of aromatics are?

[Sami Ahmad:]

Well, pricing of aromatics continue to be good but as Simon pointed out natural gasoline prices have crept up over certainly since year-end to now they are up materially and you can look at the market benchmarks, so it's really a function of how much we keep outpacing the increases in natural gasoline. Now once the reform is -- grants reform starts up then basically shift into different mode because you end up comps trading aromatics significantly more in the stream and so the values go up kind of in the step-change basis.

[Sarkis Sherbetchyan:]

Got it. And just shifting gears here to AMAK, with respect to the zinc and copper or process for the year, I suppose expectations any changes versus what the mine has done historically on an annual basis?

[Sami Ahmad:]

Yes, we're not pretty sure whether we will get up to the full 700,000 plus tons a year in 2018. I mean, I think that we have a slide for January and February note throughput we have to clearly the start the, there is still some concern about ramping all the way beyond 2018 I think our expectation is we should be able to ramp volumes even a little bit above the 700,000 a year.

[Sarkis Sherbetchyan:]

Got it. Thanks for that. I'll back in the queue.

[Simon Upfill Brown:]

Thanks, Sarkis.

[Operator:]

Thank you. Now we will take our next question Bill Dezellem from Tieton Capital Management. Please go ahead your line is now open.

[Bill Dezellem:]

Hi, thank you. Group of questions, first of all on the people front Simon would you please share with us how you and Nick work differently when you two were CEO and Chief Operating Officer versus how things have been going and then I have a couple of TC questions after this one please?

[Simon Upfill Brown:]

Bill, I don't think this going to be dramatic change. It's going to be just a little bit more engagement from Nick in so balancing ideas often another pre-revised to evaluate some of the changes we're thinking off and so we're expecting just a little bit more time Nick when he has being giving us up to now. And we have an excellent working relationship, so I'm quite excited about this because up in its just helpful to have a constructive debate about some of the things we're thinking about doing and so that's the primary change and then so regarded so reviewed as a short-term extra sort of hands while we get our act together on the whole organization, so that's really what it's about though. I'm very excited about it I have a lot of respect for making, his wives and know particularly extremely well, so I think we'll be able to work very well together and hopefully accelerate this process of getting to operational excellence.

[Bill Dezellem:]

And was there anything in specific when one of the two you were working more closely together in the past, is that you hope to resurrect to that you believe will be meaningful or impactful?

[Simon Upfill Brown:]

I don't think there is anything specific it's just the what I talk about, the ability to dialogue and debate things that we're thinking about of those, I mean we use to do that significantly more than we have may be we've been doing in the recent years and so it's just a bit of a step back to that, so it should be very constructive.

[Bill Dezellem:]

Great, thank you. And then relative to TC apologize for what feel likes making its here but in one of your slides you showed that wax volumes that were trending down where is it appears though custom processing hasn't has really been trending nowhere is just kind of balancing up and down and so from that slide it seems to me as though the bigger TC problem is wax volumes rather than custom processing and have to focus is on CP in terms of your conversation. Can you help understand why you see CP as the bigger issue, and what it is that we are not grasping?

[Simon Upfill Brown:]

Yes, I'll start out on that you and then Sami can plug in if I miss anything but primarily the TC volumes become little bit towards the end of '17 primarily because we were having some operational difficulties with our wax production. We also started selling less of the very cheap wax product that are we spoken about before though because our supplier wanted us to take all the volume we needed to move some of this cheaper wax. And so, we started on purpose selling mix of that while we were trying to sell more of the high value product. Particularly why we were having some operational difficulties? Important thing about wax is that prices are up and so the average price I think Sami mentioned was up about 10% over the previous year. So we really review the wax business is going well though, the markets specific products we've developed well we've got one customer taking two or three truckloads of month multiple products that we were in supplying before, all those and things that are happening in the wax business have those comfortable that wax business is doing recently well. The custom processing side of things is where we need the additional revenue on both in B plant and on the hydrogenation and distillation unit. B plant was also showing good signs as Sami mentioned we did 2.8 million in revenue from B plant and versus 0.6 with previous years, so B plant is certainly coming around. We had an issue in A plant with one project that has not been running well and we've result that those production issues that very recently result those. And so that is starting to come around and the hydrogenation and distillation that really where we missed our revenue expectations in the second half of 2017 and the first two months of this year, so that's where that the focus on operations needs to be that the difficulties we were having with production in wax, in the second half of 2017 was very much related to some of the other things we discussed already operating discipline that the sufficient resources. We found we had significantly plug into feed line to our wax processing system which was further causing significant pressured up and took us a long time to find where that coverage was, so those kind of operating issues impacted us both places that we feel much more comfortable that wax production is running particularly well. We've reduced our wax feed inventory significantly over the last few months. And that could be what we really need is the custom processing revenue and the important thing is we have custom processing customers wanting us to produce for them and even though we've had this difficulties we have not found anywhere else, so I think it's, this is the right place to focus though.

[Bill Dezellem:]

Great. Thank you for that help.

[Operator:]

Thank you. [Operator Instructions] And now we take our next question from Greg Eisen from Singular Research. Please go ahead. Your line is now open.

[Greg Eisen:]

Thank you, and good morning. I apologize I got on the call late, so you may have answered some of the questions. I'm asking in your presentation but I want to start with the capital spending plan to complete the projects. I think you said earlier that's in the Q&A its around you spent around $12 million this quarter and I think that your plan was this quarter be rather third versus two-thirds in the March quarter, could you update us and what do you think it's going to take to finish the projects exclusive of the fire repair which I guess I $1 million cost and to finish off these building process before you reduce to the $8 million maintenance level?

[Sami Ahmad:]

Yes, so the only project remaining to be completed Greg is the advance reform as I mentioned we spent $44 million through end of last year on that project. Our current expectation is just going to be $58 million to complete including the $1 million deductible you mentioned as $14 million between year-end and when we completed in the third quarter.

[Greg Eisen:]

Okay, I guess you answer the question. Thank you. On the fire itself did you disclose what the total dollar value of the damage was, I'm trying to understand the magnitude when we talk about the fire, how big was?

[Simon Upfill Brown:]

We're not -- as I told, we're getting sort of that number tied down Greg, that it's going to be somewhere around $4 million all together. The cost to repair and there is some cutting we have to redo and the couple of other things like that.

[Greg Eisen:]

Okay.

[Sami Ahmad:]

But the insurance is recovering that.

[Simon Upfill Brown:]

It turns out that, in order to do it quickly the insurance company supported us buying a higher quality steel than we'd originally installed a new seat of coils, so we're actually going to get some long-term life benefits. Greg, we are out time and can we take this offline. If you have anything else we'd like to ask us.

[Greg Eisen:]

Yes, we'll follow up offline.

[Simon Upfill Brown:]

Okay, thanks a lot, Greg.

[Simon Upfill Brown:]

That's all. Thank you all for listening in today. We greatly appreciate your interest. We'd like to thank our shareholders for their continued support of our company. We hope to see you some of you next week in New York at the Gabelli Conference or at the ROTH conference at Laguna Niguel. We look forward to updating you on our progress in the coming months. Thank you all very much.

[Operator:]

Thank you. Ladies and gentlemen that does conclude today's conference call. Thank you for your participation. You may now disconnect.