Q3 2019 Earnings Call

Time, all participants are in listen only mode. Today's conference is being recorded and at this time I like to turn the call over to Mr., Jason Finkelstein from the P.S. and take Group Inc. Please go ahead Jason.

Thank you operator, and good morning, everyone welcome to the core resources third quarter 2019 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 Pat Quarles, President and Chief Executive Officer. In addition to Sami Ahmad Chief Financial Officer.

Chris grows our corporate controller will also be available for the question answer session, which will follow management's prepared remarks before we get started I would like to review the safe Harbor statement.

In this presentation that are not historical facts.

Looking statements define the private Securities Litigation Reform Act of 1995.

Forward looking statements are based upon management's belief beliefs and expectations only after the date of the teleconference November seven 2019.

Forward looking statements involve risks and uncertainties that could cause actual results could differ materially from those projected.

Those risks as well the others are discussed in greater detail Indra Corus filings with the FTC, including the company's most recent annual report on Form 10-K subsequent quarterly reports on Form 10-Q .

During today's call management will also discuss certain non-GAAP financial measures for comparison purposes, only bring definition of non-GAAP financial measures at a reconciliation of GAAP to non-GAAP financial results. Please see the earnings release issued after the close of financial markets yesterday afternoon.

This webcast is accompanied by a slide presentation that is available on the company's website www dot <unk> dot com.

This time I'd like to turn the call <unk> core as president and CEO Pat Quarles.

Thank you Jessica Jason and good morning to all those participating in today's call.

During my remarks, I'll be discussing overall progress we've been making in the business as well as our continued pursuit of execution excellence within the company, but before I do I would like to provide an update regarding our recent action Jewish reshape our company specifically the sale of our stake in a Mac.

As background from investors, both new and existing on the call today.

<unk> as an original developer and 33% owner and I'm, a Saudi Alcobra mining company or a Mac.

Saudi Arabian closed joint stock company, which owns operates as developing money a mining assets in Saudi Arabia.

Our stake in a Mac is a meaningful but non core asset a trip for us.

In October 2nd Tricor announced that we had entered into a definitive share sale and purchase agreement, but certain existing shareholders of amax, who will acquire tricor. His entire equity interest and Mac has also participating in this transaction through its previously announced share repurchase authorization.

The terms of the agreement Tricor will be selling our equity interest for $70 million and we expect received net proceeds of approximately $60 million in cash net about U.S. and Saudi taxes as well as transaction expenses, the consideration would be paid or payable in us dollars.

Core has already received a 5% nonrefundable deposit of approximately $3 million to $5 million from the purchasers.

The sale, which has no financing financing conditions is subject to government approvals and closing conditions and is targeted to close in fourth quarter 2019, assuming receipt of all necessary government approvals, we're advancing the processes to gain government approvals for the sale and have no indication at this point that we will not be able to close.

During the fourth quarter, we do expect some delay from the November 25th date cited earlier.

This transaction is something the company has discussed for quite some time.

Upon close we will have achieved an important commitment to monetize this asset reach our debt reduction target and have further capital to deploy towards shareholder value creation.

Over the past two years Ambac has accomplished significant operational restructuring and upgrades, thus greatly enhancing its value and allowing for a transaction that we believe achieves a good outcome for our shareholders.

What will remain after the completion of this transaction is a company with a singular focus on the improvement of operating businesses and future growth opportunities.

We continue to make good progress in our businesses, we set out our priorities at the beginning of the year for driving shareholder value in 2019, we focused on improving our safety performance enhancing the reliability of our operations, capturing productivity improvements and driving commercial excellence.

We expected success, along these four priorities to dramatically improve earnings enhance our cash flow and allow for meaningful debt reduction and they have.

Tricor achieved consolidated adjusted EBITDA from continuing operations of $6.9 million in the third quarter, which compares to $4.9 million in Q3 last year, a 41% increase year over year.

These improved year over year operating results have translated into excellent cash generation since the first quarter and allow for further debt reduction this quarter.

In Q3, we paid down approximately $9 million in debt with an additional $5 million repaid in October . This brings current outstanding debt to approximately $84 million compared to $102.5 million at end of 2018.

Year to date, we have nearly doubled our operating cash flow to $20.2 million compared to $11.1 million for the same period in 2018.

The key drivers to our improved Q3 and year to date results are all tied to our turnaround priorities laid out at the beginning of the year.

They include first improving safety and enhancing Rob reliability.

In Q3, we delivered safe and reliable operations, while simultaneously, providing high quality products to our customers. We had no accidents across our entire company during the third quarter.

Our advanced reformer, which ran with high reliability reliability in Q3 allowed for the capture of improved byproduct values in the market. The advanced reformer demonstrated the ability to continue to run through various electrical upset at the site, which were related to anticipate electrical network vulnerabilities, which we've discussed in the past.

We've also concentrate on capturing productivity opportunities, we continue challenging both internal and external cost elements for example.

In Q3, we realize further savings related to rail storage and fleet reduction, which significantly contribute contributed to gross margin improvements. In addition, we continue to transition from reactive maintenance to plan maintenance. This helped to save approximately $300000 in the third quarter alone.

In addition, the Q4 18 reorganization and cost saving activities that we implemented at our silsby facility have allowed us to fully offset the higher cost of annual rail freight increases.

Finally, we have been pursuing commercial excellence, we're improving our sales terms cutting costs and assessing customer profitability at the ship to level in Q3, we realized improved margins on our see six products. After a successful price increase in Q2.

In addition, the commercial organization performed a comprehensive review at the profitability of our existing custom processing business.

As a result significant fee increases have been implemented which we estimate will enhance our profitability by $500000 beginning next year.

In summary, Q3 in the first nine months of 2019 have shown tremendous progress.

As far as Q4 outlook, we're seeing demand reduction typical the season.

We also experienced a severe weather event at the Silsbee plant on October October 29, last Tuesday, resulting in a plant shutdown in significant damage to whatever feedstock tanks.

The plan has returned operation However, we expect recovery costs and some losses sales volumes to impact the quarter.

Now I'll turn the call over to Sami Ahmad our Chief Financial Officer for more detailed discussion of our Q3 and year to date results.

Thanks, Pat and good morning, everyone.

Let me begin as Pat did with the sale of our Amec interest.

Two core intends to use the proceeds from the transaction in accordance with its disciplined capital allocation strategy.

The approximately 60 million of net proceeds expected to be received will allow us to accelerate debt reduction this substantially strengthening our balance sheet.

We expect our pro forma leverage following the completion of the transaction to be in the 1.5 to 2.0 range.

Aside from debt pay down we're also exploring options to use some of the rating proceeds to potentially fund share repurchases.

We believe the deal valuation is an excellent outcome for the company both financially and strategically.

Conducted an exhaustive and global process led by one of the leading metals and mining investment banks in the world.

Contacted more than 50 potential buyers, we ultimately chose to sell to the existing shareholders. Because it was at a significantly higher valuation and at a lower risk than other alternatives that includes retaining our ownership in the mine.

As the sale progresses, we will provide further updates specifically two words, but not limited to the closing the transaction.

As all the required criteria for held for sale classification was met at September Thirtyth 2019, the investment in a Mac is classified as held for sale in the consolidated balance sheets and reflected as discontinued operations in the consolidated statement of operations.

For all periods presented.

Now, let's take a closer look at our third quarter and year to date operational performance.

Net income from continuing operations in the third quarter of 2019 was $1.6 million or six cents per diluted share. This compares to a net loss from continuing operations of negative.

0.7 million or three cents per diluted share the third quarter 2018.

Looking at the first nine months of this year net income from continuing operations was 5.9 million or 23 cents per diluted share compared with net income of three and a half million or 14 cents per diluted share for the same period 2018.

Gross profit in the third quarter was 9.6 million and this compares with 6.8 million in third quarter of last year.

Gross profit for the first nine months of 2019 was 30.2 million representing a 15.3% gross profit margin. That's compares with 25.1 million or an 11.8% gross profit margin the same period 2018.

Consolidated adjusted EBITDA from continuing operations for the third quarter was 6.9 million compared with adjusted EBITDA from continuing operations of 4.9 million in the same period a year ago.

Adjusted EBITDA from continuing operations for the first nine months of 2019 was 24.6 million compared with 18.3 million in the same period last year.

No compared to the second quarter of 2019 consolidated adjusted EBITDA from continuing operations declined from $9.2 million to 6.9 million.

The $2.3 million declined is explained by lower prime product sales volumes and lower wax sales volumes.

These were partially offset by higher margins and lower operating expenses in the specialty petrochemical segment.

Additionally, third quarter adjusted EBITDA from continuing operations was negatively impacted by a 2019 year to date cumulative adjustment of $700000 primarily related to advance reformer license amortization.

This amount should not have been added back in prior periods for the calculation of adjusted EBITDA from continuing operations. This adjustment has no impact to our consolidated income statements.

In the first nine months of 2019 consolidated adjusted EBITDA from continuing operations increased by approximately 6.3 million compared to the same period 2018 or about 34%.

Year to date increase in EBITDA was driven by lower feedstock costs.

Which resulted in better product margins significantly higher byproduct margins, primarily due to more reliable reliable operation of the advanced reformer unit and lower labor costs. As a result of the cost reduction program implemented at the Silsbee facility in December 2018.

This was partially offset by nearly $2.3 million decline in adjusted EBITDA from continuing operations for the specialty waxes business, which was driven by lower wax sales volumes and lower custom processing revenues.

Cash flow from operations for the first nine months of 2019 was approximately $20 million to $20.2 million as compared to 11.1 billion in the first nine months of 2018.

The increase in operating cash flow reflects substantially improved operating performance as well as working capital management.

You should note the 2018 operating cash flow included approximately 4 million in tax refunds.

General and administrative expenses for the third quarter 2019 were 6.4 million compared to 6.3 million in the same period a year ago.

Year to date DNA expenses.

At 18.5 million compared to 17.2 million in the same period last year.

Recall that the 2018 Gionee figure included the reversal of certain compensation and other benefits for Mr. Hot Leidy totaling about $1.5 million.

Interest expense for the third quarter was 1.2 million.

For the first nine months of 2019 interest expense was 4.1 million compared to 2.6 million for 2080.

The year to date increase in interest expense compared to 2018 was due to capitalize interest in 2018 and higher rates in 2019.

Capex for the third quarter of 2019 was two and a half million dollars.

And for the first nine months of 2019, Capex was approximately $6.3 million.

We expect Capex for the full year to be approximately 10 to 11 million as the spending pattern is back end heavy.

Our revolver balance was $88 million as of September thirtyth with avail availability of 42 million.

Revolver debt was further reduced by $5 million in October .

Consolidated cash balance was 9.2 million as of September Thirtyth. This compares to 4.3 million at the end of the second quarter June Thirtyth.

Our third quarter.

2019, and first nine months 2019 effective tax rate was approximately 21%, which we expect to continue for the rest of the year.

Now, let me walk you through our business segments, starting with specialty petrochemicals.

Third quarter adjusted EBITDA from continuing operations for especially petrochemical segment was 9.9 million about unchanged from the second quarter.

Prime product volumes for the third quarter were 16.4 million gallons compared to 17.7 million gallons in the second quarter.

Compared to second quarter, we saw a decline in sales to the Canadian oil sands, which was expected and lower sales to a large customer who an unplanned outage in the third quarter.

For the remainder of 2019, we believe the sales to the Canadian oil Sands will continue to see headwinds from the uncertainty surrounding government mandated crude production curtailments as well as the overall crude oil pricing environment.

Byproduct sales volumes in the third quarter increased to 4.1 billion gallons up from 3.7 million gallons in the second quarter 2019.

In Q2, you may recall feed to the advanced reformer unit was diverted to maximize print prime product production was used to meet certain customer needs by producing more hexane as prime products versus utilizing it for advance reformer feet.

Byproduct margins expanded to 24 cents per gallon expanded from 24 cents per gallon. The second quarter 236 cents per gallon due to higher aromatics pricing and lower feedstock costs.

Prime product margins in the third quarter 2019 benefited from lower feedstock cost compared to the second quarter.

As you can see from slide eight in our earnings presentation benchmark natural gasoline pricing declined from $1.20 per gallon in the second quarter, two dollarssix per gallon in the third quarter.

In addition to lower feedstock costs.

We benefited from lower operating cash costs due to lower labor costs and lower fuel gas costs.

Moving onto specialty waxes.

Especially whack segment, which is based at or core chemical RTC facility in past in Texas at third quarter adjusted EBITDA from continuing operations of negative 0.2 million compared to.

0.7 million in the second quarter 2019.

The decline in EBITDA was driven by reduced wax feed from suppliers.

Two significant WEX feed suppliers ramp poorly in the third quarter.

Our wax feed is based on certain by products produced as a result of polyethylene production at major polyethylene producer facilities on the us Gulf Coast wax sales volumes declined 1.4 million pounds from 10 million pounds in the second quarter to 8.6 million pounds in the third quarter.

Third quarter wax sales revenues decreased 13.4% sequentially from the second quarter.

WEX sales were constrained by disruptions of wax feet supply.

Customer demand in the third quarter was strong and our sales remain limited by wax feet supply.

Custom processing revenues at Tc for the third quarter relatively unchanged from the second quarter at $2.4 million.

Revenues from the hydrogenation distillation unit were negligible due to lack of operation.

Now I'll turn the call back over to Pat Quarles for some views on 2020.

Thanks, Amy before we get into Q in a I'd just like to make a few comments about 2020 critically our strategy will remain the same we believe it has provided the roadmap to the improvements we've seen this year and we have more to deliver in the coming year.

We expect our commitment to improving our safety and reliability would deliver improved wax and custom processing revenues as the hydrogenation unit operations improve.

We expect our disciplined approach to driving productivity to meaningfully reduce our logistics and sales be feedstock costs. We will also begin building a pipeline of small projects within our plants that provide quick returns. These projects typically build into a scope of work that become self funding and provides the continuous improvement of a facility.

Commercially we will get the benefit of renegotiated custom processing fees, I mentioned and other growth opportunities in the works.

Within pending close they met transaction, we will be achieving our goal of monetizing this asset realizing our debt reduction targets, while having further capital to deploy towards shareholder value creation.

Post transaction to core and we'll have a singular focus on an improvement of operating businesses and future growth opportunities.

I'd like to ask the operator to open the call.

Today. Thank you.

As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press the pound key please standby when we compile the Q and a roster.

First question is from John 10, when Tang from C.J.F. Securities. Your line is now open.

Hi, Good morning, It's Pete Lucas for John You mentioned in your prepared remarks, but just if you could go over where you're tracking in your EBITDA outlook for the year now that we've got 10 months behind us and really what would be the biggest sources of upside or downside left in the year, yes sure. Thanks fee for the the question.

As we when we last both we talked about we're trending toward the high end of the range.

As we get into the fourth quarter, we were expecting kind of the normal seasonality in that was built into that expectation, although as I mentioned earlier listen we had a severe storm come through the sales be site last week and I should talk a little bit about that for everybody is understanding while the.

Immunological Society Didnt identified as a tornado.

Effectively from the wind in water impacted the side it was effectively equivalent to a tornado you can see evidence of it.

Through our plant through the neighboring.

Communities lost roos lots of trees down and so forth.

It did impact one of our to feed tanks.

Resulted in some lost and containment into secondary containment, which has been cleaned up now.

But that that brought the unit down it's back up and running today, but as a result, we were able to meet all of our contractual commitments, but we have pushed off some demand to ensure that we didn't declared force majeure and we didnt meter contractual customers requirements. So we pushed some demand we expect to get some of that back in the fourth.

Quarter in some of its likely to be pushed into the first quarter and then we'll have some costs incurred with the remediation of the damage that we incurred so so that does give us some uncertainty.

We're in we're still in the recovery stage at the site. So we don't have candidly, we don't have really good numbers, yet on what what magnitude it should be.

If I would put a round number on it is probably around a million dollars or so.

We will continue to work that throughout the quarter. So thats really the the greatest area of downside, we see right now otherwise the business side has been steady.

Demand is steady.

Accommodating for typical seasonal profile.

Great and can you update us on the timeline for the large polyethylene projects coming online in the Gulf in the next year. So in order to these tracking as you had previously planned.

Moving on what would that you put your flag in the ground right essentially all these projects ran late from their initiation, but we saw three units startup. This year. During 2019, we had the benefit of those sales throughout during portions of the year. We also had the benefit.

First fill volumes for those plants during 2019.

We expect to see some growth because you'll have the benefit of the kind of the full year demand for those new plants.

No new startups that we're anticipating for next year. So our growth will really be based on full year operation of the new plants. This year I think the next major asset that comes into the US is shale.

Pennsylvania, which is 2022.

Very helpful. Thank you.

Thank you. Our next question is from Sarkis Sherbetchyan from B. Riley FBR. Your line is now open.

Good morning, and thanks for taking my question here at Barclays. Hey, So just wanted to first touch on the wax business. So are you evaluating alternative sources for wax speed supply.

We are.

Primarily as we've been talking about right. We started down a path late last year of purchasing.

And upgrading on purpose produced waxes and introducing a new product.

Set of blended waxes, and we've talked about kind of the progress of that throughout the year, we have it we're having.

Great reception from our customers. This is principally going into the hot mill adhesive end use market.

We are kind of I'd say, two second third stage qualifications.

The initial customers that then translated down through their customer base.

All all of them continue to come by.

Really more from a.

Continued qualification.

Demand profile, we expect them to be through all that by the end of the year. So that would be and then has been the the greatest.

Step I guess I would say to diversify our feed base to support both kind of continuity of supply as well as our growth opportunities.

Good and touching on that further.

Second and third stage evaluations right by the end of the year.

What would you expect from either.

Additional volumes or.

Pete perspective, right would it be.

Richer Sps to you would it be similar can you kind of help us break that down sure. So as I've said before so recognize that this feed is a higher cost speed than our base by product supply. So we will be diluting our margin as we start as we integrate this higher feed into it these are better.

Price points, but there I wouldn't say they're significantly better.

So we're we're certainly.

Getting good contribution for the sales, but you don't have the margin that we're starting with and then over time I would expect as these products become established.

The performance profile is really pretty compelling, we think and we would anticipate over the years to be able to further drive value capture as we get better established with the new products.

Good looking forward to those updates next question really kind of comes back to T C and b assets as a whole new where are you guys in evaluating in bringing on the right projects to match the capabilities both that TC kind of what you had bought as well as the new assets that were built.

Well the candid answer is we're behind right and we know we're behind.

Im encouraged by where we are today, but.

We should have been here before we change the site leader in a middle of second quarter. He got a new leadership team and it can have a reorganization of the site in place by the beginning of the third quarter and as we exited the third quarter really starting to finally see some tangible at least internally.

Tangible benefits to the changes that we've been driving there. So if you reflect back on the improvement plan that <expletive> introduced at both sites last summer we had good uptake of those changes.

Sales be we did not at Tc, but with this new leadership team. We are now I can tell you buy as we exited the quarter we had good.

It really increasing confidence in the running of hydrogenation to support the product development that I just spoke to.

We also stepped up.

The quality profile of that product to now be.

Qualifying our supply for custom processing project.

Very good results and we expect to see.

Beginning of that here in the fourth quarter. So.

Expecting and been listen we haven't posted the numbers right you see that in the third quarter results and I can't tell you to expect a big step up in the numbers in the fourth quarter, but.

I think we're on track to starting to finally demonstrated track record that we can get control more of our destiny Tc now and start building out that business.

I won't come as quickly as the change the south Hampton. This is not the nature of the assets of the business to turn as quickly as we did in south in Southampton, but.

Having increasing confidence we're now finally on.

The past improvement.

Great. Thanks for the update and we're looking forward to some more updates on T.C. in the future I'll hop back in the Q.

Thank you as a reminder to ask a question you'll need to press star one on your telephone.

Next question is from Joseph regular from Roth Capital Partners. Your line is now open.

Hi, pets I mean this team thanks for taking the questions generating growth.

So.

Thinking back I mean, obviously you guys.

Over here are you.

Went through did a review of the operations cut some staff made some tough decisions what do you guys doing now.

Thinking more long term on how to retain like you know your quality employees that you guys doing safety incentive bonuses like as anything on that and that you're doing is long term right you got to incentivize both directions right.

That's right and there is a lot going on Joe I can tell you.

And candidly there is some culture chains involved with it and that can be difficult. It's important to me that we.

Have the entire organization kind of aligned on understanding what's really critical to our.

Success.

Be transparent with that and then we all participate in the rewards of achieving those outcomes.

And thats can be a different saying, depending on where you sat in the company.

From a legacy perspective, so we are moving the company towards kind of an integrated view of our performance alignment on outcomes that we're all seeking together and then rewarding for those results so, but that's not something that the changes overnight. We appreciate that.

I think we're starting to move in that direction.

Okay.

Perhaps do you think we're going to get more.

Statistics in the future I know you said this time this quarter you had no.

Safety issues, but moving forward, we get more of that type of.

Industrial statistics of performance that you know kind of gets down into the weeds, a little bit and demonstrates how you're turning this around.

So typically as you probably know industry, often looks to have TR IR, which is a total recordable incident rate.

As a as one good benchmark for at least the occupational safety side.

This year, we are injury free apps out at South Hampton for the year. So we're running as zero TR, IR, which is which is excellent and really due to the attention and focus that really every man and woman brings to the job they're south Hampton, We had a we had an accident in the second early second quarter at Ti.

He was a finger correct.

But when you do and we always do root cause analysis as to how how these incidents occurred what you find is.

That was clearly the result of of behavior that was not consistent with the culture, we're trying to set.

So we talk a lot about that we share the learnings from that.

We havent had an injury sense just the nature of the scale of the plant I believe our TR IR at TC with one incident, something just below one so companies like our size, we should be running at about a 0.47 thats kind of industry average.

We need to be at least.

There and certainly striving for perfection. So we have we have some improvements to do on the occupational side I think getting candidly metrics beyond that that we talk about here.

I'm not sure. It adds a lot we certainly want to talk about the incidence that that happened may go beyond occupational.

Events that impact our value, but that's probably the core metric that we will continue to be speaking to.

Okay, and then what about other things like plant availability or.

Overhead consumption or coverage those kinds of things.

Yes, those are all great management metrics.

But I doubt it will be publishing those.

Investment metrics does of course, the things that we look at internally.

We are driving if you think about wherever driving.

On our execution, we look at our safety performance is really the it's really the strategy I outlined earlier right. So we have internal metrics around the adoption of our E Hs culture.

That we're striving towards we talk about productivity and we set clear expectations for what our commitments are and monitor our performance against those and commercially.

What are we doing to further develop our business and those are all the things we track routinely.

Okay, then switching gears quite a bit too the kind of competitive landscape out there for south Hampton. Obviously, it is like one main competitor there historically they haven't.

In the best actor when it comes to pricing.

What have you seen there this year, we haven't really talked about it much but I know it weighs on your pricing when they decide to just take what they can get go on.

Yes, I, probably didnt have a little different view Hank.

Our competitor is a sophisticated competitor that also has a profit motive motive.

On a view them as being irrational.

I think we meet each other in the market and.

We compete aggressively perniciously.

Sometimes they get more aggressive on things that we don't like and I'm sure. We've done the same to them from time to time.

But we try to be very thoughtful about how we push for the development of our business and.

Pretty confident there thoughtful as well.

Okay, and then one last one just big picture anything in.

2020.

Thats, we should be aware about beyond normal seasonality do you guys have you guys already starting to plan downtime in the first half for.

Is there any.

Changes coming at a either the plans or upgrades or things that are going to.

Impact one quarter more than the others.

I don't think we have that specifically the guidance right now, but I will tell you is that.

And we've talked before we're working hard to transition ourselves from a company has been in reactive mode in terms of maintenance of our plant and taking care of our assets you saw that this year because frankly, several essentially all of our turnarounds. This year were planned.

In advance.

And candidly, we weren't doing it that way in the past I talked about even in the third quarter.

Beyond the major maintenance in terms of routine maintenance at the plant, we were able to transition over to work process.

<expletive> introduced last year that also has is planning our maintenance.

It makes you much much much more efficient and we save $300000 in the second quarter alone.

Transitioning over that process. So that's that's how we're approaching 2020, we do have a fair amount of scope and our plans for next year.

We'll be having that conversation with the board and two weeks so premature for me to declare exactly what we doing but but we do have a fair amount of scope next year that will need to we'll need to be planning for and ensuring that of course, we keep our customers appropriately supplied.

During those outages.

Okay fair enough and things and keep up the did work guys.

Thanks.

Thank you. Our next question is from Sean policy from Macquarie Endowment. Your line is now open.

Hey, guys congrats on the monetization.

Matt I.

Just had one kind of two part question.

I was wondering what's the utilization rates look like for the South Hampton plants.

The production capacity and I know, what you'll see as an optimal rate and.

When you'd expect to reach that rate.

Sure. So we don't think of this business is a business driven by driven by operating right rates like a classic commodity.

Frankly, we have an asset that has ample capacity to meet anticipated future growth. We believe our competitor has ample capacity to meet future growth. So we tend to think more about it in terms of the value that we bring to our customers.

There's a range of value depending on you go from polyethylene, where the purity of our product in our supply chain.

Buys a great netback for us.

All the way down to X competing for export volumes that go into a variety of and uses so we tend to think of it from a from a value proposition and from an operating rate perspective.

Okay. Thanks.

Thank you.

Next question is from net gain from Teton Capital Management. Your line is now open.

Thank you I was hoping you could add some color around some of the high returning capital projects that you you mentioned there towards the tail end of the prepared comments, hoping to get a little bit more detail what you're looking at.

How significant a pipeline this could end up being just some additional color there would be helpful. Jeremy Thanks to question.

So it's.

This is fairly typical for.

Plants should be operating in terms of.

Yes, theres always projects to be done that can be quick hits.

Hi returns.

This company has been focused on very large projects. The last several years as we all know and have done that in the extensive focusing on small projects that have quick returns. So so I think and I think <expletive> and are on the same same page.

We're pretty optimistic that theres, a nice and we'll be able to develop a nice portfolio. These projects. We have a couple identified that will be executing in 2020 and to be clear why they are quick returns.

Their contribution during 2020 will probably be relatively small those things should start building in 2021.

These are things like I mean basics like.

Steam integration or to make you more energy efficient for recapturing losses through the system because the way you're tanks are set up.

It's just the things that you're engineering organization and your operating organization recognize in the day to day execution of their roles that with a little bit of support on capital.

We can improve and continue to drive the productivity of the plant. That's it that's the type of thing we're working on I can't tell you right now how big I think that funnel is going to get it's going to be more than a million or so.

Contribution over time.

Confident but.

We've got we're on the front end of getting that getting that established.

That's helpful. Thank you Pat also want to discuss if I could prime products in the past there with a real focus on export opportunities in discussions about different places.

We're building out polyethylene capacity and or other things utilize some of your prime product.

Curious what are you seeing on the export fronts today.

How much is that an opportunity here for a 20, but beyond just some some color there would be helpful too.

Sure. So recognize the way we report export includes oil sands, so it's hard to see.

Export.

Canada in our numbers, but what I would say is we've seen fairly consistent decline generally in the oil sands market, while we've been able to maintain a fairly consistent export volume. So that really tells you that our mix has improved as we focused on.

Really what our strengths are which is finding those places in the world that value differentiated quality of our product so selling into middle east polyethylene plants Southeast Asia polyethylene plants, even occasionally China thats much much more difficult.

And so we've had we've had good success, there and the rest of the world.

Continues to grow so there are new projects that we have identified in southeast Asia that we're building relationships with that we are.

For what we would plan to participate in sales to those guys over time so.

I think it goes into right direction. It is by virtue of the supply chain costs.

On the high end of value for us, but we do see it isn't an important component of our future growth and it's a piece of its a piece of our plans and will stay there.

Great. Thank you Matt.

Thank you at this time I'm showing no further questions I would like to turn the call back over to Pat Quarles for closing remarks.

Thank you Judy is this I just wanted to thank all of you for interest intercourse participating on the call today I'd also like to thank the men and women of our company who have contributed to our progress this year and especially those whose dedication had been so evident and silsbee. This past week to help mitigate the impacts of last week storm and returned the plant operation.

Thank you everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.