Q4 2019 Earnings Call
Good day, and welcome to Trecora resources fourth quarter and full year 2019 earnings conference call. At this time all participants are in listen only mode. Today's conference is being recorded and at this time I would like to turn the call were to Jason Finkelstein and the Piacente Group Inc. Please go ahead Jason.
Thank you operator, and good morning, everyone welcome to the core resources fourth quarter and full year 2019 earnings Conference call. The earnings release was distributed over the wire services. After the close of the financial markets yesterday afternoon.
Is there any I don't recall today will be pack World, 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 follows managements prepared remarks before we get started I would like to review the Safe Harbor statement.
You mentioned this presentation during back to historical facts are forward looking statements as defined in the private Securities Litigation Reform Act 1995.
But we're looking statements are based upon management's belief and expectations only as of the data did teleconference March 10 2020.
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 if of course filings with the ITC, 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 definition non-GAAP financial measures and a reconciliation of GAAP to non cat financial results. Please see the earnings release issued after the close of financial markets yesterday afternoon.
This webcast is accompanied by a slide presentation is available on the company's website www Dot Tricor dotcom at this time I'd like to turn the call overdue Tricor as president and CEO pack World.
Thank you, Jason and good morning to all those participating in today's call. My remarks today will center around what we have come to do best over the past year execute with discipline and focus, but that's simple, but vital framework in mind today I will first review, our key operational and financial outcomes achieved over this past year.
Based on management commitments made in early 2019 also discuss how our results are developing in the first quarter and introduce our expectations for growth both in 2020 and into the future.
Growth will be driven by the same discipline focus on execution and accountability drove our performance and 29 team, but before I do I'd like to provide an update on the sale of our stake in a Mac and address our planning for any impacts we anticipate cobot 19.
As background for new investors on the call today Tricor entered into an amendment to the previously announced share sale and purchase agreement without Massaroni, Alcobra mining company or a Mac and certain of amax other existing shareholders, whereby trecora will sell its entire 33% equity interest and came back and noncore asset.
For the amendment the date of the closing of the transaction was extended to March 31, 2020, allowing additional time to obtain approval from the newly established ministry of industry and mineral resources in Saudi Arabia, and other government authorities.
We have now received approval from the Ministry for the completion of the sale just noncore asset a critical milestones.
We're working on finalizing the remaining issues to closing we delivered a notice to the buyers scheduling closing and believe the closing of the sale process is possible by the end of the quarter.
Now, let me turn to covert 19.
First we want to acknowledge that tragedies. This virus is cost individuals and families now broadly around the world.
It is still spreading and the full impact to people and economy are not fully known.
As of today, the only direct business impact we have seen is insolvent demand into southeast Asia, which is a very small part of our business. However, we do anticipate that the further spread of the virus could impact our north American markets and we are already preparing for that potential.
At Trecora resources are number one number one priority is the safety of our people that communities in which we operate in the integrity of our assets.
Building off of a hurricane preparedness plans, we have augmented our contingency plans and drilled at both sites on how to preserve our ability to safely maintainer operations and protect our people.
We have also put plans in place in place, which allow our people in particular those involved are associated with the supply chain to work from home if necessary and have plans in place to further protect our operating staff if needed.
Friday, we instituted a flight travel ban for the organization and canceled our participation in a number of events, including the GE research.
Conference later this week the Roth Conference next week and they have P. M. A petrochemical conference at the end of this month.
We will continue to take prudent steps consistent with recommendations from the CDC and World Health organization as well as local authorities as this situation develops.
Now, let me turn back to the success is the 2019 and how that positions us for the future.
At the beginning in 2019, we set our priorities and launched a disciplined process for driving shareholder value.
Focus was on improving our safety performance enhancing the reliability of our operations, capturing productivity improvements and driving commercial excellence.
It's important to briefly highlight some examples of our accomplishments here.
We experienced one minor injury across our company last year. This compares to five injuries in 2018. This 80% improvement in safety is the foundation for delivering on our priorities across the company. It is as it is the leading indicator of our ability to control our execution.
Our advanced reformer ran with high reliability, allowing for the capture improved by product values in the market.
We realize the savings from the reorganization in our silsby plant at the end of 2018 and captured further savings related to rail storage and railcar fleet reduction these actions more than offset the cost inflation and significantly contributed to gross margin improvement.
We also advanced commercially by renegotiating contracts with more favorable pricing raise price escalators and improved supply terms. We also restructured our compensation program to directly aligned to our profit improvement priorities.
We believed at the beginning of 2019 that with relentless focus and clear accountability successful on these priorities will dramatically improve earnings enhance our free cash flow and allow for meaningful debt reduction.
I'm pleased to say that we have delivered.
Full year 2019, consolidated adjusted EBITDA from continuing operations reach the high end of our indicated range coming in at $31 million, a 50% increase over 2018.
These improved year over year profit results translated into free cash flow growth of 100% when you exclude the benefit of the tax refund we received in 2018.
By year end, we paid that paid down approximately $19.2 million in debt.
Results at Trecora chemical we're clearly a disappointment in 2019.
This led to the write down the goodwill associated with that business. However, however, I'm pleased to report that we're now seeing performance improvement at Tc.
You will remember on this call last year I reported the our advanced reformer and Silsbee had restarted the first week of January and had run reliably for the quarter. It continued to do so throughout 2019 and does so today.
Today I'm pleased report that we operated our hydrogenation unit at TC reliably and a maximum available rates since the first week of 2020.
In our specialty specialty petrochemicals product segment, which operate facility solvents demand remained steady with growth markets, helping to offset continued changes to oil sands.
In December we indicated the sales to the Canadian oil Sands would most likely continue to see headwinds from the uncertainty surrounding government mandated crude production curtailments and efficiency initiatives by our customers. While we saw no impacts in Q1 demand from customer efficiency initiatives, we do continue to face as risk.
We also provided an update in December on the impacts of the October storm event Silsbee.
The plant quickly returned to operation. However, we did incur significant cost associated with repeat the remediation of the damage. The vast majority of those costs are covered by insurance program due to the safe and prompt work done on remediation, we were able to file our insurance claims prior to the end of the year, our fourth quarter result.
All to reflect most of the benefit of our insurance coverage.
As for the first quarter 2020, especially petrochemicals demand remains solid.
Results at TC should improve significantly due both to the operation of the hydrogenation unit and higher production and other custom processing activities.
These benefits are likely going to be more than offset by maintenance spending and the pricing impacts of falling feedstock costs in the quarter, which Sammy will discuss.
We spent 2019 concentrating on execution within our business functions practice that led to achieving key operational outcomes committed to earlier in the year.
Our strategy will remain the same into 20, we will continue focusing on improving our base businesses through exceptional execution. We can now extend this strategy into driving growth for the company.
We have launched a new growth initiative as identified meaningful opportunities to raise our profitability in both 2020 and into the future.
We expressed this on slide nine in the present data presentation deck today.
We have defined a portfolio of projects that touches every piece of our company.
We identified growth as diversified opportunities to grow earnings in the company, we assess the value risk timing and necessary resources to deliver the value and the people responsible for delivering the result, we then prioritize those.
As with any portfolio projects. Many will not proceed to execution. However, we believe we have line of sight to deliver approximately $4 million of value in 2020, and well over $15 million in the next two to four years.
Our current opportunity portfolio stands 25 projects across south Hampton and Trecora chemical.
Each project falls into one of the following categories, new products and markets asset in operational costs or productivity expansion.
Let me give an example of a growth initiative, we recently announced.
We recently signed a multiyear managed logistics service agreement with global logistics solution provider Odyssey.
Odyssey will provide us with benchmarking data underscores operations distribution network infrastructure and key metrics, such as total spend vendor cost and productivity performance together with Odyssey, we aim to maintain our performance profile at lower costs by seamlessly integrating their technologies into our wood.
Just six infrastructure without disruption service, where in Pis, anticipating 2020 run rate savings of approximately $2 million.
Other projects focus on improving our feedstock supply economics, increasing utilization of our existing manufacturing capabilities.
To provide new products into existing markets and driving productivity within our operations.
We look forward to discussing these projects as they occur.
Now I'll turn the call over to Sami Ahmad our Chief Financial Officer for a more detailed discussion of our Q4 and full year results.
Thanks, Pat and good morning to everyone.
Let's take a closer look at fourth quarter and full year performance.
Net loss from continuing operations in the fourth quarter was $18.7 million or 76 cents per diluted share compared to net loss from continuing operations of $5.2 million or 21 cents per diluted share in the fourth quarter 2018.
And net income from continuing operations of 1.6 million or six cents per diluted share in the third quarter 2019.
The net loss from continuing operations for the fourth quarter included a noncash impairment charge for goodwill and certain intangible assets of $24.2 million in our specialty wax is segment, which is tricor chemical.
For the full year 2019, the net loss from continuing operations was 12.9 billion or 52 cents per diluted share.
The impact of the impairment charge was 98 cents per diluted share for the fourth quarter and for the full year 2019.
We evaluated our goodwill intra quarter chemical for impairment during the fourth quarter of 2019.
In connection with our annual review in accordance with AMC 350.
As part of our review, we assess 2019 operating performance and its impact on the operating cash flows of our specialty wax is reporting unit.
We concluded based on this analysis combined with the historical underperformance of this business the fair value of our specialty where waxes reporting unit was lower than its book value, including goodwill.
As a result, we recorded a noncash impairment charge of $21.8 million in the fourth quarter, representing all of the goodwill allocated to this reporting unit.
In addition, we also determined based on this analysis that certain intangible assets were also impaired.
Thus, we recorded a noncash impairment charge of $2.4 billion in the fourth quarter.
These two charges combined represent the $24.2 million charge related to core chemicals.
Gross profit in the fourth quarter, 2019 was $8.3 billion or a gross profit margin of 13.5% of total revenues. This compares to gross profit margin of 15.3% in the third quarter and 3.6% in the fourth quarter of 2018.
Compared to the third quarter gross margin declined in the fourth quarter due to lower margins for both both prime products and by products at South Hampton Inn, our specialty petrochemical segment.
Additionally, fourth quarter results were negatively impacted by spending related to the October weather event.
The total cost of the event was approximately $2 million. We received insurance proceeds of approximately 0.3 million in December and recorded in insurance receivable of 1.1 million for anticipated additional insurance proceeds to be received in 2020.
Gross profit for full year, 2019 was $38.5 million or 14.9% of total total revenues compared to $27.8 million or 9.7% of total revenues for the fourth 2018.
The improved gross margin margins were primarily driven by lower feedstock costs, which resulted in better prime product margins.
Significantly higher byproduct margins, primarily due to more reliable operation of the advanced reformer unit.
And lower labor costs as a result of the cost reduction program. It program implemented at the Silsbee facility in December 2018.
Improved gross profit was partially offset by lower full year performance in our specialty waxes segment.
Consolidated adjusted EBITDA from continuing operations for the fourth quarter 2019 was $6.4 million. This compares compared with adjusted EBITDA from continuing operations of 6.9 million for the third quarter and 1.8 million for the fourth quarter 2018.
2019 full year adjusted EBITDA from continuing operations was $31 million compared with $20.2 million for 2018.
Moving on to cash flow.
Cash flow from continuing operations for 2019 was approximately $25.6 million as compared to 19.7 million in 2018, the increase in car operating cash flow reflects substantially improved operating performance as well as working capital management.
Also it should be noted the 2018 operating cash flow included $5.4 million and tax refunds.
Capex for 2019 was approximately $10 million compared with 25.3 million in 2018.
2019, Capex for specialty petrochemical segment was 7 million and $3.1 million for the specialty waxes segment.
For 2020, we expect total capex for the company to be in the $13 million to $14 million range.
This increase is mainly due to spending on feedstock pipeline maintenance as well as other infrastructure improvements.
Gionee expenses for the fourth quarter were 5.9 billion compared to 6.4 million to the third quarter and 5.3 million in the fourth quarter of 2018.
For the full year 2019, DNA expenses were $24.4 million or about 8% higher than 2018.
However, recall that 2018 gionee expense benefited from a $1.5 million reversal of certain post retirement benefits for former executive.
Interest expense for the fourth quarter was approximately $1 billion.
For the full year 2019 interest expense was 5.1 million compared to 4.1 million for 2018.
The increase in interest expense was mainly because we had approximately 0.7 million of capitalized interest in 2018 related to the funding for the advanced reformer unit construction.
Our effective interest rate for the full year 2019 was 4.6%.
We reduced total consolidated consolidated debt by $19 million in 2019 in the fourth quarter alone, we reduced debt by approximately $6 million. Our year end debt was 83 million compared to $103 million at year end 2018.
Our revolver revolver balance was three point was $3 million as of December 31, with availability of approximately $50 million.
Consolidated cash balance was $6.1 million as of December 31.
Our consolidated leverage ratio are under our bank agreement was 2.20 times.
From a capital allocation standpoint, our priority continues to be debt reduction both utilizing free cash flow as well as a portion of future proceeds from the amax from posing the amax sale.
Our objective is to maintain a strong balance sheet with a leverage ratio in the one and a half to two times range.
Our fourth quarter in 2019 effective tax rate was approximately 21%, which we expect to continue in 2020.
Now, let me walk you through our business segments, starting with specialty petrochemicals.
Especially petrochemicals adjusted EBITDA was 8 million for the fourth quarter of 2019, compared with 9.9 million in the third quarter.
Specialty petrochemicals volume in the fourth quarter was 20.3 million gallons compared to 20.5 million gallons in the third quarter and 25.1 million gallons in the fourth quarter of 2018.
Prime product sales volume in the fourth quarter was 16.3 million gallons roughly flat to the third quarter and compares to 18.7 million gallons in the fourth quarter 2019.
Byproduct sales volume was 4 million gallons in the fourth quarter also roughly flat from the third quarter.
Front product margins in the fourth quarter were impacted by rising feedstock costs compared to the third quarter.
Benchmark natural gasoline pricing increased steadily during the course of the quarter from a dollar six per gallon in the in the third quarter two $1.19 per gallon in the fourth.
Margins for by products declined from the third quarter due to higher feedstock costs and lower selling prices for by products.
Selling prices for by products declined from third quarter due to lower market prices for the Airmax components that are in our byproduct Street.
For the full year 2019, prime product sales volume declined approximately 1.9% from 69.4 million gallons in 2018 to 68.1 million gallons.
Excluding sales to the volatile Canadian oil sands market Prime product sales increased about 4% year over year.
Byproduct volume decreased 17.6% year over year to 16.7 million gallons.
The improved operation of the advanced reformer unit resulted in expected volume metric yield loss, leading to lower volumes.
Moving on to specialty waxes.
Especially waxes segment, which is based at our core chemical RTC facility in Pasadena had adjusted EBITDA of zero point $2 million compared to negative adjusted EBITDA of 0.2 million in the foot in the third quarter.
Specialty wax is generated revenues of approximately 8.9 billion in the fourth quarter and 8% increase from the prior quarter. This increase was despite lower wax sales volume, which declined seven point, which declined to 7.9 million pounds from 8.6 million pounds in the third.
Quarter.
Wax sales volumes were impacted by seasonal softness in demand and supply interruptions from a fee wax feed supplier.
Wax sales demand remains solid.
Custom processing revenues increase from 2.4 million in the third quarter to 2.9 million in the fourth.
Looking ahead to the first quarter of 2020 business conditions have remained consistent with the fourth quarter.
However, the down downward volatility in feedstock costs are likely to negatively impact our earnings by $3 million to $4 million due both to inventory costing and price lags in our contracts.
We also have higher plant maintenance expenses versus the fourth quarter of approximately $700000.
We expect to partially offset these impacts by approximately $1.5 million from improved operations at TC on the hydrogenation unit other custom processing revenues and the absence of spending on the weather event that word covered by our insurance claim.
Now we'd like to open the line for a question and answer session.
As a reminder to ask a question you will need to press star one your telephone to withdraw your question press. The pound key please standby will be compiled the Q and a roster.
Our first question comes from the line of Jon Tanwanteng. Some CJ Securities. Your line is now open. Good morning, guys. Thank you for taking my questions and a nice quarter considering.
Hey, John Thank you John Good morning, Good morning wanted to start with the the damage from the weather event did did you get the tank back up and running as if that the started Q1 and.
Was that was that cost that net difference between the insurance and.
What you paid reflected in the Panelled was that Capex and how was adjusted EBITDA. Thank you.
A lot of questions there John Let me, let me start with the first the first one.
So our situation at South Hampton is we had two tanks in service for feed there'd, a tad they're connected.
Through a pipeline down to the Beaumont area, where we connect into our suppliers tank and then ultimately back into the natural gasoline supply network.
As of now we Havent decided to bring the impacted tank back into service.
For for a variety of reasons and we've been operating just fine since October and net mode. So right now we do not have plans to bring it back in service.
With regard to your other questions on that John.
So this.
It's not capital it's all expenses.
And the way it flowed through our fourth quarter results, where there were two pieces. So as I mentioned, the total cost of the event.
What about $2 million, we got in the quarter $300000 roughly $300000 of reimbursement related to the loss of stock the inventory.
And then we also after submitting claims to the insurance companies and having discussions with them.
Booked $1.1 billion of insurance receivable now recognize that there were deductibles associated with this event and thats roughly $275000 of total deductibles.
We expect to get.
Additional proceeds sometime.
Hopefully in the first half of this year.
On that and collect on that receivable that we booked.
Okay, So I'm getting the net.
Cost to you guys that hit in Q4 was call. It 600000 gap. That's that's approximately yes, okay and that was in that was on the income statement. Okay.
And did you back that out of EBITDA was the question.
No no which included EBITDA, Okay got it.
So kind of ex those costs you would have been.
7 million roughly.
Fair Okay understood.
Just in terms of a that the hydrogenation.
Plant pad it sounded like you made good progress there the Max rate, though it doesn't mean Max margins I assume working that go eventually.
What what improvements need to be done there still.
So we.
We are very disappointed in the reliability that unit last year, obviously it it was a catalyst for the action we took on goodwill.
But as we work through it throughout the year really.
I'd say the second half a year with the change and both the leader and the leadership team at TC, We've been talking about how that has been coming together well, we're starting to see indications of them performing well as a team and working through kind of fundamental improvement of our operability in operations and that's finally coming together.
There.
For that unit at the beginning of this year, so and I chose my words carefully because I guess it available maximum available capacity listen we've got that units got lot of capability, both volumetrically and as we build either our own use of the unit to support our product business or make it.
Available for custom processing activities.
I think we'll see more contribution going forward, but.
Things came together well for us in the first quarter in the in the wax market there have been other supply disruptions.
And not in the polyethylene wax more than 50 wax market.
That presented a particularly strong opportunity for us to capture a lot of volume that's what we did.
We expect that volume to continue for us as we go into Twoq, but.
But we'll see how how market conditions and opportunities with customers play out vessels, so a lot better about it.
Okay great.
And just a general macro I guess.
A question for you guys I know you mentioned coven 19.
But what are your customers, saying right now in terms of their volume needs in light of potential for a full blown recession heading forwards.
Have they said anything to you, especially in light of Saudi decision yesterday, and what that means for your book your customer.
End markets and your supply chain is going forward now fair I think.
As you depreciate, we've tried to stay very close to customers over the last several weeks and build the bombshell that came on Saturday with respect to oil you noticed is still playing its way through.
Our customers businesses, and what that might mean downstream and of course, it's early days to get that feedback, but what I would say is.
To date, no one is citing a change in their demand that they attribute to cobot 19.
I mentioned earlier, we did see in Asia and in Asia, because Thats, where this thing started.
Supply chains, and really economics of things like polyethylene, we're getting upset early.
Basically is the market came out of the Chinese new year on was expecting to ramp up production to meet.
The return to the economy of course that Didnt happen.
Yes Lane values got really distressed and one or more of our customers in that region. As a result turned down their production. So that was the one.
Demand impact, we can put our finger on.
The truth is at this point I think we're all monitoring it.
And and I wouldn't be surprised by volatility in impacts on demand, but we just haven't seen it yet.
And so it's really more about planning and contingencies at this point for us for us.
I can tell you if I reflect back.
On this issue the nearest.
Things related to I guess is the financial crisis of auto nine.
Operationally our industry does things a lot differently than we did back then we don't carry inventories like we used to so I think.
Yeah I recall back then units were just getting shut down because people just started working out their inventories I don't think we're in that kind of a mode. These days.
But we're going to monitor it.
Okay fair enough and just on the supply side for for you I know on the natural gasoline prices are usually correlated to crude highlighting that yeah have you seen that impact yet in the input costs, where that take you in light of Sam's comments on the the lagging effect, yes, absolutely.
Yesterday, we saw natural gasoline non ticket close that's about 68 cents a gallon 67 68 years ago. So he walks you through kind of what the pricing was previously through the fourth through the first quarter.
So we do have EBITDA risk on those pricing impacts as they flow through.
I'll remind you its cash positive right effective we take cash off the balance sheet when prices come down.
Underlying margin over time is preserved but.
Yes, we do face EBITDA risk.
With this.
Right, but that should normalize over Q2 right as it goes through that's right Jeff.
Okay got it.
Excuse me just wanted to walk through the.
The the value you expect to realize both from growth projects and cost savings in 2028 am I reading that correctly, you're expecting a 6 million dollar improvement overall.
In terms of new projects and in terms of the agreement with or without a c.
So Odyssey is part of that growth program I use that as an example, so thats card as part of the four.
Okay and is that aside from any growth expectations, you have or is that the sum total of EBITDA improved when you're expecting over the year.
No. So what we what we're saying is been across a variety of projects that we have line of sight to we think this year, we'll be able to add $4 million of profit value.
Through the contribution from those projects and.
Odyssey is the one that we've announced right and we've executed that contract so when to speak about that one okay and these are working on.
And do the specific projects not than the normal course of growth and the existing business or is that included inclusive of everything yeah. That's right. So you know to extent like say, probably ISO end use which is growing very nicely I think last year over 6%. Yeah. That's just we put as part of our base business, but effectively the way where we were approaching.
And as if it requires.
As to identify it resource it.
And do something different than that's a project for us.
And Okay, and then we tested Canada and value and is it worth the resource in order to deliberate.
Okay got it. So so we should think of this as the way you phrase. It last year, you had a that EBITDA bridge from year to year.
And then you gave a range of what you expected from improvements in certain areas. So this would be the plus 4 million in the market would be plus or minus on top of that I guess is that the correctly to put it that's right.
Okay.
Right now that's very helpful. Thank you and then not just sammy or.
The decrease back to final closing date for a Mac.
So what would I said, we we've got the Ministry approval now we're going through certain other.
Close process as we think it's reasonable to expect us to close by the ended the quarter.
We have to recognize.
With all the turmoil in the markets right now I never say, it's without risk so, but we're focused on closing by the end of the quarter. Okay. Great. Thank you guys with color. Thank you.
Thank you as a reminder to ask a question you wanted to press Star one how your telephone. Our next question comes from the line of Joseph Reagor from Roth Capital Partners. Your line is now open.
Hi, guys. Thanks for taking the questions Joe Good morning, Joe.
So.
A lot of things I touched on my last caller, but.
Yeah, we used to get these updates about a you know potential new customers in the polyethylene space et cetera is you guys have any expectations of adding new new customers in the next 12 to 24 months.
We do and we are.
The way I mean, so we've talked about kind of the way we communicated in the past it was important to me that.
For these purposes, we demonstrate how we're approaching it the breadth of what we're approaching and likely value. We can get out of it. So we've got Notionally 25 projects that we're working today, we'll go through prioritization those projects resource them appropriately.
Set accountability for those projects and then talk about.
Their results as as their delivered so Odyssey is done with respect to stick to the contract that we signed in the transition to that Threepl.
We have other projects that do include penetration of new markets.
Production of new products, and so forth, but we'll talk about those really as they come to market.
Okay and then.
Just trying to get a little bit more clarity on some of the comments soon right how would that.
He was talking about some impact.
Due to pricing adjustments, we save me speaking just to Q1 was that's supposed to be you know Q1 Q2 kind of overlaps since we're already in March.
How do I basically space that out in the model.
Yeah, I mean, I was speaking a really to Q1 because that's a.
Thats, where we are almost at the end of Q1.
We don't have a whole lot of visibility in terms of feedstock trends in into Q2, and the point that I was making Joe was really when you see this volatility.
There isn't a hit to earnings as Pat said when its downward trending like it has been.
Over the last.
Number of weeks, it's good for cash flow working capital, but it's it's a hit to earnings and I tried to frame that out.
With the 3.3 to 4 million dollar.
Kind of impact.
So you know and the reasons behind it.
Maybe if you think about it we we entered the year with feedstock at what Buck 15 now.
One of those was it sorry 121, no when 25, yeah, and we're down to 68 today.
So I mean, it's a 50% redomicile at 50% reduction.
And feed costs.
That's the kind of volatility that we are facing as we exit the quarter.
And it's also that slope of that curve drove it hasn't been steady where you can kind of smooth smooth it out it's been very sharp and that has an impact as well.
Okay.
Alright, Thanks, everything else was already touched on okay. Thanks, Jeff sorry about Roth conference not attending no no problem.
[laughter].
Thank you. Our next question comes from the line of Sarkis Sherbetchyan from Grand Slam I mean from B. Riley FBR. Your line is now open.
Yes. Thank you. This is our keys from B. Riley <unk> yeah. Okay. Good morning, Sarkies. Good morning, just wanted to touch on Trecora chemical you know it looks like for the year the business did about.
Call. It a mid thirtys tied to almost 40 million a in topline and that's if I annualize the for Q number and you know EBITDA was really just barely kind of eking out to the positive side like what does it take to you know turned this business around and what are the plans. Your team has put in place to do.
Drive a more meaningful EBITDA contribution from that segment.
Yeah, I'd say it's.
Three or four thing so on the wax business.
We had and we've mentioned this throughout the quarters, we had supplier issues that disrupted our feedstock were tied to just a few suppliers of this byproduct.
The that was disappointing so weve put in place.
Frankly, these are very big companies, we sit in review with them the impacts on us and there are opportunities to improve it. We think we have seen their improvement plans, where that reliability should be better. It has been better in the first quarter. So that helps a little bit a out of our control, but that's what we're doing there we mostly focused on what we can control so in our.
Around CCAR legacy custom processing.
Activities, where we've had ongoing relationships with key customers for many years, we did an assessment of the profitability of those against you know really what threshold profitability needs to be to continue those activities.
We negotiated and agreed on increases across that portfolio that range anywhere from 20% over 50% increases if you look at that business status quo.
Across 2020 based on those improvements that's about $500000 of profit improvement that we'd expect to those renegotiations all things being equal.
We also have operability reliability.
Plans in place, where even those existing customers.
We believe they can bring us more business, if we improve our reliability and we had those plans in place.
And then on the new assets that have run I haven't run well at all obviously, we talked a lot about hydrogenation.
We really been.
Methodical and bringing.
Our capabilities to run that unit and reliable way and we were very frustrated by the successes of that last year, but as I said earlier.
I think we're starting to get our arms around it we brought the unit up in the beginning in January for the production of product.
Than that.
Feeds our wax business and did that successfully through January and then and February turned over to a custom processing.
Project and have run as hard as we can run through out the him through today and we'd expect to continue certainly through the end to the first quarter on that project and that's a.
No that's reasonable profitability I'll never say, it's the profitability, we want our customers say its ample but we're always in those discussions.
But I think we'll see a nice step up from TC as we get into 2020 now.
As well as cost management as well as cost management, that's right we've got.
A variety of productivity programs there just an overall overall cost of the site.
Got it thanks for that and if I can kind of.
Speak to some other projects like our these kind of onetime in nature or do you think theres kind of more base business to be built and then as you layer on more revenues the incremental margin should be much better just kind of help us yeah think about that so we have one customer that brought US a project last year.
Relatively complicated frankly, and we were able to produce it but we weren't able to produce it efficiently and it's a great example of what we can do when we.
We we identify something that's structural important to both sides and we can work together on it and basically with this customer.
Our approach has been kind of open book, if you will now we've actually invited one of their engineers into our site to help drive improved profitability as well as put our own teams on improved profitability.
Weve I guess, we probably more than doubled the cycle time.
On that particular piece of business reduces reduces cycle time right yeah.
Doubled our productivity.
For that particular project. This is a specialty chemical for the customer that as part of their long term kind of core growth plan. So we think it's something that can be with us for a long time and we still see further further volume metric a growth opportunities were under contract.
Multi year and then.
Can we drive more value on a unit basis, perhaps than would be a conversation with the customer but.
I get a lot of encouragement from that because we're building our credibility with them.
Well, we're improving kind of underlying financial sustainability of the site.
That's really the model that we want to have as we approach. These projects. We don't we don't jump for kind of the one off project. It just takes too much work and resource just to do something for a short term opportunity for the nature of custom processing is that you have a fair amount of commitment of resource upfront and whether we pay for it.
With the customer pays for it you know it's expensive so you needed to be more sustainable and that's typically the nature of what we have in there.
Good thanks for that and I agree I'll hop back into the Q.
Okay. Thanks, our case.
Thank you. Our next question comes from the line of Mitchell sacks from Grand Slam. Your line is now open.
Hey, guys I have some questions around the PC.
And so you talked a bit about wax sales picking up in the in the first quarter and I know you've been supply constrained.
Can you give us a little more framework around wax volume that you can produce and.
And in where you see you know demand going.
So I always characterized our wax business is not really demand constrained and when would that mean by that is and the nature of our cost position our feed puts us in a kind of unique mix or niche rather.
Where we were we push on the the performance side of the on purpose producers, but our cost positions differential so.
Basically to extent, we get supply, we're going to be able to sell it and make reasonable margin.
But that but that's a limited supply base, we've been talking with that for a long time. So last year. We started the development of the purchase of on purpose feedstocks.
Can allow us to augment that supply it's higher cost. So we do expect margins to be diluted yet cash contribution to go up as we continue to grow now we were talking last year about qualifications. So all the qualifications are complete now.
We are aligned with the major hot melt adhesive buyers as customers and our.
Conducting business with them today, so I think thats going into right direction.
Yes, that's right.
Okay, and so just to sort of characterize that then in terms of the on purpose supply of feedstock.
You mean, the we will do with these new quality controlled customers.
You should be able to increase volumes it would assume markedly at that point then.
So we see that and this isn't for 100% of our of our wax portfolio, but where we're selling into hot melt which is the biggest piece biggest end use we're seeing our ability to augment that supply by 15% to 25% depending on the product.
Okay.
And then with respect to the hydrogen hydrogenation distillation unit.
This management team when they when they had done the original Capex.
You know where they spent over 20 million in New Jersey.
Estimate of potential EBITDA increase of 68 million.
Do you still feel it that asset can contribute that type of cash flow and if so.
When do we think is as a management team you know that we can get to those levels.
Yeah, I don't have line of sight to six to eight today Mitch.
It's kind of early days now that we we can credibly go to the market and say this is something we can do and to be clear.
Hydrogenation distillation are two different units right. So what we're doing what we're talking about now is hydrogenation.
That's when it's fully loaded.
It's going to be a nice step up in contribution as I said, beginning in first quarter and continue on.
That's not a few hundred thousand dollars I mean I'm talking about.
Something million plus range of step up and then we have other projects since part of our growth plan to begin to load the distillation unit as well.
So I can't declare yet on that old basis, if we're going to get to six to eight I'm kind of turning what will start talking about as how we think we'll be able to.
You can provide profitability through our overall growth program and that's kind of the for that we're talking about this year.
And final question has to do the polyethylene touched me. It was a question earlier about adding new customers.
The major polyethylene plants, there is still under construction here in North America, when do you or any of those expected to come online this year and if so do.
Do you expect that that plant to be a customer.
They're not any coming on this year. So we're kind of getting ready for the second wave investment on the Gulf coast or in North America, I guess more specifically so I think.
The next significant plant is a shell.
2022, yeah.
So this year next year or are there are no major startups, yes, not North America.
Thank you that's my question I do Mitch thanks much.
Thank you. Our next question comes from the line of Kurt Caramanidis from Carl M. Henning Inc. Your line is now open.
Hi, guys I'm. Good morning anyway, you can lock in this historically low feedstock cost or is there risk in doing that thinking it's going to go lower.
We're not going to hedge feedstocks just to be clear.
It's it's it's very risky game, a we don't have the kind of balance sheet they'd be appropriate for us to take positions on hydrocarbon.
You are if you think about the way our business is structured.
We manage earnings risk through essentially two thirds of our portfolio being tied to feedstock on a formula basis.
And so while we have near term volatility on earnings we manage the sustainability of earnings through that sales contract portfolio and that's really how we manage risk and.
We're not going to take out we're not going take positions on feedstock.
Okay fair enough, one what could happen to not close the M. Axiall. What are they are what are the variables out there now that they've agreed to it.
Yeah, I don't want to I don't want to kind of speculate on what you're getting away about hey, listen it during the day, we know that markets are and turmoil right now because of.
The fears and so forth associated Cobot 19, we're focused on the process. The next step in that process was.
Establish communicating and establish closing date, which we've done now with the buyers.
And a you know we're pushing towards close by then the quarter.
Okay, great. Thank you <unk> you.
Thank you. Our next question comes from the line of John can Winton D. J S. Your line is now open.
John you're back Yeah, just a quick follow up wanted to.
Ask about the oil sands, just remind us relatively what magnitude of business you did in 2019, and I think you mentioned that they didnt pursue a efficiency upgrades as you thought they might have so I'm wondering if that's in line for this year and also you know given where crude prices or if they're going to cut production or was there a mandate that that helps and do otherwise.
Yes, so oil sands last year by 8% of our prime product sales volume.
Okay, and just to be clear what I said was yeah. We've been aware these efficiency projects.
You know over a year ago I mean in this call last year I had mentioned that this is something we were aware of.
We we thought they were more eminent at the end of the year heading into this year I had mentioned them when I spoke to investors in early December what I'll tell you is that we haven't had the impact of those yet.
But I'm not telling you that we don't think theres still pursuing them.
I think we're monitoring it really month by month at this point, but as of today no impacts.
Okay got and other production side.
I'm sorry, I missed the production question, just how you think that that trends given to the shot to crude Oh.
Boy I I don't know I think we all know oil sands. It's a hard those are hard units to ramp up and down because of does the a they need to sustain the.
The heat and the production rate out of those Tar Sands. So has developed they don't typically move them up and down too much.
So I don't know if we'll see a short term change or not but listen there's no doubt the economics of all this is challenged with Saudi is going to pump 12.3 million barrels a day in April so.
That's that's still yet to play through its right. It is it said this is getting into conjecture, but as a safe to assume if prices go down enough that just makes sense to take them offline and do the efficiency projects at the same time.
Oh sure planning for that.
Well I mean, it no I don't think that's the reality, let's now these are your customers are the big guys. It's not the smaller producers up there.
I think by its going to kind of sustain their production through these periods, a I think it would be our customers and with respect to these efficiency projects almost view them as independent.
It's just candidly it's good business for them right. They need just like we do you know they run productivity plans and if they can identify an opportunity to save some money they should do that and.
We think that's their intention they just haven't done.
It yet.
Understood. Okay. Thank you.
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.
I think Angie.
I want to thank all of you for your interest in Tricor and participating on the call today, while we are proud of the improvements we a.
Pushed in 19 and confident in our ability to further improve in 2020, we're clearly entering a period of tremendous uncertainty due to the outbreak of cobot 19.
We enter it today with the significantly strengthened balance sheet and ample liquidity to deal with the volatility which is likely to continue our priority will be the safety of our people and the communities which weve.
Work and the integrity of our assets.
I believe we've taken the appropriate steps to date to protect each and we will be managing our continuity plans daily as circumstances develop and again, let me. Thank you for your participation.
Thanks, Operator, we're done thank you.
Ladies and gentlemen, this concludes today's conference call.
Thank you for participating you may now disconnect.
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