Q2 2020 Trecora Resources Earnings Call
Good day and welcome to Trecora resources second quarter 2020 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 over to Patrick Worlds from Trecora resources. Please go ahead Patrick.
Thank you operator, and good morning, everyone. Welcome to the score resources second quarter 2020 earnings Conference call. The earnings release was distributed over the wire services. After the close of the sand financial markets yesterday afternoon.
In addition to myself Sami Ahmad our Chief Financial Officer, and Christopher grows our corporate controller will also be available for question answer session later, which follows our prepared remarks.
Before we get started I like to review the Safe Harbor Harbor statement statements. This presentation are not historical facts are forward looking statements as defined in a private Securities Litigation Reform Act of 1995 forward looking statements are based upon management's beliefs and expectations only as the date of this teleconference August is 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 intercourse filings with FCC, including the company's most recent annual report on form 10-K, and subsequent quarterly reports on form 10-Q.
During today's call. We will also discuss certain non-GAAP financial measures for comparison purposes only.
Definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results.
See the earnings release issued after the close the financial markets yesterday afternoon.
This webcast is is accompanied by a slide presentation is available in the Investor section of the company's website www Dot Tricor dot com.
With that said good morning, everyone and thank you for joining US today, we hope you and your families are safe and healthy.
This quarter I laid out our priorities for operating in this unprecedented environment and I'm pleased to report that early actions, we took to protect our employees ensure the safe operations of our sites strengthen the financial position as a company and do our part to combat. This pandemic are working.
Second quarter results were solid with various very strong cash performance demonstrating the resiliency of our business and our executional focus putting us on track to achieve a zero net debt position by the end to the third quarter.
Our cash flow from continuing operations of $16.5 million was a $12.1 million improvement over the first quarter of this year.
We ended the second quarter was $78.2 million the bank debt approximately $30 million of cash and zero borrowings on our revolver.
As Sandy will discuss further we ended the quarter with the lowest level of bank debt and the company since 2016, while still maintaining a very robust cash balance.
Net loss from continuing operations in the second quarter was $1.9 million, while adjusted EBITDA from continuing operations was $4.2 million Cobot 19 adversely impacted our second quarter results due to its global impact on the economy.
Demand for our specialty petrochemicals and the second quarter was over 20% lower than the first quarter. Generally all end uses declined this is a bit weaker than we anticipated within the quarter demand began to fall in April or May was the weakest bunten demand during the quarter because actually the weakest month, we've seen since early 2013.
In June we saw a nice bounce back in prime product sales.
So let news perspective, we saw automotive demand and the collapse of crude pricing get first in addition, we had reduced demand to demand to oil sands associated with their efficiency program as we've discussed previously.
That impacted sales to refining customers and those producing Buda rubber.
The pie ethylene and ethylene uses held up better due to their participation and not nondurable markets such as packaging.
Many construction projects also took a pause during the quarter, which is usually the strongest quarter the year our demand into the tie ISO market was essentially flat for the quarter.
As may ended demand significantly improved we've seen the car manufacturers are turned operation driving demand to their suppliers. While EPS plants returned strongly in June with the resumption of both automotive and construction demand as did the pie ethylene producers.
Oil sands are improving a bit, but we don't expected return to prior levels.
On balance second quarter should be our weakest demand quarter for the year.
Third quarter should see a significant improvement, although we don't expect demand to be back to pre coded levels.
While demand was weak in the quarter, our margins open up significantly.
The lag on our inventory costs, our feedstock prices bottom in June.
Gross margin for the quarter was 15.2%.
We'll see inventory cost begin to rise in the third quarter, which will be a tailwind for our earnings.
Especially waxes business results were weak due to exposure to certain durable goods in uses which resulted in weaker wax sales and from lower custom processing revenues, having said that our plant operating improvement efforts have resulted in good structural progress on costs on the cost side, which are sustainable moving.
Forward. In addition, there were no material disruptions to feed supply or operations during the second quarter of 2020.
Turning to our new growth initiative launched in the first quarter, we continue to work towards both delivering on identified projects and increasing the robustness of the projects in our current portfolio.
At the ended the quarter, we had 26 active projects, we continue to evaluate our pipeline and since the last quarterly update we discontinued for projects and introduced three new ones. We also launched for this year and expect to launch five more within the coming 12 months.
The current portfolio as eight projects focused on delivering new products are entering new markets 14 projects are focused on driving asset utilization with revenues that don't require significant capital and four projects are focused on improving productivity and reducing costs.
While the pace of some project has projects has slowed due to the pandemic, we remain on track to achieve approximately $4 million of incremental EBITDA value creation.
To be clear we measure these projects on a go forward run rate basis. So you should consider their value is contributing to our future earnings.
As far as liquidity in debt, we announced last week. The closing of 975000 share portion of Amec shares for approximately $2.6 million.
While we've been working through the delays and closing the sale since first announce our regulatory hurdles had been resolved.
Max operations have remained solid and most of the metals markets are at or above prior year levels.
The sale of this most recent portion of shares indicates the buyers commitment to finalize our deal at the price originally negotiated.
Im very confident the remaining shares will be sold before the end of this quarter.
On a pro forma basis between the cash anticipated for the Amex sales and the proceeds from from our income tax refund, we expect to have negative net debt at the end of the third quarter.
Despite this period of economic uncertainty, we're positioned to grow our business organically prudently consider inorganic opportunities and continue to drive value creation for our shareholders.
Now I'll turn the call over to Sami Ahmad our Chief Financial Officer for more detailed discussion of our second quarter in first half results.
Thanks, Pat and good morning to everyone.
Let me start with a discussion of liquidity debt and cash flow.
I will discuss our strict second quarter and first half performance in some more detail.
As Pat mentioned, we took a number of measures in the first half of 2020 to strengthen our balance sheet and ensure sufficient liquidity as we progress through this downturn.
We reduced our bank debt for approximately $102 million at March $31 million to $78 million at June Thirtyth.
We fully repaid the revolver balance of $23 million.
Which included $20 million borrowing that you may recall that you may recall, we did to put cash on the balance sheet out of an abundance of caution.
Our leverage ratio under our bank credit agreement declined to 2.6 times at June Thirtyth of this year compared to 2.9 times at March 31, and 3.1 times at the end of June Thirtyth 2019.
Our cash balance at June Thirtyth was $29.9 million, which included proceeds of approximately 6.1 million from loans that we received under the Paycheck protection program as part of the care Cares Act.
Our strong liquidity and balance sheet position enabled us to maintain safe operations at our plants and preserve our workforce levels, including compensation and benefits.
In addition to proceeds from the Amax share sale. We also expect to receive a total of approximately 16 and a half million dollars in federal income tax refund as a result of the cares act in the second half of this year.
Cash flow from continuing operations in second quarter was $16.5 million, while capex spending in the second quarter was $5.7 million.
Free cash flow, which is cash flow from operations less capex Lex less mandatory debt service was $9.7 billion compared with $1.1 million in the first quarter.
Capex in the second quarter increase from the first quarter due to maintenance spending from the Gulf States pipeline at South Hampton.
Recall that this is part of a multiyear capital plan to rehabilitate and upgrade.
Our feedstock pipeline.
In the current environment, we continue to manage working capital and cash flow in a disciplined manner.
In addition to managing all of our discretionary expenses were closely we're closely monitoring the aging of our trade receivables and assessing customer credit exposures.
Now, let's take a closer look at our Q2 and first half operational performance.
We reported second quarter 2020, net loss of $1.9 billion or diluted losses per share of seven cents down from net income of 2.4 million or earnings per share of 10 cents from to save for the same period in 2019.
Looking at the first half of this year net income was $8.9 million or 35 cents per diluted share and this compares to net income of 4.2 million or 16 cents per diluted share for the same period last year.
Gross profit in second quarter was $6.2 million or gross profit margin of 15.2% compared to gross profit margin of 13% in the first quarter and 15.2% this second quarter of last year.
Gross profit for the first half of this year was 14.2 million or 13.9% gross profit margin.
Compared with 20.6 million, 15.3% growth.
Gross profit margin in the same period 2019.
Adjusted EBITDA from continuing operations was 4.2 million for the second quarter compared with 5.5 million in the first quarter and 9.3 million in the same period last year.
Adjusted EBITDA from continuing operations for the first half of this year was 9.7 million compared with 17.7 million in the same period last year.
At a high level in comparing our second quarter results with the first quarter. The key drivers for the approximately 1.9 $1.3 million decline in adjusted EBITDA was the 19% or 3.1 million gallon decline in prime product sales at South Hampton, which was par.
Actually offset by improved prime products margins due to lower feedstock costs and a smaller negative impact of the lag in inventory costing.
General and administrative expenses for the second quarter were 6.3 million compared to 6.7 million of the first quarter and 6 million in the second quarter of last year.
For the first half DNA expenses were 12.9 million compared to 12.1 million the same period last year.
Interest expense for the second quarter was approximately 0.7 million compared with $1.4 million in the second quarter last year.
First half interest expense was approximately $1.7 million compared to 2.9 million in the same period last year.
The $1.3 million reduction in interest expense for the first half of this year compared with same period last year was due to continued debt reduction combined with lower interest rates.
Note that there's a $4.8 million tax benefit that we recorded on our income statement for the first half of this year. This is primarily due to tax benefits from changes to the tax laws as a result of cares act the laws.
The law allows allows for deferral income and social security tax payments a.
A five year carry back provision for net operating losses and other changes.
For the second half of this year, we expect our effective tax rate to be about 21%.
Now, let me walk you through our business segments, starting with specialty petrochemicals.
Adjusted EBITDA from continuing operations for specialty petrochemicals in the second quarter was $5 million compared to six and a half million in the first quarter of this year and 10.4 million in the second quarter last year.
Especially.
Specialty petrochemicals volumes in the second quarter or 15.3 million gallons. This compares to 19.7 million gallons in the first quarter and 21.4 million gallons in the second quarter of last year.
For the first six months of 2020, especially petrochemicals volume volumes were down approximately 8.8 million gallons or 20% compared to the same period last year.
Let's talk about prime products.
Prime product sales volume, which is a key driver of our profitability was 13.1 million gallons in the second quarter compared to 16.2 million gallons in the first quarter and 17.7 million gallons in the second quarter last year.
For the first six months of 2020 Prime product sales volumes were down approximately 6.1 million gallons or 17% compared to the same period a year ago.
Prime product volume was down due to lower demand from Canadian oil sands customers and lower sales to polyethylene producers sales to other end use markets were also generally weaker compared to the same period last year.
Margins for prime products improved significantly from the first quarter due to a 55% decline in natural gasoline feedstock costs.
The business benefited both from a margin expansion in our non non formula portfolio as well as the lag effect of inventory costing.
Benchmark natural gasoline feedstock prices declined from 93 cents per gallon in the first quarter to 42 cents per gallon in the second quarter.
The trend in market pricing of natural gasoline feedstock is shown on slide eight of our second quarter 2020 earnings decks that is posted on our website.
Recall that in first quarter, the sharp decline feedstock prices had a negative impact of approximately four and a half million due to the consumption of higher cost inventory throughout the quarter.
In Q2, the negative impact of this lag effect was approximately $1 million or roughly three and half million dollars improvement as feedstock costs bottomed out in the quarter.
Late and in the second quarter and into July.
Stock prices start to increase.
July's average Nash natural gasoline price stood at 68 cents per gallon.
Now moving on to the by products.
Byproduct sales volume was approximately 2.3 million gallons in the second quarter compared to three and a half million gallons in the first and 3.7 million gallons in the second quarter of last year.
Byproduct sales declined primarily due to lower prime product production in sales.
Byproduct margins declined to about negative 29 cents per gallon in the second quarter from eight cents per gallon in the first.
The sharp decline in byproduct margin was driven by product prices as a result of lower benzene prices.
Combined with the inability to take full advantage of the product upgrade capability of the advanced reformer unit due to production rates being below the minimum threshold required for its operation.
Let's move on to specialty waxes.
Especially waxes segment had adjusted EBITDA from continuing operations of 0.9 million in the second quarter compared to 1.1 billion in the first and 0.7 million in second quarter last year.
Specialty wax is generated revenues of approximately $8.3 million in the second quarter, a 2.3 $2.1 million decrease from $10.4 million in the first and a $1 billion decrease from the second quarter last year.
Revenue included five and a half million of wax product sales in the second quarter wax sales volumes decreased approximately 16% or nearly 1.6 million pounds through second quarter last year.
And second in the second quarter 2020, wax sales were depressed due to the impact on our customers from the cobot 19 pandemic.
Many of our customers, especially in the automotive furniture and construction end markets had significant decline in sales demand due to the pandemic.
There were no material disruptions to our wax be seats wax feet supply however, during the second quarter.
Processing revenues, which were 2.8 million in second quarter decreased 23% from Q1, but increased approximately 12% or zero point $3 million from Q2 of last year.
Wrapping up as we progressed through this period of economic uncertainty and business downturn.
We have ample liquidity, our strong balance sheet with no near term debt maturities and we maintain a keen focus on cash on cost management.
Now operator, we'd like to open the line for year for People's questions.
As a reminder passed the question you'll need to press star one on your telephone so enjoy your question Brett Rabatin. Please standby will we combined the two and a roster.
Our first question comes from the line of Sarkis Sherbetchyan from B. Riley. Your line is now open.
Hey, guys. Thanks for taking my question is actually a mine on jumping in for Saar Keith.
So my first question is what are your expectations for margins in Threeq and Fourq, given the volatility of feedstock prices.
Yes, so as I mentioned briefly in our.
Remarks, with feedstocks feedstocks bottoming in the market in June we in as that costing flushes through our inventory we see.
Inventory effects as being a tailwind as we get through the third quarter. So we had with 15.2% gross margin in the second quarter, we should be north of that as we get into the third quarter.
Frankly, as we again it into fourth quarter.
Have you pretty candid our visibility further out this remains very murky.
We're all watching the headlines and what's going on with with Covidien, how that may play through so it remains a question mark as to how the how the years going in we've been very encouraged by the demand that we've seen bounce back as I mentioned starting in June.
And getting stronger as we get into third quarter.
I don't really have any reason why that shouldn't continue into later this year, but we would really have to see how the market unfolds.
Understandable and.
How is demand trendy in prime products.
Dramatic.
Boxes in chemical processing when looking at customers orders in July and August relative to what you saw in the second quarter.
Yes, So you may was weak.
The way I kind of characterize it is going to every bit of news that we had coming in from customers. During may basically was negative news. So we continue to increment down and as I noted, we actually had demand lower than we actually anticipated and we talked about on the last call really since that time, it's been kind of the exact opposite we've seen a good.
Rig kind of broad based in a variety of and uses particularly on the durables. Good side production come back it started with the big Dthree automotive in North America, which drives then subsequently demand for.
Rubber Buda rubber and EPS in polyethylene we've seen.
There was a period in time in the second quarter, where some polyethylene units North America actually were disadvantaged globally, because the falling crude.
Thats situation has reversed as well so so we're really seeing all in uses begin to tick up.
Some more strongly than others, mostly reflecting up how weak they were in may.
We get into August normally you would see.
Softness in lot of these markets I think.
I think we're actually seeing the return of production run through August I think the automotive guys for instance, where they would normally be doing late in the summer they did.
During their quiet period, so that demand actually remains pretty strong and we see a nice step up.
Currently in August even from the June and July levels.
That's really that's really the driver for prime products I think.
Waxes somewhat a similar story I mean, we have exposure to durables in our wax business that goes in applications like furniture and automotive as well. So those were soft in the second quarter and we are now seeing the resumption of wax orders as we get into August so thats going into right direction also I.
I think on custom processing, it's going be a little bit slower climb back.
Primarily because given that we are weaker on the margin some of our customers.
We're not utilized custom processing versus in house production. So thats a slow I think the ramp of revenue growth in the second half of the year, what's encouraging is and we mentioned that I talked about growth and as Weve reengage the market as we got our operations.
At Tc lined out early this year.
We've seen.
A lot of activity on the project side to drive new opportunities for us through custom processing.
That's a bit of a long sales cycle. So I don't anticipate significant benefit from these projects. This year, but we have a number of trials scheduled and committed.
With new customers in the second half of the year and I'm getting actually more optimistic that we'll see a nice step up as those projects.
We expect to be successful on many of them and we'll continue will then start driving revenue as we exit the year.
Okay, Thanks and.
Well, Brian byproduct margins for the second quarter, and how do you anticipate byproducts margin margin evolving in the second half of 2020.
So same at same as speak to some of the numbers in the second but make some comments on kind of what has been going on and by products. It's been.
Really reflective of all of the volatility going on in the energy sector were leverage if you will to Airmax pricings are benzene and timing and is it as I have just discussed before benzene market is strict generally usually structurally short in the us and we.
Export benzene from Asia, we saw demand fall so far.
Early in the second quarter that actually.
Reversed we were long benzene in the US we saw benzene pricing as a result with prices trading well below a one dollar gallon.
That has turned as we've seen things like styrene demand.
Returned to growth.
Growth as our EPS for instance comes back so the US has gone short benzene again, there have been some constraints on production of benzene in the us that kind of further exacerbated that problem and as a result leasing benzene pricing respond so.
This benzene price of lease settled at $1.52 per gallon. So it's up over 50% from its lows.
And.
What we see in the market would suggest that should continue as we as we continue on through the second half of the year. So very negative margins as you saw our by products.
The early in the second quarter, but we'll see that turn here in the here in the third quarter.
Yes, Tim.
For byproduct margins you had asked so in the second quarter.
It was negative 29 cents per gallon in that compares to eight cents per gallon positive in the first quarter.
In addition to the factors that Pat described in terms what was going on on the aromatic side, which then depressed the.
Our owned byproduct prices.
We also.
During the quarter, we're not able to fully run the Airmax unit advanced reformer unit, mainly because our production rates were below what was needed for.
Minimum threshold operation for that unit now why is that important we don't run the advanced reformer unit, we run another unit, whereby we don't achieve the level of.
Aromatics concentration so the amount of the high the good stuff benzene.
And Tallinn in those byproduct, so that depresses further the product pricing for by products.
The unit is.
Airmax is up and running again.
And it wasn't reliability was just due to.
Demand rate.
Got it. Thank you and then last question for me.
What makes the team costs, including the sale of the remaining.
A shares of masked by the ended the third quarter.
Yes. So so this most recent sale that we talked about the funds, which we received a week ago.
With that really reflects is.
And I think should be interpreted as now the buyers are seeing we've got other regulatory issues behind us I think we've got most of the disruptions associated with the clothes that were impacted by covert behind us and yet look to the fundamental value that these guys are uprising for the mine.
And in mind actually has continued to advance very well on a year over year basis.
The production is at or above prior levels. They have been success successful and extending the mine life and we've seen actually metal prices recover.
Dramatically really for copper and of course is we're all watching gold prices are hitting an all time high and the mine will be starting up their new gold mine here in the second half of the year. So all that to me just indicates that the buyers see value at the tens are price that was negotiated we've had one of the smaller.
Theres come in and close and we anticipate further close close closings.
As we get to the end of the quarter and I think will be complete by the into the quarter.
Thank you I'll pass it on.
Thank you as a reminder, classic question you will need to press star one on your telephone. So as you saw your question about team.
Our next question comes from the line of Goldman from Keybanc Capital. Your line is now from.
Thank you I'd actually like to follow up on that last question.
I don't believe that.
I have clarity on why the sale has been delayed the degree to which it has would you talk through kind of what those delays are and and.
And why those robots are now out of the way sure. So.
So we had the first delay was really driven by the regulatory hurdles of getting approval from government bodies, probably not least of which is this I DFE who has guaranteed loans into.
The mine. So we had received that government approval, which we didn't receive until kind of the middle of the first quarter. This year, and then frankly than we rolled immediately into the cobot crisis, and all travel and kind of transactions were shut down.
At that period, not knowing how long this is going to last well. We agreed to do is negotiating an extent last extension, which carries us to September 28.
This year, so thats in Mint amendment or long start date is currently agreed with the buyers and they have until that date.
To complete the close.
So we saw and for that.
Extension.
If they didn't close prior to the end of March they lost 50% of their deposit. So what you saw was our Mikko, who is really already positioned funds for their closing outside of Saudi.
They were able to close at the end of March but the other buyers were not so so really if you. If you think about what the responsibility to obligations are for this year for the buyers at this point they have until September 28 to close there is no incentive for them to close earlier. So we were pleased to get this money in prior to.
At September 28, I think we're going to we'll see some more come in prior to September 28, but that is really there their responsibility obligation at this point.
Helpful. Pat Thank you and then.
You had a pre tax loss, but you also ended up as showing taxes at 958000.
That.
And a negative tax rate.
So can you talk through the whole idea paying taxes with a pre tax loss.
Yes so.
Yes, so when you when you look when you look at the second quarter.
Our.
What's not shown there clearly is there were also $1.3 million.
Return.
Accrual to return or book to return differences for a range of reasons.
Non there were noncash related.
With the exhaustion of the Noel's recall that you know ardent cares act, we've been able to monetize all of our and our wells and we're expecting those proceeds from the IRS to come into the second second half we will be a cash taxpayer so in the in July.
Why for example, we made estimated tax payments of $3 million for the balance of the year. Our book are effective book rate should be back to 12, 21%.
So if you made an estimated tax.
Payment of 3 million the implication to us on the outside is that you should you are planning on meaningful profit in the second half.
On the tax basis, yes.
Because we don't have the Nols anymore. They have been monetized right and how does that to how does that relate to.
GAAP reporting basis.
I mean.
The monetization of the oils.
No. The the profit you said there would be on a tax basis and to what degree is there a correlation or not with.
GAAP reporting right. So the way our tax advisors work that is a.
According to IRS guidelines, they take first quarter, an annualized for the year.
And Thats how they.
Estimate.
The tax payments. So they took the first quarter results in terms of taxable income annualize that.
And then again, they will revisit it and what the third quarter.
In the third quarter, they they will revisit it based on second quarter performance and then our expectation during the third quarter and to see if there are anymore.
Payments required.
So so that means it doesn't reflect an estimate our part as to second half earnings right through backwards looking.
Right. Okay, great. Thank you and then lastly, with the disruption that.
Virus created and the significant reduction in volumes.
Did that create any sort of an opportunity or prospective customers too.
Re evaluate.
How are they were.
Chemical composition, and whether there was an opportunity to work with you all and because they were slower.
They are.
Evaluated their business and in a different way.
I'm trying to find a silver lining here too.
The to the crisis and just.
To see if theres something that you have to here.
Sure well I think on the based prime products I think my takeaway from kind of going through this during the second quarter is.
Listen we had we will go up and down with these near term drivers of demand that flow through the industry, but what we didn't see with some kind of as you kind of asking some reevaluation of kind of the market dynamics and what it means from a value of our products and so forth actually we were.
Successful during the quarter to renegotiate several contracts that brought us greater security.
Going forward on our business at a good value as similar values. The past so we didn't see a sacrifice of values, but we're able to.
Extend and in some cases.
It security of growth with certain customers. So so I think.
The structure in value the prime product business has weathered the storm very well I think we look a lot to the custom processing assets and frankly, the excess capacity that we have given the capital plan wave that this company has several years ago.
As an opt is opportunistic capacity.
We as I mentioned during my prepared remarks, we have.
The 26 projects that were driving some of these have been slowdowns people took a pause during the quarter. We have seen actually companies now reengage and some of these projects I think people are starting to now look forward again, having can satisfy themselves that they're positioned to weather the storm and we've continued to have good engagement.
On the growth projects against.
Trecora chemical against the Pasadena asset for.
For new projects that we've been working on there. So I've been encouraged really by the continued engagement on the market for opportunities to bring bringing more and new revenue really to both sites. So we probably little bit of time during the quarter as people to get Brett, but really nothing nothing negative coming out of that I think any the next.
So your question is is this creating new opportunities for us.
Maybe a bit.
But I don't want to.
I want to suggests something really dramatically.
Improved is going to happen as result of it I think we everyone always looks at kind of the assets how their assets are going to be utilized going forward and whether or not maybe better use of our assets is custom processing versus theirs.
We are having some of those conversations, but they're not advanced enough yet to suggest we'll see something coming from it.
Thank you both.
Okay.
Thank you. Our next question comes from the line Kurt Caramanidis from Carl M. Henning Inc. Your line is now open.
Hi, guys.
I know what do you have a number of EBITDA improvement projects in the short run me medium and long run.
And I'm trying to figure out what kind of a baseline annual EBITDA.
Rate should we run rate should we be using to figure out what those improvements are you did about 10 million in the first half for this year in 18 in the first half of last year I mean.
Do we.
Pick something in between there or what.
[music].
How do you look at that sure.
No.
As we've been talking about why we have a lot of leverage operating leverage to kind of downstream demand in these core in uses so and that's driven this dramatic fluctuation from last year in of course, the first quarter.
Tend to think of it as the the underlying sustainable profitability.
From a margin perspective is solid and.
You, probably know and two thirds of our prime product contracts are on effectively fixed margin as their formula based and so as demand returns, which we anticipate doing we will will get the benefit of that so I would view last year's performance is more indicative of what our baseline performance.
Should be for South Hampton.
Once we get recovery from the pandemic.
And then I would anticipate our growth for brands contributing both to south Hampton as well as for chemical Tc.
Specialty waxes segment because in both instances, we have we've identified and are working.
Cost reduction opportunities, we're we're driving custom processing opportunities that touch on asset utilization and in the case of TC a few new products or new markets to enter as well and those those actually all continued to progress pretty well. So I would put it against if you if we can deploy.
We're aligned on kind of a return to the kind of the pre covert demand levels I think last year South Hampton performance is a is it fair representation of the baseline.
Okay, great and how many buyers have too.
Square up with you for M&A by the end of September.
Well this person apparently had a smaller amounts are there another 10 people that have to commit or two or what what's kind of the.
Load on their.
Five.
Okay and have the 511 is a Mac the company itself, they're buying a portion of their shares back.
Okay.
Great. Thank you very much.
Thank you. Our next question comes from the line of Tom Harenburg from Carl M. Hennig, Inc. Your line is now open.
Yes, good morning bells.
Good morning.
Progress, you're making on on your financial statements and.
Heavy metal net debt.
As far as the mine is concerned the drag going on for probably a year.
Copper prices are up roughly 20% from when the agreement was made.
Silver up substantially gold hitting hitting record levels are there any penalties.
But we can get if this is not completed by the end of September.
Great Great question, Tom So.
Yes, I think the calculus that we're running is in the event that they do not close by the ended the quarter than we have the right not to close.
In the future right. So our option would be to preserve those shares as the mine as I mentioned earlier you know the mine is improving not just operationally but.
With their new CEO coming in I guess, two and half years ago now they they will be posting and have posted earnings which sets them up for an IPO.
No sooner than two years after their first positive earnings what that means is.
They could have an IPO as early as next year and they are working towards that so our alternative has always been.
Holding onto the shares and then monetizing them when they go at some point after they go public it's not our preferred case our focus is on.
Monetizing the shares and moving on with our priorities and strategy.
But as you say.
It's arguable that the value of the mine continues to improve and it's not that big a downside where we not the close.
But I'd be clear I want the cash yep.
Right.
And we want to exit out the other point out make what Pat said as recall that they are going to startup the guy and project the fourth quarter second half in second half sometime and given where gold prices are that should help them in their IPO.
Process whenever that starts up and didn't on that's why you hear me and they frankly Thats why you hear my tone changing on why I'm very confident we'll get this enclosed I think they see value in the mine.
We see it from the metrics that we watch.
I think they're going to be interested in closing and we're going to be interested moving on.
Well you know how to handle vulnerable investor in 1968 in the company. That's when this off at 29 cents this year.
Looking back with George Rocker, and press and became Jack freight.
Who basically you know followed this and put it together.
Sure got to be allowed a disappointment with the way the way. This mine is ultimately turned out.
Yes.
I just hope you can you know you can get get this thing done them before that.
You know I think that.
We'd heard I think back in 2014 that they were going to you know they were going to have a public offerings. So.
This.
Great.
For an awful and down here.
It was as you know well kind of how the mine has been operated over the years I think until they took control of their operations themselves.
Hired us devices seen as their CEO and survive brought in his own operating team rather than having a contracted out.
Only then to they actually start making progress they made tremendous progress but.
It's a long time incoming I'm happy to see improvements survival has made and it's certainly benefited us as well.
And we wish them the best but.
We also look forward to kind of moving on after the third quarter.
Okay, well good luck.
Thank you Phil Thanks.
Thank you at this time I'm showing no further questions I would like to turn the call back over to pack world for closing remarks.
Thank you operator.
Thank you for your questions interest in Tricor and participating on the call today I want to close by thanking our people at the onset of the pandemic, we instituted no new protocols that are sites to protect our team and those that come onto our sites from the virus. Many of our people began working from home for both their safety in the safety of those that remain in.
Our facilities, while continuing their duties, it's been a lot of change and I. Appreciate it hasn't been easy I'm proud of how the organization has taken on these challenges I really want to thank everyone for their diligence and their commitment.
And with that again, thank everyone.
And we'll sign off.
Ladies and gentlemen, this concludes today's conference call. Thanks for participating you may now disconnect.
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