Q2 2020 Ciner Resources LP Earnings Call

Earnings Conference call and webcast hosting the call today from General resources is Mr. OWS Air Cohen, Chief Executive Officer. He has joined by Mr., Ed Friedel, Vice President Finance today's call is being recorded it is now my pleasure to turn the floor of the air freight or you may begin.

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Good morning, and.

Thank you for joining up to discuss our second quarter 2020 earnings.

Before we begin I would like to remind you that the comments included in todays conference call constitute forward looking statements within the meaning of federal Securities laws.

These are based on our beliefs as well certain assumptions and information currently available to us.

Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discuss in more detail and the company's FCC filings.

Certain financial measures discussed during this call, including adjusted EBITDA distributable cash flow and distribution coverage ratio or non-GAAP financial measures.

Reconciliations of those non-GAAP financial measures can be found in our earnings press release.

I'll now turn the call overdose.

Thanks, Ed and good morning, everyone.

I Hope you your family and loved ones are seen healthy during this difficult time.

Welcome to dinner resources second quarter 2020 earnings call.

The second quarter of 2020 watts challenging for our business.

As we endured major impacts from the covert 19 pandemic.

That's slowing global economy.

Our uncompromising approach to safety and employee while being continue during this pandemic.

Oh safe operations have always been a pillar of our business.

Adapting to operating our bank facility amid a global health crisis, but the new challenge altogether.

While we continue to implement and execute the necessary procedures to keep our employees and their families safe.

We have dealt far avoided disruption to our workforce.

The six positive cases come from year to date, not impacting our ability to operate.

This is largely due to the dedication by our team did a high standards over health and safety that make a successful.

Overall market softness and resolving downward pressure on exports soda ash pricing had a significant effect on our operating performance in the second quarter.

First we reduce production by approximately 33% compared to the prior year quarter in response to production curtailments by several domestic customers and a reduction in the international volumes.

We took advantage of the flexibility in our assets by first reducing production from our highest cost operation.

We also halted production from our because topline.

Which in turn extended its useful life beyond 2022.

Well producing at less than our capacity is an unusual mode of operation for US we were able to devote our employee resources towards maintenance and improvement initiatives and reduce our reliance on outside contractors.

This also help reduce the number of third parties entering our facility, which supported our health and safety initiatives.

The decision to limit production was largely driven by lower demand on the international side, which was reduced by 46% as compared to our expectations at the beginning of the year.

The global soda ash market experienced a sharp decline in demand as manufacturing activity, but limited and.

Customers closely manage their thought actually mentors to navigate the impact of Corona buyers.

Additionally, the international market began the year when a surplus of supply.

Due to strong production levels in 2019.

The long major market has been further impacted by Chinese production, which was higher than 2019 by nearly 4% through the first five month of the year, despite the lower demand.

Leading to a additionally, military build up and export sales.

The compounding effect of high inventories on lower demand led to price. These short deterioration in our key export markets compared to 2019.

On the domestic side demand, but Chris, particularly by flat glass producers as the old auto manufacturer in force automotive glass plant to idled production in April and May and reduce construction activity led to lower architectural blackrock, but as well.

Specialty glass and oil and gas customers Likewise based weakened downstream demand.

While container yes.

Last has been much more resilience in the U.S.

The impact of our second quarter sales what's significant.

Although we hope much older demand loss to be temporary SBC positive indication from many other many of our domestic customers.

However, there are potential headwinds to recovery has the country grappled with a resurging spread of Corona virus.

I will note that our domestic pricing is generally predicted from short term mortality due to the fixed price nature of our annual contracts.

Overall volume sold were down 37% from the second quarter of last year, which translated to 76 million of net sales and 2.8 million of adjusted EBITDA in the quarter.

With year to date, adjusted EBITDA of 25.2 million and market weakness expected to persist through the end of the year, we have taken measures be improved cash flow and better insurers sufficient liquidity to meet our financial obligation.

We have under the undertaken several cost cutting initiatives.

Including using internal resources versus contracted services or labor when possible avoidance of noncritical maintenance work and renegotiated pricing with suppliers and essential contractors.

We're also actively managing inventories at the plant and throughout our supply chain to mitigate exist logistics costs.

From a personnel standpoint, we have frozen the hiring of several positions that are deemed discretionary and have focused on adjusting ships scheduled to reduce employee interaction. While also attending attempting to avoid excess overtime costs.

I'm very proud to say, we're not laid off or furloughed any employees. During this crisis as the livelihood of our workforce is a top priority for us.

We invest in our people from the for the long term and it is a principle that underlies our success.

All say.

We expect these cost savings that efforts to reduce our fixed operating costs in the range of 20 million for 2020.

We have also eliminated discretionary capital expenditures for the remainder of the year with maintenance capital projects limited to a critical limited to critical needs and rescheduling to large expenditures Oh the expansion capital projects.

This includes slowing down additional capital expenditures for our 1 million annually on Green door expansion project and instead, focusing on our desktop analysis and value engineering in the interim.

These adjustments are expected to reduce our capital expenditures for the year by roughly 50%.

Providing considerable support to our cash flow and overall liquidity.

Nevertheless, lower adjusted EBITDA, Mark they'll put pressure on our leverage ratio and tightened the historical comparable margin, we have maintained with respect to our leverage covenant.

Therefore in July we practically we amended our credit facilities to increase our leverage covenant on a structured basis over the next five quarters.

The additional leverage tiers provide critical flexibility to maximize our liquidity and allow us to maintain our success the capital amid an uncertain timeline for demand recovery and a weekend pricing environment.

I will now turn the call over to Ed who will discuss our financial results for the quarter in more detail.

Thanks.

And thank you everyone for joining our call and for your continued interest engine or resources.

Today I'll provide some detail around our second quarter performance the major financial drivers from the quarter in some key metrics, we used to evaluate our business.

Production volume for the second quarter of 2020 was 453000 short tons as we were forced to cut approximately 250000 tons from expectations to react to lower customer demand.

Those mentioned the reduction or export volumes comprised approximately 80% of that total.

Domestic volume sold in the quarter decreased by 2% year over year to 195000 short tons.

Total international volumes sold in the second quarter 2020 was 231000 short tons, a 52% decrease over the 480000 short tons sold in Q2 2019.

Timing of the coated 19 outbreak coupled with market oversupply resulted in an abnormally low consumption levels in the quarter.

Which we believe represents a demand trough for the soda ash market.

Average domestic price and the second quarter of 2020 declined 6.3% from the prior year quarter.

Versus a drop of 18.8% and international prices.

Evidencing the pricing dynamic difference between contracted domestic sales and international sales that have significant spot pricing exposure.

Lower net pricing in the quarter combined with a decrease of 252000 tons sold from Q2 2019 resulted in first quarter net sales of 76.2 million a.

A decline of 41% year over year.

Cost of products sold including freight in the second quarter, 2020 fell 24% to 74.2 million compared to the same period and 29 team.

Primarily due to lower production volumes and proactive cost management initiatives for our fixed costs.

<unk> expenses decreased by 14% from Q2 2019 to 6 million in the second quarter as a result of lower employee benefit expenses professional fees and contracted services.

Cash provided by operations, a 4.5 million in the second quarter of 2020 decreased 35% from Q2 2019 as a result of a 29.2 million decrease and net income from the prior year quarter.

The decrease in net income was partially offset by release of 12.9 million in working capital in the quarter as we focused on cash management through maintaining strict guidelines on inventories and reducing our overdue accounts receivable balances.

From a balance sheet perspective, we continue to maintain a conservative capital structure. Despite strained adjusted EBITDA marks year to date.

Ending the first quarter with gross debt to adjusted EBITDA ratio of 1.58 times.

And evaluating our leverage in the context of a weaken pricing environment and uncertain timeline for market recovery, we proactively approached our lenders to amendable leverage covenant in our revolving credit facilities.

With an existing maximum leverage covenant of three times gross debt to trailing 12 month EBITDA, we need to ensure that we maintained full access to our revolvers over the next five quarters.

Well, we do not anticipate that our debt balances will increase materially the amended terms are key to preserving our liquidity needs and flexible access to capital.

Do the strong relationships with our banks were able to quickly close the amendment at favorable terms, which include unchanged margins up to three times and Ratably increased margins on higher leverage tiers.

We agreed to restrict distributions if leverage surpasses 2.5 times, which is notably only half a turn lower than our existing three times covenant.

If levered surpasses 3.5 times, we will pledge our personal property security.

I'll also note that when leverage is below two times security will be released and the facility will again be unsecured.

This leads into the discussion of our distribution strategy and the context of key non-GAAP metrics, we monitor as an MLP adjusted EBITDA and distributable cash flow.

In the second quarter 2020, we recorded 2.8 million of adjusted EBITDA compared to 32.8 million in the second quarter of 29 team.

Distributable cash flow attributable to Gener resources was a negative 1.4 million for the second quarter of 2020 compared to 13.9 million in the second quarter 2019.

At the historical 34 cents per unit distribution, our distribution coverage ratio would have been a negative 0.21 times for the second quarter of 2020.

The significant decline in our distributable cash flow in addition to our commitment to maintaining a flexible balance sheet forced us to redirect our focus to near term liquidity and diligent cash flow management through the current downturn.

With that in mind, we made the difficult decision to suspend our second quarter 2020 distribution.

Management and the board of directors will continue to evaluate each quarter, whether it's appropriate to resume the distribution, which will depend on our liquidity and leverage as well as anticipated capital expenditures.

Now I'll turn the call back over to oppose to provide more commentary on our distribution suspension business strategy and growth objectives.

Thanks, Ed.

As discussed earlier, the co with 19 pandemic, and resulting economy contraction have significantly impacted the global soda ash market and entire value chain.

While there is little doubt the strong fundamentals for the long term remain in our businesses position as an industry leader for decades to come the impact on our near term outlook has forced us to realign our priorities.

Our immediate focus is to improve our cash position and maintain our liquidity, which as required us to amend our credit facility and make some tough decisions such as slowing down certain capital plans and suspending our distribution.

Suspending the distribution was not a decision that the board of directors and management Twoq lightly.

Given current market conditions and macro economy concerts entity, we are keenly focused on maintaining our access to liquidity, while continuing to look forward to our long term growth strategy.

Meeting the obligation to update today operations is our forward most concern.

And while the distribution as a last lever we want to pull it was necessary to suspended distribution as well as amend our credit facility to help ensure we maintain sufficient liquidity through the remainder of the year to meet our operating and capital needs.

This expansion will allow us to maintain a conservative capital structure.

As we navigate a down market and inevitably lower trailing 12 month EBITDA figures.

We direct in free cash flow to debt repayment will be critical to maintaining our leverage ratio at a prudent level.

We will continue to reevaluate our capital position and trajectory of the market to develop a pragmatic strategy for the resumption of distributions and continuation of our long term growth plans.

On that front, we have also slowed down the large capital expenditures of our greenery expansion project, which is expected to reduce our capital spend by approximately 40 million this year.

We believe that by currently halting art Deco harvest activities in response to lower demand, we will be able to better preserve our full production capability and have more flexibility in the timing of when the new project will be online.

We continue to be confident in long term demand fundamentals of soda ash market to support the additional volume.

While the current downturn has significantly affected pricing and current consumption. The long term expectations of demand growth remained the same.

As low cost natural soda ash producer remains strong and the favorable per ton economics of our expansion project. We go further strengthen our low cost production position.

As we continue to refine our growth plans.

I'm happy to announce our strategic decision to exit from Anzac, which will now be effective December 30, Onest 2021 year earlier than previously disclosed.

The exit will allow us to have more direct control over our export sales and work collaboratively with our parent company be soda.

Subsidiary of Gener group to more efficiently reach our global customers.

We soda is the world's largest natural soda ash producer and has well established global distribution channels and a robot sales and marketing organization, which we can leverage to target key markets.

And optimize our supply chain from plans to customer.

Moreover, we will gain a better level transparency into our export sales, which will help us not only navigate to more volatile cold weather related demand environment, but also allow us to control our sales and marketing strategy for our current and incremental volume we replaced once our greenery Rick.

Pension project.

Online.

In closing.

As we navigate a stress soda ash market and an unfamiliar economique landscape, we remain confident in the long term fundamentals of our industry and are excited to embark on transformational changes to our business such as independently managing our expert activities beginning next year.

Last but not least I want to recognize our team for their continued commitment to safety, including the new product goals. We have implemented in response to cope with 19 to ensuring employee health and safe operations.

It is thanks to our people that we have a way to significant disruption to our operations and maintain a bright future for our business.

Thank you for continued interest engineered resources.

This concludes our prepared remarks.

This concludes today's conference call you may now disconnect.