Q3 2020 Trecora Resources Earnings Call
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 Jason Finkelstein from the Piacente Group Inc. Please go ahead Jason.
Thank you operator, and good morning, everyone welcome to the core resources third quarter 2020, <unk> earnings Conference call.
Earnings release was distributed over the wire services after the close of the financial markets yesterday afternoon.
Presenting on our call today will be pack world's president and Chief Executive Officer.
Sami Ahmad Chief Financial Officer, Chris.
Christopher grows our corporate controller will also be available for the question and answer session, which follows management's prepared remarks before we get started I'd like to review the Safe Harbor statement.
He mentioned this presentation that are not historical facts are forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
Well were looking statements are based upon management's beliefs and expectations only as of the date of this teleconference November 4th 2020, but.
Forward looking statements involve risks and uncertainties that could cause actual results could differ materially from those projected.
These risks as well as others are discussed in greater detail. The two cores filings with the FTC inquiry.
In 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.
Definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results. Please see the earnings release issued after the close of financial market yesterday afternoon.
This webcast accompanied by a slide presentation is available in the investors section of the company's website Www, Patrick Cora Dot com at this time I'd like to turn the call over to Corey <unk> CEO.
T O <unk> world.
Thank you Jason good.
Good morning, everyone. Thank you for joining US today, we hope to you and your families are safe healthy and managing well.
Scores recent operating results and accomplishments through the first nine months of the year reflect our fundamental resilience in spite of historical challenges.
During the quarter, we successfully closed the amex sale, which was a landmark event for our company with this divestiture, we have simplified the company by narrowing our focus to specialty chemicals and advance our commitment to deliver significant value to our shareholders by dramatically enhancing our financial flexibility for growth.
With the proceeds from the sale, we have paid down $31 million in debt, while also increasing our cash balance to nearly $52 million.
This is broader end of quarter debt level to its lowest level since 2014.
A strong liquidity position has enabled us to maintain solid safe operations at our plants and preserve our workforce levels, including compensation and benefits in the midst of a challenging business environment caused by the Cobi 19 pandemic.
Net income in Q3 was 2.2 was $22.4 million, which includes the gain on sale of Ambac. This compares to net loss in Q2 at $1.9 million Ajay.
Adjusted EBITDA from continuing operations was $7.1 million for Q3, 69% increase versus Q2 and slightly higher than the $6.9 million in Q3 of last year.
Sammy will review, we saw the expected recovery in prime product demand as we discussed last quarter.
Inventory costing effects of rising feedstock prices also contributed to higher earnings in the quarter as did the significant recovery in the value by products.
Our gross margin was 17.7%, 2.5% improvement from the second quarter, and 2.3% better than the third quarter last year.
I will note, while we saw significant improvement in demand in the third quarter demand link to refining and energy continued to be weak.
Byproduct spread improved significantly it remained well below pre koby levels.
This event transformational year for Trecora earlier this year, we implemented a management system across the company that prioritize reinforce safety reliable operations and accountability all the while advancing the sustainability of our assets.
During this year. We have also further develop a diversified portfolio of growth projects to deliver sustainable organic growth, while requiring little capital.
This has already resulted in value creation of $4 million in annualized incremental EBITDA in 2020 with expectations of $6 million in 2021, and further significant growth thereafter.
We continue to work towards delivering on identified projects, adding new projects and increasing the impact of the projects in our current portfolio.
As you can see on slide 10 in our deck at the end of the quarter. We are actively managing 33 projects an increase of eight since the end of the first quarter.
The 33 projects, we had 11 projects and execution phase six and definition and 16 and ideation.
We have conducted three commercial trials on our equipment, but two more schedule and we are engaged in commercial negotiations for two projects. Some of these projects could launch as early as the first quarter of next year.
The value drivers of our current portfolio abroad.
A total of 14 projects are focused on delivering new products are entering new markets 15 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.
The key drivers of these projects will be our ability to leverage the existing capabilities of our assets such as the hydrogenation distillation units at Tc and idle equipment at SHR.
In the short term those assets those assets give us the opportunity to grow our custom processing revenues by meeting the needs of other specialty chemical manufacturers on the Gulf coast and a wide array of applications.
Next year, we expect further savings from our new feedstock agreement and from our outsource logistics project, which we spoke about earlier this year.
Over the medium term our assets will allow the development of new products to extend both our waxes and specially hydrocarbons product offerings.
Level of engagement for the market indicates that the unique capabilities our assets do fill abroad need in the market today, it's exciting to see the growth story come together and although it's early in the development of our growth pipeline. We are encouraged to see hydrochloric and grow as we go forward.
Now, let me turn it over Sami to discuss the specifics of our Q3 results.
Thanks, Pat and good morning to everyone.
Let me start with a discussion of liquidity debt and cash flow.
And then I will discuss our third quarter and year to date performance in some more detail.
The closing of our noncore, Hey, Mac equity share sale marked an important milestone for the company and the fulfillment of our commitment to deliver significant value to our shareholders.
Gross proceeds from the transaction of approximately $72 million includes one and a half million dollars as consideration for the extension of the closing date.
The net proceeds to the company after transaction expenses and taxes are approximately $61 million.
Some of these expenses you will note are included in our acute accrued liabilities on our balance sheet.
The sale proceeds enabled us to pay down debt and dramatically reduce our credit facility leverage ratio, while building significant liquidity for future deployment.
In the third quarter, we reduced our bank debt from approximately $78 million at June Thirtyth to $47 million at September Thirtyth, the lowest level of debt as Pat noted since September 2014.
Our leverage ratio under our credit agreement declined to 1.6 times at September Thirtyth.
This compares to 2.9 times as recently as March 30 Onest.
Total debt, including the PPP loan stood at $53.2 million at September Thirtyth.
Our cash balance at September Thirtyth.
Was $51.9 million, which includes proceeds of $6.1 million from loans that we received under the PPP program as part of the cares Act.
Our net debt and cash positions are late are laid out on slide five of the earnings deck.
A quick update on the forgiveness process and status of our $6.1 million PPP low.
We believe we qualify for forgiveness based on the SP a criteria.
All of our PPP loan funds were segregated from our other operating funds and specifically used only for payroll and benefits.
For our employees and thus preserving employment at our sites.
We expect to begin the application process for forgiveness in the near future. However, we don't expect a determination on the forgiveness before the end of this year.
In addition to proceeds from the Amax share sale. We also expect to receive federal income tax refunds as a result of the tax law changes under the cares Act we.
We filed our refund claims in the third quarter totaling approximately 16 and a half million dollars.
At this time, we have not been advised by the IRS as to when we should expect received receipt of these funds. We understand that there are significant backlog set the IRS with regards to processing. These claims.
Our 2020 year to date cash flow from continuing operations was approximately $22 million.
Year to date, Capex spending stood at $10.3 million.
And free cash flow, which we define as cash flow from operations less capex unless required debt amortization was $10.3 million year to year to date compared with 12.3 million in the same nine month period last year.
A major part of the year to date 2020, Capex spending includes maintenance spending for the Gulf States pipeline project at South Hampton.
Which is part of a multi year capital plan to rehabilitate and upgrade this feedstock pipeline.
In the fourth quarter, we anticipate capital expenditures of approximately two to two and a half million dollars. So our total capex for the year should be in the $12 million to $13 million range.
In the current uncertain environment, we continue to control costs and working capital.
In addition to managing all of our discretionary expenses, we closely monitor the aging of our trade receivables and assessing because customer credit exposures.
Now, let's take a closer look at our third quarter and year to date performance.
We reported net income in the third quarter of $22.4 million or 88 cents per diluted share, which includes the net gain from the sale of a Mac of approximately $21.3 million.
This compares to net income of zero point $6 million or two cents per diluted share in the third quarter of last year.
Excluding the gain from sale of AMAK net income from continuing operations in the third quarter was $1.1 million or four cents per diluted share compared to $1.6 million or six cents per diluted share in the third quarter of last year.
Looking at year to date results.
Net income, including the gain from the sale of AMAK was $31.3 million or $1.24 per diluted share, which compares to net income of $4.7 million or 19 cents per diluted share year to date last year.
Excluding the gain from the sale of a Mac year to date net income from continuing operations was $5.1 million or 20 cents per diluted share and this compares to $5.9 million or 23 cents per diluted share for the same period in 2019.
Gross profit in the third quarter was eight and a half million dollars, resulting in a gross profit margin of approximately 17.7%, which compares to a gross gross profit margin of 15.2% in the second quarter and 15.3% in the third quarter.
2019.
Year to date gross profit was $22.7 million and this represents a 15.1% gross profit margin.
Paired with 32 point $30.2 million or 15.3% gross profit margin in the same period 2090.
Adjusted EBITDA from continuing operations was $7.1 million for the third third quarter 2020, compared with $4.2 million in the second quarter and $6.9 million in the same period last year.
On a year to date basis, adjusted EBITDA from continuing operations was $16.8 million and this compares to $24.6 million in the same period last year.
At a high level in comparing the third quarter results with the second quarter.
The key drivers for the improvement in adjusted EBITDA from continuing operations was higher prime product sales volumes and margins, partially offset by weaker results in the specialty waxes segment.
General and administrative expenses for the third quarter were $5.8 million compared to $6.3 million in the second quarter and $6.4 million in the third quarter last year.
Year to date Gionee expenses.
Were $18.7 million compared to 18, and a half million dollars in the same period last year.
You should note that DNA includes plant level general and administrative expenses as well as corporate expenses.
Interest expense for the third quarter was approximately zero point $5 million compared with 1.2 million in the third quarter of last year.
Year to date interest expense was approximately $2.2 million compared to 4.1 million to the same period last year, the almost $2 million reduction in year to date interest expense is due to debt reduction combined with lower interest rates.
Our effective interest rate for the third quarter.
Stood at 2.16%.
Note that Theres, a 4 million dollar tax benefit on a year to date basis.
This is primarily due to the changes to the tax laws that we discussed previously from.
As a result of the Cures Act.
We expect our fourth quarter effective tax rate to be approximately 21%.
Now, let me walk you through our business segments, starting with specialty petrochemicals.
Adjusted EBITDA for specialty kept petrochemicals in the third quarter was eight and a half million dollars compared to $5 million in the second quarter and $9.4 million in the third quarter 2019.
Adjusted EBITDA margin for the third quarter was 21.6% for the specialty petrochemical segment. This compares to 17.2% third quarter 2019.
Specialty pub petrochemical sales volume in the third quarter was 17.9 million gallons compared to 15.3 million gallons in the second quarter and 20.5 million gallons of third quarter of 2019.
Year to date sales volume was 53 million gallons compared to 64.4 million gallons for the same period in 2019.
Prime product sales volume, which is a key driver of our profitability was 14.7 million gallons in the third quarter compared to 13.1 million gallons in the second quarter and.
And 16.4 million gallons of third quarter of last year.
We saw a recovery in prime products demand in the third quarter compared to second quarter as demand increase in a number of end use markets, including expandable polystyrene.
Polyethylene and beautiful Robert beautiful rubber.
This was driven by packaging and single use customer products.
The customer products as well as restarts of customer plants, who had reduced rates or shut down in the second quarter due to the cobot pandemic.
2020 year to date Prime product sales volumes are down approximately 7.8 million gallons or 15% compared to the same period a year ago.
Prime product volume was down due to lower sales to the polyethylene end use markets as well as lower sales to Canadian oil sands customers.
Sales to other end use markets were also generally weaker compared to the same period last year due to the COVID-19 pandemic.
Gross margin percentage for the specialty petrochemical segment increased from 18.9%.
In the third quarter of last year to 21.7% in the third quarter of 2020, primarily because of improved product margins.
Q3, prime product margins improved significantly from last year due to a 24% decline in natural gasoline feedstock costs.
The business benefited both from margin expansion.
In our non formula.
Our non formula portfolio as well as the effective inventory costing.
Mark natural gasoline feedstock prices increased from 42 cents per gallon in Q2 to 86 cents per gallon in the third quarter.
Octobers average natural gas natural gasoline price was 87 cents per gallon.
The trend in market pricing of natural gasoline is shown on slide eight of our earnings deck that is posted on our website.
Recall that in the second quarter, the sharp decline in feedstock prices had a negative impact of approximately $1 million due to the consumption of higher cost inventory throughout the quarter.
Late in the second quarter and throughout the third quarter feedstock prices increase leading to an approximately $3 million positive inventory costing impact.
Now moving on to buy products byproduct sales volume was 3.1 million gallons in the third quarter compared to 2.3 million gallons in the second quarter and 4.1 million gallons of third quarter of last year.
Byproduct sales volumes declined versus last year, primarily due to lower prime product production.
By product spreads spread improved to 10 cents per gallon from about negative 29 cents per gallon in the second quarter or an improvement of nearly 40 cents per gallon.
Sharp improvement in byproduct spread was driven by higher byproduct prices generally as a result of higher benzene prices. This was partially offset by higher feedstock costs.
Now moving on to specialty waxes.
The specialty waxes segment had adjusted EBITDA of zero point $1 billion in the third quarter compared to 0.0 point $9 million in the second quarter and a negative zero point $2 million in the third quarter of last year.
Specialty waxes generated revenues of approximately $8.5 million in third quarter.
0.2 million increase from the 8.3 million that was recorded in the second quarter and a zero point Threemillion increase from third quarter of last year.
Revenue in the third quarter included about $6 million of wax product sales wax sales volumes increased approximately 5.4% or nearly half a million pounds from the second quarter and about 2% from the third quarter last year, which was impacted by weather.
Feed supply disruptions despite.
Despite the modest increase in sales box demand continues to be depressed due to the impact on our customers from the COVID-19 pandemic.
Processing revenues were $2.5 million in the third quarter, a decrease of 9.8% from the second quarter, but increase of about 5.7% or approximately $100000 from third quarter of last year.
That concludes the financial summary, now I would like to turn the call back over to Pat and then we will open the line up for your questions. Yes, Thanks, and before we take questions. Let me make a few comments on how we see the market looking in the fourth quarter.
At the end of Q3 and into October we've seen international demand for our solvents increased significantly we are seeing recovery on a broad range of markets led by very strong demand from Pi ethylene producers. This volume began shipping late in Q3 and will be reflected in the fourth quarter revenue due to the long delivery times.
We've also seen strong demand in the oil sands, which frankly is a bit surprising the better the Alberta government has removed their monthly oil production limitations effective December one.
We're also aware of some other production limitations related to pipelines in the region being relieved.
Likely tied to these events our demand in oil sands began to increase significantly in September and again due to the long supply chain that revenue will be seen in fourth quarter and into next year. We.
We expect our solvent sales volumes to recover to pre covered levels in Q4 as a result.
It's also important to note that we successfully successfully implemented a 10 to 12 cents per gallon price increase for all non formula solvents effective November.
Feedstock prices relatively flat as we exited the quarter, you'll see that in the chart. This means inventory cost benefits that we saw in the third quarter may not repeat also.
Also byproduct prices didn't rise consistent with a feedstock increases through the quarter. So byproduct spread is lower today than an average in the third quarter.
And other specialty although the specialty wax business was slower to recover domestic demand is now approaching pre covered levels.
This is what we see today, we also need to acknowledge that there remains tremendous uncertainty in the current business environment, we're working diligently toward our goals of growth and driving value for our shareholders. In every aspect of our business. Despite the challenges cobot brings to our business and our customers now we would like to open up the phone to any questions you may have.
As a reminder, ladies and gentlemen to ask a question you will need to press star one on your telephone to withdraw your question press the pound Kane. Please stand by while we compile the Q and a roster.
Our first question comes from the line of Sarkis Sherbetchyan from B. Riley Securities. Your line is now open.
Hey, guys. Thanks for taking my question. This is actually a minor jumpy sorry Keith.
So my first question.
Yes, we could trex key end markets are driving growth within this software and.
Ill just talk through and when do you expect those markets to recover.
Yes. So thanks for the question. So let's I think the trends are very consistent when we talked about last quarter. So polyethylene throughout has been the forefront of the recovery from Cove, It and again thats tied to what we're all reading about which is the consumer nondurables packaging and so forth as all these supply chains.
In particular chains to end users have moved towards at home delivery. So.
So that was first and foremost the driver than late in.
Two q. in early Threeq as we mentioned we saw the return of EPS producers Sami mentioned that earlier and as they ramped up in the third quarter that was a nice resurgence in demand.
On the oil Sands, which is another big of course in use for US is that that was a demand was low in the second quarter is relatively low in the third quarter. It came up a bit but as I just mentioned.
That and a little bit counter to what our expectations were.
Is increasing significantly today, we and as I mentioned, we started shipping that product line.
Late in the third quarter I don't I don't necessarily attribute that to Cove. It per se I think as I said, it's where the government relieving their production curtailments, there, even though frankly, the economics of crude production out of Alberta is still probably pretty atrocious.
On the margin given the fixed costs setting up there.
They are motivated to run higher rates and we are now seeing the benefit of that so thats encouraging.
I think on the.
I guess, probably SSL annual rate.
The exposure that we have to construction principally commercial construction of course that was weak into Q. We saw it recover into Threeq you and continued to recover into Q4 I. Appreciate of course, that's generally a historically it has a seasonal component to it so effectively what we miss this year.
As any kind of a building season over the spring and summer we talk to our customers there.
They they remain fairly optimistic for next year.
Probably not getting above their 2019 level, but they expect to at least get back to their 2019 level demand. So that would be a step up for us as we get into the next year.
Frankly, I think the biggest watch out we have and we see it in these results is.
The dislocations that continue to play a big the refining market and of course with the loss of aviation fuel demand and the imbalances that has driven through refining assets and the in balances on kind of corresponding product values. So we see it we sell into some refineries too.
Help them optimize and maximize some of their processing and that has been turned back significantly and we saw that earlier this year and it continues that's a real watch out for US next year and then you see it in our co product our byproduct values.
Yes, there is a dislocation or the absence of.
Price response for tie you lean and benzene relative to increasing natural gasoline.
As unusual and I think it reflects these.
These continued imbalances so at the very volatile input you see it bounces through our numbers every every quarter, we talk about it the.
The anticipation is that with the return of styrene demand that drives benzene consumption that we should begin to see it improving in fact benzene prices did go up markedly in November so the directionality of it.
Is encouraging, but we're still well below your kind of typical relationships to natural gas natural gasoline no cost and therefore, our byproduct spreads are depressed right now. So that's again something we will be watching as the year on as the rest of the year unfolds and we get into next year.
Understood.
My next question what gives you confidence that the prime product sales volume will rebalance not recovered level.
And would you say the volumes are sustainable and can you go from that base.
Sure of course, when one bit of confidence is it's November and we've got an order book is pretty populated that's going we know is going to keep us busy through into November so that that's really where the confidence comes from these long lead shipments as I mentioned into either our international markets think of the middle East and Southeast Asia, which.
Our.
Markets that we consistently sell into and the return of that demand we've been loading that volume since September and that will be part of fourth quarter results and then again, we started loading railcars for sales into Alberta. They also in October and this month as well so that that's where the confidence.
Comes from the watch out of course is that that's a month and a half for two months and you still have December out there. So we're watching it but.
And what we see today that part's encouraging.
Understood, Okay, and what would you say is driving the improved demand for specialty wax.
You have a stable feed supplies and services growing demand.
Yes, so we need to be clear on the on the wax sizes. We typically talk about we we will sell the wax that we produce and.
And so it's more about where the wax ends up so when we talk about our wax demand really what we're talking about as are our domestic customers, which bring us greater value and what we've seen through as we entered cobot.
Those in those customers they use our product for the production of furniture for instance on some durable good type applications and that came off hard like like all the durables did and that recovery. We are seeing today. So we're able for our volumes to stay more domestic and we expect better value for it so.
It's really is it's consistent with the kind of the general trends that we see a recovery of durable demand and our access to it.
Thank you.
Question for me in the earnings release, you specifically called out expectations is nothing significant growth next year and thereafter.
Yes, I understand the level of sales and EBIT contribution are you expecting from the projects you out that outlined in the call.
Yes sure so.
I'm pleased with how our development of our growth portfolio has.
Continued to mature throughout the year when we first introduced what we were doing at the beginning of the year and we've consistently tried to provide kind of the progression there.
The projects and the number of projects to give you some visibility into it and you can see that on slide 10 of our deck. So not only have our total count to projects continued to grow. This year, you can see them advancing towards that execution and in fact, we've been very busy.
In the second half of this year and will be busy through the remainder of this year running commercial trials in support of new custom processing business that the consumer.
I can start as soon as early next year and then we'd expect to continue to land.
Throughout the year, so without getting into specifics because a lot of this is custom processing. So it's highly confidential with our.
Our customers, but you should you should understand these are generally specialty chemical companies that are bringing us opportunities to upgrade certain streams that they have and it specifically again, we're we're.
Equally interesting to them because of the capabilities and assets that we have installed and available to the market. So you think about the hydrogenation unit at TC and the distillation column that was installed that has some unique capabilities available to the market and even at South Hampton, where you may recall.
But at the time that I started we talked about.
The loss of a custom processing.
Contract there that was valuable to us that went away at the end of 18, So thats an asset that is available to the market and we are actively engaged in a few conversations about bringing that unit back to service as well. So that that's really why we have confidence that we will continue to see the growth that we're talking about so I outlined.
We've added about $4 million this year on an incremental basis and next year, we've talked about $6 million.
There is really predicated on those drivers of growth and then we have we have cost savings that are kind of structural that we talked earlier about right weve outsourced our logistics.
We.
We renewed a supply contract on natural gasoline all of those will have.
Further cost saving benefits to us.
2021 over the benefits that we got this year.
Got it thank you I'll pass it on thanks.
Thank you.
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, Paul.
The.
Additionally, wax business was paying assignments falling.
Has never really.
I think the way.
You were saying you hope to enforce gone now.
Would you be any possibility or any thought to giving.
The sale of that business and possibly using the loss there and versus the gain any math that offset.
Hey, Tom Thanks for the question, Yes, I think we've been talking pretty plainly over the last year. So on the challenges that we have generally at Tc and.
Our efforts to improve it it's it's.
It's foundational what I mean by that is we needed to improve the reliability and consistency of the asset in order for it to be able to.
Improve its profitability and grow.
We actually have quite a few of the growth projects that were talking about that are based at TC. So the potential is there any.
And of course, we are absolutely focused today on driving our overall earnings growth now with that said listen.
If that asset has more value in someone else's portfolio, where.
We are always open to that conversation.
But we have a certain belief about what we can but we can get out of it now that we think we've we've gotten the foundation of improved operations.
So thats always the measuring stick that we'll use to consider different on different options.
Okay. Thanks, good luck.
Thank you.
Thank you as a reminder, ladies and gentlemen to ask a question you will need to press star one on your telephone.
John Your question press the pound team.
Our next question comes from the line of Bill Dezellem from Tieton Capital. Your line is now open.
Thank you for clarification the.
4 million of EBITDA. This year and 6 million next year is that $6 million of incremental therefore that would be 10 or is that $2 million of incremental on top of the four to reach the six.
It's incremental to the four so thats 10.
Great. Thank you and then.
Last quarter, you made the comment that you started to see customers reengaging in projects that could lead to new business now.
The answer to this question May lie in page 10, and seen the execution phase of the final has jumped to four to 11.
But would you talk to kind of it.
A continuation of that.
That that line of thought process and what you saw in Q2, Yes, Q2, and then how is that trended into Q3.
Sure. So so my comments earlier.
I made some things such as commercial trials that we've executed we have two more commercial trials that are scheduled we expect to get those completed by the end of this year. Some of those commercial trials are also in the process of we're in the process of negotiating the contract side of it for providing that service to these customers.
So it is exactly what you said, it's a continuation of the engagement that started earlier this year.
Some of them have progressed through successful commercial trials and now contract negotiations others, we have visibility to.
I hope we get again, the commercial trial piece getting completed the end of this year and then getting into contract negotiations thereafter. So I don't think all this stuff never happens January one and we don't we're off and running but I. What I would expect is we'll begin to see successful completion of a certain proportion of our projects and then that will be done.
Driving the work at both TC at South Hampton Inn in the revenues associated with it.
Hey, Pat are you sensing that the.
Hesitancy I'll just call it the cove it hesitancy that youd experienced earlier in the year that that has large.
Largely dissipated now and your customers are moving forward with with these projects and and evaluations et cetera, or how would you gauge that level of hesitancy.
Today versus the.
The last time, you had like the Q2 call sure Yeah, I guess the short answer is not really I mean, I think we're all still dealing with.
The anxiety of what this pandemic is going to mean to US now, we certainly feel better about the fact that the rig.
Reality is the economy's running there is demand out there people are consuming things and so that's that's helping business, but what I'd say, if I look across the projects we have in our portfolio.
The ones I think they are active now I would say our.
In a simple way to characterize it or kind of structural opportunities that I think our customers have and have had and.
There's less sensitivity to them on what kobin might mean to them in the near term these are up.
We have these unique assets.
If applied properly theres value creation for us and for our customer and those are moving forward. There are other projects that we've been in conversation with in the past. This year end last that I would say, we're more influenced by some of these cobot dynamics and.
And those have stopped or I'd say paused because people are kind of pulling back a little bit on things that needed.
Kind of more more optimism on growth, particularly on in USIS had been impacted by code.
Great. Thanks, Pat and Sammy So that you don't feel left out here.
Didnt pay down all the debt with the final Hey, Mac proceeds what's your go forward thinking no.
With the large cash balance.
Yes, I mean.
I think we've.
We we've said for quite a bit of time bill that we feel like from a capital structure standpoint, one and a half to two times is the right place to be on a leverage basis. So.
We.
That was the 30 $31 million of debt reduction.
Beyond that in terms of use of the remaining cash that's really a board decision.
And you know.
Thats all that I can say at this point.
Yeah, I mean, obviously its something thats on our mind is on the mine overboard right.
With everything going on externally.
We're just continuing to weigh the various options and kind of keep that active dialogue with our board.
Thank you both for the time.
Thanks Bill welcome.
Thank you. Our next question comes from the line of Mitchell sacks from Glen Slam asset. Your line is now open.
Hey, guys.
Hey, first question. Thanks first question had to do with the price increase on the spot market can you remind us.
What percentage of your volume again is done to spot.
It's about 30%.
I talked about 10 to 12 cents per gallon.
Being effective in November really pleased with that.
If you if you look at that chart on natural gasoline spread costs rather.
Yeah, we talked all do earlier in the year with a fall off in natural gasoline of course spot March the volumes excuse me the margin on the what we call spot volumes of course had improved but that really started to come in as we went through the third quarter and you see the bounce back and costs. So that was a good environment frankly for us.
Engage the market on capturing price increase and we did that.
And with respect to byproduct.
Margins.
[music].
Again as as the economy recovers and demand recovers for your for.
For your prime products.
I would assume that.
Over time, you would expect the byproduct margins to structure.
Start to come back to more normalized historical levels that fair assumption I mean.
It's an assumption, yes, let's not as I said earlier, it's a.
It's a concern right now if you look at.
We all know that we're we're leveraged to the benzene price entitling price the aromatics and they have not quite of a re calibrated to this.
Environment that we're in with refining under so much pressure.
I think a big driver for us will be better recovery of styrene demand because that consumes a lot of benzene in the US we are seeing that recover and we are seeing Vincent price go up now in November but.
But we've got a little ways to go before we get back to kind of the ratios and relationships that we had in 2019, but it should I mean it it into the day been seeing is traded globally basically.
Asia has long been seen us in Europe for short and.
The arbs between the regions and the demand drivers balance benzene.
And those mechanisms are still in place so it should get back to normalcy, but it's it continues to be a watch out for us.
And then when they go back to your slide 10 with respect to the funnel.
You've got the idea is the definition the execution.
Just.
We through if you could you know the how that funnel shifts. So you had 25 projects Q1, 26, Q2, 33 Q3, yes.
If I think about that.
Move up in the number I would assume that some projects that are getting killed as that happens and other ones are are fitting in the fall just kind of walk me through if you could.
The flow of those ones that are sort of falling out versus coming in and also if you could.
What helps push it or what's pushing it through.
Through the different stages or how are you defining the different stages sure. So.
So listen we had this is a kind of a classic project management, our new business development kind of process and what did what it's intended to do is here you have an idea great sketch it out I think you can make money but.
But a little definition to it and they start moving forward and then as you move they move forward usually it requires more resources to deliver it and you're getting more certainty on the value. So as you as you spend those resources, sometimes the business case fails right start either you gauge of the customer and you start having.
And pricing discussions and there's just nothing there that can be moved forward. So that comes out right you kill it.
If things look good the new continue advance it and you may have more levels of commitment on our part or the customers parts. That's kind of that's the progression and the value of it is that keeps you from wasting resources late.
Later on when I did really never had legacy try not to step out early.
And as you bring more maybe if there is some capital involved in the capital estimate comes into high.
Kills your business case, I mean, that's kind of generic kind of how it how it progresses. So so you're right in these in these numbers these are snapshots and time.
And these these numbers within.
The stages and the progression I mean, they are moving around all the time as we go through individual project reviews, the ones that are advancing.
We follow that process so.
Some examples.
Talking about these commercial trials right. So we had these conversations they take a long time lot of the stuff. It started early this year on an idea.
We'll go through some maybe some lab qualification to our pilot plants to validate the technology.
Looks good we have we'll have a price quote and that looks good and then we move toward commercial trial and if that looks good then you can I really sit down and negotiate a deal and that's how the ones that we have some visibility to have progressed. So not that there are certain right. We're still negotiating and we still have some uncertainty on the trials, but thats why.
It gives us some confidence that we'll be able to drive this thing next year.
Okay.
Thats My question. Thanks.
Thank you. Our next question comes from the line of Kurt Caramanidis from Carl M. Henning. Your line is now open.
Hi, guys. Thanks for taking the call.
It sounds like you've got a lot of positive things on the go forward next year in the projects Weve been working on Theres, obviously always a few challenges.
But I think the stock was around 950, when you announced the sale of AMAK and based on kind of what you're saying.
It appears that we are significantly undervalued.
As far as return to cap return.
Turning to shareholders, what kind of timeline I know you said, it's a board decision.
Are they actively talking about that what were looking at in the process.
Yes, it's I think both the management team and our engagement with the board.
Yeah, we're very active it gets there and going through what choices, we should make on allocation of capital right.
In return of capital to shareholders is certainly one of those options and I would say, we're actively engaged broadly with the board on those those topics.
So is there any timeline or it's just we're actively engaged.
I hate to put a timeline idling because if you just think about how dynamic things things are around us right now.
The visibility that we have forward is very poor.
And thats whats going and with what's going on around us and quote unquote. The second wave on pandemic impacts I think where we're very very careful about monitoring what that could mean to us.
And considering those things.
Okay. It sounds like you've got a lot of good things going I just.
First is certainly reflecting that but you have a good day. Thank.
Thank you.
Thank you at this time I am showing no further questions I would like to turn the call back over to Pat Quarles for closing remarks.
Thank you. Thank you all for your questions and interest in Tricor and participating on call. Today. We appreciate your support and look forward to reporting next quarter on our year end results and the progress on our growth plans final.
Finally, as always I want to close by thanking our people I'm proud of how they have taken on these unprecedented challenges and want to thank each and every one of them for their hard work and commitment.
Thank you again for your participation today.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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