Q2 2021 Trecora Resources Earnings Call
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Good day, and thank you for standing by welcome to the tree core resources second quarter 2021 resources conference call. At this time all participants are in a listen only mode. After the.
Speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand your conference over 4 your speaker today, Mr. Fred <unk> of the equity group. Please go ahead.
Thank you Anita and good morning, everyone and welcome to the 2 core resources second quarter 2021 earnings Conference call.
The equity group are very excited to be working with to Korea, and their investor relations firm.
Our contact information was listed at the bottom of the earnings release distributed over the wire services. After the close of the financial markets yesterday afternoon.
Presenting on our call today will be Pat Quarles, President and Chief Executive Officer.
And Sami Ahmad Chief Financial Officer.
Chris Christopher Groves, our corporate controller and will also be available for the question and answer session, which follows management's prepared remarks.
Before we get started I would like to review the Safe Harbor statement.
Statements in this presentation that are not historical facts are forward looking statements as defined and the private Securities Litigation Reform Act of 1995.
Forward looking statements are based on management's beliefs and expectations only as of the day of this teleconference August 2021.
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 intra quarters filings with the SEC, including the company's most recent annual report on form 10-K, and subsequent quarterly reports on form 10-Q.
During today's call management will also discuss certain non-GAAP financial measures for comparison purposes only.
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 the financial markets yesterday afternoon.
This webcast is accompanied by a slide presentation that is available from the investors section of the company's website www Dot <unk> dot com.
At this time I'd like to turn the call over to <unk>, President and CEO Pat Quarles.
Thank you Fred and good morning, everyone. As always we appreciate your interest central Cora and are happy that you can join our call. This morning.
We are pleased with our second quarter results. After continued economic challenges over the last 5 quarters, including both the COVID-19 pandemic and extreme weather event of the Texas freeze and the second quarter illustrates the earnings potential of our businesses.
With these external headwinds easing and the benefits of the transformative actions, we've taken and investments we've made with respect to safety reliability and operational processes, coupled with our productivity measures have yielded positive results as evidenced by our performance during the quarter.
Second quarter EBITDA of $8.1 million was over and $8 million improvement from the first quarter and nearly double the second quarter of last year.
Demand improved for all products for solvency. The increase was led by the polyethylene synthetic rubber and blowing agent and he uses domestic.
Domestic domestic polyethylene wax demand grew in the quarter, allowing us to shift our sales back toward our higher margin U S customers with strong net strong and the demand environment also supported our pricing initiatives solve and margins for a market based customers expanded despite the rise and natural gasoline costs.
Our formula based prices rose with feedstocks.
Our average polyethylene wax selling price increased <unk> <unk> per pound versus the first quarter.
We also benefit benefited from very strong and byproduct values during the quarter, we had record byproduct margins and both May and June driven by very high benzene pricing.
Like many we were challenged in the quarter by supply chain disruptions. These.
And these impacts range from third party truck availability and freight costs customers running at reduced rates due to the lack of availability of other non core of feedstocks and reduced demand and automotive and uses do the chip shortages.
We estimate this resulted in about a negative $1 million impact to our second quarter.
We advanced our organic growth program and a quarter.
At the end of the second quarter, we had 11 projects focused on delivering new products entering new markets 11 projects focused on driving asset utilization, which did not require any significant capital investment and 6 projects focused on improving productivity and reducing costs.
Of the asset utilization projects, we converted 2 of our successful commercial trials to new custom processing business beginning in Q2. These.
These projects have allowed us to significantly low the distillation column at Tc.
Our productivity as we mentioned last quarter and April we executed a significant cost reduction project at Tc.
Our focus on T 6 asset utilization and improving the business's cost structure significantly benefited the site's financial performance and so.
South Hampton, we executed and cost saving project to outsource our products handling activities, which will begin to contribute to earnings and the third quarter.
Since we started our growth program, we have a total of 9 projects that are commercial with a further 4 they are and the commercial trial phase.
We also advanced our commitment to drive stockholder value by executing on our share repurchase program through mid year, we've repurchased a total of $5 million of shares totaling 633000 and.
And there are $20 million share repurchase authorization.
Now, let me turn it over to Sami to discuss our quarterly results and more detail.
Thanks, Pat and good morning to everyone.
I'll start my comments with a discussion of our debt liquidity and cash flow.
And then I will discuss our second quarter performance and more detail.
Total bank debt at June 30, excluding PPP loans stood at $44 million.
Our second quarter leverage ratio under our bank covenants was 134 times compared to $1.6 2 times at March 31.
We remained below our previously articulated target leverage of 1.5 to 2 times.
We have availability on the revolver of approximately $72 million as of June 30 cash.
Cash and the balance sheet as of June 30 was approximately $39 million down sequentially from $53 million as of March 31.
The decrease in cash was primarily driven by an increase in working capital and the second quarter.
And just as working capital was a source of cash and the second quarter of last year with the sharp decline and business activity and this.
Second quarter of 2021 with the increase in sales volume and prices, we saw a significant increase and trade receivables and payables.
Together these 2 items consumed approximately $12 million and cash.
We also increased inventory at south Hampton, partly in preparation for planned maintenance turnaround and the first quarter of 2022 <unk>.
Resulting in an approximately $4 million additional use of cash.
And finally share repurchases and the second quarter accounted for approximately $4.3 million from cash.
As we mentioned and the first quarter earnings call on April 1 we received our final tax refund under the cares Act tax law changes.
Of $2.4 million.
In addition to cash and the balance sheet, our revolver remains undrawn as of the end of the second quarter.
We remain well positioned from a liquidity and balance sheet standpoint, with more than adequate flexibility to fund our operations and advance our growth initiatives.
Operating cash flow from continuing operations for the second quarter was a negative $4.3 million.
Capex for the second quarter.
And were $3.9 million for.
For the first 6 months of 2021 operating cash flow from continuing operations was negative <unk> 5 million and Capex was $8.7 million.
We're evaluating our full year capital expenditure estimate of $13 million to $14 million.
For the full year 2021.
This may increase slightly due to additional capital related to repairs. Following the February freeze event.
2021, Capex spending is primarily driven by continued feedstock pipeline replacement work as well as higher and higher level of plant maintenance and turnaround spending.
Free cash flow for the second quarter defined as cash flow from operations less capex and less required debt amortization was approximately a negative $9.3 million.
For the first 6 months of 2020 free cash flow was negative $11.4 million.
We have now applied for full forgiveness of our PPP loans totaling approximately $6.1 million.
Although we don't know when we will reach received determination on forgiveness. We believe we qualify for full forgiveness and based on the SBA criteria.
As you will note on the 630 balance sheet.
PPP loans are now shown as current liabilities, reflecting their maturity in may of 2022.
Now, let's take a closer look at our second quarter performance.
We reported net income from continuing operations of $2.3 million or non.
<unk> per diluted share. This compares to a loss from continuing operations in Q1, a $4.4 million or <unk> 18 per.
Per diluted share and a net loss from continuing operations of $1.9 million or <unk> <unk> per diluted share in Q2.2020.
Adjusted EBITDA from continuing operations was $8.1 million for the second quarter compared with adjusted EBITDA from continuing operations of a negative <unk> 5 million and Q1, 2021, and $4.2 million and the second quarter of 2020.
Second quarter.
Results benefited from a $1.4 million settlement with a totally provider related to the February freeze event.
This benefit reduced our estimated impact of the freeze event from $4.5 million to $5 million as stated as previously stated to approximately $3.5 million.
General and administrative expenses for the second quarter were $7.7 million compared to $6.3 million and Q2 of 2020.
G&A includes plant level general administrative expenses as well as corporate expenses.
The increase is due to higher consulting insurance and compensation costs.
For the first 6 months of 2021, and G&A was 15 million compared to $13 million last year.
And increase largely reflects higher consulting insurance and compensation costs.
Interest expense for the second quarter was approximately $300000 compared with $700000 and the second quarter of last year.
The reduction in interest expense due to debt reduction combined with lower interest rates bank debt has been reduced from $78.2 million at the end of Q2 $2000.20 million to $44 million at the end of Q2.2021.
Our effective interest rate for the second quarter dropped to 187% from 252% in Q2 of 2020.
Income tax expense for the quarter was <unk> 7 million, reflecting an effective tax rate of approximately 23, 8% our expectation for the full year 2021 is an effective tax rate of 21%.
Now, let me walk you through our business segments, starting with specialty petrochemicals.
Adjusted EBITDA for specialty petrochemicals and the second quarter was $9.7 million compared to $2.6 million and Q1, 2021, and 5 million and Q2.2020.
Adjusted EBITDA margin for the second quarter was 16, 4% for the specialty petrochemicals segment compared to 5.6% and.
In Q1, 2021, and 15, 4% and Q2.2020.
The improving.
Economic environment increased both our top and bottom line and the second.
Second quarter results.
The specialty petrochemicals segment.
And if benefited from the $1.4 million utilities mentioned utility settlement that I mentioned earlier.
Additionally, the segment also benefited from a positive inventory costing impact due to the inventory build in the quarter as well as the increase and feedstock pricing during the course of the quarter.
Specialty specialty.
Specialty petrochemicals total sales volume in Q2, 2021 was 20 million gallons compared to $17.2 million gallons and Q1 and $15.3 million gallons and Q2 of 2020.
Prime product sales volumes and the second quarter was $16.9 million gallons and increase of approximately $3.8 million gallons or 28, 8% from Q2 of 2020.
This increase is largely due to the strong demand, we're seeing for our specialty petrochemicals products.
Moving onto specialty petrochemicals feedstock.
Benchmark natural gasoline feedstock prices and followed a trend of continued increases since bottoming out and the second quarter of 2020 at 42 per gallon.
<unk> increased to $1 per gallon and by the end of last year and reached $1.43 per gallon and by the end of Q1.2021 at.
At the end of June NAV.
Gasoline was priced at $1.54 per gallon and it continued to increase in July. The July average is approximately $1.60 per gallon.
The upward trend and market pricing of natural gasoline is illustrated on slide 7 of the second quarter earnings deck that is posted on our website.
As you can see and this slide feedstock pricing has rebounded back to levels higher than in 2019 and 2020.
Now moving on to byproducts.
Byproduct sales volumes improved to $3.1 million gallons and the second quarter from $2.5 million gallons and Q1.2021 as prime product sales volumes also increased.
As a reminder.
Byproducts are produced as a result of prime product production and their margins are significantly lower than margins for prime products.
Byproduct spread improved to 62 per gallon and the second quarter from 30 per gallon in Q1, and negative 29 cents per gallon and second quarter of 2020.
The upward churn and byproduct spread was driven by higher byproduct prices.
As a result of sharply higher prices for the aromatic components, specifically benzene and toluene.
As the main component in our byproduct stream.
Moving on to specialty waxes segment.
Especially waxes segment had adjusted EBITDA of $1.3 million and Q2 compared to a negative <unk> 5 million and Q1 and zero point $9 million and the second quarter of last year.
Especially waxes segment generated revenues of approximately $9.6 million and the second quarter compared to $8.7 million and the first quarter and $8.3 million and second quarter 2020.
Revenue in second quarter included $6.9 million of wax product sales and increase of 26, 1% compared to Q2 of 2020.
We continue to experience strong demand for our wax products, especially in our high value Hot melt adhesives and markets.
We also continue to be sold out and waxes and as Pat mentioned, we implemented further price increases during the second quarter.
Processing fees, which were approximately $2.7 million and the second quarter decreased 5.2% and second quarter of 2020 day.
The modest decline was due to customer supply chain disruptions combined with residual impacts from the Texas freeze event, which caused the ramp up on new custom processing projects to take longer than expected.
This concludes the financial summary, and I will now turn the call back over to Pat.
Thanks Amy.
I'll wrap up our prepared remarks by emphasizing how excited we are about 2 quarters growth opportunities. We expect the strong demand for our products that we saw and our second quarter to persist through the second half of the year given the favorable outlook for our key end use markets. Additionally, with respect to our growth portfolio, we expect to see further.
And from another a number of the projects we are executing as we move through the remainder of the year.
We expect to polyethylene wax business to improve and the third quarter on both price and volume, which will mostly offset the utility credit we received at South Hampton and this past quarter and the expected decline and byproduct spreads.
As always we remain committed to our goal of creating long term value for our stockholders.
While we advance our organic growth projects, we continue to explore all capital allocation options, including inorganic opportunities, where we believe we can achieve higher earnings and cash flows.
Now I'd like to turn the call back to the operator and open up the phone line to questions.
As a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question Youll need to price the Pal Keith Please standby, while we compile the Q&A roster.
Okay.
And your first question comes from the line of Mitchell.
With Grand Slam assessment.
Hey, guys really nice quarter.
So my first question has to do with.
And the freeze and how it affected volumes in.
In Q2 from both.
Polyester, while Youre your pentane hexane and then also if you could sort of give us a ballpark and how it affected.
Your.
Custom processing businesses in terms of revenues or however, you want to frame it.
Sure so and the aggregate.
You heard me say, we think about $1 million across the entire company of negative impacts of a variety of things and you can point to Covid and you can point to ship chip shortages or the freeze event. They all kind of came together for.
As we've all been hearing supply chain challenges across the whole industry and in our case.
On the solvency side as a business and we once we return to operations. We didn't have any supply issues, we have the pipeline connection over to Mont Belvieu.
And.
Our operations were solid supply with no problem. So the challenges. They're only then became downstream of us and and it was comprised of a few things early in the quarter.
The trucking market as we've all been hearing was it was a nightmare.
Now we have the benefit of our AV and owned fleet for a significant portion of our solve and demand that we deliver through trucks.
And that certainly I think the advantage to us.
But for a third party trucks, we certainly had impacts and.
And it impacts to customers. Unfortunately, we were pretty quick and taking action we added.
Additional third party trucking firms to bolster our supply of.
Both driver availability of trucks and then we've also started and begun the expansion of our own fleet that will just increase our capabilities there and that's that both addresses the current situation and anticipates the structural growth that we're expecting and our business, so solvents and had their impacts.
On custom processing is a combination of a few things on the at the very beginning in the quarter.
And our focus as we were as we recovered from the freeze was getting our wax production up so as we kind of move through the plant.
Prioritize getting whacked supply up and then and then moved over to custom processing, so that had a little bit of a lag into Q3, but and frankly, then we started running into.
Supply chain issues of our customers.
And there is.
Issues with getting raw materials into to conduct the custom processing on their behalf.
And in some instances.
And their demand and the market impacted as well so and it was.
Scattered throughout no no single significant thing, but lots and lots of things that business during the quarter.
But generally custom processing by the end of the quarter, we are up and running.
And operations are okay demand is still there and.
And.
We just need to wrestle down the supply chain challenges.
And then with respect to cost of processing, the distillation and hydrogen hydrogenation units you have it at.
At T C with these new commercial.
Commercial customers that are coming in.
And getting closer to full utilization or do you still have a long way to go.
Well as we significantly loaded up the distillation part of that unit and this.
With the new projects that we talked about during the second quarter, so that helped us.
Hydrogenation we.
You may recall, we had a very large project.
Kicked off and the first quarter of 2020.
That really did load up the hydrogenation unit that went away largely due to COVID-19.
And that is still a potential out there for us and we have actually a few projects that are targeting and the hydrogenation unit, but it didn't run and <unk>. So those projects are still to be delivered.
Okay and.
And then with respect to the wax and I know you've talked in the past about getting some.
Additional feed stock and sources to increase volume and how is that going.
Yes, it's moving forward and I would say.
Without getting into too many details 1 of our commercial projects that we're doing and <unk> relates to.
Additional sources of feed and then we have we also have other growth projects that are longer cycle time.
That would bolster our product offering and and supply for polyethylene waxes.
Okay. So that's.
2020, just to be clear that that stuff is not 2021, and that's gonna have to come later.
Okay.
And then in terms of G&A.
Expenses, the consulting and insurance if you can just talk about both of those things that is the consulting and expected to reoccur and as the insurance kind of a new normal.
So I'll start with insurance, because we have absolutely incurred higher insurance rates as we went through our renewal last year will go we've gone through another renewal. So interest. Unfortunately, the nature of the market. Today is those costs are increasing for us I don't think they're increasing differentially for us.
Got that.
That is rolling and unfortunately, that's going to be structural and.
And the consulting projects I would say, we use consultants from time to time for a variety of things from improvements or external projects and so it's hard to predict where they're going to go but I would expect them to go up and down just depending on what we're looking at any particular time.
Okay cool I'll get back into queue. Thanks.
Thanks, so much.
Your next question comes from the line of Matt Dane with Titan capital market.
Okay.
Thank you I was curious if your price increases that you've discussed had been implemented at the beginning of the quarter and were in place for the whole quarter, what would that impact have been.
On a revenue or earnings basis.
Okay, and I haven't done that math in my head, but.
I think on the wax side most of those increases really started in may.
And ended June so, we're probably only about halfway through the contribution of the higher wax.
As reflected in <unk> for us. So that's why I said, we're going to expect further benefit as we roll into <unk>.
On the on the solvent side and listen we announced and May price increase for our market based pricing.
And we didn't have as much success on that increase certainly as we would like and.
The competitive dynamics were just such that it was a real challenge so theres a little bit of increased kind of ASP.
For the.
Negotiated contract or the market based contract customers and solvents for <unk> for <unk> excuse me.
But I wouldn't suggest it's going to be a very significant increase.
Okay.
That's helpful. I appreciate it.
And again, if you would like to ask a question. Please press star 1 on your telephone.
And your next question comes from the line of Tim call with capital management.
Congratulations on a good quarter.
And your tender share count went up during the quarter it was that because of.
And stock options and the strike prices.
And should we expect share count to fall and the <unk>.
<unk> ahead.
Well, yeah I mean.
Compensation expense has an impact on share on share count.
Particularly when you look at the diluted the diluted number.
And remember that earnings last year diluted versus.
And the other thing is last year, we had a loss.
So net.
Net income was lost so on diluted share count the share the share count didn't get rolled in this year. It was a profit and so that increased the share count.
Okay. Thank you and.
With pricing.
Pricing of products.
Have there been any rollbacks and pricing or is pricing only been in 1 direction.
It's only been in 1 direction.
We just wanted to be more in that direction.
Thank you congratulations again on such improvement.
Yeah.
Okay.
Maybe.
Is the mic still open and I just wanted to and.
And maybe 1 comment on that last question yeah. So.
I guess there is an exception on our byproducts because again were tied to the aromatics and while we don't drive the pricing its index related but just to be clear the byproduct reference prices benzene has come down from the second quarter.
This 1 might that clarification.
Yeah.
And your next question comes from the line of Tom Aaron Berg with Carl M and neat.
And can you give us an update on the share repurchase for the month of July I noticed there was a substantial volume on a number of days.
Yes.
Actually we will report consistent with our quarterly reporting rather than giving kind of the I know, it's not a forward looking comment but.
Nothing to report for July So, we'll just from the end of every quarter and we'll report what we've done.
And what are the reasons I'm a little sensitive to it is because the nature of our share repurchase program as we have we have to launch a program.
Under certain criteria and then let that run.
So I just can't comment really on anything that may be impacting the current quarter.
Okay.
And then can you give me.
Yeah, Sami, we'll be filing our Q, okay. So youll see the details and.
And that for the second quarter for the second quarter rate, Yeah, I admit for July, though all that with the increase in and are in trading activity. It appeared.
Can you give us an update on our and status.
Status of P O Chile Valley.
No change in status.
We have a sales contract on the property and they have a certain amount of time to meet our milestones.
Milestones and that agreement. So there is still some time left I think there it's coming up in September I believe is the next test for them delivering some cash against it.
Okay. So by the end of Q3, we should.
No, whether that's been consummated or not and that's what we would expect yes, and as you know and unfortunately, it's a day minute a de minimis amount of value, but right. It would be good to get it cleaned up.
Okay.
Okay.
Excuse me, thank you and Tom Thank you.
If you'd like to ask a question. Please press star 1 on your telephone keypad.
Yeah.
And I think we see more questions operator, maybe we'll just wrap up.
I would now like to turn the call back over to you.
Mr. Patrick borrows.
And.
Listen I want to thank our.
You all for your questions and interest and Cora I always like to conclude my remarks by acknowledging my appreciation for our employees and recognition of their success and the second quarter, we pivoted from an organization focused on safely safely repairing our facilities, while continuing to deal with the realities of the pandemic to facing a risk.
Surgeons and demand that was quite frankly, a step change from levels before the freeze and they did and they did it they safely completed our repairs and reliably operate our facilities reconfigured supply chains to meet the surging demand drove product pricing to capture the value, we provide our customers and advance our growth plans.
All while continuing to battle. This resurgent virus I want to thank everyone for their contribution to those successes.
And thank you again to all of you for your participation.
Thank you.
And this concludes today's conference call you may now disconnect.
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Good day, and thank you for standing by welcome to the tree core resources second quarter, 2020 point results conference call. At this time, all participants are in a listen only mode. After the.
Because the presentation there will be a question and answer session to ask a question. During this session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand Your conference all before your speaker today, Mr. Free on a core of the equity group. Please go ahead.
Thank you Linda and good morning, everyone.
Welcome to the 2 core resources second quarter 2021 earnings conference call.
We have the equity group are very excited to be working with to quota as their investor relations firm.
Our contact information was listed at the bottom and the earnings release distributed over the life services.
And the financial markets yesterday afternoon.
Presenting on our call today.
Pat Quarles, President and Chief Executive Officer and.
Sami Ahmad Chief Financial Officer.
Chris Christopher Groves, our corporate controller and will also be available for the question and answer session, which follows management's prepared remarks.
Before we get started and would like to review the Safe Harbor statement.
Statements in this presentation and are not historical facts are forward looking statements as defined and the private Securities Litigation Reform Act.
Forward looking statements are based on management's beliefs and expectations only as of the day is this teleconference August 2021.
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 each of quarters filings with the SEC, including the company's most recent annual report on form 10-K, and subsequent quarterly reports from form 10-Q.
During today's call management will also discuss certain non-GAAP financial measures.
Parison purposes, only and.
Per 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 the financial markets yesterday afternoon.
This webcast is accompanied by a slide presentation that is available from the investors section of the company's website Www Dot Chick Corea Dot com.
At this time I'd like to turn the call over to <unk>, President and CEO Pat Quarles.
Thank you Fred and good morning, everyone. As always we appreciate your interest central Cora and are happy that you can join our call. This morning.
We are pleased with our second quarter results. After continued economic challenges over the last 5 quarters, including both the COVID-19 pandemic and extreme weather events of the Texas freeze the second quarter illustrates the earnings potential of our businesses.
With these external headwinds easing and the benefits of the transformative actions, we've taken and investments we've made with respect to safety reliability and operational processes, coupled with our productivity measures have yielded positive results as evidenced by our performance during the quarter.
Our second quarter EBITDA of $8.1 million for silver and $8 million improvement from the first quarter and nearly double the second quarter of last year.
Demand improved for all products for solvents. The increase was led by the polyethylene and synthetic rubber and blowing agent and users.
Domestic domestic polyethylene wax demand grew in the quarter, allowing us to shift our sales back toward our higher margin U S customers and strong net strong and demand environment also supported our pricing initiatives solve and margins for a market based customers expanded despite the rise and natural gasoline costs.
Our formula based prices rose with feedstocks.
Our average polyethylene wax selling price increased <unk> <unk> per pound versus the first quarter.
We also benefit benefited from very strong and byproduct values during the quarter, we had record byproduct margins and both May and June driven by very high benzene pricing.
Like many we were challenged in the quarter by supply chain disruptions. These.
And these impacts range from third party truck availability and freight costs customers running at reduced rates due to the lack of availability of other non core of feedstocks and reduced demand and automotive and users due to the chip shortages. We estimate this resulted in about a negative $1 million impact to our second.
Quarter.
We advance our organic growth program and a quarter.
At the end of the second quarter, we had 11 projects focused on delivering new products are entering new markets 11 projects focused on driving asset utilization, which do not require any significant capital investment and 6 projects focused on improving productivity and reducing costs.
Of the asset utilization projects and we converted 2 of our successful commercial trials to new custom processing business beginning in Q2. These.
These projects have allowed us to significantly low the distillation column at Tc.
And our productivity as we mentioned last quarter and April we executed a significant cost reduction project at Tc.
Our focus on Tcs asset utilization and improving the business's cost structure significantly benefited the sides financial performance and sell.
And Hampton, we executed and cost saving project to outsource our products handling activities, which will begin to contribute to earnings and the third quarter.
Since we started our growth program, we have a total of 9 projects that our commercial with a further 4 they are and the commercial trial phase.
We also advanced our commitment to drive stockholder value by executing on our share repurchase program through mid year, we've repurchased a total of $5 million of shares totaling 633000 and.
And there are $20 million share repurchase authorization.
Now, let me turn it over to Sami to discuss our quarterly results and more detail.
Thanks, Pat and good morning to everyone.
I'll start my comments with a discussion of our debt liquidity and cash flow and then I'll discuss our second quarter performance and more detail.
Total bank debt at June 30, excluding PPP loans stood at $44 million.
Our second quarter leverage ratio under our bank covenants was 134 times compared to 162 times at March 31.
We remained below our previously articulated target leverage of 1.5 to 2 times.
We have availability on the revolver of approximately $72 million as of June 30 cash.
Cash and the balance sheet as of June 30 was approximately $39 million down sequentially from $53 million as of March 31.
The decrease in cash was primarily driven by an increase in working capital and the second quarter.
Just as working capital was a source of cash and the second quarter of last year with the sharp decline and business activity and.
And the second quarter of 2021 with the increase in sales volumes and prices, we saw a significant increase and trade receivables and payables took.
Together these 2 items consumed approximately $12 million and cash.
We also increased inventory at south Hampton, partly in preparation for our planned maintenance turnaround and the first quarter of 2020 to.
Resulting in an approximately $4 million additional use of cash.
And finally share repurchases and the second quarter accounted for approximately $4.3 million and cash.
As we mentioned and the first quarter earnings call on April 1 we received our final tax refund under the cares Act tax law changes.
Of $2.4 million.
In addition to cash and the balance sheet, our revolver remains undrawn as of the end of the second quarter.
We remain well positioned from a liquidity and balance sheet standpoint, with more than adequate flexibility to fund our operations and advance our growth initiatives.
Operating cash flow from continuing operations for the second quarter was a negative $4.3 million.
While capex for the second quarter were $3.9 million for.
For the first 6 months of 2021 operating cash flow from continuing operations was negative <unk> 5 million and Capex was $8.7 million.
We're evaluating our full year capital expenditure estimate of $13 million to $14 million.
For the full year 2021.
This may increase slightly due to additional capital related to repairs. Following the February freeze event.
2021, Capex spending is primarily driven by continued feedstock pipeline replacement work as well as higher and higher level of plant maintenance and turnaround spending.
Free cash flow from the second quarter defined as cash flow from operations less capex and less required debt amortization was approximately a negative $9.3 million.
For the first 6 months of 2020 free cash flow was negative $11.4 million.
We have now applied from full forgiveness of our PPP loans totaling approximately $6.1 million.
Although we don't know when we will reach received determination on forgiveness. We believe we qualify for full forgiveness based based on the SBA criteria.
As you will note on the 630 balance sheet. These PPP loans are now shown as current liabilities, reflecting their maturity in may of 2022.
Now, let's take a closer look at our second quarter performance.
We reported net income from continuing operations of $2.3 million or.
<unk> per diluted share. This compares to a loss from continuing operations in Q1, a $4.4 million or 18.
Per diluted share and a net loss from continuing operations of $1.9 million or <unk> <unk>.
Per diluted share in Q2.2020.
Adjusted EBITDA from continuing operations was $8.1 million for the second quarter compared with adjusted EBITDA from continuing operations of a negative <unk> 5 million and Q1, 2021, and $4.2 million and the second quarter of 2020.
Second quarter results benefited from a $1.4 million settlement with a totally provider related to the February freeze event.
This benefit reduced our estimated impact of the freeze event from 4 and a half to $5 million as stated as previously stated to approximately $3.5 million.
General and administrative expenses for the second quarter were $7.7 million compared to $6.3 million and Q2 of 2020.
G&A includes plant level general administrative expenses as well as corporate expenses.
The increase is due to higher consulting insurance and compensation costs.
For the first 6 months of 2021, and G&A was 15 million compared to $13 million last year.
And increase largely reflects higher consulting and insurance and compensation costs.
Interest expense for the second quarter was approximately $300000 compared with $700000 and the second quarter of last year.
The reduction in interest expense due to debt reduction combined with lower interest rates bank debt has been reduced from $78.2 million at the end of Q2 $2000.20 million to $44 million at the end of Q2.2021.
Our effective interest rate for the second quarter dropped to 187% from 252% in Q2 of 2020.
Income tax expense for the quarter was <unk> 7 million, reflecting an effective tax rate of approximately 23, 8% our expectation for the full year 2021 is an effective tax rate of 21%.
Now, let me walk you through our business segments, starting with specialty petrochemicals.
Adjusted EBITDA per specialty petrochemicals and the second quarter was $9.7 million compared to $2.6 million and Q1, 2021, and 5 million and Q2.2020.
Adjusted EBITDA margin for the second quarter was 16, 4% for the specialty petrochemicals segment compared to 5.6% in Q1, 2021, and 15, 4% and Q2.2020.
The improving economic environment increased both our top and bottom line and this segment.
Second quarter results.
For the specialty petrochemicals segment benefited.
And benefited from the $1.4 million utilities mentioned utility settlement that I mentioned earlier.
Additionally, the segment also benefited from a positive inventory costing impact due to the inventory build in the quarter as well as the increase and feedstock pricing during the course of the quarter.
Specialty.
Specialty petrochemicals total sales volume in Q2, 2021 was 20 million gallons compared to $17.2 million gallons and Q1 and $15.3 million gallons and Q2 of 2020.
Prime product sales volumes and the second quarter was $16.9 million gallons and increase of approximately $3.8 million gallons or 28, 8% from Q2 of 2020.
This increase is largely due to the strong demand, we're seeing for our specialty petrochemicals products.
Moving onto specialty petrochemicals feedstock.
Benchmark natural gasoline feedstock prices and followed a trend of continued increases since bottoming out in the second quarter of 2020.
<unk> 42 per gallon per.
<unk> increased to $1 per gallon and by the end of last year and reached $1.43 per gallon and by the end of Q1.2021.
At the end of June NAV.
Natural gasoline was priced at $1.54 per gallon and it continued to increase in July. The July average is approximately $1.60 per gallon.
The upward trend and market pricing of natural gasoline is illustrated on slide 7 of the second quarter earnings deck that is posted on our website.
As you can see and this slide feedstock pricing has rebounded back to levels higher than in 2019 and 2020.
Now moving onto byproducts.
Byproduct sales volumes improved to $3.1 million gallons and the second quarter from $2.5 million gallons in Q1.2021 as prime product sales volumes also increased.
As a reminder.
And byproducts are produced as a result of prime product production and.
And their margins are significantly lower than margins for prime products.
Byproduct spreads improved to 62 cents per gallon and the second quarter from 30 per gallon and Q1 and negative 29 cents per gallon and second quarter of 2020.
The upward churn and byproduct spread was driven by higher byproduct prices.
As a result of sharply higher prices for the aromatic components, specifically benzene and toluene and as.
<unk> main component in our byproduct stream.
Moving on to specialty waxes segment.
Especially waxes segment had adjusted EBITDA of $1.3 million and Q2 compared to a negative <unk> 5 million and Q1 and zero point $9 million and the second quarter of last year.
Especially waxes segment generated revenues of approximately $9.6 million and the second quarter compared to $8.7 million and the first quarter and $8.3 million and second quarter 2020.
Revenue in second quarter included $6.9 million of wax product sales and increase of 26, 1% compared to Q2 of 2020.
We continue to experience strong demand for our wax products, especially in our high value Hot melt adhesives and markets.
We also continue to be sold out and waxes and as Pat mentioned, we implemented further price increases during the second quarter.
Processing fees, which were approximately $2.7 million and the second quarter decreased 5.2% from second quarter of 2020 day.
The modest decline was due to customer supply chain disruptions combined with residual impacts from the Texas freeze event, which caused the ramp up on new custom processing projects that take longer than expected.
This concludes the financial summary, and I will now turn the call back over to Pat.
Thanks Sami.
I'll wrap up our prepared remarks by emphasizing how excited we are about 2 quarters growth opportunities. We expect the strong demand for our products that we saw and our second quarter to persist through the second half of the year given the favorable outlook for our key end use markets. Additionally, with respect to our growth portfolio, we expect to see further.
And from another a number of the projects we are executing as we move through the remainder of the year.
We expect to polyethylene wax business to improve and our third quarter on both price and volume, which will mostly offset the utility credit we received at South Hampton and this past quarter and the expected decline and byproduct spread.
As always we remain committed to our goal of creating long term value for our stockholders.
While we advance our organic growth projects, we continue to explore all capital allocation options, including inorganic opportunities, where we believe we can achieve higher earnings and cash flows.
Now I'd like to turn the call back to the operator and open up the phone line to questions.
As a reminder to ask a question you and Isa Press Star 1 on your telephone to withdraw your question you will need to press the pound key please standby, while we compile the Q&A roster.
And your first question comes from the line of Mitchell sacks.
With Grand Slam assessment.
Hey, guys really nice quarter.
So my first question has to do with.
The freeze and how it affected volumes in.
In Q2 from both.
Polyester, while Youre your pentane hexane and then also if you could sort of give us a ballpark and how it affected.
Your.
Custom processing businesses in terms of revenues or however, you wanted to frame it.
Sure so and the aggregate.
You heard me say, we think about $1 million across the entire company of negative impacts of a variety of things and you can point to Covid and you can point to ship chip shortages or the freeze event. They all kind of came together for.
As we've all been hearing supply chain challenges across the whole industry and in our case.
On the solvent side as a business and we once we return to operations. We didn't have any supply issues, we have the pipeline connection over to Mont Belvieu and.
And our operations were solid supply with no problem. So the challenges. They're only then became downstream of us and it was comprised of a few things early in the quarter.
And the trucking market and as we've all been hearing was a is a nightmare now.
And now we have the benefit of our.
And owned a fleet for a significant portion of our solve and demand that we deliver through trucks. So that certainly I think from advantage to us but for our third.
Third party trucks, we certainly had impacts and we had impacts to customers. Unfortunately, we were pretty quick and taking action we added.
Additional third party trucking firms to bolster our supply of book to bolster our availability of trucks and then we've also started and begun the expansion of our own fleet that will just increase our capabilities there and that's that both addresses the current situation and anticipates.
The structural.
Growth that we're expecting and our business, so so solvents and their impacts.
On custom processing is a combination of a few things on the at the very beginning in the quarter. Yeah. Our focus as we were as we recovered from the freeze was getting our wax production up so as we kind of move through the plant.
We prioritize getting whacked supply up and then and then moved over to custom processing.
And that had a little bit of a lag into Q3, but and frankly, then we started running into.
And supply chain issues of our customers either issues with getting raw materials into to conduct the custom processing on their behalf.
And in some instances.
Their demand and the market impacted as well so and it was.
Scattered throughout no no single significant thing, but lots and lots of things that fit us during the quarter.
But generally custom processing by the end of the quarter, we are up and running.
And operations are okay, and demand is still there and.
And.
We just need to wrestle down the supply chain challenges.
And then with respect to custom processing, the distillation and hydrogen hydrogenation units you have it at.
At Tc with these new commercial.
Commercial customers that are coming in are you getting closer to full utilization or do you still have a long way to go.
Well as we significantly loaded up the distillation part of that unit and this with the new projects that we talked about during the second quarter. So that helped us on hydrogenation.
You May recall, we had a very large project kicked off and the first quarter of 2020.
And that really did load up the hydrogenation unit that went away largely due to COVID-19.
That is still a potential out there for us and we have actually a few projects that are targeting and the hydrogenation unit, but it didn't run and <unk>. So those projects are still to be delivered.
And then with respect to the wax I know you've talked in the past about getting some.
Additional feed stock and sources to increase volume and how is that going.
Yes, it's moving forward and I would say.
And not getting into too many details 1 of our commercial projects that we're doing and <unk> relates to <unk>.
Additional sources of feed and then we have we also have other growth projects that are longer cycle time.
That would bolster our product offering and supply for polyethylene waxes.
Okay, and Thats not a 2020 just to be clear that stuff is not 2021, and that's going to have to come later.
Hey.
And.
And then in terms of G&A.
Expenses, the consulting and insurance and if you can just talk about both of those things is the consulting and expected to reoccur and as the insurance kind of a new normal.
So I'll start with insurance, because we have absolutely incurred higher insurance rates as we went through our renewal last year will go we've gone through another renewal also and just unfortunately, the nature of the market. Today is those costs are increasing for us I don't think theyre, increasing differentially for us but.
That is rolling and unfortunately, that's going to be structural.
Consulting projects I would say, we use consultants from time to time for a variety of things from improvements or external projects and so it's hard to predict where theyre going to go but I would expect them to go up and down just depending on what we're looking at any particular time.
Okay cool I'll get back into queue. Thanks.
Thanks, so much.
Your next question comes from the line of Matt Dane with Titan capital market.
Thank you.
Thank you I was curious if you are a price increases that you've discussed had been implemented.
At the beginning of the quarter and were in place for the whole quarter, what would that impact has been.
On a revenue or earnings basis.
Okay, and I haven't done that math in my head, but.
I think on the wax side most of those increases really started in may.
And ended June so, we're probably only about halfway through the contribution of the higher wax.
It reflected in <unk> for us. So that's why I said, we're going to expect further benefit as we roll into <unk>.
On the on the solvency side, and listen we announced and May price increase for our market based pricing.
We didn't have as much success on that increase certainly as we would like and.
The competitive dynamics or just such that it was a real challenge so theres a little bit of increased kind of ASP.
For the.
Negotiated contract or the market based contract customers and solvents for <unk> for <unk> excuse me.
But I wouldn't suggest it's going to be a very significant increase.
Okay.
That's helpful. I appreciate it.
Thank you and if you would like to ask a question. Please press star 1 on your telephone.
And your next question comes from the line of Tim call with capital management.
Congratulations on a good quarter.
Thank you tender share count went up during the quarter it was that because of.
Stock options and <unk>.
Strike prices and.
Should we expect share counts and fall and the <unk>.
And there is ahead.
Well, yeah I mean.
Youre right I mean compensation.
Expense has an impact on.
Sure on share count.
Particularly when you look at the diluted the diluted number.
And remember that earnings last year diluted versus.
And the other thing is last year, we had a loss.
Net income was loss so on diluted share count.
Share the share count didn't get rolled in this year. It was a profit and so that increase the share count.
Okay. Thank you and.
And with.
Pricing of products.
Have there been any rollbacks and pricing or is pricing only been in 1 direction.
It's only been in 1 direction.
We just wanted to be more in that direction.
Thank you congratulations again on non such improvement.
Yes.
Maybe.
And as the Mic still open and I just wanted to maybe make 1 comment on that last question yeah. So.
I guess there is an exception on our byproducts because again were tied to the aromatics and while we don't drive the pricing its index related but just to be clear the byproduct reference prices benzene has come down from the second quarter.
This 1 might that clarification.
And your next question comes from the line of Tom Aaron Berg with <unk>.
<unk> M and need.
Hi, Good morning sales can you give us an update on the share repurchase for the month of July I noticed there was a substantial volume on a number of days.
Yes, Tom actually we arent and we will report consistent with our quarterly reporting rather than giving kind of the I know it's on a forward looking comment but.
Nothing to report for July So, we'll just from the end of every quarter and we'll report what we've done.
And what are the reasons I'm a little sensitive to it is because the nature of our share repurchase program as we have we have to launch a program.
Under certain criteria and then let that run.
So I just can't comment really on anything that may be impacting current quarter.
Okay.
And can you give me Tom.
Yes, Amy we'll be filing our Q, okay. So youll see the details and.
And that for the second quarter for the second quarter right yes.
And for July, though that with the increase in and are in trading activity. It appeared.
Can you give us an update on that and.
Status of P O G leave alley.
No change in status.
We have a sales contract on the property and they have a certain amount of time to meet Myles.
Milestones and that agreement. So there is still some time left I think there it's coming up in September I believe is the next test for them delivering some cash against it.
Okay. So by the end of Q3, we should.
No, whether that's been consummated or not and that's what we would expect yes, and as you know and unfortunately, it's a day minute a de minimis amount of value, but right. It would be good to get it cleaned up.
Okay.
Okay.
Excuse me thank you.
And Tom Thank you.
If you'd like to ask a question. Please press star 1 on your telephone keypad.
Yes.
And I think we see more questions operator, maybe we'll just wrap up.
And I would now like to turn the call back over to Mr. Patrick borrows.
It does and I want to thank.
You all for your questions and interest and Cora I always like to conclude my remarks by acknowledging my appreciation for our employees and recognition of their success and the second quarter, we pivoted from an organization focused on safely safely repairing our facilities, while continuing to deal with the realities of the pandemic to facing a reset.
And just the demand that was quite frankly, a step change from levels before the freeze and they did and they did it they safely completed our repairs and reliably operating our facilities reconfigured supply chains to meet the surging demand drove product pricing to capture the value, we provide our customers and advance our growth plans.
All while continuing to battle. This resurgent virus I wanted to thank everyone for their contribution to those successes and thank you again to all of you for your participation.
Thank you.
And this concludes today's conference call you may now disconnect.