Form 8-K TRECORA RESOURCES For: Aug 03
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 1, 2018
Trecora Resources
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation) | 1-33926 (Commission File Number) | 75-1256622 (IRS Employer Identification No.) |
1650 Hwy 6 South, Suite 190
Sugar Land, Texas 77478
(Address of principal executive offices)
(281) 980-5522
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
Emerging growth company | o | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | o | ||
Item 2.02. Results of Operations and Financial Condition
The Company’s press release dated August 1, 2018, regarding its financial results for the quarter ended June 30, 2018, including consolidated financial statements for the quarter ended June 30, 2018, is Exhibit 99.1 of this Form 8-K.
The information in this Item 2.02, including the corresponding Exhibit 99.1 is hereby filed.
Item 7.01. Regulation FD Disclosure.
The slides for the Company’s second quarter 2018 earnings presentation on August 2, 2018, are Exhibit 99.2 to this Form 8-K.
The information in this Item 7.01, including the corresponding Exhibit 99.2, is being furnished with the Commission and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are being filed as part of this report:
Exhibit No. | Description of Exhibit | |
99.1 | ||
99.2 | ||
The Company’s website (www.trecora.com) contains a significant amount of information about the Company, including financial and other information for investors. The Company strongly encourages investors to visit its website from time to time, as information is updated and new information is posted.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
TRECORA RESOURCES | ||||
Date: August 2, 2018 | By: | /s/ Sami Ahmad | ||
Sami Ahmad | ||||
Chief Financial Officer | ||||
Trecora Resources Reports Second Quarter 2018 Results
Multi-year, $100+ Million Capital Building Campaign Completed
Conference Call at 10:00 am ET Tomorrow, August 2, 2018
SUGAR LAND, Texas, August 1, 2018 – Trecora Resources (NYSE: TREC) a leading provider of high purity specialty hydrocarbons and waxes, today announced financial results for the second quarter ended June 30, 2018.
“Second quarter results reflect improved execution and continued strong demand at Trecora Chemical while South Hampton Resources endured several customer-based production disruptions that impacted sales volume in the quarter,” said Simon Upfill-Brown, president and CEO. “Reduced operating leverage resulting from lower volume, combined with higher operating expenses, including non-recurring expenses related to the commissioning of the Advanced Reformer, pressured reported margins in the quarter; however, we expect those headwinds to lessen over the balance of the year. In addition, we are continuing price leadership efforts to mitigate the pressures in many parts of our business, including higher feedstock costs.
“We have taken many positive steps in recent months to enhance our production capabilities and improve our organizational structure as we focus on operational execution and build a platform for growth,” continued Upfill-Brown. “We have taken a methodical approach to change with an emphasis on safety, and I am pleased with our progress, but we have more work to do. Recent executive appointments will help reinforce our operational transformation, and a renewed focus on driving value and volume will solidify our competitive position in the marketplace.
“Having recently completed our multi-year capital building campaign with the safe and successful commissioning of our Advanced Reformer, we expect to leverage a strong competitive position, new, advanced production facilities and a supportive market to drive revenue and significantly grow adjusted EBITDA,” concluded Upfill-Brown. “In addition, with no large capital projects on the horizon, we expect annual cash capital requirements to decline to a range of $6 - $8 million per year allowing incremental cash generated by the business to reduce leverage and strengthen our balance sheet. I am confident we are well positioned to deliver reliable production for customers and solid returns to shareholders.”
Subsequent Events
On July 31, 2018, the Company took advantage of a strong credit market to amend and extend its Credit Facility. As a result, the Company extended its debt maturity to July 2023, increased the size of its Revolving Facility to $75 million from $60 million, lowered its borrowing costs and received less restrictive covenants from lenders.
Second Quarter 2018 Financial Results
Total revenue in the second quarter was $68.1 million, compared with $62.1 million in the second quarter of 2017, an increase of 9.6%. The increase in reported revenue was driven by a 17.0% increase in the average sales price of petrochemical products, partially offset by a 5.3% decline in petrochemical sales volume, in each case, compared with the second quarter of 2017. The higher average sales price was offset by a 34% year-over-year increase in the average per-gallon cost of petrochemical feedstock, which is the basis for the formula pricing for about 65% of the Company’s petrochemical product sales. Since formula pricing is based upon prior month feedstock averages, sales price increases tend to lag behind higher feedstock costs resulting in lower margins in the period.
Gross profit in the second quarter was $8.1 million, or 12.0% of total revenues, compared with $11.1 million, or 17.9% of total revenues, in the second quarter of 2017. Operating income for the second quarter was $3.4 million, compared with operating income of $5.2 million for the second quarter of 2017.
Net income for the second quarter was $2.2 million, or $0.09 per diluted share, compared with $0.8 million, or $0.03 per diluted share, for the second quarter of 2017. Adjusted net income for the quarter was $2.0 million, or $0.08 per diluted share. Reported net income in the second quarter of 2018 reflected equity in earnings of AMAK of $0.2 million, or an estimated $0.01 per diluted share on an after-tax basis. Net income in the second quarter of 2017 reflected an equity in losses for AMAK of $3.3 million, or an estimated impact of $(0.09) per diluted share on an after-tax basis. Net income margin for the second quarter was 3.3% as compared to 1.3% for the second quarter of 2017.
Adjusted EBITDA in the quarter was $6.2 million, representing a 9.1% margin, compared with Adjusted EBITDA of $8.4 million, representing a 13.5% margin for the same period a year ago.
South Hampton Resources (Specialty Petrochemical Segment)
Petrochemical volume in the second quarter was 19.7 million gallons, compared with 20.8 million gallons in the second quarter of 2017. Prime product volume in the second quarter of 2018 was 16.1 million gallons, compared with 16.3 million gallons in the second quarter of 2017. Byproduct volume, which is sold at significantly lower margins than prime products, decreased 35.4% sequentially and 19.8% year-over-year, to 3.6 million gallons. Margins were compressed due to higher feedstock costs and higher operating expenses including higher costs for labor, maintenance and freight. Some of the increase in costs were non-recurring expenses related to the commissioning of the Advanced Reformer. Byproduct margins were higher compared to the second quarter of 2017. Net income margin for the second quarter was 5.1% as compared to 8.5% for the second quarter of 2017.
International volume represented 21.5% of total petrochemical volume during the quarter, down from 24.9% sequentially and 22.1% from the second quarter of 2017.
Dollar amounts in thousands/rounding may apply | THREE MONTHS ENDED | |||||||
JUNE 30, | ||||||||
2018 | 2017 | % Change | ||||||
Product sales | $56,135 | $50,508 | 11 | % | ||||
Processing fees | 1,685 | 2,071 | (19 | )% | ||||
Gross revenues | $57,820 | $52,579 | 10 | % | ||||
Operating profit before depreciation and amortization | 6,095 | 8,761 | (30 | )% | ||||
Operating profit | 4,440 | 7,217 | (38 | )% | ||||
Profit before taxes | 3,859 | 6,598 | (42 | )% | ||||
Depreciation and amortization | 1,655 | 1,544 | 7 | % | ||||
EBITDA | 6,125 | 8,755 | (30 | )% | ||||
Capital expenditures | 3,529 | 9,021 | (61 | )% | ||||
Trecora Chemical (Specialty Wax Segment)
In the second quarter, TC generated revenues of $10.3 million, up 7.9% from $9.5 million in the second quarter of 2017. TC revenue included $7.4 million of wax product sales, up 14.2%, and $2.9 million of custom processing fees, down 5.8%, when compared with the second quarter of 2017. Strong wax sales driven by enhanced sales mix as well as greater sales volume was partially offset by lower custom processing revenues. Net income margin for the second quarter was (4.9%) as compared to (2.8%) for the second quarter of 2017.
EBITDA in the second quarter was $1.1 million, compared with $0.8 million in the second quarter of 2017.
Dollar amounts in thousands/rounding may apply | THREE MONTHS ENDED | |||||||
JUNE 30, | ||||||||
2018 | 2017 | % Change | ||||||
Product sales | $7,434 | $6,508 | 14 | % | ||||
Processing fees | 2,852 | 3,028 | (6 | )% | ||||
Gross revenues | $10,286 | $9,536 | 8 | % | ||||
Operating profit before depreciation and amortization | 1,164 | 810 | 44 | % | ||||
Operating loss | (201) | (198) | (2 | )% | ||||
Profit (loss) before taxes | (506) | (269) | (88 | )% | ||||
Depreciation and amortization | 1,365 | 1,008 | 35 | % | ||||
EBITDA | 1,140 | 802 | 42 | % | ||||
Capital expenditures | 877 | 4,931 | (82 | )% | ||||
Al Masane Al Kobra Mining Company (AMAK)
Trecora reported equity in earnings of AMAK of approximately $0.2 million and AMAK net loss of approximately $0.3 million during the second quarter of 2018.
AMAK generated net income before depreciation and amortization of $8.0 million compared to a net loss before depreciation and amortization of $3.3 million in the second quarter of 2017.
Year-to-Date 2018 Results
Total revenue for the six months ended June 30, 2018 was $139.8 million, compared with revenue of $117.7 million in the first six months of 2017.
Total revenue for the six months ended June 30, 2018 was $139.8 million, compared with revenue of $117.7 million in the first six months of 2017.
Gross profit for the first six months of 2018 was $18.3 million, compared with $21.7 million in the same period in 2017. Gross profit margin in the first six months of 2018 was 13.1%, compared with 18.5% in the same period in 2017.
Net income for the first six months of 2018 was $4.6 million, compared with $2.3 million in the same period of 2017. Diluted EPS was $0.18, compared with $0.09 in the same period of 2017. Net income in the first half of 2018 was positively affected by equity in earnings of AMAK of $0.5 million, or $0.01 per diluted share on an after tax basis. In the first half of 2017, net income was negatively affected by equity in losses of AMAK of $4.3 million, or $(0.11) per diluted share on an after-tax basis. Net income margin for the first half of 2018 was 3.3% as compared to 2.0% for the first half of 2017.
Adjusted EBITDA for the first six months of 2018 was $13.4 million, compared with $15.7 million in the same period in 2017. Adjusted EBITDA margin in the first six months of 2018 was 9.6%, compared with 13.4% in the same period of 2017.
South Hampton Resources (Specialty Petrochemical Segment)
Petrochemical volume in the first half was 43.0 million gallons, compared with 38.2 million gallons in the first half of 2017. Prime product volume in the first half of 2018 was 33.7 million gallons, compared with 30.2 million gallons in the first half of 2017. Byproduct volume, which is sold at lower margins, was up 16.4% year-over-year to 9.3 million gallons. Margins were compressed due to higher feedstock costs and higher operating expenses including higher costs for labor, maintenance and freight. Some of the increase in costs were non-recurring expenses related to the commissioning of the Advanced Reformer. Net income margin for the first half of 2018 was 6.6% as compared to 8.6% for the first half of 2017.
International volume represented 23.4% of total petrochemical volume during the first half of 2018.
Dollar amount in thousands – rounding may apply | SIX MONTHS ENDED | ||||||||
JUNE 30, | |||||||||
2018 | 2017 | % Change | |||||||
Product sales | $ | 116,420 | $ | 94,899 | 23 | % | |||
Processing fees | 3,713 | 3,559 | 4 | % | |||||
Net revenues | 120,133 | 98,458 | 22 | % | |||||
Operating profit before depreciation and amortization | 14,488 | 16,975 | (15 | )% | |||||
Operating profit | 11,119 | 13,875 | (20 | )% | |||||
Profit before taxes | 9,913 | 12,601 | (21 | )% | |||||
Depreciation and amortization | 3,369 | 3,100 | 9 | % | |||||
EBITDA | 14,515 | 16,949 | (14 | )% | |||||
Capital expenditures | 13,812 | 17,777 | (22 | )% | |||||
Trecora Chemical (Specialty Wax Segment)
In the first half of 2018, TC generated revenues of $19.9 million, up 3.6% from $19.2 million for the first half of 2017. Net income margin for the first half of 2018 was (8.5%) as compared to (2.9%) for the first half of 2017.
Dollar amount in thousands – rounding may apply | SIX MONTHS ENDED | |||||||
JUNE 30, | ||||||||
2018 | 2017 | % Change | ||||||
Product sales | $ | 13,817 | $ | 13,016 | 6 | % | ||
Processing fees | 6,064 | 6,183 | (2 | )% | ||||
Net revenues | 19,881 | 19,199 | 4 | % | ||||
Operating profit before depreciation and amortization | 1,554 | 1,555 | 0 | % | ||||
Operating profit (loss) | (1,115) | (469) | (138 | )% | ||||
Profit (loss) before taxes | (1,687) | (559) | (202 | )% | ||||
Depreciation and amortization | 2,669 | 2,024 | 32 | % | ||||
EBITDA | 1,519 | 1,528 | (1 | )% | ||||
Capital expenditures | 1,622 | 10,056 | (84 | )% | ||||
Earnings Call
Tomorrow's conference call and presentation slides will be simulcast live on the Internet, and can be accessed on the investor relations section of the Company's website at http://www.trecora.com or at http://public.viavid.com/index.php?id=130127. A replay of the call will also be available through the same link.
To participate via telephone, callers should dial in five to ten minutes prior to the 10:00 am Eastern start time; domestic callers (U.S. and Canada) should call 1-888-394-8218
or 1-323-794-2588 if calling internationally, using the conference ID 7223033. To listen to the playback, please call 1-844-512-2921 if calling within the United States or 1-412-317-6671 if calling internationally. Use pin number 7223033 for the replay.
Use of Non-GAAP Measures
The Company reports its financial results in accordance with U.S. generally accepted accounting principles ("GAAP"). This press release contains the non-GAAP measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Net Income. We define EBITDA as net income plus interest expense including derivative gains and losses, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA plus share-based compensation, plus or minus equity in AMAK's earnings and losses or gains from equity issuances and plus or minus gains or losses on acquisitions. We define Adjusted Net Income as net income plus or minus tax effected equity in AMAK's earnings and losses and plus or minus tax effected gains or losses on acquisitions. These measures are not measures of financial performance or liquidity under U.S. GAAP and should be considered in addition to, not as a substitute for, net income (loss), nor as an indicator of cash flows reported in accordance with U.S. GAAP. These measures are used as supplemental financial measures by management and external users of our financial statements such as investors, banks, research analysts and others. We believe that these non-GAAP measures are useful as they exclude transactions not related to our core cash operating activities.
Forward-Looking Statements
Statements in this press release that are not historical facts are forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our belief, as well as, assumptions made by and information currently available to us. Because such statements are based upon expectations as to future economic performance and are not statements of fact, actual results may differ from those projected. These risks, as well as others, are discussed in greater detail in Trecora Resources' filings with the Securities and Exchange Commission, including Trecora Resources' Annual Report on Form 10-K for the year ended December 31, 2017, and the Company's subsequent Quarterly Reports on Form 10-Q. All forward-looking statements included in this press release are based upon information available to the Company as of the date of this press release.
About Trecora Resources (TREC)
TREC owns and operates a facility located in southeast Texas, just north of Beaumont, which specializes in high purity hydrocarbons and other petrochemical manufacturing. TREC also owns and operates a leading manufacturer of specialty polyethylene waxes and provider of custom processing services located in the heart of the Petrochemical complex in Pasadena, Texas. In addition, the Company is the original developer and a 33.4% owner of Al Masane Al Kobra Mining Co., a Saudi Arabian joint stock company.
Investor Relations Contact:
Jean Marie Young
The Piacente Group, Inc.
212-481-2050
TRECORA RESOURCES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2018 (unaudited) | DECEMBER 31, 2017 | |||||
ASSETS | (thousands of dollars) | |||||
Current Assets | ||||||
Cash | $ | 3,387 | $ | 3,028 | ||
Trade receivables, net | 26,467 | 25,779 | ||||
Insurance receivable | 493 | -- | ||||
Inventories | 17,003 | 18,450 | ||||
Prepaid expenses and other assets | 5,188 | 4,424 | ||||
Taxes receivable | 1,291 | 5,584 | ||||
Total current assets | 53,829 | 57,265 | ||||
Plant, pipeline and equipment, net | 192,084 | 181,742 | ||||
Goodwill | 21,798 | 21,798 | ||||
Intangible assets, net | 19,877 | 20,808 | ||||
Investment in AMAK | 45,452 | 45,125 | ||||
Mineral properties in the United States | 588 | 588 | ||||
TOTAL ASSETS | $ | 333,628 | $ | 327,326 | ||
LIABILITIES | ||||||
Current Liabilities | ||||||
Accounts payable | $ | 11,927 | $ | 18,347 | ||
Accrued liabilities | 5,638 | 3,961 | ||||
Current portion of post-retirement benefit | 28 | 305 | ||||
Current portion of long-term debt | 8,061 | 8,061 | ||||
Current portion of other liabilities | 916 | 870 | ||||
Total current liabilities | 26,570 | 31,544 | ||||
Long-term debt, net of current portion | 97,015 | 91,021 | ||||
Post-retirement benefit, net of current portion | 365 | 897 | ||||
Other liabilities, net of current portion | 1,297 | 1,611 | ||||
Deferred income taxes | 18,315 | 17,242 | ||||
Total liabilities | 143,562 | 142,315 | ||||
EQUITY | ||||||
Common stock‑authorized 40 million shares of $.10 par value; issued 24.5 million in 2018 and 2017 and outstanding 24.3 million shares in 2018 and 2017 | 2,451 | 2,451 | ||||
Additional paid-in capital | 56,365 | 56,012 | ||||
Common stock in treasury, at cost | (61) | (196) | ||||
Retained earnings | 131,022 | 126,455 | ||||
Total Trecora Resources Stockholders’ Equity | 189,777 | 184,722 | ||||
Noncontrolling Interest | 289 | 289 | ||||
Total equity | 190,066 | 185,011 | ||||
TOTAL LIABILITIES AND EQUITY | $ | 333,628 | $ | 327,326 | ||
TRECORA RESOURCES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED | SIX MONTHS ENDED | ||||||||||||
JUNE 30, | JUNE 30, | ||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||
(thousands of dollars) | (thousands of dollars) | ||||||||||||
REVENUES | |||||||||||||
Petrochemical and Product Sales | $ | 63,569 | $ | 57,016 | $ | 130,268 | $ | 107,915 | |||||
Processing Fees | 4,537 | 5,099 | 9,579 | 9,742 | |||||||||
68,106 | 62,115 | 139,847 | 117,657 | ||||||||||
OPERATING COSTS AND EXPENSES | |||||||||||||
Cost of Sales and Processing | |||||||||||||
(including depreciation and amortization of $2,837, $2,363, $5,667, and $4,746, respectively) | 59,964 | 51,008 | 121,565 | 95,932 | |||||||||
GROSS PROFIT | 8,142 | 11,107 | 18,282 | 21,725 | |||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | |||||||||||||
General and Administrative | 4,554 | 5,740 | 10,889 | 11,961 | |||||||||
Depreciation | 191 | 205 | 387 | 410 | |||||||||
4,745 | 5,945 | 11,276 | 12,371 | ||||||||||
OPERATING INCOME | 3,397 | 5,162 | 7,006 | 9,354 | |||||||||
OTHER INCOME (EXPENSE) | |||||||||||||
Interest Income | 14 | -- | 21 | -- | |||||||||
Interest Expense | (815) | (678) | (1,693) | (1,314) | |||||||||
Equity in Earnings (Losses) of AMAK | 228 | (3,298) | 458 | (4,264) | |||||||||
Miscellaneous Expense | (13) | (22) | (39) | (64) | |||||||||
(586) | (3,998) | (1,253) | (5,642) | ||||||||||
INCOME BEFORE INCOME TAXES | 2,811 | 1,164 | 5,753 | 3,712 | |||||||||
INCOME TAXES | 596 | 332 | 1,186 | 1,393 | |||||||||
NET INCOME | 2,215 | 832 | 4,567 | 2,319 | |||||||||
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST | -- | -- | -- | -- | |||||||||
NET INCOME ATTRIBUTABLE TO TRECORA RESOURCES | $ | 2,215 | $ | 832 | $ | 4,567 | $ | 2,319 | |||||
Basic Earnings per Common Share | |||||||||||||
Net Income Attributable to Trecora Resources (dollars) | $ | 0.09 | $ | 0.03 | $ | 0.19 | $ | 0.10 | |||||
Basic Weighted Average Number of Common Shares Outstanding | 24,370 | 24,256 | 24,354 | 24,248 | |||||||||
Diluted Earnings per Common Share | |||||||||||||
Net Income Attributable to Trecora Resources (dollars) | $ | 0.09 | $ | 0.03 | $ | 0.18 | $ | 0.09 | |||||
Diluted Weighted Average Number of Common Shares Outstanding | 25,014 | 25,034 | 25,119 | 25,044 | |||||||||
TRECORA RESOURCES AND SUBSIDIARIES
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES(1)
Adjusted EBITDA Margin
(rounding may apply)
THREE MONTHS ENDED 6/30/18 | THREE MONTHS ENDED 6/30/17 | ||||||||||||||||||||
TC | SHR | CORP | TREC | TC | SHR | CORP | TREC | ||||||||||||||
NET INCOME (LOSS) | $(506) | $2,928 | $(207) | $2,215 | $(269) | $4,477 | $(3,376) | $832 | |||||||||||||
Interest | 281 | 612 | (78) | 815 | 63 | 613 | 2 | 678 | |||||||||||||
Taxes | - | 930 | (334) | 596 | - | 2,121 | (1,789) | 332 | |||||||||||||
Depreciation and amortization | 22 | 161 | 8 | 191 | 21 | 168 | 16 | 205 | |||||||||||||
Depreciation and amortization in cost of sales | 1,343 | 1,494 | - | 2,837 | 987 | 1,376 | - | 2,363 | |||||||||||||
EBITDA | 1,140 | 6,125 | (611) | 6,654 | 802 | 8,755 | (5,147) | 4,410 | |||||||||||||
Share based compensation | - | - | (220) | (220) | - | - | 656 | 656 | |||||||||||||
Equity in losses (earnings) of AMAK | - | - | (228) | (228) | - | - | 3,298 | 3,298 | |||||||||||||
Adjusted EBITDA | $1,140 | $6,125 | $(1,059) | $6,206 | $802 | $8,755 | $(1,193) | $8,364 | |||||||||||||
Revenue | 10,286 | 57,820 | 68,106 | 9,536 | 52,579 | 62,115 | |||||||||||||||
Adjusted EBITDA Margin | 11.1 | % | 10.6 | % | 9.1 | % | 9.8 | % | 16.7 | % | 13.5 | % | |||||||||
(adjusted EBITDA/revenue) | |||||||||||||||||||||
SIX MONTHS ENDED 6/30/18 | SIX MONTHS ENDED 6/30/17 | ||||||||||||||||||||
TC | SHR | CORP | TREC | TC | SHR | CORP | TREC | ||||||||||||||
NET INCOME (LOSS) | $(1,687) | $7,898 | $(1,644) | $4,567 | $(559) | $8,459 | $(5,581) | $2,319 | |||||||||||||
Interest | 537 | 1,233 | (77) | 1,693 | 63 | 1,248 | 3 | 1,314 | |||||||||||||
Taxes | - | 2,015 | (829) | 1,186 | - | 4,142 | (2,749) | 1,393 | |||||||||||||
Depreciation and amortization | 44 | 327 | 16 | 387 | 42 | 335 | 32 | 409 | |||||||||||||
Depreciation and amortization in cost of sales | 2,625 | 3,042 | - | 5,667 | 1,982 | 2,765 | - | 4,747 | |||||||||||||
EBITDA | 1,519 | 14,515 | (2,534) | 13,500 | 1,528 | 16,949 | (8,295) | 10,182 | |||||||||||||
Share based compensation | - | - | 372 | 372 | - | - | 1,289 | 1,289 | |||||||||||||
Equity in losses (earnings) of AMAK | - | - | (458) | (458) | - | - | 4,264 | 4,264 | |||||||||||||
Adjusted EBITDA | $1,519 | $14,515 | $(2,620) | $13,414 | $1,528 | $16,949 | $(2,742) | $15,735 | |||||||||||||
Revenue | 19,881 | 120,132 | (166) | 139,847 | 19,199 | 98,458 | 117,657 | ||||||||||||||
Adjusted EBITDA Margin | 7.6 | % | 12.1 | % | 9.6 | % | 8.0 | % | 17.2 | % | 13.4 | % | |||||||||
(adjusted EBITDA/revenue) | |||||||||||||||||||||
Adjusted Net Income and Estimated EPS Impact
(rounding may apply)
Three months ended June 30, | Six months ended June 30, | ||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||
Net Income | $ | 2,215 | $ | 832 | $ | 4,567 | $ | 2,319 | |||||
Equity in losses (earnings) of AMAK | $ | (228 | ) | $ | 3,298 | $ | (458 | ) | $ | 4,264 | |||
Taxes at statutory rate of 21% and 35%, respectively | 48 | (1,154) | 96 | (1,492) | |||||||||
Tax effected equity in losses (earnings) | (180) | 2,144 | (362) | 2,772 | |||||||||
Adjusted Net Income | $ | 2,035 | $ | 2,976 | $ | 4,205 | $ | 5,091 | |||||
Diluted weighted average number of shares | 25,014 | 25,034 | 25,119 | 25,044 | |||||||||
Estimated effect on diluted EPS (-tax effected equity in AMAK/diluted weighted average number of shares) | $0.01 | ($0.090 | ) | $0.01 | ($0.110 | ) | |||||||
(1)This press release includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
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YourClick Specialty to edit Master Chemical title Partner style Second Quarter 2018 Financial Results August 2, 2018 TREC
Safe Harbor Statements in this presentation that are not historical facts are forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward looking statements are based upon Management's belief, as well as, assumptions made by and information currently available to Management. Because such statements are based upon expectations as to future economic performance and are not statements of fact, actual results may differ from those projected. These risks, as well as others, are discussed in greater detail in Trecora Resources' filings with the Securities and Exchange Commission, including Trecora Resources' Annual Report on Form 10-K for the year ended December 31, 2017, and the Company‘s subsequent Quarterly Reports on Form 10-Q. All forward-looking statements included in this presentation are based upon information available to the Company as of the date of this presentation. The Company undertakes no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. 2
Second Quarter 2018 Overview Multi-year, $100+ million capital building campaign completed with commissioning of Advanced Reformer • Full focus on operational excellence and maximizing return on invested capital South Hampton Resources: Successful commissioning of Advanced Reformer unit in July, but: • Second quarter volume depressed by specific customer operating issues; non-recurring international volume captured in the first quarter accentuated sequential volume decline • Total gross margin decreased quarter-over-quarter primarily driven by lower sales volume and higher operating costs; product mix shift and some price increases aided feed margin • One-time start-up costs associated with the Advanced Reformer also pressured operating margin in Q2 Trecora Chemical: Continued progress • Record wax revenue and near-record wax volume in Q2 • Focus on equipment reliability, process and employee safety and operational excellence AMAK delivered $0.2 million in equity in earnings in Q2 as production levels continue to rise • Net income before depreciation and amortization of $8.0 million; $15.3 million year-to-date Refinancing of credit facility resulting in lower borrowing costs and greater flexibility 3
SHR Update Petrochemical Sales Volumes 2Q18 1Q18 4Q17 3Q17 2Q17 (million gallons) All Products 19.7 23.3 22.8 22.4 20.8 Prime Products 16.1 17.7 17.1 16.7 16.3 Byproducts 3.6 5.6 5.7 5.7 4.5 Deferred Sales 2.0 2.2 2.3 1.8 2.4 • Quarterly prime product volume declined 1.2% International % of petrochemical volume sold from Q2 2017 30.0% • Customer operating issues negatively impacted 25.0% Q2 volumes 20.0% • Sequential decline accentuated by non- recurring volume in Q1 15.0% 10.0% • International sales volume decreased to 21.5% 5.0% of petrochemical volume vs. 22.1% in 2Q17 0.0% 2014 2015 2016 2017 2Q17 2Q18 4
SHR Advanced Reformer Project Advanced Reformer safely and successfully commissioned in early July, 2018 At $58 million, our largest capital project designed to produce a significantly higher value-added byproduct stream During Q3 operations will be optimized At current byproduct pricing, the margin uplift is approximately 40 cents per gallon Production levels will grow as pentane volumes grow – annual EBITDA contribution reaching $12-$14 million by 2022 5
Trecora Chemical Update Quarterly Revenue – up 7.9% compared to second quarter 2017 and up 7.2% relative to 1Q18 Wax • Q2 sales volume up 10.0% year-over-year • Record Q2 revenue up 14.2% year-over-year • Average pricing up 4.4% as mix shifts to higher value sales Custom Processing • Q2 custom processing revenues negatively impacted by equipment reliability despite continued strong customer demand • Organizational changes implemented to improve reliability and efficiency; expect to see benefits in the future B Plant • Q2 revenue of $0.8 million; YTD revenue o f $2.1 million • On track to contribute $4-$6 M/year in EBITDA run-rate by end of 2018 Hydrogenation/Distillation Units • Continued progress, but volumes ramping at slower rate than anticipated – ongoing operational issues • Full functionality and expected $6-$8 M/year in EBITDA run rate delayed into 2019 6
Transformation Plan People – March 2018 – appointed Peter Loggenberg Chief Sustainability Officer » Holds a PhD in Chemistry (Catalysis) and has over 25 years of experience in the chemical industry, especially new products – May 23, 2018 – appointed Dick Townsend EVP, Chief Manufacturing Officer » Brings many years of experience leading transformational change in manufacturing environments – July 9, 2018 – appointed Mike Humby EVP – Commercial » Brings more than 30 years of petrochemical industry experience with Eastman Chemical Company and PPG including leadership positions in procurement, sales, marketing, general business management and M&A Safety and Culture – Behavior based safety program implemented – addressing the human factors – Process Safety Management standardized across the company – Operating discipline and accountability implemented in same way at both sites – Organizational changes have been implemented to more clearly define roles and responsibilities and facilitate better organizational alignment – Skills assessment gap analysis underway/robust training program to follow 7
Transformation Plan - continued Margin – Unlock additional value through customer/market segmentation – Revamp custom processing selection (stage gate process) and implementation Cost and Equipment Reliability – Focus on cost management and appropriate headcount – “PI” system to provide conditioned, time stamped process control – Advanced analytics package purchased to improve personnel – Instituting online equipment monitoring system Sustainability – Improve feedstock and logistics position for both SHR and TC – Ethylene pipeline connection (close proximity) – Understand significant global trends in the production/use of performance chemicals 8
AMAK Mine Developments Operations • 14,400 dmt sold in 2Q18 • 6,400 dmt copper concentrate and 8,000 dmt zinc concentrate • Concentrate quality, throughput rates and recoveries continued steady progress (brief recurrence of water quality issues in June) • Equity in earnings of $0.2 million in 2Q18 • Net profit before depreciation and amortization in 1H18 improved $19.4 million from 1H17 Exploration • Drilling in Guyan and surrounding areas likely to continue through year end • Guyan gold project pushed back six months • Commission Guyan Gold Project at end of 2019 (design slower, more time for drilling, financing) • Drilling continues for Al Masane copper and zinc Precious Metal Circuit/SART • Availability of PMC, SART capacity continue to improve • Gold and silver sales doré sales now expected in 3rd quarter Saudi Industrial Development Fund (SIDF) loan amended on July 8, 2018 • Repayment schedule adjusted and repayment terms extended through April 2024 Growing consistency of operations and established cash flow generation enhances marketability • Potential buyers approached in Q2 • Saudi investor most likely to purchase our position 9
AMAK – Production Performance Process Plant Performance Cu and Zn Recoveries (%) and Mill Throughput (dmt) Mill Feed (dmt) Cu and Zn Recoveries (%) 180,000 90 160,000 85 140,000 80 120,000 75 100,000 70 80,000 65 60,000 60 40,000 20,000 55 - 50 3Q17 4Q17 1Q18 2Q18 Mill Feed (dmt) Cu Rec (Actual) Zn Rec (Actual) 10
Financial Summary – 2nd Quarter 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 2017 2016 Diluted EPS $ 0.09 $ 0.09 $ 0.56 $ 0.07 $ 0.03 $ 0.72 $ 0.78 Adjusted EPS 1 $ 0.08 $ 0.08 $ 0.12 $ 0.09 $ 0.12 $ 0.44 $ 0.44 Adjusted EBITDA 1 $ 6.2 $ 7.2 $ 8.5 $ 7.5 $ 8.4 $ 31.7 $ 31.0 Adj EBITDA Margin 1 9.1% 10.0% 12.8% 12.2% 13.5% 12.9% 14.6% Cap Ex 2 $ 4.4 $ 11.0 $ 12.3 $ 11.5 $ 13.9 $ 51.6 $ 40.5 Debt 3 $ 105.4 $ 107.5 $ 99.6 $ 89.7 $ 89.8 $ 99.6 $ 84.0 1 see GAAP reconciliation 2 2016 includes B Plant 3 Excludes debt issuance costs Adjusted EBITDA was $6.2 million as compared to $8.4 million in the second quarter 2017 and $7.2 million in the first quarter 2018 Adjusted EBITDA Margin of 9.1% is down from 2Q17 due to increases in feedstock costs and higher operating costs at SHR Cap Ex of $4.4 million for the second quarter of 2018 is down from $11.0 million in the first quarter 2018 and $13.9 million in the second quarter of 2017 Debt at June 30, 2018 of $105.4 million including revolver balance of $45.0 million Refinanced credit facility: extended maturity to July 2023, revolver upsized to $75 million, lower pricing and financial covenant flexibility 11
Petrochemical Revenue & Volume Summary Petrochemical Sales Revenue and Volume (in millions) $70 30 $60 25 $50 20 $40 15 Gallons Revenue $30 10 $20 5 $10 $- - 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Prime Byproducts Revenue 12
Petrochemical Feed Cost Summary Processed Feedstock Cost versus Market Price (per gallon) Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Processed Cost Market 13
Trecora Chemical: Wax Volume and Revenue (in thousands) $8,000 12,000 $7,000 10,000 $6,000 8,000 $5,000 $4,000 6,000 Volume Revenue $3,000 4,000 $2,000 2,000 $1,000 $- - 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Wax Revenues($) Wax Volume (Lbs) 14
SHR and TC Custom Processing Revenue (in thousands) $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $- 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 SHR TC 15
Closing Remarks Disappointing quarter • Prime product volume pressured by customer-specific operational issues • Margin pressures from lower revenue (economies of scale) and expenses related to Advanced Reformer commissioning / rail freight The good news • $100+ million capital plan completed • Advanced Reformer commissioned (early July) • Full focus now on execution • Record wax revenue and strong wax volumes • AMAK generated $8 million in Q2 net profit before depreciation and amortization; $15.3 million YTD Industry opportunities • Expanding petrochemical production capacity • Stronger demand from polyethylene manufacturers; next PE facility start-up in Q4 • Custom processing demand remains high • Second oil sands mine revenues Catalysts to drive revenue and profitability growth • Continued growth in prime products sales volume • Advanced Reformer unit will increase byproduct value driving margins higher • People and process changes designed to sharpen focus on operational excellence • Continued progress on hydrogenation/distillation unit at TC will contribute to revenue growth • Renewed focus on driving value and volume will solidify competitive position • AMAK contributing equity in earnings – continued operating improvements and consistent cash generation enhance the opportunity for monetization of investment in mine 16
Q&A Thank You Please visit our websites: www.trecora.com www.southhamptonr.com www.TrecChem.com www.amak.com.sa 17
Appendix RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES(1) Three months ended Twelve months ended 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 12/31/2017 12/31/2016 NET INCOME $ 2,215 $ 2,352 $ 13,972 $ 1,718 $ 832 $ 18,009 $ 19,428 Bargain purchase gain - - - - - - 11,549 Equity in earnings (losses) of AMAK/Gain on equity issuance 228 230 900 (897) (3,298) (4,261) 1,689 Taxes at statutory rate (2) (48) (48) (189) 314 1,154 895 (4,633) Tax effected equity in AMAK 180 182 711 (583) (2,144) (3,366) $8,605 Tax rate change $10,307 $10,307 Diluted weighted average number of shares 25,014 25,231 25,202 25,157 25,034 25,129 24,982 Estimated effect on diluted EPS $0.01 $0.01 $0.44 ($0.02) ($0.09) $0.28 $0.34 Diluted EPS $0.09 $0.09 $0.56 $0.07 $0.03 $0.72 $0.78 Adjusted EPS $0.08 $0.08 $0.12 $0.09 $0.12 $0.44 $0.44 Three months ended Twelve months ended 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 12/31/2017 12/31/2016 NET INCOME (LOSS) $ 2,215 $ 2,352 $ 13,972 $ 1,718 $ 832 $ 18,009 $ 19,428 Interest 815 878 822 795 678 2,931 1,985 Taxes 596 590 (9,129) 577 332 (7,159) 10,504 Depreciation and amortization 191 196 217 246 205 872 761 Depreciation and amortization in cost of sales 2,837 2,829 2,778 2,564 2,363 10,089 9,016 EBITDA 6,654 6,846 8,660 5,900 4,410 24,742 41,694 Share based compensation (220) 592 702 716 656 2,707 2,552 Bargain purchase gain - - - - - - (11,549) Gain from additional equity issuance by AMAK - - - - - - (3,168) Equity in losses of AMAK (228) (230) (900) 897 3,298 4,261 1,479 Adjusted EBITDA $ 6,206 $ 7,208 $ 8,462 $ 7,513 $ 8,364 $ 31,710 $ 31,008 Revenue 68,106 71,741 65,978 61,508 62,115 245,143 212,399 Adjusted EBITDA Margin (adjusted EBITDA/revenue) 9.1% 10.0% 12.8% 12.2% 13.5% 12.9% 14.6% (1) This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in 18 conjunction with our consolidated financial statements prepared in accordance with GAAP. (2) Statutory tax rate of 35% used for 1Q17, 2Q17, 3Q17, FY16 and 21% used for 4Q17, FY2017, 1Q18, 2Q18