Trecora Resources

Good day, and welcome to the Trecora Resources first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Today's conference is being recorded, and at this time, I would like to turn the call over to Jason Finkelstein from the Peer Center Group. Please go ahead, Jason.

Thank you, Operator, and good morning, everyone. Welcome to the Trecora Resources first quarter 2021 earnings conference call. The earnings release was 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. Christopher Groves, our Corporate Controller, 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 On this call, there are not historical facts or forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon management's beliefs and expectations only as of the date of this teleconference, May 5th, 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 and Tracora's 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. For a definition of non-GAAP financial measures and a reconciliation of GAAP and non-GAAP financial results, please see the earnings release issued after the close of the financial markets yesterday afternoon. The webcast is accompanied by a slide presentation that is available in the investor section of the company's website, www.tricora.com. At this time, I'd like to turn the call over to Tricora's President and CEO, Pat Quarles.

Thank you, Jason. Good morning, everyone, and thank you for joining us today. Over the last year, we've been focused on strengthening our balance sheet and managing through the uncertainties and disruptions created by the COVID-19 pandemic. ensuring that Tricora emerged in a position of strength. We've also been very clear that prudent capital allocation, including returning value to our shareholders, was among our highest priorities. While we entered Q1 well-positioned to both benefit from the recovery and leverage our evolving growth portfolio, February sub-freezing temperatures in Texas and the Gulf Coast resulted in significant disruptions to our customers and supply chain. as well as higher utility, repair, and maintenance costs at both facilities. At Southampton, we were fortunate not to experience loss of electricity or natural gas. We were out of operation for one week. During that time, we were able to repair most of the damage to our equipment, which is largely related to water handling equipment, and we avoided any supply disruptions to our customers. At TraCore Chemical, we lost both electricity and natural gas. Operations at TC were down for roughly two weeks, during which time we completed most of the repairs to damage equipment. From a financial performance perspective, in Q1, we had a net loss from continuing operations of $4.4 million compared to net income from continuing operations of $5.9 million last year. Q1 adjusted EBITDA from continuing operations was a negative half million dollars compared to positive five and a half million dollars last year. We estimate the total freeze event impact to Q1 EBITDA to be between $4.5 to $5 million. This includes higher utility and maintenance costs, as well as loss of sales from our outage and outages at our customers and suppliers. While the impact of the freeze was largely confined to Q1, certain customers and suppliers continued to experience residual effects into Q2. Following the freeze event in February, The Board authorized a $20 million share repurchase program, which reflects the resilience of our business, our strong balance sheet, and ample liquidity. Our debt at the end of Q1, the lowest level since Q3 of 2014, continues to keep us at our target leverage ratio. By the end of the first quarter, our growth funnel had 12 projects focused on delivering new products or entering new markets. eleven projects focused on driving asset utilization with revenues that don't require significant capital, and five projects focused on improving productivity and reducing costs. Of the asset utilization projects, we have converted two of our successful commercial trials to new custom processing business beginning in Q2. These projects will allow us to significantly load the new distillation column at TC. On productivity, we executed a significant cost reduction project at the beginning of April at TC. In addition to focusing on increased utilization of TC's assets, we have recognized the importance of improving its overall cost structure to benefit its financial performance. The site restructuring is expected to lower costs at TC by about $1.5 million a year beginning in April. In addition to the new business in Q2, we are seeing several positive market developments. The strength of the U.S. economy is driving solid demand across all of our key end uses. It's also supporting price increase initiatives in the market. For our solvents business, you will recall we increased nine formula prices last November, 10 cents per gallon. And in February, we increased them a further 15 cents per gallon. We have a further 10 cent per gallon increase currently in the market. It's not known yet whether this one will be fully successful. Byproduct values are also changing rapidly. Our byproduct prices move according to a formula linked to benzene, toluene, and our feedstock. While feedstock and toluene prices have been relatively stable in the second quarter, benzene has become very tight and pricing is responding. April contract price for benzene was $3.01 a gallon. May benzene settled last week at $4.60 a gallon. That translates to about 44 cents per gallon improvement in byproduct spread from April to May. I will note, we expect benzene pricing to remain volatile and is currently backward-dated. So, while we expect the byproduct spreads to remain strong, they are unlikely to stay at these levels for long. For our waxes, we implemented increases up to 6 cents per pound in April and have announced a 12 cent per pound increase in mid-May. Like our solvents price increase, the magnitude of the realized increase is not yet known. We're also seeing a step up in our custom processing activities due both to demand from our pre-existing customers as well as the new business from our growth program I mentioned. However, there do remain some headwinds in Q2. Some of our solvents customers continue to have production constraints due to the February freeze event And supply chain disruptions generally are a challenge, particularly in the trucking and international markets. Lastly, I also want to note that we executed a scheduled turnaround of some of our units in Silsby during the first quarter. Without a planned turnaround in the second quarter, this will sequentially benefit the quarter by about $1 million. We remain committed to our goal of creating long-term value for our shareholders and returning capital if we don't believe we have higher value opportunities to grow our company. As far as our share repurchase program, during the last few days of March, we purchased approximately 88,000 shares and an average price of $7.86. Our program continues into the second quarter. Now, let me turn it over to Sami to discuss the specifics of our Q1 results.