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Trecora Resources Reports Second Quarter 2016 Results

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Strong Revenue Growth at TC, Up 31.8% Year-over-Year

Key Capital Projects Continue on Schedule

Conference Call at 4:30 pm ET Today

SUGAR LAND, Texas, Aug. 4, 2016 /PRNewswire/ -- Trecora Resources (NYSE: TREC) a leading provider of high purity specialty hydrocarbons and waxes, today announced financial results for the second quarter and six months ended June 30, 2016.

TREC owns and operates a facility in southeast Texas 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, TREC is a 35% owner of Al Masane Al Kobra Mining Co. For more information please access TREC's website at Trecora.com. (PRNewsFoto/Trecora Resources)

Second Quarter 2016 Highlights

  • Net income of $12.1 million, or $0.48 per diluted share, compared with net income of $6.4 million, or $0.25 per diluted share, for the second quarter of 2015. Net income benefited from a bargain purchase gain on the recently acquired BASF facility ("B Plant") of $11.5 million and equity in earnings for AMAK of $1.8 million for an estimated combined impact of $0.34 per diluted share on an after-tax basis
  • Installation of the Aromax® Process unit at South Hampton Resources began following receipt of the construction and operating permit from the Texas Commission on Environmental Quality
  • Expansion of the custom processing distillation and hydrogenation unit at Trecora Chemical proceeded on schedule with completion expected in January 2017
  • Trecora Chemical initiated operations at B Plant with production one month after acquiring the facility from BASF

Trecora President and CEO Simon Upfill-Brown commented, "We achieved solid profitability levels in the second quarter while managing customer maintenance turnarounds, other mostly temporary volume shortfalls, and pricing pressure due to the challenging energy market. At South Hampton Resources, lower volumes and average selling prices impacted revenue, while feedstock cost volatility contributed to a narrowing of gross margins. On the positive side, we expect continued strong demand from Canadian oil sands projects, and see a growing order pipeline from other international customers.  At Trecora Chemical, record wax sales drove strong year-over-year revenue growth.  In addition, B Plant immediately demonstrated its value by processing a wax order just weeks after we acquired the facility."

Second Quarter Financial 2016 Results

Total revenue in the second quarter was $48.9 million, compared with $59.4 million in the second quarter of 2015. The decline in reported revenue was driven by a 13.3% decrease in petrochemical sales volume, and a 13.1% decrease in the average sales price of petrochemical products, both compared with the second quarter of 2015. The lower average sales price was the result of a 21.4% year-over-year reduction in the average per-gallon cost of petrochemical feedstock, which is the basis for the formula pricing for over 60% of the Company's petrochemical product sales.

Gross profit in the second quarter was $11.6 million, or 23.7% of total revenues, compared with $14.6 million, or 24.6% of total revenues, in the second quarter of 2015.  Operating income for the second quarter was $5.9 million, compared with operating income of $9.5 million for the second quarter of 2015. 

Net income for the second quarter was $12.1 million, or $0.48 per diluted share, compared with net income of $6.4 million, or $0.25 per diluted share, for the second quarter of 2015. Net income benefited from a bargain purchase gain on the recently acquired B Plant of $11.5 million and equity in earnings for AMAK of $1.8 million for an estimated combined impact of $0.34 per diluted share on an after-tax basis. Equity in loss of AMAK in the second quarter of 2015 was $0.4 million.

Adjusted EBITDA was $8.9 million, compared with Adjusted EBITDA of $12.3 million in the year-ago period. Adjusted EBITDA margin was 18.1% in the second quarter of 2016, compared with 20.8% in the second quarter of 2015.

Mr. Upfill-Brown added, "During the quarter, we continued to make significant progress on our capital project initiatives. Construction of the Aromax® Process unit is underway and will be completed by the middle of next year; we remain on schedule at TC to complete construction of the hydrogenation and distillation unit in early 2017; and B Plant is being successfully integrated with TC operations.

"These key capital projects, combined with the previously completed D-Train at SHR, are focused at increasing revenue and improving profitability.  Our total level of investment of nearly $100 million was undertaken in anticipation of significant chemical industry expansion that is expected to come on line in the coming years and to allow us to stay ahead of demand for pentanes.  We have identified several major polyethylene projects in North America, mostly in the Gulf Coast region, that are expected to startup between 2016 and 2020. High margin custom processing opportunities will likewise grow significantly.  We believe our capacity expansions and profitability improvement projects have the potential to drive an additional estimated $28 million to $36 million in annual EBITDA beginning in the 2018 to 2020 time frame, which clearly justifies our large capital investment.  It is important to note that our capital expenditures return to a maintenance level of approximately $8 million per year in the second half of 2017.  The exciting market environment, combined with our successful track record of serving the largest and most demanding customers in the chemical industry, is the foundation for driving long-term shareholder value," Mr. Upfill-Brown concluded.

South Hampton Resources (SHR)
Petrochemical volume in the second quarter was 17.0 million gallons, compared with 19.6 million gallons in the second quarter of 2015. Prime product volume in the second quarter of 2016 was 13.6 million gallons, compared with 15.3 million gallons in the second quarter of 2015. Byproduct volume, which is sold at lower margins, was down 20.6% year-over-year to 3.4 million gallons. 

International volume represented 21.4% of total petrochemical volume during the quarter.

 

SHR SEGMENT INFORMATION*



THREE MONTHS ENDED




JUNE 30,




2016

2015

% Change

  Product sales

$ 39,202

$52,342

(25.1)

  Processing fees

2,419

1,521

59.0

  Net revenues

41,621

53,863

(22.7)

  Operating profit before depreciation and amortization

9,476

12,850

(26.3)

  Operating profit

8,048

11,902

(32.4)

  Depreciation and amortization

1,428

950

50.3

  EBITDA

9,470

12,850

(26.3)

  Adjusted EBITDA

9,470

12,850

(26.3)

  Capital expenditures

5,739

6,204

(7.5)





  *Dollar amount in thousands




 

Trecora Chemical (TC)
In the second quarter, TC generated revenues of $7.2 million, up 31.8% from $5.5 million from the second quarter of 2015.  TC revenue included $5.2 million of wax product sales, up 19.5%, and $2.1 million of custom processing fees, up 77.7%, both compared with the second quarter of 2015.

Excluding the bargain purchase gain from B Plant, TC's Adjusted EBITDA in the second quarter was $0.7 million, compared with $0.4 million in the second quarter of 2015.

During the quarter, B Plant initiated its first production run which was a new high purity specialty wax product that could not be handled at TC due to capacity constraints. B Plant continues to review several projects to drive future revenue growth while helping TC achieve significant operating efficiencies.

 

TC SEGMENT INFORMATION*



THREE MONTHS ENDED




JUNE 30,




2016

2015

% Change

  Product sales

$ 5,164

$4,323

19.5

  Processing fees

2,069

1,164

77.7

  Net revenues

7,233

5,487

31.8

  Operating profit before depreciation and amortization

584

430

35.8

  Operating loss

(196)

(732)

73.2

  Depreciation and amortization

780

1,161

(32.8)

  EBITDA

12,264

400

2966.0

  Adjusted EBITDA (excluding bargain purchase gain)

715

400

78.8

  Capital expenditures

5,053

2,903

74.1





  *Dollar amount in thousands




 

Al Masane Al Kobra Mining Company (AMAK)
Trecora reported equity in earnings of AMAK of approximately $1.8 million during the second quarter of 2016. As previously announced, in July AMAK sold 3.75 million shares at $5.33 per share to provide additional funds for ongoing exploration work and mine start-up activities. Trecora Resources did not participate in the offering, thereby reducing its ownership percentage in AMAK to 33.4% from 35.3%. Exploration and renovation work, including installation of new equipment, continued during the quarter, and zinc and copper production is expected to resume in the fourth quarter of 2016.

Year-to-Date 2016 Results 
Total revenue for the six months ended June 30, 2016 was $101.1 million, compared with revenue of $114.5 million in the first six months of 2015.

Gross profit for the first six months of 2016 was $23.3 million, compared with $29.7 million in the same period in 2015.  Gross profit margin in the first six months of 2016 was 23.1%, compared with 26.0% in the same period in 2015.

Net income for the first six months of 2016 was $19.3 million, compared with $12.2 million in the same period of 2015. Diluted EPS was $0.77, compared with $0.48 in the same period of 2015. Net income benefitted from equity in earnings for AMAK of $7.2 million and a bargain purchase gain on the acquisition of B Plant of $11.5 million for an estimated combined impact of $0.48 per diluted share on an after-tax basis.

Adjusted EBITDA for the first six months of 2016 was $18.0 million, compared with $24.9 million in the same period in 2015. Adjusted EBITDA margin in the first six months of 2016 was 17.8%, compared with 21.7% in the same period of 2015.

South Hampton Resources (SHR)
Petrochemical volume in the first half was 37.4 million gallons, compared with 37.7 million gallons in the first half of 2015. Prime product volume in the first half of 2016 was 28.2 million gallons, compared with 29.4 million gallons in the first half of 2015. Byproduct volume, which is sold at lower margins, was down 9.7% year-over-year to 9.2 million gallons.

International volume represented 21.0% of total petrochemical volume during the quarter.

 

SHR SEGMENT INFORMATION*



SIX MONTHS ENDED




JUNE 30,




2016

2015

% Change

  Product sales

$ 81,826

$99,525

(17.8)

  Processing fees

3,860

3,045

26.8

  Net revenues

85,686

102,570

(16.5)

  Operating profit before depreciation and amortization

17,886

24,562

(27.2)

  Operating profit

15,122

22,519

(32.8)

  Depreciation and amortization

2,764

2,043

35.2

  EBITDA

17,880

24,602

(27.3)

  Adjusted EBITDA

17,880

24,602

(27.3)

  Capital expenditures

11,401

13,019

(12.4)





  *Dollar amount in thousands




 

Trecora Chemical (TC)
In the first half, TC generated revenues of $15.4 million, up 28.9% from $11.9 million from the first half of 2015. 

 

TC SEGMENT INFORMATION*



SIX MONTHS ENDED




JUNE 30,




2016

2015

% Change

  Product sales

$ 9,721

$7,681

26.6

  Processing fees

5,647

4,242

33.1

  Net revenues

15,368

11,923

28.9

  Operating profit before depreciation and amortization

2,647

2,503

5.8

  Operating profit

816

196

316.3

  Depreciation and amortization

1,831

2,307

(20.6)

  EBITDA

14,321

2,471

479.6

  Adjusted EBITDA (excluding bargain purchase gain)

2,772

2,471

12.2

  Capital expenditures

6,993

3,831

82.5





  *Dollar amount in thousands




 

Balance Sheet
As of June 30, 2016, cash and cash equivalents were $9.3 million, compared with $18.6 million at the close of 2015. Inventory was $20.1 million, compared with $15.8 million at December 31, 2015.  Excluding loan fees, total debt was $78.1 million. Capital expenditures during the second quarter were $10.8 million including the acquisition of B Plant, the hydrogenation/distillation unit project, the new advanced reformer unit, a new cooling tower, and a new custom processing unit along with various improvements throughout both facilities.

Earnings Call
Today'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=120138. 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 4:30 pm Eastern start time; domestic callers (U.S. and Canada) should call 1-888-510-1765 or 1-719-325-2281 if calling internationally, using the conference ID 5809421. To listen to the playback, please call 1-877-870-5176 if calling within the United States or 1-858-384-5517 if calling internationally. Use pin number 5809421 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: Adjusted EBITDA and Adjusted EBITDA Margin.  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.

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, 2015, 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:
Don Markley
The Piacente Group
212-481-2050
trecora@tpg-ir.com

 

TRECORA RESOURCES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



JUNE 30,

2016

(unaudited)

DECEMBER 31,

2015

ASSETS

(thousands of dollars)

 Current Assets



  Cash and cash equivalents

$  9,346

$  18,623

  Trade receivables, net

17,581

19,474

  Inventories

20,064

15,804

  Prepaid expenses and other assets

2,200

2,392

  Taxes receivable

4,921

7,672

  Deferred income taxes

2,007

2,116

          Total current assets

56,119

66,081




  Plant, pipeline and equipment, net

122,547

96,907




  Goodwill

21,798

21,798

  Other intangible assets, net

23,605

24,549

  Investment in AMAK

54,865

47,697

  Mineral properties in the United States

588

588

  Other assets

130

171




     TOTAL ASSETS

$ 279,652

$ 257,791




LIABILITIES



  Current Liabilities



    Accounts payable

$  6,284

$  8,090

    Current portion of derivative instruments

97

118

    Accrued liabilities

4,758

4,062

    Current portion of post-retirement benefit

388

294

    Current portion of long-term debt

8,061

8,061

    Current portion of other liabilities

904

2,050

          Total current liabilities

20,492

22,675




  Long-term debt, net of current portion

69,138

73,169

  Post-retirement benefit, net of current portion

649

649

  Derivative instruments, net of current portion

25

59

  Other liabilities, net of current portion

2,513

2,351

  Deferred income taxes

23,856

16,503

     Total liabilities

116,673

115,406




EQUITY



  Common stock‑authorized 40 million shares of $.10 par value; issued and outstanding 24.2 million and 24.1 million shares in 2016 and 2015, respectively

2,451

2,416

  Additional paid-in capital

52,213

50,662

  Common stock in treasury, at cost 0.3 million shares

(300)

-

  Retained earnings

108,326

89,018

  Total Trecora Resources Stockholders' Equity

162,690

142,096

  Noncontrolling Interest

289

289

   Total equity

162,979

142,385




     TOTAL LIABILITIES AND EQUITY

$ 279,652

$ 257,791

 

TRECORA RESOURCES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)



THREE MONTHS ENDED

SIX MONTHS ENDED


JUNE 30,

JUNE 30,


2016

2015

2016

2015


(thousands of dollars)

REVENUES





  Petrochemical and Product Sales

$ 44,366

$ 56,665

$ 91,547

$ 107,206

  Processing Fees

4,488

2,685

9,507

7,287


48,854

59,350

101,054

114,493






OPERATING COSTS AND EXPENSES





   Cost of Sales and Processing (including depreciation and amortization of $2,028, $1,939, $4,247, and $3,965, respectively)

37,280

44,756

77,709

84,776






   GROSS PROFIT

11,574

14,594

23,345

29,717






GENERAL AND ADMINISTRATIVE EXPENSES





  General and Administrative

5,491

4,933

10,940

10,108

  Depreciation

187

170

364

385


5,678

5,103

11,304

10,493






OPERATING INCOME

5,896

9,491

12,041

19,224






OTHER INCOME (EXPENSE)





  Interest Expense

(607)

(570)

(1,235)

(1,183)

  Bargain purchase gain from acquisition

11,549

-

11,549

-

  Equity in Earnings (Losses) of AMAK

1,801

(369)

7,168

(310)

  Miscellaneous Income (Expense)

123

(33)

110

(1)


12,866

(972)

17,592

(1,494)






  INCOME BEFORE INCOME TAXES

18,762

8,519

29,633

17,730






  INCOME TAXES

6,678

2,145

10,325

5,572






  NET INCOME

12,084

6,374

19,308

12,158






 NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST

--

--

--

--






 NET INCOME ATTRIBUTABLE TO TRECORA RESOURCES

$ 12,084

$ 6,374

$ 19,308

$ 12,158






Basic Earnings per Common Share





  Net Income Attributable to Trecora Resources (dollars)

$ 0.49

$ 0.26

$ 0.79

$ 0.50






  Basic Weighted Average Number of Common Shares Outstanding

24,504

24,354

24,494

24,331






Diluted Earnings per Common Share





  Net Income Attributable to Trecora Resources (dollars)

$ 0.48

$ 0.25

$ 0.77

$ 0.48






  Diluted Weighted Average Number of Common Shares Outstanding

25,185

25,155

25,135

25,150

 

TRECORA RESOURCES AND SUBSIDIARIES

RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES(1)



Three months ended 06/30/16


Three months ended 06/30/15


TC

SHR

CORP

TREC


TC

SHR

CORP

TREC

NET INCOME OR LOSS

$   7,443

$   6,092

$   (1,451)

$   12,084


$   (493)

$   8,201

$   (1,334)

$   6,374

Add back:










  Interest

-

606

1

607


-

569

1

570

  Taxes

4,041

1,344

1,293

6,678


(266)

3,130

(719)

2,145

  Depreciation and amortization

16

164

7

187


22

148

-

170

  Depreciation and amortization in cost of sales

764

1,264

-

2,028


1,137

802

-

1,939

EBITDA

$ 12,264

$ 9,470

$ (150)

$ 21,584


$ 400

$ 12,850

$ (2,052)

$ 11,198

Share based compensation

-

-

627

627


-

-

764

764

Bargain purchase gain

(11,549)

-

-

(11,549)


-

-

-

-

Equity in (earnings) losses of AMAK

-

-

(1,801)

(1,801)


-

-

369

369

Adjusted EBITDA

$ 715

$ 9,470

$ (1,324)

$ 8,861


$ 400

$ 12,850

$  (919)

$  12,331











Revenue

$ 7,233

$ 41,621

$ -

$ 48,854


$ 5,487

$ 53,863

$ -

$ 59,350

Adjusted EBITDA Margin

(adjusted EBITDA/revenue)

9.9%

22.8%


18.1%


7.3%

23.9%


20.8%






Six months ended 06/30/16


Six months ended 06/30/15


TC

SHR

CORP

TREC


TC

SHR

CORP

TREC

NET INCOME OR LOSS

$   8,449

$   8,893

$   1,966

$   19,308


$  107

$   14,530

$   (2,479)

$   12,158

Add back:










  Interest

-

1,232

3

1,235


-

1,179

4

1,183

  Taxes

4,041

4,991

1,293

10,325


57

6,850

(1,335)

5,572

  Depreciation and amortization

36

312

16

364


42

343

-

385

  Depreciation and amortization in cost of sales

1,795

2,452

-

4,247


2,265

1,700

-

3,965

EBITDA

$ 14,321

$ 17,880

$ 3,278

$ 35,479


$ 2,471

$ 24,602

$ (3,810)

$ 23,263

Share based compensation

-

-

1,274

1,274


-

-

1,289

1,289

Bargain purchase gain

(11,549)

-

-

(11,549)


-

-

-

-

Equity in (earnings) losses of AMAK

-

-

(7,168)

(7,168)


-

-

310

310

Adjusted EBITDA

$ 2,772

$ 17,880

$ (2,616)

$ 18,036


$ 2,471

$ 24,602

$  (2,211)

$  24,862











Revenue

$ 15,368

$ 85,686

$ -

$ 101,054


$ 11,923

$ 102,570

$ -

$ 114,493

Adjusted EBITDA Margin

(adjusted EBITDA/revenue)

18.0%

20.9%


17.8%


20.7%

24.0%


21.7%


(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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SOURCE Trecora Resources