Earnings Transcript for SIRE - Q3 Fiscal Year 2019

Operator: Welcome to Ciner Resources' Third Quarter 2019 Earnings Conference Call and Webcast. Hosting the call today from Ciner Resources is Mr. Ogüz Erkan, Chief Executive Officer. He is joined by Mr. Ed Freydel. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions, following the presentation. [Operator Instructions]It is now my pleasure to turn the call over to Ed Freydel. Please go ahead.

Ed Freydel: Thanks, Crystal. Good morning and thank you for joining us to discuss our third quarter 2019 earnings. Ogüz Erkan, our CEO, will discuss some highlights from the quarter. I will then provide additional details related to our financials, and Ogüz will close the call with some additional commentary on our operational performance and growth plans. We will then take your questions.Before we begin, I would like to remind you that the comments included in today's conference call constitute forward-looking statements. Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail in the company's SEC filings. Certain financial measures discussed during this call are considered pro forma, and are therefore non-GAAP financial measures. Reconciliations of those non-GAAP financial measures can be found in our earnings press release.I will now turn the call over to Ogüz.

Ogüz Erkan: Thanks, Ed, and good morning everyone. Welcome to Ciner Resources' third quarter 2019 earnings call. We are very excited to report that quarter three 2019 was the best production quarter in the plant's history, with 711,000 short tons produced, and marking the fourth consecutive quarter of record production levels. This is the second time ever the plant generated over 700,000 short tons in a quarter, with the prior record set in Q4, 2018 at 709,000 short tons. It is evident that our focus on operational reliability and higher overall utilization has continued to show its results in our production volumes.Steady demand for soda ash has continued to drive favorable pricing dynamics, with third quarter 2019 domestic price up 6.7%, and international pricing up 4.6%, compared to Q3 of last year. Domestic prices are also up 8.3%, and international prices are up 6.1% for the first nine months of 2019, as compared to the same period in 2018. Some of this price movement is related to our efforts to optimize our sales mix through the year, redirecting volumes from lower priced domestic customers to the export market to maximize our net return. Consequently, our overall sales mix in the first nine months of 2019 has shifted to 68% international and 32% domestic from 58% international and 42% domestic over the same period in 2018.We will continue to monitor both the domestic and international market to shift our sales as needed to maximize our net return. The favorable pricing environment coupled with our strong production profile has driven net sales to approximately $137 million in Q3, 2019, an 11% increase over Q3, 2018, and to nearly $400 million for the first nine months of 2019, a 12% increase over the same period in the prior year. Net income and adjusted EBITDA as a result have also benefited, increasing by approximately 57% and 35% respectively from the prior year third quarter to $29.9 million and $37.6 million, respectively and supporting approximately $107.5 million of net income and $141 million of adjusted EBITDA generated in the last 12 months ended September 30, 2019.Turning to our capital projects, we're now in the final states of installing our new cogeneration facility. Once fully operational, the infrastructure will allow us to self generate approximately one-third of our electricity consumption that we will otherwise purchase from the local utility company. We continue to expect that the co-gen will be operational by the year end. We have also begun the design and engineering for our new expansion project, and continue to find ways to optimize this growth project with the whole plant in mind. In addition to increasing production capacity to approximately 3.5 million tons, a major expansion such as this presents the opportunity to streamline various plant processes and then optimize the site layout.Future projects that were already needed to upgrade legacy systems will be included in the scope of this expansion plan, including improvements to our logistics, electrical, and tailing infrastructure. Moreover, we are utilizing the experience of our parent company, which has recently executed in two large soda ash expansions and new build projects to support our project development efforts.Now, I will turn the call over to Ed who will discuss our financial results for the quarter in more detail.

Ed Freydel: Thank you, Ogüz, and thanks everyone for joining our call, and for your continued interest in Ciner Resources. Today, I'll provide some detail around our third quarter performance, the major financial drivers from the quarter, and some key metrics we use to evaluate our business. To begin, total volume sold in the third quarter of 2019 was 709,000 short tons, and during the first nine months of 2019 was 2.06 million tons, each of which represents an 8% increase compared to the same periods in 2018. These marked increases from the same period last year are driven by our successful execution of planned maintenance outages, and our commitment to steady operating performance.As Ogüz mentioned, we shifted sales away from the domestic market in Q3 of 2019 by approximately 30,000 tons compared to Q3 of 2018, an by 136,000 tons through the first nine months of the year to take advantage of favorable pricing in export markets. This rebalancing of our sales mix has shown through in our domestic sales price, which is up almost 7% over the prior year third quarter, and over 8% for the same first nine-month period of last year. Total international volumes sold increased by approximately 83,000 tons in the third quarter of 2019 compared to Q3, 2018, and by 292,000 tons through the first nine months of 2019 as compared to the same period last year with international pricing up approximately 5% in the third quarter of 2019, compared to Q3 2018, and 6% through the first nine months of 2019 as compared to the same period last year.Combination of adjusting our sales mix and continued strong production performance resulted in total net sales reaching a $137 million in the third quarter and $397 million through the first nine months of the year, or an increase of 11% and 12% respectively as compared to the same period last year. Cost of product sold including freight in the third quarter increased from $90 million in 2018 to $94 million in 2019, and cost for the first nine months increased from $265 million in 2018 to $275 million in 2019. While variable cost in freight increased do to incremental sales volumes, both variable and fixed cost were lower for these periods in 2019 as compared to the same period in 2018 on a per ton basis.Variable cost per ton decreased during these periods in 2019 primarily because of lower materials cost and lower natural gas prices as compared to the same period in 2018. Fixed cost during the third quarter of 2019 were down due to a decrease in consulting fees and overall maintenance related expenses offset by higher compensation related cost.SG&A expenses of $5.1 million in the third quarter of 2019 decreased by 16% over the same period in the prior year while SG&A expenses of $19.5 million through the first nine months of 2019 increased by 3% as compared to the same nine month period in 2018. The decrease in the third quarter of 2019 as compared to Q3 2018 was driven primarily by lower employee benefit expenses and professional fees.While the increase during the first nine months of 2019 as compared to the same period last year was caused by higher compensation expenses and a higher allocation of our export affiliates overhead cost given our increase in international volumes. Cash provided by operations of $40.6 million in the third quarter of 2019 decreased 45% from the period in the prior year, primarily due to the cash recognition of the $227.5 million litigation settlement in Q3 2018.Quarter-over-quarter cash provided by operations rose 81% in Q3 2091 from $22.4 million in Q2 2019. From a balance sheet perspective, we continue to maintain a conservative balance sheet with the leverage ratio of 0.95 times as calculated for Ciner Wyoming Credit Facility. Next, let's turn to discuss how these results translate into two other key metrics we monitor as an NLP, adjusted EBITDA and distributable cash flow.In the third quarter of 2019, we delivered $37.6 million in adjusted EBITDA, providing us with a trailing 12 month adjusted EBITDA for the period ending September 30, 2019 of approximately $141 million. Distributable cash flow attributable to Ciner Resources in the third quarter of 2019 was $16.2 million, and included cash maintenance capital expenditures of $1.5 million. At a $0.34 per unit distribution, our coverage ratio was 2.35 for the third quarter of 2019 and 2.22 for the first nine months of the year.Now I will turn the call back over to Ogüz to provide more commentary on our growth strategy.

Ogüz Erkan: Thanks, Ed. Our strong financial results are encouraging. And it's evident that a consistent production profile largely driven by our skilled employees is the foundation of our business's success. Thus, reinvestment in our assets and employee is a key priority for us. Our commitment to production reliability and continuous improvement coupled with our focus on developing and supporting our employees will continue to generate strong operational and financial results for our business. We remain optimistic about long-term global soda ash demand and market fundamentals.Considering our low cost position in the Green River Basin where new investments has lacked in recent years, we intend to capitalize on rising consumption trends with our new expansion projects. With our parent company being a recognized world leader in the industry, we have the opportunity to benefit substantially by continuing to serve growing global soda ash demand with a low-cost natural soda ash.Looking ahead, we're excited to be in a transformative growth phase for Ciner Resources. Our team is working diligently on our expansion project in addition to our ongoing maintenance, capital expenditure initiatives. We are confident in the decision to reduce our distribution in order to devote more of our cash generation to capital investment and position ourselves for a long-term growth. A balanced funding approach not only helps keep our cost of capital down, but also provides strategic flexibility throughout our growth space and beyond.In addition, while we remain focused on the long-term objectives of our business, we will continue to utilize our parent company's technical and operational expertise, and our combined presence as the world's largest natural soda ash producer to benefit our current operations and financial performance.In closing, I'm extremely proud of, and grateful for our people who do great things every day in a safe manner. I want to congratulate in particular the team in Wyoming for consistently being recognized as one of the safest large mines in North America by both the Industrial Minerals Association and Wyoming Mining Association. I cannot thank our employees enough for the job they have done supporting our growing business, and they are buying to our vision for Ciner's future. Thank you for your continued interest in Ciner Resources. This concludes our prepared remarks.

Operator: And thank you ladies and gentlemen, this does conclude today's conference call. You may now disconnect.