Trecora Resources Reports Second Quarter 2017 Results



Revenue Increased 27% Year-over-Year; Prime Product Volume Up 20%

Strong Quarterly Wax Sales at Trecora Chemical

Conference Call at 4:30 pm ET Today

SUGAR LAND, Texas, Aug. 3, 2017 /PRNewswire/ -- 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, 2017.

"We are pleased to report a strong operational quarter driven by a nearly 20% increase in prime product volume compared to the same quarter a year ago and continued progress on our transformational capital projects," said Simon Upfill-Brown, President and CEO. "Total revenue increased 27.1% compared to second quarter of 2016 as a result of increased average selling prices and strong volume growth, and while our gross margins were softer due to higher feedstock and operating costs, we reported an increase in adjusted EBITDA as compared to the previous quarter. More importantly, while our reported EPS was $0.03 per diluted share, this was significantly impacted by an equity loss attributable to the AMAK operations of $3.3 million, or a loss of $0.09 per diluted share. Excluding this impact, adjusted EPS was actually $0.12 per diluted share for the second quarter, showing significant quarterly improvement over the first quarter of 2017.

"We also reported another solid quarter at Trecora Chemical driven by a 31.8% year-over-year increase in revenue," continued Upfill-Brown. "Our new distillation unit generated revenue this quarter while our hydrogenation unit entered its initial start-up phase and is on track to provide additional revenue contributions in the third quarter. With these capital projects now reaching completion, combined with a full pipeline of custom processing projects, we expect continued growth throughout the second half of 2017.

"Finally, AMAK made solid progress within the mine operations as they continued to upgrade personnel and improve operations," said Upfill-Brown. "Although there were no copper or zinc concentrate sales in the second quarter, thereby causing a greater quarterly equity loss, concentrate deliveries to the port showed substantial increases with 54% more copper concentrate and 60% more zinc concentrate transported as compared to the first quarter. Shipments are expected in the third quarter. These actions, along with the exploration results, additional drilling set to start adjacent to Guyan, and a life of mine update for the copper and zinc assets expected in the fourth quarter, should continue the positive momentum into the second half of 2017."

Second Quarter 2017 Financial Results
Total revenue in the second quarter was $62.1 million, compared with $48.9 million in the second quarter of 2016, an increase of 27.1%. The increase in reported revenue was driven by a 5.4% increase in the average sales price of petrochemical products and a 22.6% increase in in petrochemical sales volume, compared with the second quarter of 2016. The higher average sales price was partially offset by an 18.2% year-over-year increase in the average per-gallon cost of petrochemical feedstock which is the basis for the formula pricing for about 60% of the Company's petrochemical product sales. Since formula pricing is based upon prior month feedstock averages, sales price increases tend to lag higher feedstock costs resulting in lower profit margins in the period.

Gross profit in the second quarter was $11.1 million, or 17.9% of total revenues, compared with $11.6 million, or 23.7% of total revenues, in the second quarter of 2016. Operating income for the second quarter was $5.2 million, compared with operating income of $5.9 million for the second quarter of 2016.

Net income for the second quarter was $0.8 million, or $0.03 per diluted share, compared with $10.3 million, or $0.41 per diluted share, for the second quarter of 2016. Adjusted net income for the quarter was $3.0 million, or $0.12 per share1. Reported net income in the second quarter of 2017 reflected equity in loss of AMAK of $3.3 million, or an estimated $(0.09) per diluted share on an after-tax basis. Net income in the second quarter of 2016 reflected a bargain purchase gain on the acquired B Plant of $11.5 million and equity in losses for AMAK of $1.0 million for an estimated combined impact of $0.28 per diluted share on an after-tax basis.

Adjusted EBITDA in the quarter was $8.4 million, representing a 13.5% margin, compared with Adjusted EBITDA of $8.9 million, representing an 18.1% margin for the same period a year ago.

South Hampton Resources
Petrochemical volume in the second quarter was 20.8 million gallons, compared with 17.0 million gallons in the second quarter of 2016. Prime product volume in the second quarter of 2017 was 16.3 million gallons, compared with 13.6 million gallons in the second quarter of 2016. Byproduct volume, which is sold at significantly lower margins than prime products, increased 32.4% sequentially and 32.9% year-over-year, to 4.5 million gallons. Byproduct margins were lower year-over-year and from the first quarter of 2017.

International volume represented 22.1% of total petrochemical volume during the quarter, up from 19.6% sequentially and 21.4% from the second quarter of 2016.

SHR SEGMENT INFORMATION*



THREE MONTHS ENDED




JUNE 30,




2017

2016

% Change

  Product sales

$50,508

$39,202

29%

  Processing fees

2,071

2,419

(14%)

  Net revenues

$52,579

$41,621

26%

  Operating profit before depreciation and amortization

8,761

9,476

(8%)

  Operating profit

7,217

8,048

(10%)

  Profit before taxes

6,598

7,435

(11%)

  Depreciation and amortization

1,544

1,428

8%

  EBITDA

8,755

9,470

(8%)

  Capital expenditures

$  9,021

$  5,739

57%





  *Dollar amounts in thousands/rounding may apply




1Based on adjusted net income of $3.0 million and 25.0 million shares outstanding.

Trecora Chemical
In the second quarter, TC generated revenues of $9.5 million, up 31.8% from $7.2 million in the second quarter of 2016. TC revenue included $6.5 million of wax product sales, up 26.0%, and $3.0 million of custom processing fees, up 46.4%, when compared with the second quarter of 2016.

The distillation portion of the hydrogenation/distillation unit project at TC is operational and contributed to revenue in the second quarter. The hydrogenation section recently initiated the start-up process and is expected to contribute to revenues in the third quarter. This unit provides TC with new capabilities to leverage relationships with existing petrochemical customers and drive new custom processing revenue.

EBITDA in the second quarter was $0.8 million, compared with $12.3 million in the second quarter of 2016. Excluding the bargain purchase gain from B Plant, TC's Adjusted EBITDA in the second quarter of 2016 was $0.7 million.

TC SEGMENT INFORMATION*



THREE MONTHS
ENDED



JUNE 30,



2017

2016

% Change

  Product sales

$6,508

$5,164

26%

  Processing fees

3,028

2,069

46%

  Net revenues

$9,536

$7,233

32%

  Operating profit before depreciation and amortization

810

584

39%

  Operating loss

(198)

(196)

(1%)

  Profit (loss) before taxes

(269)

11,484

(102%)

  Depreciation and amortization

1,008

780

29%

  EBITDA

802

12,264

(93%)

  Adjusted EBITDA (excluding bargain purchase gain)

802

715

12%

  Capital expenditures

$ 4,931

$  5,053

(2%)





  *Dollar amounts in thousands/rounding may apply




Al Masane Al Kobra Mining Company (AMAK)
Trecora reported equity in losses of AMAK of approximately $3.3 million during the second quarter of 2017. Operations are progressing according to schedule. Although no copper or zinc concentrate sales were recorded in the second quarter, inventory was built at the port and will be shipped in the third quarter. Guyan exploration results and mineral resources update are complete. Exploration results extending the life of the copper and zinc mine assets, are expected in the fourth quarter.

Year-to-Date 2017 Results
Total revenue for the six months ended June 30, 2017 was $117.7 million, compared with revenue of $101.1 million in the first six months of 2016.

Gross profit for the first six months of 2017 was $21.7 million, compared with $23.3 million in the same period in 2016. Gross profit margin in the first six months of 2017 was 18.5%, compared with 23.1% in the same period in 2016.

Net income for the first six months of 2017 was $2.3 million, compared with $17.5 million in the same period of 2016. Diluted EPS was $0.09, compared with $0.70 in the same period of 2016. Net income in the first half of 2017 was negatively affected by equity in losses of AMAK of $4.3 million. In the first half of 2016, net income benefitted from equity in earnings for AMAK of $4.4 million and a bargain purchase gain on the acquisition of B Plant of $11.5 million for an estimated combined benefit of $0.41 per diluted share on an after-tax basis.

Adjusted EBITDA for the first six months of 2017 was $15.7 million, compared with $18.0 million in the same period in 2016. Adjusted EBITDA margin in the first six months of 2017 was 13.4%, compared with 17.8% in the same period of 2016.

South Hampton Resources (SHR)
Petrochemical volume in the first half was 38.2 million gallons, compared with 37.4 million gallons in the first half of 2016. Prime product volume in the first half of 2017 was 30.2 million gallons, compared with 28.2 million gallons in the first half of 2016. Byproduct volume, which is sold at lower margins, was down 12.9% year-over-year to 8.0 million gallons.

International volume represented 20.9% of total petrochemical volume during the first half of 2017.

SHR SEGMENT INFORMATION*



SIX MONTHS ENDED




JUNE 30,




2017

2016

% Change

  Product sales

$ 94,899

$ 81,826

16%

  Processing fees

3,559

3,860

(8%)

  Net revenues

98,458

85,686

15%

  Operating profit before depreciation and amortization

16,975

17,886

(5%)

  Operating profit

13,875

15,122

(8%)

  Profit before taxes

12,601

13,884

(9%)

  Depreciation and amortization

3,100

2,764

12%

  EBITDA

16,949

17,880

(5%)

  Capital expenditures

17,777

11,401

56%





  *Dollar amount in thousands – rounding may apply




Trecora Chemical (TC)
In the first half of 2017, TC generated revenues of $19.2 million, up 24.9% from $15.4 million for the first half of 2016.

TC SEGMENT INFORMATION*



SIX MONTHS ENDED




JUNE 30,




2017

2016

% Change

  Product sales

$ 13,016

$ 9,721

34%

  Processing fees

6,183

5,647

10%

  Net revenues

19,199

15,368

25%

  Operating profit before depreciation and amortization

1,555

2,647

(41%)

  Operating profit (loss)

(469)

816

(157%)

  Profit (loss) before taxes

(559)

12,490

(104%)

  Depreciation and amortization

2,024

1,831

11%

  EBITDA

1,528

14,321

(89%)

  Adjusted EBITDA (excluding bargain purchase gain)

1,528

2,772

(45%)

  Capital expenditures

10,056

6,993

44%





  *Dollar amount in thousands – rounding may apply




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=125362. 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 1-888-442-4145 or 1-719-457-2080 if calling internationally, using the conference ID 9848527. 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 9848527 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. 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, 2016, 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:
Laurie Little
The Piacente Group
212-481-2050
trecora@tpg-ir.com

TRECORA RESOURCES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



JUNE 30,

2017

 (unaudited)

DECEMBER 31,

2016

ASSETS

(thousands of dollars)

 Current Assets



  Cash and cash equivalents

$  1,748

$  8,389

  Trade receivables, net

25,032

22,193

  Inventories

15,118

17,871

  Prepaid expenses and other assets

3,574

3,511

  Taxes receivable

3,200

3,983

          Total current assets

48,672

55,947




  Plant, pipeline and equipment, net

163,182

140,009




  Goodwill

21,798

21,798

  Other intangible assets, net

21,738

22,669

  Investment in AMAK

45,122

49,386

  Mineral properties in the United States

588

588

  Other assets

42

87




     TOTAL ASSETS

$ 301,142

$ 290,484




LIABILITIES



  Current Liabilities



    Accounts payable

$  10,839

$  13,306

    Current portion of derivative instruments

19

58

    Accrued liabilities

4,596

2,017

    Current portion of post-retirement benefit

311

316

    Current portion of long-term debt

8,061

10,145

    Current portion of other liabilities

2,044

870

          Total current liabilities

25,870

26,712




  Long-term debt, net of current portion

81,002

73,107

  Post-retirement benefit, net of current portion

897

897

  Other liabilities, net of current portion

1,829

2,309

  Deferred income taxes

23,589

23,083

     Total liabilities

133,187

126,108




EQUITY



  Common stock‑authorized 40 million shares of $.10 par value; issued 24.5

  million in 2017 and 2016 and outstanding  24.3 million and 24.2 million shares in

  2017 and 2016, respectively

2,451

2,451

  Additional paid-in capital

54,653

53,474

  Common stock in treasury, at cost

(203)

(284)

  Retained earnings

110,765

108,446

  Total Trecora Resources Stockholders' Equity

167,666

164,087

  Noncontrolling Interest

289

289

   Total equity

167,955

164,376




     TOTAL LIABILITIES AND EQUITY

$ 301,142

$ 290,484

TRECORA RESOURCES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) 



THREE MONTHS ENDED

SIX MONTHS

 ENDED


JUNE 30,

JUNE 30,


2017

2016

2017

2016







(thousands of dollars)

REVENUES





  Petrochemical and Product Sales

$ 57,016

$ 44,366

$ 107,915

$ 91,547

  Processing Fees

5,099

4,488

9,742

9,507


62,115

48,854

117,657

101,054






OPERATING COSTS AND EXPENSES





  Cost of  Sales and Processing





    (including depreciation and amortization of  $2,363, $2,028, $4,746, and $4,247,  respectively)

51,008

37,280

95,932

77,709






   GROSS PROFIT

11,107

11,574

21,725

23,345






GENERAL AND ADMINISTRATIVE EXPENSES





  General and Administrative

5,740

5,491

11,961

10,940

  Depreciation

205

187

410

364


5,945

5,678

12,371

11,304






OPERATING INCOME

5,162

5,896

9,354

12,041






OTHER INCOME (EXPENSE)





  Interest Expense

(678)

(607)

(1,314)

(1,235)

  Bargain purchase gain from acquisition

--

11,549

--

11,549

  Equity in Earnings (Losses) of AMAK

(3,298)

(1,017)

(4,264)

4,350

  Miscellaneous Income (Expense)

(22)

123

(64)

110


(3,998)

10,048

(5,642)

14,774






  INCOME BEFORE INCOME TAXES

1,164

15,944

3,712

26,815






  INCOME TAXES

332

5,692

1,393

9,339






  NET INCOME

832

10,252

2,319

17,476






 NET LOSS ATTRIBUTABLE TO NONCONTROLLING

   INTEREST

--

--

--

--






 NET INCOME ATTRIBUTABLE TO TRECORA RESOURCES

$ 832

$ 10,252

$ 2,319

$ 17,476






Basic Earnings per Common Share





  Net Income Attributable to Trecora Resources (dollars)

$ 0.03

$ 0.42

$ 0.10

$ 0.72






  Basic Weighted Average Number of Common Shares Outstanding

24,256

24,204

24,248

24,344






Diluted Earnings per Common Share





  Net Income Attributable to Trecora Resources (dollars)

$ 0.03

$ 0.41

$ 0.09

$ 0.70






  Diluted Weighted Average Number of Common Shares Outstanding

25,034

24,885

25,044

24,985

TRECORA RESOURCES AND SUBSIDIARIES

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


Adjusted EBITDA Margin

(rounding may apply)



THREE MONTHS ENDED 6/30/17


THREE MONTHS ENDED 6/30/16


TC

SHR

CORP

TREC


TC

SHR

CORP

TREC

NET INCOME (LOSS)

$(269)

$4,477

$(3,376)

$832


$7,443

$6,092

$(3,283)

$10,252

Interest

63

613

2

678


-

606

1

607

Taxes

-

2,121

(1,789)

332


4,041

1,344

307

5,692

Depreciation and amortization

21

168

16

205


16

164

7

187

Depreciation and amortization in cost of sales

987

1,376

-

2,363


764

1,264

-

2,028

EBITDA

802

8,755

(5,147)

4,410


12,264

9,470

(2,968)

18,766

Share based compensation

-

-

656

656


-

-

627

627

Bargain purchase gain

-

-

-

-


(11,549)



(11,549)

Equity in losses of AMAK

-

-

3,298

3,298


-

-

1,017

1,017

Adjusted EBITDA

$802

$8,755

$(1,193)

$8,364


$715

$9,470

$(1,324)

$8,861











Revenue

9,536

52,579


62,115


7,233

41,621


48,854

Adjusted EBITDA Margin

8.4%

16.7%


13.5%


9.9%

22.8%


18.1%

(adjusted EBITDA/revenue)











SIX MONTHS ENDED 6/30/17


SIX MONTHS ENDED 6/30/16


TC

SHR

CORP

TREC


TC

SHR

CORP

TREC

NET INCOME (LOSS)

$(559)

$8,459

$(5,581)

$2,319


$8,449

$8,893

$134

$17,476

Interest

63

1,248

3

1,314


-

1,232

3

1,235

Taxes

-

4,142

(2,749)

1,393


4,041

4,991

307

9,339

Depreciation and amortization

42

335

32

409


36

312

16

364

Depreciation and amortization in cost of sales

1,982

2,765

-

4,747


1,795

2,452

-

4,247

EBITDA

1,528

16,949

(8,295)

10,182


14,321

17,880

460

32,661

Share based compensation

-

-

1,289

1,289


-

-

1,274

1,274

Bargain purchase gain

-

-

-

-


(11,549)

-

-

(11,549)

Equity in losses (earnings) of AMAK

-

-

4,264

4,264


-

-

(4,350)

(4,350)

Adjusted EBITDA

$1,528

$16,949

$(2,742)

$15,735


$2,772

$17,880

$(2,616)

$18,036











Revenue

19,199

98,458


117,657


15,368

85,686


101,054

Adjusted EBITDA Margin

8.0%

17.2%


13.4%


18.0%

20.9%


17.8%

(adjusted EBITDA/revenue)










Adjusted Net Income and Estimated EPS Impact

(rounding may apply)



Three months ended

Six months ended


6/30/2017

6/30/2016

6/30/2017

6/30/2016

NET INCOME

$832

$10,252

$2,319

$17,476






Bargain purchase gain

$0

($11,549)

$0

($11,549)

Equity in (earnings) losses of AMAK

3,298

$1,017

$4,264

($4,350)

Taxes at statutory rate of 35%

$1,154

($3,686)

($1,492)

$5,565

Tax effected equity in AMAK, gain on additional equity issuance by AMAK and bargain purchase gain

$2,144

($6,846)

$2,772

($10,334)

Adjusted Net Income

$2,976

$3,406

$5,091

$7,142

Diluted weighted average number of shares

25,034

24,885

25,044

24,985

Estimated effect on diluted EPS

(tax effected equity in AMAK, gain on additional equity issuance by AMAK, and bargain purchase gain/diluted weighted average number of shares)

($0.09)

$0.28

($0.11)

$0.41











(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.




The following information was filed by Trecora Resources (TREC) on Friday, August 4, 2017 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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