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Ciner Resources LP (NYSE:CINR)
Q2 2019 Earnings Call
Aug 6, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Ciner Resources Second Quarter 2019 Earnings Conference Call and Webcast. Hosting the call today from Ciner Resources is Mr. Oguz Erkan, Chief Executive Officer. He is joined by Mr. Ed Freydel, VP of Finance. 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 floor over to Ed Freydel. You may begin sir.

Eduard Freydel -- Vice President of Finance

Thank you, Stephanie. Good morning, and thank you for joining us to discuss our second quarter 2019 earnings. Oguz Erkan, our CEO, will discuss some highlights from the quarter, I will then provide additional details related to our financials, and Oguz 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. Reconciliation of those non-GAAP financial measures can be found in our earnings press release.

With that, I would like to introduce our new President and CEO, Oguz Erkan. Oguz has been a member of the General Resources Board for the last three years and has been with the Ciner Group for over 10 years.

Oguz Erkan -- President, Chief Executive Officer

Thanks, Ed. And good morning, everyone. Welcome to Ciner Resources second quarter 2019 earnings call. The second quarter marked another milestone for our business, with record production levels of 675,000 tons. We have now achieved record production in three consecutive quarters, highlighting our renewed emphasis on the day-to-day reliability of our assets. These strong production levels, combined with favorable soda ash market pricing led to improved financial results through the first half of 2019, generating $66 million of EBITDA year-to-date and over $130 million in the last 12 months. In turn, distributable cash flow in the first half of 2019 was $29.5 million and $55.1 million for the last 12 months.

Our performance in the second quarter was a refreshing turnaround from a year ago, when the plant experienced an extended outage that resulted in historical low production, but spurred a more proactive attitude toward preventative maintenance. We remain diligent in our commitment to reliability, as well as our continued improvement initiatives, which we have received tremendous buy-in from our employees.

All said we have produced over 2.7 million tons over the last 12 months, which is an all-time record for the plant. Continued strength in the market was also driver of our second quarter results. Domestic pricing was up almost 9% year-over-year and international pricing was up 7.5%, further evidencing how our sales mix optimization strategy in 2019 has been successful in improving our overall margins. As a reminder, sustained international pricing growth has led us to reduce sales to lower margin domestic customers in favor of higher net backs sales internationally, thus increasing our overall average sales price.

Turning to our capital projects, we are making great progress with our new change-house building and general modern -- modernization of our worker facilities. We also broke ground on our new co-generation facility which will allow us to self-generate it on one-third of our current electricity requirements and provide savings of $7 million to $10 annually. With most of the co-gen capital spend behind us, we plan to have equipment up and running by the end of this year, and expect to realize the benefits in energy efficiency and cost savings from 2020 and forward. We have also begun the preliminary engineering for our previously announced major expansion project, which we believe will be transformative to our business. The new production unit will be designed with capacity of approximately 1 million tons, and will utilize existing in-house design and technology. The new capacity will allow us to achieve 3.5 million tons of annual production at a lower overall cost per ton and offset an anticipated production decline in 2023 related to the depletion of our DECA reserves.

Not only are we planning to increase our production capacity by 30%, the project will also include multiple benefits such as upgrading our overall operational efficiency, reliability, and cost structure. Some of these improvements include upgrades to our electrical, logistical, and tailing infrastructure, as well as the addition of a new lab, an office space, and reconfiguring the site layout to be more efficient and practical from an operations standpoint. Many of these investments would have needed to be done irrespective of the expansion project. And I am proud of our team's ability to think strategically by combining our growth plans with our focus on continuous improvement to benefit our overall operations.

Now, I will turn the call over to Ed, who will discuss our financial results for the quarter in more detail.

Eduard Freydel -- Vice President of Finance

Thank you, Oguz, and thanks everyone for joining our call and for your continued interest in Ciner Resources.

Today, I'll provide some detail around our second 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 quarter increased 16% to 679,000 tons compared to Q2 of 2018 and increased 8% year-to-date to 1.35 million tons. Our steady operating performance this year has really shown in our production figures, especially as compared to the prior year quarter in which we experienced an extended unplanned downtime during our scheduled outage.

Domestic sales volume decreased by approximately 73,000 tons compared to Q2 of 2018, and decreased by approximately 106,000 as compared to the six-month period last year, as we continue to optimize our sales mix in favor of higher net back markets. The results have been meaningful, with our domestic sales price increasing by almost 9% quarter-over-quarter and year-to-date. Meanwhile, total international volume sold increased by 167,000 tons in the second quarter, and by 209,000 tons year-to-date while pricing has also increased by approximately 7% in each period.

As a result of these changes in sales mix and pricing, domestic sales were down 20% to $48 million in Q2 while international sales of $82 million in the quarter were up 65% compared to Q2 of 2018. A similar trend can be seen in year-to-date figures with domestic sales decreasing by 13% to $101 million and international sales increasing by 38% to $159 million. Total revenue was $130 million, up 18% compared to the second quarter of 2018. And year-to-date revenue was $260 million, up approximately 13% over the prior-year period. Our all-in average sales price is up 4% year-to-date as compared to the first-half of 2018 evidencing the benefits of advantageous international pricing and our marketing strategy designed to optimize sales mix.

Cost of products sold in the quarter, including freight, increased from $96 million to $97.5 million year-over-year. Year-to-date, costs increased from $189 million to $194 million. These increases are primarily due to increases in freight and higher variable cost driven by incremental production volumes. However, our fixed costs were a positive offset overall as we realized lower compenstation, medical costs and professional fees. On a per ton basis, our cost of goods sold decreased by approximately 12% compared to the prior year second quarter.

SG&A expenses of $7 million in the quarter and $14.4 million year-to-date increased by 9.4% and 12.5% respectively, primarily due to an increase in ANSAC SG&A resulting from increased international sales volumes as well as higher compensation and legal fees. Cash provided by operations returned to a more normalized level of $22.4 million in the second quarter after generating only $5.6 million in the first quarter as a result of working capital increases. Our Q2 2019 performance is also a 12.6% increase as compared to $19.9 million generated in the second quarter of 2018. From a balance sheet perspective, we continue to maintain a conservative balance sheet with the leverage ratio of 1.1 times as calculated for credit facility.

Next, let's turn to discuss how these results translate into two of the key metrics we monitor as an MLP, adjusted EBITDA and distributable cash flow. A key consideration to keep in mind when analyzing our results is that we recognize the $27.5 million litigation settlement in our operating income in Q2 of 2018. While the proceeds from this settlement were included in adjusted EBITDA and distributable cash flow in prior year results, we do not believe this is a recurring event and tends to obscure year-over-year comparisons. In Q2, 2019, we delivered $32.8 million in adjusted EBITDA. Making it our third quarter in a row of EBITDA in excess of $30 million.

Our distributable cash flow attributable to Ciner Resources was $13.9 million in the quarter and included cash maintenance CapEx of $1.5 million. At $0.34 per unit, our coverage ratio was 2.0 in the quarter and 2.15 for the first half of the year.

Now, I'm going to turn the call back to Oguz to provide more detail surrounding our expansion plans and funding strategy.

Oguz Erkan -- President, Chief Executive Officer

Thanks, Ed. As we look ahead, there is a lot to be excited about our business. We are at the onset of a substantial capital investment program that will modernize our assets and further strengthen the Ciner brand as the world's largest natural soda ash producer. We are confident in the fundamentals of the industry and the growing demand for soda ash, and we maintain a long-term view in our strategic decisions. Executing our long-term plan for increasing our production capability to 3.5 million tons offers the most organic and cost effective way to meaningfully increase our cash flow and return on investment to our unit holders.

Moreover, financing this investment with a combination of debt and internally generated funds allows us to -- allows the business to not to become over levered and maintains a disciplined financial profile in the event additional growth opportunities become available. One quarter into our revamped distribution strategy, we're confident that we have put in place a path to quickly and efficiently fund the upcoming expansion projects. The reduced distribution should yield approximately $35 million to $40 million per year and will remain at this level for the next two to three years as we target balanced funding for our expansion project. We will then have significantly more visibility to the project's overall timing and cost prudently being increasing distributions to investors.

Our expansion plan reflects our desire to take advantage of the low cost position of the Trona deposit in Green River and the advantage market position for Wyoming soda ash internationally. As we see global demand continue to rise, Ciner Resources with a supportive general partner has the unique opportunity and operational knowledge to cost effectively supply these increasing consumption trends. Furthermore, we believe our departure from ANSAC will allow for a more comprehensive international marketing structure that takes advantage of the global Ciner brand to cost effectively reach customers around the world.

Overall, I'm proud of our team and the turnaround we have seen over the last 9 months to 12 months in terms of our operating performance. It has been an all hands effort to set a new standard for operational success at our plant and we have done it while continuing to operate with safety as our number one priority. We are encouraged by our recent performance and look forward to the future as we enter a new growth stage for Ciner Resources.

Thank you for your continued interest in Ciner Resources. This concludes our prepared remarks.

Questions and Answers:

Operator

[Operator Instructions] Thank you.

[Operator Closing Remarks]

Duration: 17 minutes

Call participants:

Eduard Freydel -- Vice President of Finance

Oguz Erkan -- President, Chief Executive Officer

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