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Ciner Resources LP (NYSE:CINR)
Q1 2020 Earnings Call
May 12, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Ciner Resources First Quarter 2020 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, Vice President of Finance. Today's call is being recorded. It is now my pleasure to turn the floor over to Ed Freydel, you may begin.

Eduard Freydel -- Vice President, Supply Chain and Finance

Thank you, Laurie. Before we begin, I would like to remind you that the comments included in today's conference call constitute forward-looking statements within the meaning of federal securities laws including forward-looking statements relating to the recent COVID-19 pandemic. These are based on our beliefs as well as certain assumptions and information currently available to us. 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 including adjusted EBITDA, distributable cash flow, and distribution coverage ratio are 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 Oguz.

Oguz Erkan -- President and Chief Executive Officer

Thanks, Ed and good morning everyone. Welcome to Ciner Resources first quarter 2020 earnings call. Our results for the first quarter of 2020 mark a solid start to the year despite numerous evolving challenges associated with the global coronavirus outbreak. The health and safety of our workforce, their families, and everyone involved directly or indirectly with our business remains our foremost concern at this time. Companywide prevention efforts have helped ensure a safe working environment and continuity of our operations as we take proactive measures to minimize disruption to our production. I'm happy to report that our plant has not experienced any shutdown events and operations are running smoothly.

Our team remains steadfast in their commitment to operational stability and performed admirably in implementing the comprehensive COVID-19 mitigation plan developed in the early stage of the outbreak. New procedures include frequent extensive sanitation and measures to reduce person-to-person interaction such as staggering shift changes and tighter control of outside contractor movements. The plan also outlines protocol for self-reporting, contact tracing in the event of positive cases, and contingency plans for maintaining operations during various employee absence scenarios. As we continue to refine these plans, we are using data rather than firm dates to guide a measured return to normalcy.

As demand expectations develop, we will tailor our production profile to match expected consumption. We are confident in the flexibility of our operations to optimize on-stream time and productions costs while managing rapidly evolving customer needs. Moreover, we are optimizing product storage on-site and across our supply chain including use of terminal storage en route to our end customers to ensure consistent delivery and balance inventories with demand. We are also managing our production schedule in line with maintenance activities in order to efficiently address maintenance projects during plant outages. The goal is to optimize our maintenance program and associated outage time with any perceived production demand imbalance and do more work in-house as we may have flexibility to extend that downtime.

In terms of first quarter results, we have achieved another strong production quarter with 680,000 short tons produced eclipsing the previous first quarter record set last year. However, supply surplus and lower demand led to a weakened pricing environment and lower volumes sold. Results for the quarter included $114 million in net sales, net income of $14 million, and adjusted EBITDA of $22.4 million, marks we consider favorable in light of current volatile market conditions. Highlighting our steady results over a more normalized period, we have averaged well above $20 million of net income and $30 million of quarterly adjusted EBITDA over the last eight quarters on a consolidated basis.

Turning to sales, we are working proactively with customers to manage expectations for consumption and demand. Demand in several of our domestic end markets has been affected by the sudden slowdown of economic activity. Flat glass production has been especially strained due to stalled automotive manufacturing and declining architectural glass demand and we have seen some plants temporarily idle their operations. Container glass on the other hand has remained quite stable thus far and in some cases is exceeding historical demand due to a lack of colored [Phonetic] availability.

On the international side, we are facing declining demand in many geographies and end markets most notably flat glass as architectural and automotive activity in Asia has been vastly curtailed. Container glass demand has been more resilient although the impact of cuts to delivery output in Mexico have yet to be defined. Soaps and detergents have largely been considered essential business, which we hope will bolster demand for those end users.

Lithium carbonate production has taken a hit due to Argentina suspending production. However, Chile has not mandated shutdowns for lithium producers who maintain a stable production outlook due to a backlog of orders from battery manufacturers. I will note that much of the COVID induced-demand degradation [Phonetic] did not take hold until late in the quarter. So we did not experience a material impact to our results in Q1. However, we do expect to see considerable pressure on demand in the overall international market persist for the time being especially since the pace of economic recovery is highly uncertain at this point. This shows in our April 2020 production results as we experienced an approximately 20% greater than normal decline in the production. Overall, as we look at our customer base on a more long-term basis, we anticipate geographical diversification, stability in inelastic products like detergents and container glass, and long-term growth potential in markets like lithium and flat glass support a favorable revenue mix and outlook.

From a financial planning standpoint, we have taken steps to bolster our liquidity and cash position in the interest of near-term financial flexibility. Despite created market turmoil, in March, we successfully closed a $30 million term loan at a favorable fixed rate. Our capital position remains strong and we believe we have ample liquidity as we face a COVID induced period of economic contraction and uncertain time line to recovery. I will now turn the call over to Ed who will discuss our financial results for the quarter in more detail.

Eduard Freydel -- Vice President, Supply Chain and Finance

Thanks, Oguz and thank you everyone for joining our call and for your continued interest in Ciner Resources. Today, I'll provide some detail around our first quarter performance, the major financial drivers from the quarter, and some key metrics we use to evaluate our business. Like Oguz mentioned, production volume for the first quarter of 2020 was a record 680,000 short tons as we continue to execute on our operational reliability initiatives and prioritize production stability. Total volumes sold during the first quarter of 2020 was 664,000 short tons, which is a 2% decrease from the first quarter of 2019. The 16,000 ton delta between production and sales volume reflects reduced demand in the first quarter due primarily to an oversupply in the international market.

Domestic volumes sold in the quarter increased by 6% year-over-year to 237,000 short tons. Total international volumes sold in the first quarter of 2020 was 426,000 short tons, a 6% decrease over the 453,000 short tons sold in Q1 2019. After shifting considerable volume in 2019 to the export market to take advantage of favorable international pricing, we increased sales volumes domestically in 2020 as we continually evaluate and optimize our sales mix. Average domestic price in the first quarter of 2020 declined 1.4% from the prior year quarter versus a drop of 18.9% in international prices evidencing the near-term benefit of proactively increasing domestic volume and what we believe to be the relative stability of domestic sales. Overall pricing was down 10.5% in the quarter driven primarily by higher global inventory levels and the resulting supply demand imbalance. Lower net pricing combined with a decrease of 13,000 tons sold from Q1 2019 resulted in first quarter net sales of $114 million or a decline of 12.3%.

Cost of products sold including freight in the first quarter of 2020 fell 4% to $87 million compared to the same period in 2019 primarily due to decreased variable costs because of lower net sales. SG&A expenses decreased by 22% from Q1 2019 to $5.8 million in the first quarter of 2020 as a result of lower employee benefit expenses, professional fees, and contracted services. Cash provided by operations of $16.7 million in the first quarter of 2020 increased 198% from Q1 of 2019 primarily due to an $8.8 million decrease in affiliate receivables principally due to timing of collections and lower export sales. These cash receipts resulted in a total increase to working capital of $4.4 million in Q1 2020 as compared to the $26.2 million increase in the first quarter of last year. From a balance sheet perspective, we continue to maintain a conservative capital structure ending the first quarter with a net debt to adjusted EBITDA ratio of 1.0 times.

Next, let's turn to discuss how these results translate into two of the key non-GAAP metrics we continue to monitor as an MLP: adjusted EBITDA and distributable cash flow. In the first quarter of 2020, we recorded $22.4 million of adjusted EBITDA compared to $33.2 million in the first quarter of 2019. Distributable cash flow attributable to Ciner Resources was $9.0 million for the first quarter of 2020 compared to $15.6 million in the first quarter of 2019. At a $0.34 per unit distribution, our distribution coverage ratio was 1.32 times for the first quarter of 2020.

We remain committed to maintaining a conservative and flexible balance sheet as we continue to embark on our growth plans. With that in mind, we maintained our first quarter 2020 distribution given our financial performance in the quarter. Going forward, we will continue to closely monitor our cash flows as we determine the most prudent distribution strategy in these uncertain times. Now, I'll turn the call back over to Oguz to provide more commentary on our recent performance and growth strategy.

Oguz Erkan -- President and Chief Executive Officer

Thank you, Ed. First, I would like to thank our entire Ciner team for their resilience and overall job well done in the first quarter. It wasn't easy acclimating to the unprecedented measures implemented as part of the coronavirus pandemic, but our team faced the challenge proactively and responsibly. We have learned a lot during this period and much of what we have put in practice will provide a guide for safety protocol going forward. The management team has earnestly developed and continues to refine comprehensive business strategies for navigating near-term market uncertainty. Our first quarter financial performance was encouraging and starting the year on a good footing was an important milestone in the current economic climate.

As it stands, we believe our business is well equipped to endure the many variables outside of our control and for those we do control, we remain focused on successful execution. One of the primary focal points for our business is our Green River expansion project, which we expect will increase our plant capacity to approximately 3.5 million short tons per year. We believe this project still represents an attractive investment opportunity as it significantly increases our production rate capabilities while also improving our operating margins. We continue with preliminary design and engineering, which is largely a desktop study at this time. As of now, we are proceeding as planned, but we are continually evaluating our timing in the context of our current economic climate.

We're confident in the underlying economics and need for new supply in the soda ash market over the long-term. Our strong capital structure, cash generation capability, and low operating cost position us to fund the capex economically and maximize long-term return to our unit holders. In tandem with our expansion project plan, we also continue to develop our strategy and structure for our exit from ANSAC. Post ANSAC, we believe that marketing our product jointly with our parent company's Turkish production will offer the most advantaged source of supply to our customers in growing markets abroad. We expect that geographic diversification along with Ciner Group's existing distribution network will allow us to realize logistics savings through supply chain optimization.

In closing, as we navigate a challenged economic landscape and unprecedented social distancing measures, we expect our financial strength and resources will allow us to weather macroeconomic and soda ash specific challenges that may lie ahead, but above all, it is our talented people working for Ciner that will drive our success through the near-term volatility, our major growth stage and beyond. Thank you for your continued interest in Ciner Resources. This concludes our prepared remarks.

Operator

[Operator Closing Remarks]

Questions and Answers:

Duration: 17 minutes

Call participants:

Eduard Freydel -- Vice President, Supply Chain and Finance

Oguz Erkan -- President and Chief Executive Officer

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