TPC Group CEO Discusses F4Q2010 Results - Earnings Call Transcript

Sep.17.10 | About: TPC Group (TPCG)

TPC Group, Inc. (NASDAQ:TPCG)

F4Q2010 Earnings Call Transcript

September 17, 2010 10:00 am ET

Executives

Bob Whitlow – VP, Finance and Treasury

Charlie Shaver – President and CEO

Miguel Desdin – SVP and CFO

Analysts

Edward Yang – Oppenheimer

Seth Hamot – RRH Capital

Greg Stuecheli – Highland Capital

Jay Burnham – Armory Advisors

Jed Nussbaum – Redwood Capital

Rob Alpert – Atlas Capital

Operator

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the TPC Group fourth quarter earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator instructions) This conference is being recorded today, Friday, September 17, 2010. I would now like to turn the conference over to Bob Whitlow, Vice President of Finance. Please go ahead, sir.

Bob Whitlow

Thank you, operator. And welcome to TPC Group’s fiscal 2010 fourth quarter conference call. My name is Bob Whitlow, Vice President of Finance. With me today are Charlie Shaver, President and Chief Executive Officer; and Miguel Desdin, Senior Vice President and Chief Financial Officer. As usual, we’re making this call available to investors and the media via web cast. An archive of the web cast will be available for replay on our website shortly after the call. Around 5 AM this morning, September 17, our earnings release went out and has been posted on the Internet on TPC’s website www.tpcgrp.com.

As you know, some of the comments today may include forward-looking statements about our expectations for the future. Those expectations involve risks and uncertainties. We can’t guarantee the accuracy of any forecast or estimates and we don’t plan to update any forward-looking statements during the quarter. Please note that information reported on this call speaks only as of today, September 17, 2010 and therefore you are advised that the forward-looking information may no longer be accurate as of any time of any replay.

In addition, some of our comments may reference non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures and other associated disclosures are contained in our earnings release on our website. Our earnings release and our SEC filings are available on the Internet on the Investor Relations page on our website at www.tpcgrp.com.

I’d now like to introduce Charlie Shaver.

Charlie Shaver

Yes. Thanks, Bob, and good morning to everyone on the call. I would like to welcome you to TPC Group’s 2010 fourth quarter investor call. You know, as we look back over the past year, the economic landscape could only be characterized as one of considerable uncertainty as all of you know. The economic expansion that was anticipated by most economists continued to face headwinds, lower demand in many sectors like in unemployment, and lingering financial issues that continue to cloud the landscape.

However, in spite of some of those rough spots in the economy, the chemical industry faired pretty well and TPC Group was no exception. Our fourth quarter culminated a challenging but very rewarding fiscal year for our company. For the company, we had some pretty noteworthy accomplishments in the year and as we moved through we experienced stronger business conditions, steady demand for our products, and higher pricing when compared to our prior fiscal year.

Our year ended with excellent fourth quarter results with an adjusted EBITDA of over $35 million, and our favorable fourth-quarter results allowed us to finish the year with an adjusted EBITDA of over $100 million, which was in line with expectations for the period.

Our quarter was also good from an operational perspective. We had completed a lunch turnaround in our Houston facility, which impacted our third fiscal quarter. It was executed on time and really allowed us to run hard and to plan in the final quarter of fiscal year. We also continue to maintain favorable performance on both our environmental and safety fronts, finishing the year with record performance in both of those areas. And this allowed us to meet higher demand from our customers in both our C4 Processing and Performance Products business segments.

As I mentioned, 2010 was a year of very noteworthy accomplishments for the group, and I think we stayed on point and stayed true to our strategy in what we have articulated over the past year as far as our objectives. I would like to touch on a couple of the major ones before moving to the discussion of the businesses in the fourth quarter.

I think really, first of all I would like to mention that we took a whole series of actions as you know to become a public entity. We became SEC registered, we had a public listing on NASDAQ, and I think that really was key for beginning to generate liquidity for our shareholders, as well as create opportunity for new investors to come in to our company. And I’m pleased to say we have seen both of that happen over the past couple of quarters.

As you know, we also amended and extended our revolving credit facility, increasing our availability, pushing out the maturity and increasing flexibility for TPC. And last but not least, as anticipated we experienced improvement in both of our businesses, specifically our Performance Products business in the second half of the year when we saw improved pricing, margins and volumes, and we actually exceeded our expectation in the ramping up of our PIB business in conjunction with the expansion that we had completed in the prior year.

I would also like to mention that we strengthened our senior management team. We added two really key people who are now up and contributing to our group, both Miguel Desdin, our new CFO; and Shelly Heuser, our Vice President of Supply Chain. I’m especially pleased to have both of these individuals in the group. They have got significant industry experience and look forward over the coming year as they begin to really help us further execute on our business strategy.

Now let me turn the discussion to our fourth quarter business performance, and then I will turn it over to Miguel to take everyone through the financial results in a little more detail. You know, for the company as a whole, volumes increased almost 7% year-over-year, but we really did see – I think the real highlight here is that we recorded an improvement of over 33% in our gross profit on a year-over-year basis.

As you know, this is really through a series of management led initiatives to increase selling prices, initiate additional fees for servicing our customer base, and through better asset utilization. So on the whole both segments performed very well for the year, and specifically in the quarter.

Moving to talking about the C4 business segment a little bit, which includes our butadiene, butene-1, raffinates and MTBE; we saw improved pricing compared to last quarter and also the prior year’s quarter, which translated to improved sales margins. Our fourth quarter margin improvement was up over 22% compared to last quarter 19% compared to last year, and that is without the benefit of the insurance recovery, if you will remember, that we had in the fourth quarter of our fiscal ’09.

In addition our butadiene contract price for June was over $0.90, which is up 46% since the start of the calendar year, reflecting continued upward demand globally for butadiene into rubber and other applications. Butadiene demand continued to be strong across all of our customer end-users, and demand for other products in our C4 Processing has also been good, particularly for butene-1, which continues to be in short supply on a worldwide basis and is used as a copolymer [ph] in polyethylene manufacturing. Volumes in these businesses were also improved compared to our third quarter, which again was impacted by the turnaround in our Houston facility.

In terms of our raw material supply position, our ethylene producers, again where we get our contract crude C4 supply continued to run high rates in the fiscal fourth quarter, topping out at an average operating rate of over 90% in the month of June, which is very good for that industry.

The lighter [ph] and natural gas liquids, particularly ethane, remain the favorite feedstock, and the economic advantage of these materials continue to drive the tight market for crude C4. Given our position in the marketplace, we continue to be successful in attracting our spot crude, supplementing our contract supply with purchases from both domestic, as well as international where needed. And as I mentioned earlier, overall demand in the market continues to be very robust for these products.

Moving on to Performance Products, which again includes isobutylene, polyisobutylene and propylene derivatives. This business really demonstrated excellent improvement over the prior year, which was really impacted by recessionary conditions and also rising raw material prices through the couple of previous quarters. We successfully ramped up the product line, the polyisobutylene product lines, expansion project, growing our sales volumes by over 50% for the year, and I’m pleased to say operating at over 88% of our new capacity in the fourth quarter.

If you remember our new capacity for the polyisobutylene business is in excess of 240 million pounds a year, and I’m pleased to say customer acceptance of our expanded product line has clearly exceeded our initial expectations for those operations. For isobutylene derivatives business also remains tight in the market place and we are working hard to actually find additional supply for some of our customers, as markets for butyl rubber and other key derivatives continue to grow, not only domestically but globally.

As we moved through the year, both our businesses continue to show sequential improvement in both revenue and EBITDA driven by higher pricing, overall demand is strong, our customers are primarily in automotive, consumables, construction and consumer products markets. And our businesses are well positioned through our long-term contracts to sharing the growth as the world economy continues to recover.

Moving now to the execution of our capital plan, our capital expenditures amounted to just slightly over $14 million for the 2010 fiscal year. This was in line with the target we have outlined in our previous calls, and as you can see we continue to remain very disciplined in our capital expenditure spending. That said, we continue to pursue attractive, high return small dollar projects. These are ones that show high returns with modest capital spending, and essentially have in a range of 1 to 2 year payback.

These projects go [ph] with our continued focus on improved performance and profitability, as well as keeping a close eye on our CapEx budget. I’m also pleased to say we remain in compliance with all of our expected environmental health and safety spending, and on track for the long term – continuing the long term reliability improvements in our facilities.

So with that, I like to turn the call over to Miguel to review the fourth quarter financials, and after his comments, I will come back, wrap up and we will take any questions that you may have.

Miguel Desdin

Thank you, Charlie, and good morning, everyone. As we have done in the past to facilitate the discussion of our fiscal 2010 fourth-quarter results, we have posted some supplemental slides on our website. These slides provide additional industry and company information that may help with your analysis of the quarter. the main message with regard to the fourth quarter is that the improvement in our overall market condition and the upward trend in demand and pricing for our products that occurred over the course of the first nine months of the year continued through the quarter. The strong demand for butadiene, butene-1, and Performance Products and further improvement in profit margins were consistent with our expectation.

Turning to the supplemental slide, on page 3 you can clearly see the significant increase in butadiene price that has occurred over the past year. The butadiene price is almost 3 times higher than it was in prior year quarter, and is up 21% sequentially. As you can also see from the slide, average unleaded regular gasoline prices have also been on a steady incline over the past year.

The price of unleaded regular gasoline is an important market for us because of the linkage between gasoline prices, and the selling prices of our fuel products.

I will now turn to our fourth quarter operating results, fourth quarter revenues were $532 million, up 104% from last year, and 33% sequentially. The significant increase year-over-year is due primarily to average selling prices, which were more than double the prior year quarter. The sequential improvement is due to the impact of 17% higher sales volume, and 14% higher average selling prices.

The 17% sequential increase in sales volume reflect a 21% higher volume volumes for C4 Processing and 3% higher volume for Performance Products. The increase in the C4 Processing sales volume would be primarily to the impact for the Houston plant turnaround in the third quarter. Adjusting for the impact of the turnaround, fourth quarter volumes would be essentially flat with third-quarter volumes.

Fourth quarter adjusted EBITDA was $35.5 million, compared to $33.7 million last year and $19.1 million in the immediately preceding quarter. However, the prior year fourth-quarter included the first installment of our business interruption insurance settlement of $10 million. The year-over-year improvement, excluding the insurance settlement, was driven primarily by margin expansion. The sequential improvement was driven almost equally by volume and margin improvements.

Net income for the quarter was $14.4 million or $0.80 per diluted share compared to net income of $7.8 million or $0.44 per diluted share for last year and net income of $4.1 million or $0.23 per diluted share in the third quarter. The pre-tax business interruption insurance recovery of $10 million in the prior year quarter contributed $6.5 million to net income in that quarter or $0.36 per diluted share.

Turning to liquidity, at the end of the fourth quarter we had cash of $115 million and no borrowings under our $175 million revolver. Fourth-quarter net cash flow was $88 million, consisting of operating cash flow of $99 million, partially offset by capital expenditures of $8 million and net financing outflows of $3 million.

The primary components of our fourth quarter operating cash flow were net income of $14 million, non-cash depreciation expense of $10 million, and reduction in working capital of $69 million. A significant reduction in working capital primarily reflects aggressive collections of accounts receivable at the end of the fiscal year. Like many other companies, we seek to minimize our working capital balance at year-end, and this year we had higher than anticipated results.

The low working capital balance has subsequently returned to more normal levels, roughly $65 million higher than at June 30. As I wrap up, I like to mention the change in fiscal year, some of you may have noticed our announcement regarding the change from a June 30 year-end to a calendar year-end. That means we’re in a transition period for reporting that runs from July 1 through December 31, 2010, following which we will embark on a calendar year.

Finally, I would like to say that I’m thrilled to be part of the TPC Group management team, and very much look forward to working with our potential investors and lenders in the future. With that, I like to turn the call back over to Charlie for some closing remarks.

Charlie Shaver

Yes. Thanks, Miguel. And I would like to make a couple of closing comments, and then we will turn it back over to the operator for any questions you may have. You know, as I look forward to the next couple of quarters we see a favorable operating environment for our business. Overall demand for our products in both the C4 Processing and Performance Products continues to be good, customer inventories are in relatively good shape. In spite of the economic uncertainties, their businesses seem to be holding up well.

We recently, even as the management team has been out in a couple of different parts of the world, and we see steady demand as we talk with a lot of our end market customers. On the supply side for C4 Processing, live feed stocks [ph] currently account for almost 85% of the total feed slate [ph] for US steam crackers with ethylene accounting for almost 60% of that total.

As we have anticipated the ongoing trend in light cracking continues, and we believe will for the foreseeable future. As a result, we believe butadiene pricing will remain generally strong due to tight structural and supply condition, coupled with high and increasing derivative demand. Conditions are also favorable in our performance products businesses. As I mentioned earlier, development of the market following our PIB expansion has exceeded our expectation, and this coupled with favorable markets for other performance products, specifically our isobutylene derivatives Nonene and Tetramer, as well in possible supply fundamentals has bode well for this business segment.

As we move through the second of 2010, we are working hard on our operational excellence initiatives, which is a corporate wide process, and this includes setting even additional stress targets in areas, high plan optimization and supply chain efficiency, and ensuring our EH&S efforts are met. We are financially focused on meeting our business unit financial and operating target, continuing close management of our fixed cost, and tight control of our working capital.

In regards to our capital program, we are going to remain disciplined in our approach to capital spending, and we do have a target in the interim period of about $15 million, still targeting $20 million to $25 million on an annual basis as we go into 2011 for full year. This number also does include our recently announced new 20,000 square foot tech center and R&D facility located in our Houston plant. I’m especially pleased with that and it reflects our continued commitment to grow with our customers and grow with their needs globally, as well as supporting our ongoing business product needs here in both our operations. We have already broken ground on the facility and anticipate it to be completed in midsummer 2011.

From a strategic standpoint, the business platform that we developed here in the TPC Group really affords us significant flexibility to pursue a number of different alternatives to enhance shareholder value, our favorable earnings performance and cash flow are going to underpin this flexibility, and as you know, we’ve continually proactively taken the necessary steps to improve liquidity of our common stock, and as you have probably seen as investors, we continue to ramp up our investor relation activities to not only improve communications with our current shareholders, but also introduce the company to new investors with the goal of broadening the shareholder base.

As we have mentioned in the press release earlier this morning, the board and the management are actively engaged in looking at all the alternatives available to us to maximize value for our shareholders, and certainly involved in this activity and the things we consider are the cash generation we currently have, the key growth projects we have in front of us, whether those are internal ROI, [ph] but we also are finding many, many new opportunities as we move forward as the economy recovers. We also want to continue to examine appropriate leverage, the status of the capital markets.

And as you know, our goal this year has been to ensure stability in our end markets, asses the state of the economy, strengthen our balance sheet, and asses all other strategic alternatives. And as the board management, we are committed to continuing to do that and stay active on that front.

I guess the last point I like to make is in reference to a separate press release that we put out this morning, and it basically contemplates a CEO succession transfer over the next year and a half. I will just make a couple of comments on that since it is probably on some your minds. This is certainly something that has been contemplated for some time. It is one that we are working closely as management and the board on as the press release says. It is not an immediate plan, and you should think about it being an event over the next year or so. I think we have our businesses in excellent shape. I couldn’t be more pleased with both the progress we have made in building our company, taking it forward.

We have an excellent strategic plan in place, an excellent opportunities in front of the company. Most importantly, I think as an investor and as a shareholder and as management, we have an experienced team both from a chemical industry experience as well as TPC knowledge and knowledge of the industry running this enterprise. I look forward as a CEO to continuing that progress over the coming months and coming quarters, and I think you will find our success will be continued as we continue to build on the performance of not only this past year, but the current quarter and moving forward.

So with that, I think it was worth making a couple of points, and I guess with that we will be happy to answer any questions at this point. I will turn it back over to the operator.

Question-and-Answer Session

Operator

(Operator instructions) And our first question comes from the line of Edward Yang with Oppenheimer. Please go ahead.

Edward Yang – Oppenheimer

Okay. Hi, good morning Charlie, Miguel.

Charlie Shaver

Hi Ed.

Miguel Desdin

Hi Ed.

Edward Yang – Oppenheimer

Great quarter, but obviously a big surprise regarding the CEO announcement, and I would appreciate some additional color on this. You have just reported a record quarter, stock is up 160% this year, you are hit a number of milestones, why the change now when basically you are just getting on a roll?

Charlie Shaver

Yes, thanks Ed. I think kind of building on the couple of comments I made a minute ago, I think it is again as of next summer, it would have been over seven years for me in the CEO position. And I think to a large extent, I couldn’t be more pleased with the transformation of TPC from being the old Texas Petrochemicals, the restructuring, getting it to a public company. We have grown revenues from over – I think when I came in around $400 million or $500 million to a run rate that is over $2 billion now, public company, good team.

But most importantly, we have now got a broader base to grow the company from and a series of what we think are pretty exciting things to execute against over the next couple of years. So, while I think there is never a perfect time, I think it is a good time to start to think about that as a CEO and as a board, and again we got a team in place that I think will see the seamless transfer and I look forward to being part of that process with the board to find the right next Chief Executive.

At the same time, it is not something that is going to happen imminent, but I think it is appropriate and prudent for the company to start thinking about it and planning for it. And so, while I am in no hurry, I think it is the right time for me and for the company to begin contemplating it over the next year or so. And again, I think as an investor you should not see a blip as we continue to move forward with the team that we have in place. And certainly a lot of you know a lot of members of our staff and our board. So I think we are uniquely positioned from that standpoint to just continue on.

Edward Yang – Oppenheimer

And you do maintain pretty significant ownership of the stock. Will you continue to retain that stock, your thinking there?

Charlie Shaver

Yes, as most of you know, I have roughly 0.5 million shares. So very invested in the company and will continue to be so as we go forward. So, every dollar or share makes me happier. That is for sure.

Edward Yang – Oppenheimer

Okay. And kind of staying on this theme, you know, one of your board members just moved over to Lyondell, and Lyondell was both a supplier to you and a competitor as well. I believe last year you had another board member, who become CFO of Lyondell, and basically how would you characterize your relationship with Lyondell. I mean, what are we supposed to read into this?

Charlie Shaver

Well, I think our relationship is not unlike a lot of them in this industry is pretty complex from the standpoint. They are both a critical supplier to us. We also have customer relationships, and we are also competitors. And so on one hand, I think it is good that we have people over there who certainly as a supplier and a customer know us, we know each other. I do believe over time, it will lead itself to more business between the two parties.

And we always have those kind of active conversations about how we can grow. Our two corporate offices are right here together, and I think we will continue to find additional ways to build on those relationships. At the same time, we always have to be respective of the fact that certainly in a couple of product lines we are direct competitors, and all of the things that go with that.

But, I mean I think over time having Sergey and Kent Potter over there, and we know in the industry a lot of the other key leaders over there. I think it will probably mean now that they are out of bankruptcy that we will grow business between the two companies even more.

Edward Yang – Oppenheimer

Okay. And Performance Products was surprisingly strong and a really big jump in EBITDA margin to 16% sequentially from 11% last quarter, which in turn was up from about 6%, what is driving this move up and is it sustainable?

Miguel Desdin

Ed, this is Miguel. I absolutely think it is sustainable. There has been significant margin expansion. On the pricing side, we have done very, very well. We’re also optimizing our reliability in the plant, so that we are able to produce a little less costly and quick and more volume through there. So I think this is, based on the current market and how tight our products has across-the-board in Performance Products, I see that continuing certainly into the foreseeable future.

Edward Yang – Oppenheimer

And one of the nice aspects of that business is you do have a nice technology position in HR-PIB. I think that is currently just a domestic business, are there any plans to expand that into other geographies?

Charlie Shaver

Ed, this is Charlie. Yes, we service a global customer base there. When you think about the fuel and lube additives industry, clearly they have big growth plans in Asia, and I think we will continue to talk with them and discuss with them at what point, and what some type of expansion would look like. I think our goal was to fill out our new facility, and I am pleased to say we’re ahead of our plans on doing that from a volume standpoint.

As I mentioned in fourth quarter, we were up and running at about 88% of our new capacity, which we are pleased to see, and we want to be careful about the next steps we take. But I think clearly for us, looking at that region thinking through what will be the right opportunity for us both on isobutylene and polyisobutylene is an interesting opportunity for the company and one that I think the board and management, as you could guess, we will be looking hard at over the next year.

Edward Yang – Oppenheimer

Okay, maybe just a final question. I appreciate you being so generous with your time. In terms of the guidance for this upcoming quarter, it looks like you were looking for EBITDA of about $30 million to $32 million. That is down sequentially, but I would assume that is primarily related to seasonality, and related to that how would that affect your visibility on – you had an interim target of $150 million in annual EBITDA, but never specified a time to reach that goal.

With the upcoming quarter’s guidance, do you have a greater visibility on when you could hit that $150 million in EBITDA, and the related free cash flow targets you have along with that?

Miguel Desdin

Yes, Ed, I think we talked about calendar 2012 as the time period to think about meeting that 150 EBITDA target that we put out there.

Edward Yang – Oppenheimer

Fiscal or calendar Miguel?

Miguel Desdin

Calendar. It will be the same thing moving forward as you know.

Edward Yang – Oppenheimer

Okay.

Miguel Desdin

So, yes, we kind of see that timeframe with kind of a steady run up from where we are today to that kind of number in the interim period.

Edward Yang – Oppenheimer

Okay and then just related to free cash flow, you know, both you and Charlie mentioned strategic use of cash and evaluating options, you know, what does that include? Does that include M&A, joint ventures, things you could do on the balance sheet side, a dividend perhaps? Could you rank the priorities?

Miguel Desdin

Yes, I will tell you that at the moment there are no large capital projects on the horizon. Charlie talked about some of the small projects that we have that we do in the normal course of business. There are certainly no acquisitions for the foreseeable future. So, over the short term, we will look for ways to return value to the shareholders. And that may take several forms.

Edward Yang – Oppenheimer

Okay, thank you.

Operator

Thank you, and our next question comes from the line of Seth Hamot with RRH Capital. Please go ahead.

Seth Hamot – RRH Capital

Hi guys.

Charlie Shaver

Good morning Seth.

Seth Hamot – RRH Capital

Good morning. I see these corporate costs, and no comment about them. You got 7.8 in the latest quarter, is this what should we be using for our modeling, you have any expectations of that going up or down, any one times in there or something?

Miguel Desdin

No, I think generally speaking, you should use around call it $30 million annually as a number.

Seth Hamot – RRH Capital

Okay, super. Then, you said working capitals returned to more normal levels in this first quarter or the first quarter of the year [ph]. Any revolver being used today?

Miguel Desdin

No, none.

Seth Hamot – RRH Capital

Okay. So, could you speak to your cash position today?

Miguel Desdin

Yes, as we sit here, we probably have about $65 million in the bank and nothing drawn on the revolver.

Seth Hamot – RRH Capital

Okay, super. And your anticipation on revolver draws this year is slight at best?

Miguel Desdin

Slight at best is a good description.

Seth Hamot – RRH Capital

Okay, super. Thanks a lot guys.

Operator

Thank you, and our next question comes from the line of Greg Stuecheli with Highland Capital. Please go ahead.

Greg Stuecheli – Highland Capital

Hi guys. Is the 19.1 million on the balance sheet in current long-term debt, is that a good estimate for the excess cash. So payment that you guys are going to be making?

Miguel Desdin

It got to be about 16.

Greg Stuecheli – Highland Capital

16, okay. Thank you.

Operator

Thank you, and our next question comes from the line of Jay Burnham with Armory Advisors. Please go ahead.

Jay Burnham – Armory Advisors

Good morning. Could you go over your existing share repurchase plan and the covenants associated with that, and why you can’t simply reinstate or resume that plan?

Charlie Shaver

Well, you know, my guess there is a couple of things there. One, on our existing repurchase plan, we had a plan that we initiated a couple of years ago that we nominated at $25 million I believe. I think if we were to go out and reinitiate just a normal share repurchase, we will probably announce a new plan and let us take that. If you do remember in our term loan, there is a builder that allows for that. We're currently in a position to be able to do repurchases if we wanted.

I don’t have in front of me exactly what that number. You can go back and calculate the net income build, or 50% of net income build that would help us with that. But I think if we go out, if we were to initiate share repurchases under that, we would probably come out and announce a new target, a new number based on our now current, and in some case increased expectations for the performance of the company from the plan a couple of years ago.

But it is easy enough to do. The board has authority to do it. We wouldn’t require any additional approvals from outside of the management of the board.

Jay Burnham – Armory Advisors

Thanks.

Operator

Thank you. (Operator instructions) And our next question comes from the line of Jed Nussbaum with Redwood Capital. Please go ahead.

Jed Nussbaum – Redwood Capital

Hi, good morning and congratulations on the ramp up in the business and we will be sorry to see you leave Charlie.

Charlie Shaver

Yes, thanks Jed.

Jed Nussbaum – Redwood Capital

I just had one question on the C4 business; otherwise my questions have been answered. And I noticed, if I’m doing my math right, it looks like the gross profit per pound in the June quarter was about $0.08, and I’m not sure what the right timeframe is to reference that too, but if I compare that to the quarter a year ago, I calculate it about $0.074. I am just wondering if you can talk about in light of the new surcharges in the business on the butadiene side, you know, if there were – I guess, I would have intuitively expected the gross profit per pound to be a little bit higher. Can you comment on that and kind of what expectations would be kind of on an annual basis taking into account seasonality?

Charlie Shaver

Yes, thanks. Hold on, just one second.

Miguel Desdin

So Jed, in thinking about the comparison I think you have got the numbers spot-on relative to a year ago quarter. The major improvement really has been in our B1s business, and that is the result of very, very tight markets, especially some international export opportunities for that product, and those don’t carry any of the surcharges that you are talking about. So, you know, it is really kind of market driven, the improvement year-over-year.

Charlie Shaver

I think additionally if we look last year at the margins, they were a little bit elevated because we had little more of a seasonal impact last year with gasoline. This year we saw no seasonality in the gasoline. So the underlying business actually from a butadiene, butene-1 standpoint was stronger, and our raffinates margins, again, we don't break these out in our segment reporting. But when we look at our product lines, we actually saw less margin this year in our butadiene, our raffinate section, and we actually saw improved margins on both butadiene and B-1.

And again, you are correct, that is where we are starting to work more on additional service fees in some parts of the business, but we did see a down – in the past, I think you would seen more seasonality out of TPC than you are going to see going forward. And it really is important as you think about as we move this business from the $100 million or so runway we have been at to this $150 million, a lot of that is excluding seasonalities. I do think you are going to see a smoother company. There will be periods of seasonality, but I would think about that more of on an upside.

Jed Nussbaum – Redwood Capital

So, it sounds like basically the business, just as the refiners are struggling, your business didn't get that big seasonal up-tick from higher production?

Charlie Shaver

Yes, exactly correct.

Jed Nussbaum – Redwood Capital

And does that – would it be overly aggressive to think that in a relatively weak refining environment, you could do $0.08 per pound in that business over a full year? Is that too optimistic on the gross profit side, kind of consistent with what you did in the June quarter, or should we?

Charlie Shaver

Yes, I think you are going to see more consistent – more of that type of margin on a year-around basis. I think that will prove itself out in the next couple of quarters, but certainly even in the guidance we have kind of given you for this quarter, you are starting to see that.

Jed Nussbaum – Redwood Capital

Great. And then finally, just as you bridge out a couple years to that $150 million future number, what kind of – I'm just curious on the C4 side, what key assumptions underlie that. In other words, do you need the refining environment to improve? Do you need to get meaningfully more C4 volumes through your business as well in order to do that, or is that kind of something that would reflect your ability in today's economic environment?

Charlie Shaver

No, Jed. We really don’t need to see that improvement. It is kind of the current status quo environment that we talk about that $150 million. Really the delta from where we are today is kind of the run rate on the fees, as well as a little bit of incremental margin associated with little volume and a little price, and specifically the PIB business as we build out the PIB 2 capacity, as you well know, the plant we put up last year.

So, I think generally we are on a run rate that says that you know, if we keep doing what we’re doing and the market stayed tight for our products. So, it is a big disclaimer that we can see a direct line of sight to that 150.

Jed Nussbaum – Redwood Capital

Great. Thanks a lot.

Charlie Shaver

Thanks Jed.

Operator

Thank you. (Operator instructions) And our next question comes from the line of Rob Alpert with Atlas Capital. Please go ahead.

Rob Alpert – Atlas Capital

Hi, thanks. Great quarter guys. You talked about having a more investor friendly outreach program and being more communicative and getting on the road. But then you're canceling your appearance at Apco [ph], the conference coming up here. It seems disconnected. Can you give us some insight? Let us know what's going on.

Charlie Shaver

No comment.

Miguel Desdin

Yes, I think we just have some other priorities that have gotten in front of that. However, we do plan to be back out to see some of you guys in the next month or so.

Operator

Thank you. And there are no further questions in the queue. I would like to turn the call back to management at this time for any closing remarks.

Charlie Shaver

Okay. Yes, this is Charlie. I will just wrap up here. Again, we ended up with a really good fiscal year. I’m very pleased with the way the performance came off. Again a lot of that is a function of the execution of the company, things we were able to do. Obviously, our customers played a key role in that and I’m very pleased of the support they have shown us over the past year as we have recovered.

I think what is exciting about TPC is what has always been exciting, which is when you look at our product lines, the ones that go into large global markets and to a great extent they go into consumer non-durables. So we really are in an environment that even in a relatively flat economic time, your company is able to perform well and grow and move in direction.

So, I’m very pleased for that, and I think it really speaks to the strategy we have, the customer base that we have, the product lines we are in, and where we are going as a company. I think as we look now into this quarter, we have given you some guidance. We continue to see good performance as we are moving through the second half of the year. I would just caution that as always we listen to our customers a lot in their visibility, and while I think it is much improved, I think it is still a lot of macros out there that everybody is watching.

But at least we’re talking with them and what we can see, we think the next couple of quarters bode well for us. And we are excited as we go into 2011. So with that we will be out over the next couple of months targeting to have some investor days, investor conferences, and I know it is disappointing on the Oppenheimer, but again we just have some other priorities that have come up unfortunately, that just are unavoidable, but I think we'll have some exciting things go on over the next couple of quarters, and I think we’re all excited to be part of that, and look forward to coming back and talking with you on the next call.

So, as always if you have any questions, we have got listed on there our key phone numbers, and we look forward to talking with you as you have time to digest the numbers. So, thanks again and I appreciate your support of the company.

Operator

Thank you. Ladies and gentlemen, this concludes the TPC Group’s fourth quarter earnings conference call. We thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!