TOR Minerals International, Inc (NASDAQ:TORM)
Q2 2014 Earnings Conference Call
July 24, 2014 17:00 ET
Dave Mossberg - IR
Olaf Karasch - CEO
Barbara Russell - CFO
Welcome to the second quarter 2014 earnings conference call. (Operator Instructions). I would now like to turn the conference over to your host Dave Mossberg, Investor Relations Representative. Thank you Dave, you may now begin.
Thank you Mike and thanks everyone for joining us today on the second quarter of 2014 earnings conference call. Before we begin, the statements made during this discussion may include forward-looking information as defined in the Private Securities Litigation Reform Act of 1995 and therefore are subject to certain risks and uncertainties.
There can be no assurance that the actual results, business conditions, business developments, losses and contingencies and local and foreign factors will not differ materially from those suggested in the forward-looking statements as a result of various factors, including market conditions, general economic conditions, including the risks of general business slowdown or recession; increasing cost of energy, raw materials and labor; competition; advances in technology; changes in foreign currency rates; freight price increases; commodity price increases; delays in delivery of required equipment and other factors.
The risks and other risk factors pertaining to our business that could cause the actual results to differ materially from those suggested in the forward-looking statements are available in our filings with the Securities and Exchange Commission in the filings in Form 10-K and other subsequent quarterly in Form 10-Q and other SEC filings.
Joining in the discussion in the second quarter results are CEO, Dr. Olaf Karasch; and CFO, Barbara Russell. First, Barbara will review the financials followed by Dr. Karasch's comments on the quarter. This call is being recorded and will be available for replay for a period of about 30 days in the news section of the company’s website. With that I will turn the call over to Barbara.
Thanks Dave. During the second quarter our revenue increased 15% year-over-year to $12.4 million. Second quarter net income was a $153,000 or $0.04 per diluted share which was flat with $0.04 per diluted share during the same period last year. We typically break our revenue down into three main categories. Specialty hydrated aluminas; titanium dioxide pigments and barium sulfate and other products. Our first product group, specialty aluminas, represented about 50% of our second quarter sales and includes our ALUPREM, HALTEX and OPTILOAD products. These products are primarily used as fire retardant fillers, engineered fillers and white pigment in plastic and rubber applications. The second quarter sales in this category increased 54% year-over-year to $6.2 million which was a record for the company.
During the second quarter, ALUPREM sales in our U.S. and European operations increased 47% and a 118% respectively year-over-year. The increase in alumina sales was primarily due to the strong sales growth for ALUPREM products to both new and existing customers in Europe and into U.S. Our Europe sales also benefited from an increase in both volume and selling price. Our second product growth is titanium dioxide colored pigments which represented approximately 29% of the second quarter sales and includes our TiO2 pigment products HITOX and TIOPREM, which are specialty TiO2 pigments used as value-added replacements for commodity TiO2 and other color pigments in traditional paint and plastic formulations.
In this product group, we also include third-party sales of synthetic rutile, which is the feedstock material used in making our specialty TiO2 pigments, as well as feedstock used by titanium dioxide and titanium metal producers. We also refer to synthetic rutile as SR. We did not have any SR sales during the second quarter of this year or 2013.
Titanium dioxide color pigment sales decreased 18% to $3.6 million for the second quarter. The decrease in revenue reflects both a decrease in volumes and in pricing which is due to the overall weakness in the global TiO2 market as well as the entry into this market by new Chinese producers. The third product group, the other specialty minerals, which represented approximately 21% of our sales and mainly consists of barium sulfate products which are used as extended fillers in paint and plastics applications. Sales in this product category increased 10% for the quarter to $2.6 million. This increase is due primarily to an increase in volumes for our BARTEX and BARYPREM products which is used in the high-gloss coating applications. The average selling price for the quarter was unchanged versus the prior year quarter.
Moving on to profitability. Gross margin in the second quarter was 12.2% of sales, a 380 basis point decrease versus a year ago. The decrease is primarily related to the plants shut down of our SR plants in Malaysia during the second quarter. This decrease was only partially offset by increasing contributions from our specialty alumina business.
Due to the decline in TiO2 volumes we will likely only be running our SR plants for about 6 of the 12 months in each year. The unabsorbed costs associated with the underutilization of our Malaysian plant are likely to continue to make quarterly comparisons of our gross margin difficult. We’re planning to run the SR plant for one month during the third quarter which should allow for increased utilizations and gross margins relative to the second quarter.
Moving on to the balance sheet and cash flows, we generated $1.5 million in cash from operations during the second quarter, a $3.5 million during the first half of the year which was primarily used to reduce debt. Our inventories were at $18.1 million at the end of the second quarter versus 20.8 million at the end of 2013 but still elevated relative to our current revenue run-rate. We expect our level of inventory will continue to decline and be a source of positive cash flow as we move through the balance of the year.
Our accounts receivable balance at the end of the second quarter was $6.4 million that equates today’s held up saving of 46 days which is slightly below our targeted goal of 50 to 60 days.
We spent approximately $900,000 on capital expenditures during the first half of the year. The spending was primarily for equipment design to increase production capacity at our European ALUPREM facility as well as normal maintenance CapEx at both our U.S. and Malaysian plants.
Our CapEx plans for 2014 calls for normal maintenance CapEx activity roughly in-line with our depreciation and amortization expense last year which was approximately $3 million. Total debt decreased to $7.8 million versus $9.3 million at the end of 2013. We ended the quarter with $3.8 million in cash versus $2.9 million at the end of 2013.
I will now turn the floor over to Olaf.
Thank you Barbara. This is Olaf Karasch. Thank you for your interest in TOR Minerals and for joining us on the conference today. Our second quarter returns reflect a continuing strength of our specialty alumina product and the impact of the cost cutting measures we implemented in our TiO2 business. I want to take a minute to emphasize that TOR Minerals is now a diversified specialty mineral company and not just a specialty TiO2 company.
While TiO2 products are still an important part of our company with the growth we have been able to achieve in the other part of our business, TiO2 products represent just about 1/3rd of our total sales revenue. The remaining 2/3rds of our revenue comes from specialized alumina and (indiscernible) minerals. These specialty minerals product are well-positioned to continue to deliver double-digit revenue growth and drive effective return to our shareholders.
For the first time in our company’s history specialty alumina products represented more than half of our total sales and reached record levels during the second quarter. We recall it's increases in both volume and average selling price as demand for our high end ALUPREM product is growing not only with existing customers but new customers as well.
We’re also gaining traction with new trial for OPTILOAD products including inquiries from customers in new countries. Given the anticipation for continuous increase in demand we’re looking to further increase our ALUPREM production capacity by approximately 50%. This comes just two years after we just passed out of the plant capacity in the Netherlands.
Our Barium Sulfate and other specialty minerals product recorded a 10% sales increase for the quarter and 15% increase for the first half of the year. Sales of our BARTEX product in U.S. increased 10% and sales of our premium grade BARYPREM across in Europe also recorded a 27% sales increase. Our BARTEX products are used in paints and coatings in the North American market and continue to grow with new and existing customers.
BARYPREM which was introduced in Europe a few years ago offers higher performance of prime powder coating and other application where high opacity gloss are required. Overtime we believe this segment will continue to become the more meaningful portion of our business.
Sales in our TiO2 business decreased by 18% in the second quarter. We continue to experience pricing pressure in the market due to the ongoing over capacity issue from Chinese producers. We reduced our prices in the first quarter and expect pricing comparison to remain unfavorable for the remainder of 2014. As pricing remains weak, volumes are also being affected as users are less likely to pay a higher price for premium products. We expect revenue from this category will likely remain known for the next couple of quarters. Also we see sign that the market has bottomed out.
To address the market environment we have taken significant steps to improve production efficiencies and are looking to minimize losses as we weather the downturn in the TiO2 market segment. On the profitability side the sales growth and pricing power for our specialty products and the cost cutting measures we implemented in our TiO2 segment helped to offset a portion of the lower levels of utilization from our SR plant in Malaysia.
Overall we’re very pleased with our second quarter performance. We believe our specialty mineral products are very well positioned to continue to attract new business and as a strategy that we’re implementing will help us deliver attractive returns for our shareholder.
I look forward to keeping you current on our progress. Operator can you please open up the call for questions?
(Operator Instructions) Thank you. And our first question comes from the line of Jerry Bruce [ph]. Please proceed.
I’m looking at your press release and it says this report will be -- simultaneously cast on your website. I have not been able to get it on the website. Is there a place I need to go to?
It's under news and I will be happy to get with you after we’re through with this Mr. Bruce [ph] and direct you to the exact box.
Okay. That’s fine. Thank you.
Thank you. (Operator Instructions). Okay we do not see any other questions in the queue at this time. If you would like to proceed with any closing comments?
I think what we mentioned to you that the sales in our special alumina reached now the record in the history of the company and we’re very pleased that we took the right decision two years ago to expand the capacity in the Netherland and now we see really again the next step to grow the business. So we become now more of a specialty mineral manufacturer and not only focus on TiO2 and this will make our position stronger and very good, solid position in the market and also thank you for your interest to looking into TOR Minerals and we’re very excited about the future of the company. Thank you very much for your attention.
Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. And we thank you all for your participation.
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