Blueknight Energy Partners, L.P.'s (BKEP) CEO Andrew Woodward On Q2 2021 Results - Earnings Call Transcript

Blueknight Energy Partners, L.P. (NASDAQ:BKEP) Q2 2021 Earnings Conference Call August 4, 2021 11:00 AM ET

Company Participants

Matthew Lewis - Chief Financial Officer

Andrew Woodward - Chief Executive Officer

Conference Call Participants

Chris Cook - Zazove Associates, LLC

Glenn Gardipee - Northern Systems, Inc.

Operator

Good morning. My name is Ariel, and I will be the conference operator today. At this time, I would like to welcome everyone to the Blueknight Earnings Conference Call for the Second Quarter of 2021. All lines have been placed on mute to prevent any background noise. [Operator Instructions]

I would now like to turn the call over to Matt Lewis, Blueknight's Chief Financial Officer. Please go ahead.

Matthew Lewis

Thank you and good morning. We are pleased to welcome you to Blueknight's conference call, where we will discuss financial and operating results for the second quarter ended June 30, 2021. After our prepared remarks today, we will open the lines to address any of your questions.

As a reminder, the earnings release, which can be found on our website, includes financial disclosures and reconciliations for certain non-GAAP financial measures that should help you analyze results. Comments and answers to questions during the call today may include forward-looking statements that refer to management's expectations or future predictions. These statements are made as of the date of this call, and management is under no obligation to update these forward-looking statements in the future. They are subject to risks and uncertainties that could cause actual results to differ from management's expectations.

With that, I will now turn it over to our Chief Executive Officer, Andy Woodward.

Andrew Woodward

Thanks, Matt. Good morning to everyone who dialed in. On today's call, I will begin with second quarter highlights and our operational performance before Matt provides additional information on our financial results and key metrics. I will then finish with an update on our growth strategy before we open the lines for Q&A.

For the second quarter of 2021, I'm excited to report a solid performance from our business, especially relative to a strong performance last year. Matt will go into this in more detail, but I'm very pleased to see the progress we have made on achieving our cost saving initiatives post our crude oil divestiture and the outperformance of our business compared to the prior year, with incremental improvements in adjusted EBITDA, and more meaningful improvements in distributable cash flow, which was up 25% year-over-year.

Furthermore, this performance translated into maintaining top-tier financial metrics, the distribution coverage of approximately 1.2 times on all distributions, 2.0 times on common unit distributions and total leverage of 2.2 times.

Operationally, if you recall, during the first half of 2020, we saw a lot of construction demand pulled forward due to COVID lockdowns and fewer vehicles on the road. So volumes were uncharacteristically high.

By comparison, first half 2021 volumes were slightly below the prior year. However, we are encouraged by the fact that first half 2021 volumes are 5% higher than the previous 3-year average. In addition, second quarter 2021 volumes are slightly ahead year-over-year, even despite a more seasonally wet and rainy spring.

With this momentum and the favorable solid backlog of road construction projects, we have a more positive outlook for the remainder of the year, absent any unforeseen weather-related or other issues. As for our contract renewals, we've made considerable progress, executing over half of our renewals already that expired this year, as customers anticipate more favorable investment in the infrastructure over the coming years.

Although a final resolution hasn't been fully achieved at the federal level, we do see sizable increases in funding over the current FAST Act, we remain optimistic that a deal gets done this year. At the state level, unexpected budget surpluses are being directed towards much-needed roadwork and state lawmakers continue to pursue bills supportive of infrastructure. These positive developments at the federal and state level further support a constructive market backdrop.

As we look to our guidance for the year, due to this more favorable outlook coupled with 6 months of earnings in excess of last year at this time, we remain confident that we'll meet or exceed our 2021 financial guidance.

With that, I'll turn it over to Matt to discuss our second quarter financial performance. Matt?

Matthew Lewis

Thanks, Andy. Before we get started, please note that additional information regarding the partnerships' results of operations will be provided in our quarterly report on Form 10-Q, which we expect to be filed later this afternoon with the SEC and available on our website. Now, turning to Blueknight's financial results.

Second quarter 2021 income from continuing operations was $7.1 million, compared to $5.4 million in the prior year. Adjusted EBITDA from continuing operations was $12 million, up 6% year-over-year. I'd also note the prior-year period excluded 537,000 onetime employee separation costs and transaction related fees.

Distributable cash flow from continuing operations was $9.7 million, up 25% compared to the prior year. And as Andy highlighted, our coverage ratio was 1.21 times on all distributions and 1.97 times on common unit distributions. Over the trailing 12-month period, our coverage ratio increased to 1.29 times on all distributions and 2.32 times on common unit distributions.

Looking at segment performance, our asphalt terminalling operating margin, excluding depreciation and amortization was $14.6 million, up 3% compared to the prior year. Total fixed-fee, take-or-pay revenue was $24.4 million, or approximately 99% of our total revenue after excluding variable cost reimbursements.

As a reminder, when comparing to the prior year period, certain asphalt terminalling contracts were renewed and amended from a lease arrangement to an operating arrangement, which resulted in an increase or gross up of certain revenue and expense items. Aside from this change in presentation, year-over-year improvements in revenue were primarily due to favorable contract renewals and annual CPI adjustments included in each of our contracts.

General and administrative expense was $3 million during the second quarter 2021 compared to $3.9 million during the prior year. After excluding non-cash equity-based compensation expense and onetime adjustments, cash G&A of $2.8 million improved to 12% compared to the prior year. This is primarily related to the capture of certain cost saving initiatives identified as part of the crude oil divestitures, such as our recent consolidation of corporate office space by more than 50%. As discussed during our last earnings call, we expect to achieve the lower end of our synergy target range during calendar 2021, or approximately $1.5 million.

I'll now move on to a summary of our second quarter investing activities and highlights related to our debt and liquidity position. Second quarter 2021, total net capital expenditures from continuing operations was $1.5 million. This included net maintenance capital of $1.2 million. Looking at the second half of 2021, we anticipate higher maintenance capital spend due to increased estimates at certain non-operated sites, and an unplanned tank repair identified during the quarter. However, on a full-year basis, we currently expect to remain within the upper end of the 2021 annual guidance range of $6 million to $6.5 million in total net maintenance capital.

Turning to our debt and liquidity. I would also like to highlight that we closed a new 4-year $300 million senior secured revolving credit facility during the quarter. The agreement, which includes a provision to increase total commitments up to $450 million was extended through May 2025 and will provide critical low-cost capital and liquidity to support our future growth efforts.

The other terms of the arrangement are largely unchanged relative to our prior agreement, which we believe is a favorable outcome in this market, credited towards our improved leverage in earnings profile post-exiting the crude oil business. As of June 30, 2021, total debt outstanding was $111 million. Our total leverage ratio was 2.17 times and liquidity available under the credit facility was approximately $188 million.

Subsequent to quarter end, we paid down an additional $7 million. As of July, 29, our total debt balance was $104 million. We are well positioned for growth, and focused on a discipline to capital allocation strategy that prioritizes both organic and strategic investments. We're evaluating opportunities with varying ranges of required capital. And as Andy mentioned, many of which are in the early stages. But we believe if we can remain patient in redeploying capital, and emphasize maximizing risk adjusted returns, we will be successful in creating long-term value for our unit holders.

I'll now turn it back over to Andy to provide an update on our strategy and business development activities.

Andrew Woodward

Thanks, Matt. As we continue our journey to become a leading specialty terminalling business focused on infrastructure and transportation end markets. We have made considerable progress over the quarter on improving our strategic process and evaluation framework and generating ideas and opportunities that both protect and enhance our current platform. These efforts are underpinned by 4 strategic aims that we believe are critical in achieving our vision.

Our first and foremost aim is to be customer focused and attract high-quality long-term customers through superior service and solutions. Our second aim is to target quality assets that are well positioned over the long-term and strengthen and complement our existing and leading specialty terminal network. Our third aim is stewardship in developing and designing a mission-driven organization and culture to maximize value to all stakeholders. And lastly, our fourth aim, which becomes a product of executing on the first 3, is returns driven and maintaining discipline in allocating capital to maximize risk adjusted return.

We believe these 4 strategic aims, along with leveraging our core competencies and competitive advantages within asphalt will create the most value for our stakeholders over the long-term and lead to new market opportunities as we stay focused on the customer, identify their evolving needs, and ultimately position ourselves to best serve those needs over time.

As we have communicated before, growth in our business will take time, especially the right type of growth that both protects and enhances our current business. It requires discipline and patience, often requiring us to thoughtfully pass on opportunities that we feel do not fit our long-term strategy and vision for Blueknight.

With that said, we are making considerable progress. And I feel the types of opportunities we're seriously evaluating in advancing this framework, and exceed my own expectations of where we will be by this time.

We look forward to sharing more details at the appropriate time. In summary, I'm very proud of our performance this quarter. The steps we're taking on our strategy and the progress we are making prioritize and advance potential new opportunities.

Now, we will open the line for Q&A. Operator?

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from [Jeff Bailey of Beach Capital] [ph]. Please go ahead.

Unidentified Analyst

Hey, Matt and Andy, another great quarter. Can you hear me okay?

Andrew Woodward

We can hear you loud and clear, Jeff.

Unidentified Analyst

Wonderful. My first question, Matt, would you explain the interest expense on the income statement for the quarter? Annualized, it's like 6.5%, so I assume there are some one-timers in there.

Matthew Lewis

Sure, Jeff, we'll have some additional details in the 10-Q, which will be filed this afternoon. But to explain it, there was about $600,000 in expenses that were written off related to the old credit facility that were previously there. So if you think about the actual cash interest expense on a go-forward basis, I think you can look at that as being around $800,000 per quarter is probably how you should think of it going forward. So there were just some noncash items related to the old facility in that number.

Unidentified Analyst

Got it, got it. And then, previously, Blueknight had some swaps to fix the interest rate on the credit facility. And, of course, investors notice that you decided to do a revolving facility instead of any fixed rate debt on below a revolver. Can you explain that, your calculus on keeping the interest rate variable for the next - well, at least for the next several quarters, because you didn't talk about fixing anything?

Matthew Lewis

Sure, yeah. At this point, we do have the revolving credit facility that were at the bottom-end of the tier. So it's LIBOR plus 2% until we get above 3 times levered. Looking at the yield curve, I said the 1 month LIBOR is I think right around 10 basis points. And so, exchanging floating for fixed at that point sure is something I think we would evaluate if it makes sense. But at the same time, we are benefiting from really low rates when we think about that LIBOR component.

Unidentified Analyst

Okay. So for now, you're going to leave it floating, no plans to get any swaps or anything?

Matthew Lewis

No immediate plans, but certainly something that we would evaluate if it makes sense to do it for a portion of the debt outstanding.

Andrew Woodward

And, Jeff, this is Andy. That's something that, I mean, just for your awareness and others, we've been evaluating, I'd say over the last 2 years. And thankfully, we've opted not to exchange that floating rate for fixed rate. But as Matt mentioned, where rates are currently, looking at the forward curve, again, it's something we constantly are evaluating on long-term basis for what we would consider permanent debt.

Unidentified Analyst

Yeah, leaving it an open variable has worked out wonderfully for the unitholders the last 2 years. It's just interesting, because there's a lot of mixed signals. There is so much talk about inflation, and so many bankers are worried about inflation. But yet interest rates are so low and the yield curve is so flat. But, I guess, you'll evaluate it going forward. So, I get what you're saying.

And, Andy, so regarding the preferred, we can assume no preferred was repurchased in the quarter also?

Andrew Woodward

That's correct. The only preferred we purchased was announced last quarter. But it's, again, similar to interest rate swaps, something we're constantly evaluating.

Unidentified Analyst

Okay. And then, Andy, you've talked a bit for a few quarters about organic growth opportunities, and perhaps, expanding some of the services that some of the existing sites offer and different modes of transportation into sites that you already own. But we haven't heard any announcements yet. So are we to assume that maybe those organic projects aren't penciling out the way you hoped? And that mostly growth might be inorganic? Or is there another reason why you've been quite on that so far?

Andrew Woodward

Yeah, no, it's a fair question and it's a good question. I would say what we've been focused on post the crude oil sale, which, again, was earlier this year, when we closed that transaction is on growth. And the areas that we've primarily been focusing on is our process and strategic framework to drive growth in the business on a long-term basis going forward.

And I can't say enough, how much progress we've made both strategically around that, that process and also the types of projects that we are advancing. And we look at it on a stage basis in advancing certain projects to get them to a place where we're hopeful that we'll be in a position to announce those types of projects here soon.

It's just these things take time. And, a good example is our own crude oil transaction that we announced late last year, and just closed here recently. That was a project had been in the works for 7 to probably even 7 months to even longer than that. So it's just to say these things take time. And I think a lot of our remarks today is to leave the investor with the sense that this is something we are hyper-focused on and we are making considerable progress on as well.

Unidentified Analyst

Understood. Can you talk a little bit about what you and Matt are seeing out there? As you look at - it seems like in a way the build-it-yourself projects would be expensive because of inflation, whether it's labor or materials, and those may be hard to make work. And then obviously, there's a ton of capital in the energy space, both strategic and private floating around, looking for things to buy. Are you finding it difficult at all to get projects to pencil out, just because of the environment, both inorganic and organic?

Andrew Woodward

We're actually seeing the opposite of that, Jeff, right now. And namely, from a strategic perspective, what's core to our strategy is the customer. And staying in front of the customer and best serving those customer needs currently and over time. And I think that strategy is playing out really well for us, where we're getting in front of them and looking for ways to solve some of the issues that they're running into. And like you said, I think we're in a very energy transition type environment right now, which for us we think brings on additional opportunities not only in asphalt but outside of asphalt too.

And so, I think we're well positioned both from a strategic standpoint and our core business, and also from a liquidity standpoint to be able to help our customers solve their needs over time. So we're seeing more activity, I would say in that area than we were expecting. And then, on top of that, more on the inorganic or strategic side, we're also seeing a lot of activity out there that's similar to our own portfolio optimization that we went through last year.

We're starting to see a lot of other companies get out there and do the same. And on that note is, we've been a part of a handful of prophecies ourselves. Again, it goes back to some of our comments from earlier and that what we're focused on is patience and discipline, and making sure we're finding the right opportunities that both enhance our current platform and business, but also protect it going forward.

Unidentified Analyst

Wonderful, wonderful. Well, investors will be well served. Thank you very much. Another great quarter, guys. Have a great day.

Andrew Woodward

Thanks, Jeff.

Operator

Our next question comes from [Steve Chick of Sebi's Garden Capital] [ph]. Please go ahead.

Unidentified Analyst

Hi, thanks for taking my question. So, I guess, first off, you're heading into seasonally most profitable quarter here typically in the third quarter. And I'm wondering with variable through throughput volume and variable throughput revenue is obviously a big part in the second half year. And there were some shifts a year ago. So you actually have some pretty favorable tailwinds or comparisons. And, obviously, you've got some momentum coming off the first half. And is it too early, I mean, you've got a month in the quarter behind you, does this variable throughput, these thresholds, are they something that gets attained later in the quarter? Or how much visibility do you have into that threshold specifically, and kind of the general momentum of your business? If you could kind of comment on that, that'd be very helpful.

Matthew Lewis

Sure. Yeah, thanks, Steve. It varies by customer in terms of when we hit that threshold. And so it really depends on their activity. First half of the year, and then really getting into the third quarter is where we do see that uplift, and depending on the construction activity and the weather similar to what we saw last year, I think, we saw in certain regions like the Rockies, we had great weather even going into the fourth quarter that we saw some benefit beyond even September, October.

And so what I would say is, if you looked at the first half of the year, I think you can total it up and it's about on average maybe 46% of that total operating margin before depreciation and amortization. So, I would say that it probably will follow historical trends, we think about the third quarter maybe being around 27% or 28% of that operating margin for the year. And so I think that's a fair number to use. And again as we get further throughout the third quarter, we'll have more visible visibility once we get to new number.

Unidentified Analyst

Okay. That's helpful. And then, I guess, relative to capital allocation, and kind of on these strong results and your current EBITDA run rate and Distributable Cash Flow, it really kind of - and, as you said, I think in your comments, what your LTM coverage ratio is, what 1.29 times, I believe that you said. And so you're - even at this point in a pretty good position from a distribution standpoint. I'm just wondering about kind of the prospects of raising the distribution rate on the common. I mean, it seems like on my math, you could usually raise it by, say, 25%, or like $0.01 per unit per quarter, and still be well within your own targets, which actually looks like you're exceeding. So what are your thoughts on that in the distribution rate?

Matthew Lewis

Yeah, we did. The guidance target for 2021 was to have coverage above 1.2 times on all distributions. We also expanded that long-term target to 1.3 times or greater on all distributions. So on a trailing metric, we are closer to that longer-term target. Our capital allocation is unchanged. I mean, we do think about that in growth projects first, and then after that, you're returning capital to unit holders, whether that's in the form of buybacks on the preferreds or distribution increases. That's something that we're evaluating when it makes sense, but we're not there at this point.

Unidentified Analyst

Okay.

Andrew Woodward

This is - Steve, this is Andy. I think part of reading into that, too, is - and also, I think it's back to a lot of our comments from earlier, we're really pleased what we're seeing right now on the growth side of things and potentially deploying sizable chunks of capital towards growth. And, I think, what Matt and I are trying to do here over the long-term in management included, is when we start to unlock that growth potential is to start then looking at the underlying cash flows and making sure that we feel very comfortable in the sustainability of those underlying cash flows and then looking at the distributions after the fact.

And so that is something we're very focused on. And as Matt said, it's not a - it ends up being a blended approach of all the different ways for us to deploy capital. So it's not one over the other, it's looking at all three or four things combined.

Unidentified Analyst

Okay. That's helpful. And then, just to - I'm wondering if you can elaborate a little bit without tipping your hand, but in some of the projects you're evaluating, and - because you commented on this a little bit earlier. But between growth, I'm talking more on the growth side, between organic versus M&A, are you kind of more or less excited about either route? I mean, are you seeing more on the organic side versus M&A? And what's the likelihood we may be able to hear something more meaningful, say, by year-end?

Andrew Woodward

Steve, those are good questions. I think, from our standpoint, it always comes back to returns, and where we feel we can get the highest returns over the long-term. And when I - and we often use the word risk adjusted return, so things we look for is counterparty risk, high quality customers, long-term contracts. And for the most part that's going to, in our minds, weigh towards more organic. And, I think that's playing out as well in the types of opportunities that we're looking at that are - that get us really excited, and we start to prioritize our more of that organic bucket that we're evaluating.

And then, strategically, oftentimes we could be receiving, I think, packages for somebody looking to sell assets. And, I think those just come with a little bit more skepticism over, one, why are they selling? And then, two, what can we do that really unlocks further value in that business and our own through that type of acquisition? And, I think, that's just going to take a little bit more time for us to be able to see enough of those types of opportunities for us to execute on. And so, I certainly think coming out of the gate here on growth, it's probably going to wait more towards organic, I'd be thrilled to your point, if we could be in a position to announce something by end of the year or at least by our year-end call with investors.

But again, I really go back to what we're focused on is what we can control. And that's the process, generating ideas staying in front of our customers and having enough ideas and good projects where, from a profitability standpoint, some of these are going to hit over that timeframe.

Unidentified Analyst

Right. That's really helpful. All right. Thanks, guys.

Andrew Woodward

Thanks, Steve.

Operator

Our next question comes from Chris Cook of Zazove Associates, LLC. Please go ahead.

Chris Cook

Hi, thanks. Nice quarter, guys. Just a real quick one. Is it a typo in the Q2 earnings release with respect to the distributions declared on the preferred being $6.255 million? Shouldn't that be $6.155 million, because of the buyback in the first quarter?

Matthew Lewis

We'll have to look at that. You're right, Chris. I mean, we'll - let me take a look at that number, because you're right, when we purchased the preferred units in the first quarter, we did get the benefit of not having to pay the distributions on those 688,000 units in the first quarter, so it should be kind of this six, one….

Chris Cook

Oh, in the first quarter as well.

Matthew Lewis

Correct.

Chris Cook

Okay. Yeah, I wasn't sure when you bought it back in the first quarter. Okay. So it may be wrong for the first and second quarter in the income - in the press release?

Matthew Lewis

Well, I think you're looking at - sorry, I was looking at it actually the distribution. So I'm looking at the non-GAAP table, which is the $6.255 million, which that's the cash component of quarterly distributions. You're looking at more just the allocation on the different…

Chris Cook

No. No. No. That's my question. If you bought back 688,000 preferred, I can't come up with that math. But anyway, it's a $100,000 item, but it's not that big a deal.

Matthew Lewis

Yeah, the difference we're seeing there - Chris, the difference we're seeing there just the general partners' share of the preferred units. That's the [indiscernible].

Chris Cook

Yeah. Got it. Okay. Okay. Because they get some sort of kits.

Matthew Lewis

Yeah. They get a percentage of all distributions based on their ownership percentage.

Chris Cook

Got you. I'm sorry about that. Yeah. Sorry about that. Thank you.

Operator

Our next question comes from [Tom Forbes] [ph], a private investor. Please go ahead.

Unidentified Analyst

Yes, I'd appreciate if you could provide a little insight on what impact in volume, the pending infrastructure bill would have on your operations for over the next, I guess, what is it a 5-year deal?

Andrew Woodward

Thanks, Tom. I think that's a good question. I think from our standpoint, we look at what's being considered at the federal level, as if you think on an annual basis, federal dollars allocated to states, it's right around $45 billion spent on road construction and highway work. And we think what's being considered there could be an increase to that annual number on an incremental basis of close to 30%. And so the benefits to us, we see in probably 3 different areas. The first is in the form of excess throughput or volume in a given year. And, for us, I think from an EBITDA standpoint, it's a little bit tough to predict, there's a lot of variables that go into this state, that we're in, our customer's ability to get rewarded contracts, so a lot of variables. And then on top of that is whether other potential issues.

But, we think from a volume standpoint and from an EBITDA standpoint, it could translate into anything from 5% to 8% higher EBITDA or operating margin for asphalt business. And so that's the first category. The second category is we think it also helps us with our contract renewals. And our renewals on an annual basis, we've typically had any anywhere between 20% of our capacity up for renewal to 30%. And so, we think that this supports more favorable renewal environments.

And then the third category is new projects. And we feel that with this type of incremental spending at the federal level, it could translate into new organic growth projects for us with customers. So that's all to say we do think it's going to be a positive outcome for our business, it will be positive for our customers. But I do want to remind my new and others that this is highly, highly fixed-fee type business. So how it shows up in our business will be much more muted than other places in the industry.

Unidentified Analyst

Okay. And a follow-up question, assuming it materializes, can you serve this added volume without significant capital investment to expand your facilities?

Andrew Woodward

Tom, it's a great question. And you probably not going to love my response. It's really going to depend customer to customer. I think there is excess opportunities at existing sites for certain customers to be able to handle additional volumes to other customers that have - sometimes had multiple - turns already in the facilities we operate, or that they operate. And so, that would likely require some new capacity. So it really, really depends.

Unidentified Analyst

Okay, thank you.

Matthew Lewis

Thanks, Tom.

Operator

[Operator Instructions] Our next question comes from Glenn Gardipee of Northern Systems. Please go ahead.

Glenn Gardipee

You mentioned that you were going from lease arrangements to operating arrangements. Could you please explain that more and what the effect is on the company?

Andrew Woodward

Sure, that was where - again, if you compare the year-over-year and some of our fixed fee revenues, we've got services arrangement in place. And so, we grossed up certain revenue and expense accounts, where you really want to look at the net effect of that within our operating margins to get the benefit on a year-over-year basis. But what you'll find is what was previously just kind of lease revenue, we have now a little bit higher service revenue component that the expenses are now netted from it under this new agreement.

Glenn Gardipee

Does that mean that you're operating the facilities with your own personnel versus the leasee's personnel?

Andrew Woodward

Yeah, that's right.

Glenn Gardipee

So if the infrastructure package was passed, the fact that you're using your own personnel, that would mean that your expenses would increase from that standpoint?

Andrew Woodward

Potentially. Again, I think it really depends. And I think from a personnel standpoint, at our sites, and the potential increases in volume, even with additional growth, capital needed to build additional capabilities in the sites, we can handle that with the existing personnel that we have in place.

Glenn Gardipee

Okay. And just one other question. Have you been looking at the purchase of any full blacktop plants from other sellers?

Andrew Woodward

When you refer to blacktop plants? I mean, we're looking at plants very similar to our own, which…

Glenn Gardipee

Yes, that's what I mean.

Andrew Woodward

Yes, yes. Then those are the types of that opportunities that I would call down the fairway [indiscernible] that we're highly, highly focused on. And we've been calling those types of opportunities, tier 1 opportunities, here internally. And then, if we were successful there with existing customers, we think by leveraging what we can do on the asphalt side on the tier 1 opportunities that that will start to lead into tier 2 opportunities, which do provide a little bit of background on that category. That's where we start to get into other complementary products beyond on asphalt.

So, again, we're trying to leverage our strengths from a core competency standpoint then will lead into other new markets and opportunities with our customers over time.

Glenn Gardipee

Okay. Thank you very much.

Andrew Woodward

Thanks, Glenn.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Andy Woodward for any closing remarks.

Andrew Woodward

I want to thank everyone for dialing in. We appreciate your continued interest, patience and support, and look forward to speaking with many of you soon. Thank you and have a good rest of your week. Operator, I'll turn it back over to you.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.