SISECAM RESOURCES LP You should read the following management's discussion and analysis of financial condition and results of operations in conjunction with the historical unaudited condensed consolidated financial statements, and notes thereto, included elsewhere in this Report.
Cautionary Statements Regarding Forward-Looking Statements
This Report contains, and our other public filings and oral and written statements by us and our management may include statements that constitute "forward-looking statements" within the meaning ofthe United States securities laws. Forward-looking statements include the information concerning our possible or assumed future results of operations, reserve estimates, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and may be identified by the use of forward-looking terminology such as the words "believe," "expect," "plan," "intend," "anticipate," "estimate," "predict," "forecast," "project," "potential," "continue," "may," "will," "could," "should" or the negative of these terms or similar expressions. Examples of forward-looking statements include, but are not limited to, statements concerning cash available for distribution and future distributions, if any, and such distributions are subject to the approval of the board of directors of our general partner and will be based upon circumstances then existing. We have based our forward-looking statements on management's beliefs and assumptions and on information currently available to us. Forward-looking statements involve risks, uncertainties and assumptions. You are cautioned not to place undue reliance on any forward-looking statements. Actual results may vary materially. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements and, therefore, affect our ability to distribute cash to unitholders, include:
•the market prices for soda ash in the markets in which we sell;
•the volume of natural and synthetic soda ash produced worldwide;
•domestic and international demand for soda ash in the flat glass, container glass, detergent, chemical and paper industries in which our customers operate or serve; •the freight costs we pay to transport our soda ash to customers or various delivery points and recent disruptions in the global supply chain and overall port congestion;
•the cost of electricity and natural gas used to power our operations;
•the amount of royalty payments we are required to pay to our lessors and licensor and the duration of our leases and license;
•political disruptions in the markets we or our customers serve, including any changes in trade barriers;
•our relationships with our customers and our sales agent's ability to renew contracts on favorable terms to us;
•the creditworthiness of our customers;
•a cybersecurity event;
•the impact of war on the global economy, energy supplies and raw materials;
•the impact of growing inflation or higher interest rates on international and domestic economic conditions;
•the impact of the CoC Transaction and our transition to the utilization of our global distribution network;
•regulatory action affecting the supply of, or demand for, soda ash, our ability to mine trona ore, our transportation logistics, our operating costs or our operating flexibility;
•new or modified statutes, regulations, governmental policies and taxes or their interpretations; and
•prevailing
•the outcome of the non-binding proposal made by Sisecam Chemicals to acquire all of our issued and outstanding common units not already owned by Sisecam Chemicals or its affiliates.
In addition, the actual amount of cash we will have available for distribution
will depend on other factors, some of which are beyond our control, including,
among other things:
22
--------------------------------------------------------------------------------•the level and timing of capital expenditures we make;
•the level of our operating, maintenance and general and administrative expenses, including reimbursements to our general partner for services provided to us;
•the cost of acquisitions, if any;
•our debt service requirements and other liabilities;
•fluctuations in our working capital needs;
•our ability to borrow funds and access capital markets;
•restrictions on distributions contained in debt agreements to which Sisecam Wyoming is a party;
•the amount of cash reserves established by our general partner; and
•other business risks affecting our cash levels.
These factors should not be construed as exhaustive and we urge you to carefully consider the risks described in this Report, our most recent Annual Report on Form 10-K for the year endedDecember 31, 2022 filed with theSEC onMarch 31, 2023 (the "2022 Annual Report") and subsequent reports filed with theUnited States Securities and Exchange Commission (the "SEC"). You may obtain these reports from theSEC's website at www.sec.gov. All forward-looking statements included in this Report are expressly qualified in their entirety by these cautionary statements. Unless required by law, we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
References
References in this Quarterly Report on Form 10-Q ("Report") to the
"Partnership," "SIRE," "we," "our," "us," or like terms refer to Sisecam
Resources LP and its subsidiary, Sisecam Wyoming LLC , which is the consolidated
subsidiary of the Partnership and referred to herein as "Sisecam Wyoming."
Sisecam Chemicals Resources LLC ("Sisecam Chemicals") is 60.0% owned by Sisecam
Chemicals USA Inc. ("Sisecam USA ") and 40.0% owned by Ciner Enterprises Inc.
("Ciner Enterprises "). References to "our general partner" or "Sisecam GP" refer
to Sisecam Resource Partners LLC , the general partner of Sisecam Resources LP
and a direct wholly-owned subsidiary of Sisecam Chemicals Wyoming LLC ("SCW
LLC "), which is a direct wholly-owned subsidiary of Sisecam Chemicals. Sisecam
USA is a direct wholly-owned subsidiary of Türkiye ?i?e ve Cam Fabrikalari A.?,
a Turkish corporation ("?i?ecam Parent"), which is an approximately 51.0%-owned
subsidiary of Turkiye Is Bankasi Turkiye Is Bankasi ("Isbank"). ?i?ecam Parent
is a global company operating in soda ash, chromium chemicals, flat glass, auto
glass, glassware glass packaging and glass fiber sectors. ?i?ecam Parent was
founded in 1935, is based in Turkey and is one of the largest industrial
publicly-listed companies on the Istanbul exchange. With production facilities
in four continents and in 14 countries, Sisecam Parent is one of the largest
glass and chemicals producers in the world. Ciner Enterprises Inc. is a direct
wholly-owned subsidiary of WE Soda Ltd. , a U.K. Corporation ("WE Soda"). WE Soda
is a direct wholly-owned subsidiary of KEW Soda Ltd. , a U.K. corporation ("KEW
Soda"), which is a direct wholly-owned subsidiary of Akkan Enerji ve Madencilik
Anonim ?irketi ("Akkan"). Akkan is directly and wholly owned by Turgay Ciner ,
the Chairman of the Ciner Group ("Ciner Group "), a Turkish conglomerate of
companies engaged in energy and mining (including soda ash mining), media and
shipping markets. All of our soda ash processed is sold to various domestic and
international customers.
Overview
We are a Delaware limited partnership formed by SCW LLC to own a 51.0%
membership interest in, and to operate the trona ore mining and soda ash
production business of Sisecam Wyoming. Sisecam Wyoming is currently one of the
world's largest producers of soda ash, serving a global market from its facility
in the Green River Basin of Wyoming . Our facility has been in operation for more
than 50 years.
Recent Developments Take Private Proposal OnFebruary 1, 2023 , the Partnership, our general partner,SCW LLC andSisecam Chemicals Newco LLC , aDelaware limited liability company and a wholly owned subsidiary ofSCW LLC ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Merger Sub will merge with and into the Partnership, with the Partnership surviving as a direct wholly owned subsidiary of our general partner andSCW LLC (the "Merger"). Under the terms of the Merger Agreement, at the effective time of the Merger, each issued and outstanding common unit of the Partnership, other than those held bySCW LLC and its permitted transferees, will be converted into the right to receive$25.00 per common unit in cash without any interest thereon. 23 -------------------------------------------------------------------------------- Immediately following the execution of the Merger Agreement,SCW LLC , which indirectly owns approximately 74% of our common units, delivered to us an irrevocable written consent adopting the Merger Agreement and approving the transactions contemplated thereby, including the Merger. As a result, we are not soliciting approval of the transaction by any other holders of our common units. Instead, we will distribute an information statement to our unitholders describing the terms and conditions of the transaction. Upon closing of the transaction, our common units will cease to be listed on theNew York Stock Exchange and will be subsequently deregistered under the Securities Exchange Act of 1934, as amended. Sisecam Chemicals has entered into a commitment letter to finance the Merger and the commitment is guaranteed by Sisecam Chemicals' subsidiaries except for Sisecam Wyoming and Sisecam Wyoming's subsidiaries.
Quarterly Distribution
Our general partner has considerable discretion in determining the amount of available cash, the amount of distributions and the decision to make any distribution. Although our partnership agreement requires that we distribute all of our available cash quarterly, there is no guarantee that we will make quarterly cash distributions to our unitholders, and we have no legal obligation to do so. In connection with the CoC Transaction, the new controlling ownership of our general partner continues to refine the financial, liquidity, capital expenditures and distribution strategy for the Partnership. The new controlling ownership is committed to maintaining a disciplined financial policy with a conservative capital structure that considers amongst other things current and anticipated investments and economic uncertainties. OnApril 28, 2023 , the Partnership declared a cash distribution approved by the board of directors of its general partner. The cash distribution for the first quarter of 2023 of$0.50 per unit will be paid onMay 18, 2023 to unitholders of record onMay 10, 2023 . See Part I, Item 1, Financial Statements-Note 13, "Subsequent Events", for more information We intend to pay a sustainable quarterly distribution to unitholders of record over time, to the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner and its affiliates. There is no guarantee that we will make quarterly cash distributions to our unitholders, however, and other than as set forth in our partnership agreement, we do not have a legal obligation to do so.
Factors Affecting Our Results of Operations
Soda Ash Supply and Demand
Our net sales, earnings and cash flow from operations are primarily affected by the global supply of, and demand for, soda ash, which, in turn, directly impacts the prices that we and other producers charge for our products. Historically, long-term demand for soda ash inthe United States has been driven in large part by general economic growth and activity levels in the end-markets that the glass-making industry serves, such as the automotive and construction industries. Long-term soda ash demand in international markets has grown in conjunction with Gross Domestic Product. We expect that over the long-term, future global economic growth will positively influence global demand, which will likely result in increased exports, primarily fromthe United States ,Turkey and to a limited extent, fromChina , the largest suppliers of soda ash to international markets. Supply chain disruptions we experienced, which impacted the business in the recent past, have eased. Recent higher interest rates and inflationary pressures may have an impact on certain near term customers' soda ash demand. Sales Mix We will adjust our sales mix based upon what is the best margin opportunity for the business between domestic and international. Our operations have been and continue to be sensitive to fluctuations in freight and shipping costs and changes in international prices, which have historically been more volatile than domestic prices. Our operating income will be impacted by the mix of domestic and international sales as a result of changes in logistics costs and our average selling prices.
International Export Capabilities
Sisecam Chemicals manages the Partnership's export sales and marketing efforts. Sisecam Chemicals continues to optimize its distribution network leveraging the strengths of existing distribution partners while expanding as our business requires in certain target areas. This enhanced view of the global market allows Sisecam Chemicals to better understand supply/demand fundamentals thus allowing better decision making for its business.
Energy Costs
One of the primary impacts to our profitability is our energy costs. Because we depend upon natural gas and electricity to power our trona ore mining and soda ash processing operations, our net sales, earnings and cash flow from operations are sensitive to changes in the prices we pay for these energy sources. Due to the historic volatility of natural gas prices, we expect to continue to hedge a portion of our forecasted natural gas purchases to mitigate volatility. The Partnership has a natural gas-fired turbine co-generation facility that is capable of providing roughly one-third of our electricity and steam demands at our mine in theGreen River Basin and that mitigates 24 --------------------------------------------------------------------------------
the Partnership's exposure to volatile energy costs. In a normal production environment, the facility is expected to provide us with over 180.0 million kWh of electricity annually.
25
--------------------------------------------------------------------------------How We Evaluate Our Business
Productivity of Operations
Our soda ash production volume is primarily dependent on the following three factors: (1) operating rate, (2) quality of our mined trona ore and (3) recovery rates. Operating rate is a measure of utilization of the effective production capacity of our facility and is determined in large part by productivity rates and mechanical on-stream times, which is the percentage of actual run times over the total time scheduled. We implement two planned outages of our mining and surface operations each year, typically in the second and third quarters. During these outages, which are scheduled to last approximately one week each, we repair and replace equipment and parts. Periodically, we may experience minor unplanned outages or unplanned extensions to planned outages caused by various factors, including equipment failures, power outages or service interruptions. The quality of our mine ore, which we refer to as our "ore grade," is determined by measuring the trona ore recovered as a percentage of the deposit, which includes both trona ore and insolubles. Plant recovery rates are generally determined by calculating the soda ash produced divided by the sum of the soda ash produced plus soda ash that is not recovered from the process. All of these factors determine the amount of trona ore we require to produce one short ton of soda ash and liquor, which we refer to as our "ore to ash ratio." Our ore to ash ratio was 1.67:1.0 and 1.56:1.0 for the three months endedMarch 31, 2023 and 2022, respectively. Freight and Logistics The soda ash industry is logistics intensive and involves careful management of freight and logistics costs. These freight costs make up a large portion of the total delivered cost to the customer. Delivery costs to most domestic customers primarily relate to rail freight services. Some domestic customers may elect to arrange their own freight and logistic services. Delivered costs to international customers primarily consists of both rail freight services to the port of embarkation and the additional ocean freight to the port of disembarkation. Sisecam Chemicals enters into contracts with one railroad company for the majority of the domestic rail freight services that the Partnership receives and the related freight and logistics costs are allocated to the Partnership. For the three months endedMarch 31, 2023 and 2022, the Partnership shipped over 90.0% of our soda ash to our customers initially via a single rail line owned and controlled by the railroad company. The Partnership's plant receives rail service exclusively from the railroad company and shipments by rail accounted for over 50.0% of our total freight costs for each of the three months endedMarch 31, 2023 and 2022. If Sisecam Chemicals does not ship at least a significant portion of our soda ash production on the railroad company's rail line during a twelve-month period, it must pay the railroad company a shortfall payment under the terms of our transportation agreement. The Partnership assists the majority of its domestic customers in arranging their freight services. During the fiscal year endedDecember 31, 2022 , and the three months endedMarch 31, 2023 , Sisecam Chemicals had no shortfall payments and does not expect to make any such payments in the future. Sisecam Chemicals renewed its agreement with the railroad company inOctober 2021 , which expires onDecember 31, 2025 .
Net sales include the amounts we earn on sales of soda ash. We recognize revenue from our sales when we satisfy the performance obligation defined in the contract with the customer. The performance obligation is typically met when goods are delivered to the carrier for shipment, which is the point at which the customer has the ability to direct the use of and obtain substantially all remaining benefits from the asset. The time at which delivery and transfer of title occurs is the point when the product leaves our facilities for domestic customers, and the point when the product is placed on a vessel for other international customers, thereby rendering our performance obligation fulfilled. Substantially all of our sales are derived from sales of soda ash, which we sell through our exclusive sales agent, Sisecam Chemicals. A small amount of our sales is derived from sales of production purge, which is a by-product liquor solution containing soda ash that is produced during the processing of trona ore. For the purposes of our discussion below, we include these transactions in domestic sales of soda ash and in the volume of domestic soda ash sold. Sales prices for international sales may include the cost of rail freight to the port of embarkation and the cost of ocean freight to the port of disembarkation for import by the customer.
Cost of Products Sold
Expenses relating to employee compensation, energy, including natural gas and
electricity, royalties and maintenance materials constitute the greatest
components of cost of products sold. These costs generally increase in line with
increases in sales volume.
26
--------------------------------------------------------------------------------
Energy. A major item in our cost of products sold is energy, comprised primarily
of natural gas and electricity. We primarily use natural gas to fuel our
above-ground processing operations, including the heating of calciners, and we
use electricity to power our underground mining operations, including our
continuous mining machines, or continuous miners, and shuttle cars. The monthly
Northwest Pipeline Rocky Mountain Index natural gas settlement prices, over the
past five years, have ranged between $1.29 and $49.57 MMBtu. The average monthly
Northwest Pipeline Rocky Mountain Index natural gas settlement prices for the
three months ended March 31, 2023 and 2022 were $22.36 and $5.76 MMBtu,
respectively. The Partnership has a natural gas-fired turbine co-generation
facility that provides roughly one-third of our electricity and steam demands at
our mine in the Green River Basin . In order to mitigate the risk of gas price
fluctuations, the Partnership expects to continue to hedge a portion of its
forecasted natural gas purchases by entering into physical or financial gas
hedges generally ranging between 20% and 80% of our expected monthly gas
requirements, on a sliding scale, for approximately the next three years.
Employee Compensation. See Part I, Item 1. Financial Statements - Note 6, "Employee Compensation" for information on the various benefit plans offered and administered by Sisecam Chemicals.
Royalties. The Partnership pays royalties to theState of Wyoming , theU.S. Bureau of Land Management andSweetwater Royalties LLC . The royalties are calculated based upon a percentage of the value of soda ash and related products sold at a certain stage in the mining process. These royalty payments may be subject to a minimum domestic production volume from ourGreen River Basin facility. We are also obligated to pay annual rentals to our lessors and licensor regardless of actual sales. In addition, we pay a production tax toSweetwater County , and trona severance tax to theState of Wyoming that is calculated based on a formula that utilizes the volume of trona ore mined and the value of the soda ash produced. The royalty rates we pay to our lessors and licensor may change upon our renewal or renegotiation of such leases and license. OnJune 28, 2018 , Sisecam Wyoming amended its License Agreement, datedJuly 18, 1961 (the "License Agreement"), with a predecessor in interest toSweetwater Royalties LLC , to, among other things, (i) extend the term of the License Agreement toJuly 18, 2061 and for so long thereafter as Sisecam Wyoming continuously conducts operations to mine and remove sodium minerals from the licensed premises in commercial quantities; and (ii) set the production royalty rate for each sale of sodium mineral products produced from ore extracted from the licensed premises at eight percent (8.0%) of the net sales of such sodium mineral products. Any increase in the royalty rates we are required to pay to our lessors and licensor, or any failure by us to renew any of our leases and license, could have a material adverse impact on our results of operations, financial condition or liquidity, and, therefore, may affect our ability to distribute cash to unitholders. OnDecember 11, 2020 , the Secretary of the Interior authorized an industry-wide royalty reduction from currently set rates by establishing a 2.0% federal royalty rate for a period of ten years for all existing and future federal soda ash or sodium bicarbonate leases. This change by the Secretary of the Interior reduced the rates on our mineral leases with theU.S. Government from 6.0% to 2.0% as ofJanuary 1, 2021 and for the following ten years. Our estimated proven and probable trona reserve includes a significant amount from leases with theU.S. Government . See the sections entitled "Leases and License" and "Trona Resources and Trona Reserves" set forth under Item 1. Business in our 2022 Annual Report for additional information on leases.
Selling, General and Administrative Expenses
Selling, general and administrative expenses incurred by our affiliates on our behalf are allocated to us based on the time the employees of those companies spend on our business and the actual direct costs they incur on our behalf. The Partnership has a Services Agreement (the "Services Agreement"), with our general partner and Sisecam Chemicals. Pursuant to the Services Agreement, Sisecam Chemicals has agreed to provide the Partnership with certain corporate, selling, marketing, and general and administrative services, in return for which the Partnership has agreed to pay Sisecam Chemicals an annual management fee, subject to quarterly adjustments, and reimburse Sisecam Chemicals for certain third-party costs incurred in connection with providing such services. In addition, under the agreement governing Sisecam Wyoming, Sisecam Wyoming reimburses us for employees who operate our assets and for support provided to Sisecam Wyoming.
Sisecam Chemicals manages the Partnership's sales and marketing efforts for exports. Through in part the Partnership's affiliates, the Partnership has amongst other things: (i) obtained its own international customer sales arrangements, (ii) obtained third-party export port services, and (iii) chartered and executed its own international product delivery.
27
--------------------------------------------------------------------------------First Quarter 2023 Financial Highlights:
•Net sales of$207.1 million increased 26.7% from the prior-year first quarter. This increase in net sales in the current quarter from the prior year first quarter is primarily attributable to a sales price increase of 24.1% for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 . The higher sales prices were due to strong demand in the domestic and international markets.
•Soda ash volume produced decreased 18.5% from the prior-year first quarter, and soda ash volume sold increased 2.1% from the prior-year first quarter.
•Net income of$40.3 million increased$8.5 million from the prior-year first quarter. The increases are primarily due to higher average sales price partly offset by inflationary impact on operating costs.
•Adjusted EBITDA of
•Basic earnings per unit of
•Net cash provided by operating activities of
•Distributable cash flow of
28--------------------------------------------------------------------------------
Results of Operations
A discussion and analysis of the factors contributing to our results of operations is presented below for the periods and as of the dates indicated. The financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance.
The following table sets forth our results of operations for the three months
ended
Three Months Ended March 31,
(In millions, except for operating and other data section) 2023 2022
Net sales $ 207.1 $ 163.4 Operating costs and expenses: Cost of products sold including freight costs (excludes depreciation, depletion and amortization expense set forth separately below)
148.1 114.8
Cost of products sold - affiliates 1.7 2.6
Depreciation, depletion and amortization expense 8.5 6.5
Selling, general and administrative expenses-affiliates 5.1 5.4
Selling, general and administrative expenses-others 1.9 1.2
Total operating costs and expenses 165.3 130.5
Operating income 41.8 32.9
Interest income 0.2 -
Interest expense (1.6) (1.1)
Other, net (0.1) -
Total other expense, net (1.5) (1.1)
Net income 40.3 31.8
Net income attributable to noncontrolling interest 20.4 16.1
Net income attributable to Sisecam Resources LP $ 19.9 $ 15.7
Operating and Other Data:
Trona ore consumed (thousands of short tons) 922.3 1,057.2
Ore to ash ratio(1) 1.67:1.0 1.56:1.0
Ore grade(2) 86.7 % 86.6 %
Soda ash volume produced (thousands of short tons) 552.2 677.8
Soda ash volume sold (thousands of short tons) 653.6 640.0
Adjusted EBITDA(3) $ 50.2 $ 39.4
(1)Ore to ash ratio expresses the number of short tons of trona ore needed to
produce one short ton of soda ash and liquor and includes our deca rehydration
recovery process. In general, a lower ore to ash ratio results in lower costs
and improved efficiency.
(2)Ore grade is the percentage of raw trona ore that is recoverable as soda ash
free of impurities. A higher ore grade will produce more soda ash than a lower
ore grade.
(3)For a discussion of the non-GAAP financial measure Adjusted EBITDA, please
read "Non-GAAP Financial Measures" of this Management's Discussion and Analysis.
29
--------------------------------------------------------------------------------Analysis of Results of Operations
The following table sets forth a summary of net sales, sales volumes and average sales price, and the percentage change between the periods.
Three Months Ended March 31, Percent Increase/(Decrease)
(Dollars in millions, except for average sales price 2023 2022 QTD
data)
Net sales:
Domestic $ 97.0 $ 69.5 39.6 %
International 110.1 93.9 17.3 %
Total net sales $ 207.1 $ 163.4 26.7 %
Sales volumes (thousands of short tons):
Domestic 340.3 313.4 8.6 %
International 313.3 326.6 (4.1) %
Total soda ash volume sold 653.6 640.0 2.1 %
Average sales price (per short ton) (1)
Domestic $ 284.9 $ 221.8 28.4 %
International $ 351.7 $ 287.5 22.3 %
Average $ 316.9 $ 255.3 24.1 %
Percent of net sales:
Domestic net sales 46.8 % 42.5 % 10.1 %
International net sales 53.2 % 57.5 % (7.5) %
Total percent of net sales 100.0 % 100.0 %
Percent of sales volumes:
Domestic volume 52.1 % 49.0 % 6.3 %
International volume 47.9 % 51.0 % (6.1) %
Total percent of volume sold 100.0 % 100.0 %
(1) Average sales price per short ton is computed as net sales divided by volumes sold.
Three Months Ended
Consolidated Results
Net sales. Net sales increased by 26.7% to$207.1 million for the three months endedMarch 31, 2023 from$163.4 million for the three months endedMarch 31, 2022 , primarily driven by an increase in average sales price of 24.1%. The higher sales prices were due to strong demand in the domestic and international markets. See "How We Evaluate Our Business -Net Sales " section for further information. Cost of products sold, including depreciation, depletion and amortization expense, freight costs and affiliates. Cost of products sold, including depreciation, depletion and amortization expense, freight costs and affiliates increased by$34.4 million to$158.3 million for the three months endedMarch 31, 2023 from$123.9 million for the three months endedMarch 31, 2022 , which was primarily due to increases in gas prices, production cost and freight cost, more specifically due to significant ocean freight cost increases from high demand in the global supply chain. Selling, general and administrative expenses and affiliates. Our selling, general and administrative expenses and affiliates increased 6.1% to$7.0 million for the three months endedMarch 31, 2023 , compared to$6.6 million for the three months endedMarch 31, 2022 . The increase was primarily due to an increase in legal fees offset by a decrease in the management fee charged to Sisecam Chemicals for the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 . (See "How We Evaluate our Business - Selling, General and Administrative Expenses"). Operating income. As a result of the foregoing, operating income increased by approximately 27.1% to$41.8 million for the three months endedMarch 31, 2023 , from$32.9 million operating income for the three months endedMarch 31, 2022 . The increase was primarily due to higher net sales resulting from the higher average sales price. Net income. As a result of the foregoing, net income increased by approximately 26.7% to$40.3 million for the three months endedMarch 31, 2023 , from$31.8 million for the three months endedMarch 31, 2022 . 30 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Sources of liquidity include cash generated from operations and borrowings under credit facilities and capital calls from partners. We use cash and require liquidity primarily to finance and maintain our operations, fund capital expenditures for our property, plant and equipment, make cash distributions to holders of our partnership interests, pay the expenses of our general partner and satisfy obligations arising from our indebtedness. Our ability to meet these liquidity requirements will depend primarily on our ability to generate cash flow from operations.
Our sources of liquidity include:
•cash generated from our operations of which we had cash on hand of
•approximately$143.0 million ($225.0 million , less$82.0 million outstanding), was available for borrowing and undrawn under the Sisecam Wyoming Credit Facility (as defined herein) as ofMarch 31, 2023 (during the three months endedMarch 31, 2023 , we made repayments on the Sisecam Wyoming Credit Facility of$45.0 million , offset by borrowings of$35.0 million ). We continue to analyze all aspects of our spending in order to maintain liquidity at levels we believe are necessary in order to satisfy cash requirements over the next twelve months and beyond. We are closely reviewing maintenance capital expenditures at ourWyoming facility to adequately maintain the physical assets. In addition, we are subject to business and operational risks that could adversely affect our cash flow, access to borrowings under the Sisecam Wyoming Credit Facility, and ability to make monthly installment payments under the Sisecam Wyoming Equipment Financing Arrangement. Our ability to satisfy debt service obligations, to fund planned capital expenditures, to make acquisitions and to make distributions will depend upon our future operating performance, which, in turn, will be affected by prevailing economic conditions, our business and other factors, some of which are beyond our control. We expect our ongoing working capital and capital expenditures to be funded by cash generated from operations and borrowings under the Sisecam Wyoming Credit Facility. The amount, timing and classification of any such capital expenditure could affect the amount of cash that is available to be distributed to our unitholders. We intend to pay a quarterly distribution to unitholders of record, to the extent we have sufficient cash from our operations after establishment of cash reserves, funding of any acquisitions and expansion capital expenditures, paying debt obligations and payment of fees and expenses, including payments to our general partner and its affiliates. See Part I, Item 2, Overview, "Recent Developments," for more information.
Working Capital Requirements
Working capital is the amount by which current assets exceed current liabilities. Our working capital requirements have been, and will continue to be, primarily driven by changes in accounts receivable and accounts payable, which generally fluctuate with changes in volumes, contract terms and market prices of soda ash in the normal course of our business. Other factors impacting changes in accounts receivable and accounts payable could include the timing of collections from customers and payments to suppliers and supplier cost inflation, as well as the level of spending for maintenance and growth capital expenditures. A material adverse change in operations or available financing under the Sisecam Wyoming Credit Facility could impact our ability to fund our requirements for liquidity and capital resources. Historically, we have not made working capital borrowings to finance our operations. As ofMarch 31, 2023 , we had a working capital balance of$203.2 million as compared to a working capital balance of$229.9 million as ofDecember 31, 2022 . The primary driver for the decrease in our working capital balance was due to a decrease in the fair value of gas hedge swaps as ofMarch 31, 2023 compared toDecember 31, 2022 .
Financial Assurance Regulatory Updates by the
Our operations are subject to oversight by theLand Quality Division of Wyoming Department of Environmental Quality ("WDEQ"). Our principal mine permit issued by the Land Quality Division, requires the Partnership to provide financial assurances for our reclamation obligations for the estimated future cost to reclaim the area of our processing facility, surface pond complex and on-site sanitary landfill. The Partnership provides such assurances through a third-party surety bond (the "Surety Bond"). According to the annual recalculation and submittal, the Surety Bond amount was$41.8 million atMarch 31, 2023 andDecember 31, 2022 . The amount of such assurances that we are required to provide is subject to change upon annual recalculation according toDepartment of Environmental Quality's Guideline 12, annual site inspection and subsequent evaluation/approval by the WDEQ's Land Quality Division. For a discussion of risks in connection with future legislation relating to such financial assurances that could affect our business, financial condition and liquidity, see Part I, Item 1A, "Risk Factors - Risks Inherent in our Business and Industry - Our inability to acquire, maintain or renew financial assurances related to the reclamation and restoration of mining property could have a material adverse effect on our business, financial condition and results of operations." in our 2022 Annual Report. 31 --------------------------------------------------------------------------------
Capital Expenditures
Our operations require investments to expand, upgrade or enhance existing operations and to meet evolving environmental and safety regulations. We distinguish between maintenance and expansion capital expenditures. Maintenance capital expenditures (including expenditures for the replacement, improvement or expansion of existing capital assets) are made to maintain, over the long-term, our operating income or operating capacity. Examples of maintenance capital expenditures are expenditures to upgrade and replace mining equipment and to address equipment integrity, safety and environmental laws and regulations. Our maintenance capital expenditures do not include actual or estimated capital expenditures for replacement of our trona reserves. Expansion capital expenditures are incurred for acquisitions or capital improvements made to increase, over the long-term, our operating income or operating capacity. Examples of expansion capital expenditures include the acquisition and/or construction of complementary assets to grow our business and to expand existing facilities, such as projects that increase production from existing facilities or reduce costs, to the extent such capital expenditures are expected to increase our long-term operating capacity or operating income.
The table below summarizes our capital expenditures, on an accrual basis:
Three Months Ended March 31,
(In millions) 2023 2022
Capital Expenditures:
Maintenance $ 4.5 $ 7.2
Total $ 4.5 $ 7.2
In connection with the acquisition by Sisecam Chemicals USA Inc. ("Sisecam USA ")
of 60.0% of Sisecam Chemicals Resources LLC , Sisecam USA , the new controlling
owner, is evaluating all the expansion plans for the Partnership. This
evaluation includes analyzing opportunities to de-bottleneck existing operations
to increase production. As we evaluate investment opportunities, we intend to
maintain our disciplined financial policy with a conservative capital structure.
During the three months ended March 31, 2023 and 2022, there was no expansion
capital expenditures.
Impact from Inflation
The impact of inflation has become significant in recent months and in the U.S.
economy and may increase our cost to acquire or replace properties, plant and
equipment. Inflation may also increase our costs of labor and supplies. To the
extent permitted by competition, regulation and existing agreements, we pass
along increased costs to our customers in the form of higher selling prices, and
we expect to continue this practice. While we continue to navigate through an
inflationary cost environment, we remain confident in the initiatives we are
taking to enhance the sales pricing structures and secure critical supplies.
Cash Flows Discussion
The following is a summary of cash provided by or used in each of the indicated
types of activities:
Three Months Ended March 31,
(In millions) 2023 2022 Percent Increase/(Decrease)Cash provided by (used in): Operating activities $ 35.6$ 7.7 362.3 % Investing activities $ (5.2)$ (8.2) (36.6) % Financing activities $ (33.1)$ 1.1 (3,109.1) % Operating Activities Our operating activities during the three months endedMarch 31, 2023 provided cash of$35.6 million , an increase of 362.3% from the$7.7 million cash provided during the three months endedMarch 31, 2022 , primarily as a result of the following: •an increase of 26.7% as a result of net income of$40.3 million during the three months endedMarch 31, 2023 , compared to$31.8 million for the prior-year period; and •a decrease in cash used in working capital of$17.5 million during the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 . The decrease of the cash used in working capital period over period was primarily due to a lower accounts receivable balance atMarch 31, 2023 as compared to the three months endedMarch 31, 2022 .
Investing Activities
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We used cash flows of
Financing Activities
Cash used in financing activities of$33.1 million during the three months endedMarch 31, 2023 , as compared to$1.1 million of cash provided by financing activities in the prior-year same period, largely due to repayment on the Sisecam Wyoming Credit Facility during the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 . Borrowings under the Sisecam Wyoming Credit Facility were at variable interest rates. As of and for the quarter ended (Dollars in millions) March 31, 2023 Short-term borrowings from banks: Outstanding amount at period end $ 82.0 Weighted average interest rate at period end(1) 5.11 % Average daily amount outstanding for the period $ 95.9 Weighted average daily interest rate for the period(1) 4.78 % Maximum month-end amount outstanding during the period $ 150.5 (1) Weighted average interest rates set forth in the table above include the impacts of our interest rate swap contracts designated as cash flow hedges. As ofMarch 31, 2023 , the interest rate swap contracts had an aggregate notional value of$25.0 million . --------------------------------------------------------------------------------
Debt
See Part I, Item 1, Financial Statements - Note 4, "Debt" for more information regarding the Partnership's debt obligations and related disclosures.
Material Cash Requirements
During the three months endedMarch 31, 2023 , there were no material changes with respect to the material cash requirements disclosed under the Section "Material Cash Requirements" in our 2022 Annual Report other than as described below.
-In the three months ended
Critical Accounting Policies and Estimates
During the three months endedMarch 31, 2023 , there were no material changes with respect to the critical accounting policies and estimates disclosed in our 2022 Annual Report.
Recently Issued Accounting Standards
There are no issued but not yet effective accounting standards with a material impact to the Partnership.
Non-GAAP Financial Measures We report our financial results in accordance with generally accepted accounting principles inthe United States ("GAAP"). We also present the non-GAAP financial measures of: •Adjusted EBITDA;
•Distributable cash flow; and
•Distribution coverage ratio.
We define Adjusted EBITDA as net income (loss) plus net interest expense, income tax, depreciation, depletion and amortization, equity-based compensation expense and certain other expenses that are non-cash charges or that we consider not to be indicative of ongoing operations. Distributable cash flow is defined as Adjusted EBITDA less net cash paid for interest, maintenance capital expenditures and income taxes, each as attributable toSisecam Resources LP . The Partnership may fund expansion-related capital expenditures with borrowings under existing credit facilities such that expansion-related capital expenditures will have no impact on cash on hand or the calculation of cash available for distribution. In certain instances, the timing of the Partnership's borrowings and/or its cash management practices will result in a mismatch between the period of the borrowing and the period of the capital expenditure. In those instances, the Partnership adjusts designated reserves (as provided in the partnership agreement) to take account of the timing difference. Accordingly, expansion-related capital expenditures have been excluded from the presentation of cash available for distribution. Distributable cash flow will not reflect changes in working capital balances. We define distribution coverage ratio as the ratio of distributable cash flow as of the end of the period to cash distributions payable with respect to such period. Adjusted EBITDA is a non-GAAP supplemental financial measure that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess the Partnership's operating performance and liquidity. Adjusted EBITDA may provide an operating performance comparison to other publicly traded partnerships in our industry, without regard to historical cost basis or financing methods. Adjusted EBITDA may also be used to assess the Partnership's liquidity including such things as the ability of our assets to generate sufficient cash flows to make distributions to our unitholders and our ability to incur and service debt and fund capital expenditures.
Distributable cash flow and distribution coverage ratio are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess the Partnership's liquidity, including:
•the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; and
•our ability to incur and service debt and fund capital expenditures.
We believe that the presentation of Adjusted EBITDA provides useful information
to our investors in assessing our financial conditions, results of operations
and liquidity. Distributable cash flow and distribution coverage ratio provide
useful information to investors in assessing our liquidity. The GAAP measures
most directly comparable to Adjusted EBITDA is net income and net cash provided
by operating activities. The GAAP measure most directly comparable to
distributable cash flow and distribution coverage ratio is net cash provided by
operating activities. Our non-GAAP financial measures of Adjusted EBITDA,
distributable cash flow
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and distribution coverage ratio should not be considered as alternatives to GAAP
net income, operating income, net cash provided by operating activities, or any
other measure of financial performance or liquidity presented in accordance with
GAAP. Adjusted EBITDA and distributable cash flow have important limitations as
analytical tools because they exclude some, but not all items that affect net
income and net cash provided by operating activities. Investors should not
consider Adjusted EBITDA, distributable cash flow and distribution coverage
ratio in isolation or as a substitute for analysis of our results as reported
under GAAP. Because Adjusted EBITDA, distributable cash flow and distribution
coverage ratio may be defined differently by other companies, including those in
our industry, our definition of Adjusted EBITDA, distributable cash flow and
distribution coverage ratio may not be comparable to similarly titled measures
of other companies, thereby diminishing its utility.
The table below presents a reconciliation of the GAAP financial measures of net
income and net cash provided by operating activities to the non-GAAP financial
measures of Adjusted EBITDA and distributable cash flow:
Three Months Ended March 31,
(In millions, except per unit data) 2023 2022
Reconciliation of net income to Adjusted EBITDA attributable to
$ 40.3 $ 31.8 Add backs: Depreciation, depletion and amortization expense 8.5 6.5 Interest expense, net 1.4 1.1 Adjusted EBITDA 50.2 39.4 Less: Adjusted EBITDA attributable to noncontrolling interest 25.2 19.7 Adjusted EBITDA attributable to Sisecam Resources LP $
25.0
Reconciliation of net cash from operating activities to Adjusted EBITDA and distributable cash flow attributable toSisecam Resources LP : Net cash provided by operating activities$ 35.6 $ 7.7 Add/(less): Amortization of long-term loan financing (0.1) (0.1) Net change in working capital 13.7 31.1 Interest expense, net 1.4 1.1 Other non-cash items and loss on disposal of assets, net (0.4) (0.4) Adjusted EBITDA 50.2 39.4 Less: Adjusted EBITDA attributable to noncontrolling interest 25.2 19.7 Adjusted EBITDA attributable to Sisecam Resources LP 25.0 19.7
Less: Cash interest expense, net attributable to
0.7 0.5
Less: Maintenance capital expenditures attributable to
2.8 4.1
Distributable cash flow attributable to Sisecam Resources LP $
21.5
Cash distribution declared per unit$ 0.5 $ 0.5 Total distributions to unitholders and general partner$ 10.1 $ 10.1 Distribution coverage ratio(a) 2.13 1.50 (a) Distribution coverage ratio is calculated as distributable cash flow attributable toSisecam Resources LP divided by total distributions to limited partners unitholders and general partners. 35
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