Calumet Inc (CLMT) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2017 Calumet Specialty Products Partners L.P. Earnings Conference Call. (Operator Instructions) I would now like to introduce your host for today's conference call, Mr. Joe Caminiti. You may begin, sir.

Thank you, Kevin. Good morning, everyone, and thank you for joining us today for our second quarter earnings results call. With us on today's call are Tim Go, CEO; West Griffin, CFO; Bill Anderson, Head of Specialty Products Sales; and Bruce Fleming, who leads our Strategy and Growth functions.

Before we proceed, allow me to remind everyone that during the course of this call, we may provide various forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such statements are based on the beliefs of management as well as the assumptions made by them, and in each case, based on the information currently available to them. Although our management believes that the expectations reflected in such forward-looking statements are reasonable, neither the partnership, its general partner nor management can provide any assurance that these expectations will provide to be correct.

Please refer to the Partnership's press release that was issued this morning as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our actual results and could cause them to differ from our forward-looking statements made on this call. As a reminder, you may now download a PDF of the presentation slides that will accompany the remarks made on today's conference call, as indicated in the press release we issued earlier today. You may access these slides in the Investor Relations section of our website at calumetspecialty.com. Also, a webcast replay of this call will be available on our site within a few hours, and you can contact Alpha IR Group for Investor Relations support at (312) 445-2870.

With that, I'd like to pass the call to Tim Go. Tim?

Good morning, everyone, and thank you for joining us. I will start off the call today with a high level review of our second quarter results. Today, I'm excited to announce that we delivered over $100 million in adjusted EBITDA this period. The strategy underlined our transformation is working. And our core specialty products segment, continues to serve as the backbone of our business, helping us drive more consistent and improved financial performance. Let's take a moment to discuss some of the key highlights for the second quarter. Please turn to Slide 3 of the presentation. First, we have improved margin capture across our specialty and fuel segments, which helped drive strong adjusted EBITDA of $102 million during the second quarter and $180 million over the first half of 2017. During the second quarter, we also had positive net income of roughly $10 million, driven in part by our ongoing self-help initiatives and stronger execution. Our specialty segment continues to drive a material portion of our adjusted EBITDA and generated $67 million in the second quarter versus $59 million in the prior-year period. And up from $46 million in the prior quarter. I'm pleased to report that this was the highest adjusted EBITDA that the specialty segment has generated in any quarter over the last 4 years. Additionally, the segment's gross margin per barrel increased roughly 17% compared to the prior-year period and was up 31% sequentially, coming in at $41.87 per barrel for the quarter. This improvement in margin capture was driven by prior price adjustments and tighter supply across the industry, for some of our core products as well as by our own self-help initiatives. Another significant contributor to our improved performance was our Branded and Packaged business, which delivered a second consecutive record quarter in terms of both margin contribution as well -- and sales volume. And this on the back of our record full year contribution that we saw in 2016. This is important to highlight, because as you may recall, further growth across our high quality Branded and Packaged products is a key part of our overall growth story as well as our "Self-Help" goals.

Continuing on to Slide 4 with our fuels business. Gross margin for the fuel business came in at $3.92 on a per barrel basis, up significantly from $2.59 in the prior-year period. Adjusted EBITDA of $34 million, showed marked improvement versus $19 million in the year prior period. And came in only slightly lower than the $37 million generated sequentially in the first quarter. These significant year-over-year improvements were driven by healthier crack spreads, self-help contribution, lower maintenance costs across our planned operations and lower cost associated with our compliance with Renewable Fuel Standards. Specifically, the average the Gulf Coast 2/1/1 crack spread that we benchmark the business against was up roughly 17% versus a year ago period, and up marginally versus last quarter. Higher cracks were partially offset by lower volumes, lower WCS differentials and a small turnaround at the Superior refinery. In the coming quarter, we expect typical seasonal trends, through the bulk of the summer driving season with added contribution from our asphalt business, which has already gotten off to a healthy start in Q3.

In our oilfield services segment, I'm pleased to report that the business had its first profitable quarter since 2014. Higher rig counts and increased drilling activity, drove revenue growth of roughly 200%, relative to the same quarter last year. This revenue growth is reflected positively in our adjusted EBITDA figures for the quarter which came to a positive $0.5 million compared to a loss of nearly $8 million in the prior-year period. And a $4 million loss last quarter. Despite softness in crude prices last quarter, we continued to see steady increases in drilling activity for Anchor customers. We remain constructive on the backdrop of the environment for this segment and in conjunction with some of the improvements with the business that our team at Anchor have made, we continue to believe that our oilfield services segment is well positioned for success in the future.

Turning to Slide 5. You will see a chart detailing our trailing 12-month adjusted EBITDA, which have improved to $262 million, up from $230 million last quarter and $114 million a year ago. This is the chart we have shown you for a few quarters now and is representative of the fact that our strategy is working, as evidenced by the three consecutive quarters of stronger results and adjusted EBITDA growth. On Slide 6, you'll see a more detailed review of our self-help program. I think it is important to reiterate that this self-help program is how we envisioned our strategic road map to becoming the premier specialty petroleum products company in the market. The foundation of the self-help program has been what we call operations excellence and focuses on targeted cost reductions and the elimination of waste, the optimization of our raw material usage and efforts to enhance our margins across all 3 of our business segments. During the second quarter, our self-help program allowed us to capture an additional $14 million in adjusted EBITDA. This was driven most notably by growth initiatives within our specialty segment primarily focused on our Branded and Packaged division as well as by product upgrades and quality improvements in both our fuels and specialty products segments. We also were able to generate greater EBITDA through continued focus on cost reductions throughout our supply chain and reductions in our operating expenses at our plants. And lastly, we processed a record 41,600 barrels per day of heavy Canadian crude at our northern fuel refineries, which despite some compression in the WTI-WCS crude differential, still positively contributed to our strong performance during the second quarter. In addition to the operations excellence initiatives, we've also focused on opportunistic growth projects during 2017. We introduced you to a few of these last quarter but our R&D team has been busy and we have a few new developments I'd like to share. First, our new Group III Synthetic Base Oil was launched early in the second quarter and should receive its last certification this month. In May, we also launched a new proprietary Transformer Oil, a high-quality product that is designed for the specific requirements of certain international markets. Further, in addition to the Group 3 Base Oil, and our new Transformer Oil, we announced the introduction of a new food-grade, industrial lubricant in June, under our Bel-Ray brand of products called Bel-Ray No-Tox Ultra F Oil. These new products are in the early stages of production and we expect sales to increase as the rest of the year unfolds. We also approved 2 new expansion projects for 2 of our well-known brands, Royal Purple and TruFuel, targeted for startup in the second half of 2017. As we look forward, we fully expect that these new products and additional expansions will be positive contributors to growing our specialties business.

Slide 7 provides a full review of our historical and prospective self-help results. Year-to-date, we've been able to achieve nearly $32 million in additional benefits through our self-help efforts. At the beginning of the year, we told you that we expect to deliver results within the range of $40 million to $60 million in 2017.

Given the results we have achieved already this year, and our confidence looking forward, we are raising and tightening the range of expected EBITDA benefit to between $50 million to $60 million in 2017. Combined with the $89 million in EBITDA, we were able to achieve in 2016, we are ahead of pace to achieve the goal of generating between $150 million to $200 million in additional adjusted EBITDA by 2018. Overall, this was a very solid quarter and I want to thank all of our employees across each of our businesses for their hard work and dedication. Our culture has significantly transformed itself over the last year and I'm excited to see what we can do as we continue to build upon our recent success. And with that, I will turn the call over to our CFO West Griffin, who will take us through some of the specifics of our financial position as well as our quarterly performance.

Thanks, Tim. Before getting into the details of our quarterly performance, first allow me take a moment to walk everyone through some of the more meaningful metrics regarding our liquidity and leverage. The continued improvement in our adjusted EBITDA figures is starting to be reflected in our credit metrics. While there is still much room for improvement, I can safely say that our efforts are slowly maturely providing added stability to our business and returning our balance sheet to healthier levels than what you have seen in the recent past.

Slide 8 shows the substantial improvement in our credit metrics. Our leverage ratio as represented by our debt to trailing 12 months EBITDA has been on a steady decline since last year and now is currently 7.7x as of the end of the quarter. While we have shown marked improvement in that regard, we remain committed to reducing this leverage metric even further with the ultimate goal of managing our leverage at a level that is far more sustainable for our business in longer term. Our fixed charge coverage ratio, as shown on the bottom right side of the slide, has steadily improved over the last 3 quarters and now sits at 1.5x. Lastly, our liquidity as measured by the ability -- availability on our revolver plus cash, continues to exhibit the kind of stability that is needed to manage our business effectively. This liquidity has remained stable, in spite of the seasonal buildup in inventories to support the asphalt business. Now that we are in the heart of the asphalt season, we should see inventories decline during the next quarter as inventories are converted to cash. Last quarter, we spoke briefly about some of the efforts we were taking to provide stability to our liquidity through an inventory financing arrangement at our Great Falls, Montana refinery. During the most recent quarter, we were able to apply a very similar type of inventory financing arrangement at our larger Shreveport, Louisiana refinery. While these arrangements have provided incremental benefits to our liquidity, their primary focus is to derisk our liquidity and the business at large.

Slide 9, shows the significant improvement in our adjusted EBITDA. The June 2017 quarter was better in all of our business segments than the same period in 2016. And 2 out of the 3 segments were better than our first quarter this year. You should note that the adjusted EBITDA of $180 million for the first half of 2017 is higher than the adjusted EBITDA realized over all of 2016. Clearly, we are off to a good start this year. Digging into the segments more specifically, the adjusted EBITDA from our core Specialty segment was $67 million, compared to $59 million last year and marked a 14% increase in contribution to EBITDA, the most that the business has produced since 2012. The results were helped in part by the timing of a decline in the cost of crude feedstocks, tighter supply across some of the key markets and pricing adjustments in the first quarter. Additionally, the Branded and Packaged division saw 19% increase in sales volume, relative to the same period last year. And again, had a record quarter in terms of both sales volumes and margin contribution. Adjusted EBITDA for the Fuel segment was $34 million for the quarter, compared to just $19 million over the same period last year, which was almost an 80% improvement. As Tim said, we had some planned downtime at Superior for a turnaround, which somewhat limited these results as well. Lastly, our Oilfield Services segment generated $0.5 million in adjusted EBITDA, an improvement of $8 million compared to the second quarter of last year.

Now allow me to put our adjusted EBITDA results in context compared to the first quarter of this year. As there were a number of factors that impact the numbers on a quarter-by-quarter basis. We saw meaningful improvement in EBITDA generation from both the core Specialty segment and Oilfield Services segment sequentially. While results from our Fuel segment were relatively flat to last quarter. For our core Specialty segment, the $67 million in adjusted EBITDA was meaningfully stronger than the $46 million generated last quarter. The segment showed strong gross margins influenced by a general -- declining crude environment, combined with the full impact of price adjustments taken during the first quarter, tighter market supply and the impact of self-help. While sales volumes decreased marginally, a dynamic to be expected when market pricing moves higher, we continued to show sequential growth in key areas particularly, within our higher value Branded and Packaged division. Fuels EBITDA was down slightly from $37 million in the first quarter to $34 million in the second quarter, due mainly to Superior's planned downtime. A tightening of light, heavy crude differentials, lower WTI-WCS differentials and higher market pricing for RINs throughout the period. These headwinds were somewhat offset by seasonal sales volume growth, improved crack spreads and our ongoing self-help initiatives. In Oilfield services, adjusted EBITDA improved to $0.5 million, which compared favorably to the prior quarter loss of $4 million, driven by incremental but steady increases in drilling rig counts, a key barometer for the outlook of this business. Our average rig count in the second quarter increased approximately 145% compared to same period in 2016. Slide 10 clearly shows that both operating cost improvements as well as margin improvements drove much of the benefits year-over-year. As I just outlined, healthier margins were derived across all 3 of our segments. The bridge was also helped by an improvement in operating cost within our Fuel segment, driven in part by lower market rents, prices compared to last year and lower maintenance cost across our system. In addition, the company benefited from the $14 million in additional EBITDA from our health -- self-help efforts and the elimination of losses from our Dakota Prairie joint venture, which was a $7 million drag on EBITDA in the second quarter of last year. The reciprocal to these gains is reflected in the two most meaningful detractors in this EBITDA bridge. And then [unfavorable] change in the LCM inventory adjustment of $37 million, and then an expected but temporary decline in sales volumes driven in part by the Superior turnaround completed during the quarter as well as some declines in specialties, that came in tandem with higher pricing. Lastly, SG&A was also higher in part due to bonus accruals and additional contract workers employed by Anchor to meet higher rig volume.

Slide 11 shows meaningful improvement in our cash position relative to where we stood last quarter. The largest component to this improvement stemming from our inventory financing arrangements that we spoke about earlier on the call. Allow me to outline some of the details for those who are unfamiliar. Given that our borrowing base can shift significantly due to swings in crude prices, we have again engaged with Macquarie, an investment bank, to help derisk our liquidity through a unique but straightforward financing arrangement. We have effectively sold almost all of our inventory at Great Falls and now Shreveport to Macquarie from whom we will buyback the inventory which has the effect of putting the commodity price exposure to them for the period of time which they hold the inventory. This financing arrangement added $71 million in cash during the second quarter. From an accounting perspective, this is a financing arrangement and although we have technically sold our inventory, we will continue to show it on our balance sheet and recognize the proceeds from the financing arrangement as a liability. The proceeds from the inventory financing combined with the improved operating cash flow of $58 million were used to pay down a revolver by $39 million. And help fund seasonal increases in working capital of $43 million, related to asphalt inventory builds in preparation for the summer asphalt season. With capital spending of $13 million and other marginal uses of cash, our final cash position for the quarter amounted to $27 million.

Slide 12 shows that we are lowering our projected capital spending for 2017. Year-to-date, we have incurred roughly $33 million on capital projects, including the planned downtime at our Superior Refinery that took place in the second quarter. On a run-rate basis, we're spending less on CapEx than we did last year. And materially less than we had in years past. Originally, we had forecasted to spend between $120 million and $140 million on capital projects during 2017. However, given our expectations regarding the timing of future turnaround and maintenance activity across our facilities, specifically, shifting Montana's turnaround to 2018. We are marginally lowering our expected range of capital spending to between $110 million to $130 million for the year. With the midpoint of that range largely in-line with last year's levels. The residual between our year-to-date capital spend and our forecasted range includes the typical annual maintenance and minor turnaround spend we do every year, as well as an allocation associated with some of our attractive growth projects we alluded to earlier. We continue to make meaningful progress on our financial fronts. We are showing that our strategic decision making is providing stability to our balance sheet and our business overall. We are growing the profitability across the business segments, reducing risk to our liquidity and we continue to be targeted and judicious, regarding how we spend precious capital. Additionally, we continue to work diligently with our Board of Directors, constantly assessing potential pathways to deleveraging our balance sheet and returning Calumet to a leverage level that's sustainable in a longer term. Not just for the business we have now, but for the business, we're on our way to becoming. Now with that, I'll turn it back to Tim.

Thanks, West. As I wrap up the prepared remarks for our earnings call, I'd like to leave you with our outlook for the third quarter on Slide 13. First, we expect continued strength from our core Specialty Products segment on a year-over-year basis, driven in part by continued growth in our Branded and Packaged division and our ongoing self-help initiatives. All of these factors will be partially offset as the industry recovers from the outages that we have seen in the first half of the year. We expect typical seasonal patterns within the markets of our Fuel segment, with more meaningful contribution from our asphalt business, partially offset by the tighter WCS crude differentials we have seen of recent. We anticipate year-over-year revenue growth in our Oilfield Services segment, supported by continued improvement in the fundamentals underlying that business. We expect to achieve between $50 million to $60 million in benefits, stemming from our self-help initiatives for the full year and lastly, it continues to be our expectation that we will find and execute on new ways to derisk our business, improve our liquidity and lessen our debt burden over the long term. That concludes our prepared remarks. So Kevin, we can go ahead and open the line for questions at this time.

(Operator Instructions) Our first question come Roger Read with Wells Fargo.

I guess maybe let's get in a little bit to what really helped you on Specialty, I mean I know this is a business where crude prices dropping as they did in the second quarter should help, if you were to give us maybe some indication of how that played into it versus the underlying self-help, the improvement in the Package Branded margins? Just maybe give us a little more of a refinement on the quarter?

Yes, sure, Roger. This is Tim. We're very pleased with the results of our Specialty segment. We've been talking over the last couple of quarters of how we were falling behind on the crude price. And we were implementing price changes and adjustments in order to keep up with the cost of the higher raw materials. We did, as we talked on the last quarter, implement those changes and of course that we were able to see a full quarter of those changes in the second quarter. As crude prices came down a little bit, I would say -- really, you look at GI, it was down maybe $4, specialty margins themselves were up $10. So maybe a little bit of a feel for the relative impact of crude versus all the other self-help and initiatives that we have going on in our Specialties department. I would also tell you that given the tightness in the industry right now on [Base] oils, that we have seen a lot of strength in those prices and in the market itself, as supply is pretty tight right now.

Okay, great. And along the lines -- the Group III Base Oil market move here. So you mentioned launch May 1, you were waiting for certification. What's sort of the process on that and when can we expect the volumes of that product to actually be sold?

Yes. Roger we're excited about Group III as we talked about last quarter. We've seen a lot of interest and a lot of excitement in the market for us, entering into this new product. There are a lot of certifications that are required in order to get into the formulations and blendings of these products. We have one additive (inaudible) had certified us through -- all the way through 5W-30 blends last quarter, and we expect the final approval into the 0W blends here this month. We have another additive company that certified us the same way into the 5W blends here in the second quarter, and we expect to continue to make progress with them to get the final certifications. In the meantime, we have our customers getting samples, testing them in their formulations and getting to the point where they can understand how they can use this in their specific blending formulations and we feel confident that in the third quarter, we're going to be able to get that going in a meaningful way.

Okay, great. Thanks for that. And then just to step back and take a little look at the bigger picture. You mentioned at the end of summary there, kind of derisk, lower debt profile over the longer term. Any thoughts or updates on that? I know none of your debt is due in any sort of near-term time frame but let's call it a [balloon] payment does loom at some point. How you're thinking about approaching that process?

Yes. I'll let West to jump in on that.

Sure, so now that's a great question. So we continue to look at our capital structure and obviously, we're looking at a wide range of different options. But we don't have anything per se to announce here in the short run. What we are focused on is getting the company to live within cash flow and in this quarter, it's interesting to note that we generate positive cash flow to the tune of about $16 million, so if you take the adjusted EBITDA, you take out any noncash effects associated with it less the cash, interest expense and CapEx, it was positive $16 million. That's something that's very positive from our standpoint. It was offset and the reason why you don't see a bigger impact in our total liquidity is because we utilized a portion of that cash flow to -- or portion of our liquidity to post up some LCs for some crude that was -- had better pricing associated with it and so we felt that the additional margins were worth the utilization of those -- of that liquidity. But we are turning the corner here and we have positive cash flow. That is the first primary focus associated with the management team right now.

Okay, great. And if I can just sneak in one more. On the -- with the inventory financing packages, does that affect at all your ability to hedge crude going forward. I know you've talked previously about hedging some WCS barrels?

It does not impact the ability for us to hedge. You will see in the appendix of the presentation, Roger, we still have about 10,000 barrels a day of WCS hedged right now. And some of that on a fixed price, some of that on a percentage. So those will continue to carry through the third and fourth quarter, but no, we still have the ability to do that.

Our next question comes from Justin Jenkins with Raymond James.

If I could have first question here maybe on working capital, I think West you referenced it in your prepared remarks. Just thinking about inventory reductions as we make our way through the second half here. Is there the ability to quantify how much reversal of that working capital we might see in the second half here?

Yes. You are going to see us start drafting our inventories especially with respect to asphalt, and I think Tom has indicated that it was about 500,000 barrels, so you should see that over the course of the third quarter here. And so you are going to see a fairly significant improvement in terms of our overall liquidity as we convert those -- the higher level of inventories that we have right now, into cash.

Okay, great. That's helpful.

I would just add, Justin, before you go to your next question, and we talked about this last quarter, we've made a conscious effort to act -- to run at lower working capital levels here over the past year. And while our asphalt inventory built in the second quarter on a net basis, we are still about 200,000 barrels on asphalt lower than we were last year, as we continue to optimize the way and strategically optimize the way we manage our working capital and our inventories.

Great, that's really helpful. And then maybe thinking on the Montana maintenance deferral, is that just normal timing differences or is it related to maybe some more planning involved to some self-help you've got planned in coming in '18?

Yes -- no, the deferral's just because we're not ready. We've been really emphasizing in our operations excellence efforts that we're going to execute when we're ready to execute. And in this case, we have a little bit more planning to do before we'll be ready to execute, so that's why we're deferring now.

Got it. And then last one if I could, maybe Tim, I'd appreciate your comments on your reference to a tighter Canadian heavy differential expected in 3Q. That's not a terrible surprise but thinking about things as we head into 2018, seems like it should get a little tighter or I guess a little looser when we think about the differential on non-Canadian heavy. Maybe your thoughts, as we move into 2018 on that differential?

Yes, Justin. I mean, your guess is as good as mine of course. But as we see what is going on in the fundamentals, we know there are some short-term impacts on that WCS-TI differential. Some of the operating issues that have been occurring in Canada, the (inaudible) [crude] outage that occurred, I think just right at the end of the first quarter, those have all created some tightening in the WCS. Of course, the OpEx cuts lately have also put some pressure on the light heavy differential. But we do see that at least some of these shorter-term issues will play out and towards the end of the year, the WCS-TI spread should loosen up issues [set in] maybe get back to more historical levels.

The next question come from Mike Gyure with Janney.

Oilfield services segment. Nice turnaround there, can you talk about I guess maybe your expectations as you move into maybe 2018, I guess what you're looking to do as far as potentially growing that business or kind of what you're looking for long-term related strategy there?

Yes, Mike, we've been extremely pleased with the progress that our [Anchor] segment has been putting into really over the last year. It's been a hard long battle, a shout out to the employees out there at Anchor for really never giving up and continuing to fight hard. I mean, a year ago, we had -- we hit our low in terms of the number of rigs we had in our customer profile. As West said earlier, I think we're up 145% this quarter versus where we were last quarter so -- versus a year ago quarter. So hats off to the management and to the employees of Anchor for planning this through, riding through the downtime. And really their strategy has always been to position themselves for the recovery. And I think they're quick out of the chute here as the activity continues to increase. And if you gauge the feeling of our folks down there, they feel pretty positive, really in the short term, in the next few months, but also in the long term that we're heading into the right direction and positioning ourselves for a long-term recovery. So I really don't want to share any other strategy other than that but we do feel positive about the direction we're going in.

Okay, great. And then just maybe one more on the Fuel business, can you talk a little bit about the RINs liability in the mark-to-market adjustment, I think you typically disclose that in the Q but maybe if you could let us know what that number is for the quarter here?

Sure, Mike. We had a negative impact on the RINs mark-to-market this quarter. As you know, RINs prices bottomed out in the first quarter at a fairly low price. That mark-to-market impact was about $10.5 million negative for our earnings in the second quarter. So I don't know, West, you want to be chime in there?

Yes. I think the key message here is, if you [can], take a big step back and look at the fuels business. If you pull out all the RINs effects, exemption mark-to-market, the incurrence for all the production of our fuels, et cetera, during the quarter, so all that in the short-run is all (inaudible) noncash. The effect of everything was about $7.8 million positive effect on the $34 million of adjusted EBITDA for the quarter.

(Operator Instructions) And our last question comes from Sean Sneeden with Guggenheim.

Tim or West, I guess just maybe bigger picture on the CapEx deferral there, but how should we be thinking about spending levels for next year? Is it kind of reasonable to pencil in similar levels of spend as this year or how should we kind of be thinking about that holistically?

Yes, Sean. We haven't put out any official guidance yet on next year but the way you think about that I would say is, we're going to have a heavier turnaround year. So we're going to have some additional costs associated with turnarounds. On the other hand, we had some heavy capital cost this year associated with our ERP project that would not be in there next year. So for now, I would probably say as you kind of mentioned earlier, that we're probably in still about a similar range that we gave you this year for next year with higher turnaround cost being offset by the lower capital cost.

Okay, that makes sense. And just to perhaps clarify a bit, but are all the turnaround that you'll be doing, is that all on the fuel side?

It's -- there is a lot of activity on the fuel side, but we do have turnaround at Shreveport as well, which is a (inaudible) facility.

Okay, that's helpful. And should we generally be thinking about the kind of the central [intent] of more or less trying to spend within cash flow -- is that generally how you are going to try to craft the plan?

That is our objective, yes. I mean the first -- the most important thing from my perspective is, it be generating positive cash flow, and so a notable point about this quarter is that we are positive cash flow and our intent is to the best of our ability, maintain that positive momentum.

Okay, that's helpful. And then I guess, West, just perhaps, another kind of clarification on the inventory financing that you guys are doing. But is the borrowing base that you guys have, does that -- are you guys getting credit for I guess the inventory that's pledged in that financing or is it-- or should we be thinking about really the collateral for that -- for the borrowing basis kind of a net number?

Yes. It really is sort of a net number. So the way to think of it is, is the inventory that we sold to Macquarie, the banks no longer have the benefit of that in terms of the borrowing base, so you just pull out that and replace it with Macquarie. It's either in one of the two buckets, right, it's either Macquarie has it or the banks have it.

Okay. And then, is the inventory financing, I guess is that included in your debt calculations that you guys have in the back of the slide deck there? I guess, and I forget if you put [it] in the release. But I guess how much is outstanding under that facility at this point?

Yes, so the -- in the slide, it's the long-term debt and we don't include the inventory financing in the long-term debt calculation. As of the end of June, the total amount outstanding of the inventory financing was $103 million.

Okay, that's helpful. And then just one last one, if you don't mind. But, maybe Tim, kind of bigger picture, I think you touched upon this on the previous question. When you think about kind of the trying to derisk the business, and I know you've talked about this in the past, but are there any things I guess, away from asset sales and the cost reduction initiatives that we've talked about in prior calls, that you guys are contemplating at this point, or have you kind of more or less narrowed it down to some iteration of that?

Yes, Sean. When we talk about options of derisking the business, we're looking at all options. We've not narrowed it down to any particular items, we've continued to think of what is in the best interest of our shareholders. As we strengthen our core business, I think more options become available to us. And I think West may have said this on his first call, if there is an idea out there, we probably already thought about it and we probably already started analyzing it. What I can tell you is, we've had a lot of those options that are out there that we're looking at and we're just looking for the right one that we will do the best for the shareholders.

Ladies and gentlemen, this does conclude today's question and answer portion. And I would now like to turn the call back over to Tim for closing remarks.

Well, thank you again for your time today and your continued support. We look forward to seeing many of you at the investor conferences we have coming up over the next few months. Thanks very much.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect. And have a wonderful day.