Chemtrade Logistics Income Fund (CHEUN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Chemtrade Logistics Income Fund Q2 2020 Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mark Davis, President and CEO. Please go ahead, sir.

Thank you, Ian, and good morning, ladies and gentlemen. Thank you for joining us for our call today. I hope all of you are staying safe and well. Before I commence the review, I would remind you that our presentation contains certain forward-looking statements that are based on current expectations and are subject to a number of uncertainties and risks, and actual results may differ materially. Further information identifying risks, uncertainties and assumptions and additional information on certain non-IFRS measures referred to in this call can be found in the disclosure documents filed by Chemtrade with the securities regulatory authorities available at sedar.com. One of the non-IFRS measures we will refer to on this call is adjusted EBITDA, which is EBITDA modified to exclude only noncash items such as unrealized foreign exchange gains and losses. For simplicity, we will just refer to it as EBITDA as opposed to adjusted EBITDA, although both of these terms are fully defined in our MD&A. As usual, Rohit Bhardwaj is on the call today. But like the last one, we're in different locations. Chemtrade, as we explained on our last call, falls under the essential business classification under U.S. State and Canadian Provincial orders. As all of our operations have continued, our highest priority has been our employees' health and safety. Our employees continue to follow the measures we implemented, ensuring that they can continue to work safely and supply our customers. To date, the measures have been very effective. I want to start this call by again thanking each member of our workforce for their dedication and outstanding performance during these trying times. On this morning's call, Rohit will provide a brief review of our second quarter results and an update on liquidity. But first, I have a few comments on the general market conditions that prevailed for the quarter. Our Q1 results were relatively unaffected by COVID-19. But at the time we reported on our Q1 results, we indicated that our second quarter would be affected by the pandemic. At that time, we explained, well, that while some of our businesses are not impacted by the effects of the virus, we did expect that our products at certainly oil and gas industries would be materially affected. The big takeaway is that we performed better in the second quarter than we had expected. And as I will outline later, we now expect to generate higher earnings for the year than we had anticipated at the time of the first quarter's report. Parts of our business that we expected to be firm despite COVID-19, in particular, the entire Water Solutions and Specialty Chemicals, or WSSC, segment performed well. Additionally, the refining industry came back quicker than we had expected. Although results are down from last year, they are better than we expected. On the other side, the fracking industry has not recovered, and that continued to have a negative impact on demand for hydrochloric acid. While we continue to pursue chlorine sales, it takes time to develop new markets for chlorine as there is limited demand close to our facility. This meant that our North Vancouver plant operated below capacity for the second quarter, resulting in lower levels of caustic soda sales. Following Rohit's review, I'll have some comments on the current economic environment for Chemtrade. And to the extent we can, some comments on our outlook for the balance of the year. Rohit?

Thank you, Mark. Good morning. I hope everybody is keeping well. Looking first at the aggregate results for the second quarter of 2020, revenue was $347.5 million, a decrease of $49.2 million from 2019. The decrease in revenue for the second quarter is primarily due to lower selling prices and lower sales volumes for hydrochloric acid and caustic soda in the Electrochem, or EC, segment and lower sales volume of regen and merchant sulphuric acid in the Sulphur Products and Performance Chemicals, or SPPC, segment. Aggregate EBITDA for the second quarter of 2020 was $75.5 million compared with $91.3 million in the second quarter of 2019. For the second quarter of this year, EBITDA for our operating businesses was $17.7 million lower than last year, and corporate expenses were $1.9 million better. As I will outline shortly, the largest shortfall was in the SPPC segment, as we expected, largely due to lower refinery utilization rates. Distributable cash after maintenance capital expenditures for the second quarter of 2020 was $31.7 million or $0.34 per unit. As announced on March 11, effective with our March distribution, we reduced our distribution to $0.05 per unit making distributions declared for the second quarter of $0.15 per unit. Now turning to segmented results for the quarter. SPPC generated revenue of $104 million compared with $126.4 million in 2019. The decrease in revenue in the second quarter of 2020 was primarily due to the COVID-19 pandemic, this resulted in lower sales volumes for regen and merchant acid and sulphur products, partially offset by higher selling prices for ultra pure sulphuric acid. The more significant factor that negatively affected EBITDA during the second quarter of 2020, with a reduction in demand for regen services, government orders, restricting nonessential travel and people working from home reduced demand for gasoline. Therefore, refineries operated at lower utilization rates, which led to the reduced demand for regen services. EBITDA for the second quarter of 2020 was $31.6 million, which was $13.7 million lower than 2019. As a reminder, EBITDA during the second quarter of 2019 benefited from a $2.6 million recovery related to the settlement of an old claim regarding quality equipment. Our WSSC segment reported second quarter revenue of $113.5 million compared with $115.5 million in 2019. The slight decrease is due to lower sales volume of water solutions products and lower sales volumes of specialty chemical products, partially offset by higher selling prices for water solutions products. EBITDA improved to $27.2 million from the $20.9 million generated in 2019. The improvement was due to higher margins for water products, which benefited from higher selling prices and lower raw material costs. Our EC segment reported revenue of $130.1 million for the second quarter of 2020, which was $24.7 million lower than the same period of 2019. The lower revenue in the second quarter of 2020 was primarily due to lower sales volume for hydrochloric acid and caustic soda, a decrease of 39% in selling prices for HCl and a decrease of 15% in selling prices for caustic soda. This was partially offset by a 6% increase in selling prices for chlorine. From an EBITDA perspective, EBITDA of $36 million for the second quarter of 2020 was $10.4 million lower than the same period of 2019. This was primarily due to lower selling prices for both caustic soda and HCl as well as the effect of operating the North Vancouver facility at reduced rates. Our production rate was constrained by reduced demand for HCl in the second quarter, netbacks, that is, selling price less freight, for HCl were 54% lower compared to the same period of 2019. Maintenance capital expenditures in the second quarter were $12.1 million. Maintenance CapEx in 2020 continues to be difficult to predict, primarily because of the uncertainty of being able to find contractors to carry out the work due to the pandemic. If we are able to hire contractors, we estimate maintenance CapEx of between $75 million and $80 million for 2020. Excluding unrealized foreign exchange gains, corporate costs in the second quarter of 2020 were $19.4 million compared with $21.3 million in the second quarter of 2019. The lower costs were primarily due to lower incentive compensation accruals. Turning to liquidity. We maintain ample liquidity with USD 211 million undrawn on our USD 850 million credit facility. We are in compliance with all our bank covenants. As noted on our last call and in our disclosure, we have negotiated an amended covenant package on our senior credit facility, which provides us with additional covenant room over the next 2 years. As you would have seen on our balance sheet, the June 2021 series of unsecured subordinated convertible debentures with a par value of $126.5 million are now shown as a current liability. There's still almost a year of term remaining on these debentures. However, we plan to redeem them well before maturity and are proactively evaluating refinancing options. Finally, we announced last month that we have established a distribution reinvestment plan that became available with the July distribution. We believe this is an outstanding opportunity for unitholders, as it provides a way to accumulate Chemtrade units without fees and currently include the 3% bonus distribution. I'll now hand the call back to Mark. Mark?

Thank you, Rohit. As noted on our last call and subject to all the uncertainties I will discuss, we expect that we will generate sufficient distributable cash even in this unprecedented year to satisfy all of our obligations and to sustain our current distribution rate. In fact, on a year-to-date basis, we have already generated $0.75 of distributable cash per unit. The uncertainty of this pandemic continues to make it difficult to estimate future earnings with any degree of specificity. This lack of specificity is what led us to withdraw our guidance earlier in the year. Since the chemical industry is an essential industry, our facilities have continued to operate. Our team has done an outstanding job throughout the pandemic, operating safely, overcoming obstacles and keeping our customers supplied. Similar to last quarter, we have updated the key assumptions affecting our business in this quarter's MD&A. Our current views of these assumptions could be wrong, and we specifically caution that this is a very fluid situation. Our comments are largely based on input from our customers, which can and will likely change over time. Accordingly, the following comments should be taken with extreme care and given the fluidity of the situation, we will not update these comments until our next MD&A. Last quarter, we indicated that certain of our products, such as water solutions would not be significantly affected by COVID, while other products such as regen acid would be more affected. As we mentioned earlier, this is exactly what we saw in the second quarter. Our water business performed very well, continuing the improvement that started more than a year ago. Our regen business, which serves gasoline refineries, was materially affected by COVID as people drove less, but it was not as severely affected as we had feared. I'll now provide a few more details on the various business segments starting with our SPPC segment. First, sulphuric acid. Recall that we sell acids to 3 markets: regen assets to the refining industry; merchant acid to North American general industry; and ultra pure acid to the semiconductor industry. Ultra pure acid continues to perform well. Merchant acid may suffer from some reduced demand depending on how robust industrial activity is for the balance of the year. However, I'll direct my comments to regen since reduced demand for this product risks having the most material effect from COVID. The key for regen profitability is the operating rate of refineries producing gasoline or more specifically alkylate. Last quarter, we had expected that operating rates for refineries in the second quarter would be approximately 35% lower than last year. In fact, refineries did operate at lower rates in the second quarter, but only about 25% lower than last year. Further, we saw an increase in operating rates as the quarter progressed. Last quarter, we had expected operating rates in the -- in Q3 and Q4 would improve from Q2, although still be below 2019 levels. We had assumed that Q3 would be 25% lower than Q3 of 2019 and that Q4 would be 15% lower than Q4 of 2019. We still believe that operating rates will ramp up in Q3 and Q4 and end the year below the 2019 rates. I'd now expect the difference to only be about 15% for both quarters. In other words, we've actually updated our run rate for refineries to be still below last year, but above what we thought at the end of the last quarter. Turning to our EC segment. I'll comment on both of EC's main products, chlor-alkali and sodium chloride. While our views on SPPC's profitability has improved, there are some headwinds in our EC segment. From a big picture perspective, you'll see from our updated MD&A assumptions that we now expect to sell about 5% less chlorate and 10% lower MECUs in 2020 than we anticipated at the end of last quarter. First, chlor-alkali. As noted, the biggest COVID affected related -- the biggest COVID-related effects are from the oil and gas industry. SPPC is affected by refinery operating rates, but EC is affected by activity in the fracking industry. Our last quarter assumption was that we would produce 170,000 MECUs in 2020. We have now reduced this assumption to 155,000 since our operating rates are constrained by low demand for HCl and chlorine. We do expect to be able to resume full production as demand for these products increases, but our assumption assumes that this will not happen until 2021. The other change in our assumption rate is regarding the price of caustic soda. We now assume that the Northeast Asia spot index for caustic, that is instrumental in establishing our selling price for the second half of 2020 will be about USD 40 lower than what we had assumed at the end of the last quarter. For the whole year, we expect that the Northeast Asia spot price for caustic soda will be about USD 60 lower than what we saw in 2019. As many of you know, our pricing is affected by movements of this Northeast Asia index, and this index can move quite quickly and is often quite volatile. We see very little downward risk movement -- price movement in this index. We have forecast, no movement for the balance of the year. But depending on the macroeconomic dynamics for the 2 co-products, it is possible to see a significant upward movement before the end of the year. Having said that, we are not assuming that, that will happen. Longer term, as we have been saying, we believe that caustic pricing will increase for a number of years as the worldwide economy regains its footing and the macro caustic supply-demand balances tighten up once again. Turning to chlorate. A reminder that chlorate is used to bleach pulp. Bleach pulp is used to make paper, but also tissues, diapers and some more uses. While demand in certain segments is up, other segments such as copy paper are down. This has resulted in several mill -- pulp mills curtailing their production. While this does not affect pricing under our contracts, we do assume that we will now produce and sell about 5% less chlorate this year than we had assumed at the time of our last report. The chlorate industry still operates at high utilization rates. And over time, we expect to be able to replace this volume either in North America or through exports, as North American production is very cost competitive to other jurisdictions. Finally, I want to make some comments about our WSSC segment, in particular, our water products. Not surprisingly, our water products, primarily used to treat municipal drinking water, have seen no reduction in demand. This business continues to experience improved performance over its 2019 results. This is a combination of plants operating well and margins expanding as raw material costs are lower. As I mentioned, we now expect to generate slightly higher earnings in 2020 than we had expected at the end of the last quarter. Obviously, we were too cautious last quarter with our assumptions and could be so again this quarter. A number of our businesses remain strong despite COVID; however, COVID has affected demand for some of our products. As the effect of COVID recedes, we expect that demand for these products will return to normal. Looking only at this year, the significant areas where we might have been too conservative and which you may choose to monitor include our North Americans driving more so the gasoline and alkylate production are increasing. Our people returning to their offices and thus driving demand for more fine paper. And is there a combination of North American chlorine HCl demand increase and/or caustic -- Asian caustic price increases that affects the balance of the year and, therefore, our profitability of our chlor-alkali facility, these are all things that could make our assumptions more -- too conservative. Looking into 2021. As most of you know, we have 2 significant turnarounds in the third and fourth quarter of this year that will affect our earnings this year, but not next. Our North Vancouver chlor-alkali plant undergoes a significant maintenance turnaround every other year. In 2020, this will occur in the third quarter, probably late in the third quarter. Additionally, one of our refinery customers will take a 5-year major turnaround in the fourth quarter of 2020. And so our plant that serves that refinery will also take us turnaround then. Since these 2 major turnarounds will not be repeated in 2021 and we expect the effect of the virus to be less pronounced, we expect that 2021 will be a better year than 2020. One last point before we take questions is an important point about the defensive aspects of our business. We generally fare better in a typical economic downturn than we fared in 2020. Our hardest hit business has been the regen business. In a typical recession, refining utilization rates don't go down nearly as low as they have this time. As cheap gasoline tends to dampen the effect of reduced economic activity, the sharp decline in demand this time was a result of the severe travel restrictions imposed to reduce the spread of COVID-19. Similarly, the steep decline in demand for fine paper, which resulted in reduced demand for sodium chlorate, was not due to economic recession but rather the result of a large number of people working from home. There's no doubt that economic downturns will affect us, but not to the extent that the downturn caused by the pandemic has affected us this year. Operator, that concludes our remarks. And Rohit and I will be pleased to answer any questions.

[Operator Instructions] Your first question comes from the line of Joel Jackson.

I have a few questions. The first question I'd ask is, can you help us ballpark what is the earnings sensitivity in SPPC is on a quarterly run rate if, plus or minus, refinery rates or alkylate rates are 10%, plus or minus?

So Joel, so we've said now, I'll caveat something first that typically our plants reduce regen and merchant asset at the same time. So we get into some allocations, et cetera. But typically, regen is about half of our asset business. So it's about 40% of SPPC's regen. Regen tends to be a very high variable margin business. So the main cost of regen is basically natural gas. And you need 4 MMBtus of natural gas to combust 1 ton of spent acid. Gas is at $2, $3 an MMBtu so it's like $10. So it's a very, very low variable cost. There is a freight aspect in some cases. But basically, what happens is as you have volume dropping off, you do have a big reduction in variable margin. And if you look at what happened in the current quarter, you'll actually be -- if you go back and see how the revenue declined and how the EBITDA declined, you'll see about a 50% kind of contribution factor. And you can assume the most of that is coming from regen. So there is a high degree of sensitivity towards refinery utilizations running low. Now it gets a little more complex than that and because alkylate is used -- is the -- part of a blend of chemistry is used for alkylation, so alkylate contents will even, if rates go down, sometimes they'll use more alkylate because that's the most valuable part of the chain. So there's not a straight forward answer unfortunately, Joel, but all I can say is that, that's the one business that is very sensitive to volume, more than most of our businesses.

Okay. So you're saying about half of the year-over-year decline in the second quarter in SPPC is from the $0.25 reduction in refinery utilization. Is it correct?

He didn't say that. But the predominant down quarter-over-quarter will be based on regen. Not all of it, but the majority of it.

Okay. That's helpful. Turning to WSSC, this business is now, I guess sort of I want to get at is, you're now running at an earnings trajectory in the business that would be closed somewhere between the 2016 and 2017 levels. Is that what you expect this -- [indiscernible] end up this year? Can you hold these margins? And then do you typically -- we see the drop-off in WSSC margin in the fourth quarter that you've seen historically?

So the first answer is we expect this business to continue improving the water business, right? So I think that the step change in earnings has already occurred, but we'll keep on blocking and tackling and growing those earnings. That's the one answer. The second answer is, yes, this is a seasonal business and the third quarter of that business will be better in the fourth quarter.

And then drop-off in the fourth?

Yes.

Your next question comes from the line of Ben Isaacson.

This is Ziad on for Ben. I just had one quick one on the leverage outlook. I think you guys mentioned that you're feeling confident that you'll be able to like cover all of your financial obligations over the near term. And I think just wanted -- just a clarification question. Are you -- does that mean you're -- like -- I believe there was some talk about permission to use the revolver or like if you're allowed to use a revolver to pay down the debentures. So I just wanted to clarify if that's the case? And then also, does that then mean that there's no longer any need to kind of go find financing elsewhere, say, capital markets or otherwise?

Maybe I can answer the leverage question. So when we make that statement that we have enough resources to fund our obligations, we are generally referring to our day-to-day obligations and not necessarily refinancing of debt. Having said that, we are allowed to dip into our credit facilities based on our leverage levels. And below certain leverage levels, we can draw down on the facility. But realistically, we do have to look at refinancing options that involve raising new money to fully redeem the debenture.

Your next question comes from the line of David Newman.

Just looking at these periods are you kind of -- can dig down and look for cost savings and whatnot? You didn't flag it, but I'm just wondering did you -- when you went plant to plant or your CEO went plant to plant and on the ground level, were you able to identify cost savings and any of those that might be permanent?

So, yes. But I might answer the question a little differently. It's actually not due to COVID, right, is when we brought in Scott, one of the reasons was to get a special set of eyes actually on all of our operations. And we've instituted a number -- some big numbers. So I'll say, a plethora of cost-saving opportunities. And in aggregate, they will be meaningful. And individually, almost none of them are, right? So like we say internally is, there is no silver bullet here on cost reduction. If there was, we would have shot it. But what Scott and his guys have been able to turn off, there's a bunch of bronze bullets and we're going to move them all forward and it's going to, over time, be a reduction and a sustainable reduction of costs. But none of that is due to COVID. That is all of our guys continue to go to work, continuing to operate.

And if I can just add -- if I can add just, I'll just -- sorry, go ahead, David.

Any sense of amounts like the actual materiality of what you might be able to take out in aggregate?

Let me -- give me another quarter to work on that, right? Remember, he's only been here a year. He's taken this stuff a little while to get up and operating, right? So -- and like I said, I have to add up a bunch of them. But in aggregate, it will be a number actually that we could see, right? And the question is how soon they are, right, because some of these things take time.

Okay.

If I can just -- if I can add the one thing, which is I know your question was framed around cost savings. And in the end, I think the big push just to improve efficiency and productivity, which results in expanded margins, whether it's coming from cost or whatever. So it's not just pure like procurement type stuff. This is -- goes way beyond that and gets into productivity across the board, logistics, manufacturing, they're just basically one end or the other.

Just working better versus slashing costs?

Correct.

Yes. Exactly.

Okay. And then chlorate, I understand why volumes are a little bit weaker now, but did you bank it at all from the early quarter spike in tissue demand? Everybody is making a mad dash in the store to buy toilet paper. And it seems to have settled down a little bit. Now we're kind of in the zone of looking at paper demand. Will you be able to benefit at all in a quarter on the back of that?

Well, that certainly helps. But is the -- and I don't have the numbers handy in front of me, but the percentage of chlorate and, therefore, bleach pulp that goes into paper versus tissue is, I'm going to say 60% of it's paper and 20% of it's tissue or something like that. Those numbers are wrong, but it's that kind of magnitude. So the increase of one doesn't offset the decrease of the other.

And if I can add, we didn't really -- so if you look at our chlorate volumes for the second quarter, we didn't really see any real drop-off. So I think it's masked that initial uptick in the demand for pulp masked the down that was happening. So if you look at our volume quarter-over-quarter, it's basically flat. Q2 this year looks just like Q2 last year, but we have updated our assumption, and that is at the -- not we are trying to see the decline due to paper.

Okay. And then on a margin perspective, though, obviously, with the benefit of FX and then pricing taken, from a margin perspective, what's the outlook volume down, but maybe pricing and FX, maybe a little less so beneficial?

Yes. So I think the FX pricing, this pricing, it doesn't tend to be like a spot pricing. We tend to have contracts. So pricing is not something that gets negotiated all the time, but FX is definitely a positive factor. So right now, FX will probably make up for the lost volume on the chlorate side.

Okay, very good. And then if I look at not the beat a dead horse, but if I look at the -- not only just water but also regen, people staycations, RV rentals are through the roof, things like that, just driving activity and things like that. And at the same time, water, people at home, water in the summer obviously consumed more, maybe pools, who knows, more pools and people filling up the pools. To those 2 segments, in particular, from just what's going on in society, do you think there's a chance that we're down 15%, call it, right now in driving activity, but maybe in this quarter, it looks a little better along with water?

Water is just -- water is fine, right? Again, there's not a big up there, but actually, it continues to actually improve from what we had expected. So I think that net positive is -- I think there's a -- our assumptions on regen volume, again, are based on actually what our customers tell us and what we see and what we -- basically, what our customers tell us. Again, we were wrong. We were too pessimistic in the second quarter. And like, I'm going to say, we're just not smart enough to know how stay vacations and RVs compared to guys driving to and from the office every day as far as gasoline and thus alkylate usage stack up, as I said in the call speech, is that you want to be more positive than what we believe are our conservative assumptions is monitor, whether or not there continues to be an increase on a month-to-month basis of people driving, which is what we saw through the second quarter.

Okay. And last one for me, guys. As you stand here today and kind of going through, I guess, the worst of the COVID impact, do you feel that the trough is now in the rear view mirror part in the pun? And that going forward, it sounds like it could be -- and this sort of gleaned from your comments, Mark, is that things seem to be more perhaps constructive?

I think that's yes, kind, okay, is I think we're past the trough. And again, a bunch of our products weren't affected. I think we're past the trough in our SPPC segment, okay? But then you'll have normal seasonality, if you remember, right? It's always better in second and third quarter, right, is we did say that there's headwind in our EC segment, right? So I don't think it gets worse than what our assumptions are baked in. Okay? So -- and I do -- and the question in my mind is when it gets better. And again, we've assumed that it doesn't really get any better this year. So I don't want to say that we're out of the trough because actually, if you look at our assumptions is there are some headwinds in the EC segment in the second half of the year. So -- but I think we climb out of that, right?

Great results, guys.

Your next question comes from the line of Endri Leno.

Just a couple of quick ones for me or maybe not great, but that the first one, in the ultra pure asset where you've seen strength. I mean is there anything there you can do to increase volumes, perhaps sell more, add capacity is possible, like any comments there?

Sorry, it is which product? I missed that.

Ultra pure.

Ultra pure. We're basically sold out, right? It's -- the opportunity in ultra pure on an incremental basis is to improve our reliability because it's a very highly specified product. So anytime you're out of specs, you're losing good sales, and we continue to chip away at that and then actually continue to move pricing to the extent we can. But we're not sitting under a major underutilized capacity in ultra pure.

Can you increase capacity there given demand?

And we're going to try. That's -- it's a little slipper comment is the -- is there's a number of things that are at different plants that we -- that we own that we're looking at to figure out what is the most economically feasible debottlenecking opportunity. And we think we've identified a couple, but it takes a little more time and engineering work. But to the extent we can, we will.

Okay. That's great to hear. And the next one is just more, I guess, a bit of a housekeeping. But in terms of water volumes were down in Q2, you said of the product, is it just a timing thing on shipment?

Yes. So it was not significantly down, but the volume was -- there is a bit of unknowns in that. It depends a bit on weather. It depends on spring runoffs. So there are just a few normal things, nothing unusual. But it was more than made up by the higher pricing.

[Operator Instructions] Your next question comes from the line of Steve Hansen.

Just maybe a -- just the first one. Rohit, I think you mentioned contractor limitations or the ability to perhaps find some for maintenance turnarounds. Hopefully, that's something you can address, but if it's not, is there anything that you expect would impact your operational cadence?

No. No, I think the timing may shift a little bit because if we -- for example, if we are in a region where there's some big other industrial players. And so we may have to shift timings because you shouldn't compete with them for the same pool of contractors. Could we tend to be the smaller guys in the market? So I think this may shift a little bit of timing, but we're not really too worried about it.

Okay. That's helpful. And just on the water business, in an earlier question, I think, in response to Joel's question, in particular, on the water side. Mark, you described incremental improvements from here in water. What's really going to drive that? Is it more of the same? Or is there something else that's happening along the way? [indiscernible] the benefits of contract pricing and lower feedstock, et cetera. But is there something else that's going to drive that, that you're targeting? Or is it just even more of the thing?

Yes. Yes, probably 3 other things, right, which are exciting for us. But in aggregate -- when you look at an aggregate, there is, first actually is, as you recall, we actually constructed a PAC and ACH facility or facilities a number of years ago as we continue to find opportunities to actually find additional volumes for those products. And that's actually capacity we already have, right? So that's one. Secondly is a bunch of these little silver bullets I talked about are actually little incremental efficiency changes at a variety of the water facilities, how we make it, how we schedule, how we fill rail cars -- sorry, or trucks, right? And again, one of the third ones is, again, is distribution costs. There's projects there to improve distribution costs. So between all of those, we continue to grind away and actually continuing a pretty good trend of increased profitability in the water business. And it just gets incrementally harder once you take the step change like we have, but we'll keep on pushing that envelope.

Okay. Helpful. And just -- not to be too granular, but I'm just trying to understand the forward cadence on the regen business in particular. If I'm to understand it, the worst is behind us. We'd likely get some sort of seasonal uptick in volumes as you suggested. But on a year-over-year basis, we're still challenged, just given the driving situation. Can we think about that in terms of some sort of magnitude? I'm just trying to understand, it sounds like we're going to get some volume benefit and that's a highly sensitive item. But how should we think about that cadence through the back half year on SPPC, in particular?

Through the back half of the year? As we indicated in the call and [indiscernible] too is that the back half of the year should be about 15% less volume than we had in the back half of 2019. So look there's a -- the potential upside is it's not down 15%. It's down 10%. It's down 5%, but our assumption is we're down 15%.

Do keep in mind that -- sorry, just do keep in mind that we have said early -- earlier we said that we do have a large turnaround coming in our Richmond facility in Q4. So yes, let's -- you got to keep that in mind too.

Your next question comes from the line of Ben Isaacson.

Sorry, just a quick follow-up. When we were talking about -- earlier about the accessing the capital markets as a potential financing option, if you do go down that path, does that mean the asset sale program kind of goes a bit on the back burner? Or is the asset sale still kind of a priority for raising that capital?

The asset sale was actually never, frankly, driven by the need to raise capital. So in our mind, there are 2 separate discussions, right, is, one is we need to refinance those 2021s, and we'll get that done, right? Secondly, is the assets that we have for sale, as we said, don't really fit directly into our core competencies or have any kind of synergistic mesh with the rest of our business. And if somebody who's actually more in that business is willing to pay us a price that's value added to our running that business is we would sell those assets. And so both of those things are still going to continue and I appreciate people not asking us about the status of that. But since we're on this track is they continue to be held as assets held for sale, which means we continue to have a belief that actually, those assets will be sold to someone who values them higher than we do.

There are no further questions over the phone lines at this time. I turn the call back over to the presenters.

Great. Thank you all for your time and attention. Stay safe, and we'll talk to you all next quarter.

This concludes today's conference call. You may now disconnect.