KATY, Texas, Oct. 29, 2019 /PRNewswire/ -- U.S. Silica
Holdings, Inc. (NYSE: SLCA), a diversified industrial minerals
company and the leading last mile logistics provider to the oil and
gas industry (the "Company"), today announced third quarter 2019
results, including a net loss of $23.0
million, or $(0.31) per basic
and diluted share.
The third quarter results were negatively impacted by
$4.9 million or $0.05 per share related to merger and acquisition
expenses, $3.5 million or
$0.03 per share in facility closure
costs, $3.9 million or $0.04 per share in costs related to plant startup
and expansion, and $3.8 million or
$0.04 per share in other adjustments,
partly offset by $2.0 million or
$0.02 per share in a gain related to
a royalty note payable valuation change, resulting in adjusted EPS
for the third quarter of $(0.17) per
basic and diluted share.
"I am proud of the work that our team did in the quarter, given
the seasonal sand demand slowdown in our Oil & Gas segment,"
said Bryan Shinn, president and
chief executive officer. "We are adapting swiftly to current
market realities and are focused on serving customers optimally and
profitably while appropriately managing key operational levers to
rationalize capacity and reduce cost. These changes are
working as we were able to add 15 new Oil & Gas customers to
our portfolio in Q3."
"At the same time, we are expanding our performance products
offerings to serve higher profit, more stable industrial end
markets and customers. We have grown established products
rapidly over the past few years and recently introduced new,
profitable heat treated and ground silica offerings. While we
are growing, we expect to generate free cash flow to de-lever our
balance sheet through a continued focus on managing working capital
and capex," he added.
"I believe that we have the right strategy, clear plans and a
strong team and I am very excited about the future of our
company."
Third Quarter 2019 Highlights
Total Company
- Revenue of $361.8 million for the
third quarter of 2019 compared with $394.9
million in the second quarter of 2019, down 8% sequentially
and down 14% from the third quarter of 2018.
- Overall tons sold of 4.850 million for the third quarter of
2019 compared with 4.904 million tons sold in the second quarter of
2019, down 1% sequentially and up 1% from the third quarter of
2018.
- Contribution margin of $95.0
million for the third quarter of 2019 compared with
$121.6 million in the second quarter
of 2019, down 22% sequentially and down 31% from the third quarter
of 2018.
- Net loss of $23.0 million, or
$(0.31) per basic and diluted share,
for the third quarter of 2019, compared with net income of
$6.3 million, or $0.08 per basic and diluted share, for the third
quarter of 2018.
- Adjusted EBITDA of $58.4 million
for the third quarter of 2019 compared with $85.5 million in the second quarter of 2019, down
32% sequentially and down 45% from the third quarter of 2018.
Industrial and Specialty Products
- Revenue of $119.1 million for the
third quarter of 2019 compared with $121.8
million in the second quarter of 2019, down 2% sequentially
and down 1% from the third quarter of 2018.
- Tons sold totaled 0.954 million for the third quarter of 2019
compared with 0.972 million tons sold in the second quarter of
2019, down 2% sequentially and down 3% from the third quarter of
2018.
- Segment contribution margin of $44.4
million, or $46.52 per ton,
for the third quarter of 2019 compared with $50.1 million in the second quarter of 2019, down
11% sequentially and down 9% from the third quarter of 2018.
The Industrial & Specialty Products segment experienced an
11% sequential decline in contribution margin. A combination of
unfavorable product volume and mix, coupled with higher plant
costs, including an inventory write off of $1.3 million dollars, negatively impacted the
third quarter of 2019. The Company continues to focus on
accelerating the organic growth of the Industrial & Specialty
Products business. For example, the Company recently signed a
five-year contract with a global fiberglass manufacturer, supported
by the expansion of fine-ground capacity at the Columbia, South Carolina facility.
Oil & Gas
- Revenue of $242.7 million for the
third quarter of 2019 compared with $273.1
million in the second quarter of 2019, down 11% sequentially
and down 20% from the third quarter of 2018.
- Tons sold of 3.896 million for the third quarter of 2019
compared with 3.932 million tons sold in the second quarter of
2019, down 1% sequentially and up 2% from the third quarter of
2018.
- Segment contribution margin of $50.6
million, or $12.98 per ton,
for the third quarter of 2019 compared with $71.5 million in the second quarter of 2019, down
29% sequentially and down 44% from the third quarter of 2018.
In the Oil & Gas segment, the Company sold 3.9 million tons
in the third quarter, down 1%
percent from the prior quarter. Per ton pricing was
negatively impacted in the third quarter as multiple new mines came
fully online in West Texas,
exacerbating an already oversupplied sand market.
Additionally, demand deteriorated, due to slowing well completion
activity, prompted by E&P budget exhaustion. These
factors, combined with lower SandBox load volumes, led to a 29%
sequential decline in contribution margin. While the result
was negative, the Company is pleased to have added 15 new customers
in the third quarter, six of which are also utilizing SandBox, our
industry leading last-mile logistics solution.
Capital Update
As of September 30, 2019, the Company had $187.3 million in cash and cash equivalents and
$93.5 million available under its
credit facilities. Total debt outstanding under our credit
facilities as of September 30, 2019 was $1.251 billion.
During the third quarter, the Company completed a voluntary loan
repurchase offer for $10.0 million of
principal of the term loan portion of its senior secured credit
facility. The debt was retired at a discount to par mostly using
excess cash on hand.
Capital expenditures in the third quarter totaled $19.5 million and were mainly for engineering,
procurement and construction of the Company's growth projects,
primarily at the Lamesa, Texas
mine; equipment to expand SandBox operations; several growth
projects in its Industrial & Specialty Products segment; and
other maintenance and cost improvement capital projects. During the
third quarter, the Company generated $33.9
million in cash flow from operations.
The Company's forecast of capital expenditures for the full year
2019 is anticipated to be less than the $125
million previously expected.
Outlook
In the Industrial & Specialty Products business, the Company
has seen delays in purchasing decisions by certain customers as
they attempt to convert inventories into cash. The heightened
level of uncertainty in global industrial markets, fueled by
tariffs, political uncertainty and the rising risk of an economic
slowdown make it difficult to forecast the business. However,
the fourth quarter is typically characterized by a seasonal
profitability decline of roughly 10%.
The Company anticipates that the expected slowdown in North
American completions activity in the fourth quarter will negatively
impact results for the Oil & Gas segment. We expect
O&G Sand volumes to decline by approximately 10% sequentially
in the fourth quarter of 2019. We expect contribution margin
per ton to decline sharply due to lower sand and SandBox volumes,
continued pricing pressure, the loss of fixed cost leverage and
fewer anticipated customer shortfall penalties and other
contractual fees.
Strategy
The Company remains highly focused on the growth prospects for
its Industrial & Specialty Products business, increasing its
presence and product offerings in specialty end markets, and
optimizing its product mix and further developing value-added
capabilities to support margins. In the Company's major end
markets, volumes continue to decline as cash margins rise,
indicating the effectiveness of this strategy.
In the Oil & Gas business, the Company is optimizing its
supply chain network, leveraging industry-leading logistics
capabilities, proactively reducing capacity and concentrating on
the basins with the highest margin potential. To date, the
Company has taken approximately 5 million tons of capacity offline
through a combination of reducing shifts and days worked or
completely idling plants. The Company is also in the process
of reducing the number of transloads in its network in order to
optimize origin / destination pairings. Finally, the Company
is increasingly coupling SandBox with sand from its facilities to
provide a robust integrated service to its customers. The
Company is at the very low end of the cost curve and will continue
to differentiate its frac sand business as the Company becomes more
deeply embedded in the value chain of its largest customers, by
supplying value-added logistics services that complement the
Company's frac sand supply business.
The Company continues to proactively adjust to market challenges
and opportunities. Near-term market pressures further
highlight the importance the Company places on taking all measures
necessary to generate free cash flow, including through managing
working capital and capital expenditures. We continue to
rationalize and optimize our Oil & Gas business and have taken
appropriate measures to manage our inventory levels. Looking
forward to 2020, our growth initiatives are primarily within our
Industrial & Specialty Products business, and our strategy
reflects our commitment to generating free cash flow and reducing
the Company's leverage.
Conference Call
U.S. Silica will host a conference call for investors
today, October 29, 2019 at 7:30 a.m. Central
Time to discuss these results. Hosting the call will
be Bryan Shinn, president and chief executive officer
and Don Merril, executive vice president and chief financial
officer. Investors are invited to listen to a live webcast of
the conference call by visiting the "Investor Resources" section of
the Company's website at www.ussilica.com. The webcast will be
archived for one year. The call can also be accessed live over the
telephone by dialing (877) 869-3847 or for international callers,
(201) 689-8261. A replay will be available shortly after the call
and can be accessed by dialing (877) 660-6853 or for international
callers, (201) 612-7415. The conference ID for the replay is
13695083. The replay will be available through Nov. 29, 2019.
About U.S. Silica
U.S. Silica Holdings, Inc. is a performance materials
company and is a member of the Russell 2000. The Company is a
leading producer of commercial silica used in the oil and gas
industry, and in a wide range of industrial applications. Over its
119-year history, U.S. Silica has developed core
competencies in mining, processing, logistics and materials science
that enable it to produce and cost-effectively deliver over 1,500
diversified products to customers across our end markets. U.S.
Silica's wholly-owned subsidiaries include EP Minerals and
SandBox LogisticsTM. EP Minerals is an industry leader in the
production of products derived from diatomaceous earth, perlite,
engineered clays, and non-activated clays. SandBox
LogisticsTM is a state-of-the-art leader in proppant storage,
handling and well-site delivery, dedicated to making proppant
logistics cleaner, safer and more efficient. The Company currently
operates over 26 mines and production facilities. The Company is
headquartered in Katy, Texas and has offices
in Reno, Nevada and Chicago, Illinois.
Forward-looking Statements
The presentation referred to above contains "forward-looking
statements" within the meaning of the federal securities laws -
that is, statements about the future, not about past events.
Forward-looking statements give our current expectations and
projections relating to our financial condition, results of
operations, plans, objectives, future performance and business.
These statements may include words such as "anticipate,"
"estimate," "expect," "project," "plan," "intend," "believe,"
"may," "will," "should," "could," "can have," "likely" and other
words and terms of similar meaning. Forward-looking statements made
include any statement that does not directly relate to any
historical or current fact and may include, but are not limited to,
statements regarding U.S. Silica's growth opportunities,
strategy, future financial results, forecasts, projections, plans
and capital expenditures, ability to reduce costs or idle plants,
and the commercial silica industry. Forward-looking statements are
based on our current expectations and assumptions, which may not
prove to be accurate. These statements are not guarantees and are
subject to risks, uncertainties and changes in circumstances that
are difficult to predict. Many factors could cause actual results
to differ materially and adversely from these forward-looking
statements. Among these factors are global economic conditions;
fluctuations in demand for commercial silica, diatomaceous earth,
perlite, clay and cellulose; fluctuations in demand for frac sand
or the development of either effective alternative proppants or new
processes to replace hydraulic fracturing; the entry of competitors
into our marketplace; changes in production spending by companies
in the oil and gas industry and changes in the level of oil and
natural gas exploration and development; general economic,
political and business conditions in key regions of the world;
pricing pressure; weather and seasonal factors; the cyclical nature
of our customers' business; our inability to meet our financial and
performance targets and other forecasts or expectations; our
substantial indebtedness and pension obligations, including
restrictions on our operations imposed by our indebtedness;
operational modifications, delays or cancellations; prices for
electricity, natural gas and diesel fuel; our ability to maintain
our transportation network; changes in government regulations and
regulatory requirements, including those related to mining,
explosives, chemicals, and oil and gas production; silica-related
health issues and corresponding litigation; and other risks and
uncertainties detailed in this press release and our most recent
Forms 10-K, 10-Q, and 8-K filed with or furnished to the U.S.
Securities and Exchange Commission.. If one or more of these or
other risks or uncertainties materialize (or the consequences of
such a development changes), or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those reflected
in our forward-looking statements. The forward-looking statements
speak only as of the date of the presentation referred to above,
and we disclaim any intention or obligation to update publicly or
revise such statements, whether as a result of new information,
future events or otherwise.
U.S. SILICA
HOLDINGS, INC.
SELECTED FINANCIAL DATA FROM CONDENSED CONSOLIDATED STATEMENTS
OF
OPERATIONS
(Unaudited; dollars in thousands, except per share
amounts)
|
|
|
Three Months
Ended
|
|
September 30,
2019
|
|
June 30,
2019
|
|
September 30,
2018
|
Total
sales
|
$
|
361,814
|
|
|
$
|
394,854
|
|
|
$
|
423,172
|
|
Total cost of sales
(excluding depreciation, depletion and
amortization)
|
283,633
|
|
|
294,160
|
|
|
322,336
|
|
Operating
expenses:
|
|
|
|
|
|
Selling, general and
administrative
|
40,208
|
|
|
38,659
|
|
|
37,980
|
|
Depreciation,
depletion and amortization
|
47,126
|
|
|
44,899
|
|
|
37,150
|
|
Asset
impairment
|
130
|
|
|
—
|
|
|
—
|
|
Total operating
expenses
|
87,464
|
|
|
83,558
|
|
|
75,130
|
|
Operating (loss)
income
|
(9,283)
|
|
|
17,136
|
|
|
25,706
|
|
Other (expense)
income:
|
|
|
|
|
|
Interest
expense
|
(24,733)
|
|
|
(23,765)
|
|
|
(21,999)
|
|
Other income, net,
including interest income
|
3,280
|
|
|
15,074
|
|
|
1,062
|
|
Total other
expense
|
(21,453)
|
|
|
(8,691)
|
|
|
(20,937)
|
|
(Loss) income before
income taxes
|
(30,736)
|
|
|
8,445
|
|
|
4,769
|
|
Income tax (expense)
benefit
|
7,671
|
|
|
(2,384)
|
|
|
1,547
|
|
Net (loss)
income
|
$
|
(23,065)
|
|
|
$
|
6,061
|
|
|
$
|
6,316
|
|
Less: Net loss
attributable to non-controlling interest
|
(28)
|
|
|
(89)
|
|
|
—
|
|
Net (loss) income
attributable to U.S. Silica
Holdings, Inc.
|
$
|
(23,037)
|
|
|
$
|
6,150
|
|
|
$
|
6,316
|
|
|
|
|
|
|
|
(Loss) earnings per
share attributable to U.S. Silica Holdings, Inc.:
|
|
|
|
|
|
Basic
|
$
|
(0.31)
|
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
Diluted
|
$
|
(0.31)
|
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
Basic
|
73,328
|
|
|
73,301
|
|
|
77,365
|
|
Diluted
|
73,328
|
|
|
73,505
|
|
|
77,859
|
|
Dividends declared
per share
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
U.S. SILICA
HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; dollars in thousands)
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
|
|
ASSETS
|
Current
Assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
187,289
|
|
|
$
|
202,498
|
|
Accounts receivable,
net
|
204,591
|
|
|
215,486
|
|
Inventories,
net
|
162,122
|
|
|
162,087
|
|
Prepaid expenses and
other current assets
|
17,525
|
|
|
17,966
|
|
Income tax
deposits
|
2,596
|
|
|
2,200
|
|
Total current
assets
|
574,123
|
|
|
600,237
|
|
Property, plant and
mine development, net
|
1,776,075
|
|
|
1,826,303
|
|
Operating lease
right-of-use assets
|
180,387
|
|
|
—
|
|
Goodwill
|
273,524
|
|
|
261,340
|
|
Intangible assets,
net
|
187,364
|
|
|
194,626
|
|
Other
assets
|
17,213
|
|
|
18,334
|
|
Total
assets
|
$
|
3,008,686
|
|
|
$
|
2,900,840
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
Current
Liabilities:
|
|
|
|
Accounts payable and
accrued expenses
|
$
|
245,247
|
|
|
$
|
216,400
|
|
Current portion of
operating lease liabilities
|
56,473
|
|
|
—
|
|
Current portion of
long-term debt
|
19,475
|
|
|
13,327
|
|
Current portion of
deferred revenue
|
17,995
|
|
|
31,612
|
|
Total current
liabilities
|
339,190
|
|
|
261,339
|
|
Long-term debt,
net
|
1,216,752
|
|
|
1,246,428
|
|
Deferred
revenue
|
75,170
|
|
|
81,707
|
|
Liability for pension
and other post-retirement benefits
|
64,428
|
|
|
57,194
|
|
Deferred income
taxes, net
|
121,931
|
|
|
137,239
|
|
Operating lease
liabilities
|
127,181
|
|
|
—
|
|
Other long-term
liabilities
|
59,635
|
|
|
64,629
|
|
Total
liabilities
|
2,004,287
|
|
|
1,848,536
|
|
Stockholders'
Equity:
|
|
|
|
Preferred
stock
|
—
|
|
|
—
|
|
Common
stock
|
821
|
|
|
818
|
|
Additional paid-in
capital
|
1,179,779
|
|
|
1,169,383
|
|
Retained
earnings
|
17,505
|
|
|
67,854
|
|
Treasury stock, at
cost
|
(180,833)
|
|
|
(178,215)
|
|
Accumulated other
comprehensive loss
|
(25,421)
|
|
|
(15,020)
|
|
Total U.S. Silica
Holdings, Inc. stockholders' equity
|
991,851
|
|
|
1,044,820
|
|
Non-controlling
interest
|
12,548
|
|
|
7,484
|
|
Total stockholders'
equity
|
1,004,399
|
|
|
1,052,304
|
|
Total liabilities and
stockholders' equity
|
$
|
3,008,686
|
|
|
$
|
2,900,840
|
|
Non-GAAP Financial Measures
Segment Contribution Margin
Segment contribution margin is a key metric that management uses
to evaluate our operating performance and to determine resource
allocation between segments. Segment contribution margin excludes
selling, general, and administrative costs, corporate costs, plant
capacity expenses, and facility closure costs.
The following table sets forth a reconciliation of net income
(loss), the most directly comparable GAAP financial measure, to
segment contribution margin.
(All amounts
in thousands)
|
Three Months
Ended
|
|
September 30,
2019
|
|
June 30,
2019
|
|
September 30,
2018
|
Sales:
|
|
|
|
|
|
Oil & Gas
Proppants
|
$
|
242,707
|
|
|
$
|
273,064
|
|
|
$
|
302,452
|
|
Industrial &
Specialty Products
|
119,107
|
|
|
121,790
|
|
|
120,720
|
|
Total
sales
|
361,814
|
|
|
394,854
|
|
|
423,172
|
|
Segment contribution
margin:
|
|
|
|
|
|
Oil & Gas
Proppants
|
50,557
|
|
|
71,456
|
|
|
89,550
|
|
Industrial &
Specialty Products
|
44,397
|
|
|
50,145
|
|
|
48,697
|
|
Total segment
contribution margin
|
94,954
|
|
|
121,601
|
|
|
138,247
|
|
Operating activities
excluded from segment cost of sales
|
(16,773)
|
|
|
(20,907)
|
|
|
(37,411)
|
|
Selling, general and
administrative
|
(40,208)
|
|
|
(38,659)
|
|
|
(37,980)
|
|
Depreciation,
depletion and amortization
|
(47,126)
|
|
|
(44,899)
|
|
|
(37,150)
|
|
Asset
impairment
|
(130)
|
|
|
—
|
|
|
—
|
|
Interest
expense
|
(24,733)
|
|
|
(23,765)
|
|
|
(21,999)
|
|
Other income, net,
including interest income
|
3,280
|
|
|
15,074
|
|
|
1,062
|
|
Income tax (expense)
benefit
|
7,671
|
|
|
(2,384)
|
|
|
1,547
|
|
Net income
(loss)
|
$
|
(23,065)
|
|
|
$
|
6,061
|
|
|
$
|
6,316
|
|
Less: Net loss
attributable to non-controlling interest
|
(28)
|
|
|
(89)
|
|
|
—
|
|
Net income (loss)
attributable to U.S. Silica Holdings, Inc.
|
$
|
(23,037)
|
|
|
$
|
6,150
|
|
|
$
|
6,316
|
|
Adjusted EBITDA
Adjusted EBITDA is not a measure of our financial performance or
liquidity under GAAP and should not be considered as an alternative
to net income (loss) as a measure of operating performance, cash
flows from operating activities as a measure of liquidity or any
other performance measure derived in accordance with GAAP.
Additionally, Adjusted EBITDA is not intended to be a measure of
free cash flow for management's discretionary use, as it does not
consider certain cash requirements such as interest payments, tax
payments and debt service requirements. Adjusted EBITDA contains
certain other limitations, including the failure to reflect our
cash expenditures, cash requirements for working capital needs and
cash costs to replace assets being depreciated and amortized, and
excludes certain charges that may recur in the future. Management
compensates for these limitations by relying primarily on our GAAP
results and by using Adjusted EBITDA only supplementally. Our
measure of Adjusted EBITDA is not necessarily comparable to other
similarly titled captions of other companies due to potential
inconsistencies in the methods of calculation.
The following table sets forth a reconciliation of net income,
the most directly comparable GAAP financial measure, to Adjusted
EBITDA:
(All amounts in
thousands)
|
Three Months
Ended
|
|
September 30,
2019
|
|
June 30,
2019
|
|
September 30,
2018
|
Net (loss) income
attributable to U.S. Silica Holdings, Inc.
|
$
|
(23,037)
|
|
|
$
|
6,150
|
|
|
$
|
6,316
|
|
Total interest
expense, net of interest income
|
23,711
|
|
|
23,053
|
|
|
20,899
|
|
Provision for
taxes
|
(7,671)
|
|
|
2,384
|
|
|
(1,547)
|
|
Total depreciation,
depletion and amortization expenses
|
47,126
|
|
|
44,899
|
|
|
37,150
|
|
EBITDA
|
40,129
|
|
|
76,486
|
|
|
62,818
|
|
Non-cash incentive
compensation (1)
|
3,722
|
|
|
2,799
|
|
|
5,427
|
|
Post-employment
expenses (excluding service costs) (2)
|
426
|
|
|
323
|
|
|
544
|
|
Merger and
acquisition related expenses (3)
|
4,873
|
|
|
6,091
|
|
|
8,303
|
|
Plant capacity
expansion expenses (4)
|
3,918
|
|
|
3,740
|
|
|
24,999
|
|
Contract termination
expenses (5)
|
60
|
|
|
—
|
|
|
—
|
|
Asset impairments
(6)
|
130
|
|
|
—
|
|
|
—
|
|
Business optimization
projects (7)
|
49
|
|
|
—
|
|
|
1,926
|
|
Facility closure
costs (8)
|
3,523
|
|
|
4,654
|
|
|
—
|
|
Gain on valuation
change of royalty note payable(9)
|
(2,004)
|
|
|
(14,100)
|
|
|
—
|
|
Other adjustments
allowable under the Credit Agreement (10)
|
3,583
|
|
|
5,527
|
|
|
1,525
|
|
Adjusted
EBITDA
|
$
|
58,409
|
|
|
$
|
85,520
|
|
|
$
|
105,542
|
|
|
|
|
(1)
|
Reflects
equity-based, non-cash compensation expense.
|
(2)
|
Includes net pension
cost and net post-retirement cost relating to pension and other
post-retirement benefit obligations during the applicable period,
but in each case excluding the service cost relating to benefits
earned during such period. Non-service net periodic benefit costs
are not considered reflective of our operating performance because
these costs do not exclusively originate from employee services
during the applicable period and may experience periodic
fluctuations as a result of changes in non-operating factors,
including changes in discount rates, changes in expected returns on
benefit plan assets, and other demographic actuarial
assumptions.
|
(3)
|
Merger and
acquisition related expenses include legal fees, consulting fees,
bank fees, severance costs, certain purchase accounting items such
as the amortization of inventory fair value step-up, information
technology integration costs and similar charges. While these costs
are not operational in nature and are not expected to continue for
any singular transaction on an ongoing basis, similar types of
costs, expenses and charges have occurred in prior periods and may
recur in the future as we continue to integrate prior acquisitions
and pursue any future acquisitions.
|
(4)
|
Plant capacity
expansion expenses include expenses that are not inventoriable or
capitalizable as related to plant expansion projects greater than
$5 million in capital expenditures or plant start up
projects. While these expenses are not operational in nature
and are not expected to continue for any singular project on an
ongoing basis, similar types of expenses have occurred in prior
periods and may recur in the future if we continue to pursue future
plant capacity expansion.
|
(5)
|
Reflects contract
termination expenses related to strategically exiting a service
contract. While these expenses are not operational in nature and
are not expected to continue for any singular event on an ongoing
basis, similar types of expenses have occurred in prior periods and
may recur in the future as we continue to strategically evaluate
our contracts.
|
(6)
|
The third quarter of
2019 reflects a $0.1 million asset impairment related to rail cars
that will not be utilized before the end of their
leases.
|
(7)
|
Reflects costs
incurred related to business optimization projects within our
corporate center, which aim to measure and improve the efficiency,
productivity and performance of our organization. While these costs
are not operational in nature and are not expected to continue for
any singular project on an ongoing basis, similar types of expenses
may recur in the future.
|
(8)
|
Reflects costs
incurred related to idled sand facilities and closed corporate
offices, including severance costs and remaining contracted costs
such as office lease costs, maintenance, and utilities. While these
costs are not operational in nature and are not expected to
continue for any singular event on an ongoing basis, similar types
of expenses may recur in the future.
|
(9)
|
Gain on valuation
change of royalty note payable due to a change in estimate of
future tonnages and sales related to the sand shipped from our
Tyler, Texas facility. These gains are not operational in nature
and are not expected to continue for any singular event on an
ongoing basis.
|
(10)
|
Reflects
miscellaneous adjustments permitted under the Credit Agreement,
such as storm damage costs, recruiting fees, relocation costs. The
second quarter of 2019 includes $4.0 million of loss contingencies
reserve.
|
Supplemental Information
1) What was the cash
flow from operations for the third quarter of 2019?
For the third quarter of 2019, cash flow from operations totaled
$33.9M.
2) What are the
underlying assumptions of the plan to reduce gross debt to 3.0x by
the end of 2021 and has the plan changed given your updated outlook
for the Oil & Gas segment?
We remain committed to de-levering the balance sheet and will
use our free cash flow opportunistically to repurchase debt.
Decisions to repurchase debt will be examined on a quarterly basis
and will be subject to the level of business activity in the period
and other needs for cash.
3) What is the capex
guidance for the full years 2019 and 2020?
We believe that capex will be less than $125.0M for the full year 2019. We also expect to
significantly reduce capex for the full year 2020 to a range of
$40.0M to $60.0M. We intend to fund all of our capital
projects in 2020 with cash flow from operations.
4) Do you expect to
institute annual price increases next year for ISP
products?
Yes, we are planning to raise prices early next year on much of
our non-contracted silica sand and other specialty products.
5) Did you collect any
shortfall penalty fees in the third quarter of 2019?
Yes, we collected $9.4M in
shortfall penalty fees and other contract termination fees during
the quarter.
6) What was the split
between Northern White Sand and in-basin/regional volumes for Oil
& Gas in the third quarter of 2019?
Northern White Sand sales represented 43% of our total sales
volumes in the third quarter of 2019, while in-basin/regional
volumes accounted for 57% of our total sales volumes during the
period.
7) Did Northern White
Sand pricing improve sequentially in the third quarter of
2019?
Following a period of relative strength in the second quarter of
2019, Northern White Sand pricing declined 6% in the third quarter
of 2019.
8) What is your estimate
of how much Northern White Sand capacity has come offline through
the end of the third quarter?
A recent third-party study estimated that upwards of 40MMtpa of
Northern White Sand capacity had been idled through the end of the
third quarter.
9) How much Oil &
Gas sand capacity has U.S. Silica idled to date?
To date, U.S. Silica has idled one Northern White Sand mine and
one regional sand mine and has curtailed production at 4 other
facilities by cutting shifts and days and hours worked, for a total
of 5 million tons per year currently offline.
10) What is the effective utilization from
the 10M tons of capacity in the
Permian at the Crane and
Lamesa mines?
In the third quarter, Crane and
Lamesa were operating at
approximately 70% of their collective nameplate capacity, which we
believe is greater than the utilization rates of other operators in
the Permian.
11) How many tons of sand moved through
SandBox crews in the third quarter of 2019 compared to the second
quarter of 2019? What is the expectation for the volumes of sand
expected to be moved by SandBox in the fourth quarter of
2019?
SandBox moved approximately 6.1M
tons in the third quarter of 2019 compared with approximately
6.8M tons in the second quarter. We
expect to move about 5.7M tons in the
fourth quarter of 2019.
12) What is the annual supply/demand
balance for the frac sand market as a whole? What is the breakout
for Northern White Sand?
For 2019, we estimate approximately 100-110 million tons of
total frac sand demand against 140-150 million tons of effective
supply. For Northern White Sand specifically, we estimate
approximately 20 million tons of demand against 40-50 million tons
of active supply.
13) What is the proppant supply/demand
balance in the Permian? How much more capacity needs to come
offline for proppant prices to stabilize?
We estimate that capacity in the Permian has declined from a
peak of approximately 75MMtpa to approximately 60MMtpa currently as
a result of several mine closures and reduced staffing. We believe
that something on the order of an additional 10MMtpa of capacity
needs to come out to balance the market.
14) Where is pricing today in West Texas and where do you eventually see
pricing and margins settling out once the market becomes more
balanced?
Our average pricing in West
Texas today – a blend of contracted and spot pricing – is
approximately $20/ton. In our view,
as higher-cost sand producers cease loss-making operations, pricing
should stabilize in the low to mid $20s per ton.
15) What is your guidance for ISP volumes
and margins for the fourth quarter of 2019?
We expect volumes to be down about 7% and margins to contract
approximately 10% given the normal seasonality of the business.
However, we have some requests from a few industrial customers to
delay purchases to manage year-end cash. Whether these actions are
the result of a real economic slowdown or just prudent balance
sheet management is difficult to predict.
16) What is the guidance for the O&G
Segment for the fourth quarter of 2019?
We expect O&G Sand volumes to decline by approximately 10%
sequentially in the fourth quarter of 2019 due to an expected
slowdown in North American completions activity. We expect
contribution margin per ton to decline sharply in the fourth
quarter of 2019 due to lower SandBox volumes, continued pricing
pressure, the loss of fixed cost leverage and fewer anticipated
customer shortfall penalties and other contractual fees. Despite
some pricing pressure during the third quarter, SandBox margins
held up well as we were able to offset most of the pressure with
reduced costs including third-party carrier rates and we would
expect that to be the case in Q4 as well. Additionally, we are
adapting swiftly to current market realities and are focused on
serving customers optimally and profitably while appropriately
managing key operational levers to rationalize capacity and reduce
costs.
Investor Contacts
Michael Lawson
Vice President of Investor Relations and Corporate
Communications
301-682-0304
lawsonm@ussilica.com
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SOURCE U.S. Silica Holdings, Inc.