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ITEM 2.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q as well as the consolidated financial statements, the accompanying notes and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the "2018 Annual Report").
This discussion contains forward-looking statements as discussed below and elsewhere in this report. These statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those discussed in or implied by forward-looking statements.
Adjusted EBITDA and segment contribution margin as used herein are non-GAAP measures. For a detailed description of Adjusted EBITDA and segment contribution margin and reconciliations to their most comparable GAAP measures, please see the discussion below under “How We Evaluate Our Business.”
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as amended. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. 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.
For example, all statements we make relating to our estimated and projected costs; reserve and finished products estimates; demand for our products; the strategies of our customers; anticipated expenditures, cash flows, growth rates and financial results; our plans and objectives for future operations, growth or initiatives; strategies and their anticipated effect on our performance and liquidity; and the expected outcome or impact of pending or threatened litigation are forward-looking statements.
All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expect, including but not limited to: 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; 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 Quarterly Report on Form 10-Q and our most recent Forms 10-K, 10-Q, and 8-K filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”).
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of the known factors described above, and it is impossible for us to anticipate all factors that could affect our actual results. As a result, forward-looking statements are not guarantees of future performance, and you should not place undue reliance on any forward-looking statements we make. If one or more of the risks described above or other risks or uncertainties materialize (or the consequences of any such development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. We disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other filings with the SEC, and our other public communications.
Overview
We are a performance materials company and one of the largest domestic producers of commercial silica used in the oil and gas industry and in a wide range of industrial applications. In addition, through our acquisition of EP Minerals, LLC ("EPM") and its affiliated companies in 2018, we are an industry leader in the production of industrial minerals, including diatomaceous earth, clay (calcium bentonite and calcium montmorillonite) and perlite.
During our 119-year history, we have developed core competencies in mining, processing, logistics and materials science that enable us to produce and cost-effectively deliver over 400 diversified product types to customers across our end markets. As of September 30, 2019, we operated 26 production facilities across the United States. We control 554 million tons
of reserves of commercial silica, which we believe can be processed to make 234 million tons of finished products that meet API frac sand specifications, and 59 million tons of reserves of diatomaceous earth, perlite, and clays.
Our operations are organized into two reportable segments based on end markets served and the manner in which we analyze our operating and financial performance: (1) Oil & Gas Proppants and (2) Industrial & Specialty Products. We believe our segments are complementary because our ability to sell to a wide range of customers across end markets in these segments allows us to maximize recovery rates in our mining operations and optimize our asset utilization.
Acquisitions
For a description of our key business acquisitions during the periods presented, see Note E - Business Combinations to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
Recent Trends and Outlook
Oil and gas proppants end market trends
Demand for frac sand is driven by the use of hydraulic fracturing as a means to extract hydrocarbons from shale formations. According to Rystad Energy's "ShaleIntel Proppant Market - 4Q 2019," published on September 16, 2019, U.S. raw sand proppant demand is expected to be 2% higher in 2019 than 2018, and is expected to continue to grow in 2020. Oil and gas horizontal rig count increased during 2017 and 2018, leading to more well completion activity. We continue to expect long-term growth in oil and gas drilling in North American shale basins.
Sales and average selling price per ton decreased sequentially during the three months ended September 30, 2019, compared to the three months ended June 30, 2019, as summarized below. The decreases were mainly due to more tons produced and sold in-basin in West Texas, fewer tons delivered to well sites, and decreased sand pricing.
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Amounts in thousands, except per ton data
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Three Months Ended
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Percentage Change
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Oil & Gas Proppants
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September 30,
2019
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June 30, 2019
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March 31,
2019
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December 31,
2018
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September 30, 2019 vs. June 30, 2019
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June 30, 2019 vs. March 31, 2019
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March 31, 2019 vs. December 31, 2018
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Sales
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$
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242,707
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|
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$
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273,064
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|
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$
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260,477
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|
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$
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243,546
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|
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(11
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)%
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5
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%
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7
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%
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Tons Sold
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3,896
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|
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3,932
|
|
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3,864
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|
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3,704
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|
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(1
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)%
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2
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%
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4
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%
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Average Selling Price per Ton
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$
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62.30
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$
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69.45
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$
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67.41
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$
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65.75
|
|
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(10
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)%
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3
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%
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3
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%
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If oil and gas drilling and completion activity does not grow or if frac sand supply remains greater than demand, then we may sell fewer tons, sell tons at lower prices, or both. If we sell less frac sand or sell frac sand at lower prices, our revenue, net income, cash generated from operating activities, and liquidity would be adversely affected, and we could incur material asset impairments. If these events occur, we may evaluate actions to reduce cost and improve liquidity.
Fluctuations in frac sand demand and price may occur as the market adjusts to supply and demand due to energy pricing fluctuations. Fluctuations in price may also occur as the supply of local in-basin sand changes.
Oil and natural gas exploration and production companies' and oilfield service providers’ preferences and expectations have been evolving in recent years. A proppant supplier's logistics capabilities have become an important differentiating factor when competing for business, on both a spot and contract basis. Many of our customers increasingly seek convenient in-basin and wellhead proppant delivery capability from their proppant supplier. Over the past year, this trend of customers preferring local in-basin sand has accelerated. We believe that, over time, proppant customers will prefer to consolidate their purchases across a smaller group of suppliers with robust logistics capabilities and a broad offering of proppants.
Industrial and specialty products end market trends
Demand in the industrial and specialty products end markets has been relatively stable in recent years and is primarily influenced by key macroeconomic drivers such as housing starts, population growth, light vehicle sales, beer and wine production, repair and remodel activity and industrial production. The primary end markets served by our Industrial & Specialty Products segment are building and construction products, fillers and extenders, filtration, glassmaking, absorbents, foundry, and sports and recreation. We have been increasing our value-added product offerings in the industrial and specialty products end markets organically as well as through acquisitions, such as White Armor and EPM. Sales of these new higher margin products have increased our Industrial & Specialty Products segment's profitability in recent periods.
Our Business Strategy
The key drivers of our growth strategy include:
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•
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increasing our presence and product offering in specialty products end markets;
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•
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optimizing our product mix and further developing value-added capabilities to maximize margins;
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•
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effectively positioning our Oil & Gas Proppants facilities to optimally serve our customers;
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•
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optimizing our supply chain network and leveraging our logistics capabilities to meet our customers’ needs; and
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•
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evaluating both Greenfield and Brownfield expansion opportunities and other acquisitions; and maintaining financial strength and flexibility.
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How We Generate Our Sales
Products
We derive our product sales by mining and processing minerals that our customers purchase for various uses. Our product sales are primarily a function of the price per ton and the number of tons sold. We primarily sell our products through individual purchase orders executed under short-term price agreements or at prevailing market rates. The amount invoiced reflects the price of the product, transportation, surcharges, and additional handling services as applicable, such as storage, transloading the product from railcars to trucks and last mile logistics to the customer site. We invoice most of our product customers on a per shipment basis, although for some larger customers we consolidate invoices weekly or monthly. Standard collection terms are net 30 days, although extended terms are offered in competitive situations.
Services
We derive our service sales primarily through the provision of transportation, equipment rental, and contract labor services to companies in the oil and gas industry. Transportation services typically consist of transporting customer proppant from storage facilities to proximal well-sites and are contracted through work orders executed under established pricing agreements. The amount invoiced reflects transportation services rendered. Equipment rental services provide customers with use of either dedicated or nonspecific wellhead proppant delivery equipment solutions for contractual periods defined either through formal lease agreements or executed work orders under established pricing agreements. The amounts invoiced reflect the length of time the equipment set was utilized in the billing period. Contract labor services provide customers with proppant delivery equipment operators through work orders executed under established pricing agreements. The amounts invoiced reflect the amount of time our labor services were utilized in the billing period. We typically invoice our customers on a weekly or monthly basis; however, some customers receive invoices upon well-site operation completion. Standard collection terms are net 30 days, although extended terms are offered in competitive situations.
Our ten largest customers accounted for approximately 43% and 42% of total sales for both the three and nine months ended September 30, 2019, respectively, and approximately 48% and 50% for the three and nine months ended September 30, 2018, respectively. Sales to one of our customers accounted for 11% and 12% of our total sales for the three and nine months ended September 30, 2019, respectively, and 15% for both the three and nine months ended September 30, 2018. No other customers accounted for 10% or more of our total sales. At September 30, 2019, one of our customer's accounts receivable represented 13% of our total trade accounts receivable, net of allowance. At December 31, 2018, the same customer's accounts receivable represented 18% of our total trade accounts receivable, net of allowance. No other customers accounted for 10% or more of our total trade accounts receivable.
For a limited number of customers, we sell under long-term, minimum purchase supply agreements. These agreements define, among other commitments, the volume of product that our customers must purchase, the volume of product that we must provide and the price that we will charge and that our customers will pay for each product. Prices under these agreements are generally fixed and subject to certain contractual adjustments. Sometimes these agreements may undergo negotiations
regarding pricing and volume requirements, particularly in volatile market conditions. When these negotiations occur, we may deliver sand at prices or at volumes below the requirements in our existing supply agreements. We do not consider these agreements solely representative of contracts with customers. An executed order specifying the type and quantity of product to be delivered, in combination with the noted agreements, comprise our contracts in these arrangements. Selling more tons under supply contracts enables us to be more efficient from a production, supply chain and logistics standpoint. As discussed in Part I, Item 1A., Risk Factors of our 2018 Annual Report on Form 10-K, these customers may not continue to purchase the same levels of product in the future due to a variety of reasons, contract requirements notwithstanding.
As of September 30, 2019, we had twenty-two minimum purchase supply agreements in the Oil & Gas Proppants segment with initial terms expiring between 2019 and 2034. As of September 30, 2018, we had twenty-four minimum purchase supply agreements in the Oil & Gas Proppants segment with initial terms expiring between 2018 and 2034. Collectively, sales to customers with minimum purchase supply agreements accounted for 61% of Oil & Gas Proppants segment sales for both the three and nine months ended September 30, 2019, and 68% and 54% for the three and nine months ended September 30, 2018, respectively.
In the industrial and specialty products end markets we have not historically entered into long-term minimum purchase supply agreements with our customers because of the high cost to our customers of switching providers. We may periodically do so when capital or other investment is required to meet customer needs. Instead, we often enter into supply agreements with our customers with targeted volumes and terms of one to five years. Prices under these agreements are generally fixed and subject to annual increases.
The Costs of Conducting Our Business
The principal expenses involved in conducting our business are transportation costs, labor costs, electricity and drying fuel costs, and maintenance and repair costs for our mining and processing equipment and facilities. Transportation and related costs include freight charges, fuel surcharges, transloading fees, switching fees, railcar lease costs, demurrage costs, storage fees and labor costs. We believe the majority of our operating costs are relatively stable in price, but they can vary significantly based on the volume of product produced. We benefit from owning the majority of the mineral deposits that we mine and having long-term mineral rights leases or supply agreements for our other primary sources of raw material, which limits royalty payments.
Additionally, we incur expenses related to our corporate operations, including costs for sales and marketing; research and development; and the finance, legal, environmental, health and safety functions of our organization. These costs are principally driven by personnel expenses.
How We Evaluate Our Business
Our management team evaluates our business using a variety of financial and operating metrics. We evaluate the performance of our two segments based on their tons sold, average selling price and contribution margin earned. Additionally, we consider a number of factors in evaluating the performance of our business as a whole, including total tons sold, average selling price, total segment contribution margin, and Adjusted EBITDA. We view these metrics as important factors in evaluating our profitability and review these measurements frequently to analyze trends and make decisions, and we believe the presentation of these metrics provides useful information to our investors regarding our financial condition and results of operations for the same reasons.
Segment Contribution Margin
Segment contribution margin, a non-GAAP measure, 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 expansion expenses, and facility closure costs.
Segment contribution margin is not a measure of our financial performance under GAAP and should not be considered an alternative or superior to measures derived in accordance with GAAP. Our measure of segment contribution margin is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation. For more information about segment contribution margin, including a reconciliation of this measure to its most directly comparable GAAP financial measure, net income (loss), see Note U - Segment Reporting to our Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.
Adjusted EBITDA
Adjusted EBITDA, a non-GAAP measure, is included in this report because it is a key metric used by management to assess our operating performance and by our lenders to evaluate our covenant compliance. Adjusted EBITDA excludes certain income and/or costs, the removal of which improves comparability of operating results across reporting periods. Our target performance goals under our incentive compensation plan are tied, in part, to our Adjusted EBITDA.
Adjusted EBITDA is not a measure of our financial performance or liquidity under GAAP and should not be considered as an alternative or superior 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 (loss) income, the most directly comparable GAAP financial measure, to Adjusted EBITDA.
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(amounts in thousands)
|
Three Months Ended
September 30,
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Nine Months Ended
September 30,
|
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2019
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|
2018
|
|
2019
|
|
2018
|
Net (loss) income attributable to U.S. Silica Holdings, Inc.
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$
|
(23,037
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)
|
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$
|
6,316
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|
|
$
|
(36,211
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)
|
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$
|
55,254
|
|
Total interest expense, net of interest income
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23,711
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|
|
20,899
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|
|
69,683
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|
|
43,243
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Provision for taxes
|
(7,671
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)
|
|
(1,547
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)
|
|
(7,259
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)
|
|
8,806
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|
Total depreciation, depletion and amortization expenses
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47,126
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|
|
37,150
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|
|
136,625
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|
|
102,305
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EBITDA
|
40,129
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|
|
62,818
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|
|
162,838
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|
|
209,608
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|
Non-cash incentive compensation (1)
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3,722
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|
5,427
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|
|
10,566
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|
|
18,612
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Post-employment expenses (excluding service costs) (2)
|
426
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|
|
544
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|
|
1,301
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|
|
1,653
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Merger and acquisition related expenses (3)
|
4,873
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|
|
8,303
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|
|
15,747
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|
|
28,434
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Plant capacity expansion expenses (4)
|
3,918
|
|
|
24,999
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|
|
16,229
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|
|
45,100
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Contract termination expenses (5)
|
60
|
|
|
—
|
|
|
1,060
|
|
|
—
|
|
Asset impairments (6)
|
130
|
|
|
—
|
|
|
130
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|
|
16,184
|
|
Business optimization projects (7)
|
49
|
|
|
1,926
|
|
|
55
|
|
|
1,926
|
|
Facility closure costs (8)
|
3,523
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|
|
—
|
|
|
10,604
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|
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—
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Gain on valuation change of royalty note payable(9)
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(2,004
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)
|
|
—
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|
|
(16,104
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)
|
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—
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|
Other adjustments allowable under the Credit Agreement (10)
|
3,583
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|
|
1,525
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|
|
10,323
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|
|
3,001
|
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Adjusted EBITDA
|
$
|
58,409
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|
|
$
|
105,542
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|
|
$
|
212,749
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|
|
$
|
324,518
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|
|
|
|
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|
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(1)
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Reflects equity-based, non-cash compensation expense.
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(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. See Note P - Pension and Post-Retirement Benefits to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
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(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.
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(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.
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(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.
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(6)
|
The three months and nine months ended September 30, 2019 reflect a $0.1 million asset impairment related to rail cars that will not be utilized before the end of their leases. The nine months ended September 30, 2018 reflects a $16.2 million asset impairment related to the closure of our resin coating facility and associated product portfolio.
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(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.
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(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.
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(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. This gain is not operational in nature and is not expected to continue for any singular event on an ongoing basis.
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(10)
|
Reflects miscellaneous adjustments permitted under the Credit Agreement, such as recruiting fees and relocation costs. The nine months ended September 30, 2019 also includes $6.2 million of loss contingencies reserve, partially offset by insurance proceeds of $2.2 million. The three months ended September 30, 2018 includes storm damage costs, recruiting fees and relocation costs. The nine months ended September 30, 2018 also includes a net loss of $0.7 million on divestiture of assets, consisting of $5.2 million of contract termination costs and $1.3 million of divestiture related expenses such as legal fees and consulting fees, partially offset by a $5.8 million gain on sale of assets.
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Adjusted EBITDA-Trailing Twelve Months
Our revolving credit facility (the "Revolver") contains a consolidated total net leverage ratio of no more than 3.75:1.00 that, unless we have the consent of our lenders, we must meet as of the last day of any fiscal quarter whenever usage of the Revolver (other than certain undrawn letters of credit) exceeds 30% of the Revolver commitment. This ratio is calculated based on our Adjusted EBITDA for the trailing twelve months. Noncompliance with this financial ratio covenant could result in the acceleration of our obligations to repay all amounts outstanding under the Revolver and the term loan (the "Term Loan") (collectively the "Credit Facility"). Moreover, the Revolver and the Term Loan contain covenants that restrict, subject to certain exceptions, our ability to make permitted acquisitions, incur additional indebtedness, make restricted payments (including dividends) and retain excess cash flow based, in some cases, on our ability to meet leverage ratios calculated based on our Adjusted EBITDA for the trailing twelve months.
See the description under “Adjusted EBITDA” above for certain important information about Adjusted EBITDA-trailing twelve months, including certain limitations and management’s use of this metric in light of its status as a non-GAAP measure.
As of September 30, 2019, we are in compliance with all covenants under our Credit Facility, and our Revolver usage was zero (other than certain undrawn letters of credit). Since the Revolver usage did not exceed 30% of the Revolver commitment, the consolidated leverage ratio covenant did not apply. Based on our consolidated leverage ratio of 4.40 as of September 30, 2019, we may draw up to $30.0 million without the consent of our lenders. With the consent of our lenders, we have access to the full availability of the Revolver. The calculation of the consolidated leverage ratio incorporates the Adjusted EBITDA-trailing twelve months as follows:
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|
|
|
(All amounts in thousands, except calculated ratio)
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|
September 30, 2019
|
|
|
|
Total debt
|
|
$
|
1,236,137
|
|
Finance leases
|
|
90
|
|
Total consolidated debt
|
|
$
|
1,236,227
|
|
|
|
|
Adjusted EBITDA-trailing twelve months
|
|
$
|
280,740
|
|
Pro forma Adjusted EBITDA including impact of acquisitions (1)
|
|
—
|
|
Other adjustments for covenant calculation (2)
|
|
268
|
|
Total Adjusted EBITDA-trailing twelve months for covenant calculation
|
|
$
|
281,008
|
|
|
|
|
Consolidated leverage ratio(3)
|
|
4.40
|
|
|
|
|
|
|
|
|
(1)
|
Covenant calculation allows for the Adjusted EBITDA-trailing twelve months to include the impact of acquisitions on a pro forma basis.
|
(2)
|
Covenant calculation excludes activity at legal entities above the operating company, which is mainly interest income offset by public company operating expenses.
|
(3)
|
Calculated by dividing total consolidated debt by total Adjusted EBITDA-trailing twelve months for covenant calculation.
|
Results of Operations for the Three Months Ended September 30, 2019 and 2018
Sales
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except per ton data)
|
Three Months Ended
September 30,
|
|
Percent Change
|
|
2019
|
|
2018
|
|
'19 vs.'18
|
Sales:
|
|
|
|
|
|
Oil & Gas Proppants
|
$
|
242,707
|
|
|
$
|
302,452
|
|
|
(20
|
)%
|
Industrial & Specialty Products
|
119,107
|
|
|
120,720
|
|
|
(1
|
)%
|
Total sales
|
$
|
361,814
|
|
|
$
|
423,172
|
|
|
(14
|
)%
|
Tons:
|
|
|
|
|
|
Oil & Gas Proppants
|
3,896
|
|
|
3,821
|
|
|
2
|
%
|
Industrial & Specialty Products
|
954
|
|
|
983
|
|
|
(3
|
)%
|
Total Tons
|
4,850
|
|
|
4,804
|
|
|
1
|
%
|
Average Selling Price per Ton:
|
|
|
|
|
|
Oil & Gas Proppants
|
$
|
62.30
|
|
|
$
|
79.16
|
|
|
(21
|
)%
|
Industrial & Specialty Products
|
124.85
|
|
|
122.81
|
|
|
2
|
%
|
Overall Average Selling Price per Ton
|
$
|
74.60
|
|
|
$
|
88.09
|
|
|
(15
|
)%
|
Total sales decreased 14% for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, driven by a 15% decrease in overall average selling price, partially offset by a 1% increase in total tons sold.
The decrease in total sales was mainly driven by Oil & Gas Proppants sales, which decreased 20% for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. Oil & Gas Proppants average selling price decreased 21% and tons sold increased 2%. The decrease in average selling price was mainly driven by more tons sold from local in-basin plants which have lower logistics costs, increased in-basin proppant supply, and decreased sand pricing. The increase in tons sold was mainly due to more tons produced and sold in-basin in West Texas.
The decrease in total sales was also partially driven by Industrial & Specialty Products sales, which decreased 1% for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. Industrial & Specialty Products average selling price increased 2% and tons sold decreased 3%. The increase in average selling price was due to additional higher-margin product sales and price increases. The decrease in tons sold was mainly driven by a decrease in low-margin tons sold.
Cost of Sales (excluding depreciation, depletion, and amortization)
Cost of sales decreased by $38.7 million, or 12%, to $283.6 million for the three months ended September 30, 2019 compared to $322.3 million for the three months ended September 30, 2018. These changes result from the main components of cost of sales as discussed below. As a percentage of sales, cost of sales represented 78% for the three months ended September 30, 2019 compared to 76% for the same period in 2018.
We incurred $131.5 million and $145.3 million of transportation and related costs for the three months ended September 30, 2019 and 2018, respectively. The $13.8 million decrease was mainly due to a decline in demand for Northern White sand caused by some of our customers shifting to local in-basin frac sands with lower logistics costs, partially offset by costs related to additional SandBox operations. As a percentage of sales, transportation and related costs represented 36% for the three months ended September 30, 2019 compared to 34% for the same period in 2018.
We incurred $50.5 million and $53.6 million of operating labor costs for the three months ended September 30, 2019 and 2018, respectively. The $3.1 million decrease in labor costs was due to idled sand facilities and lower SandBox driver costs. As a percentage of sales, operating labor costs represented 14% for the three months ended September 30, 2019 compared to 13% for the same period in 2018.
We incurred $13.4 million and $15.8 million of electricity and drying fuel (principally natural gas) costs for the three months ended September 30, 2019 and 2018, respectively. The $2.4 million decrease in electricity and drying fuel costs was mainly due to idled sand facilities. As a percentage of sales, electricity and drying fuel costs represented 4% for both of the three months ended September 30, 2019 and 2018.
We incurred $26.4 million and $36.8 million of maintenance and repair costs for the three months ended September 30, 2019 and 2018, respectively. The $10.4 million decrease in maintenance and repair costs was due to idled sand facilities and a decrease in plant capacity expansion expenses. As a percentage of sales, maintenance and repair costs represented 7% for the three months ended September 30, 2019 compared to 9% for the same period in 2018.
Segment Contribution Margin
Industrial & Specialty Products contribution margin decreased by $4.3 million to $44.4 million for the three months ended September 30, 2019 compared to $48.7 million for the three months ended September 30, 2018, driven by a $1.6 million decrease in revenue and $2.7 million in higher cost of sales.
Oil & Gas Proppants contribution margin decreased by $39.0 million to $50.6 million for the three months ended September 30, 2019 compared to $89.6 million for the three months ended September 30, 2018, driven by a $59.7 million decrease in sales, partially offset by a $20.8 million decrease in cost of sales. The decrease in segment contribution margin was mainly driven by decreased sand pricing, partially offset by $9.4 million in customer shortfall penalties and other contractual fees that were settled.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $2.2 million, or 6%, to $40.2 million for the three months ended September 30, 2019 compared to $38.0 million for the three months ended September 30, 2018. The net increase was primarily due to the following factors:
|
|
•
|
Compensation related expense increased by $1.6 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018.
|
|
|
•
|
Merger and acquisition related expense decreased by $1.3 million to $0.6 million for the three months ended September 30, 2019 compared to $1.9 million for the three months ended September 30, 2018. The decrease was mainly due to costs related to the acquisition of EPM during the three months ended September 30, 2018 that did not recur during the three months ended September 30, 2019.
|
|
|
•
|
During the three months ended September 30, 2019 the corporate office in Frederick, Maryland was closed, resulting in $2.2 million of remaining contracted costs incurred such as office lease costs, maintenance, and utilities.
|
In total, our selling, general and administrative expenses represented approximately 11% and 9% of our sales for the three months ended September 30, 2019 and 2018, respectively.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense increased by $9.9 million, or 27%, to $47.1 million for the three months ended September 30, 2019 compared to $37.2 million for the three months ended September 30, 2018. The increase was mainly driven by our plant capacity expansions as well as other continued capital spending. Depreciation, depletion and amortization expense represented approximately 13% and 9% of our sales for the three months ended September 30, 2019 and 2018, respectively.
Asset Impairment
During the three months ended September 30, 2019, we recorded a $0.1 million asset impairment charge related to rail cars that will not be utilized before the end of their leases.
Operating Income (Loss)
Operating loss for the three months ended September 30, 2019 was $9.3 million compared to operating income of $25.7 million for the three months ended September 30, 2018. The change was mainly driven by a 14% decrease in sales and a
27% increase in depreciation, depletion and amortization expense, and a 6% increase in selling, general and administrative expenses, partially offset by a 12% decrease in cost of sales.
Interest Expense
Interest expense increased by $2.7 million, or 12%, to $24.7 million for the three months ended September 30, 2019 compared to $22.0 million for the three months ended September 30, 2018, mainly due to a decrease in interest costs capitalized in property, plant and mine development.
Other Income, Net, Including Interest Income
Other income, net, increased by $2.2 million, to $3.3 million for the three months ended September 30, 2019 compared to $1.1 million for the three months ended September 30, 2018, primarily driven by the change in valuation of the royalty note payable.
Provision for Income Taxes
For the three months ended September 30, 2019, we had a tax benefit of $7.7 million. For the three months ended September 30, 2018, we had a tax benefit of $1.5 million. The effective tax rate was 25% and (32)% for the three months ended September 30, 2019 and 2018, respectively. Without discrete items, which primarily consist of tax expense related to equity compensation, the effective tax rate for the three months ended September 30, 2019 and 2018 would have been 27% and (52)%, respectively.
During the three months ended September 30, 2019 and 2018, we recorded tax expense related to equity compensation of $0.1 million and $0.0 million, respectively.
Historically, our actual effective tax rates have differed from the statutory effective rate primarily due to the benefit received from statutory percentage depletion allowances. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income before income taxes.
Net Income (Loss)
Net (loss) income attributable to U.S. Silica Holdings, Inc., was a net loss of $23.0 million and net income of $6.3 million for the three months ended September 30, 2019 and 2018, respectively. The year over year changes were due to the factors noted above.
Results of Operations for the Nine Months Ended September 30, 2019 and 2018
Sales
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except per ton data)
|
Nine Months Ended
September 30,
|
|
Percent Change
|
|
2019
|
|
2018
|
|
'19 vs.'18
|
Sales:
|
|
|
|
|
|
Oil & Gas Proppants
|
$
|
776,248
|
|
|
$
|
939,445
|
|
|
(17
|
)%
|
Industrial & Specialty Products
|
359,170
|
|
|
280,473
|
|
|
28
|
%
|
Total sales
|
$
|
1,135,418
|
|
|
$
|
1,219,918
|
|
|
(7
|
)%
|
Tons:
|
|
|
|
|
|
Oil & Gas Proppants
|
11,692
|
|
|
10,537
|
|
|
11
|
%
|
Industrial & Specialty Products
|
2,892
|
|
|
2,885
|
|
|
—
|
%
|
Total Tons
|
14,584
|
|
|
13,422
|
|
|
9
|
%
|
Average Selling Price per Ton:
|
|
|
|
|
|
Oil & Gas Proppants
|
$
|
66.39
|
|
|
$
|
89.16
|
|
|
(26
|
)%
|
Industrial & Specialty Products
|
124.19
|
|
|
97.22
|
|
|
28
|
%
|
Overall Average Selling Price per Ton
|
$
|
77.85
|
|
|
$
|
90.89
|
|
|
(14
|
)%
|
Total sales decreased 7% for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, driven by a 14% decrease in overall average selling price, partially offset by a 9% increase in total tons sold.
The decrease in total sales was driven by Oil & Gas Proppants sales, which decreased 17% for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. Oil & Gas Proppants average selling price decreased 26% and tons sold increased 11%. The decrease in average selling price was mainly driven by more tons sold from local in-basin plants which have lower logistics costs, increased in-basin proppant supply, and decreased sand pricing. The increase in tons sold was driven by year over year growth in demand for our frac sand and more tons produced and sold in-basin in West Texas.
The decrease in total sales was partially offset by Industrial & Specialty Products sales, which increased 28% for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. Industrial & Specialty Products average selling price increased 28%. The increase in average selling price was due to the acquisition of EPM, additional higher-margin product sales and price increases.
Cost of Sales (excluding depreciation, depletion, and amortization)
Cost of sales decreased by $0.8 million, or 0%, to $875.3 million for the nine months ended September 30, 2019 compared to $876.1 million for the nine months ended September 30, 2018. These changes result from the main components of cost of sales as discussed below. As a percentage of sales, cost of sales represented 77% for the nine months ended September 30, 2019 compared to 72% for the same period in 2018.
We incurred $396.7 million and $417.7 million of transportation and related costs for the nine months ended September 30, 2019 and 2018, respectively. The $21.0 million decrease was mainly due to a decline in demand for Northern White sand caused by some of our customers shifting to local in-basin frac sands with lower logistics costs, partially offset by costs related to additional SandBox operations and the acquisition of EPM. As a percentage of sales, transportation and related costs represented 35% for the nine months ended September 30, 2019 compared to 34% for the same period in 2018.
We incurred $156.7 million and $149.4 million of operating labor costs for the nine months ended September 30, 2019 and 2018, respectively. The $7.3 million increase in labor costs incurred was due to more tons sold and the acquisition of EPM, partially offset by lower SandBox driver costs and idled sand facilities. As a percentage of sales, operating labor costs represented 14% for the nine months ended September 30, 2019 compared to 12% for the same period in 2018.
We incurred $42.5 million and $38.3 million of electricity and drying fuel (principally natural gas) costs for the nine months ended September 30, 2019 and 2018, respectively. The $4.2 million increase in electricity and drying fuel costs incurred was due to more tons sold and the acquisition of EPM, partially offset by idled sand facilities. As a percentage of sales, electricity and drying fuel costs represented 4% for the nine months ended September 30, 2019 compared to 3% for the same period in 2018.
We incurred $74.0 million and $82.2 million of maintenance and repair costs for the nine months ended September 30, 2019 and 2018, respectively. The $8.2 million decrease in maintenance and repair costs incurred was mainly due to idled sand facilities and a decrease in plant capacity expansion expenses, partly offset by higher production volume, additional SandBox operations and the acquisition of EPM. As a percentage of sales, maintenance and repair costs represented 7% for both of the nine months ended September 30, 2019 and 2018.
Segment Contribution Margin
Industrial & Specialty Products contribution margin increased by $28.6 million to $139.1 million for the nine months ended September 30, 2019 compared to $110.5 million for the nine months ended September 30, 2018, driven by a $78.7 million increase in revenue, partially offset by $50.1 million in higher cost of sales. The increase in segment contribution margin was due to the acquisition of EPM, new higher-margin product sales and price increases.
Oil & Gas Proppants contribution margin decreased by $123.0 million to $180.6 million for the nine months ended September 30, 2019 compared to $303.6 million for the nine months ended September 30, 2018, driven by a $163.2 million decrease in sales, partially offset by a $40.2 million decrease in cost of sales. The decrease in segment contribution margin was mainly driven by decreased sand pricing.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $1.3 million, or 1%, to $113.5 million for the nine months ended September 30, 2019 compared to $114.8 million for the nine months ended September 30, 2018. The net decrease was primarily due to the following factors:
|
|
•
|
Compensation related expense increased by $7.1 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, mainly due to the acquisition of EPM.
|
|
|
•
|
Merger and acquisition related expense decreased by $10.8 million to $2.5 million for the nine months ended September 30, 2019 compared to $13.3 million for the nine months ended September 30, 2018. The decrease was mainly due to costs related to the acquisition of EPM during the nine months ended September 30, 2018 that did not recur during the nine months ended September 30, 2019.
|
|
|
•
|
During the nine months ended September 30, 2019, $6.3 million of costs were incurred related to closing the corporate office in Frederick, Maryland. These costs included severance and remaining contracted costs such as office lease costs, maintenance, and utilities.
|
|
|
•
|
Business optimization costs of $1.9 million incurred during the nine months ended September 30, 2018 did not recur during the nine months ended September 30, 2019.
|
|
|
•
|
A net loss of $0.7 million during the nine months ended September 30, 2018 did not recur during the nine months ended September 30, 2019. The loss related to the divestiture of assets, consisting of $5.2 million of contract termination costs and $1.3 million of divestiture related expenses such as legal fees and consulting fees, partially offset by a $5.8 million gain on sale of assets.
|
In total, our selling, general and administrative expenses represented approximately 10% and 9% of our sales for the nine months ended September 30, 2019 and 2018, respectively.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense increased by $34.3 million, or 34%, to $136.6 million for the nine months ended September 30, 2019 compared to $102.3 million for the nine months ended September 30, 2018. The increase was mainly driven by our plant capacity expansions and our acquisition of EPM, as well as other continued capital spending. Depreciation, depletion and amortization expense represented approximately 12% and 8% of our sales for the nine months ended September 30, 2019 and 2018, respectively.
Asset Impairment
During the nine months ended September 30, 2019, we recorded a $0.1 million asset impairment charge related to rail cars that will not be utilized before the end of their leases. During the nine months ended September 30, 2018, we recorded a $16.2 million asset impairment related to the closure of our resin coating facility and associated product portfolio.
Operating Income
Operating income decreased by $100.7 million to $9.8 million for the nine months ended September 30, 2019 compared to operating income of $110.5 million for the nine months ended September 30, 2018. The decrease was driven by a 7% decrease in sales and a 34% increase in depreciation, depletion and amortization expense, partially offset by a 1% decrease in selling, general and administrative expenses and a $16.1 million decrease in asset impairment charges during the nine months ended September 30, 2019.
Interest Expense
Interest expense increased by $23.2 million, or 47%, to $72.5 million for the nine months ended September 30, 2019 compared to $49.3 million for the nine months ended September 30, 2018, mainly driven by the increase in our Credit Facility to finance the acquisition of EPM as well as a decrease in interest costs capitalized in property, plant and mine development.
Other Income, Net, Including Interest Income
Other income, net, increased by $16.3 million to $19.1 million for the nine months ended September 30, 2019 compared to $2.8 million for the nine months ended September 30, 2018, primarily driven by the change in valuation of the royalty note payable.
Provision for Income Taxes
For the nine months ended September 30, 2019, we had a tax benefit of $7.3 million. For the nine months ended September 30, 2018, we had tax expense of $8.8 million. The effective tax rate was 17% and 14% for the nine months ended September 30, 2019 and 2018, respectively. Without discrete items, which primarily consist of tax expense related to equity compensation, the effective tax rate for the nine months ended September 30, 2019 and 2018 would have been 29% and 11%, respectively.
During the nine months ended September 30, 2019 and 2018, we recorded tax expense related to equity compensation of $4.5 million and $0.7 million, respectively.
Historically, our actual effective tax rates have differed from the statutory effective rate primarily due to the benefit received from statutory percentage depletion allowances. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income before income taxes.
Net (Loss) Income
Net (loss) income attributable to U.S. Silica Holdings, Inc., was a net loss of $36.2 million and net income of $55.3 million for the nine months ended September 30, 2019 and 2018, respectively. The year over year changes were due to the factors noted above.
Liquidity and Capital Resources
Overview
Our principal liquidity requirements have historically been to service our debt, to meet our working capital, capital expenditure and mine development expenditure needs, to return cash to our stockholders, and to pay for acquisitions. We have historically met our liquidity and capital investment needs with funds generated through operations. We have historically funded our acquisitions through cash on hand, borrowings under our credit facilities, or equity issuances. Our working capital is the amount by which current assets exceed current liabilities and is a measure of our ability to pay our liabilities as they become due. As of September 30, 2019, our working capital was $234.9 million and we had $93.5 million of availability under the Revolver. Based on our consolidated leverage ratio of 4.40 as of September 30, 2019, we may draw up to $30.0 million without the consent of our lenders. With the consent of our lenders, we have access to the full availability of the Revolver.
In connection with the EPMH acquisition, on May 1, 2018, we entered into the Credit Agreement with BNP Paribas, as administrative agent, and the lenders named therein. The Credit Agreement increases our existing senior debt by entering into a new $1.380 billion senior secured Credit Facility, consisting of a $1.280 billion Term Loan and a $100 million Revolver that may also be used for swingline loans or letters of credit, and we may elect to increase the Term Loan in accordance with the terms of the Credit Agreement. The amounts owed under the Credit Agreement use LIBOR as a benchmark for establishing the rate at which interest accrues. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. The consequences of these developments cannot be entirely predicted but could include an increase in the cost to us of this indebtedness.
During the three months ended September 30, 2019, the Company repurchased outstanding debt under the Term Loan in the amount of $10 million at a rate of 95.5%. Debt issuance costs and original issue discount were recalculated with the reduced future debt payments, and additional costs of approximately $0.4 million were expensed. As a result, we recorded a gain on extinguishment of debt in the amount of $0.1 million. For more information on the Credit Agreement see Note J - Debt to our Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.
We believe that cash on hand, cash generated through operations and cash generated from financing arrangements will be sufficient to meet our working capital requirements, anticipated capital expenditures, scheduled debt payments and any dividends declared for at least the next 12 months.
Management and our Board remain committed to evaluating additional ways of creating shareholder value. Any determination to pay dividends or other distributions in cash, stock, or property in the future or otherwise return capital to our stockholders, including decisions about existing or new share repurchase programs, will be at the discretion of our Board and will be dependent on then-existing conditions, including industry and market conditions, our financial condition, results of operations, liquidity and capital requirements, contractual restrictions including restrictive covenants contained in debt agreements, and other factors. Additionally, because we are a holding company, our ability to pay dividends on our common
stock may be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us, including restrictions under the terms of the agreements governing our indebtedness.
Cash Flow Analysis
A summary of operating, investing and financing activities (in thousands) is shown in the following table:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2019
|
|
2018
|
Net cash provided by (used in):
|
|
|
|
Operating activities
|
$
|
116,381
|
|
|
$
|
267,690
|
|
Investing activities
|
(99,852
|
)
|
|
(944,852
|
)
|
Financing activities
|
(31,738
|
)
|
|
638,178
|
|
Net Cash Provided by / Used in Operating Activities
Operating activities consist primarily of net income adjusted for certain non-cash and working capital items. Adjustments to net income or loss for non-cash items include depreciation, depletion and amortization, deferred revenue, deferred income taxes, equity-based compensation and bad debt provision. In addition, operating cash flows include the effect of changes in operating assets and liabilities, principally accounts receivable, inventories, prepaid expenses and other current assets, income taxes payable and receivable, accounts payable and accrued expenses.
Net cash provided by operating activities was $116.4 million for the nine months ended September 30, 2019. This was mainly due to a $36.3 million net loss adjusted for non-cash items, including $136.6 million in depreciation, depletion and amortization, a $16.1 million gain on valuation change of royalty note payable, $8.5 million in deferred income taxes, $10.6 million in equity-based compensation, $32.4 million in deferred revenue, and $4.9 million in other miscellaneous non-cash items. Also contributing to the change was a $3.8 million decrease in accounts receivable, $4.0 million received related to vendor incentives, an $8.5 million decrease in prepaid expenses and other current assets, a $39.5 million increase in accounts payable and accrued liabilities, and $11.7 million in other operating assets and liabilities.
Net cash provided by operating activities was $267.7 million for the nine months ended September 30, 2018. This was mainly due to $55.3 million in net income adjusted for non-cash items, including $102.3 million in depreciation, depletion and amortization, $16.2 million asset impairment related to the closure of our resin coating facility and associated product portfolio, $7.7 million in deferred income taxes, $18.6 million in equity-based compensation, $16.6 million in deferred revenue, $5.4 million mainly related to the gain on sale of three transload facilities, and $9.7 million in other miscellaneous non-cash items. Also contributing to the change was an $8.2 million decrease in accounts receivable, a $2.7 million decrease in inventories, a $3.1 million increase in prepaid and other current assets, a $4.4 million decrease in income taxes, a $27.9 million increase in accounts payable and accrued liabilities, $54.6 million in short-term and long-term vendor incentives, and $6.1 million in other operating assets and liabilities.
Net Cash Provided by / Used in Investing Activities
Investing activities consist primarily of cash consideration paid to acquire businesses and capital expenditures for growth and maintenance.
Net cash used in investing activities was $99.9 million for the nine months ended September 30, 2019. This was mainly due to capital expenditures of $97.9 million, and capitalized intellectual property costs of $3.5 million. Capital expenditures for the nine months ended September 30, 2019 were mainly for engineering, procurement and construction of our growth projects, primarily Lamesa and equipment to expand our SandBox operations, and other maintenance and cost improvement capital projects.
Net cash used in investing activities was $944.9 million for the nine months ended September 30, 2018. This was mainly due to capital expenditures of $220.8 million and cash consideration of $743.3 million paid for the EPMH acquisition, partially offset by proceeds from the sale of three transload facilities of $26.3 million. Capital expenditures for the nine months ended September 30, 2018 were mainly for engineering, procurement and construction of our growth projects, primarily Crane and Lamesa, equipment to expand our SandBox operations, and other maintenance and cost improvement capital projects.
Subject to our continuing evaluation of market conditions, we anticipate that our capital expenditures in 2019 will be approximately $125 million, which is primarily associated with previously announced growth projects and other maintenance and cost improvement capital projects. We expect to fund our capital expenditures through cash on hand and cash generated from our operations.
Net Cash Provided by / Used in Financing Activities
Financing activities consist primarily of equity issuances, dividend payments, share repurchases, borrowings and repayments related to the Revolver and Term Loan, as well as fees and expenses paid in connection with our credit facilities.
Net cash used in financing activities was $31.7 million for the nine months ended September 30, 2019. This was mainly due to $20.2 million of long-term debt payments, including approximately $9.6 million for outstanding debt repurchase, $13.9 million of dividends paid, and $2.9 million of tax payments related to shares withheld for vested restricted stock and stock units, partially offset by $5.2 million of capital contribution from a non-controlling interest.
Net cash provided by financing activities was $638.2 million for the nine months ended September 30, 2018. This was mainly due to $1.280 billion of proceeds from long-term debt borrowings and $37.3 million of fees paid to finance the EPMH acquisition, $497.7 million of long-term debt payments, $90.5 million of common stock repurchases, $15.1 million of dividends paid, $4.2 million of tax payments related to shares withheld for vested restricted stock and restricted stock units, and a $3.2 million capital contributions from a non-controlling interest.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have a current material effect or are reasonably likely to have a future material effect on our financial condition, changes in financial condition, sales, expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
There have been no significant changes outside of the ordinary course of business to our “Contractual Obligations” table in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2018 Annual Report on Form 10-K. For more details on future minimum annual purchase commitments and operating leases commitments, please see accompanying Note O - Commitments and Contingencies and Note Q - Leases to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Environmental Matters
We are subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, air and water emissions, environmental contamination and reclamation and the protection of the environment and natural resources. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures. As of September 30, 2019, we had $20.6 million accrued for future reclamation costs, as compared to $18.4 million as of December 31, 2018.
We discuss certain environmental matters relating to our various production and other facilities, certain regulatory requirements relating to human exposure to crystalline silica and our mining activity and how such matters may affect our business in the future under Item 1, "Business", Item 1A, “Risk Factors”, Item 3, “Legal Proceedings” and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Environmental Matters" in our 2018 Annual Report.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.
A summary of our significant accounting policies, including certain critical accounting policies and estimates, are included in Note B - Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8 of our 2018 Annual Report on Form 10-K. Management believes that the application of these policies on a consistent basis enables us to provide the users of the Consolidated Financial Statements with useful and reliable information about our operating results and financial condition.
Recent Accounting Pronouncements
New accounting pronouncements that have been recently adopted are described in Note B - Summary of Significant Accounting Policies to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Availability of Reports; Website Access; Other Information
Our Internet address is http://www.ussilica.com. Through “Investors” — “SEC Filings” on our home page, we make available free of charge our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our proxy statements, our current reports on Form 8-K, SEC Forms 3, 4 and 5 and any amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our reports filed with the SEC are also available on its website at http://www.sec.gov.
Stockholders may also request a free copy of these documents from: U.S. Silica Holdings, Inc., attn.: Investor Relations, 24275 Katy Freeway, Suite 600, Katy, Texas 77494.