U.S. Silica Holdings, Inc. Announces Second Quarter 2019 Results
KATY, Texas, July 30, 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 net income of $6.2 million, or $0.08 per basic and diluted share.
The second quarter results were negatively impacted by $6.1 million or $0.06 per share related to merger and acquisition expenses, $4.7 million or $0.05 per share in facility closure costs, $3.7 million or $0.04 per share in costs related to plant startup and expansion expenses, and $5.5 million or $0.06 per share in other adjustments, partly offset by $14.1 million or $0.15 per share in a gain related to a royalty note payable valuation change, resulting in adjusted EPS for the second quarter of $0.14 per basic and diluted share.
"Our Industrial and Specialty Products business delivered record contribution margin in the second quarter and Sandbox had all-time record delivered loads,'' said Bryan Shinn, president and chief executive officer. "These successes are a result of the significant growth and diversification strategy we have executed over the last three years. Going forward, we expect U.S. Silica to transition from a net cash consumer to a net cash generator. While we intend to continue investing in modest industrial growth projects and Sandbox technology and growth, we are modeling substantially lower overall capex, minimal investments in oil and gas sand and stable dividend payments. We plan to deploy some of our projected cash flow to reduce our gross debt to Adjusted EBITDA leverage ratio to 3 times by the end of 2021, through a combination of debt reduction and profitable growth,'' he added.
Second Quarter 2019 Highlights
Total Company
-- Revenue of $394.9 million for the second quarter of 2019 compared with
$378.8 million in the first quarter of 2019, up 4% sequentially and down
8% over the second quarter of 2018.
-- Overall tons sold of 4.904 million for the second quarter of 2019
compared with 4.830 million tons sold in the first quarter of 2019, up
2% sequentially and 9% over the second quarter of 2018.
-- Contribution margin of $121.6 million for the second quarter of 2019
compared with $103.1 million in the first quarter of 2019, up 18%
sequentially and down 22% over the second quarter of 2018.
-- Net income of $6.2 million, or $0.08 per basic and diluted share, for
the second quarter ended June 30, 2019, compared with net income of
$17.6 million, or $0.23 per basic and $0.22 per diluted share, for the
second quarter of 2018.
-- Adjusted EBITDA of $85.5 million for the second quarter of 2019 compared
with $68.8 million in the first quarter of 2019, up 24% sequentially and
down 31% from the second quarter of 2018.
Industrial and Specialty Products
-- Revenue of $121.8 million for the second quarter of 2019 compared with
$118.3 million in the first quarter of 2019, up 3% sequentially and 18%
over the second quarter of 2018.
-- Tons sold totaled 0.972 million for the second quarter of 2019 compared
with 0.966 million tons sold in the first quarter of 2019, up 1%
sequentially and down 5% over the second quarter of 2018.
-- Segment contribution margin of $50.1 million, or $51.61 per ton, for the
second quarter of 2019 compared with $44.6 million in the first quarter
of 2019, up 13% sequentially and 21% over the second quarter of 2018.
The Company's Industrial and Specialty Products business delivered a 21% year-over-year improvement in contribution margin dollars in the second quarter to a record $50.1 million, even though total tons sold declined 5% from 2Q18 to 2Q19. We believe this clearly illustrates the effectiveness of our strategy of increasing our focus on higher margin products. The Company also signed new, long-term contracts in the quarter and began production at our new Millen, Georgia facility, which will enable us to accelerate sales of two of our higher margin products to customers.
Oil & Gas
-- Revenue of $273.1 million for the second quarter of 2019 compared with
$260.5 million in the first quarter of 2019, up 5% sequentially and down
16% over the second quarter of 2018.
-- Tons sold of 3.932 million for the second quarter of 2019 compared with
3.864 million tons sold in the first quarter of 2019, up 2% sequentially
and 13% over the second quarter of 2018.
-- Segment contribution margin of $71.5 million, or $18.17 per ton, for the
second quarter of 2019 compared with $58.6 million in the first quarter
of 2019, up 22% sequentially and down 38% from the second quarter of
2018.
In our Oil & Gas segment, we sold a record 3.9 million tons, up 2% sequentially, as we continued to ramp our new West Texas capacity. Volumes in Oil & Gas were negatively affected in the quarter due to flooding in the Midwest, which took our Festus, Missouri plant offline for nearly two months. Oil & Gas contribution margin of $71.5 million was better than expected, despite some pricing pressure in West Texas, partly due to a strong performance from SandBox, a rebound in Northern White sand pricing and reduced operating costs, some of which may not repeat in the third quarter. SandBox posted another record load count, with loads up 14% quarter over quarter, and June exit load volumes hitting an all-time high. We continue to grow share and estimate that we ended the quarter with approximately 27% market share.
Capital Update
As of June 30, 2019, the Company had $189.4 million in cash and cash equivalents and $95.2 million available under its credit facilities. Total debt outstanding under our credit facilities as of June 30, 2019 was $1.264 billion.
Capital expenditures in the second quarter totaled $34.1 million and were mainly for engineering, procurement and construction of our growth projects, primarily at the Lamesa, Texas mine, equipment to expand Sandbox operations, several growth projects in our Industrial and Specialty Products segment and other maintenance and cost improvement capital projects. During the second quarter, the company generated $71.6 million in cash flow from operations.
Outlook and Guidance
The Company expects its capital expenditures for 2019 to be approximately $125 million. As the Company continues to generate healthy cash flow from operations and following a significant growth initiative that was successfully executed over the last two years, the Company has decided to focus on reducing the level of its outstanding indebtedness. While investments will be made on an ongoing basis to increase the scale of the Company's Industrial and Specialty Products business, the Company anticipates that some of its free cash flow after capital expenditures and the regular payment of dividends will be used to strengthen the Company's balance sheet.
Despite a slowdown in U.S. economic growth, the Company hasn't observed any material changes to customer demand. Indeed, there is continued strong demand for ground silica products, and the Company continues to expand its capacity in both ground silica products and functional coatings. The Company has appointed new management for EP Minerals and plans to drive organic growth above historical rates through the introduction of new products and entry into new market segments. In particular, the Company is currently pursuing several potential growth platforms in areas like high purity filtration for uses in the pharmaceutical industry and the rubber and polymers industries.
SandBox, our industry-leading last-mile logistics solution, continues to make efficiency gains that drive more savings with customers, which we also believe will offset margin pressure. These include bigger boxes, minimal nonproductive time, and technological improvements to boost operational efficiency and labor cost effectiveness. The Company is actively exploring new applications for SandBox technology in other new oilfield segments and new industries.
For Oil & Gas proppants, volumes are expected to increase by approximately 10% sequentially in the third quarter of 2019, although some softening is to be expected in the fourth quarter of 2019 as exploration and production company budgets are stretched and activity levels decline. There has been further pricing weakness in the Permian basin, although some of that pressure may be offset by the rebound in Northern White sand pricing. At the same time, the Company's costs per ton continued to decrease, particularly in West Texas. U.S. Silica 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.
Conference Call
U.S. Silica will host a conference call for investors today, July 30, 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 13689413. The replay will be available through August 30, 2019.
About U.S. Silica
U.S. Silica Holdings, Inc. is a global performance materials company and last-mile logistics provider and is a member of the Russell 2000 Index. The Company is a leading producer of commercial silica used in a wide range of industrial applications and in the oil and gas industry. 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 its multiple end markets. U.S. Silica's wholly-owned subsidiaries include EP Minerals and SandBox Logistics, LLC. EP Minerals is an industry leader in the production of products derived from diatomaceous earth, perlite, engineered clays, and non-activated clays. SandBox Logistics, LLC 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 27 mines and production facilities. The Company is headquartered in Katy, Texas and has offices in Frederick, Maryland, 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, 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; 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
June 30, 2019 March 31, 2019 June 30, 2018
---
Total sales $
394,854 $
378,750 $
427,433
Total cost of sales (excluding depreciation, depletion and 294,160 297,538 292,845
amortization)
Operating expenses:
Selling, general and administrative 38,659 34,656 42,232
Depreciation, depletion and amortization 44,899 44,600 36,563
Asset impairment - 16,184
Total operating expenses 83,558 79,256 94,979
Operating income 17,136 1,956 39,609
Other (expense) income:
Interest expense (23,765) (23,978) (20,214)
Other income, net, including interest income 15,074 722 1,081
Total other expense (8,691) (23,256) (19,133)
Income (loss) before income taxes 8,445 (21,300) 20,476
Income tax (expense) benefit (2,384) 1,972 (2,832)
Net income (loss) $
6,061 $
(19,328) $
17,644
Less: Net loss attributable to non-controlling interest (89) (4)
Net income (loss) attributable to U.S. Silica $
6,150 $
(19,324) $
17,644
Holdings, Inc.
Earnings (loss) per share attributable to U.S. Silica Holdings, Inc.:
Basic $
0.08 $
(0.26) $
0.23
Diluted $
0.08 $
(0.26) $
0.22
Weighted average shares outstanding:
Basic 73,301 73,040 77,784
Diluted 73,505 73,040 78,480
Dividends declared per share $
0.06 $
0.06 $
0.06
U.S. SILICA HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; dollars in thousands)
June 30, 2019 December 31,
2018
---
ASSETS
Current Assets:
Cash and cash equivalents $
189,388 $
202,498
Accounts receivable, net 237,393 215,486
Inventories, net 148,397 162,087
Prepaid expenses and other current assets 12,876 17,966
Income tax deposits 2,010 2,200
Total current assets 590,064 600,237
Property, plant and mine development, net 1,803,203 1,826,303
Operating lease right-of-use assets 196,660
Goodwill 273,524 261,340
Intangible assets, net 189,207 194,626
Other assets 12,856 18,334
Total assets $
3,065,514 $
2,900,840
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $
231,260 $
216,400
Current portion of operating lease liabilities 59,479
Current portion of long-term debt 13,093 13,327
Current portion of deferred revenue 26,161 31,612
Total current liabilities 329,993 261,339
Long-term debt, net 1,229,820 1,246,428
Deferred revenue 81,904 81,707
Liability for pension and other post-retirement benefits 60,830 57,194
Deferred income taxes, net 130,942 137,239
Operating lease liabilities 139,379
Other long-term liabilities 60,181 64,629
Total liabilities 2,033,049 1,848,536
Stockholders' Equity:
Preferred stock -
Common stock 821 818
Additional paid-in capital 1,176,057 1,169,383
Retained earnings 45,224 67,854
Treasury stock, at cost (180,775) (178,215)
Accumulated other comprehensive loss (21,382) (15,020)
Total U.S. Silica Holdings, Inc. stockholders' equity 1,019,945 1,044,820
Non-controlling interest 12,520 7,484
Total stockholders' equity 1,032,465 1,052,304
Total liabilities and stockholders' equity $
3,065,514 $
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 certain corporate costs not associated with the operations of the segment. These unallocated costs include costs related to corporate functional areas such as sales, production and engineering, corporate purchasing, accounting, treasury, information technology, legal and human resources.
The following table sets forth a reconciliation of net income (loss), the most directly comparable GAAP financial measure, to segment contribution margin.
Three Months Ended
June 30, 2019 March 31, 2019 June 30, 2018
Sales:
Oil & Gas Proppants $
273,064 $
260,477 $
324,063
Industrial & Specialty Products 121,790 118,273 103,370
Total sales 394,854 378,750 427,433
Segment contribution margin:
Oil & Gas Proppants 71,456 58,588 114,607
Industrial & Specialty Products 50,145 44,561 41,301
Total segment contribution margin 121,601 103,149 155,908
Operating activities excluded from segment cost of sales (20,907) (21,937) (21,320)
Selling, general and administrative (38,659) (34,656) (42,232)
Depreciation, depletion and amortization (44,899) (44,600) (36,563)
Asset impairment (16,184)
Interest expense (23,765) (23,978) (20,214)
Other income, net, including interest income 15,074 722 1,081
Income tax (expense) benefit (2,384) 1,972 (2,832)
Net income (loss) $
6,061 $
(19,328) $
17,644
Less: Net loss attributable to non-controlling interest (89) (4)
Net income (loss) attributable to U.S. Silica Holdings, Inc. $
6,150 $
(19,324) $
17,644
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
June 30, 2019 March 31, 2019 June 30, 2018
Net income (loss) attributable to U.S. Silica Holdings, Inc. $
6,150 $
(19,324) $
17,644
Total interest expense, net of interest income 23,053 22,920 16,490
Provision for taxes 2,384 (1,972) 2,832
Total depreciation, depletion and amortization expenses 44,899 44,600 36,563
EBITDA 76,486 46,224 73,529
Non-cash incentive compensation (1) 2,799 4,045 6,931
Post-employment expenses (excluding service costs) (2) 323 552 554
Merger and acquisition related expenses (3) 6,091 4,783 17,624
Plant capacity expansion expenses (4) 3,740 8,571 10,721
Contract termination expenses (5) 1,000
Asset impairments (6) 16,184
Business optimization projects (7) 6
Facility closure costs (8) 4,654 2,426
Gain on valuation change of royalty note payable(9) (14,100)
Other adjustments allowable under the Credit Agreement (10) 5,527 1,212 (1,932)
Adjusted EBITDA $
85,520 $
68,819 $
123,611
(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 and
losses
related to
sub-leases.
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 second
quarter of
2018 reflects
a $16.2
million asset
impairment
related to
the closure
of our resin
coating
facility and
associated
product
portfolio.
(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.
This gain is
not
operational
in nature and
is not
expected to
continue for
any singular
event on an
ongoing
basis.
(10) Reflects
miscellaneous
adjustments
permitted
under the
Credit
Agreement.
The second
quarter of
2019 includes
$4.2 million
of loss
contingencies
reserve. The
first quarter
of 2019
includes $2.2
million of
loss
contingencies
reserve
offset by
insurance
proceeds of
$2.2 million.
The second
quarter of
2018 includes
a $2.7
million
credit as a
result of the
final
settlement of
contract
termination
costs related
to the
divestiture
of assets in
the first
quarter of
2018.
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.
