U.S. Silica Holdings, Inc. Announces First Quarter 2020 Results
KATY, Texas, May 1, 2020 /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 first quarter 2020 results, including a net loss of $72.3 million, or $(0.98) per basic and diluted share.
The first quarter results were negatively impacted by $103.9 million or $1.07 per share in goodwill and other asset impairments, $2.2 million or $0.02 per share in costs related to plant startup and expansion, $1.1 million or $0.01 per share in facility closure costs, $0.6 million or $0.01 per share related to merger and acquisition expenses, partly offset by $15.2 million or $0.16 per share in other adjustments, resulting in adjusted EPS for the first quarter of $(0.03) per basic and diluted share.
"I'd like to congratulate my colleagues on delivering a solid first quarter in 2020 while appropriately prioritizing personal health and safety," said Bryan Shinn, chief executive officer. "Despite the COVID-19 pandemic and energy market headwinds, we experienced minimal operational disruptions during the quarter thanks to the efforts of our team. While we recognize the challenges that lie ahead in our Oil & Gas segment, we are encouraged by the resilience of our Industrial & Specialty Products segment, which delivered double-digit profitability growth in the quarter."
"Looking ahead, we expect that our diatomaceous earth and specialty clay product lines in particular will continue to perform relatively well, spurred by strong demand for food and beverage filtration media. In our Oil & Gas segment, we expect that volumes and loads will directionally track completions activity, but, as with the 2015-2016 oilfield downturn, we expect to gain market share this year due to our attractive, low cost offerings," he added.
"We also remain laser focused on liquidity management and have rapidly aligned our cost structure and capacity with changing customer demand, which we believe will allow us to emerge from this downturn leaner, stronger and well-positioned to capitalize when the inevitable rebound occurs," he concluded.
First Quarter 2020 Highlights
Total Company
-- Revenue of $269.6 million for the first quarter of 2020 compared with
$339.1 million in the fourth quarter of 2019, down 20% sequentially and
down 29% from the first quarter of 2019.
-- Overall tons sold of 4.161 million for the first quarter of 2020
compared with 4.204 million tons sold in the fourth quarter of 2019,
down 1% sequentially and down 14% from the first quarter of 2019.
-- Contribution margin of $76.2 million for the first quarter of 2020
compared with $107.1 million in the fourth quarter of 2019, down 29%
sequentially and down 26% from the first quarter of 2019.
-- Net loss of $72.3 million, or $0.98 loss per basic and diluted share,
for the first quarter of 2020, compared with net loss of $19.3 million,
or $0.26 loss per basic and diluted share, for the first quarter of
2019.
-- Adjusted EBITDA of $48.2 million for the first quarter of 2020 compared
with $73.6 million in the fourth quarter of 2019, down 34% sequentially
and down 30% from the first quarter of 2019.
Industrial and Specialty Products
-- Revenue of $113.9 million for the first quarter of 2020 compared with
$104.8 million in the fourth quarter of 2019, up 9% sequentially and
down 4% from the first quarter of 2019.
-- Tons sold totaled 0.959 million for the first quarter of 2020 compared
with 0.842 million tons sold in the fourth quarter of 2019, up 14%
sequentially and down 1% from the first quarter of 2019.
-- Segment contribution margin of $43.3 million, or $45.20 per ton, for the
first quarter of 2020 compared with $39.1 million in the fourth quarter
of 2019, up 11% sequentially and down 3% from the first quarter of 2019.
The Industrial & Specialty Products segment experienced an 11% sequential increase in contribution margin, driven by overall growth in sales volumes and increased sales of higher-margin specialty products. In the first quarter, the Company grew its market share in the global diatomaceous earth filtration market by executing new contracts and extending current contracts with multiple multinational alcoholic beverage and brewing companies. The Company also raised prices and expanded margins in certain markets and signed a new contract with a global building products & equipment manufacturer, with volumes contracted through 2025.
Oil & Gas
-- Revenue of $155.7 million for the first quarter of 2020 compared with
$234.3 million in the fourth quarter of 2019, down 34% sequentially and
down 40% from the first quarter of 2019.
-- Tons sold of 3.202 million for the first quarter of 2020 compared with
3.362 million tons sold in the fourth quarter of 2019, down 5%
sequentially and down 17% from the first quarter of 2019.
-- Segment contribution margin of $32.9 million, or $10.27 per ton, for the
first quarter of 2020 compared with $68.0 million in the fourth quarter
of 2019, down 52% sequentially and down 44% from the first quarter of
2019.
In the Oil & Gas segment, the Company sold 3.202 million tons in the first quarter, down 5% from the prior quarter, as a result of slowing demand for Northern White Sand and the idling of the Tyler facility. However, pricing improved 3% during the quarter, driven primarily by gains in West Texas. The improvement in pricing, combined with significant cost reductions driven by the continued optimization of its transload network and efficiency improvements at its West Texas operations, resulted in a doubling of contribution margin dollars when adjusting for the one-time customer shortfall penalty recognized in the prior quarter.
In the first quarter, the Company signed a new contract with a leading energy customer. SandBox loads declined 14% during the quarter due to lower demand in the Mid-Con, South Texas and Rockies regions. The negotiated settlement acquisition of Arrows Up, which closed during the quarter, was accretive to first-quarter earnings and the Company is excited to welcome the Arrows Up team to its portfolio of dynamic offerings.
Capital Update
As of March 31, 2020, the Company had $144.7 million in cash and cash equivalents and $68.5 million, including $6.5 million allocated for letters of credit, available under its credit facilities. Total debt outstanding under our credit facilities as of March 31, 2020 was $1.244 billion.
Capital expenditures in the first quarter totaled $16.1 million and were primarily related to the payment of capital expenditures accrued in 2019 and improvements and expansions at the Company's industrial facilities in Millen, Georgia, and Columbia, South Carolina.
The Company's forecast of capital expenditures for the full year 2020 is expected to be $30.0 million, at the low end of the previously announced guidance of $30.0 to $40.0 million and 75% lower than 2019 capital expenditures of $118.4 million.
Outlook and Guidance
Due to the sharp decline in crude oil prices and the expected reduction in well completions, the Company expects its Oil & Gas segment sales next quarter to decline sharply. However, the Company's costs in this segment are highly variable and the Company will continue to right-size its operations accordingly. In response to these challenging conditions, the Company has idled or curtailed production at several facilities, reducing its staffed annual Oil & Gas production capacity from 24 million tons to 6 million tons.
The Company expects a limited impact to its Industrial & Specialty Products segment, with sales volumes generally tracking GDP trends. The Company expects a decline in the segment's second-quarter sales as a result of temporary shutdowns by some customers in April and May related to COVID-19 and a slowing demand environment for some end markets like building products and automotive. However, the Company expects demand for other products, including diatomaceous earth and specialty clays used for the filtration of food and beverages, to remain relatively strong.
Conference Call
U.S. Silica will host a conference call for investors today, May 1, 2020 at 7:30 a.m. Central Time to discuss these results. Hosting the call will be Bryan Shinn, 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 13702887. The replay will be available through June 1, 2020.
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 120-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 400 diversified product types to customers across its multiple end markets. U.S. Silica's wholly owned subsidiaries include EP Minerals and SandBox Logistics(TM). EP Minerals is an industry leader in the production of products derived from diatomaceous earth, perlite, engineered clays, and non-activated clays. SandBox Logistics(TM) 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 23 mines and production facilities. The Company is headquartered in Katy, Texas and has offices in Reno, Nevada, Chicago, Illinois and Houston, Texas.
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 the Company's growth opportunities, strategy, future financial results, forecasts, projections, plans and capital expenditures, ability to reduce costs or idle plants, the impacts of COVID-19 on the Company's operations, 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; the effect of the COVID-19 pandemic on markets the Company serves, fluctuations in demand for commercial silica, diatomaceous earth, perlite, clay and cellulose; fluctuations in demand for frac sand or the development of either effective alternative proppants or new processes to replace hydraulic fracturing; the entry of competitors into our marketplace; changes in production spending by companies in the oil and gas industry and changes in the level of oil and natural gas exploration and development; general economic, political and business conditions in key regions of the world; pricing pressure; weather and seasonal factors; the cyclical nature of our customers' business; our inability to meet our financial and performance targets and other forecasts or expectations; our substantial indebtedness and pension obligations, including restrictions on our operations imposed by our indebtedness; operational modifications, delays or cancellations; prices for electricity, natural gas and diesel fuel; our ability to maintain our transportation network; changes in government regulations and regulatory requirements, including those related to mining, explosives, chemicals, and oil and gas production; silica-related health issues and corresponding litigation; and other risks and uncertainties detailed in this press release and our 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
March 31, 2020 December 31, March 31, 2019
2019
---
Total sales $
269,599 $
339,059 $
378,750
Total cost of sales (excluding depreciation, depletion and 201,317 257,962 297,538
amortization)
Operating expenses:
Selling, general and administrative 30,052 37,325 34,656
Depreciation, depletion and amortization 38,449 42,819 44,600
Goodwill and other asset impairments 103,866 363,717
---
Total operating expenses 172,367 443,861 79,256
---
Operating (loss) income (104,085) (362,764) 1,956
Other (expense) income:
Interest expense (22,277) (22,996) (23,978)
Other income, net, including interest income 17,671 443 722
---
Total other expense (4,606) (22,553) (23,256)
---
Loss before income taxes (108,691) (385,317) (21,300)
Income tax benefit 36,086 91,892 1,972
Net loss $
(72,605) $
(293,425) $
(19,328)
---
Less: Net loss attributable to non-controlling interest (260) (554) (4)
Net loss attributable to U.S. Silica Holdings, Inc. $
(72,345) $
(292,871) $
(19,324)
===
Loss per share attributable to U.S. Silica Holdings, Inc.:
Basic $
(0.98) $
(3.99) $
(0.26)
Diluted $
(0.98) $
(3.99) $
(0.26)
Weighted average shares outstanding:
Basic 73,467 73,343 73,040
Diluted 73,467 73,343 73,040
Dividends declared per share $
0.02 $
0.06 $
0.06
U.S. SILICA HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; dollars in thousands)
March 31, 2020 December 31,
2019
---
ASSETS
Current Assets:
Cash and cash equivalents $
144,701 $
185,740
Accounts receivable, net 232,855 182,238
Inventories, net 119,084 124,432
Prepaid expenses and other current assets 17,926 16,155
Income tax deposits - 475
---
Total current assets 514,566 509,040
---
Property, plant and mine development, net 1,487,221 1,517,587
Operating lease right-of-use assets 48,847 53,098
Goodwill 185,649 273,524
Intangible assets, net 181,597 183,815
Other assets 15,244 16,170
---
Total assets $
2,433,124 $
2,553,234
===
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $
196,959 $
248,237
Current portion of operating lease liabilities 50,402 53,587
Current portion of long-term debt 40,233 18,463
Current portion of deferred revenue 9,799 15,111
Total current liabilities 297,393 335,398
---
Long-term debt, net 1,212,264 1,213,985
Deferred revenue 38,310 35,523
Liability for pension and other post-retirement benefits 65,475 58,453
Deferred income taxes, net 33,940 38,585
Operating lease liabilities 108,741 117,964
Other long-term liabilities 37,407 36,746
Total liabilities 1,793,530 1,836,654
---
Stockholders' Equity:
Preferred stock -
Common stock 824 823
Additional paid-in capital 1,187,962 1,185,116
Retained deficit (353,862) (279,956)
Treasury stock, at cost (181,369) (180,912)
Accumulated other comprehensive loss (25,060) (19,854)
Total U.S. Silica Holdings, Inc. stockholders' equity 628,495 705,217
---
Non-controlling interest 11,099 11,363
Total stockholders' equity 639,594 716,580
---
Total liabilities and stockholders' equity $
2,433,124 $
2,553,234
===
Non-GAAP Financial Measures
Segment Contribution Margin
Segment contribution margin is a key metric that management uses to evaluate our operating performance and to determine resource allocation between segments. Segment contribution margin excludes selling, general, and administrative costs, corporate costs, plant capacity expenses, and facility closure costs.
The following table sets forth a reconciliation of net income (loss), the most directly comparable GAAP financial measure, to segment contribution margin.
(All amounts in thousands)
Three Months Ended
March 31, 2020 December 31, March 31, 2019
2019
Sales:
Oil & Gas Proppants $
155,715 $
234,273 $
260,477
Industrial & Specialty Products 113,884 104,786 118,273
Total sales 269,599 339,059 378,750
Segment contribution margin:
Oil & Gas Proppants 32,891 67,993 58,588
Industrial & Specialty Products 43,348 39,114 44,561
Total segment contribution margin 76,239 107,107 103,149
Operating activities excluded from segment cost of sales (7,957) (26,010) (21,937)
Selling, general and administrative (30,052) (37,325) (34,656)
Depreciation, depletion and amortization (38,449) (42,819) (44,600)
Goodwill and other asset impairments (103,866) (363,717)
Interest expense (22,277) (22,996) (23,978)
Other income, net, including interest income 17,671 443 722
Income tax benefit 36,086 91,892 1,972
Net loss $
(72,605) $
(293,425) $
(19,328)
Less: Net loss attributable to non-controlling interest (260) (554) (4)
Net loss attributable to U.S. Silica Holdings, Inc. $
(72,345) $
(292,871) $
(19,324)
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 (loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA:
(All amounts in thousands)
Three Months Ended
March 31, 2020 December 31, March 31, 2019
2019
Net loss attributable to U.S. Silica Holdings, Inc. $
(72,345) $
(292,871) $
(19,324)
Total interest expense, net of interest income 22,194 22,366 22,920
Provision for taxes (36,086) (91,892) (1,972)
Total depreciation, depletion and amortization expenses 38,449 42,819 44,600
EBITDA (47,788) (319,578) 46,224
Non-cash incentive compensation (1) 2,847 5,340 4,045
Post-employment expenses (excluding service costs) (2) 613 434 552
Merger and acquisition related expenses (3) 609 16,274 4,783
Plant capacity expansion expenses (4) 2,190 1,347 8,571
Contract termination expenses (5) 822 1,000
Goodwill and other asset impairments (6) 103,866 363,717
Business optimization projects (7) 19 6
Facility closure costs (8) 1,097 2,114
Gain on valuation change of royalty note payable(9) (750)
Other adjustments allowable under the Credit Agreement (10) (15,207) 3,857 3,638
Adjusted EBITDA $
48,246 $
73,577 $
68,819
__________
(1) Reflects
equity-
based, non-
cash
compensation
expense.
(2) Includes net
pension cost
and net post-
retirement
cost relating
to pension
and other
post-
retirement
benefit
obligations
during the
applicable
period, but
in each case
excluding the
service cost
relating to
benefits
earned during
such period.
Non-service
net periodic
benefit costs
are not
considered
reflective of
our operating
performance
because these
costs do not
exclusively
originate
from employee
services
during the
applicable
period and
may
experience
periodic
fluctuations
as a result
of changes in
non-
operating
factors,
including
changes in
discount
rates,
changes in
expected
returns on
benefit plan
assets, and
other
demographic
actuarial
assumptions.
(3) Merger and
acquisition
related
expenses
include legal
fees,
consulting
fees, bank
fees,
severance
costs,
certain
purchase
accounting
items such as
the
amortization
of inventory
fair value
step-up,
information
technology
integration
costs and
similar
charges.
While these
costs are not
operational
in nature and
are not
expected to
continue for
any singular
transaction
on an ongoing
basis,
similar types
of costs,
expenses and
charges have
occurred in
prior periods
and may recur
in the future
as we
continue to
integrate
prior
acquisitions
and pursue
any future
acquisitions.
(4) Plant capacity
expansion
expenses
include
expenses that
are not
inventoriable
or
capitalizable
as related to
plant
expansion
projects
greater than
$5 million in
capital
expenditures
or plant
start up
projects.
While these
expenses are
not
operational
in nature and
are not
expected to
continue for
any singular
project on an
ongoing
basis,
similar types
of expenses
have occurred
in prior
periods and
may recur in
the future if
we continue
to pursue
future plant
capacity
expansion.
(5) Reflects
contract
termination
expenses
related to
strategically
exiting a
service
contract.
While these
expenses are
not
operational
in nature and
are not
expected to
continue for
any singular
event on an
ongoing
basis,
similar types
of expenses
have occurred
in prior
periods and
may recur in
the future as
we continue
to
strategically
evaluate our
contracts.
(6) The three
months ended
March 31,
2020 reflect
$103.9
million of
asset
impairments
related to
goodwill,
long-lived
assets and
inventory
related to
idled
facilities in
our Oil & Gas
Proppants
reporting
segment.
These
impairments
were a result
of the
overall
global
decline in
demand for
crude oil
coupled with
economic
disruptions
related to
the
containment
measures for
COVID-19.
The three
months ended
December 31,
2019 reflect
$363.7
million of
asset
impairments
related to
long-lived
assets,
operating
lease right-
of-use
assets,
inventory and
intangible
assets in our
Oil and Gas
Proppants
reporting
segment.
These
impairments
were related
to a sharp
decline in
customer
demand for
Northern
White frac
sand and for
regional non-
in-basin
frac sand as
more tons are
produced and
sold in-
basin, along
with
significant
price
decreases of
frac sand.
Additionally,
given these
events, we
also
experienced a
significant
decline in
the
utilization
of our sand
railcar fleet
in our
transload
network
leading to a
significant
number of
rail cars
being put
into storage
and no longer
used to
deliver sand
to our
customers.
(7) Reflects costs
incurred
related to
business
optimization
projects
within our
corporate
center, which
aim to
measure and
improve the
efficiency,
productivity
and
performance
of our
organization.
While these
costs are not
operational
in nature and
are not
expected to
continue for
any singular
project on an
ongoing
basis,
similar types
of expenses
may recur in
the future.
(8) Reflects costs
incurred
related to
idled sand
facilities
and closed
corporate
offices,
including
severance
costs and
remaining
contracted
costs such as
office lease
costs,
maintenance,
and
utilities.
While these
costs are not
operational
in nature and
are not
expected to
continue for
any singular
event on an
ongoing
basis,
similar types
of expenses
may recur in
the future.
(9) Gain on
valuation
change of
royalty note
payable due
to a change
in estimate
of future
tonnages and
sales related
to the sand
shipped from
our Tyler,
Texas
facility.
These gains
are not
operational
in nature and
are not
expected to
continue for
any singular
event on an
ongoing
basis.
(10) Reflects
miscellaneous
adjustments
permitted
under the
Credit
Agreement,
such as
recruiting
fees and
relocation
costs. The
three months
ended March
31, 2020 also
included $1.6
million in
severance
costs and
$17.6 million
related to
the gain
attributable
to the
bargain
purchase of
Arrows Up.
For 2019,
included $6.2
million of
loss
contingencies
reserve as
well as
restructuring
costs for
actions that
will provide
future
savings,
storm damage
costs,
recruiting
fees,
relocation
costs and a
loss on sale
of assets,
partially
offset by
insurance
proceeds of
$2.2 million.
The three
months ended
March 31,
2019 included
$2.4 million
related to
facility
closure costs
and $2.2
million of
loss
contingencies
reserve,
partially
offset by
insurance
proceeds of
$2.2 million.
Supplemental Information
1) What impact has the COVID-19 pandemic had on your operations and financial condition? What impact do you expect it to have on future operations and financial condition?
To date, we have experienced minimal operational disruptions as a direct result of the COVID-19 pandemic. However, going forward we expect some demand weakness from some of our industrial end markets like building products and automotive as a result of disruptions related to COVID-19. However, we expect demand for other industrial products such as diatomaceous earth and specialty clays to remain relatively strong.
2) What is the capex guidance for the full year 2020? What is the split between maintenance and growth capex?
We expect capital expenditures in 2020 to be approximately $30.0 million, at the low end of the previous $30.0 to $40.0 million guidance and 75% lower compared with 2019 capital expenditures. The split between maintenance and growth capex is approximately 50-50.
3) How much Oil & Gas sand capacity has U.S. Silica idled to date?
To date, U.S. Silica has idled seven facilities and reduced capacity at six other facilities, thereby reducing its staffed annual Oil & Gas production capacity from 24 million tons to 6 million tons.
U.S. Silica Holdings, Inc.
Investor Contacts
Arjun Sreekumar
Manager, Treasury and Investor Relations
281-394-9584
sreekumar@ussilica.com
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SOURCE U.S. Silica Holdings, Inc.
