U.S. Silica Holdings, Inc. Announces Second Quarter 2020 Results
KATY, Texas, July 31, 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 second quarter 2020 results, including a net loss of $32.4 million, or $(0.44) per basic and diluted share.
The second quarter results were negatively impacted by $33.4 million, or $0.35 per share, of charges related to asset impairments, plant startup and expansion, facility closure costs, and other adjustments, resulting in adjusted EPS for the second quarter of $(0.09) per basic and diluted share.
"I am extremely proud of our colleagues for delivering strong second quarter results, while continuing to prioritize health and safety, during these challenging times," said Bryan Shinn, chief executive officer. "Our operations and logistics teams did a stellar job of rapidly and aggressively right-sizing our cost structure to minimize the impact of sharply lower oilfield activity and weaker demand for some industrial sand products in the quarter. We have made commendable progress but still have additional cost reduction opportunities, particularly in the area of leased railcar costs. We continue to actively work with key lessors to complete necessary lease amendments to make our ongoing railcar costs sustainable over the long term."
"In July, we are experiencing a rebound in whole grain industrial sand sales as customers restart temporarily idled plants. We also expect our filtration product lines to continue to perform well, driven by robust consumer demand for food and beverage products. In the third quarter, Oil & Gas segment proppant volumes and SandBox loads are expected to increase sequentially," he added.
"Finally, while many industry peers pursue financial restructuring, we are keenly focused on serving our customers and maintaining a strong balance sheet. We remain confident that the strategic actions we have taken to further improve our cost structure will pay off handsomely once we return to a more normalized operating environment," he concluded.
Second Quarter 2020 Highlights
Total Company
-- Revenue of $172.5 million for the second quarter of 2020 compared with
$269.6 million in the first quarter of 2020, down 36% sequentially and
down 56% from the second quarter of 2019.
-- Overall tons sold of 1.904 million for the second quarter of 2020
compared with 4.161 million tons sold in the first quarter of 2020, down
54% sequentially and down 61% from the second quarter of 2019.
-- Net loss of $32.4 million, or $(0.44) per basic and diluted share, for
the second quarter of 2020, compared with net income of $6.2 million, or
$0.08 earnings per basic and diluted share, for the second quarter of
2019.
-- Contribution margin of $61.3 million for the second quarter of 2020
compared with $76.2 million in the first quarter of 2020, down 20%
sequentially and down 50% from the second quarter of 2019.
-- Adjusted EBITDA of $40.8 million for the second quarter of 2020 compared
with $48.2 million in the first quarter of 2020, down 16% sequentially
and down 52% from the second quarter of 2019.
Industrial and Specialty Products
-- Revenue of $100.0 million for the second quarter of 2020 compared with
$113.9 million in the first quarter of 2020, down 12% sequentially and
down 18% from the second quarter of 2019.
-- Tons sold totaled 0.792 million for the second quarter of 2020 compared
with 0.959 million tons sold in the first quarter of 2020, down 17%
sequentially and down 19% from the second quarter of 2019.
-- Segment contribution margin of $35.1 million, or $44.34 per ton, for the
second quarter of 2020 compared with $43.3 million in the first quarter
of 2020, down 19% sequentially and down 30% from the second quarter of
2019.
The Industrial & Specialty Products segment experienced a 19% sequential decrease in contribution margin due to lower sales volumes as a result of the temporary idling of some sand customer facilities in the month of May and generally weaker demand from housing and automotive end markets due to the impacts of COVID-19. In addition to reduced volumes, the segment's contribution margin was impacted by lower fixed cost absorption across mixed-use plants and unfavorable customer mix.
Volumes and profits in the Company's filtration business, however, were flat sequentially due to robust demand for filtration media used in the food and beverage industry. In the second quarter, the Company initiated multiple trials and bench-scale testing for its blood plasma filtration product line with key multinational biopharma customers that yielded promising initial results. U.S. Silica also secured two new long-term contracts with multinational building materials companies for both whole grain and ground silica volumes.
Oil & Gas
-- Revenue of $72.5 million for the second quarter of 2020 compared with
$155.7 million in the first quarter of 2020, down 53% sequentially and
down 73% from the second quarter of 2019.
-- Tons sold of 1.112 million for the second quarter of 2020 compared with
3.202 million tons sold in the first quarter of 2020, down 65%
sequentially and down 72% from the second quarter of 2019.
-- Segment contribution margin of $26.2 million, or $23.53 per ton, for the
second quarter of 2020 compared with $32.9 million in the first quarter
of 2020, down 20% sequentially and down 63% from the second quarter of
2019.
In the Oil & Gas segment, the Company sold 1.112 million tons in the second quarter, down 65% from the prior quarter, as a result of sharply lower frac activity and well completions. However, despite the precipitous decline in oilfield activity, proppant pricing declined only 3% sequentially thanks to the strength of U.S. Silica's contract portfolio. The sharp reduction in proppant volumes was offset by $16.7 million of customer shortfall penalties and solid execution on the Company's cost-out program, which resulted in a 20% decline in segment contribution margin.
SandBox loads declined 71% during the quarter, in line with the reduction in completions activity, but are expected to increase meaningfully in the third quarter as key customers return to work and add more frac crews. During the quarter, SandBox was awarded full-service work with three leading operators in the Permian and Eagle Ford basins. The Company also signed a new delivered-to-the-well agreement with a leading energy customer in the quarter. With the recent addition of the Arrows Up offering to the U.S. Silica portfolio, the Company believes it now has a roughly one-third share in the last-mile logistics market.
Capital Update
As of June 30, 2020, the Company had $158.7 million in cash and cash equivalents and $63.0 million, including $12.0 million allocated for letters of credit, available under its credit facilities. Total debt outstanding under our credit facilities as of June 30, 2020 was $1.266 billion.
Capital expenditures in the second quarter totaled $7.1 million and were primarily associated with maintenance, cost improvement, and growth capital projects. The Company's forecast of capital expenditures for the full year 2020 is approximately $30.0 million, unchanged from the previous guidance and 75% lower than 2019 capital expenditures of $118.4 million.
Outlook and Guidance
In the Industrial and Specialty Products segment, the Company expects a rebound in third quarter whole grain and higher-margin ground silica volumes as customers that had temporarily idled their facilities in May ramp back up. U.S. Silica's outlook calls for continued strength in its diatomaceous earth and specialty clays business, where market demand for filtration media remains robust.
As a result, the Company expects the ISP segment's contribution margin to be up 5%-10% in the third quarter compared with the second quarter. Fourth quarter volumes and profitability are expected to be similar to third quarter levels, although visibility remains limited given the highly uncertain economic environment.
In the Oil & Gas segment, U.S. Silica forecasts a mid-single-digits percentage increase in third quarter proppant volumes and a meaningful increase in SandBox loads. However, due to second quarter benefits from customer shortfall penalties, segment contribution margin is expected to be down sequentially, but the Company expects the underlying business should be stronger.
In the fourth quarter, the Company presently expects a mid-single-digits sequential increase in both proppant volumes and loads but acknowledges that visibility is limited. Unlike the past two years, where E&P budget exhaustion has resulted in a drop-off in fourth quarter activity, some customers have indicated the potential for a modest sequential increase this year, especially if WTI prices remain above $40/bbl.
Conference Call
U.S. Silica will host a conference call for investors today, July 31, 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 13707078. The replay will be available through August 31, 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 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 the Company's growth opportunities, strategy, future financial results, forecasts, projections, plans and capital expenditures, technological innovations, 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, pharmaceuticals, 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
June 30, 2020 March 31, 2020 June 30, 2019
Total sales $
172,537 $
269,599 $
394,854
Total cost of sales (excluding depreciation,
depletion and amortization) 124,743 201,317 294,160
Operating expenses:
Selling, general and administrative 39,126 30,052 38,659
Depreciation, depletion and amortization 37,086 38,449 44,899
Goodwill and other asset impairments 3,956 103,866
Total operating expenses 80,168 172,367 83,558
Operating (loss) income (32,374) (104,085) 17,136
Other (expense) income:
Interest expense (22,179) (22,277) (23,765)
Other (expense) income, net, including interest
income (1,670) 17,671 15,074
Total other expense (23,849) (4,606) (8,691)
(Loss) income before income taxes (56,223) (108,691) 8,445
Income tax benefit (expense) 23,605 36,086 (2,384)
Net (loss) income $
(32,618) $
(72,605) $
6,061
Less: Net loss attributable to non-controlling
interest (264) (260) (89)
Net (loss) income attributable to U.S. Silica
Holdings, Inc. $
(32,354) $
(72,345) $
6,150
(Loss) earnings per share attributable to U.S. Silica Holdings,
Inc.:
Basic $
(0.44) $
(0.98) $
0.08
Diluted $
(0.44) $
(0.98) $
0.08
Weighted average shares outstanding:
Basic 73,620 73,467 73,301
Diluted 73,620 73,467 73,505
Dividends declared per share
$ $
0.02 $
0.06
U.S. SILICA HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; dollars in thousands)
June 30, 2020 December 31, 2019
ASSETS
Current Assets:
Cash and cash equivalents $
158,676 $
185,740
Accounts receivable, net 158,346 182,238
Inventories, net 107,830 124,432
Prepaid expenses and other current
assets 33,046 16,155
Income tax deposits - 475
Total current assets 457,898 509,040
Property, plant and mine development,
net 1,453,778 1,517,587
Operating lease right-of-use assets 44,966 53,098
Goodwill 185,649 273,524
Intangible assets, net 167,050 183,815
Other assets 13,369 16,170
Total assets $
2,322,710 $
2,553,234
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $
125,921 $
248,237
Current portion of operating lease
liabilities 45,015 53,587
Current portion of long-term debt 38,456 18,463
Current portion of deferred revenue 12,664 15,111
Total current liabilities 222,056 335,398
Long-term debt, net 1,210,518 1,213,985
Deferred revenue 32,968 35,523
Liability for pension and other post-
retirement benefits 65,532 58,453
Deferred income taxes, net 45,504 38,585
Operating lease liabilities 100,667 117,964
Other long-term liabilities 32,197 36,746
Total liabilities 1,709,442 1,836,654
Stockholders' Equity:
Preferred stock -
Common stock 826 823
Additional paid-in capital 1,192,068 1,185,116
Retained deficit (386,110) (279,956)
Treasury stock, at cost (181,413) (180,912)
Accumulated other comprehensive loss (22,910) (19,854)
Total U.S. Silica Holdings, Inc.
stockholders' equity 602,461 705,217
Non-controlling interest 10,807 11,363
Total stockholders' equity 613,268 716,580
Total liabilities and stockholders'
equity $
2,322,710 $
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 (loss) income, the most directly comparable GAAP financial measure, to segment contribution margin.
(All amounts in thousands)
Three Months Ended
June 30, 2020 March 31, 2020 June 30, 2019
Sales:
Oil & Gas Proppants $
72,495 $
155,715 $
273,064
Industrial & Specialty Products 100,042 113,884 121,790
Total sales 172,537 269,599 394,854
Segment contribution margin:
Oil & Gas Proppants 26,170 32,891 71,456
Industrial & Specialty Products 35,119 43,348 50,145
Total segment contribution margin 61,289 76,239 121,601
Operating activities excluded from
segment cost of sales (13,495) (7,957) (20,907)
Selling, general and administrative (39,126) (30,052) (38,659)
Depreciation, depletion and
amortization (37,086) (38,449) (44,899)
Goodwill and other asset
impairments (3,956) (103,866)
Interest expense (22,179) (22,277) (23,765)
Other (expense) income, net,
including interest income (1,670) 17,671 15,074
Income tax benefit (expense) 23,605 36,086 (2,384)
Net (loss) income $
(32,618) $
(72,605) $
6,061
Less: Net loss attributable to non-
controlling interest (264) (260) (89)
Net (loss) income attributable to
U.S. Silica Holdings, Inc. $
(32,354) $
(72,345) $
6,150
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
June 30, 2020 March 31, 2020 June 30, 2019
Net (loss) income
attributable to U.S.
Silica Holdings,
Inc. $
(32,354) $
(72,345) $
6,150
Total interest
expense, net of
interest income 21,295 22,194 23,053
Provision for taxes (23,605) (36,086) 2,384
Total depreciation,
depletion and
amortization
expenses 37,086 38,449 44,899
EBITDA 2,422 (47,788) 76,486
Non-cash incentive
compensation (1) 4,388 2,847 2,799
Post-employment
expenses (excluding
service costs) (2) 527 613 323
Merger and
acquisition related
expenses (3) 386 609 6,091
Plant capacity
expansion expenses
(4) 2,390 2,190 3,740
Contract termination
expenses (5)
Goodwill and other
asset impairments
(6) 3,956 103,866
Business optimization
projects (7) (4) 19
Facility closure
costs (8) 2,738 1,097 4,654
Gain on valuation
change of royalty
note payable (9) (14,100)
Other adjustments
allowable under the
Credit Agreement
(10) 23,963 (15,207) 5,527
Adjusted EBITDA $
40,766 $
48,246 $
85,520
(1) Reflects
equity-based
and other
equity-
related
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 six months
ended June
30, 2020
reflect
$107.8
million of
asset
impairments
related to
goodwill,
long-lived
assets,
operating
lease right-
of-use
assets and
inventory
related to
idled
facilities in
our Oil & Gas
Proppants
segment. See
Note G -
Inventories,
Note H -
Property,
Plant and
Mine
Development,
Note I -
Goodwill and
Intangible
Assets, and
Note Q -
Leases to our
Condensed
Consolidated
Financial
Statements in
Part I, Item
1 of our
Quarterly
Report on
Form 10-Q
for more
information.
(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.
The 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,
such as
recruiting
fees and
relocation
costs. The
three months
ended June
30, 2020 also
included $1.9
million in
transload
shortfalls
and exit
fees, $4.1
million in
inventory
adjustments,
$2.5 million
measurement
period
adjustment to
the gain
attributable
to the
bargain
purchase of
Arrows Up,
$3.1 million
in severance
costs, and
$11.8 million
in legal
expense due
to
unsuccessful
defense of a
small number
of our
patents. The
six months
ended June
30, 2020 also
includes $1.6
million in
severance
costs and
$17.6 million
related to
the gain
attributable
to the
bargain
purchase of
Arrows Up.
See Note E -
Business
Combinations
to our
Condensed
Consolidated
Financial
Statements in
Part I, Item
1 of our
Quarterly
Report on
Form 10-Q for
more
information.
The three
months ended
June 30, 2019
included $4.2
million of
loss
contingencies
reserve. The
six months
ended June
30, 2019
included $6.4
million of
loss
contingencies
reserve,
partially
offset by
insurance
proceeds of
$2.2 million.
Supplemental Information
1) What was the cash flow from operations for the second quarter of 2020 and do you expect to be free cash flow positive in 2020?
Cash flow from operations in the second quarter totaled $23.7 million and we generated $16.6 million in free cash flow after capital expenditures and $15.1 million after capital expenditures and dividend payments. We expect to end 2020 with more cash on the balance sheet than we started the year with.
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, unchanged from our previous 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 less than 6 million tons.
4) What impact on your business do you expect as a result of several of your public and private peers undergoing restructuring?
We expect minimal impact to our business in the near-term as a result of peer bankruptcies and continue to monitor the situation closely. We have seen some early indications that certain customers, both on the Oil & Gas side and the Industrial side, may want to switch to financially stronger suppliers like U.S. Silica to ensure reliability and surety of supply.
U.S. Silica Holdings, Inc.
Investor Contacts
Arjun Sreekumar
Manager, Treasury and Investor Relations
281-394-9584
sreekumar@ussilica.com
View original content to download multimedia:http://www.prnewswire.com/news-releases/us-silica-holdings-inc-announces-second-quarter-2020-results-301103684.html
SOURCE U.S. Silica Holdings, Inc.
