Q3 2019 Earnings Call
Good morning, and welcome to the high crush Inc. third quarter 2019 conference call.
A reminder, today's call is being recorded at this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
Now for opening remarks, and destruction I'd like to turn the call over to Caldwell Bailey Investor Relations manager Oh, Hi Crush. Please go ahead. Thank you. Good morning, everyone. Thanks for joining us today with me or Bob Rasmus, Chairman and Chief Executive Officer of high crushing Alan Oehlert, Chief operating officer, and Laura Fulton.
Chief Financial Officer.
Before we provide our prepared remarks, I would like to remind all participants that our comments today will include forward looking statements, which are subject to certain risks and uncertainties.
Actual results could differ materially from those projected in any forward looking statements.
Additionally, we may refer to the non-GAAP measures of EBITDA, adjusted EBITDA free cash flow and contribution margin during the call.
Please refer to our public filings for definitions of our non-GAAP measures and reconciliation to their most directly comparable GAAP measures as well as a discussion of risks and uncertainties, but.
With that I would now like to turn the call over to our CEO Bob Rasmus.
Thanks, Caldwell and thank you to everyone for joining us this morning.
Third quarter played out as anticipated with relatively strong activity in July and August followed by a slowdown that began in September for the quarter. We hit the high end of our previously issued guidance range for sales volumes and utilization of our last mile crews remains strong as evidenced by an.
Increasing the total number of truckloads delivered.
We achieved our operational and financial results and vitamin that was and remains challenging as evidenced by decreased rig count in well completions activity.
The non cash impairments, which we recorded during the quarter and which Laura will talk about later reflect the reality that the industry is undergoing a drastic change.
The market is oversupplied and will be rationalized, whether through attrition and or consolidation.
As a result, we are acutely focused on remaining disciplined and controlling what we can't control operational execution cost take out in both ask DNA and supplier cost.
Reducing spending including cap batch, maintaining cashing free cash flow generation.
Unlike some of our competitors, we prioritize profit over market share and shaping a business that will reduce to sustainable consistent returns for our investors.
Hi, crush remains well positioned to succeed even during periods like we are seeing today due primarily to focusing on three key priorities leveraging our integrated portfolio of assets to deliver a high quality customer service.
Improving profitability through operational optimization and cost reduction and combining those two with prudent capital allocation.
We have built hi, crush for the long term and are uniquely positioned to come out the other side of this cycle stronger due to.
The knowledge, we have gained as a long time player in service provider in the free.
Back sand industry.
We've seen cycles before and we've proven our ability to remain flexible and ahead of the curve in responding to them.
Our strategic focus on logistics last mile services and equipment was the right strategy before and is the right strategy in this environment.
I mentioned the market will be rationalized and in that regard we're seeing it happening in the form of mine closures idlings in curtailed hours of operation.
We've seen these actions continuing across the industry in the third quarter. We believe there will be additional supply taken off the market over the next several months is higher.
Cost production is removed.
Despite the supply rationalization that we've seen to date Oversupplies persists, which led to increased pricing pressure in the back half of the quarter ahead of what was originally expected.
As I've said before you have to deal with reality as it is not as you wanted to be many of the components of our strategy to help us better align our business with market conditions.
We're focused on maintaining our strong market position and as such we will continue to reduce cost across our organization and four key areas.
First optimizing our portfolio production facilities to ensure we're operating is cost efficiently as possible. This includes the idling of our Augusta plant in January 2019, and reducing the hours of operation that Whitehall. This past August .
We benefit from having a diverse portfolio of production assets with purposefully similar designs that make these efficiency efforts and cost reduction initiatives more achievable for US then for others.
Second streamlining and simplifying our processes automating additional functions, reducing our number of corporate entities and using technology to increased efficiency with which we work with structurally reduces costs.
Third working with vendors to better align our cost structure with the market. We've been pleased with the support provided by many of our partners and appreciate their efforts in continuing to work with us.
And last Rightsizing, our workforce consistent with market realities in the Frac sand and logistics industry. This is without a doubt the most challenging aspect of operating a cyclical exposed business.
We take our responsibility to manage our dynamic personnel needs seriously and do our best to ensure that transition for impacted employees is as smooth as possible.
Looking ahead, we are aligned with the forecast recently laid out by others in the industry, which calls for continuing headwinds for the remainder of 2019.
As we progress through the fourth quarter, we've seen weakness and activity levels, driven by typical seasonality and budgetary constraints for MPS.
Our focus on customer relationships, delivering reliable safe and efficient services and maintaining a laser focus on costs will benefit the company and ultimately our investors over the near and long term.
We've also taken the time to review, our environmental sustainability and governance practices in results and we'll have our first annual E.S.G. report available on our website shortly.
An important part of our strategy is our approach to our capital position, we prioritized maintaining a strong liquidity position in the solid balance sheet. We further curtailed spending to align with market conditions in the third quarter and remain completely undrawn on our asset backed facility.
While others have often been constrained by their commitments in covenants, we've maintained a balance sheet flexibility throughout our company's history.
Our flexibility affords us the ability to act quickly and decisively as we navigate through the current cycle.
Given our current outlook and the dynamic conditions present in the market. Our board is focused on capital discipline and preserving cash to maintain maximum flexibility.
This will allow us to maintain our strong balance sheet position and the benefits that it affords us.
Importantly in this environment, we continue to focus intensely on customers the realignment of our business into production equipment sales in leasing fully integrated last mile and well site management services and analytical technology allows us to proactively work with customers to meet their needs.
Our goal is to meet those needs now and as they evolve over time due to changes in geography, well design and other elements of their well programs.
Being and constant contact with our customers and listening to their feedback helps us do anticipate their needs in changing requirements and better insulated ourselves from market pressures.
If you've been following hi crush for a while you are aware of that what I'm talking about is consistent with our long held strategy, we remain committed to providing our customers whether NPS service companies or even in some cases competitors with solutions tailored to meet their needs.
Our strategy is only as good as its implementation and especially in this environment. There is no substitute for execution.
Expansion of our customer base increased deployment of last mile crews in legacy and new areas of operation and implementation of technology across our offerings will happen only if we continue to as we have historically improve our operations gain efficiencies and provide value to come.
Summers every day.
To talk about how we are accomplishing this in the cover in more detail on our operational performance during the third quarter I'd now like to turn things over to our Chief operating officer, Alan all it.
Thanks, Bob last quarter I've talked at length about our new business structure distinguishing between Frac sand production equipment rental and leasing and last mile and well site services under the Hi, crush next stage equipment and Pronghorn energy services business lines.
As well as our technology with crop this that we've had success building capabilities across each offering.
For our hi, crush sand production in terminal operations in the third quarter, we sold nearly 2.7 million tons of Frac sand, despite a dynamic market backdrop and challenging conditions in the second half of 29 team. We've increased sales volumes in each of the first three quarters of 29 team which is.
Great achievement by our production and sales premium in a challenging environment.
Now turning to our next stage equipment business, which includes our equipment leasing and sales operations.
We were excited to recently deployed the first completely rebranded and painted set of silos, reflecting the full next stage branding, including our recent system upgrades, if you're out in the Permian, the silos or begin to orange and they're hard to Miss.
With the upgrades we have made this year, we stand ready to serve new and existing customers equipment needs.
Within our pronghorn energy last mile and Wellsite services offering we continue to achieve good utilization on our deployed crews as of today, we have crews deployed across a strong footprint, including the Permian Eagle Ford Bakken mid Con Marcellus Utica and powder River basin.
We assess our performance and manage activity within the business by tracking delivered truckloads.
And as a result, that's how we report pronghorn activity to the investors. We believe this is that helpful metric in describing crew utilization and how the businesses performing it is much less influenced by job timing job duration or equipment type than other metrics.
During the third quarter are delivered truck load count was up 7% from the second quarter and we also set a new record for total high CRO sand volume sold through our last mile services infrastructure being the synergies we can create by controlling the entire frac sand supply chain.
We remain an active dialogue with several customers about adding crews and deploying our solutions across additional basins.
Also we have made important upgrades with our properties spreads software a crucial piece of our offering.
Our team continues to innovate and make improvements to the software as they receive feedback from our customers and our employees.
On tracking efficiencies and other key performance indicators.
A major point of emphasis for our team is reducing the number of times. The data is manually entered into the system automating processes to reduce the chance for this means closer integration of our software with our terminal operations. Our next stage silo measurement capabilities and with our trucking partners and their drew.
Robert.
This is all part of the process, Bob mentioned before simplifying and streamlining processes to drive cost savings for us and our customers while improving operational outcome.
All of these businesses are focusing efforts and resources to reduce nonproductive time, lower our customers drilling and completion costs and upholding our commitment to safety.
With the market backdrop that Bob described earlier it is critical to appreciate the industry a slowing but.
But it's certainly not shutting down.
We still anticipate that overall demand for Frac sand will increase over the mid to long term as activity growth returns and programs look more and more like manufacturing processes.
In terms of 2020 customers are planning ahead.
And we believe conversations we're having with them regarding equipment deployments and last mile services.
And sand sales will bear fruit.
We are uniquely prepared for this environment because of the way we've built in evolved our business over the years, our business offering is focused on meeting customers individual needs to help them succeed in the field. This is why im confident that no matter what challenges we face we can continue to grow the businesses.
Businesses built on customer feedback developing solutions to meet their needs and executing day to day.
We move into 2020 were the winning strategy and optimistic outlook and a focus on execution ready to capitalize on opportunities.
Now I'll hand things over to Laura to discuss in greater detail our financial results for the quarter.
Thanks, Alan our disciplined financial strategy, just like the operational one hour. So it's about more than managing three the weakness in the industry is experiencing today at its heart. It is meant to support our ability to execute in the field meet our commitments to investors enable us to take advantage of opportunities that present themselves.
And position ourselves well for the feature we believe our financial strategy accomplishes all of these goal.
And this sets us apart not just in our ability to look beyond the immediate time period, but in the flexibility that our financial position give that.
Our covenant free debt structure, and overall liquidity position in nearly $100 million makes us able to contemplate multiple courses of action to confront near term market weakness and meet long term strategic goal.
Our ability to pull multiple levers to reduce cost and adapt to market conditions is a vital asset to thriving in down markets.
Before I review the third quarter results, let me provide some color on the noncash charges for asset impairment Bob mentioned earlier.
The trend and operator, Frac sand sourcing continues to emphasize local frac sand delivery, where available due to cost considerations. We do not see this trend reversing and as a result, our northern white sand assets have been impacted well, we're well positioned in terms of cost in market access with all of our facilities we have recorded.
Non cash impairments of the Augusta in Whitehall facilities and associated asset.
Including our right of these assets principally our leased railcars, which are under agreements entered into in prior years that are out of market in today's environment.
In addition to these asset impairments. We also recorded non cash impairment charges for goodwill and certain intangible.
These charges are again, non cash and do not impact our ability to operate these facilities and continue to efficiently produce Dan and deliver quality customer service now and in the feature.
With this context, let me turn now to our third quarter result.
They instead of lines came in at the high end of the guided range totaling 2.7 million turn slightly higher than the second quarter of 2019.
Maintaining sales volumes in this environment at this level was made possible primarily through at 22% increase in hi, crush sand volumes sold through our pronghorn energy services business.
Average pricing was $43 per tonne down from $47 in the second quarter 2019, and is impacted by customer mix and rapid deterioration in the market that occurred late in the quarter.
Total revenues for the third quarter 2019 decreased to $173 million compared to $178 million in the second quarter of 2019.
Revenues from sales of Frac sand were $114.2 million compared to $125.9 million in the second quarter of 2019, reflecting the essentially flat volumes quarter over quarter combined with the decreased average pricing I mentioned.
Revenues associated with logistic services have continued to grow and are now a third of our total revenues increasing to $57.4 million at 12% from $51.1 million in the second quarter of 2019.
The higher level of logistics services revenue as a result, with the continued growth of the business evidenced by the increase in deliver truckloads Alan mentioned.
Revenues also included $1.4 million and sales of logistics equipment by our next stage equipment business during the third quarter 2019 compared to about a million dollars in the prior quarter.
Adjusted EBITDA for the third quarter, 2019 titles $17.9 million compared to $24.7 million in the second quarter.
Contribution margin per 10 was $10.99 down from $13, an 80 cents per kind of Frac sand sold in the second quarter of 2019.
This decrease was larger than what we anticipated and reflects the competitive and quickly changing sales environment. The industry is experiencing and the resulting impact on spot volume pricing.
Excluding nonrecurring expenses of $500000 associated with business development in the third quarter 2019, DNA with $11.5 million compared to second quarter 2019, DNA of $12.1 million, excluding 3.1 million of similar and conversion related expenses.
The decrease results from our continued focus on reducing our cost structure, including headcount.
Total depreciation depletion and amortization was $15.1 million for the third quarter 2019, compared to $15.8 million in the second quarter 2019, reflecting the increased asset base with the pronghorn acquisition in May.
Interest expense was flat quarter over quarter at $11.8 million during the third quarter of 2019 on August 1st we made our semiannual interest payment of $21.4 million on our senior note.
Our next interest payment is due in February 2020.
Capital expenditures for the third quarter, 2019 totaled $8.4 million, including growth Capex of $5.1 million to support logistics operations and maintenance capex at $3.3 million.
As part of our focus on capital discipline, we have continued to reduce our capex spending focusing on a project that create the most value for our investors.
We exited the third quarter of 2019, with total liquidity of $95.9 million, including $48.4 million in cash.
As expected our cash balance decreased slightly from the $52.8 million as of June Thirtyth as we made our semiannual interest payment on our senior notes on August 1st.
However, our focus on cash and working capital management as well as cost in Capex reductions has certainly benefited our cash position.
We have no balance is drawn under our 200 million dollar ABL facility and as of September Thirtyth borrowing base availability after consideration of letters of credit was nearly $50 million.
In the second quarter, we started reporting free cash flow, which we simply define as cash from operations less total capex comprised of our maintenance capex and our growth Capex.
Due to the semi annual nature of our interest payments on the Seniornet, our free cash flow will be less than the first and third quarters of any year and for the third quarter of 2019, we are reporting negative $5.1 million of free cash flow due to the outflow from making our semiannual interest payment of $21.4 million on August Onest.
We paid no cash income taxes during the third quarter 2019, and do not expect to pay any significant cash income taxes next couple of years as we will still have available tax depreciation deduction.
Our annual effective tax rate for the seven months of 2019 in which we are a corporations is estimated to be in the range of 23% to 25% and the third quarter results reflect a tax benefit of $80 million, including the tax effected the noncash impairment charges.
Looking to the fourth quarter of 2019 and into 2020 after the significant reductions in Capex. We have made this year and our anticipated low level of capex requirements going forward, we expect to be well within our prior guidance range of $7 million to $10 million of Capex spending in the fourth quarter of 2019 the total.
Capex for the year coming in around $75 million.
Capex in 2020 will be significantly reduced from 2019 levels as we minimize our maintenance capex and have already invested much of the capex in our plans for growth we.
We expect maintenance ingress capex in 2020 to be less than $25 million.
Our forecast is for sales volumes to decline, 10% or more in the fourth quarter from third quarter levels.
This outlook is due to expectations at Mt budget exhaustion on top of the usual seasonal slowdown.
We do expect continued deployment of last mile and while side equipment increased during the remainder of 2019 based on customer conversations.
These factors will impact our contribution margin per ton and adjusted EBITDA, both of which would we would expect to be lower in the fourth quarter than what we earned in the third quarter.
In light of this environment, we have been proactive with the spending cuts we have implemented across the company and reduction in force that is affected corporate as well as field employees DNA will be lower in the fourth quarter in a range around $11 million.
Total DDNA, reflecting the impact of the impairments taken will be in the range around $13 million.
Interest expense will remain at about $11.8 million each quarter, and we anticipate ending the year in a strong liquidity position, including maintaining cash in excess of $40 million and no borrowings under our ABL facility, providing ample liquidity to execute on our plans in 2020.
Our guidance for the fourth quarter recognizes the challenges the whole oilfield services sector faces as the year comes to a close.
We are committed to remain disciplined looking at the situation in a realistic way preparing for the worse that positioning ourselves for success now and in the future through cost management efficiency execution and flexibility.
With this discipline and execution of our operational and financial strategy, we expect to be free cash flow positive in 2020.
I'd now like to turn it back to Bob for some closing remarks. Thank.
Thanks, Laura as Laura Allen myself have just said high crushes built for long term success through careful management of all aspects of our company.
Current industry dynamics are challenging, but with our low cost structure and strong balance sheet position operational optionality focused on customers commitment to safety and reliability and continued advancement and logistics and technology, we will succeed in this market as well as be prepared to take advantage of.
Improved market conditions, I'd now like to turn it back to the operator for Q on a.
Thank you at this time will be conducting a question and answer session.
If you'd like to ask your question. Please press star one on your telephone keypad a confirmation total indicate your line is in your question Q.
Let me first start to if you'd like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith.
Our first question comes from the line of Tommy Mall with Stephens Inc. Please proceed with your question.
Good morning, and [laughter] excuse me good morning, and thanks for taking my questions.
Morning, Tommy.
So fundamentals are still pretty challenged here as we go into year end no big surprise I don't think to the investment community I wanted to focus on next year, where I think a lot of people will be focused on your expectation for positive free cash flow.
Underneath that.
Could you give us any sense of what kind of.
Logistics services.
Revenue cadence you're expecting it it's the notable outperformer in Q3 I suppose the expectation is that we'll continue to be so next year, but anything you could do to size that for us would be helpful or even just speak qualitatively about what the outlook might be.
Sure Tommy and that's a great question because that really has been the focus of our efforts over the past couple of years is to continue to expand and grow in our logistics business. You certainly have seen the revenues and continue that trajectory of growth as we've gone through the year I think the cadence and what we've seen ingress from first quarter.
The second quarter to third quarter, and we'll continue there will be somewhat of a slowdown here in the fourth quarter, but I think as we continue to deploy more systems increased and equipment out there and certainly with the focus that we've had on the different business lines, making sure that were really targeting what our customers need.
For their logistics services or maybe just equipment on its own will help us to continue to grow there. So I think the cadence that you've seen over 2019 should continue into 2020.
Okay, and then one follow up on 2020, maybe more broadly than than just focusing on logistics.
If you think about.
The.
The three components of.
Three components of profitability being average price cost margin.
I don't expect you want to give us quantitative guidance on those three for next year, but if you could even just point is directionally.
Versus where you sit in Q3 or Q4.
What the outlook is for next year I I know you called out Theres been a lot of spot pricing pressure as of late I would think some of that might abate early next year when activity picks back higher.
But as it pertains to your free cash flow outlook for next year, if you could talk about those three.
Opponents it would be helpful. Thank you.
Sure, let me start with the easier aspect to that which is the cost side and we've always been very very focused on cost that I think more intensely put some efforts on that beginning in the second quarter. This year and those will continue so some of the cost reduction impacts that we have seen where occurring really kind of late in the third quarter more.
There will be felt and seen in our results in the fourth quarter and going into the year and then some of course are really activity driven as they they impact our variable costs.
But certainly making sure that we continue that focused on cost reductions controlling what we can control is very very important as far as the pricing I think that's a little bit more difficult to predict and we're continuing to see pricing pressure here in the fourth quarter.
Particularly our stopped buying you would expect the trend in the first quarter to be a continuation of some of that pressure, but it seems like we always are able to get a based from some of the winter effects on particularly on northern white sand as there's disruptions in the supply.
From the harsh winters that we've experienced in the past so there maybe a little bit of base to northern white pricing in the first quarter and then we'll have to see what the impacts our from supply rationalization with our competitors because as many of our competitors has said the pricing that we're seeing today really is not sustainable for.
For a long period of time and that will put a lot of pressure on our competitors and should take some supply out of the market, which will help to stabilize pricing and lead to potential improvements in 2020, and I want to amplify and something that lower on mentioned is that we will not chase price that is other area.
As of the oilfield service back to sector have found out.
That market share as a femoral, we're always going to prioritize profit sjogren market share.
Thank you very much I'll turn it back.
Thank you Tony.
Thank you. Our next question comes from line of John Watson with Simmons and company. Please proceed with your question.
Thank you good morning.
Morning, John .
Bob I agree with your comments that attrition in consolidation are necessary, especially in west, Texas can you provide further color regarding what you're seeing a right now as well as your expectations for attrition in consolidation moving forward.
I think a couple things John one we have reviewed a number of different alternatives as it relates to consolidation and attrition and there was a number of conversations has increased recently as others are more willing to admit that they might not have ace is.
Stena bulk business model.
In that environment and in this environment, we will be extremely disciplined we won't do a deal just to do a deal any potential deal must have clear benefits for hi, crush in our investors and it must be consistent with our strategy. It's got to be accretive it's got to be a cultural fit and something that further improves our cable.
Abilities and abilities to serve our customers against that backdrop, we've seen probably four or five plants in the Permian itself that have been idled come offline or substantially reduced hours of operations.
I would expect that the increase by at least two or three more plants I think that the Permian overall in terms of capacity is oversupplied by about 15 to 20 million tons that still needs to come off line and that the northern white sector, we see.
In a additional supply come offline additional idlings and I still think that Theres, probably 10 or 15 million times before some of today's announcement that needs to come offline in northern white.
Okay, great. Thanks for that Bob Secondly, I apologize if I missed this but could you help us think through where contribution margin per ton could fall in Q4, I would assume it's by slower given that some the pressures you mentioned, but any specificity would be helpful.
Sure John I think it's a little bit difficult to predict at this point because a lot does depend just on the cadence as the volumes.
Throughout the quarter, we haven't seen much of a drop off in October as compared to September , but we'll see how the holidays play out in the normal seasonal drop off that also the MP budget exhaustion and how that impacts on November and December as we're going through the quarter and that of course can have really been.
The impact on our fixed cost leverage and all of that the mix of the customers also has an impact. So we definitely are seeing and the impacts on our profitability in the fourth quarter, but it's hard to kind of quantify that because there's a lot of moving parts that said, we do expect a decline.
And I would say, yes, it could be as much as a couple bucks a ton per ton it maybe a little bit more than that we'll just have to see how the quarter plays out.
Okay, great understand that the difficulties and forecasting there a quick follow up.
I understand that there's pressure on your spot volumes in the Permian your contracted volumes in the Permian as well as your last mile profitability. It is the expectation that that holds flat. Despite the pressures that Q4 might see.
I would say so the contracts have continued to perform well our customers.
The are taking the volumes a lot does depend upon their activity levels in their plans for the fourth quarter.
And our contracts are performing well on the last mile am I can let Alan speak to add a little bit more but I think what we've seen there that there is competition that the competition really is on the reliability of supply and the execution day to day not too much on pricing, yeah, I think only equipment side the pricing is filled.
Pretty well.
We are in the middle RSP season.
And on their some.
Desire on the customers too so trying to lock pricing in at the bottom of the cycle as Bob mentioned, we're not gonna.
Play the market share game and ensure that the business that we engage in is profitable, but that's kind of what we've done on the equipment side too to stabilize that pricing is where you. There's two ways to get market share and we know there's not any new market share out there. So you have to.
Creates some kind of value.
For the customer you need to be more efficient you need to solve some problems that they have and that's what we've tried to do with the prop. This that's a software and innovation that we continue to work on there and we've built equipment, we think that does capable of going and taken some of that market share without the.
Play in the price game.
Right, Okay, well, thank you for the color I'll turn it back.
Thanks, John .
Thank you. Our next question comes from line of Lucas pipes with B. Riley FBR. Please proceed with your question.
Hi, good morning, everyone I'm not key here asking the question for Lucas.
Hi, Chris is unique in the sense. It owns its own terminal facilities, considering that northern white sand volumes are down would it make financial sense for you to sell a few this terminal facilities in order to kind of increased the company's liquidity position. If so what would be the price that these kind of facilities would potentially sell in the open market. Thank you.
We always look at what's the best way to create value for our investors, whether that's through selling certain assets or finding ways to leverage the assets, which we currently have and we're seeing that in our pay goes terminal and others in the a in the northeast.
We're looking to push and trans load other products and services to bring more value out of those and it always the evaluation is what's the best way to create value for our investors, whether it's the sale of those assets or providing additional products and services and right now it's the latter.
That's that's helpful. Thank you and just one more for me.
Grocery less contribution margin of $11 per ton in Three Q1 9 could you maybe help me kind of just aggregate that number a little bit and provide some color on the margins are realizing from northern white and versus the margins are realizing in Texas. Thank you.
Sure I'm I think we've definitely noted in the past that our northern white margins are typically lower than what we've been able to realize on our.
Kermit volumes because of the contract that we have in place I'm in the profitability. There some of that margin is driven by our last mile services and so it'll depend on just how we kind of allocate between our sand in the northern.
White sand, specifically or is the last now services that were providing but I would say that on our current volumes and logistics and would be bringing that number up in our northern white sand volumes. If you just look at the San themselves in the pricing and the cost structure associated with that would be bringing that number down.
Got it all right. That's a that's very helpful. Thank you Thats, all I had and best of luck moving forward.
Thank you very much Matt.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question Q. Please press star one at this time. Our next question comes online Tim on the Kilo with Altacorp capital. Please proceed with your question.
Hey, good morning, everyone.
Ah Onez running motion here I'm, just curious to know what the total capacity that you've taken offline in Wisconsin is at this point was that goes off line and somebody some curtailments and capacity away all now.
So the Augusta facility is a 2.86 million Pan plant capacity annual capacity. So that has been offline since January of this past year Whitehall continues to operate although at reduced rates I'm really helping supplements our Blair facility for any deliveries that are best served off of the.
And origin and the rates can vary quite a bit but we've never found at profitable to operate the facility at much less than about 50% capacity. So I would say, it's still running pretty well, but we're just operating the dri plant and we did shut down all of our wet plant operations at this point, because we have built up sufficient.
Sand inventories to ensure that we can meet our customer needs to be the wintertime and we'll continue to just to optimize as we go through time and and make sure that we're doing the best for our customers, but also for our investors through managing our cost structure.
Okay. That's helpful.
My second one is just around the last mile logistics supply and demand.
I think you mentioned on Tommy's question. There that you expect it continues to deploy additional fees through 2020, I should lead to some growth, but I'd imagine with.
And and the current dynamics that we see today.
The market must be tightening fairly rapidly for last mile.
Clinton supply in the market just wondering if you could help me rationalize those too, especially the markets.
Yes, it's certainly a there is everybody anticipates, a Q4 to be slow and I think that there is there's not going to be any new markets. Here in 2020. So like I stated before we continue to talk to customers find out what problems, we can solve try to create.
Some value with the equipment, we're providing continue to innovate.
Not going to create any or there's not going to be any new market share created so we need to try to create value for the customers or be more efficient lower there there are costs and a and I think we can do that with some things that we're working on both with the equipment and prop dispatch and that's our strategy to.
You've got to displaced a competitor in order to gain market share.
Okay. So in that light have you seen returns on capital deployed in the last mile a shrinking or so by how much.
I don't think that we've seen the returns to shrink at all as Alan had mentioned earlier the pricing is held pretty well there and we don't believe that were really competing on price for last mile. It's competing on that value add from the quality of equipment. The quality of the service. The people that we had out there in the field that are.
Executing day in day out performing and safely on the well sites and all of that that's what's really generating value for the customers, but also the link with the pop dispatched technology that provides them a lot of insight into the vast amounts of saying that they're easing on each one of these wells and the data that we can provide.
Hi to help become even more efficient with truck turns et cetera. So the combination of all that that has allowed us to continue to kind of hold our margin and see that profitability coming through from the last mile.
Okay, and then just last one for me I'm just thinking about.
Pricing discipline and the commentary on the quarter in that respect have you.
Seen a lot of bids that you had to turn away due to pricing being too low and.
Based on sort of revenue per ton. This quarter can we think of that as a relative floor based on the fact that you're not willing to put a price below.
I'm certain levels.
We have turned down business be for price reasons as they say, we aren't going to Jay game changer go after price.
We've seen competitors bid jobs on pricing that we know for a fact is below their cost of production that is unsustainable. That's a transfer of wealth to someone else's investor base, and we're not going to participate in that activity full stop.
Okay. Thank you very much.
Thank you Tim.
Thank you, ladies and gentlemen that concludes our time for questions I'll now turn the floor back to Mr. Rasmus for any final comment.
Thank you Melissa the current market dynamics are challenging there also unsustainable at high crush our emphasis is generating free cash flow and creating value for our investors. We will accomplish these goals by reducing costs, reducing spending focusing on operational excellence aligning.
What's the right customers continued development and deployment of our prop dispatched technology and last mile logistics in services. Thank you everyone for your interest today, and we look forward to saying you in talking with you on our next call.
Thank you. This concludes todays teleconference. You may disconnect your lines at this time. Thank you for your participation.