Q2 2020 U.S. Silica Holdings Inc Earnings Call
[music].
Greetings and welcome to the U.S. silica second quarter 2020, <unk> earnings Conference call.
This time all participants are in listen only mode. A question and answers that show a father the formal presentation.
Depending on what's your car operator assistance during the conference. Please press Star Zero and your telephone keypad.
Please note. This conference is being recorded I would now like to turn the conference over to your host Mr. Arjun streak of our manager of Treasury and Investor Relations for U.S. silica. Thank you you may begin.
Thanks, Good morning, everyone. Thank you for joining us for U.S. Silicas second quarter 2020 earnings conference call.
With me on the call today, our branch and Chief Executive Officer, and Don Merril Executive Vice President and Chief Financial Officer.
Before we begin I'd like to remind all participants that our comments today will include forward looking statements, which are subject to certain risks and uncertainties.
For a complete discussion of these risks and uncertainties. We encourage you to read the company's press release and our documents on file with the FCC.
Additionally, we may refer to the non-GAAP measures of adjusted EBITDA and segment contribution margin during this call.
Please refer to today's press release or our public filings for a full reconciliation of adjusted EBITDA to net income and the definition of segment contribution margin.
And with that I would now like to turn the call over to our CEO Mr. Bryan Shinn Bryan.
Thanks, arginine and good morning, everyone.
I'll begin today's call with an update on our response to the various challenges presented by the Kobin Nike pandemic and how we continue to prioritize health and safety of our colleague.
I'll then review the key factors that drove our strong second quarter performance. Despite the unprecedented decline in oilfield activity and a deterioration in general economic conditions.
Next I'll discuss the tremendous progress our operations and logistics teams have made in swiftly aligning our cost structure with current market realities.
Finally, I'll conclude my prepared remarks, with an outlook for both our industrial and oil and gas segment. That's your thoughts on why we remain excited about the opportunity ahead, despite a challenging macro environment.
First and foremost I hope you and your families are staying safe and healthy during this difficult time.
The nationwide locked down and the resulting effects of the cobot 19 pandemic appended many business models and oil and gas sector in particular had been heavily impacted.
Extremely proud of my colleagues for the resilience and fortitude displayed in navigating this volatility while continuing to meet the dynamic needs of our customers and remaining good members of the community in which we operate.
The health and safety our colleagues remains a top priority.
Cobot 19 action team has been instrumental in providing employees would regular communications and best practices plan.
As an essential supplier to key industries, including energy food and beverage and medical we've continued to safely operate across our nation wide production facility in accordance with local and federal guidelines.
I'm also pleased to report that year to date, we're delivering the best safety performance in the history of the company with a recordable injury rate of 0.59.
Now turning to the second quarter total company revenue of $172.5 million declined 36% sequentially.
Solid execution on a key cost reduction initiatives helped us deliver strong adjusted EBITDA of $40.8 million, which include a customer shortfall penalties of $16.7 million in our oil and gas segment.
Our industrial and specialty products segment generated $35.1 million in contribution margin, representing a 19% sequential decline.
Volumes in this segment fell 17% quarter over quarter due to a temporary idling some glass customer plants in the month of May and generally weaker demand from housing and automotive end markets. As a result of the impacts of code 90.
In addition to reduced volumes the segments contribution margin was impacted by lower fixed cost absorption across mixed use plants and unfavorable customer mix.
<unk> Earth, especially claims business, however volumes and margins were flat sequentially as demand for filtration media, particularly in the food and beverage industry remained robust.
We also had several exciting new commercial developments during the quarter in our industrial business, including signing two new long term contracts with multinational building materials companies, but overtime and ground so with the products.
I'm also pleased to share that we initiated multiple trials and bench scale testing for blood plasma filtration product line. The key multinational biopharma customers that yielded promising initial results.
We continue to make solid progress on our pipeline of new products and we'll share more information on that in the coming quarters.
And our oil and gas segment, we sold 1.1 million tons down 65% sequentially doing slightly better than the overall estimated 70% decline in well completions.
Quarterly sales were mostly in the Permian basin in the northeast as activity in other basins with minimal.
Oil and gas contribution margin of $26.2 million was much better than expected due to strong execution on our cost out initiatives and $60.7 million new customer shortfall penalties.
Despite the sharp decline in well completions, we experienced minimal pricing pressure, we proppants pricing down approximately 3% sequentially a testament to the strength of our contract portfolio and the quality of our customer base.
We expect low single digit pricing declines in the third quarter.
[noise] sandbox load it declined 71% in line with a reduction in completions activity, but are expected to increase meaningfully in the third quarter. That's key customers returned 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 Basin. We also signed a new delivered to the well agreement with a leading energy customer.
With the recent addition of Arizona offering to our portfolio. We believe that we now have a roughly one third share in the last mile logistics market.
Let's move now to an update on our progress on cost reduction initiatives.
We responded swiftly to the sudden change in market conditions. It became apparent in early March through the combination of covert 19 led demand reduction and the sharp decline in crude oil prices.
We rapidly rightsides, our oil and gas segment by idling seven higher cost plant and de rating capacity at six others, which resulted in a 75% reduction interactive oil and gas capacity.
We also made the difficult decision to significantly reduce our staffing to match market demand.
Since the first quarter of 2019, we reduced company headcount by approximately 50%.
As a result, we expect our <unk> expense to approach an annualized run rate of $85 million by the fourth quarter of this year down from $150 million in 2019.
We believe this is the appropriate level of staffing for enterprise in the current environment.
Our operations and logistics teams continue to work diligently on bringing out costs wherever possible, while continuing to ensure the safety of our colleagues and the high quality of our products are.
Our primary goal is to continue to make cost variable as variable possible, the maximum flexibility and responsiveness to changing market conditions.
Our 2020 cost improvement plans are now targeting over $40 million in cost reductions up from $25 million previously as our teams identified additional opportunities too in depth plant and Department call Center reviews purchasing initiatives property tax savings and the execution of plant.
Efficiency plan.
As part of this effort, we're actively working to reduce railcar lease costs, given the dramatic decline in frac sand demand and the shifts towards in basin sand.
We're in the process of determining which less orders will be our long term strategic partners and have been pleased with the engagement and results. Thus far I think executed initial lease modifications in the second quarter.
We're optimistic that in the third quarter, we will complete the remaining lease modifications required to lower ongoing railcar cost to a sustainable level.
I'd like to have emphasized that we view the railcar less stores that are working with us as important strategic partners and I believe they see the value and having U.S. silica is a key long term customer as well.
Now, let me conclude with market commentary starting with industrial.
In the third quarter, we expect to rebound in whole grain and higher margin ground silica volumes as customers that temporarily shut down in may ramp back up.
We forecast continued strength in our filtration business, where a market demand remains robust.
As a result, we expect the I.S.P. segment contribution margin to be up 5% to 10% sequentially.
Looking further ahead. Unlike in the past, where we have experienced seasonal decline later in the year.
We expect the fourth quarter this year to look more similar to the third quarter.
However, we do acknowledge the heightened economic uncertainty ahead, given the possibility of a resurgence of the virus and the imposition of additional locked down as well as a lingering effects our unemployment.
And our oil and gas segment, we expect activity to remain below first quarter levels for the rest of year, but we are forecasting a Q3 mid single digit percent increase in our profit volumes and a meaningful increase in sandbox slowed as well.
Due to the second quarter benefits from customer shortfall penalties, we expect that Q3 contribution margin will be down sequentially, but the underlying business should be stronger.
For the fourth quarter were presently expecting another mid single digit sequential increase in both proppant volumes and loads, but once again visibility is limited.
Unlike the past two years, where in P. budget exhaustion has resulted in a drop off in fourth quarter activity.
On customers have indicated what that there's the potential for a modest sequential increase in activity in the fourth quarter.
In summary, we've acted decisively to prudently manage risk and minimize the impact of lower oilfield activity and weaker economic conditions.
We successfully executed our key cost out initiatives further improving our position as the leading low cost proppant provider.
Our industrial businesses continue to thrive led by our died commission Earth and specialty clay products, what product lines that have remarkably seen little to no impact from the economic contraction.
And finally, while many industry peers pursue financial restructuring, we're keenly focused on serving customers and maintaining a strong balance sheet.
Despite the unprecedented macro challenges, we're actively working to maintain strong liquidity and through our cost out efforts recent tax legislation and other work underway, we're aiming to end the year with more cash on the balance sheet and we started with.
We will continue to control what we can act in the best interest of our stakeholders and remain good neighbors into communities, where we operate.
With that I'll now turn the call over to Don Don.
Thanks, Brian and good morning, everyone first I'd like to reiterate Brian's comments on our team delivering a strong second quarter, which we generated 40.8 billion and adjusted EBITDA. Despite the well documented in unprecedented downturn in north American energy market and weaker economic condition.
Moving on to the results of our two operating segment.
Second quarter revenue for the industrial in specialty products segment was $100 million down 12% from the first quarter 2020 caused by the negative effects on the economy due to the koby 19 disruption.
The oil and gas segment revenue was $72.5 million down 53% from the first quarter of 2020 due to a dramatic decline in tons sold as a result of sharply lower frac activity and well completions during the quarter.
Contribution margin for the industrial specialty segment came in at $35.1 million, representing a 19% decrease from the first quarter, mostly due to a 17% reduction in tons sold due to koby 19 disruptions mentioned earlier.
However, the IP segment generated $44.32 per ton basis down only 2% when compared to quarter one of this year.
The oil and gas segment contribution margin on a per ton basis was $23.53 compared with $10.27 for the first quarter 20 Twond.
The increase was largely due to $16.7 million and customers shortfall penalties, which offset dramatically lower volumes.
Additionally, both segments benefited from very difficult, but necessary decisions that were made swiftly by our business leaders, which allowed for lower planned cost reduce spending across the company during the quarter.
Let's now look at total company results.
Selling general and administrative expenses in the second quarter of $39.1 million represented an increase of 30% for the first quarter 2020.
Actual results were higher than the S that provided last quarter due entirely to $15.7 billion, a onetime charges associated mostly with the write off of $11.8 million legal fees related to the unsuccessful defensive a few of our patents in the oil and gas segment and severance payments related to the latest production staff.
As Brian stated, we expect our ESG <unk> expense to approaching 85 million dollar annualized run rate, but port core.
Depreciation depletion and amortization expense in the second quarter totaled $37.1 million a decrease of 4% from the first quarter 2020, driven by a decrease in totaled accreteable assets due to idled plant subsequent asset impairment and reduced capital spending.
We expect BDNA to be up slightly in the remaining quarters of 20 Twond.
Our effective tax rate for the quarter ended June Thirtyth 2020 for the benefit of 42%, including discreet items. The company believes our full year effective tax rate will be a benefit of approximately 24%.
Moving on to balance sheet.
As of June Thirtyth 2020, the company had $158.7 billion in cash cash equivalents and 63 million available under its credit facilities, including $12 billion allocated for letters of credit, resulting in total liquidity of $221.7 million.
The company increased cash balance by $14 million during the quarter. Thanks, what tax refund related to the cares act of $36.7 million.
A laser focused on reduced spending and reduced capital expenditures versus the first quarter of this year.
Additionally, the company net debt was under $1.1 billion at the end of the core capital expenditures in the second quarter totaled $7.1 million and were mainly associated with maintenance cost improvement and growth project.
We maintain our prior expectations the capital spending will be approximately $30 million for the full year 2020.
I would now like to focus on our cash and liquidity position.
Is it reminded everyone. During the first quarter conference call. We have no near term obligation as our term loan doesn't mature until 2025 and a revolving credit facility expires in 2023.
Additionally, we have identified incremental income tax refunds of $33 million related to the net operating loss carrybacks attributable to the cared that provision that we expect to recover in 2020.
This brings the total estimated refund $78 million and will help support our business and our cash flow goals for 2020.
Finally, despite the collapse in oilfield activity and sharply lower economic growth, we still expect to end the year with a cash balance higher than that it was at the end of 2019.
And with that I'll turn the call back over to Brian.
Thanks, Don Operator would you. Please open the lines up for questions.
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Our first question is from car.
Hello, with RBC capital markets. Please proceed.
Hey, good morning, everyone.
Turning character.
Glad to hear everything has gone well hope it helps the same with your family.
Thank you.
Hey.
Hi, Brian maybe maybe start off with the industrial segment today, you guys gave some.
Good directional commentary with respect to sell the second half of year on the contribution margin pod.
I was just kind of curious how are you, saying volumes are going to rebound.
After the substantial decline that occurred in the second quarter.
So I think we'll see a C volumes up pretty substantially and industrials, particularly on the at the San side, where we saw the decline in the second quarter occurred it was really a few of our large.
Glass customers that for lack of demand idled, some facilities and they've already restarted those facilities and so we started to see some some of that come back in June and July looks it looks pretty strong. So I think we'll see a really nice volume ramp in the industrials and as we look.
The rest of the year I believe we'll have a pretty strong performance out of that business.
So maybe in the context like a 20% plus volume ramp and then in the fourth quarter kind of moderates a bit.
Yes, I think something like that lets say, 15% to 20% volume up in Q3 and then.
Kind of at that level for Q4.
That's great color I really appreciate that.
So on the on on the on the Frac oil and gas side and Frac sand side.
Just just initially so your comments about fourth quarter right that are providing us a lot more visibility that a number of other oil service companies were comfortable providing.
So that kind of stood out to me for sure.
I guess, just give me a general sense of the Oh, the customer mix and the which you're getting that sense.
With that your.
Those customers that you do the most business, where they're kind of telling your fourth quarter, they're going to continue to to accelerate your completion activity.
So so what we've seen is.
A really interesting sort of trajectory occurred.
So just kind of wind the clock back in April things are going pretty well may things dropped off substantially in terms of completions and.
I believe that we hit somewhere in the neighborhood of 50 Frac crews active at that point, maybe a little bit less we saw that start to rebound in June and it's come back even even faster in July so I believe today, we're somewhere between at least 75 to 80 crews maybe a few.
More and we think we could get back to 100 Frac crews working by the ended the year. So.
On one hand, it's kind of simple math when you think about the sand demand out there in the share that we have as frac crews come back we feel like we will you will get our share of that business and then to your question. Specifically, we've obviously had a lot of conversations with our customers and we've got a really excellent blue chip.
<unk> customer base, and I think our folks.
So we serve will tend to come back faster perhaps than than others. So we know a with relative certainty that some of our larger customers are going to be adding a frac equipment, adding frac crews.
Coming back throughout the remainder of the year. So we're pretty optimistic that we'll see strong strong rebound in terms of our sand demand into oil and gas and.
You never know with the fourth quarter, but.
It doesn't feel like a a standard year to us just based on what we're hearing directly from customers.
One additional follow up just to make sure I understand the nature of your commentary on on again, the oil and gas contribution margin. So when you when you back out the when you back out the shortfall payment. Thank you come up with something around 17% contribution margin percentage change your commentary said that.
Yes.
Should get better in the third quarter, So first and foremost do I am I using the right number at 17% contribution margin and then what kind of improvement would you expect from there.
Yeah, Yeah, you're right Kurt if you back the numbers that we just talk about contribution margin per ton per second we did 23 53 in Q2, if you back it out your roughly $88 dependency in for time, and we're staying as you roll into Q3 I think it.
Q2, plus.
Got it and that's how I think that's helpful.
I think just a little more color on that Kurt we talked about sand demand but.
We're seeing sandbox.
Sales of ramp up pretty substantially in Q3 faster than than the sand demand actually so I think we'll see a big bounce in a in sandbox up for the remainder of the year as well.
That's all sounds really appreciate you talked call that color. Thank you.
Thanks Kurt.
Our next question is from Stephen Gengaro, Let's stay so please proceed.
Thanks, Good morning, gentlemen.
Good morning CMV.
There was there was a study pretty recently that.
Talked about the benefits of of northern White.
Versus invasive them with a little more history.
And some of the longer term production benefits northern White have you what have you been seeing they're hearing from the customers as far as well.
The demand for northern white versus in Beijing.
That's it so it's really interesting point, Stephen and I think we've maintained all along that there's always going to be a place for northern white in certain basins and with certain customers and I think the study that you referenced and that kind of customer behavior and choices that we're seeing out there would would indicate that.
We do have some subset of customers, who want northern white in certain locations and for certain wells and I think in some cases, it's kind of for the the general benefits that you referenced in other cases that it's well specific so I feel like northern White will definitely have a home out there and we saw.
All that in a in the second quarter, you know things were down pretty substantially we still had a decent amount of northern white sand sales and not surprisingly the pricing for northern white quarter on quarter was only down about 2% right. So we held pricing very well there I think it speaks to the.
Fact that certain customers want that they recognize the value of it and are willing to pay for that.
Okay. Thank you and then just as a follow up.
Sure how much probably give on this but the shortfall revenue in the quarter.
Based on your contracts that are in place or are you expecting.
I mean, you're giving us sort of kind of adjusted clean expectations for the third quarter going forward expecting or is there potential for anymore shortfall revenue over the next couple of quarters just hard to gauge.
Well, there's theres definitely.
Potential I would say.
It's a sort of a wide range, but our estimates would put it between somewhere in $5 million to $10 million worth of.
Kind of probability weighted potential, but the actual upside to that is is much higher but look at you never know weve. Our hope is that the customer by the tons that their contracted to buy but if they don't I think we've proven that our contracts.
Have you have good teeth in them and we're willing to enforce those contracts and get the shortfall penalty so feel like what one way or another we'll get the benefit.
Great and then just one final one from me.
How much visibility drive into sort of inventory of stand out there we've heard some things about a five companies kind of working through some sand inventories and.
Thank you see that it all has there been a disconnect between activity in your sales volumes that reserve.
Any kind of restocking phenomena, we might see over the next several quarters as activity ramps.
So I feel like the the amount of what a lot of cost sort of quote unquote stranded inventory out there. That's been speculated is is a bit overblown based on our understanding of the details of the situation and the reality is most of that that inventory is in locations where.
They're just not activity going on right now so it's not like you can move it at 500 miles somewhere to sell it in a different part of a basin or in a different basin. It just it just is too expensive so.
We really haven't seen much out there in terms of that impacting our ongoing business and I feel like it's one of the thing that it's like an interesting discussion point, but.
From a practical standpoint, what we just haven't seen much impact.
Okay, great. Thanks for the color.
Thanks Steven.
[laughter].
Our next question is from Connor like now with Morgan Stanley. Please proceed.
Thanks, Good morning, guys.
Hi, Good morning counter how you doing.
Yes.
I wanted to actually.
Gionee cost savings.
Yes.
Good morning.
Good.
40% reduction.
They're starting to get just gives a little more color as to what the big drivers of that work and I guess on the flip side of things here.
Reactivate capacity.
I suppose.
Would you need to add cost back there.
No it's a.
Really really good question, we spent a lot of time working to get our that's DNA cost down for sure and if you look at the the work that the team has done we were 151 million an S. DNA last year, we think we'll be at a at a run rate of about 85 million as we exit this year so really.
Really big changes there and a lot of that obviously is head count related will be down as a company about 45% to 50% in head count over the last 12 months or so.
So we've had to make some some pretty tough decisions there, but the team has really looked up boy. So many other places and on top of of all that we've got another $40 million plus of other operational cost reductions in process.
And those are all kinds of things from a from from sourcing to yield efficiencies at our sites and a variety of of other things some of those won't necessarily show up in DNA, because there are happening at our mine site, but it really doesn't matter wherever you can can say the dollar it all counts I think I think what our team has done.
Really well at the end of the day counter it is variabilized our cost structure, it's amazing.
What they've been able to do and I think I've done has done a lot of work on this and Don do you want to talk about the sort of cost structure and how we are variable versus fixed right. Now. So if you look at if you look at the oil and gas business and its hyper cyclical and so we've done as we've gone out and really.
Reduced our fixed costs, which really protect us in a down cycle and then when the business turned around like you mentioned a high class problem when things start to move around our business operates a little bit differently, there as well because typically what our business turns around we get price as well right. So you know it to you know to be able to drive the fixed cost down there.
Business that really helps us on both sides of the equation. So the team has done a fabulous job there.
And really it's protecting the TNL in each one of the cycle and I guess, maybe just one last point there Connor we've also.
Worked really hard on getting our railcar cost down and so while others are going through bankruptcy and things to two to accomplish that I think.
We're able to work with our lessors in a way that we can get substantial cost out and it's all that cash will drop right to the bottom line.
Yes.
I was wondering if you could just walk us through the.
Biggs sources and uses on the cash flows side of things.
Here.
Sounds like tax is probably going to be.
But maybe you could just sort of.
Bridge the gap from where we are now too.
[noise] increase cash implied by your.
Sure.
Yeah, you're right as the big the big tailwind for us is going to be the cash from the care that.
We got $38 million in Q2, and we anticipate another 40 million by the end of the year.
And we also expect working capital to be a source by the end of the year as well.
And look with all these cost savings you you're going to see.
That as as a tailwind as well so those three things add up to us being relatively confident that we're going to end up with the cash balance at the end of this year greater than where we ended up at the end of last year.
And I think kind of what what we set out as an objective it as a company and we're pretty much there as we get into Q3 in Q4 is that kind of it. The you know at the worst of the worst times to be cash flow neutral and as we start to turn up I think we'll turn cash flow positive.
In coming quarters and to me that it's remarkable to be able to do that.
With the kind of.
Issues that we've had just in general with the economy and things falling off the table and oil and gas at least in Q2. So that's what we think about it we want to be.
Cash flow neutral in the sort of worst at times, and then I think that will service well in terms of building cash when things get better.
Yeah great.
I will turn it back.
Okay. Thanks Connor.
Our next question is from Lucas pipes with B. Riley FBR. Please proceed.
Hi, Good morning, everyone. This is actually not key here asking the question for Lucas today.
All right I mean, one whereas quick.
Good morning.
So while silicas tied God, it's a positive cash flow 2020, I was wondering if.
Management had kind of any additional levers it could potentially pull to increase liquidity further and you had that that kind of the business environment gets even worse or extends longer than expected I kind of for example asset sales or other firms or overhead reductions they could do that kind of bolster its balance sheet.
So look as though saying just a minute ago I think our commitment is to try and variabilize the cost as much as possible and I think the playbook that we used over the last couple of months here to get our cost rightsides kind of fit that the economic conditions.
Can be useful in any other conditions as well. So I think were were appropriately sized for where our business as our today if things get worse.
We'll take further actions and do what we need to do to to rightsize, our costs and try to get as much of that out as possible in terms of asset sales now there's always opportunities, though we have things that we are working on continuously.
Property that we own that we don't have used for anymore or for example, when we ended up taking over the arrows up business. There was a lot of equipment that came with that many many forklifts for example that the team decided we didnt need and sandbox because they were access so we can sell that equipment. So we're always looking at opportunities to do other sort of.
One off a cash generation things as we as we need to and I think we're pretty scrappy team and we're committed to figure things out if it does get worse.
But that's very helpful. We just just one more quick one for me what percentage of the contribution margin in the industrial build business is from the legacy E bike that kind of acquisition.
Yeah, I think we're about 50 50 between what I'll call that sort of quote unquote old U.S. silica and then you need minerals coming in.
It does feel a bit different though if you look at the markets that we serve with the new ERP minerals businesses that we acquired a couple of years ago.
As we found out in this in the downturn that business held up extremely well, so I filtration business, where we do a lot in food and beverage. We're also getting more into medical applications. There now all those things I think really kind of.
Hello, counterweight some of the older industrial parts of U.S. silica that are more tied to housing and automotive so.
This is the first time, obviously since we've owned easy minerals that we have this kind of a an economic contraction.
In the country and it's held up extremely well so I I love that part of the business and I know, we've got a lot of questions from investors around did you are you happy that you took off and leveraged to to add that that business your portfolio and as I look at it now.
This is why we wanted to diversify and add more industrial assets up for these kind of economic scenarios. So I'm really excited a happy about the easy minerals businesses and the assets that we added there.
Great. That's a that's all very helpful color I'm very much appreciate it and best of luck import.
Thanks, Matt take care.
As a reminder to start one on your telephone keypad, if he would like to ask a question.
Next question is from JB Lowe with Citi. Please proceed.
Hey, Good morning, guys is actually Steven on for JV.
Steven various Martin.
Good how are you guys excellent.
So it looks like based on the outlook commentary you guys are expecting IP contribution margin dollars down 12% year, you're now I'm still kind of in a previous guidance range of 10% to 15% I don't want to get ahead of myself here, but given that it's been a GDP plus business and still appreciating the large amount is economic uncertainty.
You guys have any sort of target growth rate for where those contribution margin dollars can go next year could you continue to appreciably outpace GDP growth on that revenue line.
So I think we can and if I kind of look at the base case that I have in my mind, there I believe that somewhere between 7% to 8%.
CAGR in terms of contribution margin dollars is what I would target for those businesses and the underlying business.
Growth pretty well with GDP and then you put on top of that all the things that we have in the new product pipeline and I think you can pretty easily get to.
Get to that kind of a level and where are you starting to see a lot of a pretty exciting things on the industrial side and I can we didn't talk about it specifically in the in our prepared comments, but.
Just to give you a flavor for the kind of things that that are happening on the industrial side that sort of backstops that GDP plus sort of growth them for example.
To date animation Earth additive product per consumer products started shipping in Q2.
We just signed a new long term agreement actually to long term agreements with two international building a products customers in the quarter.
I did mentioned in my prepared remarks, we've had some very successful initial trials and qualification runs with plasma blood plasma filtration and some of our key biopharma customers and.
We've actually got some some new products for the solid surface courts countertop market that are moving forward with the key trials with a number of customer. So that's just kind of a short sampling of the pipeline, but but I feel really good about what's coming in the industrial business and I think.
Our investors will be a surprise to the upside with the amount of contribution margin power that we have to grow that piece of our company.
Got you appreciate that.
Then I guess in the oil and gas side.
You guys gave some some pretty good color and so you know where you think activity is going to go just curious if you see I guess any just regionally where you guys see actually coming back as its different proportionately than than what you've seen previously.
So as we look at it Q2, the vast majority of the activity in the country I would say approaching 90% within the Permian and the northeast and we're starting to see some life in a couple of the other basins I think we might see a little bit coming back in the in the Bakken.
And maybe a bit in the in the mid Con and then we'll see out obviously growth in the Permian and the northeast as well so.
Stephen that that's what I see in a short term, obviously I think longer term, we'll see some of the other basins come alive again, as well up at Eagle Ford and a and out in the DJ probably if we get further into 2021.
Gotcha, Thanks for taking my questions guys.
Okay excellent. Thank you.
We have reached another question and answer session that we'd like to turn the call back over to Brian for closing Gabens.
Thanks, operator, I'd like to close todays call by reiterating a few key points first we delivered another strong financial quarter and substantially be expectation on the strength of our cost reduction some of which we we talked about in detail in the call today, a strong execution in oil and gas and a resilient eyes.
P. business.
Second I believe that continuing to prioritize the health and safety of our colleagues is critically important and I just want to say again, our team has done a great job. This year and we're on track for the best accompany safety performance in performance in history. So very excited about that.
Third we saw sales volumes rebounded both of our operating segments in July and I believe were lined up for another good Q3 and finally.
We continue to carefully manage our cash and liquidity and despite the unprecedented macro challenges. We do expect to end the year with more cash on the balance sheet than we started with.
I'm very proud of our team and I want to thank everyone for dialing in today to our Q2 earnings call. So have a great day and please stay safe everyone.
Thank you. This concludes today's conference you may disconnect. Your lines at this time and have a wonderful weekend.
[noise].