Q4 2021 US Silica Holdings Inc Earnings Call
[music].
Good morning, and welcome to the U S silica fourth quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference.
Please press Star zero on your telephone keypad as a reminder, this conference is being recorded it is now my pleasure to introduce you to your host Patricia Gill Vice President of Investor Relations.
Thank you and Oh, what do you.
Thank you and good morning, everyone I'd like to thank you for joining us today for U S silica fourth quarter 2021 earnings conference call, leading the call today are our Chief Executive Officer, Brian Chin, and Don Merril Executive Vice President and Chief Financial Officer before we begin I would like to remind you of our standard cautionary.
Our remarks regarding the forward looking nature of some of the statements that will be made for that.
Forward looking statements, which are predictions projections or other statements about future events are based on current expectations and assumptions, which are subject to certain risks and uncertainties for a complete discussion.
These risks and uncertainties, we encourage you to read the company's press release and our documents on file with the SEC.
We do not undertake any duty to update any forward looking statements. Additionally, we may refer to the non-GAAP measures such as adjusted EBITDA segment contribution margin and our consolidated leverage ratio. 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 discussions of segment contribution margin and the consolidated leverage ratio and with that I would now like to turn the call over to our CEO Mr. Bryan Shinn.
Thanks, Patricia and good morning, everyone.
Before discussing our operating results today I'd like to first review a couple of significant recent corporate milestones. This.
This month, we're celebrating the 10 year anniversary of our public stock listing.
Looking back we've successfully navigated business cycles integrated numerous acquisitions developed game changing new products effectively managed through a pandemic and delivered strong growth in fact over the last decade. We grew company contribution margin dollars at almost a 9% CAGR with industrial leading the way.
With a CAGR of more than 12%.
Well I'm certainly proud of our company's rich history, and numerous long term business achievements. We've also consistently demonstrated strong core values and ESG leadership.
One example of that is our unwavering commitment to the safety and health of our employees I'm happy to report that our full year 2021 personal safety results were the best ever at our company and more than two times better than our industry peers.
<unk> increased our company spend with women owned and diverse suppliers to two times the national average.
Silica is also focused on efficiently managing natural resources for example, in 2020 , one we recycled more than 35 billion gallons of water across our main network.
Last year, our solar reflective cool roof granules were installed on more than 63 million square feet of commercial roofing saving enough energy to power more than 23000 homes.
And finally in 2020 , one we continued our partnership with truckers against trafficking, we're more than 700 U S. Silica affiliated truck drivers had been trained to spot the signs of human trafficking, while on the road.
This is just a small sampling of the areas, where our teams are making a difference at.
Our 2021 sustainability report should be issued in just a few weeks and I encourage you to visit our website and check it out for additional details.
We also delivered numerous other noteworthy accomplishments in 2021 for example.
Total company annual sales volume and revenue increased by 42, and 30% respectively versus 2020.
We also grew adjusted EBITDA by 10% and added $89 million of cash to our balance sheet continuing to reduce our debt.
And finally, we posted strong investor returns with our equity up 34% and our debt trading into the high nineties.
Let's turn now to Q4 financial results and talk about how we finished the year.
We delivered a strong fourth quarter with sequential increases of 5% in total volumes and 7% in total revenues, resulting in adjusted EBITDA of $42 $1 million, which was a 6% increase versus Q3 of 2021.
Our excellent results were driven by strong customer demand in both segments, along with efficiency improvements and price increases that outpaced inflation.
Dan will discuss the details in just a moment, but let's review some of the significant highlights that we saw during the quarter.
Industrial segment demand remained stronger than anticipated across most end users and market segments with marginally higher volumes and revenues. It was the first time in the last decade that we didn't see industrial contribution margin dollars down from Q3 to Q4 as many customers continue to run during the holidays due to robot.
Demand we.
Also experienced record demand in the quarter for our high purity filtration products, which are used in diverse end markets such as life Sciences wine high end spirits and juices.
Cost for materials Labor and services continued to increase during the quarter, but our industrial team moved swiftly and decisively to implement price increases and surcharges to compensate.
During 2021, we implemented more than 15 price increases and surcharges to preserve our margins and I am pleased to report that the increases are holding and we're continuing to raise prices as necessary in 2022 as well.
For example earlier this month, we announced another round of price increases for the majority of our non contracted engineered clay products that will range up to 15% and will be effective for shipments starting March one.
And our oil and gas segment sand and logistics demand increased sequentially driven by stronger customer activity, particularly in west Texas.
As local sand availability tightened in the Permian, we began selling northern white sand from our local network to assist key customers with their well completion needs.
Given the very tight supply and demand balance in the market, we saw prices for sand and last mile logistics increased throughout the quarter and that trend has continued into 2022.
And finally, we executed a number of contracts during the quarter as customers have been insistent on securing proppant and delivery services for what is expected to be a very strong first half of 2022.
With the rest of my time. This morning, I want to give an update on our growing industrial portfolio and then finish with a summary of our outlook for the first quarter and 2022.
Over the past few years, we've made strategic investments in product development, and new technology, which have helped position. Our industrial segment is a leader in advanced materials and high value minerals, which are essential ingredients to critical value chains, such as renewable energy commercial and residential construction food and beverage.
Duction Biopharma and glass manufacturing.
We also have numerous offerings that are central for the transition to cleaner energy and that help our customers meet their ESG goals.
In 2021, 12% of revenues in our industrial segment were generated by products that are environmentally beneficial to society, including raw materials for wind turbines and solar panels products that reduce energy and water consumption.
Alter AIDS for Green diesel and key ingredients for particular emission filters.
We're honored and excited to support the growth in these environmentally important value chains.
And speaking of growth, let's discuss progress on achieving our industrial new product contribution margin goals in.
2020, we publicly announced the bold goal to exit 2021, with an incremental $20 million and contribution margin run rate from new industrial products.
I'm happy to report that despite the supply chain logistics and inflationary pricing headwinds during the year, we met this goal.
Further development of our new industrial products portfolio is ongoing and remains a top priority.
We're still expecting that our new product contribution margin exit run rate in 2024 will increase to approximately $90 million as planned.
During the quarter, we had numerous successes in support of this next bold goal, including negotiating new multiyear supply agreements for our ever white whole grain and ground cristobalite products.
Very successful customer trials of our new absorbent engineered play product targeting the green diesel market.
So successful in fact that the customer has asked us to accelerate commercialization of this product.
Numerous trials of our developmental reinforcing filler product with customers across the rubber and silicone space.
Testing of existing mine deposits as potential alternatives to replace key ingredients and high value fillers and finally completion of the limestone processing line at our Berkeley Springs facility, which is rapidly ramping up sales and has the capacity to produce more than 1 million tons per year.
Let's turn now to our business and market outlook for the first quarter of 2022 <unk>.
Industrial product demand remains strong and we anticipate a good quarter for this segment.
During the month of January however, strong winter storms negatively impacted some of our east coast and West coast mines, causing temporary shutdowns higher maintenance cost and transportation issues.
As a result of these challenges Q1 volumes are forecasted to be only slightly higher sequentially and operational costs will be higher.
We're working to ship additional products in the back half of the quarter, but it is hard to forecast precisely given the current uncertainties of international shipping.
Before leaving industrials I wanted to address the status of our recently announced strategic review of that segment we.
We continue to consider a broad range of options, including a potential sale or separation of our industrial segment the.
The process is ongoing and as of today I have no further information to share.
Turning to our oil and gas segment were essentially sold out of sand proppant and we're seeing meaningful increases in spot and contract prices for both local and northern white sand.
The combination of increased customer demand and reported operational challenges at competitors mines are further exacerbating what was already a very tight market.
All of that we expect first quarter segment contribution margin dollars to be up at least 15% to 20% sequentially.
With our well placed mines strong operational performance and complementary sandbox assets.
We have been able to obtain new customer contracts would not net price increases for both Permian and northern white sand.
So far we are not experiencing issues with trucking, but the overall labor labor market is expected to remain challenging.
On an activity basis volumes are expected to be flat to slightly up in Q1 and unit contribution margin is expected to be above our $10 per ton long term benchmark.
Overall 2022 is setting up to be an outstanding year across the company, we are well positioned for robust growth in our ISP segment with demand driven by new opportunities in several fast growing end uses.
Increased new product adoption expected GDP expansion for our base business and margins that are supported by further price increases.
And our oil and gas segment strong customer demand and constructive commodity prices should support higher pricing and improved margins for sand proppant and sandbox as well.
We're increasing our contract coverage and forecast strong proppant demand through the first half of the year.
Finally, we expect to generate significant free cash flow this year and to continue delevering our balance sheet.
And with that I will turn the call over to our CFO , Don Merril, who will discuss our financial results in more detail John .
Thanks, and good morning, everyone as Brian stated, our adjusted EBITDA for Q4 was $42 $1 million or an increase of 6% sequentially when compared to the prior quarter supported by strong customer demand efficiency gains and higher pricing that assisted in offsetting inflation.
Selling general and administrative expenses for the quarter increased 13% sequentially to $34 $9 million, driven mostly by merger and acquisition related expenses and an increase in employee expenses, such as noncash stock compensation.
Depreciation depletion and amortization expense decreased 3% sequentially to a total of $38 $6 million in the fourth quarter, our effective tax rate for the quarter ended December 31, 2021 was a benefit of 17% including discrete items.
Now let me move on with a detailed review of our operating segment results our.
Our industrial and specialty products segment reported a historically stronger fourth quarter in fact for the first time since we became a public company in 2012, our ISP segment had a fourth quarter contribution margin that eclipsed the third quarter of that same year.
Revenue in this segment increased 1% sequentially to $126 $3 million in the fourth quarter volumes and contribution margin were also favorable increasing 1% aided by our many pricing actions, which helped to mitigate the impacts from persistent logistics issues and cost inflation.
On a per ton basis contribution margin for the industrial and specialty products segment was essentially flat sequentially and totaled $38 25 per ton.
The oil and gas segment reported revenue of $158 6 billion for the fourth quarter, an increase of 12% when compared to the third quarter.
Volumes for the oil and gas segment increased 6% sequentially to $3 1 million tonnes, while sandbox delivered loads increased 13% compared to the prior quarter.
<unk> contribution margin increased 17% sequentially to $30 1 million.
Which on a per ton basis was $9 72 in the fourth quarter and a sequential increase of 10%.
These results were driven by an increase in overall demand as well as net pricing improvements.
Turning to the cash flow statement during the full year of 2021, we delivered $169 $3 million of cash flow from operations, we invested $33 million in capital expenditures and generated $139 million in free cash flow.
During the fourth quarter, we invested $14 $9 million of capital almost as much as the first three quarters combined primarily for current and new product expansions as well as facility upgrades and maintenance of equipment.
<unk> as of today, we are still anxiously awaiting our IRS cares act refund of approximately $21 million.
The company's cash and cash equivalents on December 31, 2021 decreased 4% sequentially to $239 4 million.
At quarter end, our $100 million revolver had $0 drawn and had $77 8 million available under the credit facility after allocating for letters of credit.
Looking forward to 2022, we remain focused on Delevering, our balance sheet with a goal of 300 million plus on the balance sheet by year's end.
We will manage our capital spending accordingly, with an emphasis on spending on growth projects to maximize future profitability and expect capital spending to be in the range of $40 million to $60 million for the full year.
We anticipate full year 2022, SG&A expenses to be up 5% to 10% primarily due to increased activity in some inflation full.
Full year 2022, DD&A expense is anticipated to decline about 15% due to past investments, becoming fully depreciated at the end of 2021.
Our estimated effective tax rate for 2022 is a benefit of 24%.
To recap our balance sheet has continued to strengthen over the past year.
On a year over year basis, our cash on hand has increased by 59%. Our net debt has been reduced by 11% and we still expect to receive the remaining balance of approximately $21 million of IRS refunds related to the cares act in the near future.
The Swift and proactive pricing actions that we've taken throughout 2021 and that continue in the first quarter of 2022, including the announcement yesterday afternoon that only allow for the company to effectively manage the logistics inflation issues, but further prove the resiliency of our two business segments, especially our industrial and specialty products segment.
We remain laser focused on our balance sheet and as I stated, we aim to balance our investments with cash flow in order to further reduce our net leverage closer towards our goal of nearing three times net levered in 2024, and with that I'll turn the call back over to Brian .
Thanks, Don 2021 was clearly a strong and important year for U S. Silica, we delivered on our commitments to strengthen our balance sheet and expand our industrial product portfolio, while continuing to become a more sustainable enterprise and celebrating a major milestone in our company's history with a 10 year anniversary of our public stock listing.
Our determination to maintain profit margins through price increases and surcharges is proving to be successful and I believe that we're well positioned for an outstanding year here in 2022.
With that operator would you please open the lines for questions.
Thank you.
Ladies and gentlemen, the floor is now open for question and answer session.
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Thank you.
The first question comes from the line of Steve.
Stephen Jingle with Stifel. Please go ahead.
Good morning.
Good morning, Steven.
A couple of things from me if we could.
Start on the oil and gas front.
So there's a couple of questions, but first when you talk about essentially sold out.
What's the backdrop to that I mean, I think you're I think you have.
In aggregate like 27.
Tons of capacity in northern White in basin.
I think some of that may be shattered I'm, just trying to get a handle on when you say sort of sold out what what types of what's your what's kind of your current capacity.
It's a very good question, Steven and so I think right now today, if you add up everything that we have turned on and.
And staffed.
14 5 million tonnes.
That's if everything works perfectly and everybody picks up what they need to pick up right as scheduled.
He is.
All kinds of issues out there today.
Labor issues, there are still a few trucking issues.
Wintertime, whether all sorts of things like that so I would say effectively our capacity is somewhere probably closer to 13 or 13 5 million tonnes.
And if you look at where where the where the tightest.
In the Permian right now whats going back the other day and it just calculating.
And by my math that we sold basically 98% of.
Our capacity if you will in the Permian and Q4, so super tight and as you observed we have a number of sites that are.
Are not currently operating in and they're not going to be economical anytime in the near future. So I don't anticipate those coming back online. So I feel like basically you know what what we have is is what we have today.
Great. Thank you.
When we think about what we're hearing.
Significant increases in spot pricing in the Permian, where we're here and it's dragging northern white pricing is up a bit.
Can you can you just sort of talk about what what on the oil and gas front like when we think about contracted versus on contracted because it appears that the price increases on the spot market are you know youre going from below 20 of the 40.
40 to 50 Bucks per ton in the Permian and I'm, just sort of curious what kind of operating leverage and how we should be thinking about that I mean, you've kind of guided to.
Two two a first quarter contribution dollar number, but I'm, just curious what sort of the.
The true leverage because that's the kind of it should fall pretty directly with a contribution margin per ton line. So I'm trying to get a handle on how you're thinking about that.
So I think most of that pricing will fall right to the bottom line now.
Natural gas prices are up a bit and so that will be a small offset to that given that we use a lot of natural gas, obviously as we drive our sand and the gigantic drivers that we have out there say in our in our sites at the at the Permian, but but I expect that mostly that's going to fall to the bottom line.
This is the most constructive.
Environment that that I've seen for quite some time around pricing and I think we're.
We're going to continue to see a pretty tight market as we were talking about just a minute ago with your first question around capacity and how that's working.
There are a lot of sort of labor and operational bottlenecks out there. It's also been sort of widely reported that a number of our competitors had operational issues and that further tightened things.
As I said before transportation and logistics have not really come into play just yet and I think that's because the capacity has been.
Somewhat limited, but as maybe some of these operational issues get get solved for example, I think will run pretty quickly into transportation bottleneck. So I think we will see continued tight markets and in most of the basins and for northern white sand as well.
And when I think about the pricing leverage.
That's going to drop dropped to the bottom line now do keep in mind, though that we're about 80% to 85% contracted so.
Thats spot piece say that 12% to 15% that we have on the spot market, we will see that.
But we won't.
Won't necessarily get.
The kind of massive uplift that you might you might expect just because we are so heavily contracted many of those contracts, though where either renegotiated or renewed recently and we did get price increases in those so.
That will be a positive but.
Don't expect that we're going to be selling most of our tons that you know 40 or $50 a ton in the Permian or something like that.
It won't be like that.
Okay, and just one final I'll get back in line, but the first quarter, you mentioned contribution margin per ton north of.
$10 benchmark I would imagine that.
You would think about that as sustainable throughout the year.
I think it will be.
As I mentioned, just a minute ago I think we'll see continued issues in the supply chain and.
If you think about it operational issues.
Staffing issues and trucking it seems like we're going to see two or two or three of those at almost at any given time the way we look at it for the rest of the year. So I think that will well definitely keep a lid on supply and we expect that demand is going to be very strong I think we're all starting to see forecast increase in terms of <unk>.
Drilling and completion spend I saw one outlook, just a week or so ago talking about.
Inflation adjusted.
30% to 35% E&P spending up year on year, and that's a lot higher than it was just a couple of months ago. So I think with some of the private operators, perhaps are going to spend more that we're going to see even greater demand and that's going to kind of run smack into this tight supply market.
We have today.
Great. Thank you.
Thanks Steven.
Thank you. The next question comes from the line of Samantha Hoh with Evercore ISI. Please go ahead.
Hey, good morning, guys.
Thanks Matthew.
And maybe just to shift the conversation to IFC.
Yeah, I was just kind of curious about <unk>.
The press release about new opportunities in several faster.
I was wondering if you could maybe expand on that.
You.
Okay cool.
It was just a hockey side. Thanks.
Maybe an update there.
Yeah. Thanks, Samantha it's a great question.
Just to put it in context for folks on the call we had talked about.
Hitting a new product growth rate for ISP of sort of exit rate in 2021 of $20 million of contribution margin and we hit that bold goal and.
The next goal next.
First stake in the ground that we had put was 2024 and getting to a $90 million run rate for new products as we exit 2024, and so to your point some of those fast growth.
And uses that are going to support that are things that we've talked to talk some about in the past, but again, maybe not everyone's familiar with that so just for example, I think green diesel will be a big one for US where are unnecessary processing aid in the manufacture of green diesel and that that's going to be a very nice opportunity for us and growing quickly.
We're working on a replacement for our synthetic silicone, so fumed and precipitated silica is.
That that will be another one.
We also think there's a there's a really good market for right or white.
<unk>, two <unk> polymers, and cementitious materials like routes and mortars.
We have products that I think will go into there.
We also have new new additives for glass manufacturing, which I think will be very interesting.
Interesting and then.
Lot of our new high purity or high filtration.
<unk> that go into a blood filtration.
<unk>.
Biopharma industries and so those are some of the new ones that are to come some of those that are.
<unk> already launched and moving pretty quickly probably the biggest one would be cristobalite, so thats our ever white product that we make at Millen, Georgia, I think that's going very well into the countertop market and customers.
Customers are signing up contracts, we've signed a couple of really big contracts with market leading companies recently, so I think that will.
That will go very well cool roof granules I really like that product line. It's made at the same facility in Georgia.
We said in our prepared remarks that we went back and calculated we actually covered 63 million square feet of commercial roofing with that product in 2021, So that's definitely.
Going pretty.
Pretty quickly.
There's just a whole other.
A realm of products that we have going in one of the things I really like about our portfolio is that to get to that $90 million Mark that we talked about it's not just one or two things we have literally dozens of opportunities in the pipeline and many of them are either already launched or are just about ready to launch here in 2022, So it's pretty.
A pretty exciting time for industrials.
Great and I know you guys have some sales into Europe .
Just to maybe check this box but.
Is there any exposure to questioner in the Navy.
You're thinking about demand coming from Europe .
No. It's a great question, you know I guess before I, even think about what our business.
Impacts might be which that's the short answer is basically nothing but.
Our thoughts and best wishes go out to anyone who has been personally impacted by this.
Terrific situation.
As you know we get most of our our revenue here in North America.
I think our total company revenue exposure outside the U S is only about 7% and almost nothing in Russia or are your crane. So we're in good shape there.
Great.
And then maybe just shifting the conversation back to oil and gas.
You know I know, we kind of cover your production capacity at about.
Brian .
Hey, Thank you for clarifying that you'd have more attention can actually reactivate right, but from the perspective of the industry do you see some of your competitors, maybe starting to move on reactivating.
So we don't really see a lot of that and I think part of the reason for that is it's very hard to get labor right now everyone's struggling, particularly in the Permian to find.
Find folks to just to run the facilities that they have and that's one of the reasons that we're seeing.
Shortages in the industry today in terms of capacity so.
I think it's going to be very challenging for anyone who wants to try to go recruit to restart a mine even if they wanted to.
And I think a lot of the mines that probably all the mines who are shut.
Sat down today, they're shut down for a reason and typically that reason is that there high up on the cost curve in terms of delivered cost.
So even if they do come back online.
Not the worst thing for us because they're they're clearing price in the market to be able to be a sustainable operation will be substantially higher than ours, and so that will just provide a profitability umbrella for folks like us who are the low cost providers in the industry.
Yeah.
And then maybe just good correlating. The second thing is that this vaccine sandbox and are you guys pretty much sold out of your sandbox capacity as well.
Think about it.
We are so sandbox is.
He is extremely tight also so basic.
Basically between sand and sandbox were essentially sold out of the equipment and the.
The tons that we have to put out in the market.
Okay, and then northern White was like 40% <unk> volume.
Can you maybe update us on where you stand with access to railcars you.
Do you have any in storage that you know that can be pulled out.
Gosh shipped more volumes in the Permian.
That's a great question and.
We actually have taken all of our railcars out of storage.
As you May know things are pretty tight with the rail today also and it's another reason that I think the the supply chain bottlenecks will will continue.
It's tough to get to get power so to get an engine to come to your site and hook up your railcars and one of the other issues that the whole industry is having right now is that the.
The cycle time to get your empty railcars back to your site. So you can refill them.
It has increased by several days and so effectively what that means is you need more railcars just operate at the level you were operating let alone if you want to try to to get more tons into the system. So I think all of this for me points to continued very tight market and obviously, that's going to be constructive for pricing but.
But my concern is we also want to be able to support our customers and make sure. They can drill and complete the wells that are expected to do for the year. So I think the good news is that we havent disappointed any customers yet.
We're working very closely with.
All of our top customers and we've consistently heard back from the market.
Especially some of the biggest customers that we're the only ones that are delivering as promised out there.
So we don't want to get ourselves over our skis either make sure that we support customers and have.
Have the ability to to plan, what we're going to do and so we keep our costs very low as well Smith.
Great that does it for me, thanks, Brian and congrats another corner.
Thank you very much take care.
Thank you. The next question comes from the line of John Daniel with Daniel Energy Partners. Please go ahead.
Hey, good morning, <unk> morning, John and Brian .
Just two quick questions and one of them might sound like a dumb answer I apologize, but you mentioned the effective capacity is call. It $13 $13 5 million tonnes, but if everything went perfectly it's 14 and a half.
What would it take to get everything to work perfectly.
Okay.
So there are a couple of things John .
One is great mix and so for northern White sand.
The coarser products of 2040 and to a lesser extent 30, 50 are still not selling well in the market. So everyone wants 40, 70, and 100 mesh. So there's some capacity that we.
We have to take the waste so as most folks know when you take a ton of kind of mixed sand out of the ground.
The four grades at the industry wants and if nobody wants a grade there's really nothing you can do with it you have to make that if you will.
To make the grades that people want so that's a big part of it and the rest of it is just around logistics, so even with northern white.
Theres issues, where the railroads don't don't show up we don't have railcars, we have to throttle back our sites out in the in the local mines in the Permian.
Somebody is doing a simulcast <unk> and you get you know hurting of.
Trucks that come in.
People are in are in short supply as well, particularly out in the Permian. So all of those things I think inhibits us and to a greater extent, maybe some others in the industry from reaching their full capacity and these are complex problems. These are not easy things to solve and that's why as I said earlier I think things are going to stay tight for the foreseeable.
In the future.
Do you see any scenario, where your customers maybe.
Sacrificing quality is not the right way to describe it but where they say because of the need for sand quickly. They take the coarser grades and that is an opportunity or are they pretty committed to the 40 7100 mesh.
I feel like the customers are pretty committed and we will see what happens, but obviously the 2040 and 30 50 grades are coming from the north right. So.
You are talking about a massive increase in cost to to ship those down to the Permian and kind of get that whole chain really going again like it was a few years ago before the local sand became so popular and I think we've seen some of that but it's still fairly fairly limited.
We do see occasional conversations around well, what if you did wet sand or a mobile mine or something but.
Those are not perfect solutions either and.
By the way if you want to go to startup a mobile mind somewhere you still need people to run it and they're the same people that we're all fighting for out in the Permian So it doesn't really.
Solve the problems.
Right.
I wanted to touch on something that Steve brought up on the the.
The leading edge prices I mean, we're starting to hear a lot of silly.
Price numbers I mean that this week, we had a.
Frac IV Midland policy was quoted $90 a tonne I'm.
I'm just curious how.
Where do you see that.
<unk> settling out.
12 months from now 15 months from now I mean, it would seem that activity is steady and rising from a completion standpoint can you just separate sort of in the noise and silliness on that leading edge stuff versus whats the reality.
Sure so.
We occasionally sell a ton or two for $40 or something like that in the Permian, but right.
Not really.
The true spot price, so I think today the.
The true kind of leading edge spot prices, probably somewhere in the mid thirties.
And I think contracts are getting signed.
In the mid to upper <unk> to low <unk>, depending on the situation. If it's just a straight contract with no other sort.
Ties behind it it's probably.
Mid to upper Twenty's if it.
Something where maybe somebody has a shortfall in there we're trying to negotiate a deal but as a way to make that up or some other thing maybe it's in the low thirties somewhere so I think those are kind of reasonable prices, where everybody everybody is happy to do deal start getting much higher than that it does does get to be up.
Problem.
Fair enough and then the last one for me is you mentioned in the release you talked about the growing.
Interest in contracts can you provide any color in the duration that your customers are asking for today.
So the.
The whole customer conversation is really interesting. So if you go back.
If you're a few months ago.
We'd go to customers and say, hey, we really need to get a price increase right.
Sure.
And then that morphed into hey.
Going to increase prices and now the conversation is customers are calling us and saying what price will it take to get product right. So I think.
It's definitely kind of a.
Where everyone everyone recognizes that this is a long term problem in the industry. So I think the the most astute customers that we have are looking to sign multi year contracts and our.
Our working or working with us to put in pricing mechanisms to sort of adjust and deal with where the market might go either up or down and I think we're on our fifth generation of Frac sand contracts. So.
We've learned a thing or two around what works and what doesn't.
But again.
Astute customers really see this as a long term issue for the industry and we want to get locked in with credible suppliers, who they believe can support there.
Their completion programs are going out over the next 234 years.
Great. Thank you very much for answering the questions and let me in the Q&A.
Thanks, John .
Okay.
Thank you.
Our next question comes from the line of Dan Kutz with Morgan Stanley . Please go ahead.
Hey, Thanks, good morning.
Good morning.
So my first question.
About 2020 capital spending.
I apologies if I missed this.
But I was just wondering if you can kind of unpack.
Or maybe just some like our growth and maintenance perspective, more from oil and gas versus ISP perspective.
Incremental.
Great.
Yeah, So our guidance of $40 million to $60 million right away take about somewhere between $17 million to $20 million is going to be maintenance capex and the majority of the spending after that is going to be on growth projects and the reason why we gave you a little bit of wider of a range that we normally would.
<unk> is because we're going to be spending very opportunistically on the ISP growth products. So as cost as we get customer acceptance as these things start to really start to ramp up that's when we'll start to spend those dollars with a with an eye on the balance sheet as well right. So trying to keep.
A nice balance between what our operating cash flow is versus what we're spending.
And then looking at how do we how do we measure that against the new product growth in ISP, but I would say the majority of the delta between maintenance and our guidance is the growth projects that we have slated in the industrial side, Don speaking our balance sheet we.
We got some good news. This morning. So you did hear that you heard in my prepared remarks, we talked about.
The IRS refunds, so very fortuitous Lee we got $21 million. This morning in our bank accounts. So I no longer have to talk about that we actually have that in the end.
In our in our bank account this morning.
It's amazing to get remove.
It is great news.
Thanks, Thanks for the Capex color, so just kind of following up there.
I think in the prepared remarks, the comments indicated that you were expecting.
Planning on kind of managing to.
Two.
<unk> capital.
Below operating cash and generate positive free cash flow is there anything you can do to help us think about the magnitude of free cash flow.
So you would expect them to generate this year as you know.
Breakeven.
The bogey to think about it.
Where are you.
Can you do more meaningfully.
Yes.
Yes.
So.
In my prepared remarks, I talked about.
A bogey of $300 billion worth of cash on the balance sheet by the end of the year, which would imply a $50 billion of free cash flow year for us.
That could vary a little bit one way or the other based on the overall capital spend that we see.
But again, we're talking about high.
Our projects in the ISP side of it so if.
If we choose to do that that might move one way or the other but right now we're shooting to have $300 million to continue to reduce our overall net debt.
I think Dan that we're looking to kind of have it have it all we want to be able to spend to keep the ISP growth program on track that we talked about kind of reaching that $90 million run rate by 2024, and adding cash to the balance sheet and I think things like I get into the IRS refund, obviously, it's a onetime thing but.
That helps us as well and I think we're committed to continue to increase the cash on the balance sheet and get to.
To get to a much lower kind of net.
Our net leverage ratio as we get into 2024 and thinking about refinancing our debt.
Just another point around that given where things are in oil and gas right now and kind of the what I'll call. The medium term prospects for our oil and gas business. So I think over the next three to five years.
I feel like oil and gas is going to generate a lot of cash maybe more than we had in our base modeling looking out over the next couple of years to just given.
How things look right now so hopefully that'll be a great tailwind as well.
To let us get even more cash on our balance sheet as we operate over the next few years.
Great. Thanks, a lot for the color guys and congrats again on the cash influx alternative.
Thanks, Dan.
Thank you. The next question comes from the line of Devin, but heizer with Barclays. Please go ahead.
Hey, good morning.
Eric, California morning, So, California public utility they put out some pretty bold long term plans out to 2026 and beyond to 2032 on the renewable energy sources, including solar wind and other things.
Get your take on kind of your exposure there obviously, that's part of your new products gone.
The wind turbines and solar panels. So maybe you could just take a moment just kind of talk about what that what it came out as far as the where California is trying to do and how you guys fit into that market.
No. It's a great question, Derik and something that we think about a lot as you can imagine but today, we have about 12% of our revenue that goes into.
They sort of renewable energy transformational energy environmentally important value chains, as we would call them and solar panels and wind or kind of number one there but also this this green diesel what I talked about earlier, which is a very interesting market as well, which is recycling oil from a variety.
You have sources cleaning it up and turning it into a into diesel we're going to be big in that as well.
On the solar panel side in particular.
We're extremely well positioned for.
For supplying that industry and specifically on what we do that the solar panels are covered in glass, obviously to predict.
The interior circuitry and to make that work efficiently you need ultra clear ultra pure glass and it so happens that.
We have the the country's.
Most pure source of sand sitting up at our our Rockwood, Michigan site, which happens to be just down the road from.
A major glass manufacturer who's supplying our first solar in the area there.
First solar if you look at what Theyre doing theyre expecting to expand and I think there'll be the largest.
Solar panel manufacturer, perhaps outside of China in the next couple of years, and we're literally sitting right in their backyard. So.
I think will not only continue to grow but we may have to expand our rockwood site over the next few years to accommodate that.
That so.
Solar is going to be a big for us and the green diesel as well so we feel very good about.
How we can grow with that and our renewable Green energy play as you were as you said.
Got it no. That's helpful. I wanted to go back to the Capex I know you guys provided for 2022, and Dan kind of pulled apart the different drivers there between maintenance and growth, but just keeping in mind. Your at your bold goals for ISP that run rate going from 20 million to $90 million of doubling by 2026 can you maybe talk about that.
Capex, it's going to be required to support that growth with these new products in 'twenty three 'twenty four is there any way you can kind of give us some guideposts as to what the.
The cadence of Capex can be like over the next few years.
So if we look out over the next say three years, so 'twenty two 'twenty three 'twenty four.
And you add up all of the growth capital that we have so as Don said, you know maintenance for US is typically a 17% to 20 and then.
Beyond that is to some version of growing or in some cases.
There is some there is still some some bigger maintenance stuff in there but anyway.
The growth specifically I think we will need somewhere between $120 million to $130 million over the course of those three years.
As we currently look at it our team is it's pretty clever there were always finding ways too.
To get things done with less capital than we thought so, let's see where we come out but that's what's in our current.
Cash model.
Say that we would need on top of that the maintenance Capex about 105 hundred $25 million of growth Capex in 'twenty, two 'twenty three and 'twenty four.
Okay very helpful. Thank you.
Thanks Derek.
Yeah.
Thank you. The next question comes from the line of Steven <unk> with <unk>.
Phil Please go ahead.
Hi, Thanks for taking the follow ups.
I have two quick ones the first.
Given what we're hearing.
About shortages of Frac sand in the Permian are you seeing any change in the dynamics around sandbox.
So I think.
Sandbox is interesting and if you look at.
The volumes of proppant that go through sandbox today.
30% of all of the sand that gets moved around the industry goes through sandbox.
And I think it gives us yet another lever to help our customers be successful because we can also do the last mile and I think that that.
Pairs up very nicely with the with the sand, Stephen and especially at a time when things are tight.
Customers Love kind of a one stop shop as opposed to having to go to multiple parties to get different things done in the value chain. So I think that definitely.
Definitely helps us and it's a very complementary offering for sure.
Okay. Thanks, and then I'm not sure you're willing to comment on this but if you if you look at the curve.
Current 22, EBITDA consensus is a little over $200 million and that's.
That's flat, but it's flat after they got to deduct about $50 million in shortfall revenues I think in mid 2021 is that a reasonable starting point I mean, it seems like things are.
It seems like you have momentum beyond that but is that a reasonable starting point in your view.
Yeah look as you said, it's tough for me to comment on that specifically.
I think.
The best way to look at it obviously is the sum of the parts between.
Oilfield.
In industrial I think you are.
Kind of somewhere in the right Zip code, but.
You really have to build it up from from the pieces and that's the way we generally talk about it as you know.
Got it.
We don't give guidance for that number so, but I would reiterate that with Brian it's in the right Zip code.
Okay, great. Thank you.
Thanks, Steve.
Thank you.
Ladies and gentlemen, we have reached the end of question and answer session at this time.
Like to turn the floor back over to Mr. Bryan Keane for closing comments. Thank you.
Thank you operator, as we bring our call to a close today I'd like to leave you all with three key thoughts.
First we're committed to capital discipline as we've talked about multiple times today and as we continue to implement a number of margin improvement efforts, we should be able to continue to sustainably generate positive free cash flow and further strengthen our balance sheet. That's our number one objective for us and I think we are.
Well on our way to do that and the great news hearing that we've got the IRS refund of another $21 million I think that propels us down a very nice trajectory to get to at least $300 million of cash on our balance sheet by year end.
Second as I think you've heard today, we have a strong and growing and very diverse portfolio of products I went through a number of different industrial products.
We're extremely excited about and I think as one of the questions that came up and talked about are supporting environmentally important value chains and I'm very excited about that and very proud that our company can help support the transition to cleaner energy.
And then finally as we look ahead, we remain confident that our industry, leading business segment's robust product portfolio focused strategy and best in class execution will create substantial value for our shareholders.
And other stakeholders and.
As I said earlier in my prepared remarks, and we talked about extensively in Q&A, we remain on track to achieve our bold new industrial product growth goals for 2024.
So thanks again for joining our call today, and we look forward to speaking with you all again next quarter stay safe and everyone be well.
Yes.
Ladies and gentlemen, thank.
Thank you for your participation and interest in U S. Silica. This concludes today's event you may disconnect your lines and logo the webcast at this time. Thank you.
Okay.
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