Q1 2022 US Silica Holdings Inc Earnings Call
[music].
Good morning, and welcome to the U S. Silica first quarter 2022 earnings conference call. At this time, all participants are in a listen only mode.
I didn't answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad I've been a reminder, this conference is being recorded.
Now my pleasure to introduce you to Patricia Gill Vice President of Investor Relations.
Thank you and good morning, everyone I'd like to thank you for joining us today for U S. Silica is first quarter 2022 earnings conference call.
Leading the call today are our Chief Executive Officer, Brian Shin and Don Merril, Executive Vice President and Chief Financial Officer.
Before we begin I would like to remind you of our standard cautionary remarks regarding the forward looking nature of some of the statements that will be made today such 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.
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 SEC.
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 for 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 like to turn the call over to our CEO Mr. Bryan Shinn.
Thanks, Patricia and good morning, everyone.
We started 2022 with a very strong quarter delivering sequential improvements of 7% in total revenue and 26% and adjusted EBITDA.
Macros were very favorable with continued robust demand and we delivered meaningful price increases across both business units in the quarter.
I'm also pleased to report that the positive market conditions are continuing and we expect to deliver an even stronger financial quarter with great results in Q2.
Dan will discuss the details of Q1 performance in just a minute, but first let's review some of the significant trends that we saw during the quarter.
And our oil and gas segment sand and logistics remained effectively sold out due to strong well completion demand, particularly in west Texas.
Our teams worked diligently with customers to minimize disruptions and well site downtime given the overwhelming market demand. We also supplemented our local sand capacity with northern white sand to assist customers.
The supply and demand balance in the sand and last mile logistics market remains very tight and we've experienced increased operating cost from higher natural gas and diesel prices.
As a result, sand and sandbox sales prices and margins have risen substantially and we continue to sign attractive new contracts.
Speaking of sandbox, our last mile logistics business was close to an all time quarterly high and delivered loads in Q1 and as a result profits were up meaningfully.
Overall, our oil and gas segment finished the quarter with strong momentum and we expect a major sequential increase in profitability in Q2, and I'll talk more about that in just a minute.
In our industrial segment customer demand remained strong across end uses and market segments. We had numerous exciting developments and milestones during the quarter and I will review those in detail momentarily.
As we mentioned on last quarter's call strong winter storms negatively impacted a few of our operations during the quarter, resulting in higher cost delayed shipments and a less favorable product sales mix.
These were transitory issues, though and we expect a very strong rebound in Q2.
Our industrial team has continued to move swiftly and decisively to implement price increases and surcharges to compensate for inflation impacts.
Since the beginning of the year, we've announced four price increases and surcharges to preserve our margins and we will continue to raise prices as necessary throughout 2022.
For example earlier this month, we announced another two rounds of price increases for the majority of non contracted ISP products that will range up to 25% and will be effective for shipments starting may 15th and June 1st.
I'm also happy to report that our Millen facility remains sold out driven by strong demand for our ever White Cristobalite product line.
Bottom line is that March rebounded substantially in industrials, and we expect Q2 to be one of the strongest quarters ever for our industrial segment.
In total we expect first half 2022, ISP profitability to be on or slightly ahead of plan.
But the rest of my time. This morning, I want to give an update on the exciting growth opportunities in our industrial portfolio and then finish with a summary of our outlook for the second quarter and the balance of 2022 .
Our strategic investments in product development, and new technology have helped position U S silica.
Our industrial segment as a leader in advanced materials and high value minerals.
Silica is proud to provide essential ingredients to critical value chains, such as renewable energy <unk>.
Commercial and residential construction food and beverage production Biopharma and glass manufacturing.
Innovation and the profitable expansion of our industrial products portfolio remain top corporate priorities.
During the quarter, we had numerous successes and milestones supporting the expansion of future contribution margin dollars, including adding over 300000 tons of new annual sand and clay sales to U S. Industrial customers with long term contracts for a total of more than $4 million of incremental annual run rate <unk>.
Tribune margin.
Completing very successful customer trials of our new ever white pigment and activated clay products, which may lead to accelerated commercialization of our fillers and green diesel offerings.
Fully commissioning, our new West, Virginia limestone and aggregates plant.
With nearly 2 million tons of new business opportunities, there spanning a number of infrastructure applications, including aggregates asphalt and concrete.
Executing attractive contracts with several leading quartz countertop manufacturers, while delivering them record production of our new ever White cristobalite product.
We also received positive customer feedback from our first trial of our new highly reactive treated silica.
And we're extending trials with two additional customers for that product.
We filed the patent for you to utilizing our breakthrough new technology to potentially create improved battery precursor materials.
We had successful development and production runs of a next generation whiter cool roof granules product with increased total solar reflectance and improved energy efficiency.
And finally, we installed a developmental mill for our Florida fill reinforcing filler line and customer trials for this product are ongoing and feedback remains positive.
We continue to make exciting progress executing our industrial growth plan and I look forward to providing additional updates on future calls.
Now, let's turn to our business and market outlook for the second quarter of 2022, starting with oil and gas.
Our proppant and sandbox offerings are extremely well positioned with strong value propositions and our premier customer base.
We expect both to remain essentially sold out in Q2 with approximately a 10% increase increase in sequential tons produced from operational efficiency gains.
We forecast higher prices in contribution margin per ton for sand and furloughed for sandbox deliveries and expect to see a competitive but still disciplined market.
Given all those factors, we expect second quarter segment contribution margin dollars to be up at least 25% in oil and gas.
Turning to our industrial and specialty products segment demand remains strong and we anticipate substantial sequential profitability improvement.
For the second quarter, we're expecting robust sales volumes as we offset west coast shipping challenges by utilizing alternate ports across the U S and with further price increases taking effect plus improved product mix. We expect contribution margin dollars will increase about 15% to 20% sequentially with per ton margin.
<unk> around $40.
Regarding the status of our strategic review of the ISP segment as we stated on our last earnings conference call. We continue to consider a broad range of options, including a potential sale or separation of our industrial segment.
The process is ongoing and as of today I have no further information to share.
Overall 2022 is setting up to be a very promising year across the company and our oil and gas segment strong customer demand and constructive commodity prices should continue to support higher pricing and improved margins for sand proppant in sandbox.
High contract coverage and exposure to escalating spot pricing should afford us improved results that extend into the second half of the year.
We're also well positioned for growth in our ISP segment with demand driven by new opportunities in several fast growing end users increased new product adoption and growth in our underlying base business and margins that are supported by further price increases and favorable product mix.
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 Don.
Thanks, and good morning, everyone as Brian stated, our adjusted EBITDA for Q1 was $52 9 million or an increase of 26% sequentially when compared to the prior quarter supported by strong customer demand, particularly in the oil and gas segment, along with higher pricing that assisted in offsetting inflation in both our segments.
Selling general and administrative expenses for the quarter were higher than we anticipated and increased 15% sequentially to $41 million.
The increase was driven mostly by a supplier contract termination, where we were presented with the opportunity to use cash generated during the quarter to minimize future liabilities and a discount and merger and acquisition related expenses.
Depreciation depletion and amortization expense decreased 2% sequentially to a total of $37 7 million in the first quarter.
Our effective tax rate for the quarter ended March 31, 2022, with a benefit of 45% including discrete items.
Now let me move on with the detailed review of our operating segment results.
Oil and gas segment reported revenue of $176 $2 million for the first quarter, an increase of 11% when compared to the fourth quarter.
Volumes for the oil and gas segment were down 1% versus the prior quarter and totaled roughly $3 1 million tonnes, while sandbox delivered loads increased 14% compared to the prior quarter.
Contribution margin improved significantly and increased 49% sequentially to $44 $8 million, which on a per ton basis was $14 63 in the quarter.
This is a sequential increase of 50% and handily exceeded our long term benchmark of $10 on a per ton basis.
These results were driven by strong customer demand as well as net pricing improvements for both sand and last mile logistics.
Our industrial and specialty product segment revenues increased 2% sequentially to $128 $6 million when compared with the a typically strong fourth quarter in 2021.
Volumes and contribution margin decreased 1% and 9% respectively on a sequential basis due to the previously mentioned inefficiencies associated with weather impacts unfavorable product mix and inflation, which should be offset by pricing in future quarters.
On a per ton basis due to the transient issues described above the contribution margin for the industrial and specialty product segment decreased 8% sequentially and totaled $35 23 per ton.
Turning to the cash flow statement during the first quarter, we delivered $15 $1 million of cash flow from operations after using cash to minimize our future liability for the previously mentioned supplier contract termination and we invested $7 million of capital primarily for current and new product expansions as well as facility upgrades.
As previously announced on our fourth quarter earnings Conference call. We received approximately $21 million of the final IRS Cares Act refund in late February .
The company's cash and cash equivalents on March 31, 2022 were slightly up compared to the prior quarter with the balance of $239 $8 million.
At quarter end, our $100 million revolver had $0 drawn with $78 4 million available under the credit facility after allocating for letters of credit.
Looking forward, we remain committed to funding our business growth and Delevering, our balance sheet through what we believe to be robust operating cash flow at the remainder of the year.
We will be disciplined in our capital spending and manage accordingly, with an emphasis on investing in growth projects for the ISP segment to maximize future profitability.
We continue to expect capital spending to be in the range of $40 million to $60 million for the full year with spending more weighted towards the second half of the year.
We anticipate full year 2022, SG&A expenses to be higher than our prior guidance and up 10% to 20% year over year, primarily due to the supplier contract termination in the first quarter ongoing merger and acquisition related expenses and other costs, mostly due to increased activity and inflation.
Full year 2022, DD&A expense is still anticipated to decline about 15% due to past investments, which became fully depreciated at the end of 2021.
Our estimated effective tax rate for the full year 2022 was a benefit of 48%.
In conclusion, we remain committed to strengthening our balance sheet by focusing on free cash flow generation, our proactive pricing actions are allowing the company to effectively manage the inflation issues and further demonstrates the resiliency of our two business segments. This year, we aim to balance our capital investments with cash flow in order to further reduce our net loss.
Average closer towards our goal of nearing three times net levered in 2024.
That I will turn the call back over to Brian .
Thanks, Don.
First quarter company results showed a very nice sequential improvements and we have undertaken a number of initiatives to maintained leading positions in both of our market segments. We're determined to maintain profit margins through price increases and surcharges and have implemented additional process efficiencies that should also dropped to the bottom line in future.
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We are delivering on our commitment to expand our industrial product portfolio and we are well positioned to continue to strengthen our balance sheet in 2022 and beyond.
With that operator will you. Please open the lines for questions.
Thank you we will now be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad.
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Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key one moment. Please while we poll for questions.
Yeah.
Okay.
Okay.
Thank you. Our first question comes from Stephen Kim <unk> with Stifel. Please proceed with your question.
Thanks, Good morning, everybody good morning.
Steven.
So two things if you don't mind, the first would be on the ISP side.
You've you've announced that you talk on the call about your price increases that had been put through on various products could you could you speak to the timing of how these roll through and and how much of this is reflected in the in sort of the.
Second quarter are pretty strong I S P.
Our guide for contribution margin dollars.
So we had two different price increases for different product lines. Steven one was may 15th.
Effectiveness and the other was was June 1st so.
We'll see a little bit of that in Q2, but obviously more of that in the second half. So I think we will see several million dollars worth of additional pricing.
Second half versus first half.
Okay. Thanks Steven.
I would just add look you know clearly inflation was a little bit of a headwind for us in Q1. That's why you saw those price increases come in later.
And looked at it it's just going to be a timing issue for us as we put the price increases in place and make up for it for that inflation in Q1.
Okay that makes sense, thank you and.
When you think about the oil and gas side of the business I mean, clearly demand is very strong in.
We've heard.
Pressure pumping companies in the first quarter, where we're inefficient to an extent because of a shortage of frac sand at the mine when when you look at the industry dynamics and you look at current capacity, what you're seeing in the end.
In the field as far as maybe some shuttered mines potentially coming back online what are you seeing and how do you. How do you think about the the supply side of the equation over the next several quarters.
And so it's a really really good question, Stephen and we spent a lot of time thinking about this as you might imagine.
I believe that.
First off we're going to continue to see strong demand over the next several quarters. So that will help keep the market tight but further than that.
There are all kinds of different.
Supply constraints and issues out there that we see obviously labor at the mine site sale across the Permian is one.
Trucking is another logistics is another issue, particularly anything that has to go by rail right. Now is very challenged given the issues that the other railroads are having all across the country and that's not just for sand. There's a big article in the Wall Street Journal today talking about.
Some of the crops and other agricultural issues that are being caused by the railroad issues. So we're feeling that pain in our industry as well so I feel like the dynamic of sets up very well to our to keep things tight in the market and we're also seeing quite a bit of discipline out there in terms of all the sand suppliers.
In addition to that.
So so I think we're set up for a really good environment for pricing over the next few quarters and as you said are in many instances sand has actually become the gating item for completion activity in most of the service companies that we talk to now.
Don't even mobilized equipment out to the job sites unless they've got sand fully committed for the for the entire job and what we saw earlier in Q1 as before everyone kind of woke up to the tightness in the sand market jobs would be started and then in the middle of the job they wouldn't have enough sand and it would be the sort of big panic. So we're a little bit past that but most.
Because I think folks are coming around to the realization of the tightness and planning accordingly so.
And time and as you can imagine that's leading us to have a lot of conversations with existing and potential customers and I think you'll see us continuing to <unk>.
Signed some new contracts and also we're going back to customers with existing contracts and are kind of reopening those up for negotiations and we're getting pretty pretty pretty good reception from from customers just given the reality of the market right now.
Great and if I could just slip in one more that's a follow up to that we've heard because of the sand shortages some of the e&ps.
E&ps are self sourcing less and letting the pressure pumper supply the sand.
In greater numbers does that impact your business at all.
So we haven't necessarily seen that but it does it doesn't matter to us we tend to deal with all the tier one players be they service or our operator.
Kind of side of things and I.
I think.
The approach we took in Q1 when a lot of this kind of sand ammonium was going on as we put a lot of emphasis on service to our customers and I think if you went out and surveyed customers I would tell you that they almost never got shut down by U S. Silica, even when everyone else was having problems and I was actually having lunch with a customer.
A couple of weeks ago out in the Permian and he was just.
Given me an anecdote. He said you know I was talking to a friend of mine and he was asking me how we were making out with all of this you know sand issues and he basically said what sand issues have U S. Silica is my suppliers. So I think our customers had been somewhat insulated from this because we've worked really hard to make sure. They had what they needed to do the jobs that were scheduled.
Great. Thank you.
Thanks Steven.
Thank you. Our next question comes from Dan Kutz with Morgan Stanley . Please proceed with your question.
Hey, Thanks, good morning.
Good morning, Dan.
So why don't you.
Can I ask a more broad question on oil and gas pricing as you can tell.
I'm thinking about the factors that are supporting Frac sand pricing today can you talk through how you could maybe think about.
Which of these trends are potentially more transitory over the medium to longer term and if there's anything that you think is potentially more structural that could support CN pricing on longer term, whether it's from cost structure. Yeah. So part of my supply demand dynamics.
Sure.
Really good question, Dan and I think the way I look at it and we talk all the time internally about the sustainability of our profitability in the oilfield and I think that's really at the root of your question and so I would say first off that I believe and most importantly, I think our customers believe I've ever seen.
Executive I've talked to recently has some version of this kind of thesis that we're in the early stages of a multi year North American shale up cycles. So I think that the conversation our pricing and margins. It has a backdrop of it seems like we're gonna be.
Perhaps a lot Oh.
A lot tighter here than we've been over the last few years and then I think you have to look at U S silica and sort of what we have and I think our sand and last mile logistics services are critical to well completions across the industry. We've got depending on the quarter, you know, 12% to 15% share of the proppant and how about <unk>.
30% share of last mile deliveries with sandbox.
I also think we're really well positioned with our operational footprint.
The customer base that we have and the contracts that we have quite quite frankly, and I think that's that's proven to be true whether it's of the downside that we faced during the pandemic, where we were kind of the last man standing as well as the upside here and so I think it was a number of elements there.
That you have to look not just kind of in general what the profits look like across the sand industry, you know through some cycle over the next several years.
But your focus on U S silica and I think we check check almost all the boxes and I mean, just to give you an example.
We're trying to be very sustainable in our pricing and profitability and while we could go out and sell sand for 50 or $60 a ton on the spot market.
<unk> has to go to our existing customers and perhaps renegotiate the entire contract get it extended and instead of selling some number of tonnes to them at $50 $60 I'd, rather just raise their price to 30% to $35 for the next three or four years and basically to us. It's the same margin, but it gives them.
The ability to to have more sustainable prices then.
Back to my original comment it.
Kind of things that I think customers are starting to believe customers are signing long term contracts, we're starting to get Crs contracts again, which I think the last Crs F contract, we signed before this.
This current time was back in 2018, and so just for a reminder, for the folks on the call today CRF contract as our kind of best contract version sort of version five of our sand contracts, where customers gave us cash upfront and then that that cash gets returned throughout the.
The life of the contract on a quarterly basis as they buy sand from us so it keeps us in.
And our customers really well aligned we're starting to sign those again.
I think that's an indication that cut.
Customers are seeing the same things that we're seeing so it's a long winded answer your question, but theres a lot of elements to this but I'm really confident that the profitability is going to be up.
Significantly for many quarters to come here.
That's all really helpful and that's good to hear.
And then maybe on the ISP side pricing question here as well. So you know we've seen a number of announcements from you guys on.
You're being able to raise pricing there.
Particularly in the recent months and maybe before that there was language that these were largely to offset cost inflation could you maybe talk through.
Which end markets or product lines do you have maybe more pricing power than you're actually able to realize net pricing gains in <unk> and <unk>.
Which product lines are our <unk>.
More just to kind of offset inflation dynamics.
So if you if you look at our.
Pricing announcements and go back over the last several that we've put out.
You can see that they're pretty broad ranging so I don't.
I don't think there's any corner of the industrial business, but it's not been subject to a price increase over the last 12 months to 18 months.
Now thats for non contracted customers for sure which is about 50% of our total revenue right. So we're typically 50 50 contract and that kind of spot or just sort of looser agreements that we have with customers, where we can raise prices like we've been doing.
I think what you'll find though is that across most of the industries that we serve.
There's a limited set of options in some cases for customers and we provide a service that the customers value a lot and so we do have the ability to to raise prices and get those to stick I would say that well.
We're probably 90, 598% in terms of getting the increases that we announced to stick.
So it's a you know it's been very successful quite honestly and kudos to our sales team. Its a tough thing as a salesperson to be out constantly raising prices, but we.
And we keep a very tight tight watch on inflationary costs and make sure that we're covering her more than covering those those costs as they come up.
Great also are really helpful and good to hear thanks, a lot Bryan I'll turn it back.
Thanks, Dan.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Thank you. Our next question is from Samantha Hoh with Evercore ISI. Please proceed with your question.
Hey, guys congrats on the great quarter.
Mathematic quantity.
Hey, guys.
And the thing that I'm kind of struggling the most with is just on the balance sheet.
I would've expected a little bit more cash, especially given that you guys.
On that curious should be fine.
Can you maybe quantify how much and then.
The cash component of the M&A related expenses.
And maybe just you know what we can I mean from my sense of it seems like youre going to way surpassed our year end 300 million target for the cash balance.
And I'm wondering if you.
Yeah.
Where I'm from Christmas.
You're kind of guiding to.
Sure. So I think youre right on the last point that.
Right now, we're anticipating our cash balance to be in excess of $300 million in the first quarter. It typically if you look back in the history of the company, we burn cash in the quarter.
There's a lot of cash liabilities that we have that come out, but I can point to a couple of things in particular, one is that we mentioned in the press releases that we did have.
We ended up settling a liability in the first quarter.
Had about a $10 million liability out there that we had the option to pay off at 65 on the dollar. So we had a cash expense of $6 5 billion.
We had capital spending of $7 million as well.
And then we are working capital is starting to increase as we have more sales and so the accounts receivable balances going up.
So those three things combined really is what caused us to be flat. Despite the cares refund, but we do anticipate being free cash flow positive the rest of the rest of the year.
Okay, Great and then may have missed it but did you give an ISP volume guidance.
No we really we did not.
Okay.
So it's pretty impressive to hear that milling is sold out from my recollection. It seems like you were re jiggering that plant to have multiple product lines.
There were even increasing capacity.
Can you give us a sense of what that means for that plant to be sold out.
It's a great question, Samantha and you're you're remembering right. It wasn't that long ago that we were just ramping that site up in our commercial team has done a great job, there and I forget it.
It goes along with what we've talked about would be.
Quartz countertop market starting to boom here in North America, and a lot of the these new lines that are starting to do <unk> to.
To begin operation.
I think what you can take from that is we've signed some really attractive contracts end.
I think pricing is up pretty substantially in that sector as well.
And as we've talked about in the past when we laid out our growth projects for the industrial side of the business. We think there's the opportunity to add additional capacity. So if you look at millen.
Has.
Our second kiln, that's already there installed so basically what we're running now is one out of two kilns. So we have we have to start up that second kiln. Then certainly yeah. That's part of our long term growth plan.
Over the next 12 months to 18 months and we're starting to already have conversations with customers around contracting up the additional volumes that we can make from that a second kiln. So I would expect that we.
We will be talking about that a bit more in the future, but it's turned into a really really great facility for us and we're going to make a lot of a lot of profit out of millen in the coming years.
Okay, Great and then maybe just one last one.
That capex ramp in the second half.
I understand there's really four growing ISP and I was wondering if you guys have explore opportunities to maybe partner.
With customers or maybe even.
Right.
In terms of getting you know funding for for some of those investments that you need to do to actually really thrilled that I S. P N that new products, especially DSG magic product I'm, just kind of wondering if.
It's really going to be thinking of.
Just funding the gross Capex in house, where are you looking at other opportunities to.
Partner up with them.
Our customer base.
So we definitely are thinking about partnership opportunities with customers and.
I like that for a couple of reasons my experiences.
You can derisk projects like that it's always helpful, but perhaps more importantly, if customers have a bit of skin in the game in terms of our capacity expansion for example.
<unk> tend to be much more likely to buy from you and you have less sort of contractual issues are worried about demand in the future. So.
That's definitely on our playbook and we continue to look for opportunities to take advantage of it not just from say the mill expansion, but.
Other expansions, we might need to do in the future to support the growth of the solar panel industry in the U S or depending on what comes out of Washington, If we get some kind of a bill through Congress on some of the kind of build back better projects. So we have a lot of different.
Products and offerings that go into.
Say construction commercial construction for example, with we've talked on the prepared comments here about our new limestone capabilities.
So that's into roads and all sorts of aggregates and things. So I think theyre going to be multiple opportunities to look for additional funding to help.
Offset or maybe more importantly de risk our capital investment and we certainly are pursuing those things aggressively.
Okay, and just one one on oil and gas.
Thank you.
One thing that we're all trying to understand is just given the sustained higher pricing environment.
And just confidence in us.
Well tie here up cycle.
Kind of country wondering if there are certain idle capacity that you have that.
Maybe look more economic going now at these current price range.
You know I just kind of wondering you know what are the opportunities to maybe add some capacity just from idle facilities that you might have.
Maybe not in the Permian first per se, but just in the northern White is it is there are you getting to a point, where it like that might be feasible in the next year or two.
I think we will we'll have to see where things go but we certainly don't have any any kind of a firm plans to reactivate any of the northern white capacity at this time certainly given all the rail challenges right now that that wouldn't be feasible, even if if we could snap our fingers and reactivate this site.
Tomorrow, there's not enough to use a I guess, an oilfield euphemism, there's not enough takeaway capacity, if you will to get the sand on rail in and out from from those facilities. So I think that will be a significant bottleneck to any kind of northern white coming back online.
Said, we all know that northern white on a delivered cost basis is substantially more expensive than the local sand and so to the extent there is northern white coming in to places like the Permian is fantastic news for us because that just raises the <unk>.
Pricing umbrella for all the local sands as well.
Is that cost component now actually is it am I think it was like $50 per ton previously.
I think that's a good that's a good rule of thumb, depending on where it's coming from and which rail maybe 40 to $50 a ton.
Additional coming in and then you also have to remember that it comes into a trans load, which is probably not as conveniently located in some of our minds are two to wherever the jobs are so there could be an additional trucking component there as well.
Okay excellent. Thanks, so much farther happening congrats Brian .
Samantha Thanks as always.
Yeah.
Thank you. Our next question is from Derek <unk> with Barclays. Please proceed with your question.
Hey, good morning, guys morning, Derek quarter morning, So last quarter, you mentioned Youre revenue ISP was 12% for the environmentally beneficial products and I think it was a $20 million exit contribution margin annualized run rate for that.
The new products as well could you just provide us an update on how that's progressed this quarter.
So I would say that we're running at about the same product mix in Q1.
We will see some additional ramp ups throughout the year of revenue from things like the solar panels or are.
Some of the.
D E based insecticides and other products that are under development. So we will see that kind of ramping throughout the year, but not a big change from Q4 to Q1.
Okay. That's helpful.
And then you mentioned a number of process efficiencies to help support profitability I'm, just wondering perhaps rise a little more color exactly what those truffles efficiencies are and maybe just some stats around it how it is able to support your profitability.
It's a great question and it's one of my favorite parts of the company I mean as a as an operations focused entity as you can imagine we have a lot of continuous improvement folks that work across our different sites that we have a dedicated team.
It works with our operations group too.
To try and make all those kind of improvements so it's everything from.
Looking at cost savings to improving yields.
Two <unk>.
Standardizing operating procedures to a training of operators and mechanics, it's a it's a wide range of things and if I showed you the spreadsheet.
Keep all those sort of opportunities its a multi page sheet with literally hundreds of opportunities spread across our 24 operating sites. So theres a lot of it is focused on operations a big part right now as you might imagine two is focused on supply chain and logistics. So one of the big efficiencies that we're going after.
As to try and expand our opportunities and Derisk some of the international logistics that.
With that we have within the company as I think again much like you know the kind of the rail that we're seeing now in the oil and gas side being an issue international logistics as an issue for for every company that ships are shipped around the world, obviously and so our teams are focusing in and trying to for example get us out at more poor.
So a lot of the diatomaceous Earth that we shipped which is our biggest export product.
He's made at our site in Lovelock, Nevada, and that goes out to our.
To the port of Oakland typically in Oakland, and just got overwhelmed over the last year or so and so we're spreading that out or for example to shift from long Beach, Houston and New Orleans were looking at Savannah, Other East coast ports.
And so the team is very focused on logistics efficiencies and that will help with cost, but it would also have a debottleneck. The site. So we never want to have to slow down our operating site. Because we are we have a downstream kind of logistics challenges with the kind of mess that logistics are these days so anyway long story short a variety.
We have different items that it touches almost every aspect of our supply.
Supply chain and in operations.
Great I appreciate the color I'll turn it back.
Thanks Derek.
Yeah.
Thank you there are no further questions I would like to turn the floor back over to Bryan Shinn for any closing comments.
Thank you operator, as we bring our call to a close today I want to conclude with just a few key thoughts.
I believe that we're very well positioned and on track to deliver an outstanding year with strong sales profitability and cash generation and I think.
One way or another we've touched on almost all of those are within our prepared remarks and in the questions.
The second thought here is that we're very committed to market and capital discipline and if you look at the margin improvement efforts that were worth currently undertaking I think we expect to be able to continue to sustainably generate positive free cash flow Samantha asked a great question about that I'm really.
Excited about the amount of cash that we're going to generate this year as Don said, we expect to be well over $300 million on the balance sheet by the end of the year and that will help us further strengthen our balance sheet.
And then finally as we look ahead, we remain very confident that our industry, leading business segment's robust product portfolio, a focused strategy that we have and what I think is best in class execution will create sustainable value for our shareholders and all of our stakeholders.
So thanks again for joining the call today, and we look forward to speaking with you all again next quarter and please everyone stay safe and be well.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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