Q4 2022 US Silica Holdings Inc Earnings Call

February 24, 2023

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Good morning, and welcome to the U S silica fourth quarter 2022 earnings conference call.

At this time all participants are in a listen only mode. A question answer session will follow the formal presentation.

A brief question and answer that's what calendar 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 not my pleasure to introduce your host Patricia <unk> Vice President of Investor Relations. Please proceed.

Thank you and good morning, everyone I'd like to thank you for joining us today for U S. Silica fourth quarter 2022 earnings conference call.

On the call today are our Chief Executive Officer, Brian Chen 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.

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 we.

We do not undertake any duty to update any forward looking statements.

Additionally, we may refer to non-GAAP measures such as adjusted EBITDA segment contribution margin net debt and net 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 not debt.

And then that 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 delivered another excellent quarter to close out an exceptionally strong year for the company, which was defined by numerous achievements and accomplishments.

During 2022, our talented team successfully executed our strategic plan and delivered impressive bottom line results, while strengthening our balance sheet and positioning U S silica for future success.

Capitalized on robust customer demand for both operating segments and our combination of market and customer focus plus best in class offerings helped us maintain our industry leadership position.

In 2022, we significantly raised pricing across both segments to help offset inflation we.

We increased contract coverage, while expanding margins in our oil and gas segment and generated significant free cash flow.

We opportunistically use this cash to retire $150 million of long term debt effectively reducing our net leverage ratio to two two at year end.

I'm also very proud of our financial and operational achievements during the year.

Revenue increased 38% adjusted EBITDA grew by 58% and overall tons sold increased 14%.

We also delivered many non financial achievements in 'twenty, two including our third year in a row of record employee safety performance industrial.

Segment sales revenue into environmentally beneficial end users increased by 6% year over year.

We sold enough of our organic defect insecticide product to cover over 26000 American football fields, and Ah Rockwood, Michigan facility sold enough specialty low iron silica sand to produce flat graph flat glass for solar panels to more than cover the entirety of Central Park in New York City.

Overall, a great year and a lot to be proud of.

Let's move now to Q4 Dawn will discuss our performance in more detail in just a moment, but first I'd like to review some of the important trends that we saw during the quarter.

Let's start with our oil and gas segment.

Activity was strong through the holidays, and we did not experience meaningful disruptions from seasonality or weather.

Supply and demand balance remained very tight and sand proppant and last mile logistics and we continued to be effectively sold out due to strong well completion demand, especially in west Texas.

Spot prices for sand continued at attractive levels and range from approximately 40 to $50 per ton in the Permian basin.

Our contract sand and sandbox sales prices and margins expanded further during the quarter and we achieved another record for sandbox delivered loads in October .

Current customer sentiment is constructive and crude oil prices are supportive and what appears to be a multiyear up cycle for U S. Energy markets. We are encouraged that customers continue to secure sand supply for the medium term and we signed an incremental attractive multiyear contracts during the quarter. In addition to successfully realizing any.

Kris pricing on some existing customer contracts.

In our industrial segment Q4 profitability declined sequentially as guided on our prior quarterly earnings call.

As discussed this is normal seasonality for our industrial business.

Some markets naturally slow at year end and customers trim year end inventory to manage cash and perform annual facility maintenance in November and December .

Partially offsetting these seasonal impacts were lower natural gas input costs and the previously announced in November 1st price increases on most of our non contracted industrial products.

We also agreed to over a dozen new customer contracts or contract renewals with favorable pricing and terms during the quarter.

We ramped up sales of our diatomaceous Earth filtration products to support production of renewable diesel at numerous customer facilities and also we drove substantial operational performance improvements across numerous facilities through enhanced maintenance and reduced contractor spend and.

And finally, we are improving our <unk> processes with a focus on increasing total supply chain efficiency and product line profitability.

For the rest of my time. This morning, I would like to give an update on some of the exciting developments in our industrial portfolio and then finish with a summary of our outlook for the first quarter and full year of 2023.

Our industrial segment strategy remains consistent and has three main drivers.

The first is increasing profitability of our base business at a GDP plus right.

We have several items that support this commitment, including growing share at new and existing customers implementing value added pricing and continuously improving supply chain efficiency and effectiveness.

Our second driver is sales growth of existing high value differentiated products.

Examples of products in this category include ground silica diatomaceous Earth powders, diatomaceous Earth fine fillers and high purity filtration substrates.

These products are generally in high demand and most are sold out.

We're currently investing in new capacity to meet this strong market need for these offerings.

Our third growth driver and industrials is addressable market expansion with new high value advanced materials.

Advanced materials. Examples include cristobalite cool roof granules ever white pigment renewable diesel filtration media and micron scale minerals for specialty applications. We.

We are strategically investing in product development and new technology in these categories and we're standing up a new technical development Center near our flagship industrial mine site in Illinois to accelerate commercialization and sales of these offerings.

We continue to make good progress with other noteworthy developments in our industrial segment.

During Q1, including commencing shipments of our purified high purity <unk> filtration product to a large pharmaceutical company to support production of biomedical products.

<unk> approving investments in several growth and cost improvement projects, including adding capacity at our Millen, Georgia facility to support production of finely ground products expanding capacity at our Jackson, Mississippi facility to increase capacity for edible oil and renewable diesel purification products into.

The integration of our two ERP systems on the industrial side of our business, which will deliver business and cost efficiencies along with improved data insights by year end and finally implementation of a new export management system to support significant international freight savings.

We also delivered on our January one contracted price increases as planned and lastly in 2022, we achieved the second best safety year ever for our industrial segment.

Now, let's turn to our business and market outlook. We believe that we are well positioned for success. This year and are forecasting robust growth and strong financial performance in 2023 with company adjusted EBITDA, increasing 20% to 25% year over year and associated free cash flow generation of more than 100.

<unk> at $50 million.

Our oil and gas segment is well positioned to continue to generate strong earnings and cash while delivering further sequential growth.

Demand in the energy sector is robust and we remain effectively sold out for sand proppant and last mile logistics.

We began 2023 with positive momentum by delivering the best January profitability in oil and gas segment history.

Proppant contractual commitments stand at 85% of our 2023 capacity and are projected to reach similar level levels in 2020 for providing us with strong future cash flow visibility.

Further the staggered nature of our contracts allows us to capitalize on market strength, and we continue to secure new customer contracts at attractive pricing.

We also remain dedicated to efficiently running our operations and maximizing production levels without adding incremental capacity.

Additionally, we believe that the small amount of forecasted proppant supply additions this year will be absorbed by the market by increased demand.

Moreover, recent constructive customer conversations support this sentiment and we expect strong proppant contract commitment levels and attractive margins over the next 12 to 24 months.

Given that we forecast Q1 volumes and contribution margin dollars to increase 3% to 6% sequentially.

We're also commercializing additional well site offerings in our oil and gas segment, which we expect to contribute to 2023 earnings and we plan to discuss those new product lines in the coming quarters.

Pivoting to our industrial and specialty products segment, we continue to monitor macroeconomic factors and fine tuned our full year 2023 outlook.

Customer demand remained strong overall, particularly in the food and beverage chemicals, and refining general industrial and absorbent end markets. However demand in building products applications is showing some potential weakness.

All in we anticipate sequential profitability improvement as customer activity rebounds from typical fourth quarter seasonality and we realized a full quarter of price increases.

Our current base case forecast is for increased sales volumes with improving margins in 2023.

We expect Q1 volumes and contribution margin dollars to increase 6% to 10% on a year over year over year basis for industrials.

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, Brian and good morning, everyone as.

As Brian stated, we reported improved sequential results in Q4, driven by increased pricing and margin expansion in our oil and gas segment.

Compared to the prior quarter total revenue decreased 1% to $412 9 million adjusted EBITDA increased 1% to $104 2 million.

Total company contribution margin increased 2% to $134 4 million with overall tons sold of $4 6 million.

Selling general and administrative expenses for the quarter increased 3% sequentially to 35 billion.

Driven by higher overall spend and inflation in the quarter.

Depreciation depletion and amortization expense decreased 4% sequentially.

A total of $33 2 million in the fourth quarter.

Our effective tax rate for the quarter ended December 31, 2022 was 25, 8%, including discrete items.

Now let me move on with a detailed review of our operating segment results.

The oil and gas segment reported revenue of $273 7 million for the fourth quarter, an increase of 2% when compared to the third quarter volumes.

Volumes for the oil and gas segment increased by 2% to total $300 6 million tonnes and sandbox delivered loads increased 3% compared to the prior quarter.

<unk> contribution margin increased 11% quarter over quarter to $94 $4 million, which on a per ton basis rose, 9% sequentially to $26 47.

These positive results were driven by ongoing strength in customer demand improved pricing for proppant.

Especially in the northeast and West, Texas markets and increased margins for last mile logistics.

Our industrial and specialty products segment reported revenues of $139 2 million, an 8% sequential decrease when compared with the third quarter.

Volumes for the ISP segment decreased 8% when compared to the prior quarter and totaled 1.038 million tons.

Segment contribution margin decreased 14% on a sequential basis and totaled $40 million, which on a per ton basis was $38 54.

The sequential decrease in the results for the ISP segment were due to the expected lower levels of seasonal demand typical customer year end inventory management inflation and customer facility maintenance, which we opportunistically paired with our own facility payments.

These seasonal impacts were partially offset by price increases and the benefit of lower energy costs from the reduction in natural gas prices.

Turning to the cash flow statement during the fourth quarter, we delivered $93 $3 million of cash flow from operations, a sequential increase of 41% and we invested $24 5 billion of capital primarily for facility maintenance.

The company's cash and cash equivalents on December 31, 2022 totaled $288 million after completing a $50 million loan extinguishment in October at a discount to par.

At quarter end, our $100 million revolver had $0 drawn with $78 5 billion available under the credit facility after allocating for letters of credit.

Our initiatives and actions to strengthen the balance sheet have been successful.

At the end of the fourth quarter, our net debt to trailing 12 month adjusted EBITDA ratio was two two times significantly below where we began the year and handily, beating our 2023 target of three times net Levered basically one year ahead of schedule.

In 2022, we generated a total of $262 $7 million of cash flow from operations, which represented a 55% year over year increase.

We utilized this cash flow to Opportunistically extinguish a total of $150 million of our term loan at a discount to par meaningfully reducing our gross and net leverage.

Looking forward.

Today, we believe that we have good visibility for 2023, given the high level of proppant customer contracts in the oil and gas segment and are sticky and diverse customer base in the industrial and specialty products segment.

We're forecasting continued robust operating cash flow generation this year with free cash flow expected to increase year over year.

This is expected to provide us with the flexibility to further delever, our balance sheet and organically fund our business growth we.

We will continue to be disciplined in our capital spending managing accordingly, with an emphasis on effectively maintaining operating levels at our facilities and investing in selective growth projects for the ISP segment to maximize future profitability.

Our capital spending forecast for the full year 2023 is expected to range between 50 and $60 million with.

<unk> and new product planned capacity expansions and.

And equipment upgrades, along with routine maintenance and cost reduction projects.

We guided full year 2023, SG&A expenses to be down approximately 5% to 10% year over year, primarily due to the supplier contract termination and merger and acquisition related expenses that took place during the prior year that are not expected to recur.

Full year 2023, DD&A expense is anticipated to decrease approximately 5% to 10%.

And our estimated effective tax rate for the full year 2023 is approximately 25%.

In conclusion, the pricing cost and contracting actions that we've taken and continue to improve our allowing the company to effectively manage inflation issues and provide stability for future quarters for our two business segments, our capital allocation priorities remain consistent strengthening our balance sheet using free cash flow generation.

<unk> to extinguish debt and to organically invest in the growth of our industrial and specialty products segment.

Our goal for year end 2023 is for our net leverage ratio to be below two times, which we believe should be very achievable.

With that I'll turn the call back over to Brian .

Thanks, Don I'm very proud of what our team accomplished in 2022 against the backdrop of high inflation and market uncertainties. We have been very successful in expanding expanding our market leading positions are securing future cash flow visibility and strengthening our balance sheet. We also continue to execute on numerous <unk>.

Initiatives to further position us as a market leader and I expect that 2023 will be another record setting year for U S silica.

With that operator will you. Please open the lines for questions.

Thank you we will now conduct a question and answer session.

We would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Again, Thats Star one one moment, while we poll for our first question.

Our first question comes from Stephen <unk> with Stifel. Please proceed.

Thank you and good morning, everybody.

Good morning, Steven.

So yes.

Just to start.

Thank you.

You mentioned 23, EBITDA growth I believe of 20% to 25%.

Talk a little bit about.

The components of that I'm, assuming a lot of it is oil and gas driven given your comments from the ISP side, but can you add any clarity to how we should think about the pieces.

So we don't have specific guidance by the individual segments for you. All this morning, but I think you can infer from our bullishness on both segments that we expect both parts of the company to have a really good year in 2023.

And the oilfield side, we expect continued constructive macro backdrop strong oil and gas demand overall.

We don't expect to see a lot of.

Kind of demand destruction on the industrial side of the business that we mentioned that things look pretty good over there in general in spite of some of the headwinds out there. The only place we're seeing any kind of a headwind at all in industrials right now is a little bit in the building products sector, but we don't think thats going to have a material impact. So expectation is that we're going to have.

A really good year in 'twenty three on both sides of the company.

Thank you and when you when you mentioned, 85% of your oil and gas capacity.

Contracted for 'twenty three.

What is that capacity right now given where you are.

What are your different mindset.

So in total we've got about 15 million tons of active capacity on the proppant side Steven.

And we're not adding any incremental capacity per se, but our teams are always pretty creative in finding ways to squeeze out another ton here or there. So we'll continue to do that but but no capital expansions planned or any capacity increases that we would invest in specifically.

Thanks, and then just just one follow up to that when you.

Talk about the.

<unk> sort of lateral approach to some of your contracts.

When we think about the.

But pricing embedded in the in the.

Contracted oil and gas volumes.

Is it supportive of current or higher contribution margins.

So we we had a number of new contracts that we signed in Q4 for example, and I think in each of those we got additional price. So expectation is as we look at 2023, we will continue to get some price in oil and gas.

Sandbox side I think we have the same kind of dynamic things look pretty good over there.

Okay, great. Thank you.

Thanks Steven.

The next question comes from Samantha Hoh with Evercore ISI. Please proceed.

Hey, good morning, guys congrats on a great quarter.

Thanks, Matt.

Maybe talk a little bit about the strong start.

I agree with January being the best month ever at oil and gas.

Can you maybe speak to some of the team.

Maybe record numbers that Youre seeing in February Alastair next component geographically robot.

Just what youre seeing on the gassy cultural Sportsnet.

You're welcome.

So I would say in general.

Client demand remains really tight.

And the proppant side and last mile.

As we think about the January that we had as we said the best January ever for our oil and gas business since we've been in that over the last decade or so.

I think the rest of the quarter is going to be very strong as well proppant demand is super strong.

Everywhere.

Sandbox is doing really well also.

I know one of the questions. We've gotten from investors is what happens to our business with some weakness in natural gas pricing and.

That's sort of interesting week.

See that weakness, mostly impacting the haynesville and we decided that several years ago not to invest in any proppant minds in the Haynesville, just because thats always the.

Kind of a swing based on if you will for natural gas. So we have pretty limited exposure. There just a few sandbox crews in.

Erotically I think.

It might just tightened things up in other basins as budgets, perhaps shift a bit and service companies focus on basins outside the haynesville, but we're really seeing strength everywhere right now Samantha.

As a few other ironic things that have happened.

I think it's been widely reported that a local proppant mine that was opened up a year or so ago up in the northeast.

It was actually recently just shut down and that's that's really tightened things up in the in the Marcellus and the Utica, we're seeing really strong demand for northern white sand.

Prices are going up there as well so even in a basin that it might be a little counterintuitive to see pricing going up right now with the trajectory of natural gas, we're actually getting getting positive incremental margins. There. So it's pretty pretty exciting time on the oil and gas side for sure.

Okay great.

Well the other question I guess.

Actually in terms of the progress that you're making on the ISP side with the.

New products.

In years past.

Great.

Twice that contribution margin target.

Can you kind of maybe give us another update for year end 2022.

Initiatives.

Sure sure so.

As I mentioned in our prepared remarks, we have.

<unk> kind of growth engines in ISP. One is just the base business. Some of the things that we've had for a long time and we've been consistently growing that at GDP plus rates. So that continues.

The second growth engine that we have is selling more of our existing high value products. So things like ground silica diatomaceous Earth powders.

Other diatomaceous Earth high end products in the fillers markets and some of our high purity filtration products those products across our system are mostly sold out so one of the things. We're starting to do now is increased capacity for those.

Products and so one of the things that we are announcing this morning is a nice investment for new capacity of refined ground products and thats going to be at our Millen, Georgia site and that plays right into our overall strategy of.

Growing the ISP business and that should increase our fine ground capacity across the company by about 10% to 15% in some of our most profitable products. So we're doing things like that.

We're also.

Working on the third growth engine, which is the new advanced materials, that's like cristobalite cool roof granules.

White pigment products in a variety of other things.

There were also making an investment that we announced this morning or talked about it in prepared remarks that we are opening a new market and product development center up in Illinois, with the kind of equipment and people stepped up by the end of the year that will really allow us to turbocharge some of the.

The market development. So so we feel really good about about that.

I would say in general.

We're doing everything we can to get these new products out as fast as we can but we're probably a little bit behind.

Some of the initial expectations that we put out there.

I would say there is couple of reasons for that.

Generally the pandemic and post pandemic in that environment customer.

Customers have just been slower to respond to things like new product, mostly they're dealing with their own issues and priorities, but we're really seeing that improve.

Back half of 'twenty, two and and into 'twenty three.

The other thing that was an issue for us is that as we work to scale up these products to go from lab scale to kind of pilot scale and then eventually commercial we didn't have the facilities to do the pilot scale production. So we might have a customer that likes one of our new products, but they need five truckloads.

Try it out on one of their commercial side lines, we didn't have the facilities to produce that.

So that's the facility that I just mentioned a few minutes ago.

We're going to be starting up in the Illinois area.

Probably by the end of this year and so getting the facilities into to do that scale up work I think will help us out a lot.

And then the other thing in the background as we had had a choice.

To invest in some of these new products more to repurchase debt in some cases and just given the rising interest rate environment, we diverted some cash over to do that and as Don mentioned in his remarks, we repurchased about $150 million in debt.

At a discount.

It was really attractive margins, there, but I think now with the cash generation in the company. We can continue to repurchase debt continue to improve our balance sheet and make the investments we need to make in industrial so.

That said.

I would say as we exited 2022, we're probably in the $25 million to $27 million range in terms of the new product offerings.

And I would expect we'll continue to grow that in 'twenty, three probably be in the $32 million to $35 million range. So we're definitely ramping up.

And some of these larger projects that we have increased capacity for some of our Hyatt.

Our highest margin best selling kind of sold out products that will really start to kick in as we get into 2024 once those facilities are up and running.

So probably a longer answer than you wanted but its a complex.

Area, and it's something we're putting a lot of effort and energy into Smith.

Thank you so much for all that and.

Best of luck on that.

Thank you.

Well forget to ask a question. Please press star one.

On your telephone keypad, we have a follow up from Stephen can caveat with Stifel. Please proceed.

Thanks.

Two things one.

There was.

Assuming the IPO files.

Certainly.

Was curious they seem to be a pretty big player.

Can you just.

Any change in industry dynamics over the last year, plus as far as new mines coming off the way, they're acting the way pricing is structured et cetera.

Feels like the.

The ease of capacity additions that we saw in prior cycles Hasnt materialized and I'm just kind of curious your take on that and just sort of overall sand supply and demand.

No I'd say, it's an astute observation, Steven and I would say there have been some changes.

But regarding the IPO and you are obviously talking about the Atlas S. One that got filed.

Atlas has been a great competitor and they've been in the market for quite some time. So there is really.

Nothing new about them in the market, it's not like they just showed up one day they've been around for a while and we.

We compete against them as well as many other companies that are currently private.

But to your point I think we've definitely seen a slowing of capacity additions.

The things that we have seen coming online have been.

A much less frequent and we're not we're not seeing many many mines come in like we did in the early days certainly theres been a few mobile mines have come up in one or two other sites, but I feel in general that the.

The industry has been very disciplined much like the rest of the oil and gas value chain I think our competitors just like us are thinking about cash generation and thinking about their balance sheets and perhaps at some point being able to return some of that cash either into other investments or back.

Two back to investors or something like that sometime in the future but.

It feels very different than it did a couple of years ago, much more disciplined and kind of settled.

Does it feel like the wild West anymore to me. So it's been quite a change over the last few years.

Great and then just the only other question I had.

He got cut off for a second so you may have.

One <unk>.

<unk> questions, but.

In the ISP business are there like as we look at it are there any key.

Key products that are having the most success that we should be thinking about kind of driving new product innovation in 2003 and four.

So I think there there are a few things that are really interesting.

You heard us talk about the.

Fine filtration products that we have for the for the biomedical industry.

It's a really big.

Up and coming industry. So a lot of the kind of biologic drugs that you see out there today.

Basically.

Derived off of blood plasma and you have to.

Do certain things to that plasma separate proteins out things like that and our products are very good at that and that's probably ultimately.

35% or $40 million market today.

Into which were entering.

Cm market.

So that's going to do nothing but grow so I think that's one that over the next five to 10 years is a is a real target for us and there'll be lots of opportunities coming there I think the other one that's a really big market just because the addressable market is so size is so large it's a big market for us is the the white pigment.

So this is tiago to trying to replace that with perhaps are ever white product.

It's a really large market sector.

A lot of other smaller product lines things that are $5 $10 million to $15 million ultimate potential products for us, but we've got quite a few of them in a number of other things coming in the pipeline that are more like generation generation generation two generation three.

Product so a lot of exciting stuff in one of the things I like best about our product line, it's not like we're dependent on just one or two big hits.

Lot of singles and doubles in there as well and we just have to continue to bring those along and do it in a way that we have the whole sort of chain together to be able to get those products out in the market. So we have to be able to do the product development.

On the bench scale, we've got to do the scale up work at kind of the pilot size and then we have to be able to commercialize that and I think my response to <unk> question was more just talking through some of the challenges as you go through all of that.

Particularly in the pandemic in the post pandemic era.

There were a lot of additional challenges there and so we're probably a little bit behind where we originally aspired to be but most of the product lines are still there the green diesel a lot of the things that we're going after it's just a question of getting the products and get them out to the market.

Great.

For the color.

Youre welcome.

Thank you at this time I would like to turn the call back over to management for closing comments.

Thank you very much operator first want to thank my more than 2000 colleagues at U S. Silica for all of their hard work and dedication to make 2022 up an outstanding year for U S silica.

You've heard us talk today about the strong sales the profitability that cash generation and meaningful improvements in numerous areas of ESG. So certainly a lot to be proud of over the last 12 months or so.

I want to reaffirm that we're committed to market and capital discipline.

We also are delivering meaningfully on our promise to further strengthen our balance sheet and we expect to continue to sustainably generate significant free cash flow in 2023 and beyond and.

And finally as we look ahead, we remain confident that our industry, leading business segment's robust product portfolio focused organic growth strategy best in class execution and continued emphasis on creating a diverse and inclusive culture will deliver substantial value for our shareholders and other stakeholders.

Thanks again for joining our call today, and we look forward to speaking with you all again next quarter stay safe and be well everyone.

Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your participation and have a great day.

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Good morning, and welcome to the U S silica fourth.

2022 earnings conference call.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press scargill on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Patricia <unk>, Vice President of Investor Relations. Please proceed.

Thank you and good morning, everyone I'd like to thank you for joining us today for U S. Silica fourth quarter 2022 earnings conference call, leading the call today are our Chief Executive Officer, Brian Chen and Don Merril Executive Vice President and Chief Financial Officer before we begin I would like to remind you of our standard cautionary.

Regarding the forward looking nature of some of the statements that will be made today touch.

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 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 SEC.

We do not undertake any duty to update any forward looking statements.

Full reconciliation of adjusted EBITDA to net income and discussion of segment contribution margin net debt and our net leverage ratio and with that I would like to turn the call over to our CEO Mr. Bryan Shinn.

Capitalized on robust customer demand for both operating segments and our combination of market and customer focus plus best in class offerings helped us maintain our industry leadership position.

In 2022, we significantly raised pricing across both segments to help offset inflation with.

We increased contract coverage, while expanding margins in our oil and gas segment and generated significant free cash flow.

We opportunistically use this cash to retire $150 million of long term debt effectively reducing our net leverage ratio to two two at year end.

I'm also very proud of our financial and operational achievements during the year.

Revenue increased 38% adjusted EBITDA grew by 58% and overall tons sold increased 14%.

We also delivered many non financial achievements in 'twenty, two including our third year in a row of record employee safety performance.

Industrial segment sales revenue into environmentally beneficial end users increased by 6% year over year.

We sold enough of our organic <unk> insecticide product to cover over 26000 American football fields, and Ah Rockwood, Michigan facility sold enough specialty low iron silica sand to produce flat graph flat glass for solar panels to more than cover the entirety of Central Park in New York City.

Overall, a great year and a lot to be proud of.

Let's move now to Q4 Dawn will discuss our performance in more detail in just a moment, but first I'd like to review some of the important trends that we saw during the quarter.

Let's start with our oil and gas segment.

Activity was strong through the holidays, and we did not experience meaningful disruptions from seasonality or weather.

Supply and demand balance remained very tight and sand proppant and last mile logistics and we continued to be effectively sold out due to strong well completion demand, especially in west Texas.

Spot prices for sand continued at attractive levels and range from approximately 40 to $50 per ton in the Permian basin.

Our contract sand and sandbox sales prices and margins expanded further during the quarter and we achieved another record for sandbox delivered loads in October .

Current customer sentiment is constructive and crude oil prices are supportive and what appears to be a multiyear up cycle for U S energy markets.

We're encouraged that customers continue to secure sand supply for the medium term and we signed incremental attractive multi year contracts during the quarter. In addition to successfully realizing increased pricing on some existing customer contracts.

In our industrial segment Q4 profitability declined sequentially as guided on our prior quarterly earnings call as discussed this is normal seasonality for our industrial business.

Some markets naturally slow at year end and customers trim year end inventory to manage cash and perform annual facility maintenance in November and December .

Partially offsetting these seasonal impacts were lower natural gas input costs and the previously announced November 1st price increases on most of our non contracted industrial products.