U.S. Silica Holdings, Inc. Announces Third Quarter 2018 Results

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U.S. Silica Holdings, Inc. Announces Third Quarter 2018 Results
Oct 23,2018
- Third quarter revenue of $423.2 million
- GAAP and adjusted EPS for the quarter of $0.08 and $0.44, respectively
- Oil and Gas volumes up 10 percent sequentially
- Strong operating cash flow in the quarter of $94.7 million
- Record financial performance in the quarter for the Industrial business

KATY, Texas, Oct. 23, 2018 /PRNewswire/ -- U.S. Silica Holdings, Inc. (NYSE: SLCA) today announced net income of $6.3 million or $0.08 per basic and diluted share for the third quarter ended September 30, 2018, compared with net income of $41.3 million or $0.51 per basic and $0.50 per diluted share for the third quarter of 2017. The third quarter results were negatively impacted by $8.3 million or $0.08 per share in M&A related expenses, including $7.0 million of purchase accounting related to the acquisition of EP Minerals, $25.0 million or $0.25 per share in costs related to plant startup and expansion expenses, $1.9 million or $0.02 per share in business optimization projects and $1.5 million or $0.01 per share in other adjustments, resulting in adjusted EPS for the third quarter of $0.44 per basic and diluted share.

U.S. Silica (PRNewsFoto/U.S. Silica)

"I am proud that our team overcame headwinds in our Oil & Gas sand business to deliver one of the best quarters in company history. We again demonstrated the strength of our customer relationships, offerings and diversified business model," said Bryan Shinn, president and chief executive officer.

"Our Industrial and Specialty Products segment had another record-breaking quarter, setting highs for revenue, contribution margin and contribution margin per ton. These impressive results were driven by a full quarter of earnings from our recent acquisition, EP Minerals, several recent price increases and favorable product mix. I'm very excited about our prospects in ISP. We have a robust new business pipeline with more than 100 projects in the queue. These products should add substantial value to our business in the next few years.

"In Oil and Gas sand, we grew volumes 10% sequentially and continued to ramp our new Permian basin mining facilities. This achievement was impressive given the slowdown in well completions driven by Permian well offtake capacity issues and E&P 2018 budget exhaustion. While we did experience pricing pressure during the quarter on Northern White sand and spot sales, our contracts held up well.

"Our SandBox unit averaged 82 crews during the quarter, and though we saw lower load volumes from the slowdown in completions activity, this decline was partially offset by higher profitability per load. Sandbox has a strong pipeline of new work with recent contract awards from several operators for multiple crews planned to start in the next two quarters. We also have developed and launched several new innovative solutions to better serve our customers and grow the business.

"I am positive on the outlook for our Oil and Gas businesses in 2019.  While we will likely see more white space on our customer's calendars for the rest of this year, we believe these near-term challenges are transitory.  Budgets will reset in 2019, takeaway capacity will be expanded and the record inventory of DUCs will begin to be completed. All of which should provide positive catalysts for sand and logistics demand. Further, we expect to see more higher cost Northern White sand capacity idled in the next few quarters, which will help balance supply and demand and support stable pricing," concluded Shinn.

Third Quarter 2018 Highlights

Total Company

  • Revenue of $423.2 million for the third quarter of 2018 compared with $427.4 million in the second quarter of 2018, down 1% sequentially and up 23% over the third quarter of 2017.
  • Overall tons sold of 4.804 million for the third quarter of 2018 compared with 4.489 million tons sold in the second quarter of 2018, up 7% sequentially and 18% over the third quarter of 2017.
  • Contribution margin of $138.2 million for the third quarter of 2018 compared with $155.9 million in the second quarter of 2018, down 11% sequentially and up 15% over the third quarter of 2017.
  • Adjusted EBITDA of $105.5 million for the third quarter of 2018 compared with Adjusted EBITDA of $123.6 million in the second quarter of 2018 and $96.7 million in the third quarter of 2017.

Oil and Gas

  • Revenue of $302.5 million for the third quarter of 2018 compared with $324.1 million in the second quarter of 2018, down 7% sequentially and up 6% over the third quarter of 2017.
  • Tons sold of 3.821 million for the third quarter of 2018 compared with 3.465 million tons sold in the second quarter of 2018, up 10% sequentially and 21% over the third quarter of 2017.
  • 65% of tons sold were in basin for the third quarter of 2018 compared with the 67% sold in basin in the second quarter of 2018.
  • Segment contribution margin of $89.6 million, or $23.43 per ton, for the third quarter of 2018 compared with $114.6 million in the second quarter of 2018, down 22% sequentially and 7% over the third quarter of 2017.

Industrial and Specialty Products

  • Revenue of $120.7 million for the third quarter of 2018 compared with $103.4 million in the second quarter of 2018, up 17% sequentially and 106% over the third quarter of 2017.
  • Tons sold totaled 0.983 million for the third quarter of 2018 compared with 1.024 million tons sold in the second quarter of 2018, down 4% sequentially and up 6% over the third quarter of 2017.
  • Segment contribution margin of $48.7 million, or $49.54 per ton, for the third quarter of 2018 compared with $41.3 million in the second quarter of 2018, up 18% sequentially and 103% over the third quarter of 2017.

Capital Update

As of September 30, 2018, the Company had $345.6 million in cash and cash equivalents and $95.2 million available under its credit facilities. Total debt as of September 30, 2018 was $1,264.5 million. Capital expenditures in the third quarter totaled $61.6 million and were mainly for engineering, procurement and construction of our growth projects, primarily Crane and Lamesa, equipment to expand our Sandbox operations, and other maintenance and cost improvement capital projects. During the third quarter the company generated $94.7 million in operating cash flow.

Outlook and Guidance

The company anticipates that its capital expenditures for 2018 will be approximately $350 million. We estimate that our annual effective tax rate for 2018 will be 11%.

Conference Call

U.S. Silica will host a conference call for investors today, October 23, 2018 at 9:00 a.m. Eastern Time to discuss these results. Hosting the call will be Bryan Shinn, president and chief executive officer and Don Merril, executive vice president and chief financial officer. Investors are invited to listen to a live webcast of the conference call by visiting the "Investor Resources" section of the Company's website at www.ussilica.com. The webcast will be archived for one year. The call can also be accessed live over the telephone by dialing (877) 869-3847 or for international callers, (201) 689-8261. A replay will be available shortly after the call and can be accessed by dialing (877) 660-6853 or for international callers, (201) 612-7415. The conference ID for the replay is 13684211. The replay will be available through November 23, 2018.

About U.S. Silica

U.S. Silica Holdings, Inc. is a performance materials company and is a member of the Russell 2000. The Company is a leading producer of commercial silica used in the oil and gas industry, and in a wide range of industrial applications. Over its 118-year history, U.S. Silica has developed core competencies in mining, processing, logistics and materials science that enable it to produce and cost-effectively deliver over 1,500 diversified products to customers across our end markets. U.S. Silica's wholly-owned subsidiaries include EP Minerals and SandBox Logistics. EP Minerals is an industry leader in the production of products derived from diatomaceous earth, perlite, engineered clays, and non-activated clays. SandBox Logistics is a state-of-the-art leader in proppant storage, handling and well-site delivery, dedicated to making proppant logistics cleaner, safer and more efficient. The Company currently operates over 25 mines and production facilities. The Company is headquartered in Katy, Texas and has offices in Frederick, Maryland and Chicago, Illinois.

Forward-looking Statements

Certain statements in this press release are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and speak only as of this date. Forward-looking statements made include any statement that does not directly relate to any historical or current fact and may include, but are not limited to, statements regarding U.S. Silica's growth opportunities, strategy, future financial results, forecasts, projections, plans and capital expenditures, and the commercial silica industry. Forward-looking statements are based on our current expectations and assumptions, which may not prove to be accurate. These statements are not guarantees and are subject to risks, uncertainties and changes in circumstances that are difficult to predict. Many factors could cause actual results to differ materially and adversely from these forward-looking statements. Among these factors are: (1) fluctuations in demand for commercial silica; (2) the cyclical nature of our customers' businesses; (3) operating risks that are beyond our control; (4) federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing; (5) our ability to implement our capacity expansion plans within our current timetable and budget; (6) loss of, or reduction in, business from our largest customers or failure of our customers to pay amounts due to us; (7) increasing costs or a lack of dependability or availability of transportation services or infrastructure; (8) our substantial indebtedness and pension obligations; (9) our ability to attract and retain key personnel and truckload drivers; (10) silica-related health issues and corresponding litigation; (11) seasonal and severe weather conditions; and (12) extensive and evolving environmental, mining, health and safety, licensing, reclamation, trucking and other regulation (and changes in their enforcement or interpretation). Additional information concerning these and other factors can be found in U.S. Silica's filings with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

U.S. SILICA HOLDINGS, INC.


SELECTED FINANCIAL DATA FROM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited; dollars in thousands, except per share amounts)



Three Months Ended


September 30,
2018


June 30,
2018


September 30,
2017

Total sales

$

423,172



$

427,433



$

345,023


Total cost of sales (excluding depreciation, depletion and
amortization)

322,336



292,845



227,789


Operating expenses:






Selling, general and administrative

37,980



42,232



29,542


Depreciation, depletion and amortization

37,150



36,563



24,673


Asset impairment



16,184




Total operating expenses

75,130



94,979



54,215


Operating income

25,706



39,609



63,019


Other (expense) income:






Interest expense

(21,999)



(20,214)



(8,347)


Other income (expense), net, including interest income

1,062



1,081



1,308


Total other expense

(20,937)



(19,133)



(7,039)


Income before income taxes

4,769



20,476



55,980


Income tax benefit (expense)

1,547



(2,832)



(14,707)


Net income

$

6,316



$

17,644



$

41,273


Less: Net income (loss) attributable to non-controlling interest






Net income attributable to U.S. Silica Holdings, Inc.

$

6,316



$

17,644



$

41,273








Earnings per share attributable to U.S. Silica Holdings, Inc.:






Basic

$

0.08



$

0.23



$

0.51


Diluted

$

0.08



$

0.22



$

0.50


Weighted average shares outstanding:






Basic

77,365



77,784



81,121


Diluted

77,859



78,480



81,783


Dividends declared per share

$

0.06



$

0.06



$

0.06


 

 

U.S. SILICA HOLDINGS, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited; dollars in thousands)



September 30,
 2018


December 31,
 2017





ASSETS

Current Assets:




Cash and cash equivalents

$

345,583



$

384,567


Accounts receivable, net

247,692



212,586


Inventories, net

170,723



92,376


Prepaid expenses and other current assets

18,827



13,715


Income tax deposits

2,804




Total current assets

785,629



703,244


Property, plant and mine development, net

1,868,382



1,169,155


Goodwill

414,741



272,079


Intangible assets, net

195,498



150,007


Other assets

24,405



12,798


Total assets

$

3,288,655



$

2,307,283



LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:




Accounts payable and accrued expenses

$

231,302



$

171,041


Current portion of long-term debt

13,479



6,867


Current portion of deferred revenue

40,755



36,128


Income tax payable



1,566


Total current liabilities

285,536



215,602


Long-term debt, net

1,251,053



505,075


Deferred revenue

79,095



82,286


Liability for pension and other post-retirement benefits

46,045



52,867


Deferred income taxes, net

169,432



29,856


Other long-term obligations

88,013



25,091


Total liabilities

1,919,174



910,777


Stockholders' Equity:




Preferred stock




Common stock

815



812


Additional paid-in capital

1,165,661



1,147,084


Retained earnings

328,624



287,992


Treasury stock, at cost

(120,078)



(25,456)


Accumulated other comprehensive loss

(8,753)



(13,926)


Total U.S. Silica Holdings, Inc. stockholders' equity

1,366,269



1,396,506


Non-controlling interest

3,212




Total stockholders' equity

1,369,481



1,396,506


Total liabilities and stockholders' equity

$

3,288,655



$

2,307,283


 

Non-GAAP Financial Measures

Segment Contribution Margin

Segment contribution margin is a key metric that management uses to evaluate our operating performance and to determine resource allocation between segments. Segment contribution margin excludes certain corporate costs not associated with the operations of the segment. These unallocated costs include costs related to corporate functional areas such as sales, production and engineering, corporate purchasing, accounting, treasury, information technology, legal and human resources.

The following table sets forth a reconciliation of net income, the most directly comparable GAAP financial measure, to segment contribution margin.


Three Months Ended


September 30,
2018


June 30,
2018


September 30,
2017

Sales:






Oil & Gas Proppants

$

302,452



$

324,063



$

286,369


Industrial & Specialty Products

120,720



103,370



58,654


Total sales

423,172



427,433



345,023


Segment contribution margin:






Oil & Gas Proppants

89,550



114,607



96,087


Industrial & Specialty Products

48,697



41,301



23,978


Total segment contribution margin

138,247



155,908



120,065


Operating activities excluded from segment cost of sales

(37,411)



(21,320)



(2,831)


Selling, general and administrative

(37,980)



(42,232)



(29,542)


Depreciation, depletion and amortization

(37,150)



(36,563)



(24,673)


Asset impairment



(16,184)




Interest expense

(21,999)



(20,214)



(8,347)


Other income (expense), net, including interest income

1,062



1,081



1,308


Income tax benefit (expense)

1,547



(2,832)



(14,707)


Net Income

$

6,316



$

17,644



$

41,273


Less: Net income (loss) attributable to non-controlling interest






Net income attributable to U.S. Silica Holdings, Inc.

$

6,316



$

17,644



$

41,273


Adjusted EBITDA

Adjusted EBITDA is not a measure of our financial performance or liquidity under GAAP and should not be considered as an alternative to net income as a measure of operating performance, cash flows from operating activities as a measure of liquidity or any other performance measure derived in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Adjusted EBITDA contains certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized, and excludes certain non-recurring charges that may recur in the future. Management compensates for these limitations by relying primarily on our GAAP results and by using Adjusted EBITDA only supplementally. Our measure of Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.

The following table sets forth a reconciliation of net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:



(All amounts in thousands)

Three Months Ended


September 30,
2018


June 30,
2018


September 30,
2017

Net income attributable to U.S. Silica Holdings, Inc.

$

6,316



$

17,644



$

41,273


Total interest expense, net of interest income

20,899



16,490



6,900


Provision for taxes

(1,547)



2,832



14,707


Total depreciation, depletion and amortization expenses

37,150



36,563



24,673


EBITDA

62,818



73,529



87,553


Non-cash incentive compensation (1)

5,427



6,931



6,567


Post-employment expenses (excluding service costs) (2)

544



554



194


Merger and acquisition related expenses (3)

8,303



17,624



2,387


Plant capacity expansion expenses (4)

24,999



10,721



1


Contract termination expenses (5)






Asset impairment (6)



16,184




Business optimization projects (7)

1,926






Other adjustments allowable under our existing credit agreement (8)

1,525



(1,932)



(26)


Adjusted EBITDA

$

105,542



$

123,611



$

96,676







(1)

Reflects equity-based non-cash compensation expense.

(2)

Includes net pension cost and net post-retirement cost relating to pension and other post-retirement benefit obligations during the applicable period, but in each case excluding the service cost relating to benefits earned during such period. Non-service net periodic benefit costs are not considered reflective of our operating performance as these costs do not exclusively originate from employee services during the applicable period and may experience periodic fluctuations as a result of changes in non-operating factors, including changes in discount rates, changes in expected returns on benefit plan assets, and other demographic actuarial assumptions.



(3)

Merger and acquisition related expenses include legal fees, consulting fees, bank fees, severance costs, certain purchase accounting items, inventory write-offs, information technology integration costs and similar charges. While these costs are not operational in nature and are not expected to continue for any singular transaction on an ongoing basis, similar types of costs, expenses and charges have occurred in prior periods and may recur in the future as we continue to integrate prior acquisitions and pursue any future acquisitions.



(4)

Plant capacity expansion expenses include expenses that are not inventoriable or capitalizable as related to plant expansion projects greater than $5 million in capital expenditures or plant start up projects. While these expenses are not operational in nature and are not expected to continue for any singular project on an ongoing basis, similar types of expenses have occurred in prior periods and may recur in the future as we continue to pursue future plant capacity expansion.



(5)

Reflects contract termination expenses related to strategically exiting a service contract. While these expenses are not operational in nature and are not expected to continue for any singular event on an ongoing basis, similar types of expenses have occurred in prior periods and may recur in the future as we continue to strategically evaluate our contracts.



(6)

The three months ended June 30, 2018 reflects a $16.2 million asset impairment related to the closure of our resin coating facility and associated product portfolio.



(7)

Reflects costs incurred related to business optimizations projects within our corporate center, which aim to measure and improve the efficiency, productivity and performance of our organization. While these costs are not operational in nature and are not expected to continue for any singular project on an ongoing basis, similar types of expenses may recur in the future.



(8)

Reflects miscellaneous adjustments permitted under our existing credit agreement. The three months ended September 30, 2018 includes storm damage costs, recruiting fees and relocation costs. The three months ended June 30, 2018 includes a $2.7 million credit as a result of the final settlement of contract termination costs related to the divestiture of assets in the first quarter of 2018. While the gain and costs related to a divestiture of assets are not operational in nature and are not expected to continue for any singular divestiture on an ongoing basis, similar types of expenses have occurred in prior periods and may recur in the future.

Investor Contacts  
Michael Lawson 
Vice President of Investor Relations and Corporate Communications 
301-682-0304 
lawsonm@ussilica.com

Nick Shaver 
Investor Relations Manager 
281-394-9630 
shavern@ussilica.com

 

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SOURCE U.S. Silica Holdings, Inc.