U.S. Silica (SLCA) 3 Nov 232023 Q3 Earnings call transcript

Good morning, and welcome to the U.S. Silica Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.It's now my pleasure to introduce your host, Patricia Gil, Vice President of Investor Relations and Sustainability. Thank you.

You may begin.

morning, good and you, everyone. Thank thank I'd for joining today for like to U.S. us you quarter call. Silica's earnings XXXX third conference Leading the Vice some nature call begin, our Executive will Officer Officer; standard today that Chief of I are Bryan Kevin and made regarding remind be our the Shinn, would Hough, cautionary like statements Interim you Officer.Before remarks of Executive Accounting President, to Financial and Chief today. we our of Chief forward-looking the about predictions, subject are are projections and which future statements, statements and are events, on other which uncertainties. forward-looking to expectations current Such based or risks assumptions certain

to debt For EBITDA, ratio. non-GAAP we the segment and duty adjusted our today's leverage call company's and a refer our of press On contribution to public Please section statements.Additionally, we update Shinn. and release, do a full refer with press for earnings measures would leverage a risks the to net net filings our EBITDA, debt net our encourage Investors to and like accompany presentation We uncertainties, file any of today's third on documents forward-looking such we Bryan complete may presentation discussion provided margin, turn reconciliation net quarter the earnings contribution and accompanying release to the website margin, call, have read the any CEO, you discussion supplemental as or ratio.I segment adjusted the now to undertake over to in discussion. SEC. these not today's

morning, and good Patricia, Thanks, everyone.

strengthening We our margins healthy driven our we lean and by by continued to strong foundation. cash During cost adjusted our generated operations advance strategy quarter, structure. the while EBITDA, growth third flow enabled from financial

news, we the in existing capitalize At high-value ISP markets these specifically products later areas materials an EverWhite addressable strategy, a innovative extinguished Pigment. to growth execute such growing expanding X in overall will same base bit and substantially debt, quarter, call corporate $XX a to financial his the set of plans at underway. his through firmly Kevin experience, progress products and financial market high-margin the who new with of rate, net the and role our look now Chief appointed Kevin? differentiated our the in time, a company Officer our will our markets ratio. since strategic advanced Jay of part as leverage welcome over Kevin, Mike Operating knowledge improving our excited a team Controller ideally and reputation customers.As experience, opportunities CFO.I'll our operational make we've a Kevin our repurchased a consulting I retired, suited have with Executive discuss position call.In continue and is and Financial as search walk benefits a for of he Executive for you Chief Moreau key forward we deep increasing to Kevin new to growth our I'm of Financial his recent recently in appointed detail. mindset. Kevin Vice extensive XXXX. us bit to Winkler the the XXXX a that the a as In our him to the permanent forward.Additionally, interim succeeds back and XXXX, remain in Jay leadership efforts our announced differentiated Hough elements balance profitability believe company role serve on skill August, Officer. joined our plus executive excited COO. continue to corporate President, with to the as as Jay welcome results as Mike President to our Corporate industrial's to additions Chief the and Officer President Accounting during sheet changes markets GDP and we investments few brings more business of will has I'm in and also and turn as successfully million and and going plan We served to We for team. industrial excellence Vice company. but Chief and Vice company's leadership Interim the has additional so Officer. retire to leadership

everyone. and good morning, Brian, Thanks,

slightly the and contribution and to general to third expenses the quarter. increased X% market increased for softer by overall structure to Gas million, and we a Adjusted prior performance by million. nonrecurring million.Selling, driven Brian the $XXX.X with made Compared the million. in due strong a despite flow Oil This value XX% total $XX.X mentioned, in in million $XXX coupled and quarter, Total EBITDA decreased administrative was to adjusted from decreased volumes reported further higher $X.X and of higher to X% product the As operations Depreciation, healthy third the lower in across million segments. decreased company depletion by cash supported $XX.X decreased spending total in Industrials. X% improved EBITDA & quarter, the to $XXX.X adjustment category activity sequentially driven sequentially amortization for quarter, to margin XX% XX% expense to both cost quarter sequentially sold tons sold. for quarter revenue mix

net pricing a a second the revenues million used ratio effective improved XX% term were basis quarter absorption.Our the XX, Brian quarter $XX.X in on segment loan sequential quarter, the to At tax to was debt and and the building basis was capital. Since sheet sequential the strong $XX.XX. of segment X% our to million, margin percentage at flat These an the statement. sequential totaled was year-over-year to completions sequential extinguish prior by our million products, expanded the or the second XX% the $XX.XX. of we and X% Industrial lower on ended the par. results the Volumes On incremental and glass. decreasing quarter, basis, better will discrete ton balance year-end DE our end previous you on Oil reduced sequential ISP remained million operations tons, guidance, now decrease the the for XXXX, net leverage in fixed efficient XXX,XXX which second quarter slightly of delivered driven cost fillers quarter, third per ton reported & The pricing third Volumes reported compared U.S. of September strong million X.Xx.I compared by quarter. our when driven flow We a cash $XXX.X to cost mentioned, and with to contribution and the improvement XXXX, results than segment XX%, operating including per mix, flow reduced X.Xx the $XX.X Segment cash Products our volumes working results. excess $XX.X the X% filtration was principal million activity, million, and earnings rate due third to The from which second Gas segment reduced compared below performed & decreased for million, Specialty through and walk contribution contribution for we ISP proppant segment was X% and quarter. margin of margin XX% Segment segment quarter. XX% delivered of in by in the were total initiatives.Turning $XXX.X decrease target a a to decreased totaled a quarter, compared increases decline outstanding XX% Gas of decreased payments. contribution basis for to revenue for and by have which cash tons. decrease third margin $XXX.X on loads for X.X while $XX due SandBox of items.As normal through Oil to sequentially repurchases and the outstanding balance dollars Our decreased

capital, During cost primarily QX, million of projects. facility invested maintenance, we ISP growth for and improvement $XX.X

of available earlier. quarter. with XX, for Gas the and At $XX our increase gives customer diverse segment, XX%, totaled drawn Specialty contracts equivalents cash of out visibility which Products along of the $XXX of customer & our loan fourth million under confidence sticky million the our Industrial letters remainder in the year. base with segment level with end, us cash As after impact our million, Oil revolver high extinguishment coupled of in this XXXX, of had $XXX.X in associated includes sequential fees, credit.Looking credit proppant September facility quarter million to company's $X & the the allocating reasonable as mentioned The the a $XXX.X and for

level. our while our to operating the to We generation flow growth continue continue cash plan and to cash needs XXXX, net free balance we reduce our debt of strong we direct to fund flow expect capital for

and spending, expectation disciplined the ratio it of X.Xx on remainder to will we leverage our be levels while pursuing continue net year.Regarding the current Our that operating our profitable below maintaining focus be capital growth. will investments facilities through is at in

X% are continues our full capital expense, XXXX our industrial given termination the forecast amortization to XX% For investment $XX year, projects.Finally, a control we supplier depreciation, forecast for to XXXX, for and full that prior cost XX% depreciated. during with place is are accelerated forecast which spending years expenses to expected M&A-related The to our be measures. down higher CapEx contract flat as and year $XX the now spending have million to in SG&A that fully million for approximately full be capital for lowering we become along have ongoing expense assets year to down reflecting growth year revising took prior year-over-year, the we levels depletion XXXX

tax over XX%.And turn effective that, call estimated rate is with year XXXX back Brian. I'll the Our for full to approximately

our I'll saw quarter, now drilling land segment. activity completions energy during experienced Kevin. sequentially lower trends the Gas Oil as the expected we in review complex & of starting some QX. and U.S. that The with Thanks,

remained strong averages, were slightly to lower historical results down guided our attractive compared financial as on quarterly earnings last market Pricing to was down Our due versus demand sequentially call. QX. and but

margin costs. gaining and repair quarter's teams however, our last these want sales, Customers any volumes market. finally, were basis is experiencing the for operations Our more of XXXX. Gas call. results.And dollars deliver maintenance in new quarter segment, than their uptime a In to with outstanding efforts congratulate Oil thank year-over-year and our industrial frac performing I increased higher on fluid supply efficiency contribution stayed strong, a pump margins & and decreased ton outcomes and pending than earnings guided well system and chain through per down Guardian momentum are and bit filtration QX on patent positive to our

earth, for cost to proud in strong outlook Colado structural ongoing lines now of production our to improved down product quarter. of a for efforts profitability filtration, While their we very want well diatomaceous mix sales, our the high anticipated as of the to which years building and teams these these mine mild performance highlight our a on enabled developments order us for ton. issues Top seasonal from industrial for also key few Nevada for well summary to maintenance economic chain products contribution operations diatomaceous with of patterns Mine and supply also in several Nevada benefited took customers and that and lower portfolio we I'm and fillers excellence.I results.I softness earth provide as for Association's demand.Despite glass outside during maintain updates deliver Mining activity reductions, flat then year-over-year Reno, increase Award. received commitment industrial with finish fourth their safety to the levels, outstanding increases, Colado team Annual margin Thanks price as XX% a the our per the after Safety will quarter,

all elements During the we X business on strategy. our industrials third quarter, significant of progress made

logistics GDP-plus For to mind, our reliability, is in lower plant element natural automation, efficiency gas capture profitability at our of costs, that increasing business we from projects the reduced savings and rate. a cost With prices. example, first improve base continue

to We higher recent also increases offset from costs. price benefited help

will to front. We continue be this active on

is strategy for our XXXX, silica, very this January and XX% many and was area. earth element such ISP substantially example, our current second powders we high-purity increases announced effective a up ground X, in customers to fillers as of For productive eventful quarter earlier to of noncontract products grow this high-value and filtration substrates. differentiated fine diatomaceous week.The ISP price QX

including customers commitments. renewable new During we improved customer and with X for volume executed contracts, X the pricing diesel quarter,

We've This such building strategic and replacement a Nevada sold applications addressable materials.Due further whole successfully displacing we're applications distribution and such also and considering ground out, development additional for for and our European in White facility into silica mortars. to specialized grain with entered orders diatomaceous Armor our cristobalite, powders is roofing now investment strong in not-in-kind as adhesives, catalyst will element industrial and with and Sales Industrials TiOX and reflective into earth to of also a strategic capacity. distribution partner opportunities through direct filler plastics, building production competitive advanced in include applications product developed We demand, paints, materials.Our Clark products solar is materials new new products. materials, services our business relationship rubber, expand and new fine EverWhite and imported plastics pigment our that high-value continued markets as EverWhite expanding pigment, accelerate materials. third with grouts channels of markets in sales

is receiving innovation new new from our our to trade receive guidance early customer aggressively distributors products feedback conferences in scheduled our market outlook. industry approximately through customers Rochelle, addition, already and increase positive of and state-of-the-art Illinois this producing an and site.Turning our we're We testing, EBITDA marketing year to to XXXX in from year-over-year. shows, continue are and We application reaffirm about we inquiries center now of at open business December, and adjusted products publications.In full XX%

improvements by supported the the across the year. year-to-date, productivity contracts reported visibility the positive during of is guidance additional cost and company results customer of remainder expected the Our strong and

cost that We below our $XXX generate and X.Xx flow attractively from of sacrificing earnings by floor Gas recent earnings a market. without of operating million softer $XX million. we've positioned ratio anticipate in segment fixed variablize annual our & reduce market to through-cycle year-end.Our this that in is the actions Oil done about with we'll year effect to maximize These over net at continue our to cash leverage remaining had have raising work a peak upside robust

contribution committed to for strong multiyear commodity contribution ton pricing improved contribution flat record has continue stronger-than-anticipated that the that commitments we have for our report per on sales I to we to contractual this sand well Basin. carrying quarter-over-quarter be per to mid-$XX We basis volume XX% margin and at logistics proppant the Overall, this digits on to a recently sequentially, new achieved pricing. into of lower year, with volumes due a mid-single of a slightly cycle with and will dollars sales we for to expect business XX% segment the anticipate holding pleased ton.For our our XX% the October with mile down and this last have disciplined XXXX. the repositioned over to staying remains prices on strong energy contracted mid-XXs, slightly margin with our percent and up quarter, for level well in maintain daily margin am segment is as fourth current QX in approximately demand positioned position expectations XXXX.We're production Permian capitalize and constructive capacity healthy and to started

U.S. Silica like positioned in steady high stable Industrial prove energy larger manufacturing inventory choose continue domestic oilfield and management. form strong more are Products to year-over-year products to to facility markets in and believe efforts, we our our reduction, These are best-in-class to and well well to near-term reliable investments Moreover, price to quarter, positive work cost single industry potential offerings Consolidation to more the weakness.For customer contribution favorable intensity.Moving Also, positions we margin U.S. segment, offset year-over-year for paying customers should the enable domestic profit provide seasonal continued margin well be that as with dividends down and should for could increases in are of could for and digits here combination meaningful customer services. and year-end in consolidates further end reduction, forecasted company well beneficial a and acreage any expansion. market operator of and term also and consolidation larger, product and lengths structural coupled normal customer long growth diverse suppliers due as to volumes fourth lead development demand maintenance the increases the be investments and that better with our M&A lateral We the XXXX in Specialty Silica. recent due industry serve. service demand achieve

the wanting know dollars to value chains. X% industrial our that serve, to a and industrials received ongoing However, in margin products, markets to a we due including we've sustainable end contribution XX% efficiencies.And in improved year-over-year from pricing, lot we investors increase potential our expect the product on operational in QX landscape mix and to in current basis about supply of competitive product chain favorable improvements and and finally, questions participation more

As virtual December. place in an industrial and event host to early will This a planning showcase. we're specialty result, products take

stay and investments in details So strengthen in Oil the the value we you incremental our through for quarter, create optimization tuned securing to our please to cost position efforts cost balance lines to strong future balance and further third capital growth continued company steps help can and the and expected the and with cash flow.And visibility sheet growth prices contracts summarize, Gas, reductions. strong enhanced for These will that.So please for across and through more operator, improved additional We're strategic open operating ISP with to on committed efficiency competitive that, flow pathways with extinguishment at debt unlock cash questions. for enterprise. the company sheet transformational offerings

from [Operator Derek Barclays. the line Podhaizer Instructions] question comes Our of with first

fourth up. the Gas. guide quarter Oil for and slightly about to ask flat to wanted Just The volumes

a impressive. of been around big the pumper. from hearing we've mean pressure I commentary Sounds seasonality pretty lot

just laid pushed there, out Is Is fleets market out what around thing, some comment work the customer-specific it XXXX. you being could basin So spot maybe a to or color maybe thing? thing? are Just hearing being it some more down help that. that square that's from we're that

Derek, morning, the for question. Good and thanks

couple in I the in things off think there's strong that oilfield. started October a happening. We really of are

that several gives for customers asking a play QX board out. in I generally had across we're for us We've the might highly us And So good say would for strong additional course, contracted. feel the it's how volumes. of Permian.

as of that here and about XXXX We've our know. contract you got as So others volume think under XX% helps I out in well.

sand. base customer out are working the there right customers are have, for is the So and blue-chip hard very now more we asking

at optimistic anything anything our pretty QX well exhaustion least that. holiday we're finish So not extended will budget or downtime about base, that point, hearing we're customer this from like at or

So we good. feel pretty

'XX. appreciate color Got XXXX, it. just for trends, about in how you at volumes would the get your I that now? XX% and just more color there. around pricing. you where targeting is towards I prepared I it progressing maybe Maybe some guess into maybe thinking contracted then some know are XX% can And that to pricing remarks, be if And helpful. contracting level?

So contract contracting, expect that I like for like a us, in to and maintained significant position a feels we strategy. to terms historically, of number good something continue pretty think and XX% we've XX%

think a tremendous have we portfolio, without the a tailored customer taken up us either. of really contracts. is upside is different, of and lot a our total of mix number diversified stability give I those giving across bit you to in if look really contracts each And

So the we good feel about portfolio.

contracted may We customers. of in total or requests situated we'll Right of similarly coming more a We've our of think that take-or-pay contracts. -- now, same And of contracts. in had either volume be it contracts of XX% got XX% XXXX, are the other a or for that year, for those for from add we've I capacity committed. approximately range XXXX. few lot

down getting out the say, that's here or kinds new that So really all But that We're terms cratered pricing. but and of that, would little there's there. driving that pricing we're and they're that. or or seeing will of a bit a our be margins things for may in contracts.I two and Obviously, pricing really generate. something. the bit, contracts rumors seeing we a good right collapsed softer there has of wild now, good, We're dollar pricing feel about been really solid some

last follow-up. one just And it. Got

As the you'll do we be a starting Is still should range. far that how think per still ton, XXXX, contribution good as mid-XX-ish that margin for point? feel like you in about that

was the pressure, that. objective. few holding our talked starting a really certainly in that our volume and to are some up. that target. margins I that's right of And So quarters. We've us about our I see now margins good spite kind a variabilized feel of business. quarter terms you're of in being costs the We're our pressure last there We think is about for in how lot of able in those mid-XXs hold certainly to but pricing where certainly the

the from comes Gengaro Stifel. of line question Stephen with next Our

me. just for was A Any can -- mean well add is, everything couple but get you address sure the think liked. to we this Bryan, Don I'm with anything is that? as about on controls, of company. you kind lot not this it not, comment I comments a can of we financial as or but questions far just on strong

And comment the Stephen. don't we filed. as certainly provide information about matters everyone would really talk Sure, any employee can't publicly. there. understand refer to I But I We that X-K we your additional

document, judgments, financial reporting, there's or in with procedures, estimates, that company's And the policies, so at specifically you no et issues if accounting look said disagreement we that there cetera.

by So that you there's infer issues that, that I think of sort. no can

Okay.

think you it And more and Oil on sense for we ton when us where to we however price when phrase numbers just we'll stands? potentially Gas you per yet? significant see per the in it. Guardian margin So want ton, business, give to a the can about or seeing start think a you contribution Are impact

much really So this in point. numbers that's not the at

potentially we system. trial. looking are there's this users and at of taking entire end their big I lot have think couple across out, of some units a a And under out technology have We commercial units who

see as is is some obviously, sand the though, margins. realistic #X think So there. some And in believe terms piece offerings meaningful we just I we when #X. SandBox have of about bumps have, be But we'll think the success look into you we'll definitely to XXXX, there. I

And it months so up would something talk meaningful, behind for in here kind and be as a would still this we'll hopefully I able be get the some be But think we be will third more SandBox. Guardian. inked of contracts about that that to coming

And then one just final one.

view what demand Just as frac you you sand and on XXXX? and see supply sort think current your sort of about of

I think some come So we'll additional definitely capacity see online.

our see competitors million mines coming few announced of more we'll come. One has X tons and mobile online, a

I dynamics most new think around supply the on the side, And is operations side of capacity interesting is though, one our for the us have that focused specifically, a Delaware the lot of Basin. Permian. of of the Midland at the we

a relatively that's bullish so all definitely less positive Permian. capacity have XXXX in think again, overall going Midland that's of coming seeing us.I are our Midland especially a will to the just is because the advantage that appetite contracts, customers big XXXX given flat, year the located. of side, be pretty of is operators and I'm online actually, our are and who focus where moving where And towards operators of an I think towards some some us. we're switching about more their on for And demand us the in, customers for our next demand to sign the just beyond and side the And I impact mines believe much for

Our next question with the of comes Energy. from Daniel Daniel line John

you you a expected to Canada? Gas can speak in if volumes record your Oil but exposure is me QX. about question, comment have much dumb what outlook And a to the be step might remind within made this and Brian,

So just your thoughts?

Yes.

we my to in of Canada into we to best Canada. a anything used do We So little sell there, don't knowledge don't do now. the right but bit

Okay.

with that suppliers that are customers vendors potentially desire I just I'm said does curious, something sense. consolidation the of I within makes the you me, correctly, think for E&P larger and larger the reminding for thanks your and desire into more translate heard I then And I So and -- some of how think need about wish I space? work apologize. it to consolidating

so and that, the think remarks, continue I of enable customer, prepared lot as to we've that service they mentioned question. supplier interesting lengths of is, consolidation We we'll well. see out And lot providers the lateral there's just silo increase It of think logistics that like there, over But today. the will the guys other bigger all day, of effects want knock-on with. that. very and could contiguous there So that the is increase. can't I like are we the think to more deal as seen providers because beneficial acres all the in intensity it's smaller end a think, for know a happens, time. there what the I a us feel perhaps sand as far I are And fracs I bigger larger huge at support out

So it may well necessitate consolidation, John.

at yet, could be here. that but on some point So It I horizon the happened really hasn't we'll think see.

happened, And but you question. answer hasn't would this curious people it enough. I'm if Fair

suspect may of them curious And the gentle any to have competitors the if Some sort smaller of had of primarily would you consolidation. E&P players will, smaller outreaches you have the might nervous. victims, if some supplied companies them be like that that I'm of are discussions. larger have of to I

the can't really on we consolidator. comment a talked anything But specific. So us past we've in potential about being logical

amongst you been all in of as some the players smaller so ourselves. like few years, conversations folks can the over And past and of imagine, kinds there's and

deal. too 'XX, bit 'XX. what their outlook bullish in here, challenge we've like outlook of had finding year time where strong fair both a feel sellers the year will for too are in in they're probably companies in a on And and is their some sorry, might think XXXX point the getting pretty people consistently buyers be be what they're strong on a has a really I sand bullish a been and a lot a -- bit

stars So people their you can in still imagine eyes valuation. of have in terms that

there So of into time kind I industry. a has think to be get just And to the will bit some that take expectation of resetting.

interest of sure the had just That or -- in I month makes wasn't sense. X. maybe if acceleration you an I seeing last

So but like sound it. it doesn't

particularly, not ongoing of been couple know. an for it's last the the as for years, industry No, you theme but

Instructions] with Stifel. line [Operator Our next from a the is of follow-up Stephen question Gengaro

ultimately up I So just were about sheet with? follow if reducing to balance level X think are leverage you debt, the to been on. following of things what enter going One, you've John's question. and wanted up into you some When consolidation, on you comfortable

So And it's sort great of I X distance questions. a separate question. would those

right leverage I like overall, to now. that So at net. of level we we've gotten think, kind the We're X.Xx

for but a through-the-cycle that's be, about sort of that on think think basis. place to a us good I

So I oilfield to that level have to consolidation, look feel very comfortable up Levering hard leverage. of with that. really at we'd do

today. one companies a stock there. business valuation if what oilfield here I is of logical did currency probably have oilfield like our we and a our seen consolidator, we it's that we not the even at U.S. Silica higher be get think consolidation between consolidation really we'd I'm a to sort are us And multiple do than multiples haven't ISP good because a who Being where of that. would sure reasons of credit don't blended yet kind

the facilitate of out sort can good consolidation. no there there's today currency so pure-play that And

given out the I Stephen, just is I that's one of oilfield. do a challenges, going think, on to debt So think unpredictability challenging consolidation, been and bit and of taking the the

patch so follow-up the more in consolidation you've the at in the business? look at seen landscape, And or you Great. to least is simply, oil the what when far, ISP likely was that

to in more little valuation probably players. field. currency. aren't reasonable ISP to tours lot numbers, of there It's really a the it's the smaller the tough oilfield, more because I a get bit much have because likely have consolidated the a to of in would is place. the a And but consolidation have right expectations just say, Well, side,

valued those and services of think to I the are not a that consolidations some the where us in perhaps they like they an they go in can do space those world of have well. these out and cash, price have of use appropriately share and ton as just cash operator

there. were think spot of different I in a we a bit

my it done harder opinion. much So get consolidation, it makes terms of to in in something

I'll the comments. session. to turn gentlemen, floor that Ladies Mr. and back for Thank question-and-answer our Shinn you. any concludes final

operator. Thanks,

we our out of shareholders our be joining further you segments, As stakeholders coming next deliver record Silica, commitment operating quarters.Speaking which, and discipline, cash again today we safe year that with visibility for and you and in of and to strategy, strengthening our forward substantial and we our close of value well. stay business Everyone, flow will the all look confident to capital believe appreciate U.S. speaking in other profitability we for balance market remain sheet call industry-leading and quarter. to our this look

today's concludes conference This Thank call. you.

disconnect this lines You your participation. at you time. your Thank for may