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8-K - FORM 8-K - U.S. SILICA HOLDINGS, INC.d285862d8k.htm

Exhibit 99.1

 

LOGO

News Release

U.S. Silica Holdings, Inc. Announces Third Quarter 2016 Results

 

    Revenue of $137.7 million increased 18% sequentially

 

    Net loss for the quarter of $0.17 per basic share

 

    Tons sold in Oil & Gas up 21% sequentially

 

    Closed on two accretive acquisitions, Sandbox Logistics and NBR Sands

 

    Sold 65% of Oil & Gas tons in basin

Frederick, Md., Nov. 3, 2016 – U.S. Silica Holdings, Inc. (NYSE: SLCA) today announced a net loss of $11.3 million or $(0.17) per basic and diluted share for the third quarter ended Sept. 30, 2016 compared with net income of $2.4 million or $0.05 per basic share and $0.04 per diluted share for the third quarter of 2015. The third quarter results were negatively impacted by $4.7 million of business development-related expense, including acquisition-related costs for Sandbox and NBR Sands. Excluding these expenses, net of $1.8 million tax effect, EPS was $(0.13) per basic share for the quarter.

“Our team showed tremendous discipline and determination during the quarter to successfully integrate two major acquisitions while continuing to move our base businesses forward,” said Bryan Shinn, president and chief executive officer. “With the additions of Sandbox and NBR Sands, we can further maximize value for our Oil & Gas customers by having the widest raw sand product offering of anyone in our industry and the only commercially viable last-mile containerized delivery solution. On the industrial side, we continue to benefit from the inherent value of ISP to generate consistent cash flows to cover fixed costs in a downturn while providing a platform for growth going forward.”

Third Quarter 2016 Highlights

Total Company

 

    Revenue totaled $137.7 million compared with $155.4 million for the same period last year, a decrease of 11% on a year-over-year basis and an increase of 18% sequentially compared with the second quarter of 2016.

 

    Overall tons sold totaled 2.5 million, down 5% compared with the 2.6 million tons sold in the third quarter of 2015 and an increase of 11% sequentially from the second quarter of 2016.

 

    Contribution margin for the quarter was $19.7 million, down 46% compared with $36.5 million in the same period of the prior year but up 27% sequentially from the second quarter of 2016.

 

    Adjusted EBITDA was $8.3 million compared with Adjusted EBITDA of $24.0 million for the same period last year, a decrease of 66% on a year-over-year basis and an increase of 54% sequentially compared with the second quarter of 2016.

Oil and Gas

 

    Revenue for the quarter totaled $86.8 million compared with $102.0 million in the same period in 2015, a decrease of 15% on a year-over-year basis and an increase of 34% sequentially from the second quarter of 2016.

 

    Tons sold totaled 1.6 million, essentially flat compared with 1.6 million tons sold in the third quarter of 2015 and up 21% sequentially compared with the tons sold in the second quarter of 2016.

 

    65% of tons were sold in basin compared with 61% sold in basin in the third quarter of 2015, and 55% sold in basin in the second quarter of 2016.

 

    Segment contribution margin was a loss of $1.9 million versus a profit of $16.5 million in the third quarter of 2015, an increase of 68% sequentially compared with the second quarter of 2016.

 

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Industrial and Specialty Products

 

    Revenue for the quarter totaled $51.0 million compared with $53.4 million for the same period in 2015, a decrease of 5% on a year-over-year basis and a decrease of 2% on a sequential basis from the second quarter of 2016.

 

    Tons sold totaled 0.876 million, a decrease of 13% on a year-over-year basis and a decrease of 3% on a sequential basis compared with the second quarter of 2016.

 

    Segment contribution margin was $21.6 million compared with $20.0 million in the third quarter of 2015, an increase of 8% on a year-over-year basis and flat sequentially compared with the second quarter of 2016.

Capital Update

As of Sept. 30, 2016, the Company had $264.1 million in cash and cash equivalents and $46.0 million available under its credit facilities. Total debt at Sept. 30, 2016 was $506.6 million. Capital expenditures in the third quarter totaled $9.4 million and were associated largely with the Company’s investments in various maintenance, expansion and cost improvement projects.

Outlook and Guidance

Due to the current lack of visibility in its Oil and Gas business, the Company will continue to refrain from providing guidance for Adjusted EBITDA until such time as it can gain more clarity around our customers’ business activity levels and the associated demand for our products. Based on current market conditions, the Company anticipates that its capital expenditures for 2016 will be in the range of $42 million to $47 million.

Conference Call

U.S. Silica will host a conference call for investors tomorrow, Nov. 4, 2016 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 number for the replay is 13647944. The replay of the call will be available through Dec. 2, 2016.

About U.S. Silica

U.S. Silica Holdings, Inc., a member of the Russell 2000, is a leading producer of commercial silica used in the oil and gas industry, and in a wide range of industrial applications. Over its 116-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 235 products to over 1,200 customers across our end markets. The Company currently operates nine industrial sand production plants, nine oil and gas sand production plants and seven Sandbox distribution centers. The Company is headquartered in Frederick, Maryland and also has offices located in Chicago, Illinois, and Houston, Texas.

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

 

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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; (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 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.

 

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U.S. SILICA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

     For the Three Months Ended  
     September 30, 2016     June 30, 2016     September 30, 2015  

Sales

   $ 137,748      $ 116,994      $ 155,408   

Cost of goods sold (excluding depreciation, depletion and amortization)

     119,426        102,707        122,599   

Operating expenses

      

Selling, general and administrative

     18,472        14,585        13,559   

Depreciation, depletion and amortization

     17,175        15,209        15,158   
  

 

 

   

 

 

   

 

 

 
     35,647        29,794        28,717   
  

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (17,325     (15,507     4,092   

Other income (expense)

      

Interest expense

     (6,684     (6,647     (6,684

Other income, net, including interest income

     493        608        309   
  

 

 

   

 

 

   

 

 

 
     (6,191     (6,039     (6,375
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (23,516     (21,546     (2,283

Income tax benefit

     12,177        9,775        4,695   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (11,339   $ (11,771   $ 2,412   
  

 

 

   

 

 

   

 

 

 

Earnings (loss) per share:

      

Basic

     ($0.17     ($0.19     $0.05   

Diluted

     ($0.17     ($0.19     $0.04   

Weighted average shares outstanding:

      

Basic

     66,676        63,417        53,321   

Diluted

     66,676        63,417        53,742   

Dividends declared per share

     $0.06        $0.06        $0.13   

 

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U.S. SILICA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 

     September 30,
2016
    December 31,
2015
 
     (unaudited)     (audited)  

ASSETS

  

Current Assets:

    

Cash and cash equivalents

   $ 264,060      $ 277,077   

Short-term investments

     —          21,849   

Accounts receivable, net

     70,725        58,706   

Inventories, net

     77,429        65,004   

Prepaid expenses and other current assets

     14,092        9,921   

Income tax deposits

     8,017        6,583   
  

 

 

   

 

 

 

Total current assets

     434,323        439,140   
  

 

 

   

 

 

 

Property, plant and mine development, net

     790,565        561,196   

Goodwill

     233,196        68,647   

Trade names

     32,318        14,474   

Intellectual property

     57,700        —     

Customer relationships, net

     56,700        6,453   

Other assets

     16,031        18,709   
  

 

 

   

 

 

 

Total assets

   $ 1,620,833      $ 1,108,619   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

  

Current Liabilities:

    

Accounts payable

   $ 68,692      $ 49,631   

Dividends payable

     4,546        3,453   

Accrued liabilities

     12,821        11,708   

Accrued interest

     57        58   

Current portion of capital leases

     1,136        —     

Current portion of long-term debt

     6,745        3,330   

Deferred revenue

     9,131        15,738   
  

 

 

   

 

 

 

Total current liabilities

     103,128        83,918   
  

 

 

   

 

 

 

Long-term debt

     499,886        488,375   

Deferred revenue

     66,030        59,676   

Obligation under capital lease

     1,281        —     

Liability for pension and other post-retirement benefits

     63,715        55,893   

Deferred income taxes, net

     57,330        19,513   

Other long-term obligations

     18,668        17,077   
  

 

 

   

 

 

 

Total liabilities

     810,038        724,452   

Stockholders’ Equity:

    

Preferred stock

     —          —     

Common stock

     708        539   

Additional paid-in capital

     660,448        194,670   

Retained earnings

     175,210        220,974   

Treasury stock, at cost

     (5,105     (15,845

Accumulated other comprehensive loss

     (20,466     (16,171
  

 

 

   

 

 

 

Total stockholders’ equity

     810,795        384,167   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,620,833      $ 1,108,619   
  

 

 

   

 

 

 

Non-GAAP Financial Measures

Segment Contribution Margin

 

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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 (loss), the most directly comparable GAAP financial measure, to segment contribution margin.

 

     For the Three Months Ended  
     September 30, 2016      June 30, 2016      September 30, 2015  
     (unaudited; in thousands)  

Sales:

        

Oil & Gas Proppants

   $ 86,782       $ 64,926       $ 101,987   

Industrial & Specialty Products

     50,966         52,068         53,421   
  

 

 

    

 

 

    

 

 

 

Total Sales

     137,748         116,994         155,408   

Segment contribution margin:

        

Oil & Gas Proppants

     (1,897      (5,995      16,521   

Industrial & Specialty Products

     21,587         21,486         19,967   
  

 

 

    

 

 

    

 

 

 

Total segment contribution margin

     19,690         15,491         36,488   

Operating activities excluded from segment cost of goods sold

     (1,368      (1,204      (3,679

Selling, general and administrative

     (18,472      (14,585      (13,559

Depreciation, depletion and amortization

     (17,175      (15,209      (15,158

Interest expense

     (6,684      (6,647      (6,684

Other income, net, including interest income

     493         608         309   

Income tax benefit

     12,177         9,775         4,695   
  

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ (11,339    $ (11,771    $ 2,412   
  

 

 

    

 

 

    

 

 

 

 

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Adjusted EBITDA

Adjusted EBITDA, a non-GAAP measure, is included in this release because it is a key metric used by management to assess our operating performance and by our lenders to evaluate our covenant compliance. Adjusted EBITDA excludes certain income and/or costs, the removal of which improves comparability of operating results across reporting periods. Our target performance goals under our incentive compensation plan are tied, in part, to our Adjusted EBITDA. In addition, our revolving credit facility (Revolver) contains a consolidated total net leverage ratio that we must meet as of the last day of any fiscal quarter whenever usage of the Revolver (other than certain undrawn letters of credit) exceeds 25% of the Revolver commitment, which is calculated based on our Adjusted EBITDA. Noncompliance with the financial ratio covenant contained in the Revolver could result in the acceleration of our obligations to repay all amounts outstanding under the Revolver and the term loan. Moreover, the Revolver and the term loan contain covenants that restrict, subject to certain exceptions, our ability to make permitted acquisitions, incur additional indebtedness, make restricted payments (including dividends) and retain excess cash flow based, in some cases, on our ability to meet leverage ratios calculated based on our 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 (loss) 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 (loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA:

 

     For the Three Months Ended  
     September 30, 2016      June 30, 2016      September 30, 2015  
     (unaudited; in thousands)  

Net income (loss)

   $ (11,339    $ (11,771    $ 2,412   

Total interest expense, net of interest income

     6,211         6,150         6,485   

Provision for taxes

     (12,177      (9,775      (4,695

Total depreciation, depletion and amortization expenses

     17,175         15,209         15,158   
  

 

 

    

 

 

    

 

 

 

EBITDA

     (130      (187      19,360   

Non-cash incentive compensation (1)

     3,720         3,449         1,913   

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

     (184      199         765   

Business development related expenses (3)

     4,667         861         390   

Other adjustments allowable under our existing credit agreement (4)

     185         1,051         1,577   
  

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 8,258       $ 5,373       $ 24,005   
  

 

 

    

 

 

    

 

 

 

 

  (1) Reflects equity-based 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. See Note L – Pension and Post-retirement Benefits to our Financial Statements in Part 1, Item 1 of the Quarterly Report on Form 10-Q.
  (3) Reflects expenses related to business development activities in connection with our growth and expansion initiatives, including acquisition-related costs for our NBI Acquisition and Sandbox Acquisition completed in August 2016.
  (4) Reflects miscellaneous adjustments permitted under our existing credit agreement, including such items as restructuring costs for actions that will provide future cost savings. Restructuring costs were $0.0 million, $1.1 million and $0.5 million, respectively, for the three months ended September 30, 2016, June 30, 2016 and September 30, 2015.

 

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Investor Contact:

Michael Lawson

Vice President of Investor Relations and Corporate Communications

(301) 682-0304

lawsonm@USSilica.com                                                              #

 

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