U.S. Silica(SLCA) - 2023 Q4 - Annual Report

Part I Business The company is a global performance materials provider operating through its Oil & Gas Proppants and Industrial & Specialty Products segments - The company operates through two reportable segments: (1) Oil & Gas Proppants and (2) Industrial & Specialty Products, which are complementary and allow for maximized mining recovery and asset utilization[21][357] Sales Breakdown by Segment (2021-2023) | Segment | 2023 Sales % | 2022 Sales % | 2021 Sales % | | :--- | :--- | :--- | :--- | | Oil & Gas Proppants | 64% | 63% | 56% | | Industrial & Specialty Products | 36% | 37% | 44% | - As of December 31, 2023, the company controls 479 million tons of commercial silica reserves and 81 million tons of diatomaceous earth, perlite, and clay reserves across 26 operating facilities[19][20] - The company's business strategy focuses on its large-scale production, geographically advantageous logistics, low-cost operating structure, strong customer reputation, and commitment to innovation[22][24][25] - The company is subject to extensive regulation from agencies like the Mine Safety and Health Administration (MSHA), Occupational Safety and Health Administration (OSHA), and the Environmental Protection Agency (EPA) regarding mining safety and environmental matters[50][51][54] Risk Factors The company faces market, operational, legal, strategic, and financial risks, including industry volatility, competition, and substantial indebtedness - The company's frac sand operations are materially dependent on the volatile activity levels in the oil and natural gas industries, which are influenced by commodity prices[83] - The company faces significant competition based on price, product quality, site location, and distribution capabilities; transportation costs often exceed 50% of the delivered cost[96] - Operational risks include inherent mining dangers, reliance on water access, potential disruptions in transportation services, and significant consumption of natural gas and electricity[101][104][105] - The company is subject to extensive and evolving environmental, health, and safety regulations (e,g,, MSHA, OSHA, EPA), which impose significant costs and potential liabilities[116][119][121] - The company has substantial indebtedness ($868.1 million outstanding under its Term Loan as of Dec 31, 2023) and pension obligations, which could affect financial flexibility[140][141][143] - The company faces potential litigation related to silica exposure, with 39 active silica-related product liability claims pending as of December 31, 2023[126][127][337] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[154] Cybersecurity The company integrates a multilayered cybersecurity strategy into its enterprise risk management, with oversight from the Board and Audit Committee - Cybersecurity policies and practices are integrated into the company's Enterprise Risk Management (ERM) approach and follow recognized frameworks like NIST[155] - The Board of Directors, supported by the Audit Committee, oversees cybersecurity risk management, receiving regular updates from management[163][165] - The Chief Information Officer and the Director of IT Security & Risk Management are principally responsible for overseeing the cybersecurity program[166] - To date, the company does not believe cybersecurity threats have materially affected or are reasonably likely to materially affect its business, strategy, operations, or financial condition[171] Properties The company operates 26 mines and an extensive logistics network, with four individually material mining properties detailed in the report - As of December 31, 2023, the company operated 26 mines and processing facilities, 27 transload facilities, and a leased fleet of 5,720 railcars[174][175][180] - The four individually material mining properties are the Crane, TX site; Lamesa, TX site; Ottawa, IL site; and the Lovelock/Colado, NV site[178] Total Mineral Reserves as of December 31, 2023 (in thousands of tons) | Mineral Type | Total Mineable Reserves | Total Saleable Reserves | | :--- | :--- | :--- | | Silica Sand | 463,252 | 379,304 | | Diatomaceous Earth | 58,236 | 49,511 | | Bentonite Clay | 16,775 | 7,792 | | Perlite | 6,106 | 5,495 | | Aplite | 11,747 | 5,873 | Annual Production at Material Sites (in thousands of tons) | Mine / Location | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Crane, TX | 4,193 | 3,886 | 3,263 | | Lamesa, TX | 6,386 | 5,871 | 4,692 | | Ottawa, IL | 3,321 | 3,230 | 2,967 | | Lovelock/Colado, NV | 185 | 175 | 166 | Legal Proceedings The company is involved in product liability lawsuits related to silica exposure, though the rate of new claims has significantly decreased - The company has been a defendant in numerous product liability lawsuits alleging damages from silica exposure, which can cause silicosis[335][336] - As of December 31, 2023, there were 39 active silica-related product liability claims pending against the company[337] - The filing rate of new claims has decreased to below pre-2001 levels, with zero new cases filed in 2023 and 2022[337] - Management does not believe it is reasonably possible that the ultimate resolution of these matters will have a material adverse effect on its financial position beyond existing accruals[338] Mine Safety Disclosures The company prioritizes safety and is subject to regulation and inspection by the U.S, Mine Safety and Health Administration (MSHA) - Safety is a core value, with comprehensive policies aimed at preventing injuries and complying with all mining-related regulations[339] - All production facilities, except one, are classified as mines and are regulated by the Mine Safety and Health Administration (MSHA)[341] - Detailed mine safety violation information required by Section 1503(a) of the Dodd-Frank Act is provided in Exhibit 95,1 of the Annual Report[341] Part II Market for Registrant's Common Equity, Related Stock Holder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under 'SLCA', with a share repurchase program in place that was inactive in Q4 2023 - The company's common stock is traded on the New York Stock Exchange under the symbol SLCA[343] - As of February 16, 2024, there were 78,087,577 shares of common stock outstanding[344] Share Repurchase Activity - Q4 2023 | Period | Total Shares Withheld/Forfeited | Avg. Price Paid Per Share | Shares Purchased as Part of Program | Max. Value Remaining in Program | | :--- | :--- | :--- | :--- | :--- | | Oct 2023 | 18,637 | $13.25 | 0 | $126,540,060 | | Nov 2023 | 7,384 | $11.20 | 0 | $126,540,060 | | Dec 2023 | 804 | $11.31 | 0 | $126,540,060 | | Total | 26,825 | $12.63 | 0 | | - The company did not repurchase any shares of common stock under its share repurchase program during the three months ended December 31, 2023[348] [Reserved] This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal year 2023 saw a 2% sales increase to $1.55 billion, a significant rise in net income to $146.9 million, and a reduction in total debt Key Financial Results (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total Sales | $1,552,022 | $1,525,147 | | Operating Income | $275,339 | $170,954 | | Net Income (attributable to U.S. Silica) | $146,925 | $78,176 | | Adjusted EBITDA | $439,000 | $353,558 | Sales Performance by Segment (2023 vs. 2022) | Segment | Sales Change | Avg. Selling Price Change | Tons Sold Change | | :--- | :--- | :--- | :--- | | Oil & Gas Proppants | +3% | +6% | -2% | | Industrial & Specialty Products | -1% | +8% | -8% | - The company refinanced its debt in March 2023, entering into a new $1.1 billion senior secured credit facility[412] Liquidity and Debt Position (as of Dec 31, 2023) | Metric (in thousands) | Amount | | :--- | :--- | | Cash and cash equivalents | $245,716 | | Total Debt | $840,037 | | Net Debt (Non-GAAP) | $594,321 | | Revolver Availability | $134,700 | - Net cash provided by operating activities was $263.9 million for 2023, while capital expenditures were $65.2 million[417][419][421] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from variable-rate debt, commodity prices, and customer credit - The company is exposed to interest rate risk on its variable-rate debt; a hypothetical 1.0% increase in interest rates would increase annual interest expense by $8.7 million[453] - To manage commodity risk, the company uses natural gas swaps, which had a fair value liability of $1.9 million as of December 31, 2023[455] - The company faces credit risk from potential nonpayment by customers, managed through credit analysis and monitoring[456][457] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements and the independent auditor's unqualified opinion - The independent registered public accounting firm, Grant Thornton LLP, issued an unqualified opinion on the consolidated financial statements[461] Consolidated Balance Sheet Highlights (as of Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total Assets | $2,096,593 | $2,214,580 | | Total Liabilities | $1,241,066 | $1,509,886 | | Total Stockholders' Equity | $855,527 | $704,694 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | (in thousands) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total Sales | $1,552,022 | $1,525,147 | $1,103,879 | | Operating Income | $275,339 | $170,954 | $27,935 | | Net Income (Loss) attributable to U.S. Silica | $146,925 | $78,176 | $(33,761) | Consolidated Cash Flow Highlights (Year Ended Dec 31) | (in thousands) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash from Operating activities | $263,868 | $262,716 | $169,347 | | Net cash used in Investing activities | $(44,721) | $(50,953) | $(29,856) | | Net cash used in Financing activities | $(254,276) | $(170,343) | $(50,986) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - None[646] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of year-end 2023 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[647] - Based on an evaluation using the 2013 COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[651] - The independent registered public accounting firm, Grant Thornton LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[652][655] - There were no changes in internal control over financial reporting during the fourth quarter of 2023 that materially affected, or are reasonably likely to materially affect, internal controls[653] Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans in the fourth quarter of 2023 - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the three months ended December 31, 2023[662] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable[663] Part III Directors, Executive Officers and Corporate Governance Information regarding directors and corporate governance is incorporated by reference from the company's 2024 Proxy Statement - The required information for this item is incorporated by reference from the 2024 Proxy Statement[665] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's 2024 Proxy Statement - The required information for this item is incorporated by reference from the 2024 Proxy Statement[667] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's 2024 Proxy Statement - The required information for this item is incorporated by reference from the 2024 Proxy Statement[668] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the 2024 Proxy Statement - The required information for this item is incorporated by reference from the 2024 Proxy Statement[670] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2024 Proxy Statement - The required information for this item is incorporated by reference from the 2024 Proxy Statement[671] Part IV Exhibits and Financial Statement Schedules This section lists the Consolidated Financial Statements and an Exhibit Index of all documents filed as part of the report - This item contains the list of Consolidated Financial Statements and the Exhibit Index for the report[674][677] Form 10-K Summary This item is not applicable - Not applicable[684]