U.S. Silica(SLCA) - 2021 Q3 - Quarterly Report

PART I Financial Information This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter and nine months ended September 30, 2021 Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarter and nine months ended September 30, 2021, including balance sheets, statements of operations, comprehensive income, stockholders' equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets As of September 30, 2021, total assets were $2.24 billion, a slight decrease from $2.25 billion at year-end 2020, with cash and cash equivalents increasing significantly to $250.6 million from $150.9 million while total liabilities decreased slightly Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total current assets | $572,955 | $486,313 | | Cash and cash equivalents | $250,587 | $150,920 | | Total assets | $2,240,615 | $2,246,947 | | Total current liabilities | $200,156 | $194,895 | | Long-term debt, net | $1,195,092 | $1,197,660 | | Total liabilities | $1,612,607 | $1,620,156 | | Total stockholders' equity | $628,008 | $626,791 | Condensed Consolidated Statements of Operations For Q3 2021, total sales increased to $267.3 million from $176.5 million year-over-year, resulting in a net loss of $20.2 million, while the nine-month net loss narrowed to $15.2 million from $119.4 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total sales | $267,298 | $176,472 | $819,015 | $618,608 | | Operating (loss) income | $(11,098) | $1,373 | $34,391 | $(135,086) | | Net loss | $(20,174) | $(14,216) | $(15,207) | $(119,439) | | Diluted loss per share | $(0.27) | $(0.19) | $(0.20) | $(1.61) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash provided by operating activities significantly improved to $156.8 million from a $28.7 million use in the prior year, with net cash used in investing and financing activities at $15.0 million and $42.2 million, respectively Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $156,782 | $(28,698) | | Net cash used in investing activities | $(14,960) | $(25,533) | | Net cash (used in) provided by financing activities | $(42,155) | $3,414 | | Net increase (decrease) in cash | $99,667 | $(50,817) | Notes to Condensed Consolidated Financial Statements These notes detail the company's accounting policies, two reportable segments (Oil & Gas Proppants and Industrial & Specialty Products), debt facilities, revenue recognition, and contingent liabilities related to silica exposure litigation - The company's operations are organized into two reportable segments: (1) Oil & Gas Proppants and (2) Industrial & Specialty Products[24] Sales by Segment and Type (Q3 2021 vs Q3 2020, in thousands) | Category | Segment | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | :--- | | Product | Oil & Gas Proppants | $90,684 | $49,508 | | Product | Industrial & Specialty | $125,450 | $110,129 | | Service | Oil & Gas Proppants | $51,164 | $16,835 | | Total Sales | | $267,298 | $176,472 | Segment Contribution Margin (in thousands) | Segment | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Oil & Gas Proppants | $25,723 | $31,478 | $129,937 | $90,500 | | Industrial & Specialty Products | $41,003 | $42,353 | $126,981 | $120,800 | | Total segment contribution margin | $66,726 | $73,831 | $256,918 | $211,300 | - As of September 30, 2021, there were 44 active silica-related product liability claims pending against the company, with management not expecting a material adverse effect beyond accrued amounts[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 51% year-over-year increase in Q3 2021 total sales driven by the Oil & Gas Proppants segment, while also covering liquidity, capital resources, and non-GAAP metrics Recent Trends and Outlook The Oil & Gas Proppants segment experienced improved demand in 2021, though Q3 sales were sequentially lower, while the Industrial & Specialty Products segment maintained relatively stable demand - In 2020, the Oil & Gas Proppants segment was negatively impacted by the COVID-19 pandemic and a decline in crude oil prices, leading to cost reduction measures, with conditions improving in 2021[120][121] Oil & Gas Proppants Segment Quarterly Trends | Metric | Q3 2021 | Q2 2021 | Q1 2021 | | :--- | :--- | :--- | :--- | | Sales (in thousands) | $141,848 | $193,298 | $121,697 | | Tons Sold (in thousands) | 2,912 | 3,024 | 2,577 | | Average Selling Price per Ton | $48.71 | $63.92 | $47.22 | Results of Operations For Q3 2021, total sales rose 51% to $267.3 million driven by a 78% increase in tons sold, but cost of sales surged 93%, leading to an operating loss of $11.1 million Sales and Volume Analysis (Q3 2021 vs Q3 2020) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Sales (in thousands) | $267,298 | $176,472 | 51% | | Oil & Gas Proppants Sales | $141,848 | $66,343 | 114% | | Industrial & Specialty Sales | $125,450 | $110,129 | 14% | | Total Tons Sold (in thousands) | 3,989 | 2,239 | 78% | | Oil & Gas Proppants Tons | 2,912 | 1,282 | 127% | | Industrial & Specialty Tons | 1,077 | 957 | 13% | - Cost of sales for Q3 2021 increased 93% year-over-year to $207.4 million, primarily due to a $53.2 million increase in transportation costs driven by higher volumes and carrier rates[150][151] - For the nine months ended September 30, 2021, total sales increased 32% to $819.0 million, generating operating income of $34.4 million compared to a $135.1 million operating loss in the prior-year period, which included $108.0 million of impairment charges[168][181][182] Liquidity and Capital Resources The company's liquidity is primarily from operations and its revolving credit facility, with $372.8 million in working capital and $77.8 million revolver availability as of September 30, 2021 - As of September 30, 2021, the company had working capital of $372.8 million and $77.8 million of availability under its Revolver[189] Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Operating activities | $156,782 | $(28,698) | | Investing activities | $(14,960) | $(25,533) | | Financing activities | $(42,155) | $3,414 | - Anticipated capital expenditures for 2021 are approximately $25.0 million, primarily for maintenance, cost improvement, and growth projects[200] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on its $1.225 billion debt, where a 1.0% increase would raise annual interest expense by $12.3 million, and credit risk from customer nonpayment - The company is exposed to interest rate risk on its $1.225 billion of debt under the Credit Agreement, where a hypothetical 1.0% increase in interest rates would change annual interest expense by $12.3 million[215] - The company is subject to credit risk from nonpayment by customers, particularly those experiencing financial difficulties, managed through credit analysis and monitoring procedures[217] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021[219] - No changes occurred during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[221] PART II Other Information This section provides additional information including legal proceedings, risk factors, equity security sales, defaults, mine safety disclosures, and exhibits Item 1. Legal Proceedings The company is a defendant in 44 active silica-related product liability claims as of September 30, 2021, with management believing the ultimate resolution will not have a material adverse effect beyond existing accruals - As of September 30, 2021, U.S. Silica was a defendant in 44 active silica-related product liability claims[226] - Management's opinion is that it is not reasonably possible that the ultimate resolution of these claims will have a material adverse effect on the company's financial position or results of operations that exceeds accrued amounts[227] Item 1A. Risk Factors No material changes were reported from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes from the risk factors disclosed in the 2020 Annual Report on Form 10-K were reported[228] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any common stock during Q3 2021, with approximately $126.5 million remaining available under its share repurchase program - The company did not repurchase any shares of common stock under its share repurchase program during the three months ended September 30, 2021[229] - As of September 30, 2021, the maximum value of shares that may yet be purchased under the program is $126,540,060[229] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None reported[231] Item 4. Mine Safety Disclosures Information concerning mine safety violations and other regulatory matters is included in Exhibit 95.1 to this quarterly report - Mine safety disclosures are provided in Exhibit 95.1 to the Form 10-Q[232] Item 5. Other Information The company reported no other information for this item - None reported[233] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, mine safety disclosures, and XBRL data files