SLCA (2021 - Q4)

Good morning, and welcome to the U.S. Silica, Fourth Quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Patricia Gil, Vice President of Investor Relations. Thank you. And over to you. Patricia

Thank you. And good morning, everyone. I'd like to thank you for joining us today for U.S. Silica 's fourth-quarter 2021 earnings conference call. Leading the call today are our Chief Executive Officer Bryan Shinn and Donald Merril our Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you of our standard cautionary remarks regarding the forward-looking nature of some of the statements that will be made today. Such forward-looking statements, which are predictions, projections, or other statements about future events are based on current expectations and assumptions which are subject to certain risks and uncertainties. For a complete discussion of these risks and uncertainties, we encourage you to read the company's press release and our documents on file with the SEC. We do not undertake any duty to update any forward-looking statements. Additionally, we may refer to the non-GAAP measures such as adjusted EBITDA segment contribution margin, and our consolidated leverage ratio during this call, please refer to today's press release or our public filings for a full reconciliation of adjusted EBITDA to net income and discussions of segment contribution margin and the consolidated leverage ratio. And with that, I would now like to turn the call over to our CEO, Mr. Bryan Shinn.

Thanks, Patricia. Good morning, everyone. Before discussing our operating results today, I'd like to first review a couple of significant recent corporate milestones. This month, we're celebrating the 10-year anniversary of our public stock listing. Looking back, we've successfully navigated business cycles, integrated numerous acquisitions, developed game changing new products, effectively managed through a pandemic, and delivered strong growth. In fact, over the last decade, we grew company contribution margin dollars at almost a 9% CAGR, with industrials leading the way with a CAGR of more than 12%. Well I'm certainly proud of our company's rich history and numerous long-term business achievements, we've also consistently demonstrated strong core values, and ESG leadership. One example of that is our unwavering commitment to the safety and health of our employees. I'm happy to report that our full-year 2021 personal safety results were the best ever at our company and more than two times better than our industry peers. We also increased our company spend with women owned and diverse suppliers to two times the national average. U.S. Silica is also focused on efficiently managing natural resources. For example, in 2021, we recycled more than 35 billion gallons of water across our mine network. Last year, our solar reflective Cool Roof Granules were installed on more than 63 million square feet of commercial roofing, saving enough energy to power more than 23 thousand homes. And finally in 2021, we continued our partnership with truckers against trafficking, where more than 700 U.S. Silica affiliated truck drivers have been trained to spot the signs of human trafficking while on the road. This is just a small sampling of the areas where our teams are making a difference. Our 2021 sustainability report should be issued in just a few weeks and I encourage you to visit our website and check it out for additional details. We also delivered numerous other noteworthy accomplishments in 2021, for example, total company annual sales volume and revenue increased by 42% and 30% respectively versus 2020. We also grew adjusted EBITDA by 10% and added $89 million of cash to our balance sheet, continuing to reduce our debt. And finally, we posted strong investor returns with our equity up 34% and our debt trading into the high nineties. Let's turn now to Q4 financial results and talk about how we finish the year. We delivered a strong fourth quarter with sequential increases of 5% in total volumes and 7% in total revenues, resulting in adjusted EBITDA of $42.1 million, which was a 6% increase versus Q3 of 2021. Our excellent results were driven by strong customer demand in both segments, along with efficiency improvements and price increases that outpaced inflation. Don will discuss the details in just a moment, but let's review some of the significant highlights that we saw during the quarter. Industrial segment demand remains stronger than anticipated across most end uses and market segments with marginally higher volumes and revenues. It was the first time in the last decade that we didn't see industrial contribution margin dollars down from Q3 to Q4, as many customers continue to run during the holidays due to robust demand. We also experienced record demand in the quarter for our high purity filtration products, which are used in diverse end markets, such as life sciences, wine, high-end spirits, and juices. Costs for materials, labor, and services continued to increase during the quarter. But our industrial team moved swiftly and decisively to implement price increases and surcharges to compensate. During 2021, we implemented more than 15 price increases and surcharges to preserve our margins and I'm pleased to report that the increases are holding and we're continuing to raise prices as necessary in 2022 as well. For example, earlier this month we announced another round of price increases for the majority of our non-contracted engineered clay products that will range up to 15% and will be effective for shipments starting March 1st. In our oil and gas segment, sand and logistics demand increased sequentially driven by stronger customer activity, particularly in West Texas. As local sand availability tightened in the Permian, we began selling Northern White sand from our local network to assist key customers with our well completion needs. Given the very tight supply and demand balance in the market, we saw prices for sand and last mile logistics increased throughout the quarter and that trend has continued into 2022. And finally we executed a number of contracts during the quarter as customers have been insistent on securing Proppant and delivery services for what is expected to be a very strong first half of 2022. With the rest of my time this morning, I want to give an update on our growing industrial portfolio and then finish with a summary of our outlook for the first quarter and 2022. Over the past few years, we've made strategic investments in product development and new technology, which have helped position our industrial segment as a leader in advanced materials and high value minerals which are essential ingredients to critical value chains, such as renewable energy, commercial and residential construction, food and beverage production, biopharma and glass manufacturing. We also have numerous offerings that are essential for the transition to cleaner energy, and to help our customers meet their ESG goals. In 2021, 12% of revenues in our industrial segment were generated by products, that are environmentally beneficial to society, including raw materials for wind turbines and solar panels, products that reduce energy and water consumption, filter aids for Green Diesel, and key ingredients for particulate emission filters. We're honored and excited to support the growth in these environmentally important value chains. And speaking of growth let's discuss progress on achieving our industrial new product contribution margin goals. In 2020, we publicly announced a bold goal to exit 2021 with an incremental $20 million in contribution margin run rate from new industrial products. I'm happy to report that despite the supply chain, logistics, and inflationary pricing headwinds during the year, we met this goal. Further development of our new industrial products portfolio is ongoing and remains a top priority. We're still expecting that our new product contribution margin, exit run rate in 2024 will increase to approximately $90 million as planned. During the quarter, we had numerous successes in support of this next bold goal, including negotiating new multi-year supply agreements for our EverWhite whole grain and ground Cristobalite products; very successful customer trials of our new adsorbents engineered clay product, targeting the green diesel market. So successful in fact that the customer has asked us to accelerate commercialization of this product. Numerous trials of our developmental reinforcing filler product with customers across the rubber and silicone space. Testing of existing mine deposits as potential alternatives to replace key ingredients in high-value fillers, and finally, completion of the limestone processing line at our Berkeley Springs facility, which is rapidly ramping up sales and has the capacity to produce more than 1 million tons per year. Let's turn now to our business and market outlook for the first quarter of 2022. Industrial product demand remains strong and we anticipate a good quarter for this segment. During the month of January however, strong winter storms negatively impacted some of our East Coast and West Coast mines, causing temporary shutdowns, higher maintenance costs and transportation issues. As a result of these challenges, Q1 volumes are forecasted to be only slightly higher sequentially and operational costs will be higher. We are working to ship additional products in the back half of the quarter but it is hard to forecast precisely, given the current uncertainties of international shipping. Before leaving industrials, I wanted to address the status of our recently announced strategic review of that segment. We continue to consider a broad range of options, including a potential sale or separation of our industrial segment. The process is ongoing and as of today, I have no further information to share. Turning to our oil and gas segment, we're essentially sold out of sand Proppant, and we're seeing meaningful increases in spot and contract prices for both local and Northern White sand. The combination of increased customer demand and reported operational challenges at competitors minds are further exacerbating what was already a very tight market. Given all that we expect first quarter segment contribution margin dollars to be up at least 15% to 20% sequentially. With our well-placed minds, strong operational performance, and complementary Sandbox assets. We have been able to obtain new customer contracts, with net price increases for both Permian and Northern White sand. So far, we are not experiencing issues with trucking, but the overall labor market is expected to remain challenging. On an activity basis, volumes are expected to be flat to slightly up in Q1 and unit contribution margin is expected to be above our $10 per ton, long-term benchmark. Overall, 2022 is setting up to be an outstanding year across the company. We are well-positioned for robust growth in our ISP segment, with demand driven by new opportunities in several fast-growing end uses. Increased new product adoption, expected GDP expansion for our base business, and margins that are supported by further price increases. Our oil and gas segment, strong customer demand and constructive commodity prices, should support higher pricing and improved margins for sand proppant and Sandbox as well. We're increasing our contract coverage and forecast strong profit demand, through the first half of the year. Finally, we expect to generate significant free cash flow this year, and to continue delivering our balance sheet. With that, I will turn the call over to our CFO Don Merril, who will discuss our financial results in more detail. Don.

Thanks. And good morning, everyone. As Bryan stated, our adjusted EBITDA for Q4 was $42.1 million or an increase of 6% sequentially, when compared to the prior quarter, supported by strong customer demand, efficiency gains, and higher pricing that assisted in offsetting inflation. Selling general and administrative expenses for the quarter increased 13% sequentially to $34.9 million, driven mostly by merger and acquisition-related expenses and an increase in employee expenses, such as non-cash stock compensation, depreciation, depletion, and amortization expense decreased 3% sequentially to a total $38.6 million in the fourth quarter. Our effective tax rate for the quarter ended December 31 / 2021 was a benefit of 17%, including discrete items. Now let me move on with a detailed review of our operating segment results. Our Industrial and Specialty Products. Segment reported a historically stronger fourth quarter. In fact, for the first time since we became a public company in 2012, our ISP segment had a fourth-quarter contribution margin that eclipsed the third quarter of that same year. Revenue in the segment increased 1% sequentially to a $126.3 million in the fourth quarter volumes and contribution margin were also favorable, increasing 1% aided by our many pricing actions, which helped mitigate the impacts from persistent logistics issues and cost inflation. On a per ton basis, the contribution margin for the Industrial and specialty products segment was essentially flat sequentially and totaled $38.25 per ton. The oil and gas segment reported revenue of $158.6 billion for the fourth quarter, an increase of 12% when compared to the third quarter. Volumes for the oil and gas segment increased 6% sequentially to 3.1 million tons, while Sandbox delivered loads increased 13% compared to the prior quarter. Segment contribution margin increased 17% sequentially to $30.1 million, which on a per ton basis was $9.72 in the fourth quarter and a sequential increase of 10%. These results were driven by an increase in overall demand as well as net pricing improvements. Turning to the Cash Flow Statement. During the full year of 2021, we delivered a $169.3 million of cash flow from operations. We invested $30.3 million in capital expenditures and generated $139 million in free cash flow. During the fourth quarter, we invested $14.9 million of capital, almost as much as the first three quarters combined primarily for current and new product expansions, as well as facility upgrades and maintenance of equipment. Additionally, as of today, we're still anxiously awaiting our IRS CARES Act refund of approximately $21 million. The company's cash and cash equivalents on December 31st, 2021 decreased 4% sequentially to $239.4 million. At quarter-end, our $100 million revolver had $0 drawn and had $77.8 million available under the credit facility after allocating for letters of credit. Looking forward to 2022, we remain focused on delivering our Balance Sheet with the goal of $300 million plus on the Balance Sheet by year's end. We will manage our capital spending accordingly with an emphasis on spending on growth projects to maximize future profitability and expect capital spending to be in the range of $40 to $60 billion for the full year. We anticipate full-year 2022 SG&A expenses to be up 5% to 10%, primarily due to increased activity and some inflation. Full-year 2022 DD&A expense is anticipated to decline about 15% due to past investments becoming fully depreciated at the end of 2021. Our estimated effective tax rate for 2022 is a benefit of 24%. To recap, our Balance Sheet has continued to strengthen over the past year. At a year-over-year basis, our cash-on-hand has increased by 59%. Our net debt has been reduced by 11%, and we still expect to receive the remaining balance of approximately $21 million of IRS refunds related to the Carriers Act in the near future. The swift and proactive pricing actions that we've taken throughout 2021 and that continue in the first quarter of 2022, including the announcement yesterday afternoon, not only allow for the company to effectively manage the logistics and inflation issues, but further prove the resiliency of our two business segments, especially our Industrial and Specialty Products segment. We remain laser-focused on our Balance Sheet and as I stated, we aim to balance our investments with cash flow in order to further reduce our net leverage closer towards our goal of nearing three times net levered in 2024. And with that, I will turn the call back over to Bryan.

Thanks, Don. 2021 was clearly a strong and important year for U.S. Silica. We delivered on our commitments to strengthen our Balance Sheet and expand our industrial product portfolio, while continuing to become a more sustainable enterprise and celebrating a major milestone in our company's history with the 10-year anniversary of our public stock listing. Our determination to maintain profit margins through price increases and surcharges is proving to be successful and I believe that we're well-positioned for an outstanding year here in 2022. With that Operator, would you please open the lines for questions.

Thank you. Ladies and gentlemen, the floor is now open for question-and-answer session. [Operator Instructions] Thank you. The first question comes from the line of Stephen Gengaro with Stifel. Please go ahead.

Good morning.

Good morning Stephen.

A couple of things to me. If we could start on the oil and gas front, so there's a couple of questions I had, but first, will you talk about essentially sold out, what's the backdrop to that? I mean, I think you have in aggregate, like 27,000 tons of capacity in Northern White and in basin and I think some of that may be shuttered -- I'm just trying to get a handle on, when you say sort of sold out, what's your current capacity?

It's a very good question, Steven. And so I think right now today, if you add up everything that we have turned on and staffed, it's about 14.5 million tons. That's if everything works perfectly and everybody picks up what they need to pick up Alright, as scheduled. Now the reality is, there's all kinds of issues out there today there is labor issues, there's still a few trucking issues, winter time weather, all sorts of things like that so I would say effectively, our capacity is somewhere closer to 13 million or 13.5 million ton and if you look at where we're the tightest, it's in the Permian right now, I was going back the other day and just calculating and by my math we sold basically 98% of our capacity, if you will, in the Permian in Q4. Super tight and as you observed, but we have a number of sites that are not currently operating and they're not going to be economical anytime in the near future so I don't anticipate those coming back online. I feel like basically what we have is what we have today.

Great. Thank you. And when we think about, I mean, we're hearing significant increases in spot pricing in the Permian, we're hearing it's dragging Northern White prices up a bit. Can you just sort of talk about what, what on the oil and gas front, like when we think about contracted versus un-contracted because it appears that the price increases on a spot market are - you're going from below 20, 40 to 50 bucks per ton in the Permian and I'm just curious what kind of operating leverage and how we should be thinking about that I mean, you guide to a first quarter contribution dollar number, but I'm just curious. What's sort of the true leverage, that stuff, it should fall pretty directly to the contribution margin per ton lines, so I'm trying to get a handle on how you're thinking about that?

So I think most of that pricing will fall right to the bottom line. Now, natural gas prices are up a bit. And so that will be small offset to that, given that we use a lot of natural gas, obviously as we dry our sand in gigantic dryers that we have out there, say in our sites at the Permian. But I expect that mostly that's going to fall to the bottom line and this is the most constructive environment that I've seen for quite some time around pricing. And I think we're going to continue to see a pretty tight market as we were talking about just a minute ago with your first question around capacity and how that's working. There are a lot of sorts of labor and operational bottlenecks out there, it's also been sort of widely reported that a number of our competitors had operational issues and that further tightened things. As I said before, transportation and logistics have not really come into play just yet. And I think that's because the capacity has been somewhat limited, but as maybe some of these operational issues get solved, for example, I think we'll run pretty quickly into transportation bottlenecks, so I think we will see continued tight markets in most of the basins and for Northern White sand as well and when I think about the pricing leverage that's going to drop to the bottom line now. Do keep in mind though that we're about 80%-85% contracted. So that spot piece, say that 20% to 15% that we have on the spot market, we'll see that, but we won't necessarily get the kind of massive uplift that you might expect, just because we are still heavily contracted. Many of those contracts though, were either renegotiated or renewed recently and we did get price increases in those. So that will be a positive, but don't expect that we're going to be selling most of our tons at $40 or $50 a ton in the Permian or something like that, it won't be like that.

And just one final and I'll get back in line, but the first quarter, you mentioned contribution margin per ton north of your $10 benchmark. I would imagine that you would think about that as sustainable throughout the year.

I think it will be. As I mentioned, just a minute ago, I think we'll see continued issues in the supply chain and if you think about it, operational issues, staffing issues, and trucking, it seems like we're going to see 2 or 3 of those at almost any given time the way we look at it for the rest of the year. So I think that will definitely keep a lid on supply and we expect the demand is going to be very strong. I think we're all starting to see forecasts increase in terms of drilling and completion spend. I saw one outlook just a week or so ago talking about inflation adjusted 30% to 35% E&Ps spending up year-on-year and that's a lot higher than it was just a couple of months ago. So I think with some of the private operators, perhaps going to spend more, we're going to see even greater demand and that's going to kind of run smack into this tight supply market that we have today.

Great thank you.

Thanks, Stephen.

Thank you. The next question comes from the line of Samantha Hoh with Evercore ISI. Please go ahead.

Good morning, guys.

Good morning, Samantha.

Hi. Maybe just to shift the conversation to ISP. I was kind of curious about a line in your press release about new opportunities in several fast-growth end use. I was wondering if you could maybe expand on that. I know you outlined some of the stuff that you guys are doing on the clean energy technology side, but maybe an update on there?

Yeah, thanks Samantha. It's a great question and just to put it in context for folks on the call, we had talked about hitting a new product growth rate for ISP of exit rate in 2021 of $20 million of contribution margin and we hit that bold goal and the next goal -- next stake in the ground that we'd put was 2024 and getting to a $90 million run rate for new products as we exit 2024, and so to your point, some of those fast growth end uses that are going to support, that, are things that we've talk some about in the past, but again maybe not everyone is familiar with that so just for example, I think Green Diesel will be a big one for us. We're a necessary processing aid in the manufacture of Green Diesel and that's going to be a very nice opportunity for us and growing quickly. We're working on replacements for a synthetic silica, so fumed and precipitated silicas that will be another one. We also think there's a really good market for right white additives to polymers and cementitious materials like grouts and mortars. We have products that I think will go into there. We also have new, new additives for glass manufacturing, which I think will be very interesting. And then a lot of our new high purity or high filtration products that go into blood filtration, Biotech, and biopharma industries. And so those are some of the new ones that are to come, some of those that are already launched and moving pretty quickly. The biggest one would be Cristobalite. So that's ever-white product that we make at a mill in Georgia. I think that's going very well into the counter-top market, and customers are signing up contracts. We signed a couple of really big contracts with market-leading companies recently, so I think that will go very well. Our Cool Roof Granules, I really like that product line. It's made at the same facility in Georgia. We said in our prepared remarks that we went back and calculated -- we actually covered 63 million square feet of commercial roofing with that product in 2021 so that's definitely going pretty quickly. And there's just a whole other realm of products that we have going, and one of the things I really like about our portfolio is that to get to that $90 million mark that we talked about it's not just one or two things, we have literally dozens of opportunities in the pipeline and many of them are either already launched or just about ready to launch here in 2022. It's pretty, a pretty exciting time for industrials.

Okay great. I know you guys have some sales into Europe. Just you've maybe checked this box but is there any exposure to Russia? Are you thinking about demand coming from Europe this year?

It's a great question. Before I even think about what our business impacts might be, which the short answer is basically nothing. But our thoughts and best wishes go out to anyone who is being personally impacted by this horrific situation. As you know most of our revenue here in North America. Our total company revenue exposure outside the U.S. is only about 7%, and almost nothing in Russia or Ukraine, so we're in good shape there.

Okay, great. And then maybe just shifting the conversation back to on gas. We kind of cover your production capacity at about 13-13.5 million tons. And you thank you for clarifying that you have no intention to actually reactivate any sites, but from the perspective of the industry, do you see some of your competitors maybe starting to move on reactivating shuttered mine?

So we don't really see a lot of that. And I think part of the reason for that is, it's very hard to get labor right now. Everyone is struggling, particularly in the Permian to find folks just to run the facilities that they have and that's one of the reasons that we're seeing shortages in the industry today in terms of capacity. So I think it's going to be very challenging for anyone who wants to try to go recruit to restart a mine, even if they wanted to. And I think a lot of the mines, probably all the mines who are shutdown today, they're shut down for a reason. And typically that reason is that they're high up on the cost curve in terms of delivered costs. And so even if they do come back online, that's not the worst thing for us because their clearing price in the market to be able to be a sustainable operation will be substantially higher than ours, and so that will just provide a profitability umbrella for folks like us who are the low-cost providers in the industry.

And then maybe just correlating, bringing this back to Sandbox. Are you guys pretty much sold out of your Sandbox capacity as well? think about it.

We are. Sandbox is extremely tight also. Basically between sand and Sandbox, we're essentially sold out of the equipment and the tons that we have to put out in the market.

Okay, and then Northern White was like 40% of 3Q volumes. Can you maybe update us on just where you stand with access to rail-cars, do you have any in storage that can be pulled out as you start to ship more volumes in the Permian's.

That's -- it's a great question and we actually have taken all of our rail-cars out of storage. As you may know, things are pretty tight with the rail today also, and it's another reason that I think the supply chain bottlenecks will continue. It's tough to get power. So to get an engine to come to your site and hook up to your rail-cars. And one of the other issues that the whole industry is having right now is that the cycle time to get your empty rail-cars back to your site so you can refill them, has increased by several days. And so effectively what that means is you need more rail cars just to operate at the level you were operating, let alone if you want to try to get more tons into the system. So I think all of this, for me, points to the continued very tight market. And obviously that's going to be constructive for pricing, but my concern is we also want to be able to support our customers and make sure they can drill and complete the wells that they are expected to do for the year. So the good news is that we haven't disappointed any customers yet. We're working very closely with all of our top customers and we've consistently heard back from the market that -- from especially some of the biggest customers, that we're the only ones that are delivering as promised out there. And so we don't want to get ourselves over our there, make sure that we support customers and have the ability to plan what we're going to do until we keep our costs very low as well Smith.

That was great. That's it for me. Thanks, Bryan, and congrats on the good quarter.

Thank you very much take care.

Thank you. The next question comes from the line of John Daniel with Daniel Energy Partners. Please go ahead.

Hey, good morning, team.

John.

Hey Bryan, just 2 quick questions and one of them might sound like a dumb one, so I apologize, but you mentioned the effective capacity is call it $13 to $13.5 million tons, but if everything went perfectly, it's $14.5. What would it take to get everything to work perfectly?

There are a couple of things, John. One is great mix, and so for Northern White sand, the coarser products or 20-40, and to a lesser extent 30-50, are still not selling well in the market so everyone wants 40-70 and 100 Mesh, so there's some capacity that we have to take the waste. As most folks know, when you take a ton of mixed sand out of the ground, you get the four grades that the industry wants, and if nobody wants a grade, there's really nothing you can do with it. You have to make that, if you will, to make the grades that people want. That's a big part of it. And the rest of it is just around logistics. With Northern White, there's issues where the railroads don't show up, we don't have rail-cars. We have to throttle back our sites. Out in the local mines, like in the Permian. Somebody is doing a Simon re - frac and you get hurting of trucks that come in. People are in short supply as well, particularly out in the Permian. So all of those things inhibit us and to a greater extent, maybe some others in the industry from reaching their full capacity and these are complex problems these are not easy things to solve and that's why as I said earlier, I think things are going to stay tight for the foreseeable future.

Do you see any scenario where your customers may be -- sacrificing quality is not the right way to describe it, but where they say, because of the need for sand quickly, they take the coarser grades? And that is an opportunity or are they pretty committed to the 40-70, 100 Mesh?

I feel like the customers are pretty committed and we'll see what happens but obviously, the 2040 and 3050 grades are coming from the north so you're talking about a massive increase in cost to ship those down to the Permian and get that whole chain really going again like it was a few years ago before the local sand became so popular. I think we've seen some of that but it's still fairly limited. We do see occasional conversations around well, what if you did wet sand or a mobile mine or something, but those are not perfect solutions either. And by the way, if you want to go start-up a mobile mine somewhere, you still need people to run it and they're the same people that we're all fighting for out in the Permian’s. So it doesn't really solve the problems.

Right. I want to touch on something that Steven brought up on the leading-edge prices, we're starting to hear a lot of silly price numbers, I mean, that this week we had a - tell us he was quoted $90 of ton. I'm just curious how -- where do you see the price deck settling out 12 months from now, 15 months from now I mean, it would seem that activity is steady and rising from a completion standpoint. And can you just separate sort of the noise and silliness on the leading-edge stuff versus what's reality.

Sure. So we occasionally sell a ton or two for $40 or something like that in the Permian but –

Right.

-- that's not really the true spot price. I think today, the true leading edge spot price is probably somewhere in the mid-30s.

Right.

Contracts are getting signed in the mid to upper twenties to the low thirties, depending on the situation. If it's just a straight contract with no other sort of ties behind it, It's probably mid to upper 20 '. If it's something where somebody has a shortfall and there were trying to negotiate a deal, and as a way to make that up or some other thing, maybe it's in the low thirties somewhere. Those are reasonable prices where everybody is happy to do a deal, start getting much higher than that. If it does get to be a problem.

Fair enough. And then the last one for me is that you mentioned in the release and talked about the growing interest in contracts. Can you provide any color and the duration that your customers are asking for today?

So the whole customer conversation is really interesting. So if you go back a few months ago, we'd go to customers and say, hey, we really need to get a price increase, right?

Right.

And then that morphed in to, "Hey, we're going to increase prices. " And now the conversation is, customers are calling us and saying, "What price will it take to get product, right? " I think it's definitely a situation where everyone recognizes that this is a long-term problem in the industry. I think the most astute customers that we have are looking to sign multi-year contracts and are working with us to put in pricing mechanisms to adjust and deal with where the market might go either up or down. I think we're on our fifth generation of frac sand contract so we've learned a thing or two around what works and what doesn't. But again, the astute customers really see this as a long-term issue for the industry and want to get locked in with credible suppliers who they believe can support their completion programs going out over the next 2, 3, 4 years.

Right. Thank you very much for answering questions and let me in the Q&A.

Thanks, John.

Thank you. The next question comes from the line of Daniel Kutz with Morgan Stanley. Please go ahead.

Hey, thanks. Good morning.

Good morning.

So my first question is about 2015 capital spending plans, apologies if I missed this in the prepared remarks. But I was just wondering if you can unpack the guidance that you guys shared, from our growth and maintenance perspective, we're from oil and gas versus high ISP perspective. Any incremental color there would be great.

Yeah, so our guidance of 40 million to 60 million right away take about somewhere between $17 million to $20 million is going to be maintenance capex. And the majority of the spending after that is going to be on growth projects.

The reason why we gave you a little bit -- a wider of a range that we normally would is because we're going to be spending very opportunistically on the ISP growth products. As we get customer acceptance, as these things really start to ramp up, that's when we'll start to spend those dollars with an eye on the balance sheet as well, right? Trying to keep a nice balance between what our operating cash flow is versus what we're spending, and then looking at how do we measure that against the new product growth in ISP. I would say the majority of the delta between maintenance and our guidance is the growth projects that we have slated in the industrial side.

Done that's speaking of Balance Sheet, we got some good news this morning so wants to share that.

So you heard in my prepared remarks, we talked about the IRS refund, so very fortuitously, we got $21 million this morning in our bank account. So, I no longer have to talk about that. We actually have that in the in our bank account this morning.

It's amazing. Great news.

It is great news.

Thanks. Thanks for Capex color. So just following up there, I think in the prepared remarks, the comments indicated that you're expecting and planning on managing to spend capital below operating cash in generally positive free cash flow. Is there anything that you can do to help us think about the magnitude of free cash flow than you're expecting to generate the shares is break even? The bogey to think about or are you going to be expecting to be more meaningfully positive this year.

In my prepared remarks, I talked about a bogey of $300 million worth of cash on the Balance Sheet by the end of the year. Which would imply a $50 billion free cash flow year for us. That can vary a little bit one way or the other based on the overall capital spend that we see. But again, we're talking about high our projects in the ISP side of it. If we choose to do that, that might move one way or the other. But right now, we're shooting to have 300 million to continue to reduce our overall net debt.

And I think Dan, that we're looking to kind of have it all we want to be able to spend to keep the ISP growth program on track that we talked about, kind of reaching that $90 million run rate by 2024 and adding cash to the balance sheet and think things like getting us IRS refund. Obviously, it's a onetime thing, but that helps us as well. And I think we're committed to continue to increase the cash on the balance sheet and get to a much lower net leverage ratio as we get into 2024, and thinking about refining our debt. And just another point around that, given where things are in oil and gas right now, and kind of what I call the medium-term prospects for our oil and gas business. So I think over the next 3 to 5 years, I feel like oil and gas is going to generate a lot of cash, maybe more than we had in our base modeling, looking out over the next couple of years to just given how things look right now, so hopefully, that'll be a great tailwind as well to let us get even more cash on our balance sheet as we operate over the next few years.

Thanks a lot for the color guys and congrats again on the cash influx, I'll turn it back.

Thanks, Dan.

Thank you. The next question comes from the line of Derrick Lee with Barclays, please go ahead.

Good morning.

Hi Derek.

California -- morning. So California Public Utility, they put out some pretty bold long-term plans up to 2026 and then beyond to 2032 on the renewable energy sources, including solar and wind. I'd love to get your take on kind of your exposure there. Obviously that's part of your new products goal and all those, the wind turbines and the solar panels. So maybe you could just take a moment, just kind of talk about what came out as far as what California is trying to do and how you guys fit into that market.

It's a great question, Derrick, and it's something that we think about a lot, as you can imagine. Today, we have about 12% of our revenue that goes into, sort of renewable energy, transformational energy environmentally important value changes, as we would call them. And solar panels and wind are number one there. But also this Green Diesel that I talked about earlier, which is a very interesting market as well which is recycling oil from a variety of sources, cleaning it up and turning it into Diesel. We're going to be big in that, as well. On the solar panel side, in particular, we're extremely well-positioned for supplying that industry and specifically on what we do, the solar panels are covered in glass, obviously to protect the interior circuitry and to make that work efficiently, you need ultra-clear, ultra-pure glass and it so happens that we have the country's most pure source of sand sitting up at our Rockwood Michigan site, which happens to be just down the road from a major glass manufacturer who supplying First Solar in the area there. And First Solar, if you look up what they're doing, they are expecting to expand. And I think they'll be the largest solar panel manufacturer, perhaps outside of China in the next couple of years. And we're literally sitting right in our backyard so I think we'll not only continue to grow; we may have to expand our rock wood site over the next few years to accommodate that. So solar is going to be a big for us and the Green Diesel as well, so we feel very good about how we can grow with that renewable green energy play as you said.

Now that's helpful. I want to go back to the Capex. I know you guys provided for 2022, and Don kind of pulled apart the different drivers of between maintenance and growth. But keeping in mind, you're at your bold goals for ISP. That run rate going from $20 million to $90 million of doubling by 2026. Can you maybe talk about the Capex, it's going to be required to support that growth with these new products in '23, '24? Is there any way you can give us, some guideposts as to what the cadence of Capex could be like over the next few years?

So if we look out over the next, say three years, so '22, '23 and '24, and you add up all the growth capital that we have. As Don said, maintenance for us is typically 17-20 and then everything beyond that is some version of growing or in some cases, there is still some bigger maintenance stuff in there, but anyway, for the growth specifically, I think we'll need somewhere between $120-130 million over the course of those three years, as we currently look at it. Our team is pretty clever though. We're always finding ways to get things done with less capital than we thought so let's see where we come out, but that's what's in our current cash model. Say that we would need on top of the maintenance Capex, about $125 million of growth Capex in '22, '23 and '24.

Okay, very helpful. Thank you.

Thanks, Derrick.

Thank you. The next question comes from the line of Stephen Gengaro with Stifel. Please go ahead.

Thanks for taking the follow ups. I have two quick ones. The first, given what we're hearing about shortages of frac sand in the Permian, are you seeing any change in dynamics around Sandbox?

So I think Sandbox is interesting and if you look at the volumes of Proppant that go through Sandbox today, it's about 30% of all of the sand that gets moved around the industry that goes through Sandbox. And I think it gives us yet another lever to help our customers be successful because we can also do the last mile. And I think that that pairs up very nicely with the sand, Steven, and especially at a time when things are tight, customers love kind of a one-stop shop, as opposed to having to go to multiple parties to get different things done in the value chain, so I think that definitely helps us and is a complementary offering for sure.

Okay, thanks, and then I'm not sure you're willing to come on this, but if you've looked at the current '22 EBITDA consensus, a little over $200 million and that's flat, but it's flat after you got to deduct about $50 million in shortfall revenues, I think, for mid-2021. Is that a reasonable starting point? It seems like things are -- it seems like you have momentum beyond that but is that a reasonable starting point in your view?

Yeah. As you said, it's tough for me to comment on that specifically. I think the best way to look at it obviously is the sum of the parts between oilfield and industrial. I think you're somewhere in the right zip code, but you really have to build it up from the pieces and that's the way we generally talk about it as you know.

Okay –

We don't give guidance for that numbers, but I would reiterate with Bryan, it's in the right zip code.

Great. Thank you.

Thanks, Stephen.

Thank you. Ladies and gentlemen. We have reached the end of question-and-answer session. At this time, I would like to turn the floor back over to Mr. Bryan Shinn for closing comments. Thank you.

Thank you, Operator. As we bring our call to a close today, I'd like to leave you all with three key thoughts. First, we're committed to capital discipline, as we talked about multiple times today, and as we continue to implement a number of margin improvement efforts, we should be able to continue to sustainably generate positive free cash flow and further strengthen our balance sheet. That's the number one objective for us and I think we're well on our way to do that, and the great news hearing that we got the IRS refund of another $21 million. I think that propels us down a very nice trajectory to get to at least $300 million of cash on our balance sheet by year end. And second, as I think you heard today, we have a strong and growing and very diverse portfolio of products. I went through a number of different industrial products that we're extremely excited about. And I think - so one of the questions that came up and talked about our supporting environmentally important value chains. I'm very excited about that, and very proud that our company can help support the transition to a cleaner energy. And then finally, as we look ahead, we remain confident that our industry-leading business segments, robust product portfolio, focused strategy, and best-in-class execution will create substantial value for our shareholders and other stakeholders and as I said earlier in my prepared remarks and we talked about extensively in Q&A we remain on track to achieve our bold new industrial product growth goals for 2024. So thanks again for joining our call today and we look forward to speaking with you all again next quarter. Stay safe and everyone be well.

Ladies and gentlemen, thank you for your participation and interest in U.S. Silica, this concludes today's event. You may disconnect your line and logoff the webcast at this time. Thank you.