U.S. Silica [SLCA] Conference call transcript for 2022 q2
2022-07-29 12:22:05
Fiscal: 2022 q2
Company Representatives: Bryan Shinn - Chief Executive Officer Don Merril - Executive Vice President, Chief Financial Officer Patricia Gil - Vice President of Investor Relations
Operator: Greetings! And welcome to the U.S. Silica Second Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. . As a reminder, this conference is being recorded. It is now my pleasure to introduce you host, Ms. Patricia Gil, Vice President of Investor Relations. Thank you, please go ahead.
Patricia Gil: Thank you and good morning everyone. Iâd like to thank you for joining us today for U.S. Silicaâs second quarter 2022 earnings conference call. Leading the call today are our Chief Executive Officer, Bryan Shinn; and Don 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 companyâs 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 todayâs 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.
Bryan Shinn: Thanks Patricia and good morning everyone. We delivered an exceptional second quarter with outstanding sales volume, revenue, earnings and cash generation across the company. By capitalizing on the strength in our underlying markets and improved operational efficiencies we generated 77% sequential increase in adjusted EBITDA and $88 million of cash flow from operations. We continue to experience robust customer demand during the quarter and we implemented numerous price increases and surcharges across both business units to fight inflationary impacts. In addition, I'm extremely proud of our organizationâs execution during the second quarter as we creatively improved international logistics performance, increased plant outputs and delivered world class safety performance. I'm also pleased to report that the positive market conditions are continuing and we expect the momentum to carry over into the second half of the year. We've already started off strong with our recently announced repurchase of $100 million of debt earlier this month, and given that we expect substantial operating cash flow generation in the second half of 2022, we should see continued meaningful reduction in our net debt as planned. Don will discuss the details of our Q2 performance in just a moment, but first let's review some of the significant trends that we saw during the quarter. In our oil and gas segment, the supply and demand balance in the sand and last mile logistics market remains very tight, and we were effectively sold out due to strong well completion demand, particularly in West Texas. As a result, spot prices were around $50 per ton and our sand and SandBox sales prices and margins continue to move higher. Given the expectation for a multi-year energy upcycle, customers have been determined to secure sand supply and are signing attractive multi-year contracts, including paying cash up front. During the second quarter we took advantage of operational efficiency gains at key mine sites to maximize production in sold-out assets. For example we delivered record sand production in West Texas during the month of April and May, and at SandBox our last mile logistics business we realized a new single day record of delivered loads in June. Overall our oil and gas segment finished the quarter with strong momentum and we expect further sequential profitability increases in Q3. In our industrial segment, customer demand remains strong across end uses and market segments. As discussed on last quarter's call, the transitory seasonal issues from Q1 were resolved and we realized a very strong rebound in Q2, driven by price increases and surcharges across all major product lines to combat inflation, improved product mix and greater operational efficiencies from initiatives such as leveraging alternate shipping ports and packaging automation. We also recorded record quarterly shipments at our Millen, Georgia facility driven by strong demand for our EverWhite cristobalite and Cool Roof Granule product lines. And our Vale Oregon facility also delivered record shipments of Diatomaceous Earth during the quarter. The main takeaway here is that our industrial segment rebounded substantially during Q2 and we expect further successes in the second half of the year. Moving to corporate news, in mid-June we announced that our Board of Directors concluded their strategic alternatives review for our industrial and specialty products segment. After extensive evaluation and deliberation, the board determined that retaining ownership of the ISP segment represents the best path forward for U.S. Silica and its shareholders and other stakeholders. Since announcing the strategic review last year, the macro environment has improved dramatically as evidenced by our recent quarterly results and robust outlook for the second half of 2022, with expected increases in profitability, cash generation and further strengthening of our balance sheet. For the rest of my time this morning, I want to give an update on the exciting growth opportunities in our industrial portfolio and then finish with a summary of our outlook for the third quarter and the second half of 2022. Innovation and the profitable expansion of our industrial product portfolio remain top corporate priorities. During the quarter we had numerous successes and milestones achieved supporting the expansion of future contribution margin dollars, including delivering record sales from our new West Virginia limestone and aggregates plant in June. We reach the 250,000 tons per year run rate with line of sight to doubling that in the near term. We received very favorable customer feedback on a highly specialized treated silica for use in outdoor coating applications and we expect to be in commercial sales for this product in 2023. We also ramped up 300,000 tons of new annual sand and clay sales to U.S. industrial customers under long term contracts for a total of more than $4 million of incremental annual run rate contribution margin. We closed several new sales of our DEsect organic pesticide product and have additional opportunities for use on numerous crops, including cabbage, oranges, grapefruits, mushrooms and table grapes. We receive very positive customer feedback on our newest white pigment product, and we filed a patent application to protect this breakthrough technology. We are also trialing our new renewable diesel catalyst filtration product with multiple customers and we're progressing with contract negotiations, and finally we are establishing a pilot plant for the expansion of our research and development efforts. Our strategic investments in product development and new technology have helped position our industrial segment as a leader in advanced materials and high value minerals. We continue to make exciting progress executing our industrial growth plan and I look forward to providing additional updates on future calls. Now let's turn to our business and market outlook. Overall 2022 is setting up to be very strong for U.S. Silica. During the second half of this year we expect a constructive commodity price backdrop and strong and steady industrial demand, augmented by new product growth and new customer acquisition. With this expected strong performance, we should generate significant cash flow from operations in Q3 and Q4 and continue to strengthen our balance sheet. For Q3 specifically, we are extremely well positioned for success. We expect both our oilfield, proppant, and SandBox offerings to remain essentially sold out with sequential tons flat to slightly up, off of very high volume levels from the prior quarter. Additionally, we expect to see a competitive, but still disciplined market and forecast sequential profit improvements driven by enhanced sand customer contract mix, improved pricing and increased SandBox deliveries. In total, we expect third quarter oil and gas segment contribution margin dollars to be up by 4% to 7% sequentially. Turning to our industrial and specialty products segment, we forecast that demand will remain strong and stable and our base case is that Q3 financials will closely align with what we delivered in are very strong performance in Q2. And with that, I'll now turn the call over to our CFO, Don Merril, who will discuss our financial results in more detail. Don.
Don Merril: Thanks, Bryan, and good morning everyone. As Bryan stated we reported an exceptionally strong second quarter for both segments driven by robust customer demand, higher pricing, favorable product mix and operational efficiencies. Compared to the prior quarter, total revenue increased 27% to $388.5 million, adjusted EBITDA increased 77% to $93.8 million. Overall tons sold increased 13% to 4.7 million tons and total company contribution margin increased 49% to $123.3 million. Selling, general and administrative expenses for the quarter decreased 13% sequentially to $34.8 million, driven mostly by our supplier contract termination in the first quarter of this year. Depreciation, depletion and amortization expense decreased 8% sequentially to total $34.7 million in the second quarter. Our effective tax rate for the quarter ended June 30, 2022 was 34% including discrete items. Now let me move on with a detailed review of our operating segment results. The oil and gas segment reported revenue of $244.2 million for the second quarter, an increase of 39% when compared to the first quarter. Volumes for the oil and gas segment increased 15% compared to the prior quarter and totaled 3.5 million tons, while SandBox delivered loads increased 12% compared to the prior quarter. Segment contribution margin continued its expansion and increased significantly improving 73% quarter-over-quarter to $77.4 million, which on a per ton basis was $21.93. This is a sequential increase of 50% and easily exceeded our long term benchmark of $10 on a part ton basis. These results were driven by ongoing strength in customer demand, higher volumes and improved pricing for both proppant and last mile logistics. Our industrial and specialty products segment revenues increased 12% sequentially to a $144.3 million, compared with the first quarter. Volumes for the ISP segment increased 5% compared to the prior quarter and totaled a record 1.1240 million tons, and segment contribution margin increased 21% on a sequential basis, due to our inflation offsetting price increases, favorable product mix and operational efficiencies. On a part ton basis, the contribution margin for the industrial and specialty products segment increased 16% sequentially and totaled $40.85 per ton. Turning to the cash flow statement, during the second quarter we delivered $88.1 million cash flow from operations and we invested $10.5 million in cap, primarily for current and new product expansion, as well as facility upgrades. The companyâs cash and cash equivalents on June 30, 2022 increased significantly compared to the prior quarter, rising 30% sequentially from balance of $312.4 million. At quarter end our $100 million revolver at zero dollars drawn, with $78.4 million available under the credit facility after allocating for letters of credit. Given our meaningful levels of free cash flow generated year-to-date, coupled with our internal projections for future operating cash flow, we seized the opportunity to repurchase $100 million of our outstanding term loan earlier this month. This debt was retired at a discount to par utilizing cash-on-hand. Looking forward, we forecast that we will continue to generate robust operating cash flow for the remainder of the year, allowing us the flexibility to further deliver our balance sheet through potential incremental debt repurchases or the refinancing of our term loan. We remain committed to organically funding our business growth and we will continue to be disciplined in our capital spending, managing accordingly with an emphasis on effectively maintaining operating levels in our facilities and investing in growth projects for the ISP segments to maximize future profitability. We currently expect capital spending to be in the range of $40 million to $60 million for the full year with balanced quarterly spending in the second half of the year. We guide full year 2022 SG&A expenses to be up 10% to 20% year-over-year, primarily due to the supplier contract termination in the first quarter, merger and acquisition related expenses for the strategic alternatives review in the first half of the year, and other costs mostly related to the increased activity and inflation. Full year 2022 DD&A expense is still anticipated to decrease approximately 15% due to past investments which became fully depreciated at the end of 2021. Our estimated effective tax rate for the full year 2022 is 22%. In conclusion, our main priority is to continue strengthening our balance sheet by focusing on free cash flow generation. We have taken pricing actions that are allowing the company to effectively manage the inflation issues, further demonstrating the strength and stability of our two business segments. For the remainder of this year, we aim to balance our capital investments with cash flow and believe we are on an accelerated track to end the year with net leverage under our goal of 3x levered by year end And with that, I'll turn the call back over to Bryan.
Bryan Shinn : Thanks Don. I'm very proud of the results that our team delivered in Q2 and as you heard this morning, we expect a strong Q3 and second half of 2022. While meeting our commitments in the short term, we also continue to drive numerous initiatives to extend our market leading positions and pave the path to meaningful growth over the next three to five years, while strengthening our balance sheet and expanding our industrial product portfolio and profitability. With that operator, will you please open the lines for questions.
Operator: Thank you. . The first question is coming from Stephen Gengaro of Stifel. Please go ahead.
Stephen Gengaro : Thank you. Good morning everybody.
Bryan Shinn: Good morning, Stephen.
Stephen Gengaro : So a few things if you don't mind. If we look at the oil and gas side, can you talk about what you're seeing in the industry? I mean clearly you said you're talking about longer term contract commitments from customers and customers desire lock up frac sand. It doesn't seem like we're seeing significant capacity additions or a lot of these shuttered mines reopening. Can you just kind of give us your thoughts on what's out there from the past, your perspective, and how you think it evolves going forward?
Bryan Shinn: Sure Stephen. Itâs a very interesting question and obviously that's something that we look at quite a lot and in a lot of depth. I think that the way I think about it is, I look at the supply and demand and I think given the market backdrop, kind of the macro that we're seeing out there today, I feel like we're in a kind of multi-year upcycle here. So I think most customers that I talk to feel the same way. So letâs just kind of take the demand side off the table and assume demand is going to be there. So far our industry is staying pretty disciplined in terms of capacity. I think we will see some new nameplate capacity come online over the next six to 12 months and as we do the calculations on that and think about what sort of effective capacity might be out in the market incrementally, and maybe it's something like 10 million tons over the next six to 12 months. But to put that in perspective, in the Permian for example, every 1 million tons of capacity that comes online can support two frac crews. So said another way, let's say we have 10 million tons of capacity come online in the next year so, it only takes 20 additional frac crews in service to soak up that capacity and I think most of us believe that we'll see much more than that come online over the next 12 months or so, here. So our call is that things stay very tight in terms of us supply and demand for North American sand out in the oil filed.
Stephen Gengaro : Thank you, and when you when you think about the current sort of mix of your oil and gas side that is contracted and sort of the pricing that you see in those contracts, it seems to support pretty stable contribution margin per ton at least over the next few quarters. Is that fair?
Bryan Shinn: I think that's right, and it wasn't that long ago that we were thinking that maybe something like $10 contribution margin per ton was kind of the right number to look at. Obviously this quarter weâre at almost $22 and pricing has gone up pretty dramatically. So in Q2 we saw pricing for oil field, sand in our portfolio go up about 28% sequentially, and that was across all the basins. It wasn't just sort of heavily weighted towards the Permian or something like that. So I think we're going to see a constructive pricing environment here and the margins, obviously strong margins that come with that and just given the contract that we have and the ones that we're signing today and maybe the ones who are signing are actually at higher pricing than we had in Q2. So I'm feeling really good about the future margin outlook in the oil field segment.
Stephen Gengaro : Okay, great, thank you. And if I could just throw in one more on the ISP side. The third quarter expectations, can you just talked a little bit about what you're seeing there and because it felt like we â I know there's some seasonality here, but how that business is evolving and how that growth should look like over the next year, year and half given what's going on in the economy and kind of your thoughts there currently.
Bryan Shinn: Sure. So look, I think overall our industrial segment is set up for a really good year here. If you look at Q2, it was the highest volume ever that we've had in our 122 year history in terms of the ISP business and again in our long history of the company it was the second best quarter that we've ever had for contribution margin. So the guide for Q3 is to put up something that looks pretty similar to that. So we're looking at two sort of back-to-back historic quarters here. So I'm very excited about that, and I think over the next year or two weâll continue to see the new product pipeline roll in and add on top of whatever sort of market growth that we get across the different segments that we serve across the various industries. So I'm very excited about the outlook for industrial.
Stephen Gengaro : Great! Thank you.
Bryan Shinn: Thanks Stephen.
Operator: Thank you. The next question is coming from Connor Lynagh of Morgan Stanley. Please go ahead.
Connor Lynagh: Yes, good morning. Given this is the first conference call since the strategic review concluded, I thought maybe you might be able to walk through a little bit, just sort of what you guys considered, why you ultimately settled where you did, just the thought process behind that.
Bryan Shinn: Sure. So, I think you kind of go back to what drove us to decide to conduct that review in the first place, and our broad is always looking at how we can improve, how we can deliver additional value for shareholders, and I would say as we embarked upon that review, we all felt like we had a really good at a base strategic plan. So the idea was to see what the options and alternatives might be out there, that can provide even higher value for our shareholders and other stakeholders. So we did a pretty exhaustive amount of work over eight months or so, looking at all kinds of ideas and alternatives and you know at the end what we found is that the base plan was really a good one and we felt like kind of sticking with that. It was the right path and of course in the meantime we've seen this tremendous surge in the oil field side of our company. We're still I think on track and doing really well on the industrial side as well. But when you sort of put those two segments together, itâs really kind of a macro environment weâre in right now. The strength in the oil field is sort of the environment that we designed, this current business set up of the two segments took to thrive in. And as Don mentioned in his prepared remarks, we are just generating a lot of cash right now and my expectation is that we're going to continue to generate cash from the oil field side of the business and we can invest some of that industrial, but more importantly we can channel quite a bit of that into paying down debt and reducing our leverage. And our sort of internal goal is to try to get to 3x net leverage or lower by 2024. I think we can get to that goal now by the end of 2023. So as Iâve talked to investors â sorry, 2022 right, sorry. So to just be clear, we thought weâll get there by the end of â23, now I think we can get there by the end of â22. And as we talked to investors over the last couple of years, obviously the debt level that we have is one of the major over hangs on the share price, so to the extent we can get that debt down and put ourselves in a better net leverage position. I think that's a great outcome for us.
Don Merril: And just to, you know I can just comment on that a little bit. You know we ended that quarter at $312 million worth of cash. We used $100 million of that to pay down debt and as we sit here today, you know we're over $200 million, $2.25 million of cash and we do expect to continue to grow that, so it'll give us the flexibility to delever the balance sheet and as Brian said, continue to invest in ISP. So the worldâs a different place today than when we started this strategic review, because the options and the flexibility are there for us today.
Connor Lynagh: Yeah, it makes sense. A bit of shifting gears here, but just wanted to quantify SandBox, you know how much is that driving the growth that you're expecting in the third quarter? If you could just speak to the general volume and pricing expectations in that portion of the business, weâd appreciate it.
A - Bryan Shinn: Sure. So look, SandBox is having a great year as the rest of our oilfield business. So if you look in Q1, delivered loads are up about 12% and we saw a big increase in margin per load as well. And as we look at Q3, we think we're going to see a continued improvement in SandBox profitability. We donât have a specific guide for that and we don't talk and guide to SandBox specifically. We just talked about the whole segment, but I think SandBox will be a meaningful tailwind for us in Q3.
Connor Lynagh: Alright, thanks very much.
A - Bryan Shinn: Thanks Connor.
Operator: Thank you. The next question is coming from Derek Podhaizer of Barclays. Please go ahead.
Derek Podhaizer: Hey! Good morning you guys.
A - Bryan Shinn: Good morning, Derek.
Derek Podhaizer: So, I found it interesting looking at your price per ton. You returned to the 2019 levels via contributions margins which have outperformed. Can you talk about the operating leverage you have in the oil and gas business now that would drive contribution margin to turn back to the 2018 levels. It seems like you wouldnât have to reach those 2018 crisis per ton levels.
A - Bryan Shinn: So, as I think about the kind of leverage that we have going forward in the sand side of the oilfield business, to me it's really all around price right now. We're pretty much tapped out in volumes. You know in any given month or any quarter maybe you squeeze out a few more tons just by hitting the top end of your kind of average operational ranges. But I think the story in our oil fields sand business is by continuing to increase price and as I mentioned earlier, pricing was up about 28% in Q2 and our expectation is that you know we're going to be up again, not that much in Q3, but with the guide that we have of that sort of 4% to 7% growth. I would say almost all that is pricing, so. I mean weâll continue to see that and do well on the pricing side of the equation.
Don Merril: You know I would just add, I do think that you know from an operations perspective, especially in West Texas we're seeing lower cost per ton with some of the investments that we've made. Not a lot of investments, but enough to you know put some things in West Texas that's driving the cost down as well, so we're really kind of working on both sides of that equation.
Derek Podhaizer: Got it! No, thatâs helpful. Just looking ahead at 2023, can you maybe give us some guideposts for the CapEx outlook? I know you're balancing deleveraging, the balance sheet, refocusing on the combined company after the strategic review is over. I think Bryan you mentioned last quarter $120 million to $130 million from â22 to â24 to support the new products growth, but maybe could we get a refresher on that? Is there any inflationary pressure on that CapEx or now that you're going forward in the combined company, maybe you're leaning in to some growth, whether it's in the oil and gas part or the ISP part, but just a refresher on the CapEx outlook will be helpful.
A - Bryan Shinn: Sure. So I think we'll still be on an annual basis for the next couple of years in that kind of $40 million to $60 million per year CapEx range, which is where we are today. Obviously a lot of that will be dictated by the success of our new products on the industrial side and how fast those come online and how fast they can ramp up, and I think the teams there are doing a fantastic job. I've pointed to several key milestones that were hit on my prepared remarks earlier, but it is challenging in this environment and yet we find that a lot of our customers are very busy with their own issues, trying to keep their operations running and worrying about their own inflationary issues and other things, so. You know it's always hard to tell how that plays into it, but I think from our side we've got the technology; we have a lot of new interesting products that weâll continue to invest in those. I also feel like we'll balance that off with how much we want to continue to reduce our net leverage and so â but the good news is we have optionality between those two really attractive uses of cash and just depending on where interest rates go and how fast some of these new products come online, you know we can sort of pivot between those two and get great returns and great value either way we go.
Derek Podhaizer: Got it. Okay, great. I appreciate the color and Iâll turn it back.
A - Bryan Shinn: Thank you, Derek.
Operator: Thank you. The next question is coming from Samantha Hoh of Evercore. Please go ahead.
Samantha Hoh: Hey guys! Congrats on the great quarter!
A - Bryan Shinn: Thanks Samantha. Good morning.
Samantha Hoh: Hi! Maybe just to stay on the ISP side first, you know it's great to hear that Millen had record output. I'm just kind of wondering if you're starting to see any sort of signs of a slowdown in demand for our housing related products, just given whatâs you know going on with interest rates and you know construction and whatnot.
A - Bryan Shinn: So we really haven't seen a slowdown in any of our sectors, so weâre watching that very carefully and you know in this kind of environment there's a lot of noise out there and we have to be careful, because we are pretty far back in the chain in some cases. Thereâs kind of a first step raw material the creates goods and services that we all might buy at it, you know a very sort of retail outlet. So weâre watching it carefully, weâre in close the communications with our customer, but as of right now we really haven't seen much of anything in terms of slowdowns.
Samantha Hoh: Okay, and then maybe just to add onto that, like is there any discussions underway with government to get access to any of these pending for you know growing raw material production capacity here in the states?
A - Bryan Shinn: It's really interesting you say that. I was just looking through this latest puzzle that maybe coming through Congress here and you know there are definitely some areas that are in and around where we play, so weâll investigate that. I think it's a little too early to know exactly what's in the bill yet. I'm not sure everybody is even ready quite honestly, so we'll look at that. I feel like there are a lot of places that extend this sort of move over into infrastructure. Some of the original kind of build back better elements around all the sort of repairs and rebuilding of various infrastructure from roads with our new limestone product to redoing airports and schools and things like that. Any sort of construction type projects we definitely have opportunities to see some upside for that.
Samantha Hoh: Okay, great! So maybe shifting to oil and gas, just curious how the industry is dealing with you know some of those supply constraint that really haven't disappeared, right. I mean how are we going to be able to add 10 million tons in capacity when there's still so much labor and trucking and logistics issues?
A - Bryan Shinn: Well, that's just the point, right, and so you know youâll hear people talk about that weâre adding, maybe going to add this much capacity or that much capacity, but our experience from a practical standpoint that there's all kinds of things that sort of get in the way and especially when you think about West Texas and the constraints, thereâs weather issues, there's all sorts of inefficiencies in the supply chain, thereâs labor, thereâs trucking, thereâs maintenance, there are spare parts, you know all those things are still really big challenges for our industry and I think sand is still you know plus or minus a gating item for well completion. Building sand and horsepower are in pretty tight supply right now, and I know on the sand side anyway most of the energy companies out there, before they all sort of give a final approval to mobilize to go complete a well, they want like rock solid assurances that the sand is lined up. So things are very tight and I think we're all working through it and doing our best to keep our customer supplied in a time that brings a lot of challenges from a supply chain perspective.
Samantha Hoh: And I'm sorry to sneak in one more, but can you address actually the â in terms of the headlines that kind of came through last quarter with new MSHA rules and Iâm kind of curious also how you're dealing with just like the heat in Texas and water shortage for this and just all that kind of stuff.
A - Bryan Shinn: Yes, so the intra rule is an interesting one. I think at the end of the day it's â the bottom line is itâs really not going to have much of an impact for us, but just for folks on the call, so MSHA is an acronym that stands for Mine Safety and Health Administration. So they are kind of like the OSHA equivalent for mining companies like ourselves. And so our facilities for the most part are regulated and governed by MSHA regulations not OSHA, and MSHA is looking at like particulate dust kind of levels in various mining operations and they are thinking about proposing some more stringent regulations that would be more in line with what the OSHA did a couple of years ago. The good news is that weâre already in compliance at a lot of our mine sites, and it won't take much in the way of CapEx or sort of small changes for us to get into compliance. I think some of our competitors who haven't been doing this for a long time like we have and perhaps didn't build their mines with these kind of considerations, may have some more issues, but for us it's going to non-event.
Samantha Hoh : Thanks so much for addressing that Bryan and congrats again guys.
Bryan Shinn: Thanks Samantha.
Operator: Thank you. The next question is coming from John Daniel of Daniel Energy Partners. Please go ahead.
John Daniel: Good morning, guys.
Bryan Shinn: Good morning, John.
John Daniel: So I got some softball for you. Firstâ¦
Bryan Shinn: Wait a minute. That never happens from you John. There must be a Trojan horse question somewhere.
John Daniel: Actually I'm feeling generous this Friday morning.
Bryan Shinn: Wow, okay.
John Daniel: I have a â this might be a silly one, but how would you compare contrast and itâs a little bit of a follow-on to Samantha's. Just compare contrast to the ability to find people and oil and gas versus ISP. Any noticeable differences?
Bryan Shinn: So, I think in the ISP areas, our mines tend to be pretty remote and so they are in you know kind of small towns in the middle of nowhere and we are usually the best employer in the area. So itâs a little bit easier there may be for us to find talent. Thatâs not universally true, but I think generally we tend to be the employer of choice within 50 miles or something. In the oil field when I look at our Crane and Lamesa sites, you know we're competing with the service companies for talent and all the other folks out there that support the oilfield. So particularly for more highly technical folks, so maintenance technicians, electricians, instrument mechanics, things like that, which are in short supply already. It is really a challenge to find that kind of talent out in West Texas.
John Daniel: Okay, fair enough. The other one, in your press release you made a comment which piqued my interest. You talked about creatively improving international logistics performances. Can you elaborate a little bit on that?
Bryan Shinn: Sure, so we shipped a lot of our industrial products that go outside the U.S. from the West Coast port of Oakland traditionally, and that ports become a bit of a disaster over the last couple of years for a variety of reasons. So our team did a lot of different things. So for example, instead of just shipping from our mine site directly to the port, like we've done for decades and decades, we hired contractors in a warehouse and other things that are close to the port, so we pre staged material there, so that they are much more likely to get on the ship as opposed to having to ship it all the way from our sites. We've also started to ship through alternative ports. So we're going through Long Beach, Port of Houston, doing some through New Orleans and even shipping things back by rail to the east coast to go out of Savannah. And the good news is that our customers are basically paying the additional costs for that. But just to give you a sense of how crazy things can get, particularly in the industrial side, we had a customer a couple of months ago that actually chartered a jet for $1 million to pick up some of our materials, so they could keep operating over in Africa. So we're seeing those kinds of things all the time. There is still a lot of logistics challenges out there and our team is working to solve problems daily on that front.
John Daniel: Okay, got it. And then the last one for me and this is just my failure to pay close enough attention to ISP, so apologies. But can you elaborate on some of the more exciting opportunities within that segment and then just timing and potential magnitude of those opportunities over the next few years.
Bryan Shinn: Sure, sure. So I think the cool thing about the industrial opportunities is that we have everything from singles and doubles to sort of home runs and beyond that. So for example, one of the things thatâs taken off very quickly here is starting to sell a limestone out of our Berkeley Springs West Virginia site. Weâve ramped that up very quickly and I think will over the next couple years have a kind of multi-million dollar profit stream for that. If you look at our Millen, Georgia site, would be a cristobalite just going into the counter tops and the Cool Roof Granule, the solar reflective energy efficient granules for commercial roofing, that's going really well. We've got a new EverWhite pigment product which I think might be our overall sort of biggest product, which is replacing more traditional white pigments as additives into a variety of formulations. Iâd mentioned in the prepared remarks we've got organic insecticide which is actually taking off based on Diatomaceous Earth. So itâs quite a large portfolio of products weâre kind of advancing through the system here and I think what youâre going to see over the next couple of years is tens of millions of dollars of additional contribution margin coming from that. And just given the margin profile and the specialty nature of these products, I would expect that they would help not just boost our industrial contribution margin, but kind of really bolster the fact that the multiple associated with that should continue to expand, because once you get specked in for these kind of products, it's very hard to get taken out.
John Daniel: Yeah, I mean you guys not withstanding potential slowing here of the economy, but a high, you know highest quarter ever for ISP. It seems like this is going to be repeatable, you'll surpass that. Just my opinion, but I mean with all the stuff you got going on, it sounds pretty exciting there, so.
Bryan Shinn: No, it is, itâs very exciting John.
John Daniel: Okay, thanks for including me guy.
Bryan Shinn: Thanks John.
Don Merril: Thanks John.
Operator: We're showing no additional questions in queue at this time. I would like to turn the floor back over to management for any additional or closing comments.
Bryan Shinn : Thanks operator. So as we bring the call to a close today, I want to conclude with a few key thought: First, I believe that we're very well positioned and on track to deliver an outstanding year with strong sales, profitability and cash generation as weâve discussed this morning. Second, we're firmly committed to market and capital discipline and we expect to continue to sustainably generate positive free cash flow from operations and further strengthen our balance sheet here in 2022 and beyond. And 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. Thank you again for joining our call today and we look forward to speaking with you all again next quarter. Stay safe and be well everyone.
Operator: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day!
