U.S. Silica - Q2 2022
July 29, 2022
Transcript
Operator (participant)
Greetings and welcome to the U.S. Silica Q2 2022 earnings conference call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If you would like to ask a question, please press star one on your telephone keypad. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Patricia Gil, Vice President of Investor Relations. Thank you. Please go ahead.
Patricia Gil (VP of Investor Relations)
Thank you and good morning, everyone. I'd like to thank you for joining us today for U.S. Silica's Q2 2022 earnings conference call. Leading the call today are our Chief Executive Officer Bryan Shinn and Don Merrill 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. With that, I would now like to turn the call over to our CEO, Mr. Bryan Shinn.
Bryan Shinn (CEO)
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 a 77% sequential increase in Adjusted EBITDA and $88 million of cash flow from operations. We continued 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 organization's 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. 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 continued 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 months of April and May. 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. 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 reached a 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 begin 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 received very positive customer feedback on our newest white pigment product, and we filed a patent application to protect this breakthrough technology. We're also trialing our new renewable diesel catalyst filtration product with multiple customers, and we're progressing with contract negotiations. 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 base 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%-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 our very strong performance in Q2. With that, I will now turn the call over to our CFO, Don Merril, who will discuss our financial results in more detail. Don?
Don Merrill (EVP and CFO)
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 a 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 thirtieth, two thousand twenty-two, 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 per 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 $144.3 million when compared with the first quarter. Volumes for the ISP segment increased 5% compared to the prior quarter and totaled a record 1,124,000 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 per 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 of cash flow from operations, and we invested $10.5 million of capital, primarily for current and new product expansions as well as facility upgrades. The company's cash and cash equivalents on June 30, 2022 increased significantly compared to the prior quarter, rising 30% sequentially for a balance of $312.4 million. At quarter end, our $100 million revolver had $0 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 delever 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 at our facilities and investing in growth projects for the ISP segment to maximize future profitability. We currently expect capital spending to be in the range of $40 million-$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%-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 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 by year-end. With that, I'll turn the call back over to Bryan.
Bryan Shinn (CEO)
Thanks, Don. I'm very proud of the results that our team delivered in Q2. 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 (participant)
Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one to register questions at this time. The first question is coming from Stephen Gengaro of Stifel. Please go ahead.
Stephen Gengaro (Managing Director)
Thank you, and good morning, everybody.
Bryan Shinn (CEO)
Good morning, Stephen.
Stephen Gengaro (Managing Director)
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 to 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 kinda give us your thoughts on what's out there from a capacity perspective and how you think it evolves going forward?
Bryan Shinn (CEO)
Sure, Stephen. You know, it's a very interesting question and obviously, you know, something that we look at quite a lot and in a lot of depth. I think the way I think about it is I look at supply and demand. 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. I think most customers that I talk to feel the same way. Let's 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, you know, some new nameplate capacity come online over the next 6 to 12 months. As we do the calculations on that and think about what sort of effective capacity might be out in the market incrementally, you know, maybe it's something like 10 million tons over the next 6 to 12 months. To put that in perspective, in the Permian, for example, every, you know, 1 million tons of capacity that comes online can support 2 frac crews. Said another way, let's say we have 10 million tons of capacity come online in the next year or so, it only takes 20 additional frac crews in service to soak up that capacity.
I think most of us believe that we'll see, you know, much more than that come online over the next 12 months or so here. Our call is that things stay very tight in terms of supply and demand for North American sand out in the oil field.
Stephen Gengaro (Managing Director)
Thank 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 (CEO)
I think that's right. You know, 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 we're at almost $22, and pricing has gone up pretty dramatically. In Q2, we saw pricing for oil field sand in our portfolio go up about 28% sequentially. That was across all the basins. It wasn't just sort of heavily weighted towards the Permian or something like that. I think we're gonna see a constructive pricing environment here and the margins, obviously strong margins that come with that.
Just given the contracts that we have and the ones that we're signing today, and many of the ones we're signing are actually at higher pricing than we had in Q2. I'm feeling really good about the future margin outlook in the Oil and Gas segment.
Stephen Gengaro (Managing Director)
Okay, great. Thank you. If I could just throw in one more on the ISP side. The third quarter expectations, can you just talk a little bit about what you're seeing there? Because it felt like I know there's some seasonality here, but how that business is evolving and how that growth should look like over the next, you know, year and a half, given, you know, given what's going on in the economy and kind of your thoughts there currently.
Bryan Shinn (CEO)
Sure. 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. Again, in our long history as a company, it was the second-best quarter that we've ever had for contribution margin. The guide for Q3 is to put up something that looks pretty similar to that. You know, we're looking at two sort of back-to-back historic quarters here. I'm very excited about that.
I think over the next year or two, we'll 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. I'm very excited about the outlook for industrials.
Stephen Gengaro (Managing Director)
Great. Thank you.
Bryan Shinn (CEO)
Thanks, Stephen.
Operator (participant)
Thank you. The next question is coming from Connor Lynagh of Morgan Stanley. Please go ahead.
Connor Lynagh (Analyst)
Yes, thanks.
Bryan Shinn (CEO)
Morning.
Connor Lynagh (Analyst)
Good morning. Given that it's 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 high-level thought process behind that.
Bryan Shinn (CEO)
Sure. I think you kind of have to go back to what drove us to decide to conduct that review in the first place. Our board is always looking at how we can improve, how we can deliver additional value for shareholders. I would say as we embarked upon that review, we all felt like we had a really good kind of base strategic plan. The idea was to see what options and alternatives might be out there that could provide even higher value for our shareholders and other stakeholders. We did a pretty exhaustive amount of work over eight months or so looking at all kinds of ideas and alternatives.
You know, at the end, what we found is that the base plan was really a good one. You know, we felt like kind of sticking with that was the right path. 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, it's really kind of a macro environment we're in right now with strength in the oil field is sort of the environment that we designed this current business set up of these two segments to thrive in.
As Don mentioned in his prepared remarks, we're just generating a lot of cash right now. My expectation is that we're gonna continue to generate cash from the oil field side of the business. We can invest some of that in industrials, but more importantly, we can channel quite a bit of that into paying down debt and reducing our leverage. You know, our sort of internal goal was to try to get to three times net leverage or lower by 2024. I think we can get to that goal now by the end of 2023. As I've talked to investors, or sorry, 2022, right? Sorry. Just to be clear, we thought we could get there by the end of 2023.
Now I think we can get there by the end of 2022.
Connor Lynagh (Analyst)
Correct. Yep. Yep.
Bryan Shinn (CEO)
As we've talked to investors over the last couple of years, obviously the debt level that we have is one of the major overhangs on the share price. 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 Merrill (EVP and CFO)
Just to, you know, I can just comment on that a little bit. You know, we ended the quarter at $312 million worth of cash. We used $100 million of that to pay down debt. As we sit here today, you know, we're over $200 million, $225 million of cash, and we do expect to continue to grow that. It'll give us the flexibility to delever the balance sheet and as Bryan said, continue to invest in ISP. The world's a different place today than when we started this strategic review because the options and the flexibility are there for us today. Yeah, makes sense. A bit of a shifting gears here, but just wanted to quantify SandBox.
Connor Lynagh (Analyst)
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, would appreciate it.
Don Merrill (EVP and CFO)
Sure. Look, SandBox is having a great year, as is the rest of our oil field business. If you look in Q1, delivered loads were 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 gonna see a continued improvement in SandBox profitability. We don't have a specific guide for that. We don't talk and guide to SandBox specifically. We just talk about the whole segment. I think SandBox will be a meaningful tailwind for us in Q3.
Connor Lynagh (Analyst)
All right. Thanks very much.
Bryan Shinn (CEO)
Thanks, Connor.
Operator (participant)
Thank you. The next question is coming from Derek Podhaizer of Barclays. Please go ahead.
Derek Podhaizer (VP in Equity Research)
Hey, good morning, guys.
Bryan Shinn (CEO)
Morning, Derek.
Derek Podhaizer (VP in Equity Research)
I found it interesting looking at your price per ton. You returned to the 2019 levels, yet contribution margin per ton outperformed. Can you talk about the operating leverage you have in the oil and gas business now that would drive contribution margin ton back to the 2018 levels? Seems like you wouldn't have to reach those 2018 pricing per ton levels.
Bryan Shinn (CEO)
As I think about the kinda leverage that we have going forward in the sand side of the oilfields business, to me, it's really all around price right now. We're pretty much tapped out in volumes. You know, on any given month or any quarter, maybe you squeeze out a few more tons just by hitting the top end of your kinda average operational ranges. I think the story in our oilfield sand business is about continuing to increase price. As I mentioned earlier, pricing was up about 28% in Q2.
Our expectation is that, you know, we're gonna be up again, not that much in Q3, but with the guide that we have of the sort of 4%-7% growth, I would say almost all that is pricing. So I think we'll continue to see that and do well on the pricing side of the equation.
Don Merrill (EVP and CFO)
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 in West Texas that's driving the cost down as well. We're really kind of working on both sides of that equation.
Derek Podhaizer (VP in Equity Research)
Got it. No, that's 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's over. I think, Bryan, you mentioned last quarter, $120 million-$130 million from 2022 to 2024 to support the new products growth. Maybe can we get a refresher on that? Is there any inflationary pressure on that CapEx? Or now that you're going forward as a 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 would be helpful.
Bryan Shinn (CEO)
I think we'll still be on an annual basis for the next couple of years in that kind of $40 million-$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. I think the teams there are doing a fantastic job. I pointed to several key milestones that were hit on my prepared remarks earlier. It is challenging in this environment.
You know, 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. You know, it's always hard to tell how that plays into it. I think from our side, we've got the technology, we have a lot of new interesting products, and we'll 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. The good news is we have optionality between those two really attractive uses of cash.
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 (VP in Equity Research)
Got it. Okay, great. Appreciate the color. I'll turn it back.
Bryan Shinn (CEO)
Thank you, Derek.
Operator (participant)
Thank you. The next question is coming from Samantha Hoh of Evercore. Please go ahead.
Samantha Hoh (Director)
Hey, guys. Congrats on the great quarter. Maybe just to-
Bryan Shinn (CEO)
Thanks, Samantha. Good morning.
Samantha Hoh (Director)
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 kinda wondering if you're starting to see any sort of signs of a slowdown in demand for housing-related products, just given what's you know, going on with interest rates and you know, construction and whatnot.
Bryan Shinn (CEO)
We really haven't seen a slowdown in any of our sectors, so we're watching that very carefully. 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 as kind of a, you know, first step raw material that creates, you know, goods and services that we all might, you know, buy out at, you know, various sort of retail outlets. We're watching it carefully. We're in close communications with our customers, but as of right now, we really haven't seen much of anything in terms of slowdowns.
Samantha Hoh (Director)
Okay. Maybe just to add on to that, like, is there any discussions underway with the government to get access to any of these funding for, you know, growing raw material production capacity here in the States?
Bryan Shinn (CEO)
Yeah, it's really interesting you say that. I was just looking through this latest.
Samantha Hoh (Director)
Yeah
Bryan Shinn (CEO)
Proposal that may be coming through Congress here. You know, there are definitely some areas that in and around where we play, so we'll investigate that. I think it's a little too early to know exactly what's in the bill yet. I'm not sure everybody's even read it, quite honestly.
Samantha Hoh (Director)
Mm-hmm.
Bryan Shinn (CEO)
We'll look at that. I feel like there are a lot of places to the extent this sort of moves 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 a new limestone product to redoing, you know, 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 (Director)
Okay, great. Maybe shifting to oil and gas. Just curious how the industry is dealing with, you know, some of those supply constraints that really haven't disappeared, right? I mean, how are we gonna be able to add 10 million tons in capacity when there's still so much labor and trucking and logistics issues?
Bryan Shinn (CEO)
Well, that's just the point, right? You know, you'll hear people talk about maybe gonna add this much capacity or that much capacity. Our experience from a practical standpoint, there's all kinds of things that sort of get in the way, and especially when you think about West Texas and the constraints, there's weather issues. There's all sorts of inefficiencies in the supply chain. There's labor, there's trucking, there's maintenance, there's spare parts. You know, all those things are still really big challenges for our industry. I think sand is still, you know, plus or minus, a gating item for well completions. I think sand and horsepower are in pretty tight supply right now.
I know on the sand side anyway, most of the energy companies out there, before they'll sort of give the final approval to mobilize to go complete a well, they want, like, rock solid assurances that the sand is lined up. Things are very tight. I think we're all working through it and doing our best to keep our customers supplied in a time that brings a lot of challenges from a supply chain perspective.
Samantha Hoh (Director)
Mm-hmm. Can you... I'm sorry, just to sneak in one more. Can you address actually some of the headlines that kind of came through last quarter with new MSHA rules? I'm kind of curious also how you're dealing with just like the heat in Texas and water shortage risks and just all that kind of stuff.
Bryan Shinn (CEO)
Yeah. The MSHA rule is an interesting one. I think at the end of the day, you know, bottom line is it's really not gonna have much of an impact for us. Just for folks on the call, MSHA is an acronym that stands for Mine Safety and Health Administration. They're kinda like the OSHA equivalent for mining companies like ourselves. MSHA is looking at like particulate dust kind of levels in various mining operations. They're thinking about proposing some more stringent regulations that would be more in line with what OSHA did a couple of years ago.
The good news is that we're 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. For us, it's gonna be a non-event.
Samantha Hoh (Director)
Thanks so much for addressing that, Ryan. Congrats again, guys.
Bryan Shinn (CEO)
Thanks, Samantha.
Operator (participant)
Thank you. The next question is coming from John Daniel of Daniel Energy Partners. Please go ahead.
John Daniel (Founder)
Morning, guys.
Bryan Shinn (CEO)
Morning, John.
John Daniel (Founder)
Yeah, sure. I got some softballs for you. First
Bryan Shinn (CEO)
Oh, wait a minute. That never happens from you, John. You, this must be a Trojan horse question somewhere.
John Daniel (Founder)
Actually, I'm feeling generous this Friday morning.
Bryan Shinn (CEO)
Wow, okay.
John Daniel (Founder)
I have a. It might be a silly one, but how would you compare and contrast? It's a little bit of a follow-on to Samantha's. Just compare and contrast the ability to find people in oil and gas versus ISP. Any noticeable differences?
Bryan Shinn (CEO)
I think in the ISP areas our mines tend to be pretty remote. They're in, you know, kind of small towns in the middle of nowhere, and we're usually the best employer in the area. It's a little bit easier there maybe for us to find talent. That's not universally true, but I think generally we tend to be the employer of choice within, you know, 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 oil field.
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 (Founder)
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 (CEO)
Sure. We ship a lot of our industrial products that go outside the U.S. from the West Coast Port of Oakland traditionally.
John Daniel (Founder)
Mm-hmm.
Bryan Shinn (CEO)
That port's become a bit of a disaster over the last couple of years for a variety of reasons. Our team did a lot of different things. 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 and a warehouse and other things that are close to the port, so we've pre-staged material there so that it's 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.
The good news is that our customers are basically paying the additional costs for that. 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. We're seeing those kind of things all the time. There's still a lot of logistics challenges out there, and our team is working to solve problems daily on that front.
John Daniel (Founder)
Okay. Got it. The last one for me, and this is just, you know, my failure to pay close enough attention to ISP, so apologies. 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 (CEO)
Sure. I think the cool thing about the industrial opportunities is that we have everything from, you know, singles and doubles to sort of home runs and beyond that. For example, one of the things that's taken off very quickly here is starting to sell Limestone out of our Berkeley Springs, West Virginia site. We've ramped that up very quickly, and I think we'll over the next couple of years have a kind of $multi-million profit stream for that. If you look at our Millen, Georgia site with the cristobalite that's going into the countertops and the cool roof granules, the kind of 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. I'd mentioned in the prepared remarks, we've got organic insecticide, which is actually taking off based on diatomaceous earth. It's quite a large portfolio of products.
John Daniel (Founder)
Great.
Bryan Shinn (CEO)
that we're kind of advancing through the system here. You know, I think what you're gonna see over the next couple of years is $ tens of millions of additional contribution margin coming from that. Just given the margin profile and the specialty nature of these products, you know, I would expect that they would help not just boost our industrial contribution margin but kind of really bolster the fact that the multiples associated with that should continue to expand.
John Daniel (Founder)
Yeah.
Bryan Shinn (CEO)
Because once you get spec'd in for these kind of products, it's very hard to get taken out.
John Daniel (Founder)
I mean, you guys, notwithstanding potential slowing here of the economy, but a high, you know, highest quarter ever for ISP, seems like this is gonna 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 (CEO)
That is.
John Daniel (Founder)
I'll leave it at that.
Bryan Shinn (CEO)
It's very exciting, John.
John Daniel (Founder)
Okay. Thanks for including me, guys.
Don Merrill (EVP and CFO)
Thanks, John.
Bryan Shinn (CEO)
Thanks, John.
Operator (participant)
Once again, ladies and gentlemen, that is star one for any additional questions at this time. 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 (CEO)
Thanks, operator. So as we bring the call to a close today, I wanna conclude with a few key thoughts. 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 we've 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. 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 (participant)
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.