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U.S. SILICA HOLDINGS, INC. (SLCA)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 revenue was $366.961M and diluted EPS was $0.34; adjusted EPS was $0.38. The company generated $76.7M of operating cash flow and extinguished an additional $25M of debt while reaffirming full-year guidance .
  • Sequential softness in U.S. land drilling and completions reduced Oil & Gas volumes and SandBox loads, but pricing remained attractive and margins stayed strong versus historical averages; ISP volumes declined year-over-year on macro softness, offset by price/mix and cost actions .
  • Management reiterated expectations for ~25% year-over-year Adjusted EBITDA growth and ~$265M cash from operations in 2023; CapEx projected at $60–$65M, implying high-end investment to support operations and ISP growth .
  • External transcript sources indicated a slight EPS miss vs. non-SPGI consensus ($0.3419 actual vs. ~$0.36 consensus), while SG&A is expected to be down ~10–15% YoY and the 2023 effective tax rate ~26% .

What Went Well and What Went Wrong

What Went Well

  • Strong cash generation and de-leveraging: $76.7M cash from operations in Q3 and $25M voluntary term loan repayment, supporting leverage improvement .
  • Pricing/mix and cost actions held margins: Despite lower activity, pricing remained attractive in Oil & Gas; ISP profitability maintained YoY via structural cost reductions, price increases, and improved mix .
  • Guardian system gaining traction: New patent-pending frac fluid filtration system delivered increased pump uptime, improved efficiency, and lower repair/maintenance costs in customer trials .

What Went Wrong

  • Sequential demand softness: Oil & Gas segment saw lower proppant volumes, fewer SandBox loads, and a decrease in average selling price per ton, driving lower revenue and contribution margin sequentially .
  • ISP volume headwinds: Year-over-year declines tied to mild economic softness in building products, DE fillers and filtration, and certain glass customers undergoing maintenance projects .
  • Lower earnings vs. prior quarter: Net income fell to $26.9M (vs. $46.3M in Q2) and Adjusted EBITDA to $102.1M (vs. $123.6M in Q2), reflecting reduced activity levels .

Financial Results

Consolidated performance vs. prior quarters

MetricQ1 2023Q2 2023Q3 2023
Revenue ($USD Millions)$442.240 $406.784 $366.961
Net Income ($USD Millions)$44.572 $46.144 $26.808
Diluted EPS ($USD)$0.57 $0.59 $0.34
Adjusted EBITDA ($USD Millions)$124.635 $123.637 $102.137
Tons Sold (Millions)4.934 4.459 4.121
Operating Income ($USD Millions)$84.558 $84.771 $60.895

Segment breakdown

Segment MetricQ1 2023Q2 2023Q3 2023
Oil & Gas Revenue ($USD Millions)$300.013 $262.285 $231.426
Oil & Gas Tons (Millions)3.921 3.419 3.122
Oil & Gas Contribution Margin ($USD Millions)$109.897 $99.069 $82.890
ISP Revenue ($USD Millions)$142.227 $144.499 $135.535
ISP Tons (Millions)1.013 1.040 0.999
ISP Contribution Margin ($USD Millions)$42.929 $51.595 $46.347

KPIs

KPIQ1 2023Q2 2023Q3 2023
Cash from Operations ($USD Millions)$40.9 $92.1 $76.7
Capital Expenditure ($USD Millions)$18.9 $15.1 $13.6
Cash And Equivalents ($USD Millions)$139.494 $186.961 $222.435
Total Debt ($USD Millions)$910.6 $882.1 $867.6
Adjusted EPS ($USD)$0.64 $0.60 $0.38

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA GrowthFY 2023+25% to +30% YoY ~+25% YoY Narrowed/maintained at ~25%
Cash from OperationsFY 2023~$250M ~$265M Raised
Capital ExpendituresFY 2023$50–$60M $60–$65M (high-end of range) Raised
SG&A ExpenseFY 2023Not specifiedDown ~10–15% YoY New detail (lower)
Depreciation, Depletion & AmortizationFY 2023Not specifiedFlat to down ~5% New detail
Effective Tax RateFY 2023Not specified~26% New detail
Net LeverageFY 2023Target ~1.5x (achieved ahead of plan) Maintain strong leverage profile Maintained stance

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2023)Previous Mentions (Q2 2023)Current Period (Q3 2023)Trend
Oil & Gas activity and pricingRobust demand; effectively sold out for sand; strong SandBox demand Lower completions activity sequentially; pricing held; margin/ton up sequentially Sequentially lower drilling/completions; pricing attractive; margins strong vs 2022 Moderating activity; disciplined pricing; margins resilient
Guardian completions systemNot mentionedLaunched patent-pending Guardian Guardian trials showing higher pump uptime, efficiency, lower repair/maintenance Adoption building
ISP volumes, price/mixISP profitability +13% YoY via pricing and higher-margin products ISP contribution margin +20% sequentially via pricing/mix and cost reduction ISP volumes down YoY on macro softness; profitability maintained via cost/mix/price Macro drag; margin supported by mix/pricing
Cost structure and de-leveragingAmended $1.1B Credit Agreement; extinguished $109M debt Extinguished $25M more debt; net leverage ~1.5x achieved Extinguished $25M debt; strong leverage profile Continued de-leveraging
FY2023 guidanceRaised: Adjusted EBITDA +25–30%; FCF >$200M Reaffirmed: Adjusted EBITDA +25–30%; CFO ~$250M Reaffirmed: Adjusted EBITDA ~+25%; CFO ~$265M; CapEx $60–$65M Confidence maintained; CFO/CapEx lifted
SG&A / Tax / DD&ANot specifiedNot specifiedSG&A down ~10–15% YoY; tax ~26%; DD&A flat to down 5% Added quantitative guardrails

Management Commentary

  • “During the third quarter, we continued to advance our two-pronged growth strategy of expanding our Industrial & Specialty Products segment while strengthening our financial foundation… We also repurchased and extinguished an additional $25 million of debt” .
  • “Our new, patent-pending Guardian frac fluid filtration system is performing well… through increased pump uptime and improved pump efficiency, with lower repair and maintenance costs” .
  • “As we guided on last quarter’s call, our Industrial & Specialty Products segment’s volumes declined year-over-year… Even so, we benefited from ongoing structural cost reductions along with improved product mix… and price increases” .
  • “We continue to expect Adjusted EBITDA to increase approximately 25% year-over-year, with robust cash flow from operations of approximately $265 million this year, while maintaining our strong leverage profile” .

Q&A Highlights

  • Activity and pricing discipline: Management emphasized sequential activity declines in U.S. land but noted pricing remained attractive and margins held, reiterating contractual visibility into year-end and next year .
  • ISP demand drivers: Commentary focused on building products, DE fillers/filtration, and maintenance-related volume impacts; cost/mix and pricing actions supported ISP margins .
  • Cost framework and opex: SG&A expected down ~10–15% YoY; tax rate ~26%; DD&A flat to down 5% for FY2023, adding clarity to operating cost guardrails .
  • Guardian adoption: Management highlighted continuing market trials and operational benefits, positioning Guardian as a productivity enhancer for frac fleets .

Estimates Context

  • S&P Global consensus data was unavailable via our estimates tool for SLCA; therefore, comparisons to SPGI consensus cannot be provided. Values retrieved from S&P Global were unavailable due to a mapping error.
  • External sources indicated a slight EPS miss (reported $0.3419 vs. ~$0.36 consensus), but this is not S&P Global data and should be treated accordingly .
  • Given SPGI unavailability, we recommend using company-provided adjusted metrics and sequential/YoY comparisons until SPGI mapping is restored .

Key Takeaways for Investors

  • The quarter reflected expected sequential moderation in Oil & Gas activity, yet pricing/margins remained solid vs. historical averages, highlighting the value of contracts and operating leverage .
  • ISP volumes faced macro softness, but margin resilience from pricing/mix and cost actions preserved YoY profitability—evidence the segment’s structural improvement narrative remains intact .
  • Cash generation and de-leveraging continue to be core strengths: $76.7M CFO in Q3 and another $25M debt extinguished support balance sheet strength heading into 2024 .
  • Full-year guidance confidence: Adjusted EBITDA ~+25% YoY, CFO ~$265M, and CapEx $60–$65M provide investor visibility; SG&A and tax parameters add cost clarity .
  • Near-term trading implications: Stock may be sensitive to activity headlines and frac demand cadence; margin resilience and Guardian adoption are supportive offsets to volume volatility .
  • Medium-term thesis: Continued contract coverage in Oil & Gas, ongoing ISP product/mix strategy, and disciplined capital allocation (CapEx at the high end, but targeted) underpin multi-year cash generation and leverage reduction .
  • Watchlist: Pace of U.S. land completions, Guardian commercialization trajectory, ISP end-market recovery (building products/filtration/glass), and execution on SG&A/tax guidance .