U.S. Silica Holdings, Inc. (NYSE:SLCA) Q2 2023 Earnings Call Transcript

U.S. Silica Holdings, Inc. (NYSE:SLCA) Q2 2023 Earnings Call Transcript July 28, 2023

Operator: Good morning, and welcome to the U.S. Silica Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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 your host, Patricia Gil, Vice President of Investor Relations and Sustainability. Please go ahead, ma’am.

Patricia Gil: Thank you, and good morning, everyone. I’d like to thank you for joining us today for U.S. Silica’s second quarter 2023 earnings conference call. Leading the call today are Bryan Shinn, our Chief Executive Officer; 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 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’ve provided supplemental materials on our website in the Investors section to accompany today’s discussion. On today’s call we may refer to non-GAAP measures such as adjusted EBITDA, segment contribution margin, net debt and net 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 net debt and the net leverage ratio. I would now like to turn the call over to our CEO, Mr. Bryan Shinn.

Bryan Shinn: Thanks, Patricia and good morning, everyone. In the second quarter, U.S. Silica continued to strengthen our balance sheet and provide innovative and differentiated products to the markets and customers that we serve. We reported robust adjusted EBITDA and generated meaningful cash flow from operations in the quarter, which enabled us to extinguish an additional $25 million of debt. In executing our overall growth strategy, we remain focused on three key elements with respect to our Industrial segment; one, increasing the profitability of our base business at a GDP plus rate; two, substantially growing existing high-margin differentiated products; and three, expanding our addressable markets with new high-value advanced materials such as EverWhite Pigment.

I will walk you through our recent progress in these areas a bit later in the call. The power and potential of our ISP business was evident in Q2 with substantial margin growth, record profitability and a double-digit year-over-year increase in contribution margin dollars on improved pricing, reduced costs and new product sales. In our Oil and Gas segment, we delivered continued strong financial performance despite lower completions activity across the U.S. oilfield market. While our volumes sold were down, pricing held up well during the quarter and with our ability to quickly match cost to market demand, our overall oilfield profit margin per ton increased sequentially in Q2. I’m very proud of the way that our teams executed during the quarter.

While we delivered many outstanding accomplishments one area that I’m particularly excited about is employee safety. Our company is on track to achieve our safest year ever with impressive performance across the board delivering a 50% lower injury rate versus our previous best ever performance in 2022. Our teams have made a commitment to a belief-based safety culture where we’re all accountable and dedicated to live by our credo that nobody gets hurt today. On the governance side as recently announced we’ve added two new Board members expanding to eight directors in total. Simon Bates will serve as an independent member of the Compensation and Nominating and Governance Committees. Simon serves as CEO of Argos USA and that’s one of the largest cement and ready-mix concrete producers in the U.S. Jimmi Sue Smith will serve as an independent member of the Audit Committee.

Jimmi Sue is the CFO of Koppers Holdings Inc., a NYSE-listed company and leading integrated global provider of treated wood products, wood preservation chemicals and carbon compound. Both Simon and Jimmi Sue brings extensive industry experience to U.S. Silica and complement our Board’s broad expertise. We welcome them and look forward to the benefits of their leadership. I’d now like to 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. As Bryan mentioned, we reported strong adjusted EBITDA, which was supported by price increases and a shift to higher-value products in our ISP segment coupled with lower costs across the board. Compared to the prior quarter total revenue decreased 8% to $406.8 million, adjusted EBITDA decreased marginally by 1% or $1 million to $123.6 million. Total company contribution margin decreased 1% to $150.7 million and overall tons sold decreased 10% sequentially to $4.5 million. Selling, General and Administrative expenses for the quarter decreased 2% sequentially to $28.7 million driven by lower overall spend and reduced employee-related costs in the quarter. Depreciation, depletion and amortization expense decreased 5% sequentially to a total of $33.5 million in the second quarter due to a non-recurring adjustment made in Q1 coupled with lower volumes sold in the second quarter.

Our effective tax rate for the quarter ended June 30, 2023 was 24.7% including discrete items. In the second quarter, we used excess cash on the balance sheet to extinguish an additional $25 million of outstanding debt at par. This brings our total debt retired over the past year to $284 million an impactful reduction in our total debt outstanding of 24%. At the end of the second quarter, our net debt to trailing 12-month adjusted EBITDA ratio was 1.5 times, which marks what had been our year-end target for significantly improving the health of our balance sheet two quarters ahead of schedule. I will now walk through our operating segment results. The Oil and Gas segment reported revenue of $262.3 million for the second quarter, a decrease of 13% when compared to the first quarter.

Volumes for the Oil and Gas segment decreased by 13% to total 3.4 million tons and SandBox delivered loads decreased 12% compared to the prior quarter. Segment contribution margin decreased 10% quarter-over-quarter to $99.1 million, which on a per ton basis was $28.98. Despite the decrease as mentioned above this is a high watermark not realized since 2018. These results were driven by lower proppant volumes and fewer SandBox loads partially offset by reduced operational costs mix and stable sand pricing. Our Industrial and Specialty Products segment reported revenues of $144.5 million, a 2% sequential increase. Volumes for the ISP segment increased 3% when compared to the prior quarter and totaled 1,040,000 tons. Segment contribution margin increased 20% on a sequential basis, and totaled $51.6 million which on a per ton basis was $49.61, the highest level since Q1 of 2021.

The sequential increase in the results for the ISP segment was due to price increases, a shift to higher-value products and the benefit of lower production costs. Additionally, it is important to note that the ISP segment contribution margin in the second quarter was up 12% year-over-year. Turning to the cash flow statement, we delivered meaningful cash flow from operations of $92.1 million during the second quarter, a sequential increase of 125% driven in part by very efficient net working capital. During the second quarter, we invested $15.1 million of capital primarily for facility maintenance cost improvement and ISP growth projects, resulting in free cash flow of $77 million for the quarter. As of June 30, 2023, the company’s cash and cash equivalents totaled $187 million a sequential increase of 34%, which includes the impact of the $25 million loan extinguishment along with associated fees as mentioned earlier.

At quarter end our $150 million revolver had $0 drawn with $128.7 million available under the credit facility, after allocating for letters of credit. Looking forward, the high level of proppant customer contracts in our Oil and Gas segment coupled with our sticky and diverse customer base in the Industrial and Specialty Products segment gives us relative confidence in our visibility for the remainder of 2023. We expect robust operating cash flow generation this year and we plan to direct our free cash flow to organically fund our growth capital needs, while we continue to opportunistically reduce net debt. Our current expectation is that we will maintain a net leverage ratio of around 1.5 times through the remainder of the year. With regards to capital spending, we will continue to be disciplined in our investment with an emphasis on effectively maintaining operating levels at our facilities and focusing on profitable growth.

For the full year 2023, we continue to forecast capital spending towards the high-end of our guidance of $50 million to $60 million and may accelerate our capital investments for growth projects supported by customer contracts and attractive returns. Finally, our full year 2023 SG&A expense is still forecasted to be down approximately 5% to 10% year-over-year primarily due to the supplier contract termination and M&A-related expenses that took place during the prior year. The forecast for the full year 2023 depreciation, depletion and amortization expense continues to be projected at flat to 5% down given higher CapEx spending levels in prior years for assets that have become fully depreciated. Our estimated effective tax rate for the full year 2023 is forecasted to be approximately 25%.

And with that, I’ll turn the call back over to Bryan.

Bryan Shinn: Thanks Don. I’d now like to review some of the trends that we saw during the quarter, starting with our Oil and Gas segment. Lower commodity prices over the past few months have driven the overall reduction in the land, rig count and the number of well completions. Accordingly, market demand for sand proppant and last-mile logistics declined sequentially, particularly in the Permian, where the frac crew count has been reduced by approximately 15% from the peak. Given our heavily contracted position and robust offerings, we performed well in Q2 despite this headwind. For example, SandBox Transportation margins expanded sequentially and proppant pricing and activity in the Northeast market remained resilient. We continue to sell damp sand to select customers and deploy additional new well site solutions to support our customers more on that in just a moment.

Regarding pricing, we’ve noted questions and speculation from various sources and can confirm that our Q2 pricing held up well for sand and SandBox given our strong contracts and blue-chip customer base. We also took swift actions across our supply chain to maintain our margins by aligning costs with market demand. Also in the quarter the U.S. Fish and Wildlife Service announced a decision to recommend listing of the Dunes Sagebrush Lizard as an endangered species which affects certain areas of West Texas and New Mexico. In 2017, when we began to plan our future West Texas mines, we surveyed many properties and specifically chose our Crane and Lamesa locations due to their low risk of habitat disruption. We continue to perform due diligence and conduct routine surveys on our properties and believe that there is minimal likelihood of impact to our operations from an endangered species listing.

However, we believe that many of the other mines built in West Texas were constructed in areas classified as high-risk for DSL habitat disruption. As such, it’s uncertain what impact the future endangered species listing may have on the overall available sand production capacity in West Texas. And finally, our Oil and Gas team has developed and launched a new well site filtration offering called, Guardian. Our patent-pended Guardian system prevents unwanted debris and other impurities from entering frac pumps, resulting in significantly increased pump up time decreased repair and maintenance costs and increased longevity of pump consumables. In a recent case study we demonstrated a 25% increase in stages pump per day and a 30% increase between pump maintenance intervals, on frac crews running our Guardian system.

We currently have units operating in four separate basins and we’ll continue to build and deploy units throughout 2023. In our Industrial segment, we recorded double-digit year-over-year profitability growth that was driven by price improvements, cost reductions and sales of high-value products to new markets and for new applications. We also benefited from numerous cost reduction efforts driven by improved operational performance, enhanced maintenance programs, lower contractor spend, greater plant efficiency and reduced natural gas prices. Volumes were lower year-over-year due to mild economic softness, particularly for building products, fiberglass and industrial oil markets. Nonetheless, total contribution margins grew 12% year-over-year, as Don noted.

I will now provide updates on key developments in our industrial portfolio and then finish with a summary of our outlook for the third quarter and balance of the year. As I mentioned at the outset we continue to successfully execute our ISP segment growth strategy and are focused on three key elements which are: First, increasing the profitability of our base business at a GDP plus rate. Second, substantially growing existing high-value differentiated products such as ground silica, diatomaceous earth powders and fine fillers and high-purity filtration substrates. And third, expanding our addressable markets and applications with sales of new high-value advanced materials such as cristobalite, EverWhite Pigment and White Armor solar reflective roofing materials.

In Q2 we made significant progress across these three fronts including, successfully developing new applications for specialized whole grain and ground silica products and building materials, further displacing imported materials. Growing cristobalite market share which is expected to further maximize throughput and efficiencies at our Millen, Georgia location throughout this year, capturing the strong and growing demand for our low iron silica used in solar panels given facility expansion investments by a prominent domestic solar panel manufacturer. Increasing business and cost efficiencies with improved data insights by year-end from the integration of our two back-office ERP systems, capturing significant international freight savings from our newly implemented export transportation management system, announcing another round of price increases today for our non-contracted aggregate clay and diatomaceous earth products that will range from 8% up to 25% effective September 1.

And finally, since the launch of our new EverWhite Pigment products last quarter, our customers are finding additional benefits and unique properties, which could significantly increase our addressable market as we qualify our products into new markets. Let’s now turn to business and market outlook starting with an update on expected annual company financial results. We reaffirmed today our increased guidance from last quarter of a 25% to 30% year-over-year increase in adjusted EBITDA. Numerous factors were considered in this decision, including the strong results that we reported in the first half of 2023, the inherent unpredictability, of course, in energy markets and commodity pricing, a strengthening outlook in our Industrial segment, the positive visibility of strong customer contracts across the company and expected additional cost and productivity improvements during the remainder of the year.

We also continue to anticipate that we’ll generate robust associated free cash flow of about $200 million this year and as Don mentioned earlier, we expect our net leverage ratio to remain around current levels of 1.5 times through the remainder of 2023. Our Oil and Gas segment remains well positioned to continue generating strong earnings and meaningful cash flow to the current multiyear energy cycle, with expectations for constructive commodity prices and strong demand for proppant and last-mile logistics. Despite the current short-term decline in land rig and frac crew counts, causing some softness in third quarter activity, we are maintaining pricing discipline and continue to have strong contractual commitments for our sand with over 85% of production capacity committed for this year.

Also, we have attractively positioned this segment to maximize through the cycle earnings by reducing our annual fixed cost by over $70 million since the pandemic and improving the flexibility and responsiveness of our cost structure. These actions have raised the floor on earnings in a down market for our Oil and Gas segment without sacrificing upside in the peak market. We continue to focus on efficiently running our operations while preserving pricing and margins and now executing the competition. For the third quarter, we expect that proppant sales volumes will be down roughly 10% sequentially due to the reduction in frac crew count. We also believe that our realized pricing will be relatively stable with total contribution margin dollars influenced by customer, product and basin sales mix.

We still expect to finish the year with two historically strong quarters and believe that we are in an advantaged position due to strong contractual commitments, a track record of efficient execution and the strength of our SandBox last-mile logistics offering. Moving to our Industrial and Specialty Products segment, we believe that we are well positioned to achieve double-digit year-over-year profitability growth in 2023 due to the strong and diverse end markets that we serve. In addition, we’re realizing benefits from structural cost reductions price increases and investments in product development. We expect that these efforts coupled with customer investments in domestic manufacturing to offset any potential near-term market weakness. Regarding Q3, on a year-over-year basis, volumes may decline slightly at certain customers unlike maintenance projects after several years of high demand.

However, we expect contribution margin dollars to increase 3% to 7% on a year-over-year basis due to improved pricing, a beneficial mix of higher value products and ongoing improvements in operational efficiencies. So to recap, during the second quarter, we continued to secure future cash flow visibility through price increases in ISP, maintaining pricing discipline in oil and gas and implementing swift cost optimization and efficiency efforts across the enterprise. We also achieved our company net leverage ratio target for the year two quarters, ahead of plan and further strengthened our balance sheet to the extinguishment of additional debt. Furthermore, we generated meaningful cash flow and invested in the growth of our Industrial and Specialty Products segment.

These strategic successes are positioning U.S. Silica well for the future and can help unlock transformational growth pathways for the company to create value with our improved balance sheet and strong expected free cash flow. And with that, operator, will you please open the lines for questions.

Q&A Session

Operator: Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Stephen Gengaro with Stifel. Please go ahead.

Stephen Gengaro: Thanks. Good morning, everybody.

Bryan Shinn: Good morning, Stephen.

Stephen Gengaro: So, a couple for me. Just — I guess maybe start with ISP. You mentioned the strong mix in the second quarter. Can you just talk a little bit about the stickiness of that mix shift relative to what’s kind of normal seasonality over the next couple of quarters?

Bryan Shinn: Sure Stephen. So, I think what we’ve seen is a continued increase in some of our higher value products or some of the more specialized silicas diatomaceous earth and some of our newer products starting to come online and get a bit of traction out in the market. And I think as we look ahead for the remainder of the year and hopefully beyond, we’ll continue to move in that direction. So I feel pretty good about where we’re headed there.

Stephen Gengaro: And the — just remind me, there’s periods of the year where you tend to have a mix headwind. Is that more 1Q and 4Q?

Bryan Shinn: So, I think what we typically see is that 1Q and 4Q are a little bit lighter. Q2 and Q3 tend to be heavier. And the historical trends in the business in terms of mix perhaps might not be entirely accurate given that we’re continuing to shift our mix to more higher margin, higher — kind of higher level advanced materials. We’re seeing more of those come through. So I think we’ll be evolving versus the kind of traditional expectations of how mix might shift throughout the year.

Stephen Gengaro: Okay. And then on the Oil and Gas front, we’ve all seen kind of what the spot market has done. I mean there’s been some softness there. You mentioned the lower third quarter volumes around activity. When you talk about your 85% of your sand volumes committed this year, are there price levers that your customers have around that volume, or is that pretty sticky? And can you just give us any color on what the volumes that are committed look like going into 2024?

Bryan Shinn: Sure. So, what we have today, I think is very sticky and most of our contracts are pretty fixed in terms of pricing and the margins that are locked in there. So, I feel good about that. Most of our contracts also have minimum volume commitments, or sort of other penalty clauses. So I think we’re in very good shape there. As we mentioned, we have 85% of our capacity under those long-term contracts today. I think next year, we’re already at somewhere between 70% to 75%, of our capacity contracted and quite frankly, we’re already having customers come to us and want to secure volumes for 2024. I think in general, as we talk to customers, we’re pretty bullish around not just 2024, but also how things may kind of evolve throughout the rest of the year.

I would say, most of the customers that we talk to are fairly optimistic about Q4 being better than Q3. And perhaps, us seeing the same kind of trends that we’ve seen for the last couple of years where in the back half of Q4, which used to be kind of a dead zone, if you will with the holidays and things we’ll see customers wanted to line up proppant last-mile logistics also, obviously, pressure pumping resources and kind of get things starting to work early so they’re prepared to hit the ground running with a fresh budget in 2024.

Stephen Gengaro: Great. And if I could slip in one more. You mentioned, Guardian is — can you tell us a little bit about Guardian like, is it a product that you manufacture and then rent out? Is it something that is complementary or compete with products that either frac companies or other service companies own themselves? Like what exactly is it?

Bryan Shinn: So, it’s a really interesting piece of equipment and it’s something that we invented, and we have patents pending at this point as I mentioned, in my prepared remarks. And essentially, it’s a — I think of it as a kind of a filtration system that’s very effective at preventing foreign objects from getting to and passing through the frac pumps. And you would think that, that stream going through there with all the things that happened to it before it gets to that point would be relatively clean, but what we’re finding is really not. We’ve basically filtered out plastic, wood, rocks, my favorite is fish and snakes. So there’s all kinds of things that end up going through the pumps. And ultimately, all that material goes down hole as well.

And so there’s sort of a pumping aspect to this, what we’re seeing really big improvements in terms of stages pump per day. I mentioned in prepared remarks, that where we have this out running, we’re seeing approximately 25% additional stages pumped per day, because there’s less downtime for the pumps and about 30% more time between pump maintenance intervals. So customers love this thing. Every time we put it out for a trial, the kind of request has come back, how can we get more or faster. So, we’re really excited about this and I think we’ll grow this over the next couple of years. And at this point, it is an equipment rental model. So, we’re still working on that and figuring out exactly, how to maximize value, but it’s off to a very interesting start for it.

Stephen Gengaro: Excellent. Thank you for the color.

Bryan Shinn: Thanks, Stephen.

Operator: Thank you. Our next question comes from the line of Derek Podhaizer with Barclays. Please go ahead.

Derek Podhaizer: Hi, good morning, guys.

Bryan Shinn: Good morning, Derek.

Derek Podhaizer: Just a quick follow-up on the Guardian system. It sounds pretty interesting. Is that for both the dry and wet sand, or is it just for wet sand?

Bryan Shinn: It’s for both. But, given kind of the nature of wet sand, there’s probably additional challenges in terms of impurities and things that could be in there. So I think it — kind of the wet sand, entree is what got customers interested in this. But then as they start to use it on dry sand jobs, they found that there were a lot of issues, a lot of it coming in with the water. There’s a lot of old water tanks out there. And that is what’s bringing in the things like the snakes and the fish, and all kinds of other things. So, I feel like this is one of these situations where the industry, because of the work we’re doing is realizing, what kind of a problem they have out there. And right now, we’re a great solution for the problem that they’re realizing that they have.

Derek Podhaizer: Got it. That’s helpful. So for Oil and Gas, I know that the guide you talked about volumes being down 10%. Any color around, what should we think about profitability either from a contribution margin dollar perspective or a contribution margin per ton perspective?

Bryan Shinn: So, I tend to think of it this way. Volumes I think as we said, will be down about 10%. The good news is that, I think pricing is going to be relatively stable when you look kind of on an underlying basis, our pricing hasn’t really moved much didn’t move in Q2 and I don’t think it’s going to move much in Q3 either. So, that’s certainly good news. As the volumes come down, we’ll probably see some additional friction on cost, but we’ve done a really good job over the last couple of years of either taking out cost or variabilizing the cost that we have. I’m happy to go into more detail on that, because it’s pretty interesting. But – so, there’ll be a couple of extra margin point decline there probably. And then the big unknown is always is exactly, what the mix will be in terms of, the volumes by basin which customers, buy how much and then the grades that they buy.

So that’s always a wild card. So that could be a plus or minus on top of the kind of volume, and small amounts of cost friction that we’ll see.

Derek Podhaizer: Got it. That’s helpful. Can you talk about the interplay between your contracted volumes and just the spot market pricing that we’re hearing out there that’s obviously, going through some weakening. Are you seeing some of your customers, perhaps forego the contracted volumes and by the spot market based on an economic decision. I’m just trying to gauge, like are you about to see some shortfall fees come into the system that may help support your EBITDA targets for 2023.

Bryan Shinn: So, if I just kind of take a step back first, I would say, overall I believe the sand market particularly in the Permian has been pretty disciplined. And so it’s great to see that discipline in terms of pricing. Certainly, there are some spot prices out there that are a little bit lower than where we were a quarter or two ago. But quite frankly, we haven’t participated in any of that. Given the value of our offerings, if customers want to buy spot tons from us there at much higher prices than some of the numbers that are thrown around today in terms of what the “spot market” price is, and part of that is where you are from a logistics standpoint and we have premium locations. So we can command a premium price there.

So I feel pretty good about that. We haven’t even gotten anywhere near any kind of shortfall fees or non-performance fees or any of that. Customers have been buying pretty well and living up by and large to their contracts to this point. And as I mentioned earlier in response to Stephen’s question I think that we believe that we could see an improving oil price environment here into year end and that could tighten proppant supply and last mile logistics supply up pretty darn quickly. And just given the discussions we’re having with customers it seems like things are headed more in that direction than the other direction. So it’s all good news there.

Derek Podhaizer: Okay. That’s good to hear. And just last one for me. Can you just — I think you’re at 70% contracted for 2024 so can you give us an update on that? And then maybe just as far as your conversations around further contracting I mean have they been — have they become more difficult or challenged just given the weakening completion activity and just pressures around the spot market?

Bryan Shinn: So I think we’re somewhere between 70% to 75% right now and we’re having conversations with customers on contract extensions and especially those who are going to need additional sand in 2024. And they’ve been really constructive. I feel like most of the customers that we deal with appreciate the service that we provide the consistency of our operations, the quality, the ability particularly in the Permian to go through and be able to supply enough sand to complete these high-capacity fracs that we have out there today a lot of simul fracs and some of the other things that are coming. So we haven’t gotten a lot of pushback from customers around pricing quite frankly. I think what they’re looking for is a supplier who’s got all the service they want and is offering a fair and reasonable price.

And we tried to be in that zone already and not sign contracts at unrealistically high prices. And we did some of that in the past in the early days of frac sand. And I would say that we’re better off signing realistic contracts that are going to hold through the cycles and that’s kind of where we’ve been. So I feel good again about the customer discussions that we’re having today.

Derek Podhaizer: Great. Appreciate all the color. I’ll turn it back.

Bryan Shinn: Thanks, Derek.

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

John Daniel: Hey. Good morning.

Bryan Shinn: Good morning, John.

John Daniel: So on the Guardian system, I’m curious when you guys deploy that are you able to track the source of the sand? And is there a way that you could use the data to, sort of, highlight which mines are the problem children, which mines are the better ones from an internal marketing perspective?

Bryan Shinn: So we don’t track that on those sites. The only times we know exactly where the sand is coming from is when it’s in our SandBox system. So we frequently — as you know we frequently go to the competitors’ mines to pick up products. But I think it would also be somewhat inappropriate for us to use that information to disclose something around quality or whatever. But no we don’t track anything like that.

John Daniel: Fair enough. It would be cool to know that data though. Okay. On the lizard. Yes.

Bryan Shinn: Well, lizard is a whole another story yes.

John Daniel: Yes. Look I’m not a lizard expert, but I’m curious if — when would you realistically expect lizard restrictions to come into play? And has any of the inbound interest for contracting in 2024 — 2025 perhaps been driven by lizard scares?

Bryan Shinn: Well we have seen some of that. And as you might imagine we’ve seen a lot of customer questions around all of this and it’s kind of fascinating. We were focused on this early on as we thought about our Permian mindset locations and I actually went back to the press release that we issued in 2017 talking about our new mines in the Permian and in there we specifically stated that we’ve selected the properties because we felt they were in low sort of habitation risk areas for lizard population in Texas. So we very thoughtfully made those choices. I think some of our competitors and some of the mines that are out there running today folks started up operations in kind of high-risk habitat areas. So we’ll see how that all plays out.

Realistically, I think, we’re right now in this kind of 60-day comment period and that ends approximately September 1 from my understanding. Then there’ll be a review of public comments. There may well be hearings held if requested. And as always with these kind of things it would take some time to play out. And our belief is there’s probably a 12-month window here where a lot of hearings and legal maneuverings might take place assuming that the efficient wildlife service decides to take this forward.

John Daniel: Okay. And can you remind back in the day I used to look at the high risk, low risk areas because there are nice charts out there that I haven’t looked recently. Can you remind me what percent ballpark is and the mines would be in high-risk areas?

Bryan Shinn: Yes. So it’s quite a few. I don’t have the exact percentage off the top of my head. But as you go a little bit further west in the Midland. So the western edge of the Midland kind of north south in that area is a lot of habitat area at least from some of the maps that I’ve seen in the past there’s more than one map out there, more than one set of maps. So — and this kind of thing is always very kind of controversial. But I can say that at our sites we routinely survey and try to do trapping and just try to understand if there’s anything out there that we may be disturbing. And so far sites have been completely free and that makes sense because they were in the low risk zones to begin with.

John Daniel: Okay. And a final one for me if you can is on the declines in Oil and Gas just Q2 and the expectations for Q3 sort of rank for us which geographies were the greatest percentage declined if you could? And then as you think about Q4 where you see the recovery coming first?

Bryan Shinn: So I think we’ve seen most of the declines from a volume standpoint as you might expect in the Permian given that that’s more than 50% of our volume, but some basins are very different. So in the Northeast things have stayed quite strong and we actually saw some growth in the Northeast. So I feel like that basin is somewhat more isolated. To me the Permian as always is a swing factor here. And my hope is that as we get into early to mid-Q4 we’ll start to see things coming back there perhaps a bit faster than people have expected. Assuming that oil price stays constructive.

John Daniel: Sure.

Bryan Shinn: I know that Bank of America I think was out yesterday with a big piece talking about where Oil prices are expected to go and Brent topping 90 and obviously WTI somewhere less than that but still pretty constructive. So if those, kind of, things come to pass based on our understanding and discussions with customers I think we could see activity perhaps come back faster than some people think.

John Daniel: Okay. Thank you all very much for taking my questions.

Bryan Shinn: Thanks, John.

Operator: Thank you. As there are no further questions, I would now like to hand the conference over to Bryan Shinn for closing comments.

Bryan Shinn: Thank you very much, operator. As we look ahead we remain confident in our strategy and we believe that our industry-leading business segments market and capital discipline, free cash flow visibility and commitment to further strengthening our balance sheet will deliver substantial value for our shareholders and other stakeholders. Thank you all again for joining us on the call today and we look forward to speaking with you again next quarter. Everyone stay safe and be well.

Operator: Thank you, sir. The conference of U.S. Silica has now concluded. Thank you for your participation. You may now disconnect your lines.