US Silica Holdings Inc (SLCA) 2012 Q2 法說會逐字稿

Good morning, and welcome to US Silica's 2012 Second Quarter Conference Call. Just a reminder -- today's call is being recorded, and your participation implies consent to such recording.

At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. With that, I will turn the call over to US Silica.

Good morning, and thank you for joining us for US Silica's second quarter 2012 earnings conference call. I'm Brad Casper, Vice President of Corporate Strategy here at US Silica. With me today are Bryan Shinn, our President and CEO, and Bill White, our Chief Financial Officer.

Before we begin, I would like to remind all participants that during the course of this conference call, we will make comments that provide information other than historical information and will include projections relating to the Company's future prospects, revenues, or profits.

These statements are considered forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These statements reflect the Company's beliefs based on current conditions, but are subject to certain risks and uncertainties that are detailed in the Company's press release and public filings, and we incorporate these references for today's call.

Additionally, we may refer to the non-GAAP measures of adjusted EBITDA and segment contribution margin during this call. Please refer to the press release or our public filings for a full reconciliation of adjusted EBITDA to net income and definition of segment contribution margin.

You may wish to refer to the presentation of results available on our website in the investor resources section. We issued a press release this morning and expect to file a quarterly report on Form 10-Q with the Securities and Exchange Commission later today. At this time, I'll turn the call over to Bryan Shinn. Bryan?

Thanks, Brad, and good morning, everyone. I'll begin this morning with the highlights of second quarter results, followed by an update on our two business segments, oil and gas proppants and industrial and specialty products, or ISP, as we call it. I'll also provide a progress report on execution against our strategic goals, and I'll turn the call over to Bill, who will review our financial results for the second quarter in more detail, and then, I'll update you on our guidance for the second half of 2012.

I'm pleased to report that for the second quarter of 2012, US Silica again delivered strong financial results in line with the high end of the guidance range provided in our last earnings release. Despite the continued instability in parts of the well services market, our second quarter financial results were consistent with first quarter results and, in fact, were marginally better.

On a year over year basis, second quarter revenues increased by $30.5 million, or 41%, to $104.6 million. Second quarter revenues in the oil and segment were $54.5 million, up 111% compared to second quarter of 2011.

As previously noted, US Silica brought over 1 million tons of frac sand capacity online in late 2011, the majority of which was presold to contractor customers. We expect to continue to see benefits from that expansion throughout the remainder of this year.

Revenues in the ISP segment were $50.1 million, nearly a 4% increase, year over year, and almost 3%, sequentially. We continue to benefit from the ISP segments' stable performance, balancing the more cyclical oil and gas segment.

As we've said on earlier calls, the ISP segment tends to grow at or slightly better than GDP, and we continue to see solid performance from these markets, which include glass containers, flat glass, paint, specialty chemicals, and electronics. Our products eventually wind up in many diverse end uses, such as beer and wine bottles, automobile windshields, ceramic tiles, wire insulation, roof shingles, cosmetics, toothpaste, tablet computers, and mobile phones.

Turning to corporate earnings, on a year over year basis, adjusted EBITDA increased 40% to $37.1 million, which was in line with first quarter results. Earnings per share were $0.37, flat over last quarter, but up 185%, year over year.

We're very satisfied with the second quarter results, particularly when the majority of companies in the energy sector have reported reduced earnings for the quarter. Our performance underscores the attractiveness of US Silica's business model, which balances the upside growth potential in unconventional drilling with our highly stable industrial markets.

Let's turn to a more detailed review of our business performance, starting with oil and gas. As expected, increased oil and gas sales were the primary driver of corporate year on year growth, and we continue to make substantial capital investments in this segment to meet anticipated future demand.

Our oil and gas volumes were up 1%. However, our contribution margin per ton fell by $3.00, or approximately 6%, sequentially. As predicted on our first quarter call, our contribution margin was pushed lower by a mix shift, as contract customers moved from approximately 70% of our volume in Q1 to 85% in Q2. Contribution margin on contract business was up 2%, primarily due mix between contracts and grades.

In addition, spot prices declined approximately 18%, sequentially. As we mentioned on our last call, we enjoyed particularly robust spot pricing in the first quarter, due to temporary shortages in certain basins. There continues to be high variability in the spot market, both basin by basin and grade by grade. For example, our average June spot pricing was actually higher than the first two months of the quarter. During that same time, two of our frac grades were up, and two were down on a pricing basis.

We offset a portion of these impacts by shifting more sales volume to existing in basin sand storage facility or, as we call them, transloads. We've opened eight additional transloads this year, significantly expanding our supply chain footprint, and we have another three transloads under development. Our extensive transload network allows us to forward [state's] product in key basins with high customer demand.

Volumes and pricing through our transloads are strong, and, in particular, we have recently experienced substantial demand growth at our new West Virginia location, supporting the wet Marcellus as natural gas pricing has rebounded. We believe that our strategy of moving the point of sale to in basins will increase earnings, strengthen customer relationships, and allow us to capture additional spot sales volumes in any market environment.

While slowing growth in North American oil rig count and declining gas rig count are posing short-term challenges for many companies in our space, we believe that we are extremely well positioned to thrive in a variety of market conditions and deliver strong growth in revenue and earnings over the intermediate term.

Now, let me take just a few minutes to review why we have such confidence in our competitive position. First, US Silica has extensive, high quality reserves that we've been mining for more than 100 years. Our mines and production facilities are strategically located and operate at high levels of efficiency.

We believe that we have some of the best logistics to the Marcellus and Eagle Ford, and with the development of our new Sparta site, we'll have some of the best logistics to the Bakken as well. This allows our larger customers to streamline their supply chains and deal with one vendor to supply multiple basins.

We also have low production cost structure, which we believe is at or near the bottom of the industry curve. This cost advantage is especially pronounced when compared to a number of new entrants into our industry. Unlike many suppliers in the oil and gas industry, we have a large stable industrial business, which generates a substantial amount of EBITDA.

This business not only provides an excellent counterweight to the more cyclical oil and gas segment, but it also provides an extensive sales outlet to the more than 1,400 customers for the portion of our production that does not meet oil and gas specifications. We have numerous established contractual relationships with major well service companies and are one of the few profit companies with a scale to meet their needs across North America.

US Silica has a robust, well developed supply chain management system that's increasingly critical to our customers. We can ship to all the major basins in the country, as well as Canada, and have direct access to Class 1 railroads, and we lease a significant fleet of rail cars, providing flexibility and responsiveness.

We also are continuing to strategically expand our in basin storage capacity, which we believe will further improve our cost position and better enable us to serve new and existing customers. Our capacity expansion strategy includes attractive [line of sight] projects that will be extremely competitive across a wide range of supply and demand scenarios and market conditions. Our new projects will share most of the same competitive advantages of our current operations, including low-cost production, flexible logistics, and best in class offerings.

US Silica's balance sheet remains strong, with low leverage and an excellent cash position. We expect to fund our capacity expansions from operating cash flow.

The volatility in the oil and gas market and a more difficult local permitting environment for new mining operations is slowing down the ability of new frac sand capacity to enter the market.

And finally, we have an experienced and capable management team that has effectively leveraged the recent growth opportunities in oil and gas, and we're diligently pursuing long-term strategy to maintain and grow our business in this very profitable sector.

Next, I would like to spend a few minutes and talk about our industrial and specialties products segment. One of our competitive advantages is the value that the ISP business brings to our Company and shareholders. While ISP has not enjoyed the rapid growth of the oil and gas segment, it continues to provide consistent reliable performance and excellent cash flow.

Today, ISP accounts for approximately 50% of corporate revenue and 60% of our volume. In Q2, we delivered solid performance, with revenue increasing 3.9% versus Q3 -- Q2 of 2011 and 2.7%, sequentially, while segment contribution margin dollars increased by 14%, sequentially.

During the quarter, we gained additional share with several new customers and expect continued growth during the balance of the year in many of our markets. Similar to the oil and gas segment, our scale has a significant positive impact on our success. We're one of the few companies that offers the quality, product line depth, and number of facilities to supply larger customers across a broad spectrum of end use markets.

Our 13 facilities generally supply multiple locations for ISP customers, and that supply redundancy is very important to their manufacturing process. For this reason, our relationships with many of these customers have lasted for decades, and we work very hard to ensure these relationships will continue far into the future. As an example of our success, we've recently received the Supplier of the Year award from a major customer that we have served for more than 20 years.

We're focused on strategically growing the ISP business, and we believe that there are excellent opportunities to grow by developing additional specialty and performance products. We are proactively working with our customers to identify new applications, and we've recently made significant additional investments in marketing, research, and new product development to support these efforts.

Now, let me update you on where we are with some of our previously announced major initiatives. First, we continue to make good progress on the new resin coated sand facility that we're building in Rochelle, Illinois. The plant will be operating by the first quarter of 2013 and will have capacity to produce approximately 200,000 tons of resin coated sand. We will be able to double that capacity with limited additional capital investment in the future.

We continue to be very excited about this project, because we believe that we'll have a number of competitive advantages in the resin coated sand market. For example, we will be supplying the sand substrate from our flagship facility in Ottawa, Illinois. This means that the substrate being coated will be high quality Ottawa White sand, and we can coat whichever grade is most in demand. In addition, we located a plant within a reasonable trucking distance from Ottawa and at the intersection of two Class 1 railroads, giving us transportation and delivered cost advantages over a number of our competitors.

We also made significant progress with the Greenfield raw sand plant that we're constructing in Sparta, Wisconsin. This project is on schedule and potentially slightly ahead of schedule for a second quarter 2013 startup. Initial production capacity will be between 750,000 to 850,000 tons, and we can expand that for a relatively modest amount of additional capital. We're confident this project will be successful, as it has high quality ore reserves, a Class 1 railroad immediately adjacent to the property, and we expect that it will have a low-cost operating structure similar to our other plants.

As discussed during the last call, we expect annual EBITDA from these two projects to ramp up during 2013 to an approximate run rate of $40 million. We're in active discussions with several customers and have received positive feedback on our offerings and our ability to cost effectively serve high growth markets like the Bakken and Eagle Ford.

In addition to these projects, we continue to strengthen our supply chain management, allowing us to better serve our customers and capture additional business and margin. While many others in this space continue to report experiencing logistical challenges, at US Silica, our logistical capabilities are core strength.

For example, we recently signed an agreement with the BNSF railroad that creates a unique partnership to build and operate a large transload facility near San Antonio, Texas. This facility will be of sufficient size and structure to ship unit trains from our flagship Ottawa plant to supply the Eagle Ford shale with the highest quality Northern White sand. We believe that this transload, in combination with unit train capabilities, will enable us to be one of, if not the lowest cost provider of Northern White sand to the Eagle Ford.

Also, in June, we signed a separate agreement with the Canadian Pacific railroad to ship unit trains to the Bakken shale from our Sparta facility, once it begins operation next year. We expect that we will also have one of the lowest delivery cost positions into the Bakken from Sparta, and keep in mind our flagship Ottawa facility is one of the lowest, if not the lowest cost provider of Northern White sand to the Marcellus and to the Utica.

These agreements further strengthen US Silica's competitive position as a supplier of choice to the well service providers as we continue efforts to supply the right product to the right place at the right time. Now I'll turn the call over to our Chief Financial Officer, Bill White, to discuss our financial results in more detail and update you on our 2012 capital spending. Bill?

Thank you, Bryan, and good morning, everyone. As Bryan said, the second quarter of 2012 was another very solid quarter of earnings for US Silica. There were more than 1.78 million tons sold in the second quarter compared to 1.64 million tons sold in the second quarter of 2011 and 1.74 million tons sold in the first quarter of 2012, with the year over year volume increase nearly all coming from the 2011 capacity expansion that Bryan mentioned.

The revenues for the second quarter of 2012 were $104.6 million compared to $74.1 million for the same period in 2011. Nearly all the revenue increase came from the oil and gas proppants segment and is the result of the increased frac sand capacity expansion that we brought online at the end of 2011. On a quarter over quarter basis, revenue for the oil and gas segment grew 1.3% to $54.5 million, and revenue for the ISP segment grew by 2.7% to $50.1 million during the second quarter.

Adjusted EBITDA for the second quarter was $37.1 million, net income was $19.5 million, and earnings per share were $0.37 compared to adjusted of EBITDA of $26.4 million, net income of $6.4 million, and earnings per share of $0.13 for the second quarter of 2011.

Volumes for the oil and gas segment were 685,000 tons, and the contribution margin for the oil and gas segment was $33.3 million as compared to 535,000 tons and a contribution margin of $16.7 million for the second quarter of 2011.

Volume for the ISP segment was 1,098,000 tons, and the contribution margin for the ISP segment was $14 million for the second quarter of 2012 as compared to 1,106,000 tons and a contribution margin of $14.8 million for the second quarter of 2011.

SG&A expense was $9.7 million for the second quarter of 2012 as compared to $6 million for the same period in 2011. The increase in SG&A was driven primarily by additional staffing to support the growth in the oil and gas segment and to meet additional administrative requirements of a public Company.

Interest expense was $3.4 million as compared to $5.2 million in the second quarter of 2011. The decline in interest expense year over year was due to refinancing our senior debt in the second quarter of 2011.

Turning to cash flow and liquidity, cash and cash equivalents were $102.6 million as of June 30, 2012, as compared to $84.6 million as of March 31, 2012. The increase was the result of operating cash flows exceeding our increased capital spending rate, and there were no significant unusual items affecting cash flow during the quarter.

US Silica incurred capital expenditures of about $24 million in the second quarter of 2012 versus $15 million in the first quarter of 2012. The majority of the capital spending was on the construction of the Rochelle and Sparta plants.

In June, the Company announced a stock repurchase program. Our Board of Directors approved the spending of up to $25 million over the next 18 months for this program. After first determining the Company had adequate liquidity to meet the needs of its expansion plans, the board determined the declining value of the Company's stock during the second quarter made it an attractive investment opportunity.

As of the end of the second quarter, the Company had repurchased 20,000 shares for slightly over $200,000 and is treating these shares as treasury stock. Now I'll turn the call back over to Bryan to discuss our expectations for the remainder of 2012.

Thanks, Bill. We've delivered several consecutive quarters of strong financial results and have built an attractive competitive position. However, we're not immune to the macro effects of rapidly declining natural gas rig counts and supply from new entrants. We expect that these factors will likely result in lower prices on spot volumes in the second half of the year versus the first half.

We do believe, though, that several factors will offset the spot pricing impact that I just mentioned. First, as we continue to provide more logistic services for our customers by shifting our delivery point from plants to in basin transloads, we'd expect to add additional margin. Second, we're seeing requests from contract customers for additional volumes above their current commitments.

Third, we're seeing a resurgence in demand in the wet gas portion of the Marcellus, where we remain a low-cost supplier and have highly differentiated logistics capabilities. Finally, we had several costs in the first half related to product development and expanding our management team that will not continue in the second half.

These factors were considered in our outlook, along with several others, including the continued migration of rigs between basins, the potential for operating disruptions from maintenance, and startup costs and construction related expenses for the Rochelle and Sparta projects. When we consider these and other factors, for the third quarter of 2012, we expect revenue of approximately $95 million to $103 million and adjusted EBITDA of $33 million to $37 million.

In addition, for the full year of 2012, we expect revenues to be approximately $395 million to $415 million, and we reaffirm that adjusted EBITDA will be approximately $142 million to $150 million. While we're pursuing upside opportunities, due to current market conditions, we believe the most likely outcome will be in the lower half of that range.

We estimate the range for capital spending to between $90 million to $110 million, of which approximately $15 million is maintenance CapEx. The bulk of the CapEx during the remainder of the year will be directed towards our Rochelle and Sparta plants, which are currently under construction. We anticipate spending on these projects to increase slightly in the coming months as compared to the first half of 2012, since the majority of the engineering and permitting processes are behind us.

These ranges show substantial growth for -- from 2011, with revenues expected to grow by more than 30% and adjusted EBITDA by approximately 50%. As President and Chief Executive Officer of US Silica, I'm especially pleased with the results that we achieved in the second quarter, and I'm confident in our ability to deliver on our financial guidance for 2012

US Silica is an established Company with a history of success, and we have a long-term commitment to maintaining our position as a premier provider of the highest quality products in both of our business segments. We appreciate the inherent uncertainty in the oil and gas space, and we know what we have to do to continue to deliver outstanding results. With that, we'll open the lines up for questions.

Thank you. (Operator Instructions) Doug Garber, Dahlman Rose.

Good morning, guys.

Hi, Doug.

Hey, good morning, Doug.

Hey, I wanted to just kind of talk about your contract coverage and what percent of your volumes are contracted for this year and next year? And also, how does that translate into what percent of your EBITDA guidance, for this year, at least, is secured by those contracts?

So, Doug, as we've said previously, we have 75% to 80% of our oil and gas volume under long-term contract, and that number holds true for this year and through the rest of 2013. So, if you take that, the vast majority of our oil and gas EBITDA is coming from our contract customers.

Okay. And within the contracts, how have your conversations over the last few months changed? Have there been renegotiations for different price in, for more term, more volume? Can you just talk about the dynamics, as the industry has changed over the last few months, with your contracts?

Sure. Yes. There's obviously lots of things happening in the industry, and as we look at our contract customers, one of the first things that stands out is that our customers are pumping a lot of frac sand, right? So we're on the pace this year to sell somewhere north of 2.7 million tons into oil and gas, and as I just said, the vast majority of that is pumped by our contract customers

And so, given the kind of advantages that we have in the marketplace, many of the things that I mentioned just a few minutes ago, we're actually seeing more customers approach us and want to do business with us.

And typically, they talk about things like the premium Ottawa White products that we have are high quality, low delivered cost that -- we think we've got some of the lowest delivered cost in the industry, and I tell you, it's been really successful as we preposition product out at our many transloads. We're seeing product really fly out of the transloads as we've gone through the year here. So, the bottom line, though, is that we haven't made any material changes to our contracts this year, and we actually experienced a very high contract purchase rate in quarter two.

That said, we're constantly looking for ways to work with customers -- so, ways that are mutually beneficial. Just to give you an example, we've had a couple of our contract customers actually come to us and ask for additional volumes to purchase under their contract, and we continue to try and work with them to satisfy their needs.

Okay. And I also want to touch on recent pricing trends, perhaps, in the spot market -- kind of extra volumes that you have at your transloads. How do those spot prices compare to the contracts I guess you signed late last year in the fourth quarter for your new volumes?

So, as we said earlier, our spot prices in oil and gas were down about 18%, sequentially, and if you recall last quarter, when we talked about what was happening in the market, we talked about a lot of the frac crew movements and the rig shifts. And as a result of all that, in Q1, there were some very acute temporary shortages that we saw in many basins around the country, and so, it kind of created almost artificially high spot price level in Q1, if you will.

I would say there continues to be a lot of chop in the spot pricing market. It tends to be sort of a basin by basin, grade by grade phenomenon. One of the things that was -- is interesting. As we watched the prices throughout second quarter, actually, for us, spot pricing was higher in June than at any time during the second quarter. With that said, the gas narrowed a bit since last quarter, and I would say those -- as we looked at prices in June, our June spot prices were still above our contract prices.

Okay. And I also wanted to touch on one of your growth projects for next year -- the resin coated sand facility. What are your thoughts in terms of monitoring that market, and would you guys potentially delay that project, or what are you seeing in the resin coat market? I know there's been some concern out there from one of your other peers.

So, I'm really excited about the resin coated sand project, quite frankly. I think it's going to be a tremendous opportunity for US Silica, and even though there's some challenges out in the resin coated sand market right now, much like the raw sand market, there's still a lot of volume being pumped. And as we talk to our customers, they're still using large volumes of resin coated sand. And as we think about it, it's a natural afford integration for US Silica, and it's highly profitable. If you look at the kind of margins that we make off of selling a ton of sand as coated versus raw, it's substantially higher, right?

And we also believe, Doug, that we've got a lot of competitive advantages that are going to stack us up well versus some of the offerings -- other offerings that are in the markets. We start off with a premium Ottawa White sand, and that's what we coat, and the reality is that all things being equal, the quality of your substrate makes a big difference in the quality of your finished resin coated sand. Since we have our own reserves, we've got our choice of grades to coat, which gives us the ability to rapidly respond to what the market wants.

And another big advantage that I think folks overlook when it comes to US Silica is that we've got extremely low logistics cost compared to many of our competitors who have plants in the Deep South. So, let me give you an example. There's some competitors out there that buy sand in Wisconsin, ship it to Louisiana to coat it, and then ship it back to the Bakken to put it down hole in a fracturing job. And it's a pretty expensive trip. It adds a tremendous amount of cost.

In addition to that, we get our substrate at cost, obviously, since we own the sand reserves. So if you add those last two up, plus or minus, it gives us about an $80 to $100 ton competitive advantage. So if you just do the math on that, we could discount prices by 25% versus our competitors and still maintain the same margins.

So, let's step back from this. I see it as a long-term investment. I think it's one that's going to continue to deliver across many years and multiple cycles in this industry, and I'm really excited to get into the resin coated sand business.

All right. Thanks for that color. It's helpful. I'll requeue. Let some other people ask some questions here. Thank you.

Okay. Always a pleasure to talk to you, Doug. Thanks.

Ben Swanley, Morgan Stanley Smith Barney.

Good morning. Congrats on the quarter.

Hey, good morning, Ben.

Ben.

I just wanted to follow up on the spot pricing commentary. So, you said it was down 18%, quarter over quarter average, but it sounds like it was not declining through the quarter, to your point. It was up, actually, in June. How do you see the run rate trending? I mean, is it still volatility, potentially, down from here, or is it just -- is it kind of range bound, where -- throughout the quarter in looking forward?

So, if I was going to use a word to characterize the spot market pricing, Ben, I would call it choppy. We saw some up, some down. It varies by grade, varies by basin. I would say one of the things that we did see, interestingly enough, is somewhat of a correlation to the WTI pricing. As we saw that start to rebound, we saw a lot more orders coming in from customers, and that really helped firm up the spot pricing. So it's hard to predict. There could be some downside in the second half, but it feels like it's going to remain choppy for the rest of the year, based on what we're seeing.

And just based on what you're saying, 70%, 80% of the volumes are contracted, and spot prices are still above contract prices, can you -- sounds like you have a bit of a cushion. Can you quantify for us, maybe even in just very rough terms, about how much cushion you see between where sand is selling on the spot market and what you're contracted at?

Yes. I can't really add too much more color on that. I mean, obviously, we start to get into some competitive areas there, but I would say, as I mentioned a minute ago, that it's really variable, right? So we sell four grades of sand across 12 or 14 basins, and so, you do the math. It's like 50 different sort of combinations that we're watching on a continuous basis.

Okay. And just backtracking a little bit to selling more sand in the basins, can you just review for us about how much contribution margin you can pick up by selling in the basin as opposed to selling at the plant? And about how much you're already selling in the basins versus where you think that could be in six to 12 months?

So, typically, we would look at something like $5.00 to $10 a ton of additional margin that we would get from selling products in the basin versus selling it FOB plant, and there's -- there'll be additional margin on top of that, once we start running unit trains down to our new Eagle Ford location and out into the Bakken.

And what was the second part of your question, Ben?

About how much -- about what percent of the frac sand that you're selling in the second quarter was already sold in basin and where do you think that percentage could go, say, on a six to 12 month view?

So, we moved up to a 40% of our sales in the second quarter from the basins, and that started from a base of a really low numbers back just a couple of quarters ago. The challenge I'd given to the team was to try and be over 50% by the end of the year, and I think we're well on track to do that. Ultimately, how much we sell in basin versus what we sell FOB depends on our customers and their specific needs, but we want to continue to increase that.

We think it gives us a lot of competitive advantage, and quite frankly, it's helped us on the spot market as well. When you have products forward staged out in the basins, you get a lot of additional just sort of short-term call up business, so that's worked out really well for us. We're very happy with our transload performance.

So, greater than 50% by the end of the year; then, do you think it can go higher than that, say, by the middle of next year, or do you think that's a comfortable level, about a little bit more than half being sold in basin?

So, I think it'll probably go higher than that. As we open up the Eagle Ford transload, there'll be tremendous volumes that we move through there. We're talking about 70 to 100 car unit trains of sort of single movement of sand down into the Eagle Ford, and those will run quite frequently. So I would expect that the number would probably increase as we go into 2013.

And just following up on the unit trains, and, sorry, I think you might have mentioned this earlier in the call, but what's the timing on being able to run unit trains? And about how much -- you mentioned that there was additional margin on top of the $5.00 to $10 of contribution margin just from selling in the basin. About how much additional margin do you pick up? I assume that all comes from cost savings by running unit trains instead of just shipping it on the regular rail.

That's right. There's sort of cost and efficiency in there. And so, I would expect that we'd see a similar kind of uptick as we talked about selling FOB -- difference from selling FOB to selling in the basin; so, probably another $5.00 to $10 a ton worth of efficiency savings that we take out of the chain.

But it's more than that, because it's rapidly becoming table stakes. As we talk to our railroad partners, you go into a place like the Bakken, which obviously has some logistics congestion. You've probably heard other folks talk about that. If you're running unit trains into there, you get favorable treatment by the railroads, and it's much easier to get volumes in. So if you can't do that in the future, I think it's going to be a real competitive disadvantage, in addition to just the cost savings.

Okay. And what was the timing again on the unit trains?

So I would expect that somewhere around late December, early January, we would -- we'd have that facility up and running down at San Antonio.

All right. And last question, just -- I mean, given some of the difficulties and logistical challenges some of your competitors -- maybe some new entrants are facing, do you expect to have opportunities to maybe acquire some assets at attractive prices later this year? Or -- I mean -- how -- can you give us some color on what private market valuations look like?

Well, Ben, we're always looking at attractive opportunities, and certainly, as the year goes on, we'll continue to do that. We have a team that spends almost full-time looking at those kind of opportunities.

I would say, though, that many of the startup companies that we've seen are very sort of inefficient from a cost standpoint. So, one of the strategic objectives in US Silica is to only have low-cost operations, because we think, at the end of the day, when you have a market like oil and gas, for example, that has some cyclicality to it, you want to be the low-cost player. So we'd not be excited about acquiring high-cost assets, and we see a lot of those out in the market, so we're pretty particular about what we would choose.

But, with that said, we always have our eyes open, and we have a tremendous cash position. It's one of the other advantages of our Company. So far, we've funded all of our expansion through operating cash, so, with our strong balance sheet and reputation in the industry, I think we're very well positioned if the right asset comes along.

Great. Congrats on the quarter again, and that's it for me.

Thanks, Ben.

(Operator Instructions). Travis Bartlett, Simmons & Company.

Hi. Good morning, guys. Congratulations on the quarter.

Good morning, Travis. Thanks.

I think most of the questions have been answered, but kind of a follow-up to one of the earlier questions. How widespread are the use of unit trains, currently, within your operations network? Is it a relatively small portion right now, or does that already occupy a large percentage of the network currently?

So, we don't currently run any unit trains, and there's only a few facilities in the country that have the size and the scale to be able to do that. Our flagship facility in Ottawa, Illinois, is one of those, and so, that's where we'll start running the unit trains later this year or maybe in January, 2013 -- somewhere in that kind of timeframe, as I mentioned.

But it's really hard to do, because you need -- just imagine building a unit train of 70 to 100 cars. The first thing you need is a mile worth of track at the origin site to be able to stage up those cars, and you also need enough capacity at your plant to be able to load the cars out very quickly.

And then, when it gets to the other end, i.e., destination, say out in the Eagle Ford, you've got to have a massive storage facility that can unload that -- all those cars in less than 24 hours so the train can turn around. So it requires a kind of scale and scope that most folks in the industry can't achieve, and it's one of the reasons we're so excited about that and we think gives us a tremendous competitive advantage, Travis.

Right. Do you think there is sufficient rail car capacity and, I guess, rail line capacity within the industry today?

We've had very good success with the railroads. You might have noticed that in the last couple of months, we've had a couple of press releases, one with the BNSF and one with the Canadian Pacific, and we have excellent relationships with the railroads.

And I think that, from our perspective, we're not experiencing logistical challenges. We see plenty of capacity. We have our own fleet of leased rail cars, and the railroads are great about helping us out with their system cars when we need them, and so, we're not experiencing issues in terms of logistics. I know some other folks in the industry have mentioned that, but that's certainly not our reality.

Right. Okay. And then, last one for me. Can you -- I'm sorry if I missed this, but can you guys talk about, a little bit, just how volumes progressed within the oil and gas proppants during the quarter? Looks like they were essentially flat, sequentially up in the range of 1%. Did this play out kind of as you guys were expecting, or were you expecting a larger pickup during the quarter?

Yes. It was pretty flat during the quarter. I think it's mostly what we expected. We're essentially sold out on all of our products today, with the exception of [100 mesh], which is kind of long across the whole industry. So there's not a lot of excess capacity to put out into play, so it's pretty much what we expected.

Okay, great. Well, that's it for me. Thanks.

Okay. Thanks, Travis.

Doug Becker, Bank of America Merrill Lynch. Doug, your line is live.

Can you hear me?

Yes.

Yes, we can hear you, Doug.

Hi, Doug.

How you doing, Doug?

Okay, thanks. Thanks. Curious if spot pricing was -- in July, is flat, higher, or lower than it was in June.

Yes, so, we're not really giving any forward guidance on spot pricing, specifically, but I would say that, as I mentioned before, we expect that spot pricing will continue to be choppy. And, as we talked about, the kind of big decline from Q1 to Q2 -- the 18% -- I mean, we just have to keep in mind that that was off of really high levels in Q1, associated with all of the frac crew and rig movements.

Certainly don't expect that magnitude to continue in the third quarter.

No, we wouldn't expect that and the fact that June prices were higher than April and May kind of gives you a bit of an indication of the fact that the market is flattening out, perhaps, a little bit, in terms of that.

Yes. You highlighted some of the permitting difficulties the industry's facing. As we think about supplies the second half of '12 and 2013, just any broad picture thoughts you can provide on white sand capacity coming in?

Yes, sure. As we step back and look at it and, as you can imagine, we track this very closely. Our strategic planning team has a whole effort focused on monitoring capacity coming into the market. We're seeing three kinds of challenges that startups are facing. The first is just finding the right site.

As you go up around Wisconsin, Minnesota, and other places, and what you find is that most of the best sites are already taken. And so, when we think of a quote-unquote best site, we think of a site that has large coarse reserves on it and a railroad immediately on the property. So that, in and of itself, makes it more difficult.

The second challenge is around permitting. We saw some of the startup companies that just kind of completely fell off the radar screen, as we monitor them, and then, there was some projects that were in process that look like they've stopped making progress, based on the way we would monitor them.

And then, the third area that's a challenge is either securing financing or customer contracts, right? So it's more difficult to do either in what I think most people would agree is kind of a flattish rig count environment. So, combination of those three, I think, puts a bit of a damper on the ability of startups to get new capacity out in the market.

With that said, there certainly are startups are along the way in the pipeline, and I'm sure some will come aboard with capacity in the next few quarters. But, from everything we can see, it looks like there's perhaps a bit of a damper on their ability to get out, sort of, broadly.

Yes. Is non-API grade sand still being pumped?

There's some of that, but I think what we've seen is that, in most cases -- you talk to the well engineers either at the service companies or at the EMPs, and the first choice of everybody, most generally, is Northern White sand. And so, if you can get Northern White sand, you pump that, and I think that, in the past, where we've had really acute shortages of Northern White sand, that's where you saw some of the non API products come in.

And, of course, some of the brown sands are continuing to be pumped down in the Brady area, down in Texas and some of the Permian in other locations, and there are certainly wells that are appropriate for that. But, by and large, our customers want Northern White sand.

Are you seeing any big shift to ceramics in some of the regions? It's been highlighted on, I guess, a competitor call.

Yes. We really don't spend much time looking at that, because we don't typically compete against the ceramics folks. And if you look on a volume basis, about 80% of what gets pumped down hole, plus or minuses, is raw sand, and 10% is resin coated sand, so we tend to look at that 90% of the market versus the 10%, plus or minus, that's ceramics.

Sure. Okay. One last one on just the resin coated and, I guess, actually, the Sparta plant. You had mentioned expectations for EBITDA of $50 million to $60 million by 2014. Is this still a reasonable expectation, as we look out?

Yes. So, I think what I'd said in my prepared comments was that we expected to be at a run rate of about $40 million in 2013, and I think it's still pretty consistent with the $50 million to $60 million in 2014 that we had said last quarter.

Okay. Thank you.

At this time, I would like to turn the call back over to management for closing comments.

I'd like to thank everyone for dialing in today. As I said earlier, we're very confident in our ability to deliver on our 2012 financial guidance, and we certainly look forward to talking with all of you again next quarter. Thanks so much.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.