US Silica Holdings Inc (SLCA) 2012 Q4 法說會逐字稿

Good morning, and welcome to US Silica's fourth-quarter and full-year 2012 earnings conference call. Just a reminder, today's call is being recorded, and your participation implies consent to such recordings. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

With that, I would now turn the call over to Mr. Michael Lawson, Director of Investor Relations and Corporate Communications. Please go ahead.

Thanks, and good morning, everyone, and thank you for joining us for US Silica's fourth-quarter and full-year 2012 earnings conference call. With me on the call today are Bryan Shinn, President and Chief Executive Officer; and Don Merril, Vice President and Chief Financial Officer.

Before we begin, I would like to remind all participants that our comments today will include forward-looking statements, 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.

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

Finally, during today's question-and-answer session, we would ask that you limit your questions to one plus a follow-up question to ensure that all who wish to ask a question may do so. If you have additional questions, we would invite you to get back in the queue, and we will be happy to take as many questions as time permits.

With that, I would now like to turn the call over to our CEO, Mr. Bryan Shinn. Bryan?

Thanks, Mike, and good morning, everyone. I will begin today by sharing highlights from our fourth-quarter and full-year performance, followed by an update on our two business segments -- Industrial and Specialty Products, or ISP, and Oil and Gas Proppants. I will also provide a progress report on some of our 2012 strategic initiatives, and discuss key market trends going forward into 2013. Don Merril, our CFO, will then provide color on our fourth-quarter financial results, and outline our guidance for the first quarter of 2013.

Let me first take this opportunity to thank all of our employees for delivering truly outstanding results in 2012. Through your diligence and hard work, US Silica once again achieved record results in volume, revenue, and adjusted EBITDA in the fourth quarter. Well done, team.

Specifically, on a year-over-year basis, volume increased by 14% to 7.2 million tons, while revenue climbed over 49% to $441.9 million. On a sequential basis, volume was down slightly in ISP, as projected, and up substantially in Oil and Gas. Adjusted EBITDA of $39 million increased 43% year over year, and 4% sequentially. Fourth-quarter earnings per share were $0.41, a 14% improvement sequentially over third quarter of 2012, and 105% increase compared with the same period last year.

Looking at our business from a segment standpoint, Industrial and Specialty Products accounted for approximately 45% of corporate revenue, and 59% of our volume in 2012. Sales and contribution margin from the ISP segment in the quarter were down approximately 7% and 8%, respectively, on a sequential basis due to expected fourth-quarter seasonality and temporary shutdowns by some of our customers caused by Hurricane Sandy. As a reminder, we are typically the number-one or number-two player in most of the industrial end markets we compete in, and we expect this segment to grow earnings in 2013 due to solid rebounds in the housing, chemical, and automotive end markets.

In our oil and gas segment, despite the widely reported fourth-quarter slowdown in pressure pumping activity, our volume, revenue, and contribution margin were up 27%, 10%, and 10% sequentially versus a very strong Q3. Our out-performance was driven by high uptake from our contract customers, a significant increase in logistics and distribution value-add, and continued market share gains. Demand for Northern White frac sand continues to be very strong, and for several months, including January of 2013, we have been sold out of most grades of sand.

As it relates to our new plant in Sparta, Wisconsin, I'm pleased to report that we are on schedule, and expect to be fully operational in the second quarter of 2013. This new facility will add approximately 800,000 tons of coarse 20/40 and 30/50 frac sand capacity to our portfolio, and we expect that a large portion of that volume will be sold this year to a combination of new and existing customers due to the robust demand for those grades. Sparta gives us the ability to sell our low-cost, high-quality Northern White sand into several basins including the Bakken and the Marcellus, and moreover, it provides us a platform to launch our first foray into the Canadian market where proppant demand is increasing.

Our other major capital investment, the new resin coated facility in Rochelle, Illinois, is slated to come online this quarter. The plant is located near our largest raw sand mine in Ottawa, and provides us with a significant logistical cost advantage over many of our competitors. We are currently completing product testing, and are preparing to build and stage inventory. While we acknowledge the market for resin-coated sand is soft right now due to lower gas prices, we are in active discussions with several customers, and anticipate initial sales by the second or third quarter of this year.

Additionally, we continue to expand our logistics capabilities. At the beginning of 2012, we sold through 5 transloads accounting for about 5% of our total volume. We now have 16 active transloads that account for roughly 40% of our sales volume.

Our new state-of-the-art sand storage facility in San Antonio, Texas, capable of delivering 500,000 tons of raw and resin-coated sand into the Eagle Ford, is on schedule to start up by the end of the first quarter. As previously announced, we began shipping unit trains from our Ottawa facility in 2012. San Antonio will be capable of receiving unit train shipments, and our new Sparta facility has unit train capability as well. Unit trains provide improved efficiency and better utilization of transportation assets, and allow more rapid response to changing customer needs. While several suppliers claim that they're unit-train capable, only the largest have the market presence and logistical capability to make this work.

We believe that our high-quality products, combined with superior logistics, create strong customer loyalty and, as we've said in the past, we are working with our customers to provide the flexibility and the reliability they need to be successful in winning new work. You can see the impact on our financials. While others in the space experienced a fourth-quarter slowdown, we did not. In fact, our fourth-quarter volume to Oil and Gas customers was the highest of any quarter in 2012, with strong overall pricing. We believe that we are winning share from less capable competitors, and that we will continue to do so.

Now, I know that a lot has been said and written about the viability of longer-term take-or-pay contracts with Oil and Gas customers, so let me take a few minutes now to talk about that. We are working closely with customers, and we've been very active over the last quarter adding additional contracts, developing customized logistics and delivery solutions, extending existing contracts, while increasing volumes, and adjusting prices both up and down. We sold more than 70% of our total Oil and Gas volume last year through long-term contracts, and as a result of our recent contracting activities, we expect the percentage of contract sales to remain about the same in 2013, and that includes the 800,000 tons of annualized capacity from our Sparta Phase One project.

2013 is off to a strong start, and we are accelerating staffing of our Sparta site in response to increased customer demand. And further, we are evaluating accelerating work to complete a Phase Two project in Sparta by the fourth quarter of 2013 to bring additional capacity online.

Looking ahead, several key factors will drive our performance. We've seen a steady migration of oilfield service providers to proppant suppliers like US Silica with extensive rail transportation solutions, access to multiple basins, and geographically diversified production capabilities. As drillers sink more wells per rig, fracking efficiencies improve with multi-pad wells, and profit consumption grows per stage, we anticipate an increase in the amount of proppant required per rig, driving volume growth for our offerings, even in a flat rig-count environment. Raw sand, our primary offering in this industry, is becoming the proppant of choice from both a performance and economic standpoint, and we believe this material will continue to gain market share in 2013 and expand its industry-leading position.

On the sand supply side, capacity increased in 2012 in response to significant market shortages. 2012 also saw the entry of new players in the silica mining business, especially in Wisconsin and Minnesota. However, we believe that many of these new entrants have higher cost structures, and lack the service capabilities of US Silica. We also believe that we are winning share, and that we are well-positioned for continued success, as evidenced by our 2012 results, strong fourth quarter, and strong start to January 2013.

Our strategy for the Oil and Gas segment going forward is to add capacity to grow share, while maintaining our low-cost position. We plan to accomplish this through a combination of organic growth, greenfield development, and select acquisitions that complement our business model of being a low-cost, high-quality producer with outstanding logistics capabilities and strong customer service. We will continue to expand our transload network by adding new sites and expanding capacity at our existing sites to ultimately give us the ability to forward stage inventory into all of the major US and Canadian basins. We expect to have 25 to 30 transloads online in 2013, expanding to 40 in 2014.

On the ISP side of the ledger, we continue to work to transform this segment to a technology-driven enterprise by developing capabilities and product that enable us to penetrate larger, more profitable markets. We have a robust opportunity pipeline with several new offerings under development, the first of which we anticipate launching into the water treatment market in 2013. We expect to generate at least $10 million in incremental EBITDA from new industrial products in 2015, as well.

I would now like to turn the call over to Don Merril, our Chief Financial Officer, to discuss our financial results in more detail and update you on our guidance. Don?

Thanks, Bryan. Good morning, everyone. As Bryan previously noted, the fourth quarter of 2012 was another record quarter financially for US Silica. There were approximately 1.8 million tons sold in the fourth quarter compared with 1.6 million tons sold in the fourth quarter of last year. On a sequential basis, volume in the fourth quarter was down slightly from the third quarter of 2012 due to seasonally lower levels in the ISP segment of the business, offset by stronger, more profitable demand in the Oil and Gas segment.

Revenue in the fourth quarter was up 3% sequentially over Q3, improving to $118.8 million. The increase in revenue was driven primarily by volume growth and pricing strength in our Oil and Gas contract business. On a year-over-year basis, Q4 revenue for the Oil and Gas segment grew by 88% to $70.9 million, and Q4 revenue for the ISP segment increased 4% to $47.9 million.

Volumes for the Oil and Gas segment for the fourth quarter of 2012 were 785,800 tons and the contribution margin was $37.5 million, versus 590,400 tons and a contribution margin of $23.8 million for the fourth quarter of 2011. Volumes for the ISP segment totaled 974,400 tons and the contribution margin for the ISP segment was $13 million in the fourth quarter of 2012, compared to 1,010,300 tons and a contribution margin of $14.5 million for the same period last year.

SG&A expense was $11.5 million in the fourth quarter of 2012, compared with $6.9 million in the same period of 2011. The increase in SG&A was driven primarily by continued additional staffing to support the overall growth in our business segments, and to meet the additional administrative requirements of a public company.

Interest expense was $3.2 million compared with $3.9 million in the fourth quarter of 2011. The decline in interest expense year over year was due primarily to the conversion of an equity note immediately prior to our IPO in 2012.

Turning to the balance sheet, cash and cash equivalents totaled $61 million for the year ended December 31, 2012, compared with $59.2 million at December 31, 2011. As of December 31, 2012, our working capital was $97.2 million, and we had $32.1 million of availability under our revolving credit line. In December 2012, we amended our credit facility to increase the commitment from $35 million to $50 million to reduce rates and fees, and to extend the terms of the agreement by one year.

We incurred capital expenditures of $30.9 million in the fourth quarter of 2012. The bulk of our fourth-quarter spend was related to our new resin coated production facility in Rochelle, Illinois, and our new greenfield plant in Sparta, Wisconsin. During the period, we also paid a one-time special cash dividend of $0.50 per share that was payable on December 28, 2012 to shareholders of record on December 20, 2012.

Turning to our outlook for the first quarter of 2013, we expect revenue to be in the range of $115 million and $123 million. We anticipate adjusted EBITDA for the first quarter of 2013 in the range of $36 million to $39 million. For the full-year 2013, we expect adjusted EBITDA in the range of $165 million to $175 million. Also for the full-year 2013, we have budgeted between $50 million and $60 million for capital expenditures, and anticipate an effective tax rate just north of 27%.

With that, I'd now like to turn the call back over to Bryan.

Thanks, Don. In closing, I would like to reflect on 2012 and our accomplishments. After operating as a private company for over 100 years, we completed a successful public offering, and quickly made the transition from a company best characterized as a proxy for the overall economy, growing at or slightly above GDP, to a dynamic enterprise with a growth curve that looks more like a technology start-up.

We developed and executed a plan to invest $100 million of our cash flow into building two new materials processing plants, the first new US Silica plants in 40 years. These new facilities are coming online in 2013, and will drive continued growth in our Oil and Gas business.

We've expanded and fortified our transportation network to accommodate the changing demands in both the oil and gas, and industrial markets. US Silica now has one of the most extensive logistics networks in our industry, providing us with a high level of flexibility in storage and inventory management to meet the needs of our customers. We launched an exciting new initiative to reinvigorate our Industrial and Specialty Products business. We've enhanced our capability to develop innovative new products that will help us penetrate higher-growth markets with a potential for higher margins as well. We've added promising new talent to our Company, partly to help us manage as a public company, but mostly hiring people who are focused on growing our business and producing outstanding results.

Financially in 2012, we grew our top line by almost 50%, and more than doubled our EPS. We instituted a share buyback program, and declared a $0.50 per share special cash dividend, both reflecting our confidence in our ability to generate strong cash flows and to increase shareholder value. In short, we did exactly what we said we would do in 2012.

Going forward, we expect a very successful 2013 with substantial revenue and earnings growth. We also expect to generate significant cash flow this year. Also, our Board is committed to pursuing a rigorous and disciplined approach to capital deployment, and to achieving best-in-class total shareholder returns, including evaluating return-of-capital initiatives and policies.

That concludes our prepared remarks. Operator, let's open the line up for questions.

(Operator Instructions)

Travis Bartlett, Simmons & Company.

Hello, good morning, guys. Congratulations on the quarter. First question for you guys is -- first of all, Quarry Labs on their conference call did a pretty good job of talking about their expectations for increasing service intensity next year with closer frac stages and more proppant volumes per stage. So, the question for you is can you share with us what you're seeing there and maybe cite any examples that would help frame for us the service intensity gains that you're seeing?

It's a great question, Travis, and certainly we're seeing that as well. If we look at the amount of volume that we are sending to our customers and the discussions we are having with them around how much they are using per well, we see continued increases there. And I would expect that overall from a market standpoint, we will probably see 10% to 15% increase in sand demand even if rig count stays flat as a result of the drilling efficiencies. And also an area that perhaps is a little bit under considered sometimes is the fracking efficiencies, as well, right? So we're seeing both of those combine to produce really nice increases and, once again, 10% to 15% probably in a flat rig count environment.

Right. Are there any market where you're seeing service intensity increasing at a disproportionately fast rate versus others?

So, if you look at the markets that we serve, we have the ability to serve pretty much everywhere in the country but generally we have high volumes in places like the Eagle Ford or Permian. We are also ramping up a lot in the Mid-Con. We see some service intensity gains there but I would say it's across the board, particularly in the southern basins.

Okay. Perfect. And then last one here for you guys, you all have invested a lot of capital in building out your logistics footprint at this point. So the question is what kind of potential to potentially provide logistics for third parties?

So at this point, we take our product as far as the transloads, and our transloads are set up and focused around our sand and really in service to our customers. So, as far as third-party or bringing additional products on our sites, that is not something that we spent a lot of time considering although it is certainly an upside and we have some transloads that we manage and others that we do with third parties so we have a mix, Travis.

Okay. Perfect. Well, thank you, Bryan. I'll turn it back.

Ben Swomley, Morgan Stanley

Hello, good morning and congratulations on the quarter. I was hoping you could discuss for me a little bit more about what you plan to do with all this free cash flow you're about to generate?

Yes, so, it's a great question, right? And the way we think about it is that both the Management team and the Board is always looking, Ben, at best use of cash, and our focus is to try and generate the highest total return for our shareholders, as you might imagine. We have a number of great options. We can reinvest in our business. We have a lot of growth projects that have extremely high returns. We continue to look at some highly accretive M&A alternatives. As you are probably aware, as many folks on the call today, there are a lot of assets that are for sale right now in the sand business and so that is one potential but there's others there, as well, from an M&A front.

We have done share repurchases in the past and, then of course, dividends. Right? So at the end of the day, we have to evaluate all of that in terms of our business strategy and what we can do to best grow the Company. Right now, we do see a lot of M&A opportunities and we're continuing to look there, as I said. I've been talking a lot to investors and we know there's interest in dividends. So we have not made any firm decisions at this time around some of the different avenues here but we are exploring all of them, keeping them open. At the end, we want to focus on what we can do to bring the highest total return to our shareholders.

And just a follow-up on the M&A opportunities, how do you think about fitting in a new asset with your existing footprint? One of your key competitive advantages is your logistical network, so to what extent -- are you seeing opportunities that would actually work on and be consistent with your current cost structure advantage?

So as we think about M&A, to me, it's in a couple of different categories, right? So one is the sand asset that has the kind of attributes that we would like -- as you mentioned, low-cost, high-quality product. Another could be in the distribution chain itself -- there probably some opportunities there. And certainly on the ISP side of the house, we tend to talk a lot about Oil and Gas but there's opportunities there, as well, as we are changing that business into one that's much more focused on performance and differentiated products. You can imagine that there could be some interesting bolt-on acquisitions there. So just generally, that's how we think about it, Ben.

All right. Thanks. And just one last quick one for you. Do you think -- how large are the opportunities that you're looking at? Would there be room to do both, say, a dividend and pursue some of these bolt-on opportunities?

So we really have not made specific decisions there and it will just depend on the different opportunities and which direction we choose to go but I will say that certainly any acquisition that we are looking at would be something that would be highly accretive and would be a natural fit with our business plan. I don't want to get folks too focused on that. It is certainly an opportunity but we have a lot of other ways to grow the Company as well.

Perfect. Thanks, much.

Brandon Dobell, William Blair.

Wondering if you could focus on your comments around the contracts that you were working through here, back part of '12 and early '13. Just some sense of the ones that you extended in terms of time frame; how those looks on volumes; where some of the pricing came in relative to prior contracts or current market expectations; and just some more color around your confidence around how '13 plays out relative to '12 for the contracted customers? Thanks.

Sure. Sure, let's talk about that. And I'm extremely pleased with our Oil and Gas contract portfolio. Our commercial team has been working very hard over the past several months and the truth of it is that we are winning share and customers are actually seeking us out. I was talking to our sales guys last week in a meeting and it turned out just last week we turned away about 10,000 tons of business in Oil and Gas because we were essentially sold out and could not serve those customers' needs. But as we think about moving forward with our contracts, the fundamental goal we have had is to be flexible and easy to do business with and that's served US Silica well for over 100 years, throughout our different business segments.

When you combine that with the multiple supply and delivery point combinations and the kind of quality and service that we have, we think it puts us in a really advantaged position. And as a result of that, it is translating into a lot of new contract business. So, we had one of our take-or-pay contract customers extend their contract by a year. Another one we are talking with, an extension even longer than that. We've had customers that have added volumes to their existing take-or-pay contracts and we've got a couple of new agreements and then more that are currently under discussion. When you look at the impact of that, it's really significant. We said in our prepared remarks that our 2013 contract volume, we expect to be about the same percent of total Oil and Gas volumes so it should be greater than 70%, just like it was in 2012.

And if you do the quick math on that, we are actually increasing the total amount of contracted volume by somewhere around 30% on an absolute basis. And once again, you do the math and that pushes our rollover points for our average contracts out quite a bit. We've said in the past that if you did a weighted average of roll off of our different contracts for Oil and Gas that it was somewhere in the mid-2014 range. With all the work that our team has done recently, we've pushed that out into 2015. So think about what that means, right? We have great visibility for the next two years, all through '13 and '14 and even to '15 for a substantial portion of our revenues.

And so as we work with customers on that, as you could imagine, there are a lot of discussions on a number of topics. Some customers wanted to talk about grade mix, others said -- hey, our real issue is we need more product out at transloads and so US Silica invested in transloads to serve certain customers. We are able to leverage our strong balance sheet. And if you think about not just investing in the transload but that means additional working capital that they have -- you have to pay for and many other companies in the industry can't do that.

We moved our point-of-sale out closer to the end-use market, i.e., closer to the wellhead, which customers like. In some cases we increased volume, other cases we decreased volumes on certain grades. Some places we increased prices, some places we decreased, right? So there was a lot of give-and-take and our approach has been that we are always willing to talk about trading value for value where it made sense. And when you do all of the integration of that, I am really happy with where we have come out.

Okay. And then one quick follow-up on the resin coated side, you talked about some initial sales in the second or third quarter, any sense of what your expectations are for this year given where the market is for RCS? Should we anticipate a little bit of contribution, modest amount -- I'm trying to gauge quantitative trajectory on your expectations?

Sure. Sure. No, it's a great question. And I would say that when we embarked on this project two years ago, obviously the resin market was on the short side of balance. Today it's on the long side -- everybody knows that. So consequently the kind of ramp rate that we will see from resin-coated sand is going to be slower than what we would've anticipated maybe two years ago when we diagramed this project out. What we're seeing is that the pricing is still pretty reasonable in the market. We've got a lot of competitive advantages and we are drawing good interest from customers. We are out in the market now with production-made samples, not just lab-made samples, and we've actually made scale production from our plant as we were going through the start-ups and check-outs.

So we're in the process of getting that tested with independent third parties and also with customers and we feel really, really good about where that's going to come out. So we had said, Brandon, that between Sparta and Rochelle we expect it to be at a $40 million EBITDA incremental run rate by the end of 2013. I still think we're going to be there. I still think that's a good number for us. But the resin market is a little bit tough right now but we are getting a good reception from customers. The last point on that is that if we chase the cycle and try to invest for capacity, we will never have the capacity when we need it. So this is going to be a really good investment for us and one that we will be proud to own for a long time.

All right. Appreciate it. Thanks, guys.

Kurt Hallead, RBC Capital Markets.

Well done, guys. The couple of questions I had for you to follow up here if how much CapEx is slated for the Phase Two for Sparta?

The Sparta Phase Two project, right now we're looking somewhere between $10 million and $15 million to complete.

Okay and is that -- that's all going to be encompassed here 2013, right?

That's right.

Okay, great. And then how much volume would that bring on?

So that's another equivalent volume to Phase One. So Phase One, Kurt, was 800,000 tons and Phase Two will be the same. So it's another 800,000 incremental.

Okay, great. And then you guys mentioned you're going to -- a challenge in the resin-coated sand market. If you said it already, I apologize, but how much volume do you think you'd be able to do in resin-coated sand in 2013?

Yes, so we have not given specific guidance on that, Kurt. As I said, we are out talking to customers right now. I expect initial sales sometimes in the next six to eight week time frame. We'd said Q2 -- late Q2, maybe early Q3, somewhere in that range. And so we don't have a specific target to share here this morning but we do feel good about the guidance that we gave around $40 million in incremental EBITDA between Sparta and Rochelle combined.

Okay. Well great. I will stick to the one and one. I'll turn it over.

(Operator Instructions)

Blake Hutchinson, Howard Weil.

Bryan, a lot of good data on the build out of the transloads and, obviously, having over the course of the year a more profound impact here. As we think about 2013, should that 40% of volume going through the 16 transloads start to move maybe towards the high 50%s or 60%s mid-year and 70% year-end? How should we be thinking about that in terms of volume numbers rather than just number of transloads facilities?

So one way to look at it, Blake, is that we've said that we -- you think back, we started 2012 at 5 transloads, we finished at 16, and we are saying that we will be at 25 to 30 by the end of 2013, right? So if you think about that, that's at least a 50% increase in the number of transloads. So it would not be unreasonable to expect that we'd see that kind of increase in terms of the volume that goes through transloads. So I would look at it that way.

But the reality is at the end of the day, we follow the customers. So we will do what the customers want us to do. Certainly, we are getting positive indications from a number of customers that we need to have more out in the basins and so that's why we are investing. But we also do a lot with our customers to become more embedded in their supply chains. So just to give you an example, one of our major oilfield service customers, we have a deal with them where we share rail cars, right? So when you get into that kind of an arrangement, it really locks in the business and makes us much more sticky with them, if you will. So those are the kinds of things that we're doing. It's more than just a transload. It's the whole supply chain and how we get from our plans out ultimately to where the customers want the product that gives us a lot of advantage.

And you're hitting on some of the detail in the follow-up to that. You mentioned in your preamble that, either it's due to -- maybe you can characterize this for us as due more to volume or just the practice of this. You've laid out some parameters for increased absolute margin as you turn towards this shipment. Are you starting to hit towards the higher-end and you're saying you think that is more just the practice of doing this? Or are we just getting the pressure points on volume that you feel like you can get towards the higher-end of, again, the absolute margin parameters you laid out.

Right and it's a great question and it's one that has maybe confused folks a little bit. What you'll see is that, for example, we might have a quarter-over-quarter where volume is flat but revenue has gone up a lot and that's from the increase in transportation, right? And certainly, those transportation revenues don't carry with them the same percentage margins that we get from selling our base products, right? But it's all incremental and additive to the bottom line and that's why we are so excited about the improvements and enhancements that we've made there.

But even beyond that, it's really about serving the customers' needs and becoming more embedded with them and making it much more difficult for customers to switch and go to someone else. And we like to think that we need to provide service that is way in excess of the price that we are charging. So basically deliver more value to the customers than the price and we're seeing that play out in the market as we win share and as customers are choosing to work with us proactively versus other choices that they have in the market.

Great. And then just if I can, just one quick housekeeping maybe for Don. Was there still some hang over maybe to the tune of $2 million from the dryer issue at Ottawa in terms of direct expense for the quarter or is that overstating it?

That's overstating it a little bit.

Okay. Okay. Appreciate it. I'll turn it back.

Jack Kasprzak, BB&T.

Thanks, good morning everyone. Congratulations on a great year. You guys did $150 million of EBITDA in 2012, guidance is for $160 million to $165 million but the two projects, Sparta and resin coated could add $40 million of incremental EBITDA. So is the difference there just maybe the timing to get through the course of the year and see how the projects, particularly resin coated, are playing out?

Yes. So it's a really good question, Jack. And it's one that we've gotten a couple of times and just maybe just to clear it up, what we've said is, guidance is, say it's $165 million to $175 million, right, for EBITDA? And the $40 million is a run rate, okay? So we are not saying we're going to get an incremental $40 million this year on top of the $150 million, it's, as we exit the year we will be at that run rate, right? So that is maybe where the confusion comes in.

Got it. Okay. Thanks. And second question, it's a new item you mentioned in your remarks, 2015 goal for Industrial -- for ISP of $10 million of incremental EBITDA from new products. Can you talk a little bit about what you are doing there maybe in terms of what segments or customers you might be accessing with these new products?

Sure. Sure. So we have brought in a new leadership team to reinvigorate our Industrial business and most of the folks came in more than 12 months ago and so as they got their feet on the ground. One of the things that they did from a strategic standpoint was to focus that business more on specialty and performance products, i.e., high-end, high value-added products.

And so what we've done, Jack, is develop a pipeline of new opportunities. We have more than 12 offerings and new products in that pipeline right now, the first of which we said we will launch later on this year into the water treatment market. So what you can expect to see from us is a recurring series of new product launches for high value-added products. And we are leveraging a lot of what we already know about the sand business and going into some end-use markets where we either have a presence or we see great opportunity and so there is a number of them that we are looking at.

If you think about where some of our high-end just plain sand products go today, it's industrial coatings, polymers, resins, we are all over the place. If you look at the car, anybody's car, we are all over the car, we are in the hoses, the belts, the paint, the plastics, things like that. So think high-value additives that bring performance attributes. Those are the kind of things that we want to do more of. So I'm tremendously excited about this business. We've said $10 million, that's probably conservative. If we don't do better than that I will be disappointed but we've got a lot in the pipeline and you'll see the first of it coming out later this year.

Okay. Sounds great. Thank you, Bryan.

At this time, we have come to the end of the Q&A session so I would like to turn the call back over to Management for closing comments.

I want to thank everybody for calling in today. We are tremendously excited about the results that we achieved in 2012 and are very, very excited about 2013. We have a lot of great opportunities and you've heard us talk about a few them today and we look forward to talk with you all again next quarter. Thank you very much.

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