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Hi-Crush Inc  (NYSE:HCR)
Q3 2019 Earnings Call
Nov. 06, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Hi-Crush, Inc., Third Quarter 2019 Conference Call. [Operator Instructions]

Now, for opening remarks and introductions, I would like to turn the call over to Caldwell Bailey, Investor Relations Manager of Hi Crush. Please go ahead.

Caldwell Bailey -- Investor Relations

Thank you. Good morning, everyone, and thanks for joining us today.

With me are Bob Rasmus, Chairman and Chief Executive Officer of Hi-Crush, Inc.; Alan Oehlert, Chief Operating Officer; and Laura Fulton, Chief Financial Officer.

Before we provide our prepared remarks, I would like to remind all participants that our comments today will include forward-looking statements which are subject to certain risks and uncertainties. Actual results could differ materially from those projected in any forward-looking statements.

Additionally, we may refer to the non-GAAP measures of EBITDA, adjusted EBITDA, free cash flow and contribution margin during the call. Please refer to our public filings for definitions of our non-GAAP measures and reconciliation to their most directly comparable GAAP measures as well as a discussion of risks and uncertainties.

With that, I would now like to turn the call over to our CEO, Bob Rasmus.

Robert E. Rasmus -- Chief Executive Officer

Thanks, Caldwell, and thank you to everyone for joining us this morning.

The third quarter played out as anticipated, with relatively strong activity in July and August, followed by a slowdown that began in September. For the quarter, we hit the high end of our previously issued guidance range for sales volumes, and utilization of our last mile crews remained strong, as evidenced by an increase in the total number of truckloads delivered. We achieved our operational and financial results in an environment that was and remains challenging, as evidenced by decreased rig count and well completions activity.

The non-cash impairments, which we recorded during the quarter and which Laura will talk about later, reflect the reality that the industry is undergoing a drastic change. The market is oversupplied and will be rationalized, whether through attrition and/or consolidation. As a result, we are acutely focused on remaining disciplined and controlling what we can control: operational execution; cost takeout in both SG&A and supplier cost; reducing spending, including CapEx; maintaining cash and free cash flow generation. Unlike some of our competitors, we prioritize profit over market share and shaping a business that will produce sustainable, consistent returns for our investors.

Hi-Crush remains well positioned to succeed even during periods like we are seeing today due primarily to focusing on three key priorities: leveraging our integrated portfolio of assets to deliver high quality customer service, improving profitability through operational optimization and cost reduction and combining those two with prudent capital allocation. We have built Hi-Crush for the long term and are uniquely positioned to come out the other side of this cycle stronger due to the knowledge we have gained as a longtime player and service provider in the frac sand industry. We've seen cycles before and we've proven our ability to remain flexible and ahead of the curve and responding to them.

Our strategic focus on logistics last mile services and equipment was the right strategy before and is the right strategy in this environment. I mentioned the market will be rationalized, and in that regard we are seeing it happening in the form of mine closures, idlings and curtailed hours of operation. We seen these actions continually across the industry in the third quarter. We believe there will be additional supply taken off the market over the next several months as the higher cost production is removed. Despite the supply rationalization that we've seen to date oversupplies persist which led to increased pricing pressure in the back half of the quarter ahead of what was originally expected.

As I have said before, you have to deal with reality as it is, not as you want it to be. Many of the components of our strategy help us better align our business with market conditions. We're focused on maintaining our strong market position, and as such, we will continue to reduce cost across our organization in four key areas.

First, optimizing our portfolio production facilities to ensure we're operating as cost efficiently as possible. This includes the idling of our Augusta plant in January 2019 and reducing the hours of operation at Whitehall this past August. We benefit from having a diverse portfolio of production assets with purposefully similar designs that make these efficiency efforts and cost reduction initiatives more achievable for us than for others.

Second, streamlining and simplifying our processes, automating additional functions, reducing our number of corporate entities and using technology to increase the efficiency with which we work, which structurally reduces costs.

Third, working with vendors to better align our cost structure with the market. We've been pleased with the support provided by many of our partners, and appreciate their efforts in continuing to work with us.

And last, right-sizing our workforce consistent with market realities in the frac sand and logistics industry. This is, without a doubt, the most challenging aspect of operating a cyclically exposed business. We take our responsibility to manage our dynamic personnel needs seriously and do our best to ensure the transition for impacted employees is as smooth as possible.

Looking ahead, we are aligned with the forecast recently laid out by others in the industry which calls for continuing headwinds for the remainder of 2019. As we progress through the fourth quarter, we've seen weakness in activity levels driven by typical seasonality and budgetary constraints for E&Ps. Our focus on customer relationships, delivering reliable, safe and efficient services and maintaining a laser focus on costs will benefit the Company and ultimately our investors over the near and long term. We have also taken the time to review our environmental, sustainability and governance practices and results and will have our first annual ESG report available on our website shortly.

An important part of our strategy is our approach to our capital position. We prioritize maintaining a strong liquidity position and a solid balance sheet. We further curtailed spending to align with market conditions in the third quarter and remain completely undrawn on our asset-backed facility. While others have often been constrained by their commitments and covenants, we've maintained balance sheet flexibility throughout our Company's history. Our flexibility affords us the ability to act quickly and decisively as we navigate through the current cycle. Given our current outlook and the dynamic conditions present in the market, our Board is focused on capital discipline and preserving cash to maintain maximum flexibility. This will allow us to maintain our strong balance sheet position and the benefits that it affords us.

Importantly, in this environment we continue to focus intensely on customers. The realignment of our business into production, equipment sales and leasing, fully integrated last mile and well site management services and analytical technology allows us to proactively work with customers to meet their needs. Our goal is to meet those needs now and as they evolve over time due to changes in geography, well design and other elements of their well programs. Being in constant contact with our customers and listening to their feedback helps us to anticipate their needs and changing requirements and better insulate ourselves from market pressures.

If you've been following Hi-Crush for a while, you are aware that what I'm talking about is consistent with our long-held strategy. We remain committed to providing our customers, whether E&Ps, service companies, or even in some cases competitors, with solutions tailored to meet their needs. But strategy is only as good as its implementation, and especially in this environment there is no substitute for execution. Expansion of our customer base, increased deployment of last mile crews in legacy and new areas of operation and implementation of technology across our offerings will happen only if we continue to, as we have historically, improve our operations, gain efficiencies and provide value to customers every day.

To talk about how we are accomplishing this and to cover in more detail on our operational performance during the third quarter, I'd now like to turn things over to our Chief Operating Officer, Alan Oehlert.

Alan Oehlert -- Chief Operating Officer

Thanks, Bob.

Last quarter I talked at length about our new business structure, distinguishing between frac sand production, equipment rental and leasing and last mile and well site services under the Hi-Crush, NexStage Equipment and Pronghorn Energy Services business lines as well as our technology with PropDispatch. We have had success building capabilities across each offering.

For our Hi-Crush sand production and terminal operations, in the third quarter we sold nearly 2.7 million tons of frac sand. Despite a dynamic market backdrop and challenging conditions in the second half of 2019 we have increased sales volumes in each of the first three quarters of 2019, which is a great achievement by our production and sales team in a challenging environment.

Now turning to our NexStage Equipment business which includes our equipment leasing and sales operations. We were excited to recently deploy the first completely rebranded and painted set of silos, reflecting the full NexStage branding, including our recent system upgrades. If you're out in the Permian, these silos are big in orange and they're hard to miss. With the upgrades we have made this year, we stand ready to serve new and existing customers and equipment needs.

Within our Pronghorn Energy last mile and well site services offering, we continue to achieve good utilization on our deployed crews. As of today, we have crews deployed across a strong footprint, including the Permian, Eagle Ford, Bakken, Mid-Con, Marcellus, Utica and Powder River basins. We assess our performance and manage activity within the business by tracking delivered truckloads, and as a result that's how we report Pronghorn activity to the investors. We believe this is a helpful metric in describing crew utilization and how the business is performing. It is much less influenced by job timing, job duration or equipment type than other metrics.

During the third quarter, our delivered truckload count was up 7% from the second quarter, and we also set a new record for total Hi-Crush sand volume sold through our last mile services, emphasizing the synergies we can create by controlling the entire frac sand supply chain. We remain in active dialog with several customers about adding crews and deploying our solutions across additional basins.

Also, we have made important upgrades with our PropDispatch software, a crucial piece of our offering. Our team continues to innovate and make improvements to the software as they receive feedback from our customers and our employees on tracking efficiencies and other key performance indicators. A major point of emphasis for our team is reducing the number of times the data is manually entered into the system, automating processes to reduce the chance for error. This means closer integration of our software with our terminal operations, our NexStage silo measurement capabilities and with our trucking partners and their drivers. This is all part of the process Bob mentioned before, simplifying and streamlining processes to drive cost savings for us and our customers while improving operational outcomes.

All of these businesses are focusing efforts and resources to reduce non-productive time, lower our customers' drilling and completion costs and upholding our commitment to safety.

With the market backdrop that Bob described earlier, it is critical to appreciate the industry is slowing. But it's certainly not shutting down. We still anticipate that overall demand for frac sand will increase over the mid to long term as activity growth returns and programs look more and more like manufacturing processes.

In terms of 2020, customers are planning ahead and we believe conversations we're having with them regarding equipment deployments and last mile services and sand sales will bear fruit. We are uniquely prepared for this environment because of the way we've built and evolved our business over the years. Our business offering is focused on meeting customers' individual needs to help them succeed in the field. This is why I'm confident that no matter what challenges we face, we can continue to grow the businesses, businesses built on customer feedback, developing solutions to meet their needs and executing day to day.

We move into 2020 with a winning strategy, an optimistic outlook and a focus on execution ready to capitalize on opportunities. Now I'll hand things over to Laura to discuss in greater detail our financial results for the quarter.

Laura Fulton -- Chief Financial Officer

Thanks, Alan.

Our disciplined financial strategy, just like the operational one Alan spoke to, is about more than managing through the weakness the industry is experiencing today. At its heart, it is meant to support our ability to execute in the field, meet our commitments to investors, enable us to take advantage of opportunities that present themselves and position ourselves well for the future. We believe our financial strategy accomplishes all of these goals. And this sets us apart, not just in our ability to look beyond the immediate time period, but in the flexibility that our financial position gives us. Our covenant free debt structure and overall liquidity position of nearly $100 million makes us able to contemplate multiple courses of action to confront near-term market weakness and meet long-term strategic goals. Our ability to pull multiple levers to reduce cost and adapt to market conditions is a vital asset to thriving in down markets.

Before I review the third quarter results, let me provide some color on the non-cash charges for asset impairments Bob mentioned earlier. The trend in operator frac sand sourcing continues to emphasize local frac sand delivery where available due to cost considerations. We do not see this trend reversing, and as a result, our Northern White sand assets have been impacted. While we are well positioned in terms of cost and market access with all of our facilities, we have recorded non-cash impairments to the Augusta and Whitehall facilities and associated assets, including our right of use assets, principally our leased railcars, which are under agreements entered into in prior years that are out of market in today's environment.

In addition to these asset impairments, we also recorded non-cash impairment charges for goodwill and certain intangibles. These charges are, again, non-cash and do not impact our ability to operate these facilities and continue to efficiently produce sand and deliver quality customer service now and in the future.

With this context, let me turn now to our third quarter results. Sand sales volumes came in at the high end of the guided range, totaling 2.7 million tons, slightly higher than the second quarter of 2019. Maintaining sales volumes in this environment at this level was made possible primarily through a 22% increase in Hi-Crush sand volumes sold through our Pronghorn Energy Services business. Average pricing was $43 per ton, down from $47 in the second quarter of 2019 and was impacted by customer mix and rapid deterioration in the market that occurred late in the quarter.

Total revenues for the third quarter of 2019 decreased to $173 million compared to $178 million in the second quarter of 2019. Revenues from sales of frac sand were $114.2 million compared to $125.9 million in the second quarter of 2019, reflecting the essentially flat volumes quarter-over-quarter combined with the decreased average pricing I mentioned.

Revenues associated with logistics services have continued to grow and are now a third of our total revenues, increasing to $57.4 million, up 12% from $51.1 million in the second quarter of 2019. The higher level of logistics services revenue is a result of the continued growth of the business, evidenced by the increase in delivered truckloads Alan mentioned. Revenues also included $1.4 million in sales of logistics equipment by our NexStage equipment business during the third quarter of 2019 compared to about $1 million in the prior quarter.

Adjusted EBITDA for the third quarter of 2019 totaled $17.9 million compared to $24.7 million in the second quarter. Contribution margin per ton was $10.99, down from $13.80 per ton of frac sand sold in the second quarter of 2019. This decrease was larger than what we anticipated and reflects the competitive and quickly changing sales environment the industry is experiencing and the resulting impact on spot volume pricing.

Excluding non-recurring expenses of $500,000 associated with business development in the third quarter of 2019, G&A was $11.5 million compared to second quarter 2019 G&A of $12.1 million excluding $3.1 million of similar and conversion related expenses. The decrease results from our continued focus on reducing our cost structure, including headcount. Total depreciation, depletion and amortization was $16.1 million for the third quarter of 2019 compared to $15.8 million in the second quarter of 2019, reflecting the increased asset base with the Pronghorn acquisition in May.

Interest expense was flat quarter-over-quarter at $11.8 million. During the third quarter of 2019, on August 1, we made our semi-annual interest payment of $21.4 million on our senior notes. Our next interest payment is due in February 2020.

Capital expenditures for the third quarter of 2019 totaled $8.4 million, including growth CapEx of $5.1 million to support logistics operations and maintenance CapEx of $3.3 million. As part of our focus on capital discipline, we have continued to reduce our CapEx spending, focusing on the projects that create the most value for our investors.

We exited the third quarter of 2019 with total liquidity of $95.9 million, including $48.4 million in cash. As expected, our cash balance decreased slightly from the $52.8 million as of June 30 as we made our semi-annual interest payment on our senior notes on August 1. However, our focus on cash and working capital management as well as cost and CapEx reductions has certainly benefited our cash position. We have no balances drawn under our $200 million ABL facility, and as of September 30, borrowing base availability, after consideration of letters of credit, was nearly $50 million.

In the second quarter we started reporting free cash flow which we simply define as cash flow from operations less total CapEx, comprised of our maintenance CapEx and our growth CapEx. Due to the semi-annual nature of our interest payments on the senior notes, our free cash flow will be less than the first and third quarters of any year, and for the third quarter of 2019, we are reporting negative $5.1 million of free cash flow due to the outflow from making our semi-annual interest payment of $21.4 million on August 1.

We paid no cash income taxes during the third quarter of 2019 and do not expect to pay any significant cash income taxes in the next couple of years as we will still have available tax depreciation deductions. Our annual effective tax rate for the seven months of 2019 in which we are a corporation is estimated to be in the range of 23% to 25% and the third quarter results reflect a tax benefit of $82 [Phonetic] million, including the tax effect of the non-cash impairment charges.

Looking to the fourth quarter of 2019 and into 2020, after the significant reductions in CapEx we have made this year and our anticipated low level of CapEx requirements going forward, we expect to be well within our prior guidance range of $7 million to $10 million of CapEx spending in the fourth quarter of 2019, with total CapEx for the year coming in around $75 million. CapEx in 2020 will be significantly reduced from 2019 levels as we minimize our maintenance CapEx and have already invested much of the CapEx in our plans for growth. We expect maintenance and growth CapEx in 2020 to be less than $25 million.

Our forecast is for sales volumes to decline 10% or more in the fourth quarter from third quarter levels. This outlook is due to expectations of E&P budget exhaustion on top of the usual seasonal slowdown. We do expect continued deployment of last mile and well site equipments and crews during the remainder of 2019 based on customer conversations.

These factors will impact our contribution margin per ton and adjusted EBITDA, both of which we would expect to be lower in the fourth quarter than what we earned in the third quarter. In light of this environment, we have been proactive. With the spending cuts we have implemented across the Company and reduction in force that has affected corporate as well as field employees, G&A will be lower in the fourth quarter in a range around $11 million.

Total DD&A, reflecting the impact of the impairments taken will be in the range around $13 million. Interest expense will remain at about $11.8 million each quarter, and we anticipate ending the year in a strong liquidity position, including maintaining cash in excess of $40 million and no borrowings under our ABL facility, providing ample liquidity to execute on our plans in 2020.

Our guidance for the fourth quarter recognizes the challenges the whole oil field services sector faces as the year comes to a close. We are committed to remaining disciplined, looking at the situation in a realistic way, preparing for the worse, but positioning ourselves for success now and in the future through cost management, efficiency, execution and flexibility. With this discipline and execution of our operational and financial strategy, we expect to be free cash flow positive in 2020.

I'd now like to turn it back to Bob for some closing remarks.

Robert E. Rasmus -- Chief Executive Officer

Thanks, Laura.

As Laura, Alan and myself have just said, Hi-Crush is built for long-term success through careful management of all aspects of our Company. Current industry dynamics are challenging. But with our low cost structure and strong balance sheet position, operational optionality, focus on customers, commitment to safety and reliability and continued advancement in logistics and technology, we will succeed in this market as well as be prepared to take advantage of improved market conditions.

I'd now like to turn it back to the operator for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Tommy Moll with Stephens Inc. Please proceed with your question.

Tommy Moll -- Stephens Inc. -- Analyst

Good morning, and thanks for taking my questions.

Laura Fulton -- Chief Financial Officer

Good Morning, Tommy.

Tommy Moll -- Stephens Inc. -- Analyst

So, fundamentals are still pretty challenged here as we go into year-end. No big surprise, I don't think, to the invest community. I wanted to focus on next year where I think a lot of people will be focused on your expectation for positive free cash flow. Underneath that, could you give us any sense of what kind of logistics services revenue cadence you're expecting? It's the notable outperformer in Q3. I suppose the expectation is that will continue to be so next year. But anything you could do to size that for us would be helpful. Or even just speak qualitatively about what the outlook might be.

Laura Fulton -- Chief Financial Officer

Sure, Tommy, and that's a great question because that really has been -- the focus of our efforts over the past couple of years is to continue to expand and grow in our logistics business. And you certainly have seen the revenues continue that trajectory of growth as we've gone through the year. I think the cadence of what we've seen in growth from first quarter to second quarter to third quarter will continue.

There'll be somewhat of a slowdown here in the fourth quarter. But I think as we continue to deploy more systems and crews and equipment out there and certainly with the focus that we've had on the different business lines, making sure that we're really targeting what our customers need for their logistics services or maybe just equipment on its own, will help us to continue to grow there. So I think the cadence that you've seen over 2019 should continue into 2020.

Tommy Moll -- Stephens Inc. -- Analyst

Okay. And then one follow-up on 2020 and maybe more broadly than just focusing on logistics. If you think about the three components of -- three key components of profitability being average price, cost and margin, I don't expect you want to give us a quantitative guidance on those three for next year, but if you could even just point us directionally versus where you sit in Q3 or Q4, what the outlook is for next year?

I know you called out there has been a lot of spot pricing pressure as of late. I would think some of that might abate early next year when activity ticks back higher. But as it pertains to your free cash flow outlook for next year, if you could talk about those three components, it would be helpful. Thank you.

Laura Fulton -- Chief Financial Officer

Sure. And let me start with the easier aspect of that, which is the cost side. And we've always been very, very focused on cost that I think more intensely put some efforts on that beginning in the second quarter of this year. And those will continue. So some of the cost reduction impacts that we have seen were occurring really kind of late in the third quarter. More will be felt and seen in our results in the fourth quarter and going into the year. And then some, of course, are really activity driven as they impact our variable costs. But certainly making sure that we continue that, focused on cost reductions, controlling what we can control, is very, very important.

As far as the pricing, I think that's a little bit more difficult to predict. We're continuing to see pricing pressure here in the fourth quarter, particularly on our spot volumes. You would expect the trend in the first quarter to be a continuation of some of that pressure, but it seems like we always are able to get a boost from some of the winter effects, particularly our Northern White sand as there is disruptions in the supply from the harsh winters that we've experienced in the past. So there may be a little bit of boost to Northern White pricing in the first quarter.

And then we'll have to see what the impacts are from supply rationalization with our competitors. Because, as many of our competitors have said, the pricing that we're seeing today really is not sustainable for a long period of time, and that will put a lot of pressure on our competitors and should take some supply out of the market, which will help to stabilize pricing and lead to potential improvements in 2020.

Robert E. Rasmus -- Chief Executive Officer

And I want to amplify on something that Laura mentioned is that we will not chase price, that, as other areas of the oil field service sector have found out, that market share is ephemeral. We're always going to prioritize profits over market share.

Tommy Moll -- Stephens Inc. -- Analyst

Thank you very much. I'll turn it back.

Laura Fulton -- Chief Financial Officer

Thank you, Tommy.

Operator

Thank you. Our next question comes from the line of John Watson with Simmons & Company. Please proceed with your question.

John Watson -- Simmons Energy -- Analyst

Thank you. Good morning.

Laura Fulton -- Chief Financial Officer

Good morning, John.

John Watson -- Simmons Energy -- Analyst

Bob, I agree with your comments that attrition and consolidation are necessary, especially in West Texas. Can you provide further color regarding what you're seeing right now as well as your expectations for attrition and consolidation moving forward?

Robert E. Rasmus -- Chief Executive Officer

I think a couple of things, John. One, we have reviewed a number of different alternatives as it relates to consolidation and attrition, and there was -- number of conversations has increased recently as others are more willing to admit that they might not have a sustainable business model. In that environment and in this environment, we will be extremely disciplined. We won't do a deal just to do a deal. Any potential deal must have clear benefits for Hi-Crush and our investors, and it must be consistent with our strategy. It's got to be accretive, it's got to be a cultural fit and something that further improves our capabilities and abilities to serve our customers.

Against that backdrop, we've seen probably four or five plants in the Permian itself that have been idled, come offline or substantially reduced hours of operations. I would expect that to increase by at least two or three more plants. I think that the Permian overall, in terms of capacity, is oversupplied by about 15 million to 20 million tons that still needs to come offline. In the Northern White sector, we're seeing additional supply come offline, additional idlings, and I still think that there is probably 10 million or 15 million tons before some of today's announcement that needs to come offline in Northern White.

John Watson -- Simmons Energy -- Analyst

Okay. Great. Thanks for that, Bob. Secondly -- I apologize if I missed this -- but could you help us think through where contribution margin per ton could fall in Q4? I would assume it's biased lower given some of the pressures you mentioned. But any specificity would be helpful.

Laura Fulton -- Chief Financial Officer

Sure, John. I think it's a little bit difficult to predict at this point because a lot does depend just on the cadence of the volumes throughout the quarter. We haven't seen much of a drop-off in October as compared to September, but we'll see how the holidays play out and the normal seasonal drop-off, but also the E&P budget exhaustion and how that impacts November and December as we're going through the quarter. And that of course can have a really big impact on our fixed cost leverage and all of that. The mix of the customers also has an impact.

So we definitely are seeing the impact on our profitability in the fourth quarter, but it's hard to kind of quantify that because there's a lot of moving parts. That said, we do expect a decline, and I would say it could be as much as a couple of bucks a ton -- per ton, it may be a little bit more than that. We'll just have to see how the quarter plays out.

John Watson -- Simmons Energy -- Analyst

Okay. Great. Understand the difficulties in forecasting there. A quick follow-up. I understand that there is pressure on your spot volumes in the Permian, your contracted volumes in the Permian as well as your last mile profitability. Is the expectation that that holds flat despite the pressures that Q4 might see?

Laura Fulton -- Chief Financial Officer

I would say so. The contracts continue to perform well. Our customers are taking the volumes. A lot does depend upon their activity levels and their plans for the fourth quarter, but our contracts are performing well. On the last mile, I can let Alan speak to that a little bit more, but I think what we've seen there is that there is competition but the competition really is on the reliability of supply and the execution day to day, not so much on pricing.

Alan Oehlert -- Chief Operating Officer

Yeah, I think on the equipment side, the pricing has held up pretty well. We are in the middle of the RFP season, and there is some desire on the customers to try to lock pricing in at the bottom of the cycle. As Bob mentioned, we're not going to play the market share game, and ensure that the business that we engage in is profitable. But that's kind of what we've done on the equipment side, to stabilize that pricing is -- there's two ways to get market share and we know there is not any new market share out there.

So you have to create some kind of value for the customer. You need to be more efficient, you need to solve some problems that they have, and that's what we've tried to do with the PropDispatch software and the innovation that we continue to work on there. And we've built equipment we think that is capable of going and taking some of that market share without playing the price game.

John Watson -- Simmons Energy -- Analyst

Right. Okay. Well, thank you for the color. I'll turn it back.

Laura Fulton -- Chief Financial Officer

Thanks, John.

Operator

Thank you. Our next question comes from the line of Lucas Pipes with B. Riley FBR. Please proceed with your question.

Matthew Key -- B. Riley FBR -- Analyst

Hi, good morning, everyone. Matt Key here asking the question for Lucas. Hi-Crush is unique in the sense that it owns its own terminal facilities. Considering that Northern White sand volumes are down, would it make financial sense for you to sell a few of these terminal facilities in order to kind of increase the Company's liquidity position? If so, what would be the price that these kind of facilities would potentially sell on the open market? Thank you.

Robert E. Rasmus -- Chief Executive Officer

We always look at what's the best way to create value for our investors, whether that's through selling certain assets or finding ways to leverage the assets which we currently have. And we're seeing that in our Pecos terminal and others in the Northeast where we're looking to put and transload other products and services to bring more value out of those. And it'd always be an evaluation as what's the best way to create value for our investors, whether it's the sale of those assets or providing additional products and services. And right now, it's the latter.

Matthew Key -- B. Riley FBR -- Analyst

Okay. That's helpful. Thank you. And just one more for me. Hi-Crush realized contribution margin of $11 per ton in 3Q '19. Could you maybe help me kind of disaggregate that number a little bit and provide some color on the margins you are realizing for Northern White versus the margins you're realizing in Texas? Thank you.

Laura Fulton -- Chief Financial Officer

Sure. I think we've definitely noted in the past that our Northern White margins are typically lower than what we've been able to realize on our Kermit volumes because of the contracts that we have in place and the profitability there. Some of that margin is driven though by our last mile services, and so it will depend on just how we kind of allocate between our sand in the Northern White sand specifically or the last mile services that we're providing. But I would say that our Kermit volumes and logistics would be bringing that number up, and our Northern White sand volumes, if you just look at the sand themselves and the pricing and the cost structure associated with it, would be bringing that number down.

Matthew Key -- B. Riley FBR -- Analyst

Got it. All right. That's very helpful. Thank you. That's all I had. And best of luck moving forward.

Robert E. Rasmus -- Chief Executive Officer

[Speech Overlap]

Laura Fulton -- Chief Financial Officer

Thank you very much, Matt.

Operator

[Operator Instructions] Our next question comes from the line of Tim Monachello with AltaCorp Capital. Please proceed with your question.

Tim Monachello -- AltaCorp Capital -- Analyst

Hey. Good morning, everyone.

Robert E. Rasmus -- Chief Executive Officer

Good morning.

Tim Monachello -- AltaCorp Capital -- Analyst

[Speech Overlap] question here. I'm just curious to know what the total capacity that you've taken offline in Wisconsin is at this point with the Augusta offline and it sounds like some curtailments in capacity at Whitehall now.

Laura Fulton -- Chief Financial Officer

So, the Augusta facility is a 2.86 million ton annual capacity. So that has been offline since January of this past year. Whitehall continues to operate, although at reduced rates, really helping supplement our Blair facility for any deliveries that are best served off of a CN [Phonetic] origin. And the rates can vary quite a bit, but we've never found it profitable to operate the facility at much less than about 50% capacity. So I would say it's still running pretty well, but we're just operating the dry plant. We did shut down all of our wet plant operations at this point because we have built up sufficient sand inventories to ensure that we could meet our customer needs through the winter time. And we'll continue to just optimize as we go through time and make sure that we're doing the best for our customers, but also for our investors through managing our cost structure.

Tim Monachello -- AltaCorp Capital -- Analyst

Okay. That's helpful. My second one is just around the last mile logistics supply and demand. I think you mentioned on Tommy's question there that you expect to continue to deploy additional fleet through 2020 that should lead to some growth. But I'd imagine with demand and the current dynamics that we see today, the market must be tightening fairly rapidly for last mile equipment supply in the market. Just wondering if you could help me rationalize those two aspects of the market.

Robert E. Rasmus -- Chief Executive Officer

Yeah. Certainly there is -- everybody anticipates Q4 to be slow. And I think that there is not going to be any new market share in 2020. So like I stated before, we continue to talk to customers, find out what problems we can solve, try to create some value with the equipment we're providing, continue to innovate. You're not going to create any -- or there is not going to be any new market share created. So we need to try to create value for the customers, be more efficient, lower there their costs. And I think we can do that with some things that we're working on, both with the equipment and PropDispatch and that's our strategy to -- you've got to displace a competitor in order to gain market share.

Tim Monachello -- AltaCorp Capital -- Analyst

Okay. So in that light, have you seen returns on capital deployed in the last mile shrink, and if so, by how much?

Laura Fulton -- Chief Financial Officer

I don't think that we've seen the returns to shrink at all. As Alan had mentioned earlier, the pricing has held pretty well there, and we don't believe that we're really competing on price for last mile. It's competing on that value-add from the quality of equipment, the quality of the service, the people that we have out there in the field that are executing day in and day out, performing safely on the well sites and all of that.

That's what's really generating the value for the customers. But also the link with the PropDispatch technology that provides them a lot of insight into the vast amounts of sand that they're using on each one of these wells and the data that we can provide to help become even more efficient with truck turns, etc. So it's the combination of all that that has allowed us to continue to kind of hold our margins and see that profitability coming through from the last mile.

Tim Monachello -- AltaCorp Capital -- Analyst

Okay. And then just last one from me. Just thinking about sort of pricing discipline and the commentary on the quarter in that respect. Have you seen a lot of bids that you had to turn away due to pricing being too low? And based on sort of revenue per ton this quarter, can we think of that as a relative floor based on the fact that you're not willing to price below certain levels?

Robert E. Rasmus -- Chief Executive Officer

We have turned down business for price reasons. As I say, we aren't going to change or go after price. We've seen competitors bid jobs on pricing that we know for a fact is below their cost of production. That is unsustainable. That's a transfer of wealth to someone else's investor base, and we are not going to participate in that activity, full stop.

Tim Monachello -- AltaCorp Capital -- Analyst

Okay. Thank you very much.

Laura Fulton -- Chief Financial Officer

Thank you, Tim.

Operator

Thank you, ladies and gentlemen. That concludes our time for questions. I'll now turn the floor back to Mr. Rasmus for any final comments.

Robert E. Rasmus -- Chief Executive Officer

Thank you, Melissa.

The current market dynamics are challenging. They are also unsustainable. At Hi-Crush, our emphasis is generating free cash flow and creating value for our investors. We will accomplish these goals by reducing cost, reducing spending, focusing on operational excellence, aligning with the right customers, continued development and deployment of our PropDispatch technology in last mile logistics and services.

Thank you, everyone, for your interest today, and we look forward to seeing you and talking with you on our next call.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Caldwell Bailey -- Investor Relations

Robert E. Rasmus -- Chief Executive Officer

Alan Oehlert -- Chief Operating Officer

Laura Fulton -- Chief Financial Officer

Tommy Moll -- Stephens Inc. -- Analyst

John Watson -- Simmons Energy -- Analyst

Matthew Key -- B. Riley FBR -- Analyst

Tim Monachello -- AltaCorp Capital -- Analyst

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