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US Silica Holdings Inc (NYSE:SLCA)
Q3 2021 Earnings Call
Oct 29, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the U.S. Silica Third Quarter 2021 Earnings Conference Call. [Operator Instructions]

It's now my pleasure to turn the call over to Patricia Gil, Vice President, Investor Relations.

Patricia Gil -- Vice President Of Investors Relation

Thank you, and good morning, everyone. I'd like to thank you for joining us today for U.S. Silica's Third Quarter 2021 Earnings Conference Call. Leading the call today are our Chief Executive Officer, Bryan Shinn; and Don Merrill, our Executive Vice President and Chief Financial Officer. Before I begin, I would like to remind you of our standard cautionary remarks regarding the forward-looking nature of some of the statements that we will make today. Such forward-looking statements may include comments, which are subject to certain risks and uncertainties. For a complete discussion of the 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, such as adjusted EBITDA, segment contribution margin and our consolidated leverage ratio during this call. Please refer to today's press release or our public filings for a full reconciliation of adjusted EBITDA to net income and discussions of segment contribution margin and the consolidated leverage ratio.

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

Bryan Shinn -- Chief Executive Officer And Director

Thanks, Patricia, and good morning, everyone. Before discussing our operating results this morning, I'd first like to review a couple of significant recent corporate developments. First, effective in October, Sanda Rogers was appointed to our Board of Directors. She's serving as an independent member of the audit and nominating and governance committees of the Board and will support our expanding ESG commitments. Sandra also brings valuable complementary operations and supply chain experience, in addition to a diverse perspective. We look forward to the benefits of our leadership, and I'm delighted to welcome her to our Board.

Additionally, we announced earlier this month that we have commenced a review of strategic alternatives for our Industrial and Specialty Products segment. We are considering a broad range of options, including a potential sale or separation of this segment. Our Board and management team regularly review strategic opportunities and with our recent equity valuation tightly correlated to energy markets, we believe it is appropriate to further assess the potential of our businesses. Both our Industrial and Specialty products and Oil and Gas segments are industry leaders, and it is from a position of strength that we believe the separation or sale of the Industrial and Specialty Products segment has the potential to unlock significant value and maximize returns for all of our shareholders and other stakeholders. While I can't discuss specifics today, I do want to emphasize that the process is ongoing, and there are a broad range of potential opportunities that we are evaluating. Let's move now to our operating results in Q3.

First, I want to acknowledge our team for their focus, execution and ability to deliver on our strategy of strong cash generation and further net debt reduction. During the third quarter, we generated significant positive cash flow, paid off our revolver balance and increased our cash on hand to over $250 million, while reducing net leverage to less than four times trailing 12-month adjusted EBITDA. I'm very pleased with the progress that we're making in 2021 to continue to improve our balance sheet. At U.S. Silica, we're also committed to upholding industry-leading safety and environmental standards, while achieving exemplary performance. I'm happy to report that our year-to-date personal safety results are on pace to be the best year ever at our company. I want to thank and congratulate our team for all the outstanding work to achieve excellent performance so far this year, and we plan to finish 2021 as our safest year ever.

Turning now to Q3 financial results. We reported a 3% sequential decrease in total volumes with flat revenues and our adjusted EBITDA decreased 27% compared to the prior quarter, primarily due to cost and logistics headwinds, which we expect to offset with additional pricing and efficiency improvements. These sequential comparisons exclude our significant Q2 customer settlement of $128 million of consideration, which included $90 million in cash. Don will discuss the details in just a moment, but let's review some of the significant trends that we saw during the quarter. In the Industrial segment, demand remains strong across most end uses and market segments with basically flat volumes and revenues. We saw particular strength for our ground silica, cool roof granules and Fluoro CIL products during the quarter. We did experience headwinds from global, logistical and supply chain constraints, cost inflation and higher natural gas prices. However, we've moved quickly and aggressively to combat these issues.

For example, we've already implemented three waves of price increases and numerous surcharges so far this year with more planned over the next three months. Given that there is an implementation lag in new pricing realizations, we did see some negative margin impact from cost headwinds during the quarter. In our Oil and Gas segment, sand and logistics demand moderated slightly as completions slowed due to annual budget exhaustion at some customers. This resulted in a shift of customer mix and more spot sales at lower margins during the quarter.

We also saw impacts from cost inflation and opportunistic maintenance expenses during the quarter. As expected, industry spend also rebalanced toward well drilling to start rebuilding inventory for future completions. Sandbox was a bright spot during the quarter with improved sequential profitability from increased pricing. And finally, a number of customers approached us during the quarter regarding securing proppant and delivery services for what is expected to be a very strong 2022, and we have numerous new contracts currently under negotiation. With the rest of my time this morning, I want to give an update on our growing industrial portfolio and then finish with a summary of our outlook for the fourth quarter and 2022. Let's get started with Industrials. At U.S. Silica, we offer a broad portfolio of industrial and specialty products that are rooted in a rich 121-year history.

We've made strategic investments in new technology and solutions, and we're a leader in the industrial minerals market serving critical industries such as construction, food and beverage production, biopharma, glass and renewable energy. More recently, we have focused on high-value industrial minerals that are essential for the transition to cleaner energy and to help our customers meet their ESG goals. These specialty products include our rare low-iron silica sands, which are highly effective for maximizing light transmission in solar panel glass. We expect growth in sales of these products in 2022 and beyond as domestic solar glass production continues to increase. We are also the sole supplier to most large U.S. producers of composite fiberglass used for wind turbine blade fabrication. Our ultrafine ground silica is used in the production of gas and diesel particulate filters that help vehicles meet stringent European and Asian emission regulations. Other important products that we sell into the clean energy supply chain are diatomaceous earth and activated clays, which are essential processing aids in green diesel production.

We are honored to support the growth in these environmentally important value chains. Additionally, U.S. Silica should be a beneficiary of proposed U.S. government infrastructure spending plans through our commercial construction, foundry, concrete additives and highway construction offerings. Further, development of our industrial new products portfolio is ongoing and remains a top priority for us. During the quarter, we had numerous successes, including completing successful vendor and customer trials for our new developmental specialty mineral for glass producers, commencing sales of a newly developed sand for tile and related building products, winning business to treat pistachio crops with our new DEsect organic insecticide, initiating sales of our purified, high-purity filtration product into the food and beverage markets, entering trials for a new type of specialty glass with a critical customer.

And finally, we also began selling a new EverWhite cristobalite product to a key customer. Let's turn now to our business and market outlook for the fourth quarter of 2022. Fourth quarter industrial demand is expected to have a typical seasonal decline due to holidays and customer facility maintenance. However, we expect that the positive impact from price increases and surcharges will support a sequential improvement in contribution margin dollars per ton, partially mitigating the normal decline in fourth quarter profitability.

Fourth quarter activity in the Oil and Gas segment is expected to be negatively impacted by seasonality from weather and holiday downtime. However, given the strength in commodity prices, customer conversations for proppant and SandBox Logistics supply contracts are already heating up and should progressively increase through the end of the fourth quarter as customers begin to plan for their 2022 completion programs.

Regarding 2022, we think we're very well positioned for strong ISP growth driven by new opportunities in several fast-growing new end uses, also new product adoption, expected GDP expansion and planned price increases. In Oil and Gas, we're expecting a backdrop of increased drilling and completion spending growth of 20% to 25% versus 2021. The first half of 2022 should be particularly strong as energy company budgets reset and completions activity increases to levels consistent with very supportive commodity prices. Therefore, we are forecasting robust proppant demand, improved pricing and increased contract coverage with potential upside, if commodity prices rise further.

And with that, I'll turn the call over to our CFO, Don Merrill, who will discuss our financial results in more detail. Don?

Don Merril -- Executive Vice President And Chief Financial Officer

Thanks, and good morning, everyone. As Bryan stated, we continued to generate strong cash flow from operations, and we're able to further reduce our net debt during the third quarter. In fact, when including our cash and the leverage calculation, our net debt to trailing 12 months EBITDA is now 3.9 times, and we remain steadfast in our goal of reducing this further. Our adjusted EBITDA for Q3 was $39.8 million or a decrease of 27% sequentially when compared to the prior quarter after excluding the customer settlement and was impacted by logistics issues and supply chain and inflationary pricing, such as natural gas, which was up an average of 42% in quarter three versus the previous quarter. I will provide more detail around these costs later on. Selling, general and administrative expenses for the quarter increased 13% sequentially to $31 million, driven mostly by an increase in employee expenses such as noncash stock compensation.

Depreciation, depletion and amortization expense decreased 3% sequentially to total $40 million in the third quarter. Our effective tax rate for the quarter ended September 30, 2021 was 23.3%, including discrete items. Now, let me begin a detailed review of our operating segment results. Our Industrial and Specialty Products segment reported a slight 1% increase in sequential revenues with $125.5 million in the third quarter as demand for our products remained strong. Volumes were flat. However, contribution margin contracted 11% due to the persistent logistics issues and cost inflation. On a per tonne basis, the contribution margin for the Industrial and Specialty Products segment decreased 11% sequentially to total $38.07 per ton due to increased costs and the mix of products sold, which were impacted by shipping logistics and increasing costs.

It is important to note that the margins in Q3 were disproportionately impacted by the supply chain challenges, particularly on the West Coast. We have several high-margin products that are in high demand that simply could not be shipped due to the container shortages at the California ports. We are actively pursuing other shipping strategies and evaluating on a daily basis are best options to meet customer demand as cost effectively as we can. Additionally, as we discussed earlier, we are implementing price increases and surcharges to offset the increased cost that our business is facing. With all of the strategies currently implemented or contemplated, we would anticipate a better fourth quarter for industrial and specialty segment than we have seen historically.

The Oil and Gas segment reported revenue of $141.8 million for the third quarter, a decrease of 2% when compared to the second quarter after excluding the customer settlement of $48.9 million recorded in the second quarter. Volumes for the Oil and Gas segment of 2.9 million tons decreased 4% sequentially, while Sandbox delivered loads decreased 5% compared to the prior quarter. Segment contribution margin decreased 24% sequentially, excluding the customer settlement in the second quarter. On a per-ton basis, the Oil and Gas segment contribution margin was $8.83 in the third quarter, a sequential decrease of 21%, again, excluding the customer settlement. These results were driven in part by a moderation in well-completion activity, customer mix and increased costs.

As discussed previously, our customer mix in the third quarter has temporarily shifted away from public company contracted customers to spot customers. The quarter was also negatively impacted by increased costs, specifically natural gas inflation and maintenance, some of which was accelerated. During the third quarter, we took the opportunity to complete some maintenance projects ahead of schedule as we anticipate a strong start to 2022. This measured spending, along with appropriate inventory levels, will allow us to be best prepared for the start of the new year. Turning to the cash flow statement. I'm pleased to report that we delivered meaningful cash flow from operations in the third quarter. After subtracting $8.3 million of capital expenditures, our free cash flow totaled $66.5 million. Looking at the balance sheet,, the company's cash and cash equivalents on September 30, 2021, increased 18% sequentially to $250.6 million and included the remaining $45 million from the customer settlement that was received in early July.

Also at quarter end, our $100 million revolver had $0 drawn after paying off the $25 million balance in the third quarter and had $77.8 million available under the credit facility after allocating for letters of credit. Our strict capital discipline and improvements in net debt afforded us the ability to deliver on our strategy to delever and strengthen the balance sheet. To recap, we have received the full $90 million of cash provided by the customer settlement and used some of the funds to pay off our revolver balance. Our balance sheet has continued to strengthen, and we remain below four times levered on a net debt to trailing 12 months EBITDA basis.

Also, I'd like to remind you that we still expect to receive the remaining balance of approximately $21 million of IRS refunds related to the Cares Act in the near future. Looking to the fourth quarter, we expect SG&A to be flat to slightly up versus the third quarter of this year. Our depreciation, depletion and amortization is also expected to be relatively flat in Q4 versus the third quarter. We believe our full year effective tax rate will be a benefit of approximately 24%. Finally, for the full year, we now expect our total 2021 capital spending to be approximately $25 million. The actions that we have taken in the third quarter and that continue in the fourth quarter are allowing the company to actively navigate the supply chain issues and prove the resiliency of our two segments. We will continue to focus on capital conservatism and aim to further reduce our net leverage and drive toward our goal of nearing 3 times net leverage in 2024.

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

Bryan Shinn -- Chief Executive Officer And Director

Thanks, Don. Overall, 2021 has been a strong year-to-date for U.S. Silica. We have delivered on our commitment to strengthen our balance sheet and expand our industrial product portfolio. In spite of the current macro cost and supply chain headwinds, I believe that we are outperforming and executing our competition, and we continue to have a laser focus on maintaining profit margins through price increases and surcharges, while improving efficiencies and delighting our customers. I also believe that we are very well positioned for an outstanding year in 2022, given our diverse product portfolio, supportive commodity prices and a continued global economic recovery.

So with that, operator, would you please open the lines for questions?

Questions and Answers:

Operator

Certainly. [Operator Instructions] Our first question today is coming from Stephen Gengaro from Stifel.

Stephen Gengaro -- Stifel -- Analyst

Thanks. Good morning. So, a couple of things that I wanted to ask you about, and I'll just start with the Oil and Gas volumes in the quarter. I was just curious, is it a customer mix issue? Like, are you seeing the public slow down a little because the budget exhausted already in the third quarter because I was just kind of looking at the overall macro data, it looked like sort of frac fleet counts were up. I'm just curious the color behind that.

Bryan Shinn -- Chief Executive Officer And Director

So, we saw sand volumes down about 4%. Sequentially, Steven. And I think as we mentioned, we started to see some budget exhaustion from larger public customers, and they tend to be the bigger consumers of sand out there. So, as the mix of our customers anyway shifted to more spot sales and to perhaps more private operators. I think we saw volumes come down just a bit, but minus 4% to me, that's kind of almost flat. It's -- I wouldn't make too much of a trend out of that. And the -- just to understand -- so the spot pricing is currently a bit lower? Spot price today is definitely lower than the contract price that we have.

Stephen Gengaro -- Stifel -- Analyst

Okay. Great. And just on the same line, I think in your prepared remarks, you -- we've been hearing sort of 20% U.S. capital spending growth in 2022 as a relatively good starting point. I think you mentioned 20% to 25% for completion activity. Is that correct?

Bryan Shinn -- Chief Executive Officer And Director

So, I think we are talking about 20% to 25% overall spend, and we think that, that will read through to approximately that much in completion activity as well.

Stephen Gengaro -- Stifel -- Analyst

Okay. Do you have any thoughts, implications or just kind of your views on what you saw earlier this week with one of Sandbox's competitors getting acquired by a pressure proper? How that impacts your business at all? Or...

Bryan Shinn -- Chief Executive Officer And Director

So, you're referring to Liberty's acquisition of Propex?

Stephen Gengaro -- Stifel -- Analyst

Yes.

Bryan Shinn -- Chief Executive Officer And Director

So, it's really interesting, Stephen, and I believe that this is a positive for U.S. Silica. And a couple of thoughts there. First, I have a lot of respect for the Liberty team. Those folks are a first-class organization, and we really enjoy working with them. And I see it as a real positive to see another savvy industry leader like Liberty, basically reaffirming the merits of containerized sand solutions that we've been out there preaching for a while that we thought containers were the way to go. Obviously, when we acquired Sandbox in 2016, we had pretty strong conviction there. So to see Liberty kind of doubling down on that, I think, is very positive. Second thought here is that, in my experience, one of the reasons that a company may choose to kind of backward integrate into their supply chain like this is that they believe that a product or service will be in short supply in the future, and they want to ensure that they have access.

And I have to say we're already seeing last-mile logistics availability tightened substantially. And so, I think that's going to be a real positive going forward for Sandbox pricing, particularly into 2022. And I feel like this move, again, sort of reaffirms what we're seeing out there. And then the last thought here that I had is that when a company integrates a service provider like this, my experience is that they tend to prioritize their needs first. And so on a practical level, I think that could lead to additional business opportunities for U.S. Silica. So bottom line, I think this is a very positive development for U.S. Silica and for Sandbox.

Stephen Gengaro -- Stifel -- Analyst

Great., thank you and one final for me. And I don't know if you can comment on this or not. And I'm not going to ask you specifically about what's going on with the strategic review. But when you -- is there -- are there any tax reasons or issues behind your ability to keep or sell either of the two businesses, i.e., if you wanted to sell oil and gas, could you do that? Or would it be a tax implication to that?

Bryan Shinn -- Chief Executive Officer And Director

So, as you might expect, I can't really comment in any level of detail. But I can say perhaps that tax motivations are not really a strong consideration in the mix here of what we're looking to do.

Stephen Gengaro -- Stifel -- Analyst

Great. Thank you.

Bryan Shinn -- Chief Executive Officer And Director

Thank you, Stephen

Operator

Our next question today is coming from Connor Lynagh from Morgan Stanley.

Connor Lynagh -- Morgan Stanley -- Analyst

Thanks. I was wondering if we could talk about the Oil and Gas business. I think you said that pricing in the spot market was below contract rate, but I'm not sure if I heard just comments around the trend in spot market prices. So, [Indecipherable] improving through the quarter, declining through the quarter? And just how are you thinking about supply and demand and pricing into the fourth quarter and 2022.

Bryan Shinn -- Chief Executive Officer And Director

So, I think, Connor, as you well know, the Oil and Gas industry, particularly the Sail industry typically tends to slow down a bit in Q4. And I think this fourth quarter will probably not be any exception to that. So, that usually is not constructive for pricing and volumes overall. So, we tend to see headwinds there. But if I sort of normalize that out and say, look, it's going to be kind of a normal fourth quarter for the oilfield. I do see some firming of pricing on sand. I feel like spot tons are up a bit. We're in a number of conversations right now with large customers who want to sign new contracts to ensure supply for 2022 and beyond. And when you have those kind of discussions going on, in my experience, it's usually constructive for pricing.

Connor Lynagh -- Morgan Stanley -- Analyst

Makes sense. And then you touched on this somewhat in the prepared remarks, but just curious if you could provide any additional color on -- obviously, we've heard a lot about trucking constraints and labor constraints. How specifically is that affecting either the Sandbox business in particular? Or just your ability to move tons out of the mines with third-party tracking solutions?

Bryan Shinn -- Chief Executive Officer And Director

So, it's been very, very interesting. We have a really strong set of relationships out there with a number of trucking and service providers, specifically with Sandbox. And we've had multiple customers come to us in the last month or so, asking us to pick up work that was being serviced by our competitors because they were not successful at finding trucking, and we were able to do that. So, I feel like we have a good advantage there. Typically, drivers and third-party trucking companies like to work for Sandbox because they tend to make more profits with us than they do with many of the other commodities that they move around the oilfield. So, it's an issue in the industry for sure. I won't say it hasn't impacted us at all, but I feel like we're actually getting some benefits out of the challenges there because we're positioned better than most in that regard.

Connor Lynagh -- Morgan Stanley -- Analyst

So, it doesn't really sound like you've lost any sales. And in fact, it's kind of a net market share benefit to you.

Bryan Shinn -- Chief Executive Officer And Director

No. I don't -- I think we've actually gained business as a result of the trucking shortages. One issue we have had with trucking, and it started a couple of quarters ago as things really tightened up as we saw cost go up for trucking in. And it's a challenge to pass those costs along sometimes to our energy company and service company customers, but we have actually been successful in doing that. We're starting to recoup some of the profitability there. And as I mentioned in our prepared remarks, Sandbox was actually a real positive for us. In Q3, we saw additional pricing coming in, and our margins have actually gone up in Sandbox as we've gone out and been able to pass-through more of those trucking increases to customers.

Connor Lynagh -- Morgan Stanley -- Analyst

Got it. Thanks for the caller

Operator

Our next question today is coming from J.B. Lowe from Citi.

J.B. Lowe -- Citi -- Analyst

Good morning. Thinking about 2022, starting on the Oil and Gas side. Spending up 20%, 25%; that's probably a good proxy for volumes. With spot pricing below contract right now and you guys are in contract discussions. I'm just wondering, what do you think like your sales per ton will be 2022 versus 2021? And then second question on the cost side, given the inflationary pressures we're seeing, do you think pricing can be down, cost up and just how that filters through into margins for 2022?

Bryan Shinn -- Chief Executive Officer And Director

So as we look out into 2022, I think the first thing that we see is a pretty frothy completions market. We expect that the last-mile logistics piece is going to be extremely, extremely tight. It's already starting to tighten. I think the industry will be super tight in terms of last mile for 2022. So obviously, that should be constructive for pricing. On the sand side, we're seeing the same thing as well, maybe not quite as tight, given some of the excess capacity that's out in the market, particularly in the Permian.

But I always tend to follow where our customers lead and the fact that many large customers are coming to us, wanting to sign up for more contracts for 2022 and beyond, tells me that customers believe that the sand supply is going to tighten up materially as well. And you can imagine in that kind of environment, the type of pricing discussions that we're having with customers are pretty constructive. And so, I expect that prices and margins will go up in both of our segments in Oil and Gas or Sandbox and sand in 2022.

J.B. Lowe -- Citi -- Analyst

Okay. Great. And then the second question on the ISP side. I mean, given your pricing increases, I imagine we could see some sort of moderation in costs next year. I mean, contribution margin dollars. I mean, is it crazy to think like a mid-teens increase year-over-year in 2022 or higher?

Bryan Shinn -- Chief Executive Officer And Director

So, we've been pretty public in our commitment to grow ISP contribution margin dollars on a year-over-year basis for the next few years at 10% to 15%. And I expect that we're going to be in that range. And so, I'm holding our teams accountable to deliver on that. We have had some headwinds, as we talked about in our prepared remarks around logistics and other cost increases, natural gas, etc. But we are being very aggressive with pricing to try and recoup all that, both pricing and temporary surcharges. And so for example, we've already put through three price increases this year in Industrials, and we're starting to see the fruit of that. We've gotten some return from that in Q3. I think the returns will continue through Q4 and beyond. We've got another price increase teed up in part of our industrial business in November, and I expect that January will have additional pricing as well.

So, we're going to continue to push price as hard as we can to offset as much of that increased cost on, say, natural gas and other consumables within our sites as well as the inflation on supply chain and logistics costs. So, I'm pretty bullish on our ability to pass those price increases along, just given the connectivity that we have and the criticality that our products bring to the supply chains that we play in, particularly a lot of the high-value chains in Industrials. In some cases, we're the sole supplier to customers, and they really -- they need our products to be able to make their finished goods.

J.B. Lowe -- Citi -- Analyst

Okay. Great. Last one for me. When you're thinking about kind of the specialty products that have the most exciting outlook in the ISP segment. Which one do you think is going to add the most on an absolute dollar basis in '22 between the diatomaceous earth or the EverWhite cristobalite. What -- which specialty product is really growing the fastest, I guess?

Bryan Shinn -- Chief Executive Officer And Director

So, it's a very interesting question. And one of the things that I like about our portfolio is that not only do we have what I'll call sort of singles, doubles, triples and home runs in the portfolio of new offerings. But there's also a nicely kind of time sequenced situation here where it's not like nothing happens for five years while we develop these really big opportunities. So next year, I think we'll see the EverWhite cristobalite to pick up for sure. I believe that our limestone offering, which we haven't talked about a lot, will be another big contributor as some of the infrastructure projects start to get rolling. We already have some contracts signed up there.

And then we have a variety of other kind of specialty products. We talked in prepared remarks about some very specific ones with some customers, new specialty glass applications. We've got, hopefully, our first sales next year into the green diesel market for both diatomaceous earth and activated clay. So, there are a number of things in the mix JV. And again, I like that because we're not just relying on one big hit. So if one of them doesn't work or there's a problem, we have a lot of additional opportunities coming to fruition here in 2022.

J.B. Lowe -- Citi -- Analyst

Awesome. Thanks Bryan. Thanks Don.

Operator

Our next question today is coming from Samantha Hoh from Evercore ISI.

Samantha Hoh -- Evercore ISI -- Analyst

Hey guys. Thanks for taking myquestion. Let's stick on the ISP topic for now. I was just -- So, it sounds like you might miss the 10% to 15% growth target for new products next year, just based on the various headwinds. But what do you think about the new product contribution target of $20 million for this year? Like do you -- is that still a possibility for 2021?

Bryan Shinn -- Chief Executive Officer And Director

Yes. No, for sure. And just to be clear, on 2022, I think we will meet that 10% to 15% target when I look at all the things that we have in the queue. And as I mentioned just a minute ago, we're going to also work very hard and very aggressively to offset the cost headwinds. So, I think we absolutely can hit the 10% to 15% next year. And I'm holding our business teams and really the whole company accountable to meet that goal.

Samantha Hoh -- Evercore ISI -- Analyst

And then as for the $20 million target for '21?

Bryan Shinn -- Chief Executive Officer And Director

Yes. I think we'll meet that.

Samantha Hoh -- Evercore ISI -- Analyst

Okay. Great. And I notice that capex is coming down quite a bit for this year, 25% versus that 30% to 40% range previously. Are you guys kind of just pushing out some of the growth objectives? I think it was all toward ISP.

Bryan Shinn -- Chief Executive Officer And Director

So, a lot of it was toward ISP for sure. And our teams continue to be very efficient with what they do and what they spend. But we're not slowing anything down. Nothing has changed in terms of the growth trajectories for any of the projects. I think what you will see is is some increase in spending in 2022. We have a couple of our bigger projects that we're going to need to start spending money on to do pre-engineering and order the equipment. We also -- I think we're going to need to build some pilot and developmental scale facilities as we work to scale up some of these very large projects that we have in the queue. So, look, our team's frugal. We don't spend money if we don't have to. So, I think that's why you see things coming down a bit here. It's not indicative of anything else.

Samantha Hoh -- Evercore ISI -- Analyst

Okay. And then maybe just to say on things that you guys spending on. That higher maintenance costs for oil and gas plant maintenance that you highlighted in 3Q. Was that just bringing forward some of the normal 4Q maintenance spend? Or is that more of like a 2022 spend, like that type that you guys usually do during the cold winter months?

Bryan Shinn -- Chief Executive Officer And Director

So, I think it was bringing forward probably something that would have been done in 4Q. But as we looked at the demand out there that we think is coming in Oil and Gas as budgets reset here in 2022 and the kind of push that we're getting from customers to sign new contracts, we decided that while we had an opportunity, we should go ahead and get that maintenance work done. And I think there's a chance, it's not for sure, but there's a chance that some energy companies start to ramp up a little bit before Q1 to kind of get mobilized and make sure they can hit the ground running. So, we may see some coming late in the year, we may see some increased demand as well. So, we just want to make sure we're ready for what we think is going to be a very robust year for sand demand in 2022.

Samantha Hoh -- Evercore ISI -- Analyst

With regards to the new contracts under discussion for Oil and Gas, it seems unusual that there would be linkage to commodity prices. That's not something I've typically expected from you guys. Can you comment on the structure of these contracts? And if there's also downside protection as well?

Bryan Shinn -- Chief Executive Officer And Director

So, we've negotiated quite a number of contracts over the last decade plus that we've been in this industry, Samantha. And I think we learned a lot around what works and what doesn't. And so, we have a number of different mechanisms that we use to keep aligned with customers as we see things go up and down. But I think we'll be happy with the structure of these contracts, and they'll contain kind of all the knowledge and some of the hard knocks that we've had over the years, just to make sure that things that are in the contract are enforceable and are reasonable for both parties.

Samantha Hoh -- Evercore ISI -- Analyst

Okay. And then last one for me. There's been some reports of companies opening new mines maybe out in the Haynesville. And I was wondering how you guys are thinking about your geographic distributions of your mines for oil and gas these days. Is there a need to actually expand into certain basins or maybe just to consolidate where your oil and gas mines are operating?

Bryan Shinn -- Chief Executive Officer And Director

So, as we look at the different basins around the country, we like the footprint that we have. Our northern White footprint, starting with our Ottawa facility, I think, is very strong. And we didn't mention that specifically on the call here, but we continue to see pretty aggressive northern white demand. That may surprise some folks. I think in Q3, about 40% of our total sales were northern white sales. So, it's not just all that regional sand. There's still a robust northern white market out there.

But I like the footprint that we have. There are a number of mines in the Haynesville. They're very low-cost kind of river sand related mines. And we've looked at those over the years, but it never really made sense for us to get into that. I feel like we're getting a lot of business out west out into the Bakken and the DJ Basin with our northern White sand. So, there's really no need to open a mine up there. So, I feel like we're very well covered with our oil and gas footprint right now.

Samantha Hoh -- Evercore ISI -- Analyst

Ok. Thats great. Thanks Bryan.

Bryan Shinn -- Chief Executive Officer And Director

Thanks Samantha.

Operator

We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Bryan Shinn -- Chief Executive Officer And Director

Well, thank you very much, operator. As we bring the call to a close today, I'd like to leave you all with three key thoughts. First, our continued capital discipline and margin improvement efforts should put us well positioned with the ability to sustainably generate free cash flow, positive free cash flow and further strengthen our balance sheet. Second, we have a strong and diverse portfolio of products that support a variety of environmentally important value chains. We talked about that today in our prepared remarks. And many of these value chains are right in the middle of the transition to cleaner energy for the U.S., so very important value chains.

Additionally, U.S. Silica, I think, will be the beneficiary of some of the proposed U.S. government infrastructure spending plans. I know there are a number of different proposals winding the way through Congress right now. But when you look at things that require a lot of commercial construction or production at foundries, concrete additives, highway construction, etc., a lot of what U.S. Silicon makes is right in the middle of those supply chains. And finally, as we look ahead, we remain confident that our industry-leading business segments, our robust product portfolio, very focused strategy that we have and what I think is best-in-class execution will create substantial value for our shareholders and other stakeholders as well. Thanks again for joining our call today, and we look forward to speaking with you all again next quarter. Stay safe and be well, everyone.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Patricia Gil -- Vice President Of Investors Relation

Bryan Shinn -- Chief Executive Officer And Director

Don Merril -- Executive Vice President And Chief Financial Officer

Stephen Gengaro -- Stifel -- Analyst

Connor Lynagh -- Morgan Stanley -- Analyst

J.B. Lowe -- Citi -- Analyst

Samantha Hoh -- Evercore ISI -- Analyst

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