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spk04: This conference is scheduled to begin shortly. Please continue to stand by. Thank you for your patience. Thank you. Good day and thank you for standing by. Welcome to the first quarter 2021 SmartSAN Inc. Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker's presentation there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your speaker today, Josh Jane, Director of Finance and Assistant Treasurer. Please go ahead.
spk20: Good morning, and thank you for joining us for SmartSAN's first quarter 2021 earnings call. On the call today, we have Chuck Young, Founder and Chief Executive Officer, Lee Beckelman, Chief Financial Officer, and John Young, Chief Operating Officer. Before we begin, I would like to remind all participants that our comments made today will include forward-looking statements which are subject to certain risks and uncertainties that could cause actual results or events to materially differ from those anticipated. For a complete discussion of such risks and uncertainties, please refer to the company's press release and our documents on file with the SEC. SmartSAN disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 5, 2021. Additionally, we may refer to the non-GAAP financial measures of contribution margin, EBITDA, adjusted EBITDA, and free cash flow during this call. We believe that these measures, when used in combination with our GAAP results, provide us and our investors with useful information to better understand our business. Please refer to our most recent press release or our public filings for our reconciliations of contribution margin to gross profit, EBITDA, and adjusted EBITDA to net income. and free cash flow to cash flow provided by operating activities. I would now like to turn the call over to our CEO, Chuck Young.
spk07: Thanks, Josh, and good morning. After a challenging year in 2020, we are very encouraged by the recovery we have witnessed to begin 2021. We successfully managed the downturn and remain uniquely positioned to keep pursuing our long-term strategy to be the premium supplier of northern white frac sand from the mine to the well site. Our volumes in the first quarter were up on a quarter-to-quarter basis and a year-over-year basis. We increased volumes despite frack activity remaining well below last year's first quarter levels and rig counts being down 50% in Q1 2021 from Q1 2020 levels. So, we are gaining market share in the operating basins that we are targeting, in addition to increasing activity in the Bakken and the Marcellus, With the addition of Utica, we are now competing very effectively in the western basins in Colorado and Wyoming. Despite weather challenges for the industry in February, the frac sand market continued to rebound as sales volumes increased by 25% from 612,000 tons in the fourth quarter 2020 to 762,000 tons in the first quarter. March volumes were up significantly following the February weather disruption. and we expect volumes to continue to grow as the market is strengthening. We continue to focus on maintaining financial flexibility and generating free cash flow. Today, we have $10 million in cash on our balance sheet and approximately $30 million in liquidity. We couldn't have managed through these difficult times without the effort of our employees. I want to thank all of our employees once again for their continued commitment to SmartSand. As we discussed on last quarter's call, We believe the SmartPath transloader is unlike anything in the industry. It's a self-contained system designed to work with bottom dump trailers. It features a drive-over conveyor, surge bin, and dust collection system, so it's well-suited to perform any frac job. And we can now report we have successfully deployed our first SmartPath during the first quarter. The transloader completed several multi-well pads and continues to work into the second quarter. We are receiving incremental inquiries about this technology and believe we will have further deployments as we move through the rest of the year. By the end of this year, we expect to have 10 fleets equipped with the SmartPath. We continue to believe the focus on ESG by our customers will drive adoption of our smart systems product offerings. Built-in dust control on silos and improved dust control throughout the completion process are vital to health, safety, and regulatory compliance. We also believe the smaller footprint that we offer on the well site with our smart system sand storage systems compared to our peers will be well received. We estimate that by using our smart systems fleet equipped with a smart path, rather than competing silo and box options, we can reduce the number of trucks needed to deliver sand to the well site by more than 30%. This is a significant opportunity for our customers to reduce their ESG footprint and GHG emissions. As we emerge from the downturn, we'll continue to work closely with our customers to deliver sand to the well site in a reliable, cost-efficient, safe, and environmentally responsible fashion. We're excited about our future for a number of reasons. Sales volumes have increased meaningfully from the bottom and continue to trend positively. We have expanded our customer base and the operating basins we are serving over the last 12 months. Our Utica plant has exceeded our expectations thus far, and we remain excited about driving higher volumes from this location. We continue to improve the efficiencies and cost structures at our Oakdale mine to make it one of the most efficient frac sand mines and processing plants in the industry. And with our first successful deployment of the SmartPath behind us, we are looking forward to building market share with our Last Mile Solutions product offering. As always, we'll continue to keep an eye on the future, and we'll always keep our employee and shareholders' interests in mind in everything we do. And with that, I'll turn the call over to our CFO, Lee Beckelman.
spk03: Thanks, Chuck. We are encouraged by the pickup and activity we have witnessed to begin the year. As Chuck indicated, first quarter 2021 volumes were up 25% from fourth quarter 2020 levels, despite weather challenges for the industry in February. March volumes were up 48% from February levels as there was catch-up from the weather impact, but overall activity also increased. We are seeing strong demand continue into the second quarter. We remain committed to low leverage levels, a prudent capital structure, generating positive free cash flow for the year, and maintaining adequate liquidity levels. Now I will go through some of the highlights of the first quarter compared to our fourth quarter 2020 results. Starting with sales volume, we sold 762,000 tons in the first quarter of 2021, a 25% increase over the fourth quarter 2020 volumes of 612,000 tons. We continued to expand our customer base during the first quarter. We believe a more diverse customer base will strengthen our opportunities for growth. Total revenues for the first quarter of 2021 were $27.5 million. compared to 25.3 million in the fourth quarter 2020. Sand revenues were higher in the first quarter due primarily to an increase in the number of tons sold from both Oakdale and Utica. Our cost of sales for the quarter were 32.4 million compared to 33 million last quarter. We were able to effectively keep our production costs flat quarter to quarter while increasing our sales volumes by 25 percent through increased utilization of our asset base and proactive management of our inventory levels. Total operating expenses were $6.1 million compared to $13.3 million last quarter. Operating expenses were mainly lower as the fourth quarter of 2020 included a $5.1 million impairment charge on our Permian Basin long-lived assets and a $1.3 million sales tax audit settlement charge. In the first quarter of 2021, we recognized a $7.5 million income tax benefit compared to an $18.6 million income tax benefit last quarter. The fourth quarter benefit included a $7.8 million benefit related to the anticipated benefit to be received from the carryback and net operating losses, including those related to depletion, to tax years with a 35% corporate rate. In the first quarter, we had a net loss of $3.9 million or $0.09 per basic and diluted share compared to a net loss of $2.9 million or $0.07 per basic and diluted share for the fourth quarter of 2020. A higher net loss in the first quarter of 2021 as compared to the fourth quarter of 2020 is due to the higher income tax benefit recognized in the fourth quarter of last year. For the first quarter of 2021, contribution margin was $1 million, and we had negative adjusted EBITDA of $3.5 million compared to fourth quarter negative contribution margin of $2 million and negative adjusted EBITDA of $7.4 million. The increase sequentially was driven by an increase in tons sold while efficiently managing our operating costs. For the first quarter of 2021, We had $1.7 million in free cash flow, generating $3.9 million in operating cash flows while spending $2.2 million on capital investments. Capital investments in the first quarter have primarily been on new smart systems units. During the quarter, we didn't use our revolver and still have no outstanding borrowings other than $1.2 million in letters of credit. Our current unused availability is $15 million. We paid down $1.7 million against our notes payables and equipment financings in the quarter. Additionally, we have $5 million in unused availability from the acquisition liquidity support facility we put in place with the Eagle Province business acquisition. We ended the first quarter with approximately $11.4 million in cash, and our current cash balance is approximately $10 million. Between cash and our availability in our facilities, we currently have approximately 30 million in available liquidity. We do not expect to have any borrowings on our ABL revolver in the second quarter. In terms of guidance for the second quarter, we expect sales volumes to be up 5 to 10 percent from first quarter levels. We continue to anticipate capital expenditures for 2021 to be in the 10 to 15 million range and expect free cash flow to be positive for the full year. This concludes our prepared comments, and we will now open the call for questions.
spk04: Thank you. If you have a question at this time, please press star then 1 on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from the line of Stephen Kingaro with Stiefel. Your line is open. Please go ahead.
spk24: Thanks. Good morning, gentlemen. I jumped on a couple minutes late, but I may have missed this, but I wanted to just ask you a little bit about, I guess it's a two-part question, but one is, as we look ahead and you look at sort of the dynamics within the Fraxan business and pricing trends, how should we think about, I mean, without talking about a specific quarter or number, but how should we think about contribution margin per ton as we go forward And I guess along with that, is there any difference in the, uh, with, with the new facility online and the costs associated with that, et cetera, we should be contemplating in the short term.
spk03: Yes, even for contribution margin is your issue. If you follow us over the past, you know, in our fourth quarter and first quarter, we typically have lower contribution margin because our costs are higher as we're bringing an inventory over the winter. And typically we'll have lower costs in the second and third quarter as we capitalize inventory during our mining season. So I think you'll see some improvements in the second and third quarter of our contribution margin. I'd say kind of in the mid single digits. So moving in kind of the $5 range, give or take. And then you might see that margin go down a little bit in the fourth quarter as we go through our seasonality, as we typically do. So second and third quarter, you should see some improving contribution margin. It should moderate a little bit in the fourth quarter, depending on how we're managing our mining season this year and building inventory during the summer months and start pulling inventory again as you get into the winter.
spk22: Great. That's helpful. Go ahead.
spk03: And what was your second question? I apologize.
spk24: Oh, just what I was curious about is with the new facility coming online, the Utica facility, does that impact the short-term cost structure at all? Is there any headwind from that we should think about?
spk03: Well, as we've ramped up Utica, actually their production costs are relatively in line with what we're seeing at Oakdale, but we do have a little higher trucking costs there because our terminal is not right at the location, so there's a little bit of friction there in terms of our trucking costs. It makes Utica a little higher, but we're going to be getting that. As we ramp that volume up, we think we'll be able to moderate that and bring that down a little bit, but that is the one kind of major cost difference between the two.
spk24: Thank you. And just one other question I was just thinking about, and you guys have as good a perspective as any. When you think about just the dynamics of, you know, demand, which has been rising clearly, and then just sort of the frac sand supply-demand situation, you obviously had a lot of competitors that had financial problems. Have you seen any shift in the dynamics there and your unique positioning in the markets?
spk13: Yes, Steven, thanks. So what we're seeing is there's definitely some idled assets out there that are, I think, either will not or are having difficulty coming back online, particularly in the northern white space. And, you know, that's a good thing for us, right? You know, as you'd mentioned, demand is going up, you know, and the supply I don't think is coming on as it would have historically come on because of some of the financial difficulties that that some of our competitors have been in, as you alluded to. So, you know, we do see demand rising. You know, we're not entirely sure how high and, you know, how fast it's going to continue to rise. But we're certainly, you know, in the first quarter this year, we sold more sand than we did in the first quarter of last year, which was a decent quarter for us. So, you know, we're seeing demand come up. And, you know, with any luck, you know, with the volumes improving, you know, we expect price to follow, but we're just not sure of when.
spk23: Okay, great. Thank you.
spk13: Thank you.
spk04: Thank you. And our next question comes from the line of John Daniel from Daniel Energy Partner. Your line is open. Please go ahead.
spk10: Good morning, guys. Thanks for putting me in. I guess two questions this morning. You know, all of us here, the analyst community, we all have our view on frack crew counts. We all kind of make up some numbers, throw out there. What are you guys seeing today in the Balkan and Marcellus in terms of activity and, you know, looking into the crystal ball? You know, how do you see crew counts progressing Q2, Q3, Q4? Just any wild-ass guess would be appreciated.
spk13: Yeah, so, John, what we're seeing is we're seeing relatively robust activity in both of the markets. You mentioned Marcellus and Bakken. With the commodity price in oil stabilizing kind of in the 60s, we anticipate that this year could see some growth in additional spreads going out there. But so far, we see good activity in those areas. You know, and we've got, you know, from our perspective, we've got a good advantage logistics chain into both of them. So we're, you know, we feel pretty good about that. You know, we think that it's been a while since we've seen both nat gas and oil spreads operating kind of in sync with demand. So that's a good thing with Marcellus and Bakken. And we're seeing obviously increased activity in other areas too, which, you know, our new Utica plan allows us to participate a bit more in some of the you know, some of the other Midwest opportunities out there, so with BN Rail. So we're feeling relatively good about activity, you know, in those two basins and elsewhere. You know, we're hoping it continues, and obviously with oil price heading in the right direction, we don't see any reason that it won't continue.
spk10: Okay, thank you. And then with the SmartPath rollout, I think you alluded to as many as potentially 10 systems later this year, is the initial focus Are you taking it across the U.S.? Just walk us through the rollout strategy.
spk13: Well, so our first deployment has been in the Bakken. We're set up to support additional deployments there. But, no, that system is available anywhere in the U.S., and we're prepared to support it anywhere in the U.S., You know, as you mentioned, we will have 10 systems ready to go by the end of the year. And, you know, the system has really kind of proven itself out in its first deployment out there. We've had minimal issues with it and seem to be getting a lot of positive, you know, positive press and positive thoughts from customers and potential customers on it.
spk10: Okay. And then I guess the final one for me. You know, there was a little bit of chatter, you know, some small invasive mines popping up in places like Wyoming. Just, you know, your thoughts on opportunities there, you know, whether you do something defensively, aggressively, just any – what's your take on that?
spk13: Yeah, so we're seeing a little bit of, you know, additional mine development out there. You know, we've seen – you know, I think there's been some activity in the Bakken. There's some in kind of southeastern Wyoming. You know, we keep an eye on it, John, but, you know, we don't anticipate it's going to be similar to, you know, what happened at the Permian with development outside of Kermit. I don't think the, you know, the capital markets are out there, you know, impressed with the returns that they've seen in some of those other regional sand plays. So we keep an eye on it, but ultimately, you know, our view – is that eventually we're going to see EMPs start to care about things like ESG and lengthened truck rides and things like that. And we believe that bulk commodities like sand should be on rail and railed as close to the well site as they can, reducing those trucking distances. So ultimately, I don't think you'll see a Permian-like development of regional sand mines anywhere in kind of the Midwest or in the Northeast. So I think, you know, the story for Northern White is still very positive in those markets. And keeping an eye on the logistics, you know, of moving that sand is going to be increasingly critical as, you know, as we continue to move more and more volume.
spk07: Yeah. The one other thing I'd add on that, John, is the trucking has become even more difficult than it was previously. So, and we see that, you know, even getting worse.
spk10: And is that primarily right now the driver issue or just the
spk07: I think it's just the sheer cost of it and then the other part about it. It's easy to put rail cars in storage, but these truckers have already gone through where this industry seems to go up and down in cycles, and that's not a really great job to have for the truckers.
spk10: Fair enough. Okay. Hey, thanks for letting me ask you questions.
spk07: Thanks, John.
spk04: Thank you. And our next question comes from the line of Samantha Ho with Evercore IFI. Your line is open. Please go ahead.
spk05: Hey, guys.
spk06: Just a quick question on the cash flow. It sounds like there was a slight change in the language of the guidance. I think you guys previously said, you know, at least $10 million previously. Could you please just kind of address that, please?
spk03: In terms of cash flow? I'm sorry, free cash flow. Free cash flow, yes. We still anticipate being in the $10 million range for the year.
spk06: Okay, great. And then I noticed a really nice customer pickup that you had this past quarter. Can you maybe elaborate a little bit more in how you're able to expand your customer base? Is that being driven by the new capacity from Utica or the ability to transport to those locations? If you could maybe talk about If you're displacing a previous supplier that customer had, something like that would be helpful.
spk13: Yeah, so a couple of things. You had mentioned kind of Utica. Clearly getting an additional Class 1 railroad on the BN has been helpful in attracting customers that we were unable to attract prior because of having two-line halls and things like that. So that's been a positive. But I think ultimately as we've been – We think picking up market share over the last little while, I think it's a result of, number one, we've been out there aggressively pursuing spot business, where in the past we've been more focused on contract business. And by aggressively pursuing spot business, you tend to pick up more customers. And so we're going to continue to do that. We're going to continue to seek both spot and contract customers. But then the final thing is I think that what we're seeing play out a little bit is hesitancy or inability for capacity to come back online. One of the things, having run sand mines now for quite a while, one of the things that sand mines don't like is being idle for lengthy periods of time. It's very difficult to get this equipment back into operating condition, and we think that with the lack of potential capital partners out there for this space, it's very difficult for mines that have been down for any length of time to really come back on. So, you know, we're seeing, you know, a little bit of a tailwind on that in our business, and, you know, we expect that to continue to happen. You know, our Oakdale plant, because it's a single operating entity with, you know, five and a half million tons and, you know, five separate dryers out there, you know, we've never let our maintenance, you know, we've always had a crew out there keeping our maintenance, and we've manage the capacity that we've produced there by turning plants on and off, but at the same time always having a maintenance crew. If you have a single mine out, say, in Wisconsin somewhere that hasn't been maintained in several years, it's very, very difficult to turn that back on. So, you know, again, we'd see some, you know, we think that'll give us some tailwinds, you know, into the rest of this year. And, you know, ultimately more customers is a good thing.
spk07: I'd also add Oakdale's one mine servicing two class one rail lines, which is very efficient.
spk06: Do you have a sense of the mix in your volume right now from contract versus spot?
spk03: Yeah, we don't give a breakout between contract and spot. I mean, a lot of times we've had customers that were on contract that have come off, but they're still having very consistent volumes with them. So even though they may be technically spot today, they're still from historical contractual relationships and management. So we don't really split it up in terms of giving out the difference between spot and contract contract. And also, when we say spot, I think a lot of times people think of spot just being one kind of individual sale. A lot of our spot transactions today where we may be supporting a customer for three to six months while they have a certain plan for delivering sand to that market. So saying spot isn't that it's just individual sales. It may be just not on longer-term contracts for it versus kind of shorter-term pricing arrangement contracts to meet a need for a specific development plan in an area over three, six months, et cetera.
spk06: Okay.
spk04: Thank you so much. That's very helpful.
spk25: Thanks, Beth.
spk04: Thank you. And our next question comes from the line of Luke Gittermeier with Nokomis. Your line is open. Please go ahead.
spk16: Hey, guys. Quick question.
spk17: I was trying to figure out the fixed charge coverage ratio, and it's kind of complicated because of the cash taxes and, you know, whatever tax refunds in Q3 and Q4. Where are you all on the fixed charge coverage ratio as it applies to the ABL right now?
spk03: Well, first of all, the fixed charge coverage ratio doesn't apply. It only kicks in if we have 85% of our facility drawn. And so we don't have any covenants that we apply to currently under our barring base. And so it doesn't apply in terms of being any kind of compliance issue. And then secondly, I don't have the number right in front of me, but we consistently had a positive fixed charge coverage ratio. Most of our We've typically been very positive in that regard, and we're positive today on that calculation.
spk18: Great. Thanks so much. I appreciate it. All right.
spk03: Thank you.
spk04: Thank you, and I'm showing no further questions at this time, and I would like to turn the conference back over to CEO Chuck Young for any further remarks.
spk07: Thank you for joining us for SmartSAN's first quarter 2021 earnings call. Stay safe. We'll talk soon.
spk04: This does conclude today's program. You may now disconnect. Everyone, have a great day. Music. Thank you. Thank you. Thank you. Thank you. Good day, and thank you for standing by. Welcome to the first quarter 2021 SmartSAN, Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, Josh Chang, Director of Finance and Assistant Treasurer. Please go ahead.
spk20: Good morning, and thank you for joining us for SmartSAN's first quarter 2021 earnings call. On the call today, we have Chuck Young, Founder and Chief Executive Officer, Lee Beckelman, Chief Financial Officer, and John Young, Chief Operating Officer. Before we begin, I would like to remind all participants that our comments made today will include forward-looking statements which are subject to certain risks and uncertainties that could cause actual results or events to materially differ from those anticipated. For a complete discussion of such risks and uncertainties, please refer to the company's press release and our documents on file with the SEC. SmartSAN disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 5, 2021. Additionally, we may refer to the non-GAAP financial measures of contribution margin, EBITDA, adjusted EBITDA, and free cash flow during this call. We believe that these measures, when used in combination with our GAAP results, provide us and our investors with useful information to better understand our business. Please refer to our most recent press release or our public filings for our reconciliations of contribution margin to gross profit, EBITDA and adjusted EBITDA to net income, and free cash flow to cash flow provided by operating activities. I would now like to turn the call over to our CEO, Chuck Young.
spk07: Thanks, Josh, and good morning. After a challenging year in 2020, we are very encouraged by the recovery we have witnessed to begin 2021. We successfully managed the downturn and remain uniquely positioned to keep pursuing our long-term strategy to be the premium supplier of northern white frac sand from the mine to the well site. Our volumes in the first quarter were up on a quarter-to-quarter basis and a year-over-year basis. We increased volumes despite frac activity remaining well below last year's first quarter levels and rig counts being down 50% in Q1 2021 from Q1 2020 levels. So, we are gaining market share in the operating basins that we are targeting. In addition to increasing activity in the Bakken and the Marcellus, with the addition of Utica, we are now competing very effectively in the western basins in Colorado and Wyoming. Despite weather challenges for the industry in February, the frac sand market continued to rebound as sales volumes increased by 25% from 612,000 tons in the fourth quarter 2020 to 762,000 tons in the first quarter. March volumes were up significantly following the February weather disruption, and we expect volumes to continue to grow as the market is strengthening. We continue to focus on maintaining financial flexibility and generating free cash flow. Today, we have 10 million in cash on our balance sheet and approximately 30 million in liquidity. We couldn't have managed through these difficult times without the effort of our employees. I want to thank all of our employees once again for their continued commitment to SmartSand. As we discussed on last quarter's call, we believe the SmartPath Translator is unlike anything in the industry. It's a self-contained system designed to work with bottom dump trailers. It features a drive-over conveyor, surge bin, and dust collection system, so it's well-suited to perform any frac job. And we can now report we have successfully deployed our first smart path during the first quarter. The transloader completed several multi-well paths and continues to work into the second quarter. We are receiving incremental inquiries about this technology and believe we will have further deployments as we move through the rest of the year. By the end of this year, we expect to have 10 fleets equipped with the SmartPath. We continue to believe the focus on ESG by our customers will drive adoption of our smart systems product offerings. Built-in dust control on silos and improved dust control throughout the completion process are vital to health, safety, and regulatory compliance. We also believe the smaller footprint that we offer on the well site with our smart system sand storage systems compared to our peers will be well received. We estimate that by using our smart systems fleet equipped with a smart path, rather than competing silo and box options, we can reduce the number of trucks needed to deliver sand to the well site by more than 30%. This is a significant opportunity for our customers to reduce their ESG footprint and GHG emissions. As we emerge from the downturn, we'll continue to work closely with our customers to deliver sand to the well site in a reliable, cost-efficient, safe, and environmentally responsible fashion. We're excited about our future for a number of reasons. Sales volumes have increased meaningfully from the bottom and continue to trend positively. We have expanded our customer base and the operating basins we are serving over the last 12 months. Our Utica plant has exceeded our expectations thus far, and we remain excited about driving higher volumes from this location. We continue to improve the efficiencies and cost structures at our Oakdale mine to make it one of the most efficient frac sand mines and processing plants in the industry. And with our first successful deployment of the SmartPath behind us, we are looking forward to building market share with our Last Mile Solutions product offering. As always, we'll continue to keep an eye on the future, and we'll always keep our employee and shareholders' interests in mind in everything we do. And with that, I'll turn the call over to our CFO, Lee Beckelman.
spk03: Thanks, Chuck. We are encouraged by the pickup and activity we have witnessed to begin the year. As Chuck indicated, first quarter 2021 volumes were up 25% from fourth quarter 2020 levels, despite weather challenges for the industry in February. March volumes were up 48% from February levels as there was catch-up from the weather impact, but overall activity also increased. We are seeing strong demand continue into the second quarter. We remain committed to low leverage levels, a prudent capital structure, generating positive free cash flow for the year, and maintaining adequate liquidity levels. Now I will go through some of the highlights of the first quarter compared to our fourth quarter 2020 results. Starting with sales volume, we sold 762,000 tons in the first quarter of 2021, a 25% increase over the fourth quarter 2020 volumes of 612,000 tons. We continued to expand our customer base during the first quarter. We believe a more diverse customer base will strengthen our opportunities for growth. Total revenues for the first quarter of 2021 were $27.5 million. compared to 25.3 million in the fourth quarter of 2020. Sand revenues were higher in the first quarter due primarily to an increase in the number of tons sold from both Oakdale and Utica. Our cost of sales for the quarter were 32.4 million compared to 33 million last quarter. We were able to effectively keep our production costs flat quarter to quarter while increasing our sales volumes by 25 percent through increased utilization of our asset base and proactive management of our inventory levels. Total operating expense expenses were 6.1 million compared to 13.3 million last quarter. Operating expenses were mainly lower as the fourth quarter 2020 included a 5.1 million impairment charge on our Permian Basin long-lived assets and a 1.3 million sales tax audit settlement charge. In the first quarter of 2021, we recognized a $7.5 million income tax benefit compared to an $18.6 million income tax benefit last quarter. The fourth quarter benefit included a $7.8 million benefit related to the anticipated benefit to be received from the carryback and net operating losses, including those related to depletion, to tax years with a 35% corporate rate. In the first quarter, we had a net loss of $3.9 million, or $0.09 per basic and diluted share, compared to a net loss of $2.9 million, or $0.07 per basic and diluted share, for the fourth quarter of 2020. A higher net loss in the first quarter of 2021 as compared to the fourth quarter of 2020 is due to the higher income tax benefit recognized in the fourth quarter of last year. For the first quarter of 2021, contribution margin was $1 million, and we had negative adjusted EBITDA of $3.5 million compared to fourth quarter negative contribution margin of $2 million and negative adjusted EBITDA of $7.4 million. The increase sequentially was driven by an increase in tons sold while efficiently managing our operating costs. For the first quarter of 2021, We had $1.7 million in free cash flow, generating $3.9 million in operating cash flows while spending $2.2 million on capital investments. Capital investments in the first quarter have primarily been on new smart systems units. During the quarter, we didn't use our revolver and still have no outstanding borrowings other than $1.2 million in letters of credit. Our current unused availability is $15 million. We paid down $1.7 million against our notes payables and equipment financings in the quarter. Additionally, we have $5 million in unused availability from the acquisition liquidity support facility we put in place with the Eagle Province business acquisition. We ended the first quarter with approximately $11.4 million in cash, and our current cash balance is approximately $10 million. Between cash and our availability in our facilities, We currently have approximately $30 million in available liquidity. We do not expect to have any borrowings on our ABL Revolver in the second quarter. In terms of guidance for the second quarter, we expect sales volumes to be up 5 to 10 percent from first quarter levels. We continue to anticipate capital expenditures for 2021 to be in the $10 to $15 million range and expect pre-cash flow to be positive for the full year. This concludes our prepared comments, and we will now open the call for questions.
spk04: Thank you. If you have a question at this time, please press star then 1 on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from the line of Stephen Kingaro with Stiefel. Your line is open. Please go ahead.
spk24: Thanks. Good morning, gentlemen. I jumped on a couple minutes late, but I may have missed this, but I wanted to just ask you a little bit about, I guess it's a two-part question, but one is, as we look ahead and you look at sort of the dynamics within the Fraxan business and pricing trends, how should we think about, I mean, without talking about a specific quarter or number, but how should we think about contribution margin per ton as we go forward? And I guess along with that, is there any difference in the, uh, with, with the new facility online and cost associated with that, et cetera, we should be contemplating in the short term.
spk03: Yes. Steven for contribution margin is your issue. If you follow us over the past, you know, in our fourth quarter and first quarter, we typically have lower contribution margin because our costs are higher as we're bringing an inventory over the winter. And typically we'll have lower costs in the second and third quarter as we capitalize inventory during our mining season. So I think you'll see some improvements in the second and third quarter of our contribution margin. I'd say kind of in the mid single digits. So moving in kind of the $5 range, give or take. And then you might see that margin go down a little bit in the fourth quarter as we go through our seasonality, as we typically do. So second and third quarter, you should see some improving contribution margin. It should moderate a little bit in the fourth quarter, depending on how we're managing our mining season this year and building inventory during the summer months and start pulling inventory again as you get into the winter.
spk22: Great. That's helpful. Go ahead.
spk03: And what was your second question? I apologize.
spk24: Oh, just what I was curious about is with the new facility coming online, the Utica facility, does that impact the short-term cost structure at all? Is there any headwind from that we should think about?
spk03: Well, as we've ramped up Utica, actually their production costs are relatively in line with what we're seeing at Oakdale, but we do have a little higher trucking costs there because our terminal is not right at the location, so there's a little bit of friction there in terms of our trucking costs. It makes Utica a little higher, but we're going to be getting that. As we ramp that volume up, we think we'll be able to moderate that and bring that down a little bit, but that is the one kind of major cost difference between the two.
spk24: Thank you. And just one other question I was just thinking about, and you guys have as good a perspective as any. When you think about just the dynamics of, you know, demand, which has been rising clearly, and then just sort of the frac sand supply-demand situation, you obviously had a lot of competitors that had financial problems. Have you seen any shift in the dynamics there and your unique positioning in the markets?
spk13: Yes, Steven, thanks. So what we're seeing is there's definitely some idled assets out there that are, I think, either will not or are having difficulty coming back online, particularly in the northern white space. And, you know, that's a good thing for us, right? You know, as you'd mentioned, demand is going up, you know, and the supply I don't think is coming on as it would have historically come on because of some of the financial difficulties that that some of our competitors have been in, as you alluded to. So, you know, we do see demand rising. You know, we're not entirely sure how high and, you know, how fast it's going to continue to rise. But we're certainly, you know, in the first quarter this year, we sold more sand than we did in the first quarter of last year, which was a decent quarter for us. So, you know, we're seeing demand come up. And, you know, with any luck, you know, with the volumes improving, you know, we expect price to follow, but we're just not sure of when.
spk23: Okay, great. Thank you.
spk13: Thank you.
spk04: Thank you. And our next question comes from the line of John Daniel from Daniel Energy Partner. Your line is open. Please go ahead.
spk10: Good morning, guys. Thanks for putting me in. I guess two questions this morning. You know, all of us here, the analyst community, we all have our view on frack crew counts. We all kind of make up some numbers, throw out there. What are you guys seeing today in the Balkan and Marcellus in terms of activity and, you know, looking into the crystal ball? You know, how do you see crew counts progressing Q2, Q3, Q4? Just any wild-ass guess would be appreciated.
spk13: Yeah, so, John, what we're seeing is we're seeing relatively robust activity in both of the markets. You mentioned Marcellus and Bakken. With the commodity price in oil stabilizing kind of in the 60s, we anticipate that this year could see some growth in additional spreads going out there. But so far, we see good activity in those areas. You know, and we've got, you know, from our perspective, we've got a good advantage logistics chain into both of them. So we're, you know, we feel pretty good about that. You know, we think that it's been a while since we've seen both nat gas and oil spreads operating kind of in sync with demand. So that's a good thing with Marcellus and Bakken. And we're seeing, obviously, increased activity in other areas, too, which, you know, our new Utica plan allows us to participate a bit more in some of the you know, some of the other Midwest opportunities out there, so with BN Rail. So we're feeling relatively good about activity, you know, in those two basins and elsewhere. You know, we're hoping it continues, and obviously with oil price heading in the right direction, we don't see any reason that it won't continue.
spk10: Okay, thank you. And then with the SmartPath rollout, I think you alluded to as many as potentially 10 systems later this year is the initial focus, Are you taking it across the U.S.? Just walk us through the rollout strategy.
spk13: Well, so our first deployment has been in the Bakken. We're set up to support additional deployments there. But, no, that system is available anywhere in the U.S., and we're prepared to support it anywhere in the U.S., You know, as you mentioned, we will have 10 systems ready to go by the end of the year. And, you know, the system has really kind of proven itself out in its first deployment out there. We've had minimal issues with it and seem to be getting a lot of positive, you know, positive press and positive thoughts from customers and potential customers on it.
spk10: Okay. And then I guess the final one for me. You know, there was a little bit of chatter, you know, some small invasive mines popping up in places like Wyoming. Just, you know, your thoughts on opportunities there, you know, whether you do something defensively, aggressively, just any – what's your take on that?
spk13: Yeah, so we're seeing a little bit of, you know, additional mine development out there. You know, we've seen – you know, I think there's been some activity in the Bakken. There's some in kind of southeastern Wyoming. You know, we keep an eye on it, John, but, you know, we don't anticipate it's going to be similar to, you know, what happened at the Permian with development outside of Kermit. I don't think the, you know, the capital markets are out there, you know, impressed with the returns that they've seen in some of those other regional sand plays. So we keep an eye on it, but ultimately, you know, our view is, is that eventually we're going to see EMPs start to care about things like ESG and lengthened truck rides and things like that. And we believe that bulk commodities like sand should be on rail and railed as close to the well site as they can, reducing those trucking distances. So ultimately, I don't think you'll see a Permian-like development of regional sand mines anywhere in kind of the Midwest or in the Northeast. So I think, you know, the story for Northern White is still very positive in those markets. And keeping an eye on the logistics, you know, of moving that sand is going to be increasingly critical as, you know, as we continue to move more and more volume.
spk07: Yeah. The one other thing I'd add on that, John, is the trucking has become even more difficult than it was previously. So, and we see that, you know, even getting worse.
spk10: And is that primarily right now the driver issue or just the
spk07: I think it's just the sheer cost of it and then the other part about it. It's easy to put rail cars in storage, but these truckers have already gone through where this industry seems to go up and down in cycles, and that's not a really great job to have for the truckers.
spk10: Fair enough. Okay. Hey, thanks for letting me ask you questions.
spk03: Thanks, John.
spk04: Thank you. And our next question comes from the line of Samantha Ho with Evercore ISI. Your line is open. Please go ahead.
spk05: Hey, guys.
spk06: Just a quick question on the cash flow. It sounds like there was a slight change in the language of the guidance. I think you guys previously said, you know, at least $10 million previously. Could you please just kind of address that, please?
spk03: In terms of cash flow? I'm sorry, free cash flow. Free cash flow for you. We still anticipate being in the $10 million range for the year.
spk06: Okay, great. And then I noticed a really nice customer pickup that you had this past quarter. Can you maybe elaborate a little bit more in how you're able to expand your customer base? Is that being driven by the new capacity from Utica or the ability to transport to those locations? If you could maybe talk about if you're displacing a previous supplier that customer had, something like that would be helpful.
spk13: Yeah, so a couple of things. You had mentioned kind of Utica. Clearly getting an additional Class 1 railroad on the BN has been helpful in attracting customers that we were unable to attract prior because of having two-line halls and things like that. So that's been a positive. But I think ultimately as we've been – We think picking up market share over the last little while, I think it's a result of, number one, we've been out there aggressively pursuing spot business, where in the past we've been more focused on contract business. And by aggressively pursuing spot business, you tend to pick up more customers. And so we're going to continue to do that. We're going to continue to seek both spot and contract customers. But then the final thing is I think that what we're seeing play out a little bit is hesitancy or inability for capacity to come back online. One of the things, having run sand mines now for quite a while, one of the things that sand mines don't like is being idle for lengthy periods of time. It's very difficult to get this equipment back into operating condition, and we think that with the lack of potential capital partners out there for this space, it's very difficult for mines that have been down for any length of time to really come back on. So, you know, we're seeing, you know, a little bit of a tailwind on that in our business, and, you know, we expect that to continue to happen. You know, our Oakdale plant, because it's a single operating entity with, you know, five and a half million tons and, you know, five separate dryers out there, you know, we've never let our maintenance, you know, we've always had a crew out there keeping our maintenance, and we've manage the capacity that we've produced there by turning plants on and off, but at the same time always having a maintenance crew. If you have a single mine out, say, in Wisconsin somewhere that hasn't been maintained in several years, it's very, very difficult to turn that back on. So, you know, again, we'd see some, you know, we think that'll give us some tailwinds, you know, into the rest of this year. And, you know, ultimately more customers is a good thing.
spk07: I'd also add Oakdale's one mine servicing two class one rail lines, which is very efficient.
spk06: Do you have a sense of the mix in your volume right now from contract versus spot?
spk03: Yeah, we don't give a breakout between contract and spot. I mean, a lot of times we've had customers that were on contract that have come off, but they're still having very consistent volumes with them. So even though they may be technically spot today, they're still from historical contractual relationships and management. So we don't really split it up in terms of giving out the difference between spot and contract. And also, when we say spot, I think a lot of times people think of spot just being one kind of individual sale. A lot of our spot transactions today where we may be supporting a customer for three to six months while they have a certain plan for delivering sand to that market. So saying spot isn't that it's just individual sales. It may be just not on longer-term contracts for it versus kind of shorter-term pricing arrangement contracts to meet a need for a specific development plan in an area over three, six months, et cetera.
spk06: Okay.
spk04: Thank you so much. That's very helpful.
spk25: Thanks, Beth.
spk04: Thank you. And our next question comes from the line of Luke Gittermeier with Nokomis. Your line is open. Please go ahead.
spk16: Hey, guys. Quick question.
spk17: I was trying to figure out the fixed charge coverage ratio, and it's kind of complicated because of the cash taxes and, you know, whatever, tax refunds in Q3 and Q4. Where are you all on the fixed charge coverage ratio as it applies to the ABL right now?
spk03: Well, first of all, the fixed charge coverage ratio doesn't apply. It only kicks in if we have 85% of our facility drawn. And so we don't have any covenants that we apply to currently under our barring base. And so it doesn't apply in terms of being any kind of compliance issue. And then secondly, I don't have the number right in front of me, but we consistently had a positive fixed charge coverage ratio. Most of our We've typically been very positive in that regard, and we're positive today on that calculation.
spk18: Great. Thanks so much. I appreciate it. All right.
spk03: Thank you.
spk04: Thank you, and I'm showing no further questions at this time, and I would like to turn the conference back over to CEO Chuck Young for any further remarks.
spk07: Thank you for joining us for SmartSAN's first quarter 2021 earnings call. Stay safe. We'll talk soon.
spk04: This does conclude today's program. You may now disconnect. Everyone, have a great day.
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