Smart Sand, Inc.

Good day, and thank you for standing by, and welcome to the Smart Fan, Inc. Second Quarter 2021 Earnings Conference Call. At this time, our participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. To ask a question during the session, you'll need to press star 1 on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to Josh Jane, Director of Finance and Assistant Treasurer. Please go ahead.

Good morning, and thank you for joining us for SmartSend's second 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, August 4, 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.

Thanks, Josh, and good morning. We enjoyed another good quarter for volume with similar tonnage to the first quarter. Second quarter volumes of 767,000 tons are up 269% from the second quarter 2020 levels when the pandemic began to negatively impact our business. Additionally, sand sales volumes in the first half of 2020 were approximately 10% higher than the first six months of 2019. So while our activity was flat quarter to quarter, our overall activity is trending higher this year than before the pandemic severely impacted our activity. This upcycle so far is different than previous upcycles in the oil and gas industry. While market activity is much stronger today than it was a year ago, EMPs continue to focus on spending within their cash flow. This spending discipline has led to a slower recovery for sand demand in our core markets. We are committed to living within our cash flow. while still pursuing opportunities to expand our business. We are managing our operating costs in line with current activity levels, but have the incremental capacity to sell more sand with minimal additional investment. So we can quickly respond should market activity begin to increase. We are actively pursuing opportunities to expand our customer base and logistics capabilities in key long-term markets. This week, we announced a new three-year agreement to supply sand to EQT, including at a new trans-loading terminal that we intend to have operational by the end of this year. This new contract demonstrates our continued commitment to provide long-term, sustainable sand supply and logistics solutions to our customers. The Appalachian Basin is a key market for SmartSand, and as we move towards adding a new terminal there, we expect to offer even greater efficiency to our customers while also providing ESG benefit by reducing trucking mileage and associated carbon emissions related to sand delivery. With our diversified asset base and very strong balance sheet, we 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. We are pleased that we reached a settlement with U.S. Well Services during the second quarter The $35 million cash payment we received in June further strengthened our balance sheet and increased our liquidity. In addition to the cash, U.S. Wealth Services has entered into a two-year right-of-first refusal agreement with SmartSan, covering all purchases of northern white frac sand by U.S. Wealth Services and its affiliates in the continental United States from January 1, 2022 through December 31, 2023. We look forward to having you as well as a customer again soon. Today, we have 37 million in cash on our balance sheet and approximately 55 million in liquidity. Even though we have a strong balance sheet, we will remain disciplined with respect to capital spending and focused on maximizing cash flow. We remain committed to the last mile market with our smart systems, including our SmartPath Translator, which we believe is unlike anything in the industry. SmartPath was successfully deployed for the first time during the first quarter and continued to work through the second quarter. We anticipate additional deployments in the back half of the year. Using our smart systems, we estimate that the number of trucks needed to deliver sand to the well site will be reduced by more than 30% versus our competitors' offerings. By taking trucks off the road, accidents are reduced, carbon emissions are reduced, and noise is reduced. Smart systems are also uniquely designed to reduce dust. By reducing accidents, carbon emissions, noise, and dust, we are keeping people safer and striving to meet the ESG goals of SmartSand and our customers while providing a reliable, efficient, last-mile solution for the industry. We're excited about our future for a number of reasons. We have more cash on the balance sheet today than at any other point over the last three years. Sales volumes are up. They remain far above 2020 levels and are trending higher than 2019 volumes. Strong commodity prices should yield higher spending in 2022 and beyond. We are well positioned to take advantage of any increased market activity with our available capacity, ample liquidity, and strong balance sheet. Having operated SmartPath successfully for two quarters, we look forward to expanding our last mile market share. As always, we'll continue to keep our eye on the future and we'll always keep our employees' and shareholders' interests in mind in everything we do. And with that, I'll turn the call over to our CFO, Lee Beckelman.