Smart Sand, Inc.

Good day and thank you for standing by. Welcome to the third quarter 2021 SmartSAN Incorporated 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 the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. And now, I would like to hand the conference over to your first speaker today, Josh Jane, Director of Finance. Thank you. Please go ahead.

Good morning, and thank you for joining us for SmartSAN's third 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 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. November 10th, 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 volume out of both Utica and Oakdale. Third quarter volumes of 790,000 times are up 156% from third quarter 2020 levels and up 3% from last quarter. At our current run rate, we expect 2021 sales volumes will be a new record for tons sold by SmartSand. And given the current outlook for commodity prices and spending by our customers, we believe 2022 volumes will exceed this year's levels. Underinvestment over the last couple of years, both in the U.S. and abroad, has negatively impacted the supply for oil and natural gas. But with demand surging back to pre-pandemic levels, commodity prices now see 2019 levels, and we could be in the early stages of a multi-year upcycle of energy capital spending. We continue to expect EMPs to spend within their cash flows, but as a result of higher commodity prices, we expect spending to increase in 2022. As we end 2021 and move into 2022, we are continuing to look for opportunities to lower our cost structure and increase our asset utilization. As to pricing, we expect it to improve going forward because Northern White Sand supply constraints and growing demand. We believe the industry needs further consolidation, and we continue to pursue opportunities to expand our business. But we will not risk our balance sheet, and we will only acquire assets that broaden our access to key operating bases through new logistics sources to expand the markets and customer base that we serve. During the third quarter, we announced a new three-year agreement to supply sand through EQT, which demonstrates our continued commitment to provide long-term, sustainable sand supply and logistics services to our customers. We have been working on building out the terminal, and we remain on track to have it operational by the end of this year. The new terminal is exciting for us not only because it will expand our presence in the Appalachian Basin, but it will also provide ESG benefits to our customers in the region by reducing trucking mileage and associated carbon emissions related to sand delivery. Our terminal in Van Hook, North Dakota, which we acquired in the spring of 2018, has been a great success for SmartSand and has helped us to substantially increase our sales volume into this key northern white sand market. Similarly, we believe our investment in the new Waynesburg, Pennsylvania terminal will be a key driver to help drive incremental sales for SmartSan into the Appalachian Basin. We continue to believe that shipping sand on a bulk basis by rails to terminals that are well-positioned to serve long-term drilling activity within an operating basin is the right long-term supply solution for sourcing crack sand in a cost-efficient, and environmentally responsible manner. While we are optimistic about the outlook for Fraxan, we are also committed to diversifying our business away from the cyclical nature of oil and gas. In the third quarter, we announced the hiring of Rick Shearer to lead our industrial product effort. Rick has held multiple executive leadership positions, most recently with Emerge Energy Services as CEO from 2012 to 2020. Before that, he was the president and COO of U.S. Silicate and founder of the Industrial Minerals Association. Rick's experience and knowledge will be incredibly valuable as we diversify our business. He is currently in the process of building a team, and we expect contributions from this business to begin in 2022. Our balance sheet remains in great shape. Today, we have $35 million in cash and approximately $50 million in liquidity. Even though we have a strong balance sheet, we will remain disciplined with respect to capital spending and focus on maximizing capital. We remain committed to the last mile market with our smart systems, including our SmartPath transloader, which we believe is unlike anything in the industry. During the third quarter, we had another successful deployment of SmartPath, and we look forward to announcing more deployments in the coming months. 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. Our balance sheet remains in great shape, and we have a significant net cash position. High commodity prices and strong demand should lead to a multi-year upcycle in E&P spendings. We are well positioned to take advantage of any increased market activity with our available capacity, ample liquidity, and strong balance sheet. Having operated SmartPak successfully for three quarters, we look forward to expanding our last mile of market share. We will be diversifying our business beginning in 2022 with other avenues to reduce the volatility of our cash flows. As always, we'll continue to keep an 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 Beckleman.