Smart Sand, Inc.

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to SmartSense 4th Quarter 2021 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 the star, then the one key on your touch-tone telephone. If you recall all of your assistants, please press star, then zero. I would now like to hand the conference over to your speaker host, Josh Jane, Director of Finance and Treasurer.

Good morning, and thank you for joining us for SmartSend's fourth 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 and 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, March 9, 2022. 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 out of both Utica and Oakdale. Fourth quarter volumes of 872,000 tons are up 43% from fourth quarter 2020 levels and up 10% from last quarter. For the full year, we sold just under 3.2 million tons, which was a record for SmartSand. Given the current outlook for commodity pricing and spending by our customers, we believe we will achieve record volumes in 2022. While we enjoyed strong sales volumes in 2021, sand prices remained low. However, the sand market in 2022 is shaping up to be one of both strong demand and higher prices. In particular, coming out of winter seasonality issues and production of weather-related rail delays in January and February, March volumes for SmartSand look strong. Pricing improved in Q1, and we expect to continue moving higher in the second quarter, and with less than 20% of our capacity signed up under long-term contracts, we will benefit from this improved demand and pricing environment. We believe industry consolidation will continue, and our recent acquisition of the Blair, Wisconsin, frac sand mine from High Crush highlights our desire to add high-quality assets at a reasonable price. This facility provides direct CN rail access and has estimated reserves of 110 million tons, over 43,000 feet of track, and 20,000 tons of silo storage capacity. Blair provides an additional source of 4070 sand, which is currently in high demand in the energy market and has annual capacity of 2.8 million tons. Blair meets our requirements of logistics and operational efficiency with multi-unit train capability and ample reserves. Since the beginning of the downturn, we have added 4.4 million tons of nameplate capacity for less than $9 million. We haven't taken on any debt to pursue those acquisitions, and have funded them with cash and equity. As we announced in January, our newly constructed unit train-capable transloading terminal in Waynesburg is up and running. The terminal has more than four miles of track, is located on North Fork Southern's Class 1 rail line, and services the Marcellus Shale in southwestern Pennsylvania, West Virginia, and eastern Ohio. Waynesburg can transload in excess of one million tons of fraxan per year. and there are opportunities to expand the facility as we grow our market share in this area. The terminal will also serve as the new northeastern hub for our smart system last mile well site storage solution. We look forward to our Waynesburg terminal driving incremental opportunities to grow our business, including our smart system utilization, as we did with our van hook terminal in the Bakken. The new terminal is exciting for us, not only because it expands our presence in the Appalachian Basin, but it also provides ESG benefits to our customers in the region by reducing trucking mileage and associated carbon emissions related to sand delivery. We believe that bulk commodities belong on rail and that sustainable logistics must include terminals close to our customers' drilling activity. Our mine-to-well site rail and terminal approach yields a safer, cost-efficient, and more reliable supply chain. While the outlook has improved for oil and gas, we are equally excited about our traction we are seeing in our industrial product solutions division. We have hit the ground running and had our first industrial product sales in the fourth quarter. Our customer list is growing rapidly, and by the end of the first quarter, we will have shipped industrial products to 10 customers. We believe this is only the beginning and are excited about the opportunity to diversify our business into the industrial product segment. We also have been busy deploying smart systems. By the end of the first quarter, we expect to have two SmartPath fleets and six Smart Depot silo-only fleets operating in the field. With our fast start in 2022, we expect smart systems to generate positive contribution margin this year. By using our smart systems, our customers can reduce the number of trucks needed to deliver sand to the well site by more than 30 percent versus our competitors' offerings. providing our customers with substantial delivery to the wellhead cost savings. Additionally, by taking trucks off the road, we benefit our communities by reducing accidents, carbon emission, noise, and dust. ESG goals are important to SmartSand and its customers, and SmartSand helps achieve those goals by improving the efficiency and reducing impact. Our balance sheet remains strong. Today, we have $11 million in cash on our balance sheet and approximately $30 million in liquidity. We will continue to remain disciplined with the capital spending while pursuing projects that will generate returns in the future. We remain excited about our future for a number of reasons. Our balance sheet remains in great shape, and we have the assets in place that generate significant free cash flow during an upcycle. With mines situated on four Class I railroads, we now have the logistics in place to more efficiently deliver sand to our customers wherever they are operating. The market for sand has tightened significantly, which should allow us to generate strong returns going forward. Having operated the smart path successfully for four quarters, we look forward to expanding our last mile market share. Industrial product solutions will diversify our business at margins that should exceed oil and gas margins and provide more stability to our earnings profile. As always, we'll continue to keep our 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.