Smart Sand, Inc.

Morning, ladies and gentlemen. Thank you for standing by, and welcome to SmartSense First Quarter 2022 Endings Conference Call. At this time, all participants are on 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 the star, then the one key on your touch-tone telephone. If you require offer assistance at any time, please press star, then zero. I would now like to hand the conference over to your speaker host, Josh Jahn, Director of Finance and Treasurer. Please go ahead.

Good morning, and thank you for joining us for SmartSAN's first quarter 2022 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 12, 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 and 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. First quarter volumes of 852,000 tons are up 12% from first quarter 2021 levels and trending up in March. But overall, we were essentially flat with last quarter due to logistics and weather issues in January and February. However, sales were strong in March, and March volumes represented 43% of our tons sold during the first quarter, setting up what we believe will be a strong run rate for the second quarter and balance of 2022. Commodity prices have remained strong, and we expect to achieve record volumes in 2022. Additionally, we completed the purchase of a sand mining and processing facility in Blair, Wisconsin, with a nameplate processing capacity of 2.9 million tons of frac sand per year. The plant remains idle and we are currently evaluating whether the equipment from that facility will have its best economic use at the Blair site or another of our locations. We expect to have more to report on this subject in later 2022. Pricing continues to improve as a result of strong market demand. As mentioned on our last call, first quarter results generally reflected pricing that was put into place in the fourth quarter of 2021. So far, our second quarter pricing is showing substantial improvement. Similar to others, we are experiencing increased costs due to inflation, logistical constraints, and labor shortages. However, we are prepared to meet these challenges and expect to see improved operating and financial results starting in the second quarter. With less than 15% of our capacity signed up under long-term contracts, we have the opportunity to take advantage of the improved market fundamentals, which should lead to higher prices and higher volumes sold. We are very pleased with the initial results we have seen at our newly constructed unit train-capable transloading terminal in Waynesburg, Pennsylvania. More than half the tons shipped through this terminal in the first quarter were shipped in March. we expect a larger percentage of our volumes will be shipped through this terminal going forward, which will drive our margins higher. The new terminal is exciting for us not only because it expands our presence in the Appalachian Basin, but also because it provides ESG benefits to customers in the region by reducing trucking mileage and associated carbon emissions related to sand delivery. As we have said many times in the past, 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. We are pleased with the traction we are seeing in our industrial product solutions division. Our product list, number of customers, and geographical reach are all expanding quickly. we are working towards penetrating the glass, building products, foundry, filtration, recreation, and other markets throughout North America. Further, we plan to broaden our service capabilities with blending packaging as well as finer-grade products in the second half of 2022. We have seen an uptick in interest in our smart systems. We currently have eight Smart Depot silo fleets operating in the field, two of which are equipped with our SmartPath transloading system. We continue to expect positive contribution margin from this business in 2022. By using our smart systems equipped with the SmartPath, our customers can reduce the number of trucks needed to deliver sand to the well site by more than 30% versus our competitors' offerings, providing our customers with a substantial delivered-to-the-wellhead cost savings. Additionally, by taking trucks off the road, we benefit our communities by reducing accidents, carbon emissions, noise and dust. ESG goals are important to SmartSand and its customers, and SmartSystems helps achieve these goals by improving efficiencies and reducing impact. Our balance sheet remains strong. Today, we have $5 million in cash on our balance sheet and approximately $24 million in liquidity. We will continue to remain disciplined with capital spending while pursuing projects that will generate long-term value. We are excited about our future for a number of reasons. Our balance sheet remains in great shape and we have the assets in place to generate free cash flow during an upcycle. With mines situated on four Class 1 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 improved operating and financial results beginning in the second quarter. Having operated the SmartPath successfully for more than a year, we look forward to expanding our last mile market share. Industrial product solutions is growing quickly and is diversifying our business at margins that exceed oil and gas margins and provide more stability to our earnings profiles. As always, we'll continue to keep our eye on the future, and we'll always keep our employee and shareholders' interest in mind in everything we do. And with that, I'll turn the call over to our CFO, Lee Beckleman.