Smart Sand, Inc.

and thank you for standing by. Welcome to the third quarter 2022 SmartSan earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Green, Corporate Controller. Please go ahead.

Good morning, and thank you for joining us for SmartSAN's third 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 just claims any intention or obligation to update or revise 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, November 9th, 2022. Additionally, we will refer to non-GAAP financial measures of contribution margin, adjusted EBITDA, and free cash flows during this call. These measures, when used in combination with our GAAP results, provide us and 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 gross profit contribution margin, net income to adjusted EBITDA, and cash flow provided by operating activities to free cash flow. would now like to turn the call over to our CEO, Chuck Young.

Thanks, Chris, and good morning. In the third quarter, SmartSand delivered sales volumes of 1.1 million tons, 17.8 million in contribution margin, and 11 million in adjusted EBITDA. This is our highest contribution margin in adjusted EBITDA since the second quarter of 2020. Year-to-date, through September, we have sold 3.2 million tons, We are on pace to sell record volumes in 2022. During the quarter, we generated positive free cash flow of $6.4 million. Our strong financial performance in the quarter continues to demonstrate the value of our business model to deliver high-quality northern white sand sustainably and efficiently from the mine to the well site. We also remain committed to maintaining a strong balance sheet that will provide us with the long-term durability to operate successfully through any operating cycle. In the third quarter, we saw strong activity in all the operating basins that we currently serve. Pricing in the quarter improved, and we expect to maintain current pricing levels based on expected continued strong market supply and demand fundamentals. Our unit train capable trans-loading terminals in Waynesburg, Pennsylvania, and Van Hook, North Dakota, continue to demonstrate the value of our long-term focus of delivering bulk commodities on rail in a sustainable and sufficient fashion to our customers. Sales volume into the Bakken Basin served by our Van Hook terminal increased by approximately 40% sequentially. We typically see a slowdown in activity in Van Hook in the fourth quarter due to weather and budget management by our clients. However, this seasonal slowdown looks to be balanced out this year with increased activity through our Waynesburg, terminal into the Marcellus. Having multiple terminals allows us greater flexibility to switch supply to meet changing market demands. Utilization of our smart systems last mile offering continues to improve. We are gaining momentum as we start to penetrate the market with our SmartPath technology. Year to date through September, our smart systems have generated positive contribution margin and going forward, we expect it to deliver improved financial performance. By using our SmartPath, our customers can reduce the number of trucks needed to deliver sand to the well site up to 30% versus our competitors' equipment, providing our customers with substantial cost savings for sand delivered to the wellhead. Additionally, by taking trucks off the road, we benefit our communities by reducing accidents, carbon emissions, noise, and dust. ESG goals are important to SmartSpan and its customers, and SmartSystems helps achieve those goals by improving efficiency and reducing impact. Our mine-to-well site, rail, terminal, and last-mile approach provides our customers a safer, cost-efficient, and more reliable supply chain. We continue to see improvements in our industrial product solutions divisions. with their industrial sales volume increasing 28% in the quarter. Industrial product solutions is a long-term commitment to diversify our business beyond oil and gas and to more effectively utilize our asset base. It will take time to build this business, but we're taking steps needed now to set us for strong growth in this business segment in 2023 and beyond. Our balance sheet remains strong. Today, we have approximately $5 million in cash in our balance sheet and approximately $20 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 high-quality asset base. We have over 400 million tons of northern white sand reserves and current annual processing capacity of 7.1 million tons. Over the last two years for the acquisition of Utica in 2020 and Blair earlier this year, we have developed the capability to flex our annual northern lake capacity from 5.5 million tons to 10 million tons, thus adding 4.5 million tons of capacity for a very low acquisition cost of approximately $9 million. We brought 1.6 million tons of that flex capacity online in late 2020 when we opened our Utica facility. We're actively evaluating the timing of opening the Blair facility and expect to have additional information on this on our year-end earnings call in March. This incremental capacity strategically positions SmartSands to take advantage of the growing market demand for Northern White Sand. Our reserve base is primarily finer mesh sands that meet the long-term needs of the market. Our facilities are low-cost, efficient operations that allow us to operate effectively through all market cycles. Our strategically located in-basin terminals Our terminals in Van Hook, North Dakota, and Waynesburg, Pennsylvania, are located in the heart of the Bakken and Marcellus basins, which gives us a competitive advantage to effectively compete in these basins for years to come. Our superior last mile offering. We believe our smart systems technology provides superior and sustainable well site stand storage management for our customers, and we expect this business to start delivering improved contribution margins going forward. our growing industrial sand solutions business. This business segment continues to grow rapidly, diversifying our business with strong margins. 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 Beckleman.