Smart Sand, Inc.

Good morning, ladies and gentlemen, and welcome to the SmartSend Q3 2024 earnings call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, November 13, 2024. I would now like to turn the conference over to Chris Green, Principal Accounting Officer. Please go ahead.

Good morning, and thank you for joining us for SmartSAN's third quarter 2024 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 the 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 13, 2024. Additionally, we will refer to the non-GAAP financial measures of contribution margin, adjusted EBITDA, and free cash flow during this call. 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 gross profit to contribution margin, net income to adjusted EBITDA, and cash flow provided by operating activities to free cash flow. I would now like to turn the call over to our CEO, Chuck Young.

Thanks, Chris, and good morning. We are pleased to report that our continued focus on proactively managing our cost structure and capital expenditures led to positive free cash flow for the quarter. We remain cash flow positive for 2024, and in keeping with our stated goal of returning capital to our shareholders this year, we recently paid a special dividend of $0.10 per share outstanding, and we additionally announced a share buyback plan of up to $10 million. We remain committed to remaining financially disciplined and returning value to our shareholders. Importantly, during the quarter, we put in place a new five-year $30 million AVL credit facility with our new lender, First Citizens Bank. This facility provides us with an efficient and flexible source of funding that allows us to manage our business going forward, as well as the ability to act quickly on emerging opportunities. In the third quarter, SmartSand delivered sales volumes of just under 1.2 million tons, adjusted EBITDA of $5.7 million, and positive free cash flow of $3.7 million. Our sales volume this year have increased 9% over 2023, while our cost of goods sold has decreased by $6.7 million, or 3.4% for the same period. Our capital expenditures are down $11 million year-to-date through September, having spent $5.1 million through September 2024 in comparison to $16.1 million for the same period in 2023. We expect total capital expenditures for 2024 to be at or under $10 million compared to $23 million in 2023. We continue to believe in long-term fundamentals of the oil and gas business, And although volumes decreased modestly quarter over quarter, demand remained strong through the fourth quarter. As for 2025, we are particularly excited about growing demand for natural gas in both the U.S. and Canadian markets, coupled with oil activity that is expected to increase in the Utica. In the third quarter, several new initiatives started to contribute to the business. We began delivering sands to our two new terminals in Denison and Minerva, Ohio, in the quarter. These terminals opened up the growing Utica shale basin for smart sand. In the quarter, approximately 18% of our volumes were sold through these terminals. In addition to establishing a new market for us, delivering sand through our own terminals reduces our logistics costs and provides competitive advantage to serve this market going forward. We continue to grow our volumes from our Blair Mountains. This facility allows us not only to compete in the growing Canadian sand market, it also provides us additional supply route into the Marcellus and Utica basins in the Northeast United States. In the third quarter, Canadian volumes represented about 11% of our sales. We continue to grow our industrial product solutions franchise. Our IPS sales volumes increased by 38% sequentially. We are positioning ourselves to compete for new contracts in 2025, particularly with glass and foundry customers. We could see IPS grow from under 5% of our revenue base to the 10% range of total sales volumes in 2025. We secured a new revolving credit facility. We closed on the new $30 million five-year revolving credit facility in the third quarter, and we look forward to working with our new lending partner, First Citizens Bank. We remain committed to being the premier provider of northern white sand in North America, and we're confident that the foundation of northern white sand demand is strong and will be durable over time. We expect pick-up connectivity in the fourth quarter as demand remains strong in the basins we serve. As demand remains robust, we're optimistic the pricing environment will improve in 2025. The trends for natural gas demand are positive due to the increasing demand for LNG and natural gas-fed power plants to support growing demand from AI data centers. The Marsalis and Canadian basins that we support are primarily natural gas basins. We expect activities in these markets will grow in 2025. We also see growing demand in the oil markets we serve in the Bakken and the Utica basins. All these markets will continue to be primarily supplied by northern white sand. As demand for northern white sand continues to grow in these markets we serve, we believe incremental supply will be limited due to increasing demand for fine mesh sands. Fine mesh sands represent about 90% of current frac sand demand. Many of our competition's reserves are heavily weighted towards producing coarser product that is not in favor. Our reserves are over 75% fine mesh sand, making us uniquely positioned to seize on our customers' growing appetite for fine mesh frac sand. Limited investment in new northern white capacity. Currently, there is limited capital available to support new northern white sand development or restart idle mines. Startup costs for idle mines are significant, and the logistical, market, and reserve-based challenges that led to these mines to be shut down during the downturn remain. Thus, we do not expect to see significant additional northern white capacity entering the marketplace. With our three facilities' efficient and sustainable access to all class-run rail lines, Coupled with our low-cost operations and large, fine-mesh reserves, SmartSand is uniquely situated to take advantage of expected growth in northern white sand demand in 2025 and beyond. While current activity levels and pricing are challenging, we continue to demonstrate that SmartSand can operate effectively through the operating cycles and is well-positioned to take advantage of expected improved market fundamentals starting in 2025. I want to thank all of the employees for their continued dedication to SmartSand. As always, we will keep our employee and shareholder interests in mind in everything we do. And with that, I'll turn the call over to our CFO, Lee Beckelman.