U.S. Silica Holdings, Inc.

Good morning and welcome to the U.S. Silica Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to Your host, Patricia Gill, Vice President of Investor Relations. Thank you, and over to you.

Thank you, and good morning, everyone. I'd like to thank you for joining us today for U.S. Silica's fourth quarter 2021 earnings conference call. Leading the call today are our Chief Executive Officer, Brian Shin, and Don Merrill, our Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you of our standard cautionary remarks regarding the forward-looking nature of some of the statements that will be made today. Such forward-looking statements, which are predictions, projections, or other statements about future events, are based on current expectations and assumptions, which are subject to certain risks and uncertainties. For a complete discussion of these risks and uncertainties, we encourage you to read the company's press release and our documents on file with the SEC. We do not undertake any duty to update any forward-looking statements, Additionally, we may refer to the non-GAAP measures such as adjusted EBITDA, segment contribution margin, and our consolidated leverage ratio during this call. Please refer to today's press release or our public filings for a full reconciliation of adjusted EBITDA to net income and discussions of segment contribution margin and the consolidated leverage ratio. And with that, I would now like to turn the call over to our CEO, Mr. Brian Shin.

Thanks, Patricia, and good morning, everyone. Before discussing our operating results today, I'd like to first review a couple of significant recent corporate milestones. This month we're celebrating the 10-year anniversary of our public stock listing. Looking back, we've successfully navigated business cycles, integrated numerous acquisitions, developed game-changing new products, effectively managed through a pandemic, and delivered strong growth. In fact, over the last decade, we grew company contribution margin dollars at almost a 9% CAGR, with industrials leading the way with a CAGR of more than 12%. While I'm certainly proud of our company's rich history and numerous long-term business achievements, we've also consistently demonstrated strong core values and ESG leadership. One example of that is our unwavering commitment to the safety and health of our employees. I'm happy to report that our full year 2021 personal safety results were the best ever at our company and more than two times better than our industry peers. We also increased our company spend with women-owned and diverse suppliers to two times the national average. Uasilica is also focused on efficiently managing natural resources. For example, in 2021, we recycled more than 35 billion gallons of water across our mine network. Last year, our solar reflective cool roof granules were installed on more than 63 million square feet of commercial roofing, saving enough energy to power more than 23,000 homes. And finally, in 2021, we continued our partnership with Truckers Against Trafficking, where more than 700 U.S. silica-affiliated truck drivers have been trained to spot the signs of human trafficking while on the road. This is just a small sampling of the areas where our teams are making a difference. Our 2021 sustainability report should be issued in just a few weeks, and I encourage you to visit our website and check it out for additional details. We also delivered numerous other noteworthy accomplishments in 2021. For example, total company annual sales volume and revenue increased by 42% and 30% respectively versus 2020. We also grew adjusted EBITDA by 10% and added $89 million of cash to our balance sheet continuing to reduce our debt. And finally, we posted strong investor returns with our equity up 34% and our debt trading into the high 90s. Let's turn now to Q4 financial results and talk about how we finished the year. We delivered a strong fourth quarter with sequential increases of 5% in total volumes and 7% in total revenues, resulting in adjusted EBITDA of $42.1 million. which was a 6% increase versus Q3 of 2021. Our excellent results were driven by strong customer demand in both segments, along with efficiency improvements and price increases that outpaced inflation. Don will discuss the details in just a moment, but let's review some of the significant highlights that we saw during the quarter. Industrial segment demand remained stronger than anticipated across most end uses and market segments, with marginally higher volumes and revenues. It was the first time in the last decade that we didn't see industrial contribution margin dollars down from Q3 to Q4, as many customers continued to run during the holidays due to robust demand. We also experienced record demand in the quarter for our high-purity filtration products, which are used in diverse end markets, such as life sciences, wine, high-end spirits, and juices. Costs for materials, labor, and services continued to increase during the quarter, but our industrial team moved swiftly and decisively to implement price increases and surcharges to compensate. During 2021, we implemented more than 15 price increases and surcharges to preserve our margins, and I'm pleased to report that the increases are holding and we're continuing to raise prices as necessary in 2022 as well. For example, earlier this month, we announced another round of price increases for the majority of our non-contracted engineered clay products It will range up to 15% and will be effective for shipments starting March 1st. In our oil and gas segment, sand and logistics demand increased sequentially, driven by stronger customer activity, particularly in West Texas. As local sand availability tightened into Permian, we began selling northern white sand from our local network to assist key customers with their well completion needs. Given the very tight supply and demand balance in the markets, We saw prices for sand and last mile logistics increase throughout the quarter, and that trend has continued into 2022. And finally, we executed a number of contracts during the quarter as customers have been insistent on securing profit and delivery services for what is expected to be a very strong first half of 2022. With the rest of my time this morning, I want to give an update on our growing industrial portfolio and then finish with a summary of our outlook for the first quarter and 2022. Over the past few years, we've made strategic investments in product development and new technology, which have helped position our industrial segment as a leader in advanced materials and high-value minerals, which are essential ingredients to critical value chains such as renewable energy, commercial and residential construction, food and beverage production, biopharma, and glass manufacturing. We also have numerous offerings that are essential for the transition to cleaner energy and that help our customers meet their ESG goals. In 2021, 12% of revenues in our industrial segment were generated by products that are environmentally beneficial to society, including raw materials for wind turbines and solar panels, products that reduce energy and water consumption, filter aids for green diesel, and key ingredients for particulate emission filters. We're honored and excited to support the growth in these environmentally important value chains. And speaking of growth, let's discuss progress on achieving our industrial new product contribution margin goals. In 2020, we publicly announced the bold goal to exit 2021 with an incremental $20 million in contribution margin run rate from new industrial products. I'm happy to report that despite the supply chain, logistics, and inflationary pricing headwinds during the year, we met this goal. Further, development of our new industrial products portfolio is ongoing. and remains a top priority. We're still expecting that our new product contribution margin exit run rate in 2024 will increase to approximately $90 million as planned. During the quarter, we had numerous successes in support of this next bold goal, including negotiating new multi-year supply agreements for our Everwhite whole grain and ground Cristobalite products, very successful customer trials of our new adsorbent engineered clay product, targeting the green diesel market. So successful, in fact, that the customer has asked us to accelerate commercialization of this product. Numerous trials of our developmental reinforcing filler product with customers across the rubber and silicone space. Testing of existing mine deposits as potential alternatives to replace key ingredients in high-value fillers. And finally, completion of the limestone processing line at our Berkeley Springs facility which is rapidly ramping up sales and has the capacity to produce more than 1 million tons per year. Let's turn now to our business and market outlook for the first quarter of 2022. Industrial product demand remains strong, and we anticipate a good quarter for this segment. During the month of January, however, strong winter storms negatively impacted some of our East Coast and West Coast mines, causing temporary shutdowns, higher maintenance costs, and transportation issues. As a result of these challenges, Q1 volumes are forecasted to be only slightly higher sequentially and operational costs will be higher. We're working to ship additional products in the back half of the quarter, but it is hard to forecast precisely given the current uncertainties of international shipping. Before leaving industrials, I wanted to address the status of our recently announced strategic review of that segment. We continue to consider a broad range of options, including a potential sale or separation of our industrial segment. The process is ongoing, and as of today, I have no further information to share. Turning to our oil and gas segment, we are essentially sold out of sand propant, and we are seeing meaningful increases in spot and contract prices for both local and northern white sand. The combination of increased customer demand and reported operational challenges at competitors' minds are further exacerbating what was already a very tight market. Given all that, we expect first quarter segment contribution margin dollars to be up at least 15% to 20% sequentially. With our well-placed mines, strong operational performance, and complementary sandbox assets, we have been able to obtain new customer contracts with net price increases for both Permian and Northern White Sand. So far, we are not experiencing issues with trucking, but the overall labor market is expected to remain challenging. On an activity basis, volumes are expected to be flat to slightly up in Q1, and unit contribution margin is expected to be above our $10 per ton long-term benchmark. Overall, 2022 is setting up to be an outstanding year across the company. We are well positioned for robust growth in our ISP segment with demand driven by new opportunities in several fast-growing end uses. increased new product adoption, expected GDP expansion for our base business, and margins that are supported by further price increases. In our oil and gas segment, strong customer demand and constructive commodity prices should support higher pricing and improve margins for Sandprop and Sandbox as well. We're increasing our contract coverage and forecast strong profit demand through the first half of the year. Finally, we expect to generate significant free cash flow this year and to continue de-levering our balance sheet. And with that, I will turn the call over to our CFO, Don Merrill, who will discuss our financial results in more detail. Don? Thanks, and good morning, everyone.