U.S. Silica Holdings, Inc.

Good morning and welcome to the U.S. Silica third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. You may press star zero if you need to signal for an operator. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to Patricia Gill, Vice President of Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. I'd like to thank you for joining us today for U.S. Silica's third quarter 2022 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, net debt, and our net 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, net debt, and the net leverage ratio. And with that, I will hand the call over to Brian Shin.

Thanks, Patricia, and good morning, everyone. We delivered another exceptional print in Q3, resulting in our best quarterly financial performance in the last four years. These tremendous results were driven by continued robust customer demand in both business segments and outstanding execution by our talented team. We enjoyed a full quarter of price increases to fight inflationary impacts in our industrial segment, realized greater contract coverage at improved prices in Stan Propin, and delivered further margin expansion in sandboxed last mile logistics. This resulted in sequentially higher revenue, earnings, and strong cash generation across the company, affording us the opportunity to repurchase an additional $50 million of debt earlier this month. So far this year, we have used our strong cash flow generation to repurchase a total of $150 million of debt and expect to generate substantial operating cash flow in the fourth quarter and in 2023, which should further strengthen our balance sheet and help us achieve our objective of meaningfully reducing net debt. Don will discuss the details of Q3 performance in just a moment, but first, I'd like to review some of the important trends that we saw during the quarter. In our oil and gas segment, the supply and demand balance was very tight in sand profit and last mile logistics, and we remained effectively sold out due to strong well completion demand, particularly in West Texas. Spot prices range from approximately $40 to $50 per ton, and our contract sand and sandbox sales prices and margins continue to expand. During the third quarter, we achieved new business milestones in the month of August with record sand production in West Texas and record sandbox delivered loads. With the current energy cycle anticipated to last for multiple years, our customers have been determined to secure sand supply and continue to sign attractive, multi-year contracts. These contracts have recently included paying cash upfront in the form of a capacity reservation fee, or CRF, the latest of which was signed a few weeks ago. Overall, our oil and gas segment finished the quarter with positive momentum, and we expect continued underlying demand strength in the fourth quarter balanced against the potential for weather disruptions and the level of holiday seasonality. In our industrial segment, Customer demand remained robust across end uses and market segments, and third quarter results improved sequentially versus a very strong second quarter. Volumes persisted at record levels in Q3, and we reported the second highest contribution margin in segment history. These strong results were driven by improved product mix, continued operational efficiency gains, and the price increases and surcharges across all major product lines to combat inflation. In September, we announced another round of price increases ranging from nine to 20% for most of our non-contracted industrial products, effective for shipments beginning November 1st. And finally, many of our facilities continue to operate at record utilization rates to keep pace with industrial segment demand. With the remainder of my time this morning, I want to give an update on a few of the exciting growth opportunities in our industrial portfolio, and then finish with a summary of our outlook for the fourth quarter and for 2023. New product innovation and the profitable growth of our industrial product portfolio remain important priorities for US silica. During the quarter, we had numerous successes and made further progress toward the expansion of future contribution margin dollars, including receiving our first purchase order for our newest patent-pending white pigment product, ramping up sales of our diatomaceous earth filtration products into the renewable diesel market, signing a key purchase agreement for the first significant sale of our new high-purity filtration product, executing a long-term contract for our ultra-low iron silica that will support the increasing demand for U.S. solar panel glass manufacturing, and finally, we have multiple customers across different markets inquiring about long-term contracts for diatomaceous earth filtration and clay adsorbent products. given that the supply for both of these products is expected to be tight for the next several years. Now let's turn to our business and market outlook for the fourth quarter, starting with oil and gas. Energy sector demand continues to be robust, and we remain effectively sold out, with Q4 off to a really strong start. In fact, October is tracking to be our highest profitability month of 2022 so far. Typically, we expect seasonally weaker demand in the back half of Q4 in the oil field part of our business, but it's unclear to what extent this will happen in 2022. Meanwhile, we expect to continue securing new customer contracts at attractive pricing. In our industrial segment, demand continues to be strong in Q4 so far, and we're not experiencing specific economic-driven weaknesses. Historically, our Q4 profitability declines around 10 to 12% sequentially due to a combination of seasonal demand, customer facility maintenance, and customer year-end inventory management. We expect the Q4 22 profitability for industrials will be in line with those historical norms. Looking out to 2023, our oil and gas segment is in an excellent position for further sequential growth and cash generation. We're committed to efficiently running our operations and maximizing our production levels without adding incremental capacity. Additionally, we believe that the industry forecasted 9% year-over-year profit supply additions will be easily absorbed by the market as supply and demand is projected to remain tight. More importantly, our customers appear to believe this as well given the attractive multi-year contracts that we've signed recently. We expect to continue to maintain competitive discipline and further enhance our strong reputation as a reliable, low-cost sand and logistics provider. We believe that a combination of constructive crude oil pricing and strong sand profit customer contract coverage and mix, coupled with higher sandbox margins, will continue to generate significant free cash flow from operations in 2023 and help further strengthen our balance sheet. Turning to our industrial and specialty product segments, we are continuing to carefully evaluate a variety of factors to develop our 2023 outlook. Currently, our base case 2023 forecast is for increased sales volumes with improving margins. We have not yet seen meaningful indications of potential recessionary impacts, but obviously there's a lot of noise in the market right now. I'm encouraged that several key customers are relatively bullish regarding demand next year and that they're continuing to sign attractive long-term contracts with us. While we will have more to say on our 2023 ISP outlook on the next earnings call, Our focus remains on margin growth through a combination of new customer acquisition, new product development, and productivity improvements, and we plan to continue to invest in high-return, high-certainty growth projects. And with that, I will turn the call over to our CFO, Don Merrill, who will discuss our financial results in more detail. Don?