U.S. Silica Holdings, Inc.

Good morning, and welcome to the U.S. SILICA Fourth 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. A brief 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 your host. Patricia Gill, Vice President of Investor Relations. Please proceed.

Thank you, and good morning, everyone. I'd like to thank you for joining us today for U.S. Silica's fourth 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 non-GAAP measures such as adjusted EBITDA, segment contribution margin, net debt, and 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 would like to turn the call over to our CEO, Mr. Brian Shin.

Thanks, Patricia, and good morning, everyone. we delivered another excellent quarter to close out an exceptionally strong year for the company, which was defined by numerous achievements and accomplishments. During 2022, our talented team successfully executed our strategic plan and delivered impressive bottom-line results while strengthening our balance sheet and positioning U.S. Silica for future success. We capitalized on robust customer demand for both operating segments and our combination of market and customer focus plus best-in-class offerings helped us maintain our industry leadership position. In 2022, we significantly raised pricing across both segments to help offset inflation. We increased contract coverage while expanding margins in our oil and gas segment and generated significant free cash flow. We opportunistically used this cash to retire $150 million of long-term debt, effectively reducing our net leverage ratio to 2.2 at year-end. I'm also very proud of our financial and operational achievements during the year. Revenue increased 38%, adjusted EBITDA grew by 58%, and overall tons sold increased 14%. We also delivered many non-financial achievements in 22, including our third year in a row of record employee safety performance, industrial segment sales revenue into environmentally beneficial end uses increased by 6% year over year, We sold enough of our organic insecticide product to cover over 26,000 American football fields. And our Rockwood, Michigan facility sold enough specialty low iron silica sand to produce flat glass for solar panels to more than cover the entirety of Central Park in New York City. Overall, a great year and a lot to be proud of. Let's move now to Q4. Don will discuss our performance in more detail in just a moment, but first, I'd like to review some of the important trends that we saw during the quarter. Let's start with our oil and gas segment. Activity was strong through the holidays, and we did not experience meaningful disruptions from seasonality or weather. Supply and demand balance remained very tight in sand, profit, and last-mile logistics, and we continued to be effectively sold out due to strong well-completion demand, especially in West Texas. Spot prices for sand continued at attractive levels and ranged from approximately $40 to $50 per ton in the Permian Basin. Our contract sand and sandbox sales prices and margins expanded further during the quarter, and we achieved another record for sandbox delivered loads in October. Current customer sentiment is constructive, and crude oil prices are supportive in what appears to be a multi-year upcycle for U.S. energy markets. We are encouraged that customers continue to secure sand supply for the medium term, and we signed incremental, attractive multi-year contracts during the quarter, in addition to successfully realizing increased pricing on some existing customer contracts. In our industrial segment, Q4 profitability declined sequentially as guided on our prior quarterly earnings call. As discussed, this is normal seasonality for our industrial business. Some markets naturally slow at year-end and customers trim year-end inventory to manage cash and perform annual facility maintenance in November and December. Partially offsetting these seasonal impacts were lower natural gas input costs and the previously announced November 1st price increases on most of our non-contracted industrial products. We also agreed to over a dozen new customer contracts or contract renewals with favorable pricing and terms during the quarter. We ramped up sales of our diatomaceous earth filtration products to support production of renewable diesel at numerous customer facilities. And also, we drove substantial operational performance improvements across numerous facilities through enhanced maintenance and reduced contractor spend. And finally, we're improving our S&OP processes with a focus on increasing total supply chain efficiency and product line profitability. For the rest of my time this morning, I'd like to give an update on some of the exciting developments in our industrial portfolio and then finish with a summary of our outlook for the first quarter and full year of 2023. Our industrial segment strategy remains consistent and has three main drivers. The first is increasing profitability of our base business at a GDP plus rate. We have several items that support this commitment, including growing share at new and existing customers, implementing value-added pricing, and continuously improving supply chain efficiency and effectiveness. Our second driver is sales growth of existing high-value differentiated products. Examples of products in this category include ground silica, diatomaceous earth powders, diatomaceous earth fine fillers, and high-purity filtration substrates. These products are generally in high demand, and most are sold out. We're currently investing in new capacity to meet the strong market need for these offerings. Our third growth driver in industrials is addressable market expansion with new high value advanced materials. Advanced materials examples include cristobalite, cool roof granules, ever white pigment, renewable diesel filtration media, and micron scale minerals for specialty applications. We're strategically investing in product development and new technology in these categories and we're standing up a new technical development center near our flagship industrial mine site in Illinois to accelerate commercialization and sales of these offerings. We continue to make good progress with other noteworthy developments in our industrial segment during Q1, including commencing shipments of our purified high-purity filtration product to a large pharmaceutical company to support production of biomedical products. Also approving investments in several growth and cost improvement projects, including adding capacity at our Millen, Georgia facility to support production of finely ground products, expanding capacity at our Jackson, Mississippi facility to increase capacity for edible oil and renewable diesel purification products, integration of our two ERP systems on the industrial side of our business, which will deliver business and cost efficiencies along with improved data insights by year end. And finally, implementation of a new export management system to support significant international freight savings. We also delivered on our January 1 contracted price increases as planned. And lastly, in 2022, we achieved the second best safety year ever for our industrial segment. Now let's turn to our business and market outlook. We believe that we are well positioned for success this year and are forecasting robust growth and strong financial performance in 2023, with company-adjusted EBITDA increasing 20% to 25% year-over-year and associated free cash flow generation of more than $150 million. Our oil and gas segment is well positioned to continue to generate strong earnings and cash while delivering further sequential growth. Demand in the energy sector is robust and we remain effectively sold out for sand profit and last mile logistics. We began 2023 with positive momentum by delivering the best January profitability in oil and gas segment history. Profit contractual commitments stand at 85% of our 2023 capacity and are projected to reach similar levels in 2024, providing us with strong future cash flow visibility. Further, the staggered nature of our contracts allows us to capitalize on market strength, and we continue to secure new customer contracts at attractive pricing. We also remain dedicated to efficiently running our operations and maximizing production levels without adding incremental capacity. Additionally, we believe that the small amount of forecasted profit supply additions this year will be absorbed by the market by increased demand. Moreover, recent constructive customer conversations support this sentiment, and we expect strong profit contract commitment levels and attractive margins over the next 12 to 24 months. Given that, we forecast Q1 volumes and contribution margin dollars to increase 3% to 6% sequentially. We're also commercializing additional well site offerings in our oil and gas segment, which we expect to contribute to 2023 earnings. and we plan to discuss those new product lines in the coming quarters. Pivoting to our industrial and specialty products segment, we continue to monitor macroeconomic factors and fine-tune our full-year 2023 outlook. Customer demand remains strong overall, particularly in the food and beverage, chemicals and refining, general industrial, and absorbent end markets. However, demand in building products applications is showing some potential weakness. All in, we anticipate sequential profitability improvement as customer activity rebounds from typical fourth quarter seasonality, and we realize a full quarter of price increases. Our current base case forecast is for increased sales volumes with improving margins in 2023. We expect Q1 volumes and contribution margin dollars to increase 6% to 10% on a year-over-year basis for industrials. And with that, I will turn the call over to our CFO, Don Merrill, who will discuss our financial results in more detail. Don?