U.S. Silica Holdings, Inc.

Good morning and welcome to the U.S. SILCA's first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you need operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce to you Patricia Gill, Vice President of Investor Relations and Sustainability. You may begin.

Thank you, and good morning, everyone. I'd like to thank you for joining us today for U.S. Silica's first quarter 2023 earnings conference call. Leading the call today are Brian Shin, our Chief Executive Officer, and Don Merrill, our Executive Vice President and Chief Financial Officer. Before we begin, we 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. I would now like to turn the call over to our CEO, Mr. Brian Shin.

Thanks, Patricia, and good morning, everyone. During the first quarter, U.S. silica continued to build upon its positive operating momentum, delivering exceptional results as we reported record adjusted EBITDA and the highest level of total contribution margin dollars since 2018. Customer demand in our oil and gas segment remained robust, and we delivered improved pricing and margin expansion, while our industrial segment rebounded from the prior quarter's seasonality with strong results and increased sales of higher margin products. We also successfully entered into a new $1.1 billion credit agreement in Q1 and concurrently extinguished $109 million of debt, further strengthening our balance sheet. Moving on to Q1 results, 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, starting with our oil and gas segment. The year began with strong customer demand and activity in January, and this positive momentum carried through February and March as we delivered the highest quarterly oil and gas segment contribution margin dollars since the second quarter of 2018. Very strong well completion activity, especially in West Texas, drove continued supply and demand tightness in sand prop and last mile logistics, and we remained effectively sold out during the quarter. Our sand and sandbox prices and margins continued to expand during the first quarter, Our West Texas mines hit production and sales records in the month of March, and we achieved another record for sandbox, delivered loads in March and for the quarter. Spot prices for sand profit continued at attractive levels, averaging mid-$40 per ton in the Permian Basin, and we executed contract extensions with Northern White Sand customers at improved prices. Additionally, strong operational performance and improved plant and supply chain efficiencies were accretive to segment contribution margins. We also launched our new sandbox system for damp sand in West Texas during the quarter. Our innovative, high-capacity equipment performed well, and we delivered approximately 7,500 sand loads in Q1 from the wet section of our existing mine sites. We have the capability to produce more than one million tons per year of damp sand at our Crane and La Mesa locations combined to support customers' operations. Overall, we delivered an outstanding quarter and a great start to the year in our energy business. In our industrial segment, as expected, customer activity rebounded from the normal fourth quarter seasonality and margins grew significantly through a combination of our November 2022 and annual January 2023 price increases, higher plant efficiencies generating improved costs, and lower natural gas input costs. Volumes were lower year over year due to mild softness in building products, and glass market demand. Despite this, total contribution margins still grew 13% year over year due to higher prices, lower costs, reduced contractor spend, and increased sales of higher margin products. In the first quarter, we also finalized several attractive new contracts, which will be accretive to current contribution margin dollars and percent. Finally, last week we announced a favorable litigation verdict against a European company that was infringing on multiple U.S. silica patents related to our White Armor Cool Roof Granules product line. We're extremely pleased with this favorable result, and we will continue to enforce and defend our intellectual property rights across our portfolio. For the remainder of my prepared remarks this morning, I will provide updates on key developments in our industrial portfolio and then finish with a summary of our outlook for the second quarter and for the full year 2023. Regarding industrials, we continue to successfully execute our segment growth strategy and are focused on three key elements, which are first, increasing the profitability of our base business at a GDP plus rate. Second, substantially growing existing high value differentiated products, such as ground silica, diatomaceous earth powders and fine fillers, and high purity filtration substrates. And third, expansion of our addressable markets with sales of new high-value advanced materials such as Cristobalite, Everwhite pigment, and White Armor solar reflective roofing materials. We continue to make strong progress across these areas in Q1 with several recent achievements, including executing a 10-year agreement with a building products customer who we expect to purchase over 4 million tons of products during the life of the contract. completing a capital project which expanded production capacity of engineered clay products at our Jackson, Mississippi facility, which are used by customers in the purification of edible oils and feedstock for green diesel production, qualifying our ever-white pigment to replace not-in-kind incumbent offerings in selected building materials and other markets, such as fluid-applied coatings for roofing, specialty concretes, and inks for cardboards. announcing another round of price increases of up to 20% that will go into effect no later than June 1st of this year for many non-contracted products. This round of price increases is expected to add over $9 million of incremental revenue in 2023. And finally, we will be launching our new Everwhite pigment products at an upcoming coating show. These products are alternatives to titanium dioxide and provide incredible durability and outstanding weatherability to a variety of different applications, including roof coatings, epoxy flooring, specialty concretes, and engineered quartz countertops. Let's move now to our business and market outlook, starting with an overall company perspective. Last quarter, we forecasted 2023 company adjusted EBITDA growth of 20% to 25% sequentially. Based on the strong start to 2023, visibility provided by our customer contracts, and recent market feedback, we are raising our guidance for this year. We now forecast even more robust growth and improved financial performance, with company-adjusted EBITDA increasing 25% to 30% year-over-year, with associated free cash flow generation of more than $200 million. Don will share further details in a moment, but we expect our net leverage by the end of 2023 to be substantially lower than previously forecast. Our oil and gas segment remains well-positioned to continue to generate strong earnings and meaningful cash flow. Customer demand in the energy sector is robust, and we expect to remain effectively sold out for our sand prop in 2023 with strong contractual commitments at 85% of production capacity. We continue to focus on efficiently running our operations while maximizing production levels without adding incremental capacity. And as I mentioned earlier, we will continue to opportunistically sell damp sand to select customers in West Texas. Demand for sandboxed last mile logistics remains strong as well, and we expect continued tightness in logistics in Q2 and for the remainder of the year. Beyond our new sandbox damp sand system, we're also working on other well site solutions to support our customers that I think we will certainly talk about in coming quarters. Overall, we expect Q2 volumes and contribution margin dollars for the oil and gas segment to remain around the record levels that we delivered in the first quarter. Moving to our industrial and specialty product segment, we believe that we are well positioned to achieve year-over-year profitability growth due to the strong and diverse end markets that we serve. In addition, we are realizing benefits from structural cost reductions and price increases, and we are signing favorable long-term contracts. We expect that these efforts in total will offset any potential near-term market weakness. On a year-over-year basis, we expect Q2 contribution margin dollars to increase 3% to 7% based on the realization of a partial quarter of price increases and improved operational efficiencies. And with that, I will now turn the call over to our CFO, Don Merrill, who will discuss our financial results in more detail. Don?