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Operator: Good day and thank you for standing by. Welcome to the Q4 2022 Smart Sand, Inc. Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. And I would now like to hand the conference over to your speaker today, Mr. Chris Green, Principal Accounting Officer. Mr. Green, please go ahead.

Chris Green: Good morning and thank you for joining us for Smart Sand’s fourth quarter and full year 2022 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. Smart Sand disclaims any intention or obligation to update or revise any 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, March 1, 2023. Additionally, we will refer to non-GAAP financial measures of contribution margin, adjusted EBITDA and free cash flows 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 and our public filings for our reconciliations of gross profit 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.

Chuck Young: Thanks, Chris, and good morning. Before getting into our fourth quarter and year-end 2022 results, I want to highlight our buyback of Clearlake Capital’s equity ownership position in Smart Sand. As announced yesterday, we purchased from Clearlake 5.18 million shares for approximately $8.85 million. This share buyback amount represents approximately 11.3% of the company’s outstanding shares. I want to thank Clearlake for its long-term commitment to Smart Sand. Clearlake provided us with our initial capital in 2012 to begin developing our Oakdale facility and has been a good partner for the company over the last 11 years. This transaction demonstrates our continued commitment to deliver long-term value to our shareholders.

We believe this buyout of Clearlake’s equity position demonstrates our focus on shareholder returns and is a good investment in the future of Smart Sand. Now to our financial results. Smart Sand delivered strong operating and financial results in the fourth quarter and for the full year 2022. In the fourth quarter we sold just under 1.2 million tons. And for the full year 2022, we delivered 4.3 million tons an annual record for the company. Our acquisitions and development activities over the last few years contributed to our strong results in 2022. Our Utica facility acquired in late 2020, represented approximately 22% of our sand sales volumes last year. Our Waynesburg terminal in Pennsylvania was a key driver in our increased sales activity in the second half of 2022.

We could have not achieved these results without the dedication and hard work of our employees. I want to thank our employees for their efforts and continued commitment to Smart Sand. The fourth quarter was our third consecutive quarter of positive adjusted EBITDA and our second consecutive quarter of positive free cash flow. For the quarter, we generated $10.7 million in adjusted EBITDA, and $2.4 million of free cash flow. For 2022, our adjusted EBITDA was $29.3 million, which was a substantial improvement over 2021 results. Activity continues to be strong and we expect it to continue. I’m happy to announce that we just signed an extension of our contract with the Marcellus customer, extending the contract term and increasing volumes, which demonstrates continued strong demand for Northern White sand in the Marcellus.

We continue to demonstrate the value of our business model to deliver high-quality Northern White sand sustainably and efficiently from the mines of the Wellsite. Northern White sand continues to be the primary source of frac sand in the Eastern and Western basins of the United States and in Canada. Canada being a major Northern White sand market was the main driver for our investment last year in the Blair mine and processing facility in Wisconsin. I’m pleased to announce that we are moving forward to make the necessary investments in the first quarter to bring Blair online. We will spend approximately $5 million to make Blair operational. We’ve signed our initial contract to deliver sand into the Canadian market and we expect to start selling sand into the Canadian market beginning in the second quarter.

With Blair opening, we now can effectively compete in all primary Northern White sand markets. We are committed to the Northern White sand market. We have made strategic investments over the last few years to establish Smart Sand as the premier provider of Northern White sand and logistics services in the market and those investments are all contributing to our improved financial performance. Our key operating strengths are our high-quality reserve base of majority finer mesh sands, our efficient mining and processing facilities at Oakdale, Utica and Blair. Our direct access to four Class 1 rail lines and strong connections to all Class 1 rail lines. Our high-volume in-basin terminals in North Dakota and Pennsylvania and our efficient wellsite sand storage and delivery fleets and services through our SmartSystems product offering.

While we remain focused on our primary Northern White sand markets, we are seeing renewed interest in Northern White sand in the Permian and Mid-Continent basins. Well performance in the Permian and other Southwestern basins has been declining. We believe Northern White sand leads to better long-term well results. As E&Ps continue to focus on generating positive free cash flow, we believe wells completed with Northern White sand will lead to better production over the life of the well leading to higher overall cash flow generation for the producer. We don’t expect these markets to turn away from regional sand completely, but we do believe we can opportunistically sell Northern White sand into these markets to add incremental value to our business.

Our unit trade capable transloading terminals in Waynesburg, Pennsylvania and Van Hook, North Dakota continue to demonstrate the value of our long-term focus of delivering bulk commodities on rail in a sustainable and sufficient fashion to our customers. Our volumes transloaded through our Waynesburg terminal increased in the fourth quarter and activity through this terminal continues to be strong. Volumes through our Van Hook, North Dakota terminal typically slow down in the winter months due to weather, but we expect activities from Van Hook to pick up starting in March. Utilization of our SmartSystems Last Mile offerings continue to improve. We are gaining momentum as we start to penetrate the market with our SmartPath technology. Our SmartSystems generated positive contribution margin in the fourth quarter and for the full year 2022.

Going forward, we expect it to deliver improving financial performance. Our Industrial Product Solutions division continues to grow. Our industrial sales volume increased by 30% in the fourth quarter. Industrial Product Solutions is a long-term commitment to diversify our business beyond oil and gas and to move more effectively to utilize our asset base. We are taking the time to build this business for a long-term success. We expect to see this business segment continue to grow in 2023 and beyond. As always, we will continue to keep our eye on the future. We are focused on generating higher returns from our existing quality asset base and logistics capabilities, while maintaining prudent leverage levels that allow us to operate through operating cycles in our industry.

As demonstrated by our buyback of Clearlake’s equity position, we are committed to creating long-term shareholder value, and we’ll continue to evaluate and look opportunistically for ways to deliver value to our shareholders going forward. Now, we always keep our employees and shareholders interest in mind in everything we do. And with that, I’ll turn the call over to our CFO, Lee Beckelman.

Lee Beckelman: Thanks, Chuck. Now, I’ll go through the highlights of the fourth quarter 2022, and full year 2022 financial results. Starting with sales volume, we sold approximately 1.175 million tons in the fourth quarter of 2022, a 6% increase over third quarter volumes of approximately 1.1 million tons sold. For the full year 2022, overall tons sold were 4.33 million, compared to 3.19 million in 2021, a 36% increase year-over-year. Activity levels continue to be strong. Total revenues for the fourth quarter of 2022 were $73.8 million, compared to $71.6 million in the third quarter. Total revenues for the 2022 year were $255.7 million, compared to $126.6 million in 2021. Total revenues were higher in the fourth quarter and full year 2022, as a result of increased sales €“ sand sales volumes and higher average prices, primarily driven by increased market activity in the operating base as the company serves.

Our cost of sales for the quarter were $62.7 million, compared to $60.2 million last quarter, remaining relatively consistent sequentially. Our cost of sales for the full year 2022 were $226.1 million, compared to $140.4 million in 2021. The increase was, primarily due to higher production costs and freight costs related to the increased sales volumes, along with higher labor maintenance and utilities costs in 2022. Total operating expenses were $9.5 million in the fourth quarter, compared to $7.7 million last quarter. Operating expenses were higher sequentially, primarily due to start-up cost of Blair. Total operating expenses were $32.7 million for 2022, compared to $47.6 million for 2021. In 2021, we recorded $19.6 million as non-cash bad debt expense, which is the difference between $54.6 million accounts receivable balance that was subject to litigation, and the $35 million cash payment we received under a settlement agreement.

Net income was basically flat quarter-over-quarter. Net income was $2.6 million for the fourth quarter 2022, or $0.06 per basic and diluted share, which was slightly lower than third quarter 2022 net income of $2.7 million, or $0.06 per basic and diluted share. For 2022 net loss decreased substantially compared to 2021 results. Net loss for 2022 was negative $0.7 million, or a negative $0.02 per basic and diluted share compared to a net loss of negative $50.7 million, or a negative $1.21 per basic and diluted share for 2021. The decrease in net loss was due to an increase in total volumes sold and higher average sales prices for our sand in addition to the non-cash bad debt expense recorded in 2021. For the fourth quarter of 2022, contribution margin was $17.4 million and adjusted EBITDA was $10.7 million, compared to the third quarter contribution margin of $17.8 million and adjusted EBITDA of $11.3 million.

Third quarter 2022 results included higher shortfall revenues of approximately $2.3 million. For the full year 2022, contribution margin was $54.6 million and adjusted EBITDA was $29.3 million, compared to full year 2021 contribution margin of $10.5 million and adjusted EBITDA of negative $30.5 million. The increase in contribution margin and adjusted EBITDA year-over-year was primarily due to the increase in higher average sales price and higher overall volumes sold. For the fourth quarter of 2022, we generated $5.6 million in net cash provided by operating activities, leading to $2.4 million in free cash flow, after we spent $3.2 million on capital expenditures. For the full year 2022, we generated $5.4 million in net cash provided by operating activities, leading to negative $13.9 million in free cash flow after we spent $19.3 million on capital expenditures and the acquisition of Blair.

We currently have $11 million in undrawn availability in our existing credit facility. We ended the year with approximately $5.5 million in cash and cash equivalents and currently have approximately $8 million in cash on hand. Between cash and our availability on our credit facility, we currently have approximately $19 million in available liquidity. As Chuck highlighted, we purchased Clearlake’s 5.18 million shares for approximately $8.85 million, of which $4.42 million was paid in cash and the remainder financed in an unsecured promissory note provided by Clearlake that will mature in December 2023. We are committed to delivering long-term value to our shareholders and we believe this is a good investment in the future of Smart Sand. We are moving forward with opening our Blair facility in the second quarter of 2023, which opens up the Canadian market for us.

We expect sales volumes to be in the $1 million to $1.2 million range in the first quarter of 2023. We currently believe that contribution margin per ton will remain in the low double-digit range in the first quarter of 2023. We expect capital expenditures for 2023 to be in the $20 million to $25 million range, which includes approximately $5 million in capital related to the startup of Blair. This concludes our prepared comments and we will now open up the call for questions.

Operator:

Chuck Young: Yes. Thank you for joining us for the call. We look forward to speaking with you again in May.

Operator: This will conclude today’s conference call. Thank you all for participating. You may now disconnect and have a pleasant day.