Thank you for standing by. This is the conference operator. Welcome to the Source Energy Services fourth quarter 2022 results conference call. As a reminder, all participants are in listen only mode, and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the call over to Scott Melbourn, CEO. Mr. Melbourn, please proceed. Thank you, operator. Good morning. Welcome to Source Energy Services fourth quarter 2022 conference call. My name is Scott Melbourn. I'm the CEO of Source. I'm joined today by Derren Newell, our CFO. Today I'll cover off the formal part of the call, and Darren and I will be available to answer any questions you may have. Before I get started, I would like to refer everyone to the financial statements and the MD&A that were posted to SEDAR on the company's website last night, and remind you of the advisory on forward-looking information found in our MD&A and press release. On this call, Source's numbers are in Canadian dollars and metric tons, and we will refer to adjusted gross margin and Adjusted EBITDA, which are non-IFRS measures as described in our MD&A. Except for the items just mentioned, our financial information is prepared in accordance with IFRS. 2022 was a year where improved commodity prices drove higher activity levels in the WCSB, which tightened up the supply demand balance for all oilfield services providers. This allowed Source to achieve some significant improvements in its financial performance from 2021 and position itself for continued growth in 2023. Source realized Adjusted EBITDA of CAD 61.5 million, a 59% increase from 2021 and a CAD 15.6 million improvement in its net loss, which was CAD 8.8 million for 2022. These increases were driven by improvements in gross margin. In 2022, we reported gross margin of CAD 58.1 million and adjusted gross margin of CAD 79 million, which are increases of 48% and 31% from 2021. The gross margin improvements are a result of spot market pricing improvements and an increase of 15% in sand sales volume over 2021. Gross margin also benefited from strong utilization of the Sahara fleet during the year, where the Canadian fleet was 75% utilized and the US fleet was 74% utilized. Excluding gross margin from mine gate volumes, adjusted gross margin was CAD 29.80 per ton, compared to CAD 24.33 cents per ton in 2021. While gross margin improvements for 2022 were somewhat tempered by customers under long-term contract, we have now renegotiated all contracts to reflect the current environment. This positions us to see incremental improvements in gross margin in all lines of business in 2023. Operating expenses increased on a year-over-year basis, primarily due to increased repairs and maintenance costs, including expenditures required to bring the new Peace River facility online, and an increase in royalty payments directly related to higher activity levels. General and administrative costs were higher as 2022 did not benefit from the Canada Emergency Wage Subsidy Program, or CEWS, and the reversal of a provision for bad debt expense that was recorded in 2021. As previously announced, we closed the transaction with Canadian Silica Industries to assume the operation of their Peace River frac sand facility in Q2 of 2022. The addition of a domestic sand complements Source's existing Northern White offering. In addition to the CSI transaction, we closed a new CAD 75 million credit facility in Q4, reducing our borrowing costs and providing us additional financial flexibility. Source generated free cash flow of CAD 3.9 million for the year ending December 31st, 2022, compared to CAD 11 million generated for 2021. This decrease is attributed to higher financing expense paid, as interest incurred for the notes in 2021 was paid in kind, compared to CAD 12.9 million in cash interest payments on the notes in 2022. Higher interest expense incurred for the ABL facility, reflecting higher average draws outstanding and an increase in the variable interest rate for the facility, as well as incremental costs incurred for the closing of the ABL facility, and an increase in maintenance capital expenditures for the year related to the Peace River facility. The increase in cash outflows was partially offset by a CAD 22.9 million improvement in Adjusted EBITDA, reflecting strong volumes and increased average sand prices compared to the prior year. Net capital expenditures for 2022 were CAD 13.3 million, an increase of CAD 6.8 million compared to 2020, driven by expenditures for the Peace River facility and increased oil removal. During 2022, Source sold excess production equipment, generating proceeds of CAD 1.5 million. Turning to Q4 2022, we recorded 566,000 tons of sand sales, which is slightly lower than anticipated due to the seasonal slowdown in Q4 and delayed completion programs in Northeast BC, as ongoing permitting issues were not fully resolved in the quarter. Total volumes for the quarter were 7% higher than Q4 2021. Compared to Q4 2021, sand revenues increased by 28% due to improved pricing and sales volume. Sales of in-basin Northern White were lower in the fourth quarter of 2021. This was offset by 129,000 tons of mine gate 6. In the fourth quarter of 2022, we realized Adjusted EBITDA of CAD 6.5 million. Normalized for the CAD 3.3 million of foreign currency gains related to the fourth quarter of 2022 that were settled in the third quarter of 2022, we achieved an Adjusted EBITDA for the quarter of CAD 9.8 million, which is an improvement of 490% from the fourth quarter of 2021. We reported a net loss of CAD 12.2 million for the fourth quarter of 2022. For 2023, we are in a naturally balanced FX position as we've been able to convert some of our contracted customers to U.S. dollar-denominated contracts. We will continue to monitor our FX exposure and actively manage if required in the future. Sand revenues in the quarter were CAD 70.3 million, an increase of 28% over the fourth quarter of 2021. Compared to the fourth quarter last year, the increase in sand revenue was due to a 33% increase in the average realized sand price, excluding the impact of mine gate sales. Strong activity levels for non-contracted customers during the quarter, as well as pricing improvements with contracted customers, created the improved pricing and gross margin realized during the quarter. wellsite solutions revenue was CAD 16.2 million for the quarter, an increase of 36% or CAD 4.3 million compared to the Q4 2021. Despite lower volumes, wellsite solutions revenue was higher due to the impact of longer hauls from the terminals to the well site and improved pricing. Total trucked volumes during the quarter were impacted by customer delays and permitting issues in BC. Compared to the same period last year, Sahara-related revenue increased 44% on a quarter-over-quarter basis due to 35% increase in days utilized across the nine-unit fleet. We continue to see strong interest in Sahara units from both Canada and the U.S. Cost of sales in the fourth quarter were impacted by higher costs for transportation and freight due to increased fuel prices, a tight trucking market, and the increased cost of third-party sand purchases. These costs, along with higher labor costs and no QS received, were partially offset by Source's continued focus on streamlining production. The weaker Canadian dollar on our USD-denominated costs increased our cost by CAD 6.38 per ton compared to the same period last year. Offsetting this increase at the Adjusted EBITDA line on a year-to-date basis were the gains realized on the foreign exchange contracts that were settled in the third quarter of 2022. Excluding gross margin from mine gate sales, adjusted gross margin per ton was CAD 30.15, which was favorably impacted by improved pricing. Compared to the fourth quarter last year, the adjusted gross margin for the fourth quarter of 2022 did not benefit from a stronger Canadian dollar or proceeds from the QS program. Excluding these items, the fourth quarter of 2022 adjusted gross margin per ton has increased by 94%. For the fourth quarter of 2022, total operating, general and administrative expenses increased by CAD 2.9 million compared to the same period last year. Operating expense had increased royalty costs as well as higher repairs and maintenance expense and higher variable incentive compensation expense compared to the same period last year. In the third quarter of this year, G&A expense increased by CAD 700,000 from the prior year due to the higher variable compensation costs and higher professional fees compared to the prior year. Discussed, in the 3rd quarter, we closed a new revolving asset-backed senior credit facility with a syndicate comprised of FGI Worldwide and CIT Northbridge Credit. This facility provides access to funding of $55 million or approximately CAD 75 million and provides Source with a lower cost of borrowing and less restrictive covenants. The details of the new facility are outlined in our MD&A. On December 31st, 2022, the principal balance outstanding on our notes was CAD 165.1 million. Source had $26.6 million drawn under its ABL facility, leaving $8.4 million available for drew. Net debt was CAD 191.7 million, a reduction of CAD 3.2 million. As business performance improves in 2023 with the rollover of long-term contracts, we will continue to focus on reducing debt levels and ensuring we have a capital structure that can withstand the peaks and valleys of our industry. Source's capital expenditures for the fourth quarter were CAD 4.2 million, an increase of CAD 2.2 million compared to the same period last year. The increased expenditures were primarily related to costs associated with maintenance activities at the Peace River facility and CAD 1.9 million increase for overburden removal from mining operations. Growth capital expenditures for the quarter were lower as Source completed the ninth Sahara unit in the fourth quarter of 2021. Now, as we look ahead, we anticipate the demand for oil and natural gas globally will remain strong, which will support higher commodity prices. This operating environment is expected to result in drilling and completion programs in 2023 and beyond to remain robust. With the increased activity levels across North America, the frac sand supply and demand fundamentals have been and are expected to remain tight for the foreseeable future. These fundamentals, coupled with Source's leading service offering and logistics capabilities, have translated into pricing gains in 2022, a trend that is expected to continue into next year. With the resolution of the permitting issues in BC, we expect that activity that has been postponed in the area will proceed. When the backlog of activity is coupled with an already strong industry fundamentals, there is an expectation of improved business performance for Source into 2023. Source also continues to focus on increasing its involvement in logistics services for additional oilfield services and other industries to diversify our revenue stream and further utilize the Western Canadian terminals. Thank you for your time this morning. That concludes the formal portion of our call. We'll now ask the operator to open the lines for questions. Thank you. We will now begin the question and answer session. To join the question queue, you can press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause a moment as callers join the queue. The first question comes from Nick Corcoran from Acumen Capital. Please go ahead. Good morning, and thanks for taking my questions. Just a couple questions for me. You've mentioned your prepared remarks, so you've renegotiated all the major customer contracts. Can you give an indication what the split between that contract and spot is there? Yeah. You know, our contracted customers, you know, usually make up about 60%-70% of our total sales. Our spot customers are usually, you know, the balance of the sales for the year. That'll depend a little bit on activity levels and where volumes go. Our contracted customers are busier. That, of course, means it's a higher proportion of sales go to contracted customers and vice versa. We do expect for the year, you know, about 70%-75% will be under on sales will be under contract. Great. Then what have you seen in terms of the spot market? We've seen, and I think as expected, you know, we saw quite a bit of growth in spot market pricing. You know, the pace of that growth in spot market pricing has slowed, which is to be expected and prices are starting to level out. We still see, you know, a little bit of room available in spot market pricing, we expect spot market pricing to kind of remain at the current levels for the balance of 2023 and probably into 2024. Do you see any risk in the spot market if activity levels reduce at all? you know, I think in any oilfield services business, there is risk if activity levels decrease that spot market pricing can come down. you know, as we see 2023 playing out, you know, we don't really see that as a scenario that's gonna happen and or have any material impact on Source's financial results. It is always a risk that we see in oilfield services. Just one last question for me. With the recent announcement in Blueberry, have you seen an uptick in activity in either? Yeah. An excellent question, Nick. Yeah, we have. you know, we've in Q1, we have certainly seen an uptick. We've also seen an uptick for that region for planning for the balance of the year. I think as mentioned in the prepared remarks and as we talked about before, that backlog of activity that we expect to happen is starting to happen in Q1. We expect the, you know, through the balance of the year, that activity in that region will continue to remain robust. Great. That's good color. Thanks for taking our questions. Thank you. The next question comes from Josef Schachter from SER. Please go ahead. Good morning, Scott and Darren. Morning, Josef. Can you hear me? Yeah. Very good. When I talked to some of the companies, they talked about a bit of tight supply. Some of them are talking about already starting to plan to spend money in Northwest Alberta, Northeast BC for LNG Canada. How do you see the progress of pricing going as all that new activity comes in and, you know, guys like Trican and STEP are talking about adding more Tier 4 frac units, you know, potentially one by Trican this year and then early next year, probably by STEP. That, of course, is gonna require more sand. How do you see that, you know, reacting to your book of business and impacting price? Thanks for your question, Josef. You know, I think as we look at 2023, you know, we still see, you know, we've seen quite a growth in spot prices. You know, we see that growth kind of leveling out and remaining flat for the year, with some potential for some increased upside in the pricing, but not at the growth that we saw in 2022. You know, for Source, really the for 2023, it was getting our contracted customers onto a the new pricing and rolling over and renegotiating some of those contracts. Now that we have those customers on the more current pricing, you know, this is where we can get step change in Source's financial results. In terms of beyond 2023, you know, when potentially we see the impact of additional frac fleets in the region, you know, we again think that frac sand supply is gonna be tight, and we may see a pricing reaction beyond 2023 into 2024. You know, we're obviously very excited about the region. You know, we have a, I think an excellent logistics capability within the region. We have an excellent market share within the region of Northeast BC, Northwest Alberta, and I think we'll continue to take additional market share in that region. We're excited about the activity levels that are forecasted and are coming in the region. Okay. Thank you. Rail costs and all the problems in the States with rails and problems with, you know, did you have any problems with rail deliveries? Have the extra charges for diesel and, you know, come off now with the price of oil back from where it was in Q1? I mean, what's going on there in terms of rail costs for you? Yeah. To answer your first question, you know, historically, the most difficult time of the year is Q1 for rail outages, and it's just related to weather. You know, for this Q1, you know, we haven't really seen any interruptions in rail service. You know, we also, you know, in preparation for Q1, forward placed a large amount of inventory in the basin to make sure that we can withstand any short-term outages. You know, for this Q1, we've seen, you know, excellent rail service and coupled with our in-basin inventory. We really haven't seen any interruptions in the market. In terms of the fuel surcharge, you know, fuel surcharge kind of, you know, varies with the commodity price. You know, we have seen, we did see a big uptick last year. We've sort of seen that down tick bit, early in the early parts of this year. Yeah, we have seen it low, and there has been a downtick in fuel surcharge in both rail and in trucks. I think, just to add to that, Josef, in all cases, though, in our contracts, those are flow-through costs to our customers, so. Okay. Good, thanks. Next question for me is, I've got two more. With the RDL finance or the ABL financing, and the charges related to that, you know, that hit your finance expense pretty big in the fourth quarter, given that that will be behind you as a one-time charge, do you see net income because of the pricing increases you've been able to push through, given the book of business you see right now, in terms of getting net income in 2023 for the company? We absolutely anticipate our net loss flipping over to being net income for all the factors you just listed out. You know, I will also reiterate that we're very focused on, you know, paying down our note balance during this year, and ultimately, that will also help us improve our net income over the course of the year. One last thing you mentioned there about using your terminal systems to distribute other products. When I met with you, a number of months ago, you guys were working on that. Has anything moved forward, and is anything close to fruition where you could have a new business line that helps you with the margin? Yeah. Yeah, you know, just we, you know, from time to time, we move different products through our terminal network. You know, currently we're, we are moving, some condensate through our GP, our GP terminal. We're moving some additional chemicals through our Chetwynd terminal. All of these products, you know, will just drop to the bottom line for Source. You know, it's been positive on that front. It's not a massive book of business. Any little bit of additional volume and additional products through terminals help the bottom line. We have made some progress on that front. We expect to continue to make some additional progress in, through the balance of 2023. Super. That's all good for me for Scott and Darren. I'm looking forward to the next call and continued improvement in the company for the shareholders. Take care. Thank you. Thank you. Also. The next question comes from Milo Uthiko from FactSet. Please go ahead. Good morning. Sorry, Milo, we can't hear you. Please go ahead. Sorry about that. We're still having trouble hearing you. Milo, please go ahead. The next question comes from John Gibson from BMO Capital Markets. Please go ahead. Morning all. Thanks for taking my questions. First, can you touch on pricing under the new contracts? I know you probably don't wanna go into specifics, but could you maybe just describe your overall sand pricing now versus, say, this time last year? Yeah. You're correct, John. We won't get into any specifics on pricing. What we will say is, you know, as we, as the new contracts came due and as we renegotiated the contracts, you know, we have moved everyone to a closer to where spot prices were and closer to current environment pricing, which will be a nice like uptick on overall pricing and overall gross margin as we move into 2023. Great. Thanks. You know, last one for me, just on any potential plans to delever this year, how are you doing the repurchased bonds? I guess if all things go according to plan this year, would you repurchase them in the markets or deem them at par and then, you know, maybe some time around them could par potentially start to fall? I think, John, we will look at all options available to us. If we're able to repurchase them in the markets, we'll definitely consider that at the time where we're doing that. If that option is not available, we will obviously redeem them at par. We do have the cash sweep mechanism that's in the note indenture that will also cause us to bond out as part of this year. Be great. I'll turn it back. Thanks. Thanks, John. Thank you. The next question comes from Michael Rapps from Tangerine Capital Inc. Please go ahead. Hi, Scott and Darren. Thanks for the good news this morning on EBITDA and some of the progress. I had two questions or three questions for you. The first was, it looked like there was something funny happening with the LC that you posted in Wisconsin, and that was consuming cash that it wasn't before. Can you talk about that? Yeah. Under our prior ABL facility, with the community bank, we had a portion of that was an LC facility. Under our new facility, the provider does not provide an LC facility as part of the credit facility. In order to keep the reclamation deposits that we need to do with the various counties in the US, we had to put up cash equivalents to do that, Michael. Is there a way for you to transfer that into some sort of a surety to free up the cash? We continue to keep exploring that alternative. You know, I think helping with our improved results in 2023, we'll keep exploring it. Thanks. The second question is, given the significant pricing increase under some of the legacy contracts that have rolled over, do you have any guidance that you can provide for EBITDA in 2023? Yeah. You know, I think in 2023, you know, we should be in around the CAD 90 million-CAD 100 million of EBITDA, which will generate for us around CAD 40 million-CAD 50 million of free cash flow, which will be used to do lever. So that's kind of how we see the business transpiring, you know, as we have our book of business today. Now, of course, there is a potential for upside, you know, given the volume and how the market transpires over the balance of the year. You know, as always, there is a potential for downside to that number, you know, if something should go off the rails with commodity prices or the market. As we look today, our book of business would tell us we should be in the 90-100. That is fantastic and is really quite a turnaround. Then the last question for me is I heard on the or read in the Smart Sand press release last week that they're planning to enter the Canadian market, and I just was wondering if you have any thoughts on their ability to succeed in the market. Yeah. Excellent question, Michael. You know, I think their reactivation of their Blair Mine, which is CN located, their plan to ship some into the Canadian market is a little more of a reshuffling of the deck chairs of CN providers into the Canadian market rather than incremental sand coming into the Canadian market. If we look over the, you know, the last 12 months, what we've seen is one of the other mines located on the CN has withdrawn from the Canadian market to focus on serving their contracts in the Northeast or in other areas of the U.S. It left a little bit of a void for those mine gate buyers for the CN. You know, from what we can tell right now, we think that that Smart Sand reactivation of their facility is gonna fill that void for that mine gate or those mine gate buyers. Now in terms of longer term, you know, we'll keep a close eye on, you know, what they're planning for the Canadian market. As you know and as everyone knows, you know, selling sand at the mine gate versus selling sand in basin or selling sand, you know, in the heart of the Montney and the Duvernay is quite a different thing. Because we are not a mine gate seller into the Canadian basin, we don't really view it impacting our book of business in the short term. Of course, we'll keep a close eye on how it transpires in the longer term. We, you know, we feel like we're still in an excellent position in terms of the competitive landscape, and we really don't see it impacting the competitive landscape that much. Okay. That's great. Thanks very much for taking the questions, and best of luck. Thanks, Michael. Thank you. Once again, if you have a question, please press star then one. This concludes the question and answer session. I would now like to turn the conference back over to Scott Melbourn for any closing remarks. Thank you everyone for joining the Source Energy Services fourth quarter 2022 conference call. As always, if you have any additional questions, please feel free to reach out to myself or Dan. Thanks. Have a great day. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.