Good morning, ladies and gentlemen, and welcome to the Smart Sand, Inc. Q4 and full year 2023 earnings call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, March 12, 2024. I would now like to turn the conference over to Chris Green. Please go ahead. Good morning, and thank you for joining us for Smart Sand's fourth quarter and full year 2023 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. The conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 12, 2024. Additionally, we will refer to the non-GAAP financial measures of contribution margin, Adjusted EBITDA, and Free Cash Flow 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 or our public filings for our reconciliations of gross profit to 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. Thanks, Chris, and good morning. Smart Sand delivered strong operating and financial results for 2023. In 2023, we achieved record levels of sales volume and revenues. We sold 4.5 million tons and had revenue of $296 million. We had $67 million in Contribution Margin and $34.1 million in Adjusted EBITDA, both solid improvements over 2022 results. For the full year of 2023, we generated $8 million in Free Cash Flow. While we had a great 2023 overall, our fourth quarter results were lower than expected, and the fourth quarter marked the activity dropped due to seasonal slowdowns and an overall general reduction in activity from customer budget exhaustion. However, we largely maintained our workforce and associated costs during the fourth quarter as part of our plan to take advantage of what we expect to be a record-setting first quarter, and that planning is paying off. Activity in 2024, in fact, started off at record levels. Demand has been strong in the first two months of the year, and we are seeing that strong demand continue into March. Currently, we expect first quarter sales volume to be at least 25%-40% higher than fourth quarter 2023 results. We are continuing our commitment to being a low-cost producer. We understand that we need to be cost-effective and as efficient as possible to be able to deliver positive operating and financial results throughout the operating cycles. With this in mind, we have made adjustments to our administrative and operating staff levels to be more efficient, and we are implementing initiatives to improve our product yields and reduce waste sand in our processes to drive down our production costs. While we've continued to target strategic opportunities for growing our market share in key markets we serve, we remain focused on operating in a cost-effective and efficient manner. In 2024, we plan to remain true to our core business principles and operating philosophy. Our primary goal continues to be the premier provider of Northern White sand and logistics services in North America. We strive not only to be a supplier of sand to our customers, but to be their partner in efficiently providing high quality, efficient, environmentally friendly, and sustainable long-term sand supply. Our goal is to continue to increase the utilization of our three operating mines in Oakdale, Utica, and Blair, and to expand our market share in every basin we serve. We have approximately 10 million tons of high-quality Northern White capacity available to serve the frac sand and industrial sand markets. This capacity is tied directly into four Class I railroads. We have the best-in-class terminals serving the key Bakken and Appalachian basins and a network of high-quality, well-positioned third-party terminal partners. We can serve every market in North America through our efficient, low-cost logistics footprint. With our SmartSystems technology, we can meet the increasing demands of customers looking for higher volume of sand delivered to the blender in a safe and efficient manner. We continue to invest strategically to expand our logistics capabilities to increase our market penetration in key Northern White sand markets. In late December 2023 and January of this year, we gained access to two idle terminals in Northeast Ohio, one in Minerva, Ohio, and one in Dennison, Ohio. We acquired the rights to these terminals for $1.25 million and are investing approximately $1 million in 2024 to bring these terminals online. We expect our Minerva location to be operational by the end of first quarter, with Dennison becoming available in the second quarter. These terminals not only increase our access to the Marcellus, but also provide us entry into the Utica Shale Basin. We are seeing increasing activity from E&Ps in the Utica, which is primarily an oil and liquids opportunity. We are excited about the prospects of expanding our market share sales volumes in the Appalachian basins through these new terminals. These two new terminals, combined with our Waynesburg terminal in the southwest Pennsylvania and our broad network of third-party terminals in the region, will allow us to continue to be one of the leading suppliers of frac sand into the Northeast United States. Our Blair facility in Wisconsin is ramping up as well, and we expect volumes out of this facility to double quarter-over-quarter. We are excited about the progress at our Blair facility and expect it to be a significant contributor to our Northern White sand franchise going forward. We are confident that the foundation for Northern White sand demand is strong and will be durable over time. We believe the long-term demand fundamentals for natural gas supply in the United States and Canada continue to be positive, notwithstanding the current low pricing. Thus, we expect to see continued demand in natural gas basins we serve, including the Marcellus. We do not expect to see any slowdown in activity in the Bakken. We also are seeing an increasing activity in the Utica Shale Basin in Northeast Ohio. Both the Bakken and Utica are oil-driven basins. With a well-documented reduction in Permian well performance, we are seeing E&Ps starting to pick up their oil drilling and completions activity in other basins. We are well positioned to take advantage of this shift in oil market activity into basins outside of the Permian. We continue to move forward on expanding our Industrial Product Solutions. The transitioning of our Utica, Illinois, facility to compete more effectively in the industrial sand markets continues to make progress. We completed the blending and cooler projects, and we're now installing a bagging system at the plant. In 2023, approximately 4% of our sales volumes were industrial sand. Currently, for 2024, we expect to increase our industrial sand sales by 50% over 2023 sales volumes levels, and to be in 5% range of our overall sales volume. We continue to make progress penetrating the last mile market. With the introduction of our SmartBelt direct-to-blender technology, we are delivering to the customers what they want: faster fracs, less trucking through maximizing payload per truck, and minimizing unload times. In response to customer demand, our SmartSystems fleet offering now includes our SmartBelt conveyor system and our proprietary SmartPath transloader. We are excited about the prospects of growing our last mile business in 2024. In 2023, we delivered our best operating results for last mile service offering. We achieved positive contribution margin for the year. For 2024, we expect to continue to grow this business as we expand the utilization of our SmartSystems fleets. We consistently operate four silo-only fleets in Oklahoma and expect activity to remain at these levels in 2024. For our SmartSystems fleets, in 2023, we averaged two-three fleets operating on a monthly basis. With the addition of the SmartBelt and our ability to handle significantly higher sand volumes at the well site, demand for our systems is increasing. Currently, we expect to operate on an average of four-five SmartSystems fleets a month in 2024. With this expected increase in utilization of SmartSystems, we currently expect our last mile service revenues and contribution margins to increase by 50% or more over 2023 results. We will continue to look for ways to increase shareholder value. In 2023, we bought back approximately 11% of our shares. We have a strong balance sheet with one of the lowest leverage levels in the industry, which allows us to manage effectively throughout the cycles in the energy business and provides us the ability to move quickly to take advantage of new opportunities in the market. Our goal is to deliver positive free cash flow consistently, while still taking advantage of opportunities to grow the business. We are focused on generating positive free cash flow. We expect to have positive free cash flow in 2024 and are in the early stages of exploring ways to return value to our shareholders, potentially through dividends and stock buybacks, which we hope to discuss further on a future call. We believe the Northern White sand will continue to be a key product for both the energy and industrial sand markets, and Smart Sand is committed to being a leading provider of Northern White sand. 2023 was a strong year for Smart Sand. We couldn't have delivered these results without the hard work and dedication of our employees. I want to thank all of our employees for their continued support and dedication to Smart Sand. As always, we'll keep our employee and shareholders' interests in mind in everything we do. With that, I'll turn the call over to our CFO, Lee Beckelman. Thanks, Chuck. Now I'll go through some of the highlights of the fourth quarter and full year. Starting with sales volumes. We sold approximately 1 million tons in the fourth quarter, a decline over third quarter volumes of 1.2 million tons, as expected, due to a seasonal slowdown and some weather-related delays in the Bakken. For the full year, 2023, total tons sold were 4.5 million, compared to 4.3 million in 2022, a 4.2% increase year-over-year and a record year for Smart Sand. Chuck highlighted. While we experienced a normal seasonal drop in market activity in the fourth quarter, activity has picked up considerably in the first quarter. Total revenues for the fourth quarter, 2023, were $61.9 million, compared to $76.9 million in the third quarter, which reflects the lower volumes sequentially. Total revenues for 2023 were $296 million, compared to $255.7 million in 2022. Revenues in 2023 were a record for Smart Sand. Higher sales volumes and average pricing, IPS sales, and higher utilization of our Smart System fleets were all contributing factors to the 16% increase in revenue year-over-year. Cost of sales for the quarter were $59.1 million, compared to $62.5 million last quarter. A 5% reduction sequentially due to lower sales volumes. Cost of sales did not drop at the same rate as sales volumes, due primarily to maintaining staffing in anticipation of the pickup in activity that we expected in the first quarter. Our cost of sales for the full year of 2023 was $254.4 million, compared to $226.1 million in 2022. The year-over-year increase was primarily due to higher volume sold and the related increase in production and freight costs. Total operating expenses were $10.7 million in the fourth quarter, compared to $9.5 million last quarter. Operating expenses were higher sequentially, primarily due to non-cash accounting adjustments, with cash costs remaining fairly consistent. For the full year, total operating expenses were $43.1 million for the year ended December 31, 2023, compared to $32.7 million for the year ended December 31, 2022. We had increases in royalties as well as salaries, benefits, and payroll taxes, primarily due to the beginning of operations at our Blair, Wisconsin facility. 2023 also included $1.8 million related to the non-cash write-off of some assets as we reconfigured one of our plants. Net loss for the fourth quarter was $4.8 million, compared to net income of $6.7 million for the third quarter of 2023. The driver for the decline is primarily the reduced sales volumes along with higher operating expenses. 2023 net income was $4.6 million, compared to a net loss of $0.7 million in 2022. The increase in net income year-over-year was attributable to an increase in total volume sold and higher average sales prices of our sand. It was partially offset by higher operating costs, primarily due to increased wages and benefits from additional management and administrative headcount to support the opening of Blair. In 2023, we also had higher IPS and SmartSystems activity. Additionally, 2023 operating expenses included the $1.8 million write-offs previously discussed, along with a larger benefit from income taxes that was recorded in the current period. For the fourth quarter of 2023, Contribution Margin was $9.2 million, and Adjusted EBITDA was $1 million, compared to third quarter Contribution Margin of $21 million and Adjusted EBITDA of $13.3 million. Third quarter 2023 results included higher shortfall revenues of approximately $2.4 million, as well as higher sales volumes. For the full year 2023, Contribution Margin was $67 million, and Adjusted EBITDA was $34.1 million, compared to the full year 2022 Contribution Margin of $54.6 million and Adjusted EBITDA of $29.3 million. The increase in Contribution Margin and Adjusted EBITDA over the prior year was primarily due to higher sales volumes and a higher average sales price, partially offset by higher cost of sales and operating expenses. For the fourth quarter of 2023, we had negative free cash flow of $9.6 million due to the use of $2.7 million in operating cash and $6.9 million of capital expenditures. The decline in sales volumes and working capital pressure led to the use of cash in operations in the quarter. We currently expect to have higher working capital requirements early in 2024 due to the increased sales volumes, which could lead to negative free cash flow in the first quarter. However, we expect cash from operating activities to improve over the course of the year, and we currently expect to generate positive free cash flow for 2024. The full year 2023 generated $31 million in net cash provided by operating activities, which ultimately supported our CapEx spend for the year of $23 million, resulting in positive free cash flow of $8 million for the year. We expect 2024 free cash flow to be equal or higher than 2023 results. We ended 2023 with approximately $6.1 million in cash and cash equivalents and $8 million drawn on our $20 million ABL facility. In 2023, we purchased 5.18 million shares of common stock, representing approximately 12% of our shares outstanding. We continue to be focused on how we can return value to our shareholders in 2024 and going forward. We currently expect sales volumes to be in the 1.25 million-1.4 million range in the first quarter of 2024. As Chuck highlighted, market activity has been strong so far in the first quarter. We are keeping a close eye on natural gas prices and what impact that may have on drilling activities in gas basins later in the year. We currently expect activity to pick up in the Bakken in the second quarter. Our new terminals in Northeast Ohio are opening up new opportunities for us in the Utica Basin, which is primarily an oil liquids play, and we continue to make inroads into the Canadian market. For the full year 2024, we currently expect sales volumes to be 5%-10% higher than 2023 levels. We currently believe that our contribution margin per ton will be in the mid-teens range in the first quarter of 2024. We expect capital expenditures for 2024 to be in the $18 million-$23 million range. This concludes our prepared comments, and we will now open the call for questions. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Steven Gengaro with Stifel. Please go ahead. ... Thanks. Good morning, everybody. Excuse the background noise because I'm outside. But so a couple of quick ones. Well, a couple questions for me. The first, you gave a lot of color on, on 2024, including commentary on, some of the, some of the new, the new product, impacts. But can you talk about the impact of gas in, in general? Like, how big of an impact, like, you think critically? I know you won't disclose kind of specifics around volumes go on a specific basis, but sort of, is, is that the biggest variable between kind of your ranges of outcomes for 2024? Yeah. Steven, I think you're asking about natural gas prices and, and natural gas activity in general, on the course of 2024. Is that correct? We had a hard time hearing you. Oh, yes. Yeah. I'm asking about the sort of delta in your guidance and whether that's driven by natural gas. Yeah, I think the delta in our guidance in terms of our volumes for the year is a little bit that, you know, we do ship a good proportion of our volumes into the Marcellus Basin. Historically, we're kind of 50/50 natural gas, oil-based. And so, in terms of the back half of the year, we are keeping a very close eye on natural gas, and so that could impact some of our volume activity in the second half of the year. We haven't seen it yet. Again, we have very strong volumes in the first quarter. A lot of that's being driven by the activities in our natural gas basins that we supply. But that will be balanced out. There is a pullback in natural gas. You know, second and third quarter, typically our strongest quarters into the Bakken, which is more oil-driven. And with our new terminals in the Northeast, going into the Utica Basin, that's gonna be more oil and liquids-driven as well. So that may help balance out any potential short-term pullback in natural gas. And still, we believe the long-term fundamentals of gas are still strong. And so while there might be some pullback in the second half of this year, we think overall, the fundamentals for natural gas drilling and development are strong, and we're well positioned to take advantage of that, you know, going into 2025 and beyond. Steven, are you still there? Yes, sorry. I, I said two more for me. I had to mute it, so I wouldn't, you would hear the background noise. But two other ones. One is, when you think about the spot price market right now and kind of what you have contracted versus kind of open into 2024, can you give us color on that? Yeah. I mean, Steven, it's John here. We haven't seen, you know, pricing's about flat right now. You know, we've got a good amount of our volumes are contracted. You know, we're about, you know, half of our volumes are contracted. So, you know, we're not overly exposed to the, you know, pricing coming down or whatever. We think, you know, the pricing's been pretty stable over the past kind of, you know, year or so, and so we would anticipate that that'll continue. So hopefully that answers your question. Yes. Great, thanks. And then the final one for me, it's kind of a bigger picture question, but we've seen some M&A obviously recently on the, on the in-basin side, and we all kind of do the math on what that means for, for other people's businesses. How do you think about sort of the valuations being paid for Northern White sand and the... Excuse me, for in-basin sand and, and the relative value that Northern White delivers? And I'm just trying to triangulate some data points. We're kind of curious about your thoughts on recent M&A and, and valuations. Well, I mean, I don't quite know how to answer that question, Steven, but the reality is we believe we've built a very good franchise in Northern White, and that the Northern White markets that we serve are very strong and continue to have pretty strong demand. And that overall, we believe the supply and demand in Northern White is relatively in balance, so any increase in demand is only gonna be to Northern White providers benefit. So, I think in our view, there's been a little bit of a view that Northern White is gonna continue to diminish in terms of the overall value proposition in terms of profit in the market. We believe the Northern White markets will stay primarily Northern White, and we'll continue to have good growth rates in those markets, and that we're well positioned to take advantage of that. And so, yes, I think the market has been, you know, maybe undervalued Northern White relative to regional, because they're focused primarily, you know, on the Permian and the Texas markets, and that is the largest percentage of activity in the U.S. But there is still very good and consistent activity in the Northern White markets that we serve. And those markets, while they do have some, depending on which market it is, some potential competition for regional, they're primarily gonna stay, you know, majority Northern White. With that, we think we have the opportunity to grow with that, with the available capacity we have, which is available, that we don't have to spend a lot of money to be able to increase our volumes and grow with the market as those markets grow. Excellent. Thank you for all the color. Thank you. Your next question comes from Luke Lemoine with Piper Sandler. Please go ahead. Hey, good morning. Chuck, you commented on your industrial business growing in 2024 and, you know, maybe being about 5%, you know, kind of the rest of the year in 2024. But wondering if you just kind of give us a longer look in industrial and how you see this playing out the next few years. And then also, you know, what kind of, or what, what's your best update as far as industrial end markets? I mean, a lot of different end markets there, but kind of where are you seeing the demand and what you're selling into? Yeah. So, you know, the industrial space is something that we got into, because we had byproducts out of the frack space. I mean, Smart Sand is going to be, primarily a, you know, a frack sand company by volume over time, but the margin opportunities in the industrial space are attractive. And so, you know, we've been, we've been investing steadily in that. We've got cooling and blending technology in place, at our Utica mine. We're continuing to serve some industrial out of our other two mines in Blair and Oakdale. Look, it's hard for us to give kind of a view as to where we see industrial going long term with us from a percentage, you know, from a volume percentage, but we do think it's gonna be a valuable piece of our business, certainly from a margin standpoint, going through. And in general, the products are very complementary to what we produce on the frack side of the house. So hopefully, that kind of gives you a little bit of color on how we think about industrial. Okay, got it. And then, Lee, thanks for all the guidance as usual, but on the contribution margin, if prices are fairly stable, should the contribution margin be pretty stable the rest of the year, too? Or is there an upward bias to that, or how should we think about that? Well, I think the way to think about it is traditionally, as you know, Luke, typically, the fourth quarter and the first quarter are our lower contribution margin quarters because of how our accounting adjustment works for inventories. We pull inventory out during the winter, and then we build inventory in the summer. So, if pricing stays relatively flat and we get consistent volume activity in the second, third quarter, our margins should improve a little bit, probably in the second, third quarter. But then you might see a little pullback in the fourth quarter. But overall, for the year, I think right now we feel kind of where we guided to in that mid-teens range. You know, assuming we, you know, get the activity we expect to meet that we've guided to, we should be in that overall for the year, in that mid-teen range. But you will see some fluctuation quarter to quarter, because of that, you know, our accounting adjustments relative to inventory. Okay. And then last question, just on the CapEx guidance for the year, $18 million-$23 million Lee. Can you help unpack that a little more, just kind of where the spending is being directed? Well, part of the spending, like we said, $1 million is going specifically on the new terminals we have. Some of the spending is really what we call, what I call maintenance, sustainable capital, where you're investing in the plants just for normal kind of efficiency improvements and also investments, you know, to basically to make sure you have the mining activity you need available, to be able to support your volume activity. And also, we are making investments to improve our mining activity to kind of bring down our cost of production. And so most of that money is going into primarily, those types of investments. There is a little incremental investment in our smart systems, this year as well, but that's a relatively low number. But most of the investment is going in to support, you know, the efficiencies and sustainability of our operations, primarily at Oakdale, Utica, and Blair. Okay, perfect. Thanks a bunch. Ladies and gentlemen, as a reminder, should you have a question, please press Star One. Your next question comes from James Costello with Cuyahoga Capital. Please go ahead. Hello? James, your line is open. Your next question comes from Steven Gengaro with Stifel. Please go ahead. Thanks. Thanks for taking the follow-up. Can you just update us on your total current nameplate capacity and where that goes to and when everything's completely operational? Our current nameplate capacity is 10 million tons and basically goes to the Bakken, the Marcellus, the Utica, Canada. Some volumes going to the western United States as well, into the Powder River Basin and DJ Basin. Okay, and- We sell from time to time down in Texas markets, but it's not a big part of our business today. Thanks. And how is Canada evolving? I mean, I know that's been a market opportunity for you guys for growth. How is that playing out right now, and kind of what's the outlook for 2024 and 2025? Just kind of from a high level. Yeah, I think, you know, we're pretty, we're pretty optimistic about Canada. I mean, keep in mind, you know, until we picked up Blair, Canada was, you know, we were a very small player in Canada, you know, serving what they call the Canadian Bakken a little bit, kind of, you know, just north of North Dakota. But now with picking up our asset in Blair and being on CN Rail, we're seeing that business kind of grow in a fashion that is, you know, relatively exciting, right? So, you know, we think Canada's got a long-term, is gonna be a good part of our business and our portfolio. The products that are taken up there are very complementary to products that the U.S. wants. So, you know, just give you an example. Canada tends to be a coarser sand market than the U.S. And so when we make that coarse sand for the Canadian market, the finer mesh products, say, like, 100 mesh and things like that, we tend to be able to find a home for those in the U.S. So pretty optimistic on the Canadian market, the development and how it, you know, kind of dovetails off the other assets that we've built over the years, both at Oakdale and Utica. Thanks. And just one final one for me. Is there any pricing difference between the Canadian market and the U.S. market? The Canadian market, you know, the time of the year matters in the Canadian market, right? It's a market that has what they call breakup up there, which is a period of lower activity as the frost is coming out of the ground. So you see a bit more variability on pricing at certain times in the market. But, you know, the pricing is not that much different than the U.S. Okay, great. Thanks again for your color. No problem. Your next question comes from Blake McLean with Daniel Energy Partners. Please go ahead. Hey, good morning, guys. Hey, Blake. Hey, Blake. Appreciate you guys sneaking me in here. Most of my questions have been answered, but I thought maybe, you could provide just a bit more color on the last mile business. I know there's some capital going there, but are you guys planning to build additional units there this year? And kind of what does utilization look like in that business? Yes. So our last mile business, we've seen a good increase in activity going in the first quarter. We're probably utilization on our silo-only fleets in Oklahoma. There's four fleets there that have been pretty consistent, so that's 100% utilization on that. We have nine SmartSystems, which includes our SmartPath, of which we kind of believe on average this year, there will be averaging utilization of five-six of those over the course of the year, and that's up from two-three from last year. So, based on our current activity and our plan, our utilization of our existing fleet, you know, on the SmartSystems side could be, you know, is looking to increase and potentially double in activity. Our investment is really more around, we might add one fleet. It's more only around adding some conveyors and maybe potentially adding one potential SmartPath, but we're not really looking to add a lot of incremental capacity. Our real focus is really two areas there, is to, increase the utilization of the assets we have and then secondly, get a better, return on those assets by reducing our operating expenses. Yeah. I would also add that, one of the, you know, kind of our primary objective on our last mile systems, too, is to drag along sales, sand sales with the deployment of these systems, right? And so one of the things that we're seeing out in the market and the customers that are using this, is they appreciate the throughput, that those systems are able to offer, that we are fully capable of using bottom dump trailers, which allows greater throughput on the trucking side, fewer trucks on the road, and things like that. So we're trying to leverage, sand sales as part of the last mile, and we're seeing a pretty good take-up on that, and that's, you know, that's exciting from the business perspective. All right, good. Thank you. That's, that's all I had. Thanks, Blake. Thank you. Thanks, Blake. There are no further questions at this time. Please proceed. Thank you for joining us on our earnings call. We look forward to talking to you again in May. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.