Q1 2021 Smart Sand Inc Earnings Call

May 5, 2021

[music].

Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

Uh huh.

Thanks.

[music].

Yeah.

Good day and thank you for standing by welcome to the first quarter 2021, 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 to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.

If you require any further assistance. Please press star then zero.

I'd now like to hand, the conference over to your Speaker today, Josh Jayne director of Finance and assistant Treasurer. Please go ahead.

Good morning, and thank you for joining us for Smart Sand's first quarter 2021 earnings call.

On the call today, we have Chuck young founder and Chief Executive Officer lead Beckman, 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.

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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 may five 2021.

Additionally, we may refer to the non-GAAP financial measures of contribution margin EBITDA adjusted EBITDA and free cash flow. During this call and we believe that 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.

<unk> or our public filings for our reconciliations of contribution margin and gross profit EBITDA and adjusted EBITDA to net income and free cash flow to cash flow provided by operating activities I would now like to turn the call over to our CEO Chuck Young.

Thanks, Josh and good morning, after a challenging year and 2020, we are very encouraged by the recovery. We have been witness to begin in 2021, we successfully manage the downturn and remain uniquely positioned to keep pursuing our long term strategy to be the premium supplier of northern white Frac sand from the mine.

And to the well site.

And our volumes in the first quarter were up on a quarter to quarter basis and on a year over year basis.

We increased volumes, despite frac activity remaining well below last year's first quarter levels and rig counts being down, 50% and Q1 and 2021 from Q1 and 2020 levels.

So we are gaining market share and the operating basins that we're targeting and addition to increasing activity and the Bakken and the Marcellus and with the addition of the Utica, We're now competing very effectively and the western basins, and Colorado and Wyoming.

Despite weather challenges for the industry and in February the Frac sand market continues to rebound and sales volumes increased by 25% from 612000 tons and the fourth quarter 2020 to 762000 tons and the first quarter.

March volumes were up significantly following the February weather disruption and we expect volumes to continue to grow as the market is strengthening.

We continue to focus on maintaining financial flexibility and generating free cash flow today, we have $10 million and cash on our balance sheet and approximately $30 million and liquidity.

And we couldn't manage through these difficult times without the effort of our employees I want to thank all of our employees once again for their continued commitment to smart sand.

As we discussed on last quarter's call. We believe that smart pass translator is unlike anything and the industry. It's a self contained system designed to work with bottom dump trailers and features and drive over conveyer surge bin and dust collection system. So it's well suited to perform any frac job.

And we can now report we have successfully deployed our first smart pass during the first quarter, the trans load or completed several multi well pads and continues to work into the second quarter. We are receiving incremental inquiries about this technology and believe we will have further deployments as we move through the rest of the year.

By the end of this year, we expect to have 10 suites equipped with the smart pad.

We continue to believe the focus on ESG by our customers will drive adoption of our smart systems product offerings.

And dust control on silos and improve dust control throughout the completion process are vital to health safety and regulatory compliance.

We also believe and smaller footprint that we offer on the wealth side with our smart systems and storage systems compared to our peers will be well received.

We estimate that by using our smart systems fleet equipped with a smart path rather than competing silo and box options. We can reduce the number of trucks needed to deliver sand to the well site by more than 30%.

This is a significant opportunity for our customers to reduce their ESG footprint and G. H G emissions.

As we emerge from the downturn churn will continue to work closely with our customers to deliver sand to the well site and our reliable and cost efficient safe and environmentally responsible fashion.

We're excited about our future for a number of reasons sales volumes have increased meaningfully from the bottom and continue to trend positively.

Expanded our customer base and the operating basins, we're serving over the last 12 months, our Utica plant that has exceeded our expectations. Thus far and we remain excited about driving higher volumes from this location and we continue to improve the efficiencies and cost structures at our Oakdale mine to make it one of the most efficient frac sand mines and.

Assessing plant and the unit.

And with our first successful deployment of the smart pass behind US, we're looking forward to building market share with our last mile solutions product offering.

As always and will continue to keep an eye on the future and we will always keep our employee and shareholders' interest in mind and everything we do.

And with that I'll turn the call over to our CFO leave back open.

Thanks, Chuck we're encouraged by the pickup and activity we have witnessed to begin the year as Chuck indicated first quarter 2021 volumes were up 25% from fourth quarter 2020 levels. Despite weather challenges for the industry and February March volumes were up 48% from February levels.

Is there was catch up from the weather impact, but overall activity also increased.

We're seeing strong demand continue into the second quarter, we remain committed to low leverage levels and prudent capital structure generating positive free cash flow for the year and maintaining adequate liquidity levels.

Now I will go through some of the highlights of the first quarter compared to our fourth quarter 2020 results.

Starting with sales volume.

We sold 762000 tons and the first quarter 2021.

25% increase over the fourth quarter 2020 volumes of 612000 tons.

We continue to expand our customer base during the first quarter, we believe a more diverse customer base will strengthen our opportunities for growth.

Total revenues for the first quarter 2021, or $27 5 million.

Compared to $25 3 million and the fourth quarter 2020.

And revenues were higher and the first quarter due primarily to an increase and the number of tons sold from both Oakdale and Utica.

Our cost of sales for the quarter were $32 4 million compared to 33 million last quarter.

We were able to effectively keep our production costs flat quarter to quarter, while increasing our sales volumes by 25% through increased utilization of our asset base and proactive management of our inventory levels.

Total operating expense expenses were $6 1 million compared to $13 3 million last quarter.

Operating expenses were mainly lower as the fourth quarter 2020 included a $5 1 million impairment charge on our Permian basin long lived asset and it.

And one 3 million sales tax audit settlement charge.

And the first quarter of 2021, we recognized a $7 5 million income tax benefit compared to an $18 6 million income tax benefit last quarter.

And fourth quarter benefit included a seven point.

8 million benefit related to the anticipated benefit to be received from the carry back and net operating losses, including those related to depletion to tax years with the 35% corporate rate.

And the first quarter, we had a net loss of $3 9 million.

Or <unk> <unk> per basic and diluted share compared to a net loss of $2 9 million or seven per basic and diluted share for the fourth quarter of 2020 are.

And the higher net loss and the first quarter of 2021.

As compared to the fourth quarter of 2020 is due to the higher income tax benefit recognized in the fourth quarter of last year.

For the first quarter of 2021 contribution margin was $1 million and we had negative adjusted EBITDA of $3 5 million.

Compared to fourth quarter negative contribution margin of $2 million and negative adjusted EBITDA of seven 4 million.

And the increase sequentially was driven by an increase and tons sold.

Efficiently managing our operating costs.

For the first quarter of 2021.

We had $1 $7 million and free cash flow.

Generating $3 9 million and operating cash flows while spending $2 2 million on capital investments.

Capital investments and the first quarter had primarily been on new smart systems units.

During the quarter, we didn't use our revolver and still have no outstanding borrowings other than $1 2 million and letters of credit.

Our current unused availability is $15 million.

We paid down $1 7 million against our notes payables and equipment financings and the quarter.

Additionally, we have $5 million and unused availability from the acquisition liquidity support facility, we put in place with the Eagle proppant business acquisition.

We ended the first quarter with approximately $11 4 million cash and our current cash balance is approximately $10 million.

And between cash and our availability on our facilities. We currently have approximately $30 million and available liquidity.

We do not expect to have any borrowings on our ABL revolver and the second quarter.

Yeah.

In terms of guidance for the second quarter, we expect sales volumes to be up 5% to 10% from first quarter levels. We continue to anticipate capital expenditures for 2021 to be and the $10 million to $15 million range and.

And expect free cash flow to be positive for the full year.

This concludes our prepared comments and we will now open the call for questions.

Thank you if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been and answered or English to remove yourself from the queue. Please press the pound key.

Great and any background noise, we ask that you. Please place your line on mute. Once your question has been stated.

Our first question comes from the line of Steven Kingara with Stifel. Your line is open. Please go ahead.

Thanks, Good morning, gentlemen.

Hi, good morning.

I jumped on a couple of minutes late but and maybe I missed this but I wanted to just ask you a little bit about.

I guess, it's two part question one is as we look ahead and you look at sort of the dynamics within the frac sand business and pricing trends.

How should we think about I mean without talking about specific quarter number, but how should we think about contribution margin per ton as we go forward and.

And I guess, along with that is there any difference in the world.

With the new facility online and across associated with that et cetera, we should be contemplating and the short term.

Yes, Stephen for contribution margin issue.

And if you've followed us over the past you know and our.

And fourth quarter and first quarter, we typically have lower contribution margin because our costs are higher as we're bringing in inventory over the winter and typically they will have lower cost and the second and third quarter and as we capitalized inventory during our mining season. So I think you'll see some improvements and the second and third quarter of our contribution margin and I'd say kind of on the mid.

On a single digits.

So moving and kind of the.

$5 range give or take and then you might see that margin on go down a little bit and the fourth quarter as we go through our seasonality.

As we typically do so second and third quarter, you should see some improving contribution margin it should moderate a little bit and the fourth quarter, depending on how we're managing our mining season. This year and building inventory during the summer months and start pulling inventory again as you get into the winter.

Great.

That's helpful and.

What was your second question on I apologize.

Just I was curious about is with the new facility coming online the Utica per se.

Does that impact the short term cost structure at all is there any any headwind from that we should think about.

Well, we as we've ramped up Utica actually their production costs are relatively in line with what we're seeing at Oakdale, but we do have a little higher trucking costs there because our.

Terminal is not right at the location and so there's a little bit of friction there in terms of our trucking costs. It makes you to kill a little a little higher but where we're going to be getting that as we ramp that volume up we think we'll be able to moderate that and and and bring that down a little bit but that is the one kind of major cost difference between the two.

Thank you and then just one one other question and I was just thinking about and.

You guys have as good a perspective and then when you think about just the dynamics.

And demand.

Which has been rising clearly and then just sort of the frac sand supply demand situation. You have obviously had a lot of competitors that had financial problems.

Have you seen any shift and the dynamics, there and your unique positioning and market.

Yes, Steve and thanks.

So what we're seeing is.

There is definitely some idled assets out there that are I think either will not or having difficulty coming back online and particularly in the northern white space.

And.

That's a good thing for us right.

As you had mentioned demand is going up.

And the supply I don't think is coming on as it would have historically come on because of some of the financial difficulties that some of our competitors have been and as you alluded to so.

Do you see demand rising.

We're not entirely sure how how high and how fast it's going to continue to rise, but we are certainly.

And the first quarter. This year, we were we sold more sand that we did and the first quarter of last year, which was a decent quarter for us. So we're seeing demand come up and with any luck.

With the volumes improving we expect price to follow but we're not we're just not sure of one.

Okay, great. Thank you.

Thank you.

Thank you and our next question comes from the line of John Daniel from Daniel Energy partner. Your line is open. Please go ahead.

Hey, Good morning, guys. Let me thanks for putting me on.

And John and I guess two questions. This morning.

All of US here and the analyst community and we don't have a view on Frac crew counts, we all kind of make up some numbers that are out there. What are you guys seeing today, and the Bakken and Marcellus and in terms of activity and.

Looking into the Crystal ball, how do you see crew counts progressing Q2, Q3, Q4, just any wild <expletive> guess would be appreciated.

Yes, so John what we're seeing is we're seeing relatively robust activity and both of the markets you mentioned Marcellus and Bakken.

With the with the commodity with the commodity price and oil stabilize and kind of and the <unk>. We anticipate that this year could see some growth in and additional spreads going out there, but so far we see good activity and those areas.

And we've got from our perspective, we've got a good advantage logistics chain and to both of them. So we're we feel pretty good about that we think that.

And it's been a while since we've seen both Nat gas and oil spreads operating kind of in sync with demand. So that's a good thing with Marcellus and Bakken and we're seeing obviously increased activity and other areas to which you'd argue Utica play and allows us to participate a bit more and some of the some of the other and Midwest opportunities out there. So.

With B and rail so we're feeling relatively good about activity and.

And those two basins and and elsewhere.

And we're hoping it continues and obviously with the <unk>.

Oil price headed and the right direction and we don't see any reason that won't continue.

Okay. Thank you and then with the smart path rollout.

I think you alluded to as many as 10 systems. Later this year. It was the initial focus and the Balkan and are you taking on across the U S. Just walk us through the rollout strategy.

And so our first deployment has been and the Bakken we're set up to support additional deployments there, but no thats systems available anywhere in the U S and we're prepared to support it anywhere in the U S.

As you mentioned, we will have 10 systems ready to go by the end of the year and.

The system is really kind of proven itself out and its first deployment out there we've had minimal issues with it and it seem to be getting a lot of positives.

Positive press and positive thoughts from customers and potential customers on it okay.

Okay, and then I guess.

The final one from me there was a little bit of chatter.

Small and nascent mines pumping up and places like Wyoming.

Your thoughts on.

Opportunities there you know whether you do something defensively aggressively just let me what's your take on that.

So we're seeing a little bit of <unk>.

Additional mine development out there.

We've seen I think there's been some activity in the Bakken and there's some and kind of southeastern Wyoming.

We keep an eye on it John but.

We don't anticipate it's going to be similar to what happened in the Permian with development outside of Kermit.

I think the you know the capital markets are out there.

Crestwood and the returns that they've seen and some of those other regional sand plays and so we're keeping an eye on it but ultimately.

Our view.

Is that eventually we're going to see E&ps start to care about things like ESG, and youll lengths and truck rides and things like that and we believe that.

Bulk commodities like sand should be on rail and rail are as close to the well site as they can producing those trucking distances. So ultimately I don't think youll see.

A permian like development of sand regional sand mines.

Anywhere and kind of the Midwest door and the northeast. So I think the story for northern White still very positive and those markets and keeping an eye on the logistics.

Moving that sand is going to be increasingly critical.

As we continue to move more and more volume.

And I'd add on that John is the trucking has become.

Even more difficult and it was previously so and we see that you've been getting worse.

And is that primarily right now the driver issue or just the.

And this thing has just brought on road traffic share cost of it and and the other part about it and you put railcars and storage, but yeah. These truckers have already gone through where it is.

This industry seems to go up and down cycles and.

That's not a really great job to have for the trucker yeah.

Fair enough. Okay. Thanks for letting me ask some questions.

Sure.

Thank you and our next question comes from the line of Samantha Hoh with Evercore ISI. Your line is open. Please go ahead.

Hey, guys.

Just a quick question on the cash flow.

Sounds like there was a slight change and the language and the guidance I think you guys previously said.

And at least $10 million previously.

Could you please.

And I Joe correctly.

In terms of cash flow.

Brian.

That's really helpful.

And we still anticipate being in the $10 million range for the year.

Okay great.

And I noticed a really nice customer pickup that you had this past quarter.

Can you maybe elaborate a little bit more and how you're able to expand your customer base.

That being driven by the new capacity from Utica Alright.

To transport and Densification and if you could maybe talk about and that's great.

Displacing our previous supplier that comes from I had something like that would be helpful.

Yes. So a couple of things you had mentioned kind of Utica clearly getting additional class one railroad on the BN has been helpful and attracting customers that we were unable to attract prior because of that.

Having dual.

And two line hauls and things like that so that's been a positive but I think ultimately as we've been.

We think picking up market share over the last little while I think it's.

A result of number one we've been out there aggressively pursuing spot business, where in the past we've been more focused on contract business and by aggressively pursuing spot business you tend to pick up more customers.

And so we're going to continue to do that we're going to continue to seek both spot and contract customers. But then the final thing is I think that what we're seeing play out a little bit is.

Hesitancy or inability for capacity to come back online one on.

The things, having run and sand mines now for for quite a while one of the things that sand mines don't like and being idle for.

Lengthy periods of time, it's very difficult to get this equipment back into operating condition, and we think that with.

With the lack of <unk>.

<unk> capital partners out there for this space, it's very difficult for mines that have been down for any length from time to really come back on so we're seeing a little bit of a tailwind on that and our business and we expect that to continue to happen.

And our <unk> plant because it's.

Because it's a single operating entity with $5 5 million tons and five separate drivers out there.

We've never let our maintenance.

And we've always had a crew out there and keeping our maintenance and we've managed to capacity that we produce thereby turning plants on and off but at the same time always having a maintenance growth you have a single mine out say in Wisconsin, and somewhere that hasnt been maintained and several years, it's very difficult to turn that back on so again, we see some we think that will give us some tailwind.

And to the rest of this year and ultimately more customers is a good thing.

And I'd also add <unk>, one one mine servicing to class one rail lines, which.

It was very efficient.

You have a sense of the mix and your volume right now from contractors and Scott.

Yeah, we don't give a breakout between contract and spot.

And a lot of times, we had customers that were on contracts that have come off but they are still having very consistent volumes with them. So even though they maybe typically spot today there is still.

From historical contractual relationships and and management. So we don't really split it up in terms of giving out the difference between spot and contract and also when we say spot and thank a lot of times people think of spot just being one kind of individual sale a lot of our spot transactions a day, where we may be supporting a customer for three to six months, where they have a certain plan for delivering <unk>.

And to that market so.

Saying spot isn't that it's just individual sales and maybe just not on longer term contracts for it versus kind of shorter term pricing arrangement and contracts to meet a need for a specific development plan and an area of over $3 six months et cetera.

Okay. Thank you so much that's very helpful.

Thanks, Dan.

Thank you and our next question comes from the line of Luke and Omar with <unk>. Your line is open. Please go ahead.

Hey, guys. A quick question and I was trying to figure out the fixed charge coverage ratio and it's.

And a complicated because of the cash taxes and what's.

Tax refunds and Q3 and Q4, where are you on the on the fixed charge coverage ratio as it applies to the ABL right now.

Well first of all the fixed charge coverage ratio doesn't apply only kicks in and if we have 85% of our facility drawn and so we don't have any covenants that we apply to currently under our.

Borrowing base and so it and it doesn't apply in terms of being any kind of compliance issue and then secondly, I don't have the number right in front of me, but we have consistently had a positive fixed charge coverage ratio and most of our.

And we've typically been very positive in that regard and we're positive today on that calculation.

Great. Thanks, so much I appreciate it alright. Thank you.

Thank you and I'm showing no further questions at this time and I would like to turn the conference back over to CEO, Chuck Young for any further remarks.

Thank you for joining us for Smart Sand's first quarter 2021 earnings call Safe day.

And we'll talk soon.

This does conclude today's program you may now disconnect everyone have a great day.

Okay.

[music].

Good day, and thank you for standing by and welcome to the first quarter 2021, 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 to ask a question. During this session you will net press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like day on the conference over to your Speaker today, Josh Jayne director of Finance.

And Treasurer. Please go ahead.

Good morning, and thank you for joining us for Smart Sand's first quarter 2021 earnings call on.

On the call today, we have Chuck young founder and Chief Executive Officer, Leanne, Beckman, Chief Financial Officer, and John Young Chief operating Officer.

Yeah.

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 may five 2021.

<unk> or our public filings for our reconciliations of contribution margin to gross profit EBITDA and adjusted EBITDA to net income and free cash flow to cash flow provided by operating activities I would now like to turn the call over to our CEO Chuck Young.

Thanks, Josh and good morning, after a challenging year and 2020, we are very encouraged by the recovery, we have and witness to begin 2021, we successfully manage the downturn and remain uniquely positioned to keep pursuing our long term strategy to be the premium supplier of northern white Frac sand from the mine.

And to the well site.

Our volumes and the first quarter were up on a quarter to quarter basis and on a year over year basis.

We increased volume despite frac activity remaining well below last year's first quarter levels and rig counts being down 50% and Q1 2021 from Q1, 2020 levels.

Despite weather challenges for the industry and in February and Frac sand market continues to rebound and sales volumes increased by 25% from 612000 tons and the fourth quarter 2020 to 762000 tons and the first quarter.

March volumes were up significantly following the February weather disruption and we expect volumes to continue to grow as the market is strengthening.

We continue to focus on maintaining financial flexibility and generating free cash flow.

Day, we had 10 million and cash on our balance sheet and approximately $30 million and liquidity.

Couldnt and manage through these difficult times without the effort of our employees I want to thank all of our employees once again for their continued commitment to smart sand.

As we discussed on last quarter's call. We believe that smart pass translator is unlike anything and the industry. It's a self contained system designed to work with bottom dump trailers and free.

And drive over Conveyer surge bin and dust collection system, So, it's well suited and perform any frac job.

And we can now report we have successfully deployed our first smart pad during the first quarter.

The trans load or completed several multi well pads and continues to work into the second quarter. We are receiving incremental inquiries about this technology and believe we will have further deployments as we move through the rest of the year.

By the end of this year, we expect to have 10 suites equipped with the smart pad.

We continue to believe the focus on ESG by our customers will drive adoption of our smart systems product offerings.

And dust control on silos and improve dust control throughout the completion process are vital to health and safety and regulatory compliance.

We also believe and smaller footprint that we offer on the wealth side with our smart CIS and sand storage systems compared to our peers will be well received.

We estimate and it by using our smart systems fleet, and Quickbooks, and smart path, rather than competing silo and box options. We can reduce the number of trucks needed to deliver sand per well site by more than 30%.

This is a significant opportunity for our customers to reduce their ESG footprint and ghd and <unk> emissions.

As we emerge from the downturn churn will continue to work closely with our customers and labor sand per well site, and our reliable and cost efficient safe and environmentally responsible fashion.

We're excited about our future for a number of reasons sales volumes have increased meaningfully from the bottom and continue to trend positively.

And expanded our customer base and the operating basins and we're serving over the last 12 months, our Utica plan and has exceeded our expectations. Thus far and we remain excited about driving higher volumes from this location and we continue to improve the efficiencies and cost structures and our Oakdale mine to make it one of the most efficient frac sand mines and.

Assessing plant and the industry.

And with our first successful deployment of the smart pass behind US, we're looking forward to building market share with our last mile solutions product offering.

As always and will continue to keep an eye on the future and we will always keep our employee and shareholders' interest in mind and everything we do and with that I'll turn the call over to our CFO leave back on that.

Is there was catch up from the weather impact, but overall activity also increased we are seeing strong demand continue into the second quarter, we remain committed to low leverage levels and prudent capital structure generating positive free cash flow for the year and maintaining adequate liquidity levels now.

And I will go through some other highlights on the first quarter compared to our fourth quarter 2020 results.

Starting with sales volume we.

We sold 762000 tons and the first quarter 2021.

25% increase over the fourth quarter 2020 volumes of 612000 tons.

We continue to expand our customer base during the first quarter, we believe a more diverse customer base will strengthen our opportunities for growth.

Total revenues for the first quarter 2021, or $27 5 million.

Compared to $25 3 million and the fourth quarter 2020 sand.

And revenues were higher and the first quarter due primarily to an increase and the number of tons sold from both Oakdale and Utica.

Our cost of sales for the quarter were $32 4 million compared to $33 million last quarter.

We were able to effectively keep our production costs flat quarter to quarter, while increasing our sales volumes by 25% to increase utilization of our asset base and proactive management of our inventory levels.

Total operating expense expenses were $6 1 million compared to $13 3 million last quarter.

<unk> expenses were mainly lower as the fourth quarter of 2020 included a $5 1 million impairment charge on our Permian basin long lived assets and a $1 3 million sales tax audit settlement charge.

And the first quarter of 2021, we recognized a $7 5 million income tax benefit compared to an $18 6 million income tax benefit last quarter.

The fourth quarter benefit included a seven point.

8 million benefit related to the anticipated benefit to be received from the carry back and net operating losses, including those related to depletion to tax years with the 35% corporate rate.

And the first quarter, we had a net loss of $3 9 million or.

Or nine cents per basic and diluted share compared to a net loss of $2 9 million or seven per basic and diluted share for the fourth quarter of 2020 are.

And the higher net loss and the first quarter of 2021.

As compared to the fourth quarter of 2020 is due to the higher income tax benefit recognized in the fourth quarter of last year.

For the first quarter of 2021 contribution margin and was $1 million and we had negative adjusted EBITDA of $3 5 million.

Compared to fourth quarter negative contribution margin of $2 million and negative adjusted EBITDA step seven 4 million.

And the increase sequentially was driven by an increase and tons sold while efficiently managing our operating costs.

For the first quarter of 2021.

We had $1 $7 million and free cash flow Jenny.

Generating $3 9 million and operating cash flows while spending $2 2 million on capital investments.

Capital investments and the first quarter has primarily been on new smart systems units.

During the quarter, we didn't use our revolver and still have no outstanding borrowings other than $1 2 million and letters of credit.

Our current unused availability is $15 million.

We paid down $1 7 million against our notes payables and equipment financings and the quarter.

Additionally, we have $5 million and unused availability from the acquisition liquidity support facility, we put in place with the Eagle proppant business acquisition.

We ended the first quarter was approximately $11 4 million cash and our current cash balance is approximately $10 million.

Between cash and our availability and our facilities. We currently have approximately $30 million and available liquidity.

We do not expect to have any borrowings on our ABL revolver and the second quarter.

In terms of guidance from the second quarter, we expect sales volumes to be up 5% to 10% from first quarter levels. We continue to anticipate capital expenditures for 2021 to be and the $10 million to $15 million range and expect free cash flow to be positive for the full year.

This concludes our prepared comments and we will now open the call for questions.

Thank you if you have a question at this time. Please press Star then one on your Touchtone telephone and ask your question has been answered <unk> question move yourself from the queue. Please press the pound key.

And any background noise, we ask that you. Please place your line on mute. Once your question has been stated.

Our first question comes from the line of Steven Kingara with Stifel. Your line is open. Please go ahead.

Thanks, Good morning, gentlemen.

Good morning.

I jumped on a couple of minutes late but I might have missed this but I wanted to just ask you a little bit about.

And I guess two part question, but one is as we look ahead and you look at sort of on the dynamics within the Frac sand business and pricing trends.

How should we think about I mean without talking about specific quarter number, but how should we think about contribution margin per ton as we go forward.

And I guess, along with that is there any difference and the.

With the new facility online and across associated with that et cetera, we should be contemplating and the short term.

Yes, Stephen for our contribution margin issue as you and if you follow us over the past you know and our.

Fourth quarter and first quarter, we typically have lower contribution margin because our costs are higher as we're bringing in inventory over the winter and.

And typically they will have lower cost and the second and third quarter and as we capitalized inventory during our mining season. So I think you'll see some improvements and the second and third quarter of our contribution margin and I'd say kind of on the mid single digits.

So moving and kind of the.

$5 range give or take and then you might see that margin on a go down a little bit and the fourth quarter as we go through our seasonality.

As we typically do so second and third quarter, you should see some improving contribution margin and should moderate a little bit and the fourth quarter, depending on how we are managing our mining season. This year and building inventory during the summer months and start pulling inventory again as you get into the winter.

Great.

That's helpful. Greg.

And what was your second question and I'll apologize.

Just I was curious about is with the new facility coming online the Utica facility does that impact the short term cost structure and all is or is there any any headwind from that we should think about.

Well, we as we've ramped up Utica actually their production costs are relatively in line with what we're seeing at Oakdale, but we do have a little higher trucking costs there because our our terminal is not right at the location. So there's a little bit of friction there in terms of our trucking costs and makes Utica and a little little higher, but where we're going to be getting that as we ramp that volume up.

We think we'll be able to moderate that and and and bring that down a little bit but that is the one kind of major cost difference between the two.

Thank you and then just one one other question and I was just thinking about and.

And you guys have as good a perspective and any when you think about just the dynamics of demand.

She'd been rise and clearly and then just sort of the frac sand supply demand situation. You have obviously you had a lot of competitors that had financial problems.

Have you seen any shift and the dynamics, there and and your your unique positioning and the market.

Yes, Steve and thanks.

So what we're seeing is.

There's definitely some idled assets out there that are I think either will not or having difficulty coming back online and are particularly in the northern white space.

And.

And that's a good thing for us right.

As you had mentioned and demand is going up.

And the supply I don't think is coming on as it would have historically come on because of some of the financial difficulties that some of our competitors have been and as you alluded to so we do see demand rising.

We're not entirely sure how and how high and how fast it's going to continue to rise, but we're certainly and.

And the first quarter. This year, we were we sold more sand and we did and the first quarter of last year, which was a decent quarter for us. So we're seeing demand come up and with any luck.

With the volumes improving.

Specced price to follow but we're not we're just not sure of one.

Okay, great. Thank you.

Thank you.

Thank you and our next question comes from the line of John Daniel from Daniel Energy partner. Your line is open. Please go ahead.

Hey, Good morning, guys. Let me thank you for putting me in.

Ladies and gentlemen, I guess two questions. This morning.

All of US here and the analyst community and we don't have a view on Frac crew counts, we all kind of make up some numbers that are out there. What are you guys seen today, and the Bakken and Marcellus and terms of activity and.

Looking into the Crystal ball, how do you see crew counts progressing Q2, Q3, Q4, just any wild <expletive> guess would be appreciated.

Yes, so John what we're seeing is we're seeing relatively robust activity and both of the markets you mentioned Marcellus and Bakken.

With the with the commodity with the commodity price and oil stabilize and kind of and the sixties, we anticipate that this year could see some growth in and additional spreads going out there, but so far we see good activity and those areas.

And we've got from our perspective, we've got a good advantage and logistics chain into both of them. So we're we feel pretty good about that we think that.

And it's been a while since we've seen both Nat gas and oil spreads operating kind of in sync with demand. So that's a good thing with Marcellus and Bakken and we're seeing obviously increased activity and other areas to which our new Utica play and allows us to participate a bit more and some of the some of the other Midwest opportunities out there so.

With the B and rail so we're feeling relatively good about the activity and.

And those two basins and and elsewhere.

And we're hoping it continues and obviously with the <unk>.

Oil price headed and the right direction and we don't see any reason that won't continue.

Okay. Thank you and then let the smart path rollout.

And you alluded to as many as potentially 10 systems. Later this year. It was the initial focus and the Balkan and or are you taking on across the U S. Just walk us through the rollout strategy.

And so our first deployment has been on the Bakken, we're set up to support additional deployments there, but no that systems available anywhere in the U S and we're prepared to support it anywhere in the U S.

As you mentioned, we will have 10 systems ready to go by the end of the year and.

The system is really kind of proven itself out and its first deployment out there we've had minimal issues with it and it seem to be getting a lot of positives.

Positive press and positive thoughts from customers and potential customers on it okay.

Okay, and then I guess.

The final one from me there was a little bit of chatter.

Small and nascent lines popping up on places like Wyoming just.

Your thoughts on.

Opportunities there you know whether you do something defensively aggressively just let me what's your take on that.

Yes, so we're seeing a little bit of it.

Additional mine development out there.

We've seen I think Scott and Theres been some activity in the Bakken and there are some and kind of southeastern Wyoming.

We keep an eye on it John but we.

We don't anticipate it's going to be similar to what happened on the Permian with development outside of Kermit.

I'll take the.

The capital markets are out there.

Pressed with the returns that they've seen and some of those other regional sand plays so we're keeping an eye on it but ultimately.

Our view.

Is that eventually we're going to see E&P start to care about things like ESG, and youll lengths and truck rides and things like that and we believe that.

Bulk commodities like sand should be on rail and rail are as close to the well site as they can and reducing those trucking distances. So ultimately I don't think youll see.

A permian like development of sand regional sand mines.

And kind of the Midwest door and the northeast. So I think the story for northern White is still very positive and those markets and keeping an eye on the logistics of moving.

And moving that sand is going to be increasingly critical.

As we continue to move more and more volume the one other thing I'd add on that John is the trucking has become.

Even more difficult and it was previously so and we see that you've been getting worse.

And is that primarily right now the driver issue or just the.

Right.

He has brought a road traffic share cost of it and and the other part about it is easier to put railcars and storage, but yeah. These truckers have already gone through where this.

This industry seems to go up and down and cycles and.

And that's not a really great job to have for the trucker, yes.

Fair enough, Okay, and thanks for letting me ask some questions.

Thanks, John.

Thank you and our next question comes from the line of Samantha Hoh with Evercore ISI. Your line is open. Please go ahead.

Hey, guys.

Just a quick question on the cash flow.

It sounds like there was a slight change in the language and the Guy and I think you guys previously said, yes.

And at least 10 million previously.

Could you please just.

Kind of accounts that Lee.

In terms of cash flow.

Okay.

And that's really helped us.

Yes, we still anticipate being in the $10 million range for the year.

Okay, Great and then I noticed a really nice customer picked up that you had this past quarter.

Can you maybe elaborate a little bit more and how you're able to expand your customer base.

That being driven by.

New capacity from Utica or the ability to transport to Densification and then.

And maybe talk about share.

And it displays and they have previous supplier that customer had something like that would be helpful.

Yes. So a couple of things you had mentioned kind of Utica clearly getting a additional class one railroad on the BN has been helpful and attracting customers that we were unable to attract prior because of having.

And having dual.

Two line hauls and things like that so that's been a positive but I think ultimately as we've been.

We think picking up market share over the last little while I think it's a result of number one we've been out there aggressively pursuing spot business, where in the past we've been more focused on contract business and by aggressively pursuing.

Spot business, you tend to pick up more customers.

And so we're going to continue to do that we're going to continue to seek both spot and contract customers. But then the final thing is I think that what we're seeing play out a little bit is.

Hesitancy or inability for capacity to come back online.

One of the things having run sand mines now for for quite a while one of the things that sand mines don't like is being idle for.

Lengthy periods of time, it's very difficult to get this equipment back into operating condition, and we think that with.

With the lack of <unk>.

Potential capital partners out there for this space, it's very difficult for mines that have been down for any length from time to really come back on so we're seeing a little bit of a tailwind on that and our business and we expect that to continue to happen our oakdale plant because it's.

Because it's a single operating entity with five 5 million tons and five separate drivers out there.

We've never let our maintenance.

<unk>.

And we've always had a crew out there and keeping our maintenance and we've managed capacity that we produce thereby turning plants on and off but at the same time all of us having a maintenance growth you have a single mine out say in Wisconsin, and somewhere that hasnt been maintained and several years, it's very very difficult to turn that back on so again, we see some we think that will give us some tailwind.

And to the rest of this year and ultimately more customers is a good thing and.

And also at <unk>, one one mine servicing to class one rail lines, which is.

It was very efficient.

And you have a sense of the mix and your volume right now from contract versus spot.

Yeah, we don't give a breakout between contract and spot.

And a lot of times, we have customers that were on contracts that have come off but they are still having very consistent volumes with them. So even though they may be typically spot today there is still.

From historical contractual relationships and and management. So we don't really split it up in terms of giving out the difference between spot and contract and also when we say spot I think a lot of times people think of sponsors being one kind of individuals' sale a lot of our spot transactions a day, where we may be supporting a customer for three to six months, where they have a certain plan for delivering <unk>.

And to that market so.

And saying spot isn't that it's just individual sales and maybe just not on longer term contracts for it versus kind of shorter term pricing arrangement and contracts to meet a need for a specific development plan and an area of over $3 six months et cetera.

Okay. Thank you so much that's very helpful.

Thanks, Dan.

Thank you and our next question comes from the line of Luke and Omar with <unk>. Your line is open. Please go ahead.

Hey, guys. A quick question and I was trying to figure out the fixed charge coverage ratio and it's kind of complicated because of the cash taxes and whatever tax refunds and Q3 and Q4, where are you on the on the fixed charge coverage ratio as it applies to the ABL right now.

Well first of all the fixed charge coverage ratio doesn't apply only kicks in and if we have 85% of our facility drawn.

And so we don't have any covenants that we apply to currently under our borrowings.

Borrowing base and so.

And it doesn't apply in terms of being any kind of compliance issue and then secondly, I don't have the number right in front of me, but we have consistently had a positive fixed charge coverage ratio and most of our.

And we've typically been very positive in that regard and we're positive today on that calculation.

Great. Thanks, so much I appreciate it alright. Thank you.

Thank you and I'm showing no further questions at this time and I would like to turn the conference back over to CEO, Chuck Young for any further remarks.

Thank you for joining us for Smart Sand's first quarter 2021 earnings call stay safe and we'll talk soon.

This does conclude today's program you may now disconnect everyone have a great day.

Q1 2021 Smart Sand Inc Earnings Call

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