Q2 2024 Smart Sand Inc Earnings Call
Speaker Change: Ladies and gentlemen, and welcome to the SmartStand Q2 2024 earnings call. At this time, all lines are in a listen-only mode.
Operator: At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. At that time, should you wish to ask a question, just press star 1 on your touchtone phone. And if at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Wednesday, August 14, 2024. I would now like to turn the conference over to Chris Green. Please go ahead.
Speaker Change: Following the presentation, we will conduct a question and answer session. At which time, should you wish to ask a question, just press star 1 on your touchtone phone.
Speaker Change: And if at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, August 14, 2024. I would now like to turn the conference over to Chris Green, please go ahead sir.
Chris Green: Good morning, and thank you for joining us for Smart Sand's second quarter 2024 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.
Speaker Change: Thank you so much for watching!
Speaker Change: Thank you so much for watching this video.
Speaker Change: Good morning, and thank you for joining us for SmartSAN's second quarter 2024 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.
Chris Green: For a complete discussion of such risks and uncertainties, please refer to the company's press release and our documents on file with the SEC. Smart Sand disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 14, 2024. Additionally, we will refer to the non-GAAP financial measures of contribution margin, adjusted EBITDA, and free cash flow during this call.
Speaker Change: Before we begin, I would like to remind all participants that our comments may 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.
Speaker Change: 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.
Speaker Change: Smart SAM 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.
Speaker Change: This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 14th, 2024.
Chris Green: 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.
Speaker Change: 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.
Chuck Young: 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.
Chuck Young: In the second quarter, we continued to build off of our first quarter momentum and once again delivered strong results. Sales volume was just under 1.3 million tons in the second quarter, which exceeded our projections. 2024 sales volumes through June were 15% higher than sales volumes for the first six months of 2023. Contribution margin in the second quarter improved to $19.8 million, and adjusted EBITDA increased to $11.8 million.
Chuck Young: Thanks, Chris, and good morning. In the second quarter, we continued to build off of our first quarter momentum and once again delivered strong results.
Speaker Change: They also aim were just under 1.3 million times in the second quarter, which exceeded our projections.
Speaker Change: 2024 sales volumes through June were 15% higher than sales volumes for the first six months of 2023. Contribution margin in the second quarter improved to $19.8 million, and adjusted EBITDA increased to $11.8 million.
Chuck Young: Additionally, we generated $13.5 million in free cash flow for the quarter. Due to our strong results, we are now free cash flow positive for the year through June. Importantly, we expect to remain free cash flow positive for the full year, and as a direct result of our focus on generating free cash flow, we expect to announce plans to return value to our shareholders later this year. We also remain focused on managing our cost structure.
Speaker Change: Additionally, we generated $13.5 million in free cash flow for the quarter.
Speaker Change: Due to our strong results, we are now free patch flow positive for the year through June.
Speaker Change: Importantly, we expect to remain free cash flow positive for the full year and as a direct result of our focus on generating free cash flow, we expect to announce plans to return value to our shareholders later this year.
Chuck Young: We have driven down our production costs and administrative costs in the quarter. These efforts have directly resulted in improvements to contribution margin and adjusted EBITDA. We will continue to benefit from these savings initiatives in the future and remain committed to finding new ways to drive efficiency in our business. In the second quarter, we continued to execute on our long-term goals.
Speaker Change: We also remain focused on managing our cost structure.
Speaker Change: We have driven down our production costs and administrative costs in the quarter.
Speaker Change: These efforts have directly resulted in improvements to contribution margins and adjusted EBITDA. We will continue to benefit from these savings initiatives in the future and remain committed to finding new ways to drive efficiency in our business.
Chuck Young: We continue to strengthen our market-leading Northern White franchise and build market share in the Bakken and Marcellus basins. Through our Blair facility, we are establishing Smart Sand as a consistent and growing supplier of Northern White sand to the Canadian market. We're expanding the markets we serve. We invested in two new terminals in Minerva and Denison, Ohio, which will open up the Utica shale formation as a market for us. The terminals are now operational and transloading sand.
Speaker Change: In the second quarter, we continue to execute on our long-term goals.
Speaker Change: We continue to strengthen our market-leading Northern White franchise. We continue to build market share in the Bakken and Marcellus basins. Through our Blair facility, we are establishing SmartSand as a consistent and growing supplier of Northern White sand into the Canadian market.
Speaker Change: We are expanding the markets we serve. We invested in two new terminals in the Nerva and Danisano Highl, which will open up the Utica Shell Formation as a market for us.
Chuck Young: We're establishing markets for industrial product solutions business. We continue to make strides with new industrial sand customers making the change to Smart Sand to meet their industrial product needs. We are laying the groundwork this year to position Smart Sand to compete for new business as industrial sand contracts come up for renewal in 2025. We remain committed to high standards of product quality and service delivery for our last mile business. We continue to strive to be the best in class in last mile solutions and continue to look to improve the capabilities of our products and services for sand delivery and storage at the well site.
Speaker Change: The terminals are now operational and transloading sand.
Speaker Change: We're establishing markets for our industrial product solutions business. We continue to make strides with new industrial sand customers making the change to SmartSand to meet their industrial product needs. We are laying the groundwork this year to position SmartSand to compete for new business as industrial sand contracts come up for renewal in 2025.
Speaker Change: We remain committed to high standards of product quality and service delivery for our last mile business.
Speaker Change: We continue to strive to be the best-in-class and last-mile solutions and continue to look to improve capabilities of our product and services for sand delivery and storage at the well site. Our focus never wavers from having efficient and cost-effective sand production and delivery costs.
Chuck Young: Our focus never wavers from having efficient and cost-effective sand production and delivery. In the second quarter, we implemented several initiatives to manage our labor costs, improve our plant product yields, and invest in more efficient mining vessels. We will maintain our focus to be a low-cost producer of northern white sand. We will not deviate from our commitment to a strong capital structure with low debt and appropriate liquidity.
Speaker Change: In the second quarter, we implemented several initiatives to manage our labor costs, improve our plant product yields, and invest in more efficient mining methods.
Speaker Change: We will maintain our focus to be a low-cost producer of Northern White Sand. We will not deviate from our commitment to a strong capital structure with low debt and appropriate liquidity. Lee will provide more details later in the call, but in June, we refinanced our Oakdale Equipment Financing into a new four-year equipment financing.
Chuck Young: Lee will provide more details later in the call, but in June, we refinanced our Oakdale Equipment Financing into a new four-year equipment financing. We remain committed to being the premier provider of Northern White Sand in North America, and we are confident that the foundation for Northern White Sand demand is strong and will be durable over time. The primary frac sand markets we currently serve are the Marcellus and the Bakken, including the Canadian Bakken, the Montney, and the Duvernay in Canada, and now the Utica Shale Basin in Ohio. The basins are all primarily northern white sand supplied markets.
Speaker Change: We remain committed to being the premier provider of northern white sand in North America, and we are confident that the foundation for northern white sand demand is strong and will be durable over time.
Lee Beckelman: The primary fraction of markets we currently serve are the Marcellus.
Speaker Change: The Bokin, including the Canadian Bokin
Speaker Change: the Montney and the Duvernay in Canada.
Speaker Change: and now the Utica Shale Basin in Ohio.
Speaker Change: The basins are all primarily Northern White Sand supplied markets. We believe these markets will continue to have strong and growing demand for Northern White Sand for the foreseeable future.
Chuck Young: We believe these markets will continue to have strong and growing demand for northern white sand for the foreseeable future. The basins we serve are evenly divided between oil and gas, with the Marcellus and the Canada primary being natural gas markets, and the Bakken and Utica being oil-focused markets. The combination of our three operating mines in Oakdale, Wisconsin, Flair, Wisconsin, and Utica, Illinois, coupled with our direct access on four Class 1 rail lines, the Canadian Pacific, the Union Pacific, the Canadian National, and the Burlington Northern, uniquely positions smart sand to continue to be a leading provider of northern white sand.
Speaker Change: The basins we serve are evenly divided between oil and gas, with the Marcellus and the Canada Primary being natural gas markets, and the Bakken and Utica being oil-focused markets.
Speaker Change: The combination of our three operating mines in Oakdale, Wisconsin, Blair, Wisconsin, and Utica, Illinois, coupled with our direct access on four Class I rail lines, the Canadian Pacific, the Union Pacific,
Speaker Change: the Canadian National, and the Burlington Northern uniquely precision smart sand to continue to be a leading provider of northern white sand. Collectively, our three facilities have a combined capacity of 10 million tons annually.
Chuck Young: Collectively, our three facilities have a combined capacity of 10 million tons annually. And as the markets grow, we have the capacity ready and available to meet their growth in need. However, we recognize that oil and gas demand for frac sand can and will continue to fluctuate based on current and expected prices for oil and natural gas. That is why we remain focused on being a low-cost producer. We continue to move forward on our plans to convert our Oakdale facility to hydro mining, which should reduce our operating costs in the future, and we've worked to better align our labor force for their current operational needs.
Speaker Change: And, as the markets grow, we have the capacity ready and available to meet its growth and needs.
Speaker Change: However, we recognize that oil and gas demand for frac sand can and will continue to fluctuate based on current and expected prices for oil and natural gas.
Speaker Change: That is why we remain focused on being a low-cost producer. We continue to move forward on our plans to convert our Oakdale facility to hydromining, which should reduce our operating costs in the future, and we've worked to better align our labor force for their current operational needs.
Chuck Young: We're also in the process of implementing a new ERP to provide us with access to more timely operational and financial information. We had strong demand for the Marcellus in the first quarter, but demand in the second quarter did moderate slightly.
Speaker Change: We are also in the process of implementing a new ERP to provide us with access to more timely operational and financial information.
Speaker Change: We had strong demand in the Marseilles in the first quarter, the man in the second quarter in Marseilles did moderate slightly. We currently expect third quarter sales volume in the basins to be relatively consistent with second quarter, but we couldn't see a slow down in the fourth quarter based upon current natural gas prices and expected activity.
Chuck Young: We currently expect third-quarter sales volume in the basin to be relatively consistent with the second quarter, but we could see a slowdown in the fourth quarter based upon current natural gas prices and expected activity. With the startup of our new terminals, we're seeing Utica demand increase, which should mitigate any short-term slowdowns in the Marcellus. While activity in the Marcellus may slow down in the second half of the year due to current low natural gas prices, we believe the long-term demand fundamentals for natural gas supply in the United States and Canada are strong.
Speaker Change: With a start-up of our new terminals, we're seeing the unit-of-the-demand increase, which should be mitigate any short-term slowdowns in the Marseilles.
Speaker Change: Well, activity in the Marcellus may slow down in the second half of the year due to current low natural gas prices.
Speaker Change: We believe the long-term demand fundamentals for natural gas supply in the United States and Canada is strong.
Chuck Young: Increasing demand from LNG export facilities and power generation for new artificial intelligence data centers support the need for increased natural gas demand in the US. We expect this market to be a growing part of our business as we look out to 2025 and beyond. In contrast to natural gas prices, oil prices have remained at healthy levels.
Speaker Change: Increasing demand from LNG export facilities and power generation for new AI data centers support the need for increased natural gas demand in the U.S. We expect this market to be a growing part of our business as we look out to 2025 and beyond.
Chuck Young: Activity in the Bachman Basin in North Dakota typically picks up in the second and third quarters, and this year has been no exception. We had strong activity in the second quarter in this basin, and we expect that to continue into the third quarter. Fossil activity usually slows down in the fourth quarter due to the onset of winter.
Speaker Change: In contrast to natural gas prices, oil prices have remained at healthy levels. Activity in the Bachman Basin in North Dakota typically picks up in the second and third quarters, and this year has been no exception.
Speaker Change: We had strong activity in the second quarter in this basin, and we expect that to continue into the third quarter. Foxwood activity usually slows down in the fourth quarter due to the onset of winter.
Chuck Young: We continue to work on increasing our market presence in the Canadian market. In the first half of 2024, Canada's sales represented approximately 10% of our sales volume. We expect Canadian activity to be consistent in the second half of 2024.
Speaker Change: We continue to work on increasing our market presence in the Canadian market. The first half of 2024, Canada's sales have represented approximately 10% of our sales volume. We expect Canadian activity to be consistent in the second half of 2024.
Chuck Young: As we look to grow our Canadian market presence, we're looking at terminal options to establish our logistics footprint in this market. Efficient and sustainable logistics capabilities are essential to our long-term success. Our investment in our vanhook terminal in North Dakota and our Wainsworth terminal in Pennsylvania have been key drivers in our ability to increase our market share in the Galkan and Marcelle markets. Having control of terminals in the basins allows us to deliver sand more efficiently, sustainably, and cost-effectively.
Speaker Change: As we look to grow our Canadian market presence, we are looking at terminal options to establish our logistics footprint in this market. Efficient and sustainable logistics capabilities are essential to our long-term success.
Speaker Change: Our investment in our Van Hook Terminal in North Dakota and our Waynesburg Terminal in Pennsylvania have been key drivers in our ability to increase our market share in the Bakken and Marcellus markets. Having control of terminals in the basins allows us to deliver sand more efficiently, sustainably, and cost-effectively.
Chuck Young: Our primary objective is to deliver positive free cash flow consistently. In the second quarter, we had strong cash conversion of receivables that were built up in the first quarter, which, coupled with effective cost management and disciplined capital spending, led to a substantial improvement in free cash flow in the second quarter and positive free cash flow for the sixth month of the year. We expect to be free cash flow positive for the year.
Speaker Change: Our primary objective is to deliver positive free cash flow consistently.
Speaker Change: In the second quarter, we had strong cash conversion of receivables that were built up in the first quarter, which, coupled with the effective cost management and disciplined capital spending, led to substantial improvement in free cash flow in the second quarter and positive free cash flow for the sixth month of the year. We expect to be free cash flow positive for the year.
Chuck Young: We are committed to starting returning value to our shareholders. Given our generation of free cash flow over the first 6 months and our expectation that we will remain free cash flow positive for the year, we expect to communicate our plans to start returning value to our shareholders later this year. We believe Northern White Sand will continue to be a key product for both the energy and industrial sand market.
Speaker Change: We are committed to start returning value back to our shareholders. Given our generation of free cash flow over the first six months and our expectation that we will remain free cash flow positive for the year, we expect to communicate our plans to start returning value to our shareholders later this year.
Speaker Change: We believe Northern White Sand will continue to be a key product for both the energy and industrial sand markets. In the second quarter, we continue to build off our solid first quarter performance.
Chuck Young: In the second quarter, we continue to build off our solid first quarter performance. While there may be short-term blips in natural gas basins due to the current low natural gas prices, the long-term fundamentals for Northern White Sand, in general, and Smart Sand, in particular, continue to be strong. We believe no other company is better positioned to take advantage of the market for Northern White Sand than Smart Sand. We couldn't have delivered these results without the hard work and dedication of our employees.
Speaker Change: While there may be short-term blips in natural gas basins due to current low natural gas prices, the long-term fundamentals for northern white sand in general, and smart sand in particular, continue to be strong.
Speaker Change: We believe no other company is better positioned to take advantage of the market for northern white sand than Smart Sand.
Lee Beckelman: I want to thank all of our employees for their continued support and dedication to Smart Sand. As always, we'll keep our employees' and shareholders' interests in mind in everything we do. And with that, I'll turn the call over to our CFO, Lee Beckelman. Thanks, Chuck.
SmartSAN: 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 SmartSAN.
Lee Beckelman: As always, we'll keep our employees' and shareholders' interests in mind in everything we do. And with that, I'll turn the call over to our CFO, Lee Beckelman.
Lee Beckelman: Now go through some of the highlights of the second quarter 2024 compared to our first quarter 2024 results. We sold 1.27 million tons in the second quarter, a 5% decrease from the first quarter sales volumes of 1.34 million tons. Total revenues for the second quarter were $73.8 million, compared to $83.1 million in the first quarter. Total revenues were lower in the second quarter, due primarily to lower sand sales volume. Lower average frac sand sales prices and lower smart system systems revenues from reduced utilization of our, Our cost of sales for the quarter was $60.7 million, compared to $71.2 million in the first quarter, a 15% increase. The increase was due primarily to lower sales volumes in the quarter coupled with ongoing cost and efficiency initiatives to reduce production. Total operating expenses were $9.5 million in the second quarter compared to $11 million in the first quarter.
Lee Beckelman: The decrease sequentially was primarily due to higher incentive compensation and higher royalties from increased sales volumes in the first quarter. During the second quarter, we had a 1.3 million loss on the extinguishing of the deck. This expense was related to the payoff of some equipment leases that were part of the refinancing that was completed in June. Contribution margin was $19.8 million, or $15.53 per ton, in the second quarter. First quarter contribution margin was $18.5 million or $13.85 per ton. Adjusted EBITDA for the second quarter was $11.9 million, compared to $9.3 million in the first quarter.
Lee Beckelman: Thanks, Chuck. Now I'll go through some of the highlights of the second quarter 2024 compared to our first quarter 2024 results.
Lee Beckelman: We sold 1.27 million tons in the second quarter, a 5% decrease from the first quarter sales volumes of 1.34 million tons.
Lee Beckelman: Total revenues for the second quarter were $73.8 million.
Lee Beckelman: compared to $83.1 million in the first quarter. Total revenues were lower in the second quarter, due primarily to lower sand sales volumes, lower average frac sand sales prices, and lower Smart Systems revenues from reduced utilization of our fleet.
Lee Beckelman: Our cost of sales for the quarter were $60.7 million compared to the first quarter of $71.2 million, a 15% decrease.
Lee Beckelman: The crease was due primarily to lower cells volumes in the quarter, coupled with ongoing cost and efficiency initiatives to reduce production costs.
Lee Beckelman: Total operating expense were $9.5 million in the second quarter, compared to $11 million in the first quarter. The decrease sequentially was primarily due to higher incentive compensation and higher royalties from increased sales volumes in the first quarter.
Lee Beckelman: During the second quarter, we had a 1.3 million loss on the extinguished from the debt. This expense was related to the payoff of some equipment leases that were part of the refinancing that was completed in June .
Lee Beckelman: contribution margin was $19.8 million for $15.53 per ton in the second quarter.
Lee Beckelman: First Corridor contribution margin was $18.5 million, or $13.85 per time.
Lee Beckelman: Adjusted EBITDA on the second quarter is 11.9 million compared to 9.3 million in the first quarter.
Lee Beckelman: While sales volumes were down in the quarter, contribution margin and adjusted EBITDA both improved sequentially due to our continued focus on managing our cost share. In the second quarter of 2024, we had $14.9 million in cash provided by the Operating Act, which led to $13.5 million in free cash flow after we spent $1.4 million on capital expenses. This compares to $3.9 million in cash used by operating activities and a negative $5.5 million in free cash flow in the first quarter.
Speaker Change: While sales volumes were down in the quarter, contribution margin and adjusted EBITDA both improved sequentially due to our continued focus on managing our cost structure.
Speaker Change: The second quarter of 2024, we had $14.9 million in cash provided by operating activities.
Speaker Change: which led to $13.5 million in free cash flow after we spent $1.4 million on capital expenditures.
Speaker Change: This compares to...
Speaker Change: 3.9 million cash used by operating activities in a negative 5.5 million in pre-castle in the first quarter.
Lee Beckelman: The improvement in cash provided by operating activities was primarily due to reduced working capital requirements as sales volumes leveled out, and we had higher cash conversion of our receivables in the quarter. We ended the second quarter with $2 million in borrowings on our credit facility. Today, there are no outstanding borrowings on our credit facility.
Speaker Change: The improvement in cash provided by operating activities was primarily due to reduced working capital requirements as sales volumes leveled out, and we had higher cash conversion of our receivables in the quarter.
Speaker Change: We ended the second quarter with $2 million in borrowings on our credit facility. Today, there are no outstanding borrowings on our credit facility.
Lee Beckelman: We had approximately $6.3 million in cash and cash equivalents at the end of the second quarter. When combined with cash and availability from our credit facility, we currently have available liquidity in excess of $28 million. In June, we completed the refinancing of our Oakdale Equipment Finance, along with a couple of smaller equipment finances. We refinanced this debt with a new $10 million facility. This new facility is amortized over a four-year term and has an implied interest rate of approximately 8.6%. Our current $20 million ABL credit facility comes due in December.
Speaker Change: We had approximately $6.3 million in cash and cash equivalents at the end of the second quarter.
Speaker Change: Between cash and availability from our credit facility, we currently have available liquidity in excess of $28 million.
Speaker Change: In June we completed the refinancing our Oakdale equipment financing along with a couple of smaller equipment financings.
Speaker Change: We refinanced this debt with a new $10 million facility. This new facility amortizes over a four-year term and has an implied interest rate of approximately 8.6%.
Speaker Change: Our current $20 million ABL credit facility comes due in December . We're in the process of refinancing this facility and expect to close this new facility in the third quarter.
Lee Beckelman: We're in the process of refinancing this facility and expect to close this new facility in the third quarter. While sales volumes did moderate in the second quarter, we still delivered solid sales results and improved contribution margin, adjusted EBITDA, and free cash. As Chuck highlighted, we do expect some pullback in the Marcellus due to lower current natural gas prices, but that should be mitigated some by expected increased volumes in the Bakken in the third quarter, as well as new cell volumes into the Utica Basin. Currently, we respect their core cells, sand cells' volumes to be in the 1 million to 1.2 million range.
Speaker Change: While sales volumes did moderate in the second quarter, we still delivered solid sales results and improved contribution margin, adjusted EBITDA, and free cash flow.
Speaker Change: As Chuck highlighted, we do expect some pullback in the Marcellus due to lower current natural gas prices.
Speaker Change: But that should be mitigated some by expected increased volumes in the Bakken in the third quarter, as well as new cells volumes into the Utica basin.
Chuck Young: Currently, we expect third-quarter cells sand cells volumes to be in the 1 million to 1.2 million range.
Lee Beckelman: Contribution margin per ton improved to $15.53 per ton in the second quarter. We expect third quarter contribution margin to be in the $14 to $16 per ton range. We evaluate and manage our capital expenditures on a quarterly basis. With our projects planned to date, we currently expect capital expenditures for the year to be in the $10 million to $13 million range. The increase in capital expenditures in the second half of the year, from the $3 million spent through June, is primarily due to the completion of projects that were started in the first half of the year.
Chuck Young: Contribution margin per ton improved to $15.53 per ton in the second quarter. We expect third quarter contribution margin to be in the $14 to $16 per ton range.
Chuck Young: We evaluate and manage our capital expenditures on a quarterly basis. With our projects planned to date, we currently expect capital expenditures for the year to be in the $10 million to $13 million range.
Chuck Young: The increase in capital expenditures in the second half of the year from the $3 million spent through June is primarily due to the completion of projects that were started in the first half of the year. We delivered strong free cash flow in the second quarter.
Operator: We delivered strong free cash flow in the second quarter, and while we expect quarterly free cash flow to moderate in the second half of the year, we still expect to be free cash flow positive for the year. This concludes our prepared comments, and we're now open to calling the author. Thank you, sir. We will now begin the question and answer session. To ask a question, please press star and one on your touchtone phone. If you're using a speakerphone, please pick up the handset before pressing any key.
Chuck Young: And while we expect quarterly free cash flow to moderate in the second half of the year, we still expect to be free cash flow positive for the year.
Chuck Young: This concludes our prepared comments and we will now open the call for questions.
Stephen Gengaro: To withdraw your question, please press star 2. Once again, star and 1 if you wish to ask a question. One moment for your first question, and we now have our first question, and this comes from the line of Stephen Gengaro on behalf of Steve Liverpool. Your line is now open, please go ahead. Thanks and good morning, everybody. Good morning, Stephen.
Speaker Change: Thank you sir, we will now begin the question and answer session. So ask a question, please press star and one on your touchstone phone. If you're using a speaker phone, please pick up the handset before pressing any keys.
Speaker Change: Do we draw your question? These press start, too. Once again, star in one if you wish to ask a question.
Speaker Change: One moment for your first question.
Speaker Change: John Daniel, John Daniel, John Daniel, John Daniel, John
Speaker Change: And we now have our first question. And this comes from the line of Stephen Gengaro from Stiefel. Your line is now open. Please go ahead.
Stephen Gengaro: So, two questions for me, and I know the first one might be hard to dissect, but I'm going to ask. You talked about some of the things you're doing on the cost side and your contribution margin per ton for the quarter, and the guidance for the next quarter, given the volumes, is very strong. Is there any way to quantify or give us a sense, maybe on a year-over-year basis or at some level, of the level of sort of cost savings that are sticky that we should sort of think about as we try to model going forward?
Stephen Gengaro: Thanks, and good morning, everybody.
Stephen Gengaro: Good morning, Stephen.
Stephen Gengaro: So, two questions for me, and I know the first one might be hard to dissect, but I'm going to ask. You talked about some of the things you're doing on the cost side and your contribution margin per ton in the quarter, and the guidance for the next quarter, given the volumes, is very strong.
Speaker Change: Is there any way to quantify or give us a sense maybe, you know, on a year-over-year basis or off of some level, sort of the level of sort of cost savings that are sticky that we should sort of think about as we try to model going forward?
Stephen Gengaro: I agree, Stephen, that's a kind of a hard question to quantify, but in general, I think with some of the things we're doing in terms of managing our labor to be more in line and more flexible with our operation, sales volumes, as well as the hydro mining we're doing at Oakdale and other things of that nature, it could potentially, on average, reduce our production costs by potentially a dollar or two dollars per ton on average Yeah, and Stephen, what I would add to that is I think with a lot of the removal of the yellow iron, you know, the haul trucks and things like that, and moving that to electrically-driven pumps and hydro mining, as we discussed, allows us to kind of avoid some of the spikes we've seen in the past when diesel gets to five and six bucks, you know, that provides the real headwind to us that should, you know, we should Okay, that helps.
Speaker Change: I agree Steven that's a kind of a hard question to quantify but in general I think with some of the things we're doing in terms of
Speaker Change: Managing our labor to be more in line and more flexible with our operations and sales volumes as well as the hydro mining in particular, we're doing it Oakdale and other things of that nature that it could pitch, you know, an average reduce our production cost by potentially a dollar or two dollars per ton on average if we're operating at a fairly high utilization.
Speaker Change: Yeah, and Steven, what I would add to that is I think with a lot of the removal of the yellow iron, you know, the haul trucks and things like that, and moving that to electrically driven pumps and hydromining as we discussed,
Steven: You know, allows us to kind of avoid some of the spikes we've seen in the past, you know, when diesel gets to five and six bucks.
Speaker Change: You know, that, that provides the, you know, real Edwin to us that should, you know, we should have mitigated kind of going forward so It provides a little bit more of an ability to see out and not have to worry so much about that stuff.
Stephen Gengaro: It's obviously a very positive trend. So the other question I'd add just quickly is when you look at the various markets you're serving, I mean, we've heard about sand pricing mostly around the Permian and some of the markets, but what are you seeing kind of on the spot market? Maybe you just kind of relative to what your contractual items currently look like.
Speaker Change: Okay, now that helps. It's obviously a very positive.
Speaker Change: The other question I had, just quickly, is when you look at the various markets you're serving, I mean, we've heard
Speaker Change: about sand pricing, mostly around the Permian and some other markets. But what are you seeing kind of on the spot market, maybe just kind of relative to what your contracted volumes currently look like?
Stephen Gengaro: In terms of pricing? Yeah, in terms of pricing. I think John or Chuck can add to this, but pricing has been.., relatively flat. So over the last couple of quarters, we saw a good pickup in pricing through the second first half of last year kind of moderated down and it's been relatively flat for the last, Yeah, I would just add to that, it's a little bit market dependent, you know, Canada seems to, you know, allow for a little bit higher pricing, you know, and some of the markets in the US are a little bit lower pricing, but we have been in a relatively... We've had a pretty stable pricing environment now for quite a while, and we're not seeing kind of what we were seeing back when the market was weak, pricing in the teens, not sustainable.
Speaker Change: In terms of pricing? Yeah, in terms of pricing.
Speaker Change: I think John can add, John or Chuck can add to this, but pricing has been relatively flat. So, over the last couple of quarters, we saw a good pickup in pricing through the second, first half of last year, kind of moderated down, and it's been relatively flat for the last couple of quarters.
Speaker Change: Yeah, I would just add to that. It's a little bit market dependent. You know, Canada seems to, you know, allow for a little bit higher pricing, you know, and some of the markets in the U.S. are a little bit lower pricing, but we have been in a relatively
Speaker Change: stable pricing environment now for quite a while, right? And, you know, we're not seeing kind of what we were seeing back when the market was weak, you know, teen pricing in the teens.
Stephen Gengaro: We're seeing pricing kind of in the mid-20s, and we're seeing interest in contracting at those levels. And so, knock on wood, the pricing seems to be... We don't see anything that's going to take it out of that stability. Market demand and northern white supply seem to be still in relative balance.
Speaker Change: You know, not sustainable. We're seeing pricing kind of in the mid-20s.
Speaker Change: and we're seeing interest in contracting at those levels.
Speaker Change: And so, you know...
Speaker Change: Knock on wood, the pricing seems to be...
Speaker Change: We don't see anything that's going to take it out of that stability. You know, market demand and nor the white supplies seem to be still in relative balance. You've heard us say that before.
Stephen Gengaro: You've heard us say that before, and I think that going forward, we don't anticipate much of that's going to change. One other thing I'd add is that our sand, northern white sand, is heavily dependent on rail logistics. Our rail logistics setup is premier in the industry. We have the best assets.
Speaker Change: And, you know, I think that going forward, we don't anticipate much of that's going to change. And one other thing I'd add is our sand, northern white sand.
Speaker Change: It's heavily dependent on rail logistics. Our rail logistics setup is, you know, premier in the industry. We have the best assets.
Stephen Gengaro: Great. Thank you. And maybe just one quick one on that. And I don't know if this affects you at all, but we're hearing about this Canadian rail strike. And I honestly forget, the drop-dead date.
Speaker Change: Great, thank you. And maybe just one quick one on that. We've been hearing, and I don't know if this affects you at all, but we've been hearing about the Canadian rail strike, and I forget, honestly, the drop-dead date. Does that have any impact on you guys?
Stephen Gengaro: Does that have any impact on you guys? [inaudible] Yeah, so the yeah, it sounds like August 22nd is the big date for that as to when they're enabled to go on strike now that we've been told by our rail partners that that is going to affect primarily Canada. It doesn't impact the lower 48, where the bulk of our volume goes today. But yeah, we're hopeful that that gets resolved in a way that doesn't impact our operation, similar to the rail situation in the U.S. a few years ago, where it went right to the 11th hour and then got resolved and ended up impacting us.
Speaker Change: Yeah, so the yeah, it sounds like I think August 22nd is the is the big date for that as to when they're Enabled to go on strike now that we've been told by our rail partners that that is going to affect primarily Canada It doesn't impact the lower 48
Speaker Change: where the bulk of our volume goes today. But yeah, we're hopeful that that gets resolved in a way that doesn't impact our operation. Similar to the rail situation in the U.S. a few years ago where it went right to the 11th hour and then got resolved and ended up impacting us. But, you know, the Canadian market is still a growing market for us. It's certainly going to be a very important market for us.
Stephen Gengaro: But you know, the Canadian market is still a growing market for us, certainly going to be a very important market for us. But I think that this strike, assuming it's resolved relatively quickly, shouldn't have too much of an impact. Excellent. Now, thank you to all the people. You. You. You.
Speaker Change: But I think that this strike, assuming it's resolved relatively quickly, shouldn't have too much of an impact on us.
Speaker Change: Excellent. Thank you for all the details.
Josh Jayne: Thank you. And the next question comes from the line of Josh Jayne from Daniel Energy Partners. Your line is now open. Please go ahead.
Speaker Change: Thanks, Dana. Thanks to you.
Speaker Change: Thank you. And the next question comes from the line of Josh Jayne from Daniel Energy Partners. Your line is now open. Please go ahead.
Josh Jayne: Thanks, good morning. The first question I wanted to ask is about the Canadian market. Could you talk about how much sand you're selling into that market today and where it could ultimately go in 2025? And then maybe just sort of a broad overview.
Josh Jane: Thanks, good morning. Hey Josh. Hey Josh.
Speaker Change: First question I wanted to ask is on the Canadian market. Could you talk about how much sand you're selling into that market today and where it could ultimately go in 2025? And then maybe just sort of a broad overview when I look at the rig count.
Josh Jayne: When I look at the rig count, it's been holding up much better in Canada than the U.S. So could you talk about how much sand demand there is annually from the Canadian market for Northern White? Yeah, Josh, right now.
Speaker Change: been holding up much better in Canada than the U.S. So could you talk about how much sand demand annually is coming from the Canadian market for Northern White?
Josh Jayne: I always say flux wipes by month and quarter, but approximately 10% of our sales are going to the Canadian market, and we do believe that that market has good, strong growth potential. It's hard to get great estimates on actual demand, but we kind of put the demand currently in that market probably in the 8 to 10 million ton range, and we think that market could grow, you know. Gross of Stanchley over the next couple of years.
Speaker Change: Yeah, Josh, right now...
Speaker Change: I always say FluxWipes by month and quarter but approximately 10% of our sales are going to the Canadian market and we do believe that that market has good strong growth potential.
Speaker Change: It's hard to get great estimates on actual demand, but we kind of put demand currently in that market probably in the 8 to 10 million ton range, and we think that market could grow, you know,
Josh Jayne: Most of the activity is going up into Northwest Alberta and Northeast British Columbia and the Dovenay and Monteney Shell fields, and that gas is really being driven by the LNG export capacity on the West Coast, and we're really seeing a good pick-up in activity, and we expect that to be a growing and strong one. So, we're at 10% today, and we hope to see that grow as we get into 2025 and be at a higher percentage of that.
Speaker Change: grow substantially over the next couple of years. Most of the activity is going up into northwest Alberta, northeast British Columbia, and the Duvenet and Montenay shell, and that gas is really being driven by the LNG export capacity on the west coast.
Speaker Change: and we're really seeing a good pick up in activity.
Speaker Change: and we expect that to be a growing and strong market for us. So, we're at 10% today and we hope to see that grow as we get into 2025 and be at a higher percentage of that. It's hard to give you an exact number, but we expect that to be growing as we get into 2025 and really extend our logistics network into Canada to really be more efficient in getting our sand into that market over time.
Josh Jayne: It's hard to give you an exact number, but we expect that to be growing as we get into 2025 and really extend our logistics network into Canada to be more efficient in getting our sand in those areas. And is there much of a difference between what you're selling just from a grade standpoint in the Marcello's versus the Canadian market? Could you talk about that a bit? Yeah, the that's actually a pretty good question, Josh.
Speaker Change: And is there much of a difference between what you're selling, just from a grade standpoint, into the Marcello's versus the Canadian market? Could you talk about that a bit?
Josh Jayne: So the mine that we've got up there and Blair is slightly coarser than our other mines. The Canadian market tends to be a little bit coarser than the lower 48 market, and so when we produce the 30-70 product for Canada, we produce a decent amount of 100 mesh that we keep down here primarily. That mine tends to be pretty balanced with Canadian demand and then being able to put kind of the 100 mesh product into the lower 48.
Speaker Change: Yeah, that's actually a pretty good question, Josh. So that mine that we've got up there in Blair is slightly coarser than our other...
Speaker Change: Reserves.
Speaker Change: But the Canadian market tends to be a little bit coarser than the lower 48 market, and so when we produce, call it the 30-70 product for Canada, we produce, you know, a decent amount of 100 mesh that we keep down here primarily. So that mine tends to be pretty balanced.
Speaker Change: with Canadian demand and then being able to put
Josh Jayne: It, you know, it's not something we anticipated when we picked up the property, but it's something that's actually kind of interesting from the standpoint of that mine has got good efficiency, and we're able to use most of the product that we're making. Okay, that's helpful.
Speaker Change: You know, it's not something we anticipated when we picked the property up, but it's something that's actually kind of interesting from a standpoint of that mine has got good efficiency and we're able to use most of the product that we're making.
Josh Jayne: Thanks. I wanted to ask sort of a follow-up question on supply and demand. You mentioned in your prepared remarks that the market is balanced, and there was a question about pricing. But when I think about capacity today at Oakdale, let's just call it nameplate, it's 5.5 million tons. Based on today's staffing levels, what's the maximum amount of sand you believe you could sell today as a product? And could you just give us a reminder of how much you would have to produce to arrive at that number of tons sold? Yeah, so.
Speaker Change: Okay, that's helpful. Thanks. I wanted to ask sort of a follow-up on supply-demand. You mentioned in your prepared remarks...
Speaker Change: The market is balanced and there was a question on pricing but...
Speaker Change: When I think about capacity today at Oakdale, let's just call it nameplate, it's 5.5 million tons. Based on today's staffing levels, what's the maximum amount of sand you believe you could sell today as product? And could you just give us a reminder of how much you would have to produce to arrive at that number of tons sold?
Josh Jayne: We talked a little bit about some of the changes we've made, particularly in Oakdale with going to hydro mining and whatnot. Where we are today versus getting to 5.5 million, it's not a substantial increase in staffing. There is some increase in staffing, but we've got five dry plants in Oakdale, two wet plants, and we operate to varying degrees all those plants all the time. To increase that doesn't require doubling the staff for any of that kind of stuff at Oakdale.
Speaker Change: Yeah, so...
Speaker Change: to
Speaker Change: You know, we talked a little bit about some of the changes we've made, particularly in Oakdale, with going to hydro mining and whatnot, and so, you know, where we are today versus getting to five and a half million, it's not a substantial increase in staffing. There is some increasing.
Speaker Change: increase in staffing, but we've got
Speaker Change: You know, five dry plants in Oakdale, two wet plants.
Speaker Change: and we operate, to varying degrees, all of those plants all of the time.
Speaker Change: To increase that doesn't require, you know, doubling the staff or any of that kind of stuff at Oakdale. You know, there'll be a little bit of increase in variable costs there to do that. But it is not a it's not a 2x thing. It is adding a handful of staff here and there just to move to full 24-hour operations.
Speaker Change: seven days a week and not shutting plants down so
Speaker Change: Look at him!
Speaker Change: We think that that's a really good tailwind for us, you know, as market demand increases.
Speaker Change: You know, at Blair, it's kind of a similar story. You know, Blair is a, you know, a single, it's got two dry plants and one wet plant all on site with the rail there. And so, you know, both of those sites are well-positioned to be able to add incremental volume without huge capital expenditure and without having to add a ton of, you know, variable costs with employees and whatnot.
Josh Jayne: Single, it's got two dry plants and one wet plant all on site with the rail there. And so both of those types are well positioned to be able to add incremental volume without huge capital expenditure without having to add a ton of them. The Ovariable Costs With Employees. Additionally, Josh, the reserve at Oakdale really lines up well with what the market demand is, so that's probably our premier asset. For sure.
Speaker Change: Additionally, Josh, the reserve at Oakdale really lines up well with what the market demand is, so that's probably our premier asset.
Josh Jayne: And just to follow up, I guess, a little bit deeper, I think what I'm trying to get at is if the nameplate is 5.5 million tons and that's what you could produce, I guess I just want to better understand your yield is not going to be 100% on that, right? And so when we think about supply and demand in the market, I'm just trying to understand what the maximum, I guess, that could actually be produced from the mine or based on where you're staffing today, if that helps frame the question a little better.
Speaker Change: For sure and just just to follow up I guess a little bit deeper I think what I'm trying to get at is if nameplate is 5.5 million tons and that was that that's what you could produce.
Speaker Change: I guess I just want to better understand the...
Speaker Change: your yield is not going to be 100% on that, right? And so when we think about supply-demand in the market, I'm just trying to understand what the maximum, I guess, that could actually be produced product from the mine or based on where you're staffing today, if that helps frame the question a little better.
Josh Jayne: Well, Josh, we don't get into specific yields by plant, but generally, you can think about that we're probably in 70-80% yield on average and so getting up to 5.5 million tons in terms of the sand we'd be producing, you can kind of do the math. But again, also, we look at our assets on an integrated basis. So it's not just Oakdale and maximizing its capacity. It's maximizing the value of all three of our assets in total.
Speaker Change: Well Josh, we don't get into the specific of the yields by plant, but generally you can think about, you know, that we're probably in a
Speaker Change: 70-80 percent yield on average.
Speaker Change: And so, getting up to 5.5 million tons in terms of the sand we'd be producing, you know, you can kind of do the math from that. But again, also, we look at our assets on an integrated basis, so it's not just Oakdale and maximizing its capacity, it's maximizing the value of all three of our assets in total.
Josh Jayne: We have 10 million tons of total capacity. And so actually, Oakdale and Blair are very synergistic because they can serve some of the same markets. So depending on what the best rail access is, et cetera, or what the mix of our sand is in terms of sales, we can toggle sales back and forth between the two of those. So it's not necessarily that, you know,
Speaker Change: We have 10 million tons of total capacity, and so actually Oakdale and Blair are very synergistic because they can serve some of the same markets, so depending on what the best rail access is, etc., or what the mix of our sand is in terms of sales.
Speaker Change: we can toggle cells back and forth between the two of those. So it's not necessarily the...
Josh Jayne: The Max Volume that Oakdale can do is the combination of our assets and what we can get to on a combined basis relative to the market demand for the particular products. Yeah, and Josh, what I would add to that is just kind of a point in time, but, you know, in February this year, Oakdale produced more than five and a half million tons in February, right?
Speaker Change: Yeah, all of the...
Speaker Change: The max volume that Oakdale can do is the combination of our assets and what we can get to on a combined basis relative to the market demand for the particular products. Yeah, and Josh, what I would add to that is just kind of a, you know, it's a point in time, but, you know, in February this year, you know, Oakdale produced beyond the, you know, five and a half million tons, you know, in February, right?
Josh Jayne: So, you know, from a run rate perspective, Oakdale can do it. It's just, you know, market demand and things like that, but Oakdale does have a really good ability to flex, you know, even in months that aren't particularly favorable weather-wise, like February, so it does have that ability.
Speaker Change: You know, from a run rate perspective, Oakdale can do it, it's just, you know, it's market demand and things like that, but Oakdale does have a really ability, a really good ability to flex.
Speaker Change: You know, even in months that aren't particularly favorable, weather-wise, like February , so it does have that ability. Yeah, I think it's fair to say with our current staffing, we could be, you know, we could get our sales volumes up north of 7 million tons with maybe an incremental 5 to 10 percent increase in staffing. And we can get beyond that and get much closer to our nameplate capacity, but that would require, you know, an incremental investment probably in people and a bit of equipment.
Josh Jayne: Yeah, I think it's fair to say with our current staffing, we can get our sales volumes up north to 7 million tons with maybe an incremental five, 10% increase in staffing. And we can get beyond that and get much closer to our name plate capacity, but that would require, you know, an incremental investment. Understandable. Thank you guys for the answers.
Bruce Geller: I'll turn it back. As we go to those higher levels, you know, things like adding additional terminals, which we have plans to do in Canada right now, things like that. http://TheBusinessProfessor.com Okay. Thanks. Thanks. Thank you, and the next question comes from the line of Bruce Geller from Geller Ventures. The line is now open, please go ahead. Hi, good morning, gentlemen.
Speaker Change: Understood. Thank you guys for the answers. I'll turn it back. As we go to those higher levels, you know, things like adding additional terminals, which we have plans to in Canada right now, things like that.
Speaker Change: Additionally help is we need the throughput for the sand all the way through to the basin.
Speaker Change: Okay, thanks.
Speaker Change: Thank you, and the next question comes from the line of Bruce Geller from Geller Ventures. Line is now open. Please go ahead.
Bruce Geller: You mentioned the sales or the beginning of sales into Utica in the second half. Any sense you can provide of the... Tunnage Levels to expect in the second half of this year into that basin and also, um, in terms of profitability, will it be similar to the rest of the business, or are there start-up costs that we should anticipate with those sales in the second half? Yeah, I'll answer the second question first in terms of profitability. It's relatively consistent on a pricing basis, but it's actually our terminal.
Bruce Geller: Hi, good morning, gentlemen. Hi, Bruce.
Bruce Geller: You mentioned the cells, or the beginning of cells, into Utica in the second half.
Bruce Geller: Any sense you could provide, you can provide of the
Speaker Change: tonnage levels to expect in the second half of this year into that basin and also
Speaker Change: In terms of the profitability, will it be similar to the rest of the business, or are there startup costs that we should anticipate with those sales in the second half?
Speaker Change: Yeah, I'll answer the second question first. In terms of profitability, it's relatively consistent on a pricing basis, but it's actually our terminal.
Speaker Change: So one of the opportunities we're having is shifting from third-party terminals to our terminal, and over time, typically we can operate a terminal at a lower cost than a third-party. So actually our net margins through that business over time should be better. Pricing is relatively consistent because we are going to be running the terminal at a lower overall cost.
Speaker Change: In terms of volumes, we don't give specific volumes by basin.
Speaker Change: So we do expect to pick up in that activity. I think in the second half of the year what we gain in the Utica, we might see some, you know,
Speaker Change: production in the Marcellus, but over time we think it's going to be additive.
Speaker Change: And I think one way to think about it over time, we would hope that the Utica could, you know, get up to levels, you know, in the next year or two that at least up to the Canadian levels or higher in terms of what we're selling in Canada and Canada.
Speaker Change: in terms of percentage of ourselves.
Bruce Geller: Very exciting. You also mentioned in the press release the expectation of increased activity in 2025. Can you give some insight as to the visibility you're seeing on that and what gives you the confidence there?
Speaker Change: That's great. Very exciting.
Speaker Change: You also mentioned in the press release the expectation of increased activity in 2025. Can you give some insight as to the visibility you're seeing on that and what gives you the confidence there?
Bruce Geller: [inaudible] Is that all the saying that you would expect the tonnage in 2025 to be an improvement over 2020? Well, we haven't given any guidance on 2025 yet, Bruce, so we're not going to get into that, but I would say that we, as Chuck highlighted in his comments, and I think this is very consistent with what you're hearing with other players out in the market. A real belief that demand for natural gas is going to grow, in particular related to the LNG export capacity that's coming online over the next three or five years, as well as
Speaker Change: Is that also saying that you would expect...
Speaker Change: Tonnage in 2025 to being improvement over 2024.
Speaker Change: Well, we haven't given any guidance on 2025 yet, Bruce, so we're not going to get into that, but I would say that
Speaker Change: We, as Chuck highlighted in his comments and I think this is very consistent with the hearing with other players out in the market there is
Speaker Change: A real belief that demand for natural gas is going to grow, in particular related to the LNG export capacity that's coming online over the next three or five years, as well as
Bruce Geller: The incremental demand for power generation to support a lot of this data center activity, and we think natural gas is going to be a big part of that driver for that, and I think that's going to lead to good incremental demand for natural gas, which really helps us in terms of the activities and some of the basins that we operate in, so we see good growth. It's a little too early to give it kind of guidance for 2025, but we would expect that activity gas prices are relatively low right now, and I think that's mitigating some of the activity in the second half this year.
Speaker Change: the incremental demand for power generation to support a lot of this data center activity.
Speaker Change: And we think natural gas is going to be a big part of those drivers for that. And I think that's going to lead to, you know, good incremental demand for natural gas, which could haveāit really helps us in terms of the activities and some of the basins that we operate in. So we see good growth.
Speaker Change: It's a little too early to give any kind of guidance on 2025, but we would expect that activity, you know, gas prices are relatively low right now, and I think that's mitigating some of the activity in the second half of this year.
Bruce Geller: But as this expected demand starts to pick up, we think over the next 25 and going on to 26 and 27, that should be leading to good, strong demand growth in the Marcellus and other natural gas regions, where we have a very strong market. I'd also add, as we add terminals with unitrain, you know, where they can receive unitrain, you know, usually our volumes, you know, follow that. So, and that's kind of like what we're working on.
Speaker Change: But if this expected demand starts to pick up, we think over the next 25 and going on in 26 and 27, that should be leading to good strong demand growth in the Marcellus and other natural gas regions, which we have a very strong market position into that.
Speaker Change: I'd also add as we add terminals with unit train, you know, where they can receive unit trains, you know Usually our volumes, you know follow that so and that's kind of like what we're what we're working on right now
Bruce Geller: Great, that's very encouraging. I also had a clarification question on the free cash flow generation. You said that you expected to be free cash flow positive for the year. You are already free cash flow positive through the first half of about $8 million. I was confused if you were uh... whether or not you're saying you expect to generate additional free cash flow in the second half of the year on top of the eight million generated in the first half. Yeah, again, it's a little hard to define how much free cash flow we may generate in the second half of the year, depending on volumes and kind of activity and how our working capital shifts happen on a quarterly basis. So we don't The actual generation and the number will be announced later in the year, but we do expect them to be free Casual Pods.
Speaker Change: Great that's very encouraging. I also had a clarification question on the free cash flow.
Speaker Change: generation. You said that you expect to be free cash flow positive for the year. You are free cash flow positive through the first half of about 8 million. I was confused if you were
Speaker Change: whether or not you were saying you expect to generate additional free cash flow in the second half of the year on top of the 8 million generated in the first half.
Speaker Change: Yeah, again, it's a little hard to define how much free cash flow we make generating the second half of the year depending on volumes and kind of activity and how our working capital shifts happen on a quarterly basis.
Speaker Change: So we don't get into specifics about the actual generation and the number over the second half of the year, but we do expect to be free cash flow positive for the year.
Bruce Geller: OK, and along those lines, you mentioned some initiatives for capital return to shareholders [inaudible] being discussed sometime in the second half. Just curious, uh, what, Wooden Particular [inaudible] John Daniel, John Daniel, John Daniel, you're considering, is it a dividend, a share purchase, or some combination thereof that you're currently contemplating? I think right now we're open, and we're considering what the various options would be and looking at your question in terms of how we believe our cash flow generation is going to be consistent, to kind of determine the best approach in terms of starting to deliver value back to the share of a lower, in a combination of a dividend and or share repurchase. So we haven't fully finalized our thoughts on that. We are still focused on moving towards bringing share value back to our shares. Or you may remember last year we bought back 11% of our shares.
Speaker Change: Some initiatives for capital return to shareholders being discussed sometime in the second half.
Speaker Change: Just curious, what in particular...
Speaker Change: You're considering, is it a dividend, a share repurchase, or some combination thereof that you're currently contemplating?
Speaker Change: I think right now we're open and we're considering what the various options would be and looking at
Speaker Change: in terms of how we believe our cash flow generation is going to be and the consistency of that of starting to deliver value back to the shareholder in a combination of a dividend and or shareholder
Speaker Change: We haven't fully finalized our thoughts on that.
Speaker Change: House.
Speaker Change: still focused on moving towards bringing share value back to our shareholders. You've got to remember last year we bought back 11% of our shares, so we did actually start that process in 2023.
Speaker Change: and right now we're just evaluating the best opportunity and a go-forward basis.
Speaker Change: in terms of how we think we're gonna do it more consistently going forward. So that's something we'll probably have more detail on hopefully later this year at our next earnings call, but I think we're open and we're evaluating all the various options.
Speaker Change: Great. Well, I really appreciate those initiatives on shareholders' behalf. I think that's...
Bruce Geller: Terrific idea, and that is appreciated. I do have one final question. In the past, you've discussed targeting industrial end markets that are not necessarily... oil and gas related, just other end market opportunities for your Sales. I'm curious, you know, how the initiatives in that regard are going and, you know, if you can provide any insight on that going forward. Yeah, sure. So, yeah, so our industrial initiatives will continue. We've installed pool cooling and blending capabilities at our EU facility to combine, and we continue to grow that market.
Speaker Change: A terrific idea and that is appreciated.
Speaker Change: I do have one final question.
Speaker Change: In the past, you've discussed targeting industrial end markets.
Speaker Change: you know, that are not necessarily...
Speaker Change: oil and gas related, just other end market opportunities for your
Speaker Change: I'm curious, you know, how the initiatives in that regard are going and, you know, if you can provide any insight on that going forward.
Speaker Change: Yeah, sure. So our industrial initiatives continue. We've installed cooling and blending capabilities at our Utica mine, and we continue to grow that market.
Speaker Change: It's an interesting market and something that we're relatively excited about from a margin perspective.
Speaker Change: From a volume perspective, it will never be kind of what frac volumes are, but it is a business that we've invested time, effort, and money into, and we expect it to continue growing.
Bruce Geller: All right, thank you, and best of luck. Thank you. Thank you, and we don't have any further questions. I would now like to hand the call over to Chuck Young for closing remarks. Please go ahead, sir. Thanks for joining us on our second quarter earnings call. We look forward to speaking with you again in November. Thank you. This concludes our conference for today. Thank you all for participating. You may now disconnect. John Daniel, John Daniel, John Daniel,
Speaker Change: All right, thank you and best of luck. Thank you.
Speaker Change: Thank you, and we don't have any further questions. I would now like to hand the call over back to Chuck Yell for closing remarks. Please go ahead, sir. Thanks for joining our second quarter earnings call. We look forward to speaking with you again in November .
Speaker Change: Thank you. This concludes our conference for today. Thank you all for participating. You may now disconnect.
Bruce Geller: It's an interesting market and something that we're relatively excited about from a margin perspective. From a volume perspective, it'll likely be, you know, it will never be kind of what fracked volumes are, but it is a business that we've invested time, effort, and money into, and we expect it to continue growing.
Bruce Geller: So one of the opportunities we're having is shifting from third-party terminals to our terminals, and over time. Typically, we can operate a terminal at lower costs for a third party, so actually, our net margins through that business over time should be better. Pricing relative to the consistent because we are going to be running the terminal at a lower overall cost. In terms of volumes, we don't get specific volumes by Basin, so we do expect to pick up in that activity, I think, in the second half of the year. What we gain in the Utica, we might see some, you know, reduction in the more cellist, but over time, we think it's going to be additive, and I think one way to think about it over time is that, over time, we would hope that the Utica could Terms of Percentage, That's great.
Josh Jayne: There will be a little bit of an increase in variable costs there to do that, but it's not a 2X thing, it's adding a handful of staff here and there. Just to move to full 24 hour operation seven days a week and not shutting plants down. We think that that's a really good tailwind for us as market demand increases. At Blair, it's kind of a similar story. Blair is a...
Bruce Geller: So we did actually start that process in 2023, and right now, we're just evaluating the best opportunity in the and I go forward basis in terms of how we think we're going to do it more consistently going forward. So that's something we'll probably have more detail on, hopefully, later this year at our open, and we're evaluating all the various options. Great, well, I really appreciate those initiatives on shareholders' behalf. I think that's great.