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Edited Transcript of SNS.V earnings conference call or presentation 2-Jun-20 10:59am GMT

Q1 2020 Select Sands Corp Earnings Call

VANCOUVER Jul 3, 2020 (Thomson StreetEvents) -- Edited Transcript of Select Sands Corp earnings conference call or presentation Tuesday, June 2, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Zigurds R. Vitols

Select Sands Corp. - President, CEO & Director

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Presentation

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Zigurds R. Vitols, Select Sands Corp. - President, CEO & Director [1]

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Hello, everyone. This is Zig Vitols, President and Chief Executive Officer for Select Sands. I appreciate you listening to this recording, in which I will discuss the company's First Quarter 2020 Operating and Earnings Results.

Our press release is available on our website, selectsands.com. Please note that any comments that I make today regarding projections or expectations for future events are forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations.

We advise listeners to review our earnings release and the risk factors discussed in our SEDAR filings.

In addition, I will reference certain non-IFRS financial measures. Reconciliation of these non-IFRS measures to the most directly comparable IFRS measures are included in our earnings release.

I am pleased to report that during the first quarter, we saw a significant improvement in our financial results from last year's fourth quarter. Driving top line growth was an almost sixfold increase in frac and industrial sand sales volumes and an average net selling price, excluding transportation and transload logistics, that was 24% higher sequentially.

Our success in the first quarter was a direct result of a focused effort in 2019 to expand our footprint of operating locations beyond our home base in Arkansas. Over the past few years, there has been a significant number of in-basin mines developed, especially in the Permian to serve fracking needs of E&Ps. While this offers operators the opportunity for a lower delivered cost, there continues to be a growing recognition that all sand is not created equal. This is especially true in Eagle Ford Basin where the in-basin frac sand quality characteristics, including, but not limited to, crush and sericite have been shown to be significantly less than ideal for driving optimal hydrocarbon recovery over the life of the well.

While our premium Northern White Sand product has been used by clients in the Eagle Ford over the past few years, we recognize it was important for us to establish a formal presence and more directly serve customers in the region. To that end, in December, we began transload operations in the Eagle Ford at an established facility in Georgia West, Texas, which is in Live Oak County. Situated in mid-basin, our facility is ideally positioned to allow us to supply customers, operations located, both up and down the play.

In the final quarter of 2019, we entered into negotiations for a 3-year supply agreement with a large-cap E&P operating in the Eagle Ford and began to deliver significant volumes of our premium 100 Mesh Northern White Sand product to them in January. Driven by a dramatic decline in oil prices leading up to and including the first quarter, our customer announced an early second quarter that it was entering into a break period with its fleets for which we were supplying frac sand. The Select Sands' contract includes provisions for minimum quantity purchases and may result in compensation. It is important to note that compensation depends on a number of contractual factors and any outcome cannot be guaranteed with the terms of the agreement remaining confidential.

We are in discussions with the customer, evaluating our options and look forward to resuming sand shipments, once the conditions improve. Given this backdrop, we quickly adjusted our employee staffing levels of George West transload facility. And are currently operating with a minimal crew to serve operational and maintenance needs as appropriate. To be clear, while we have been pleased to see the solid improvement in oil prices since the lows seen in April, we continue to expect second half of this year will be highlighted by continued volatility due to supply and demand imbalances as a result of the global events and COVID-19 situation.

As such, we do not expect a quick recovery in well completions activity. Operating in this environment, we are squarely focused on what we can control and executing on business opportunities as appropriate. At the heart of our business is our employee base, and we will continue to strive to ensure that they, along with our customers, contractors and partners remain safe and healthy. In addition, as we have successfully done in the past, we remain centered on preserving our cash and liquidity. This includes ongoing cost containment initiatives that can be clearly seen in our continued decline in cash G&A expenses, which excludes share-based compensation.

For this year's first quarter, we saw a decrease in cash G&A expenses of 14% from the fourth quarter and 39% from the first quarter of 2019. We also remain focused on further enhancements in our production processes to lower our cost structure. This includes leveraging the current lull in industry activities to redeploy our Arkansas production workforce as appropriate to assist in the plant reconfiguration project. The reconfiguration will reduce the number of interplant sites from 4 to 2, while discontinuing the necessity of interplant transport and closed hopper trailers. The result will be savings associated with reducing load, unload points by half, a significant decrease in interplant transportation mileage and allowing the use of the simpler dump trailers for transport.

As a part of the project, we have completed the construction of the new drying plant at Diaz property, where we also have our bulk rail loading facility. A wet plant continues to be assembled at the Sandtown Quarry and is targeted for completion in the third quarter. At that time, product will be mined and what processed at the Quarry then transported to the rail facility where it will be dried, stored and later shipped.

While our first quarter cost of goods sold was impacted by temporary production inefficiencies, as a result of pre configuration production. The benefits afforded by the plant reconfiguration will prove invaluable as shipments restart, once industry conditions improve. When that occurs, we will be ready, both with lower cost structure and a premium Northern White Sand product offering that is strategically located much closer to key basins in the Southern U.S. than traditionally sourced in the Upper Midwest.

Turning attention to our financial position. We ended the first quarter with cash of $0.5 million, accounts receivable of $2.1 million, inventory of $2.6 million and working capital of $0.2 million. Fast forward to the end of last week, on May 29, we had a cash on hand of $1.7 million. As in the past, we will continue to look for additional opportunities to preserve cash and drive incremental efficiencies designed to promote increased safety, cost reduction and the health of our balance sheet. Once again, thanks for taking the time today to listen to my comments, and we appreciate the continued interest and support of our shareholders. As discussed in our press release, if you are interested in having a follow-up discussion, please arrange a specific time to call by contacting Arlen Hansen at Kin Communications at (604) 684-6730. In the meantime, please stay safe, and have a great day.