Smart Sand Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2024

There are 8 speakers on the call.

Operator

Ladies and gentlemen, and welcome to the Smart Sand Q2 twenty twenty four Earnings Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, August 14, 2024. I would now like to turn the conference over to Chris Green.

Operator

Please go ahead, sir.

Speaker 1

Good morning, and thank you for joining us for Smart Sand's Q2 2024 Earnings Call. On the call today, we have Chuck Young, Founder and Chief Executive Officer Leif Ekelman, 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. Marksam disclaims any intention or obligation update or revise any financial projections or forward looking statements, whether because of new information, future events or otherwise.

Speaker 1

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. 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 cash flow provided by operating activities to free cash flow. I would now like to turn the call over to our CEO, Chuck Young.

Speaker 2

Thanks, Chris, and good morning. In the Q2, we continued to build off of our Q1 momentum and once again delivered strong results. Sales volume were just under 1,300,000 tons in the 2nd quarter, which exceeded our projections. 2024 sales volume through June were 15% higher than sales volumes for the 1st 6 months of 2023. Contribution margin in the 2nd quarter improved to $19,800,000 and adjusted EBITDA increased to $11,800,000 Additionally, we generated $13,500,000 in free cash flow for the quarter.

Speaker 2

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. 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.

Speaker 2

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 Q2, we continued to execute on our long term goals. 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 smart sand as a consistent and growing supplier of Northern White sand into the Canadian market. We are expanding the markets we serve.

Speaker 2

We invested in 2 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 in transloading sand. We're establishing markets for our 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.

Speaker 2

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 capabilities of our product and services for sand delivery and storage at the well site. Our focus never waivers from having efficient and cost effective sand production and delivery costs. In the Q2, we implemented several initiatives to manage our labor costs, improve our plant product yields and invest in more efficient mining methods. We will maintain our focus to be a low cost producer of Northern White sand.

Speaker 2

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 4 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, 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 2

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 3 operating mines in Oakdale, Wisconsin, Blair, Wisconsin and Utica, Illinois coupled with their direct access on 4 Class 1 rail lines, the Canadian Pacific, the Union Pacific, the Canadian National and the Burlington Northern, uniquely positioned smart sand to continue to be a leading provider of Northern White sand. Collectively, our 3 facilities have a combined capacity of 10,000,000 tons annually. And as the markets grow, we have the capacity ready and available to meet its growth and needs.

Speaker 2

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 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. 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 in the Marcellus in the 1st quarter.

Speaker 2

Demand in the Q2 in the Marcellus did moderate slightly. We currently expect 3rd quarter sales volume in the basin to be relatively consistent with 2nd quarter, but we could see a slowdown in the 4th quarter based upon current natural gas prices and expected activity. With the start up of our new terminals, we're seeing the Utica demand increase, which should be 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 is strong. 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.

Speaker 2

S. 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. Activity in the Bakken Basin in North Dakota typically picks up in the 2nd 3rd quarters and this year has been no exception. We had strong activity in the 2nd quarter in this basin and we expect that to continue into the 3rd quarter.

Speaker 2

Falcon activity usually slows down in the 4th quarter due to the onset of winter. We continue to work on increasing our market presence in the Canadian market. The first half of twenty twenty four Canada sales have represented approximately 10% of our sales volume. We expect Canadian activity to be consistent in the second half of twenty twenty four. As we look to grow our Canadian market presence, we're looking at terminal options to establish our logistics footprint in this market.

Speaker 2

Efficient and sustainable logistics capabilities are essential to our long term success. 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 allows us to deliver sand more efficiently, sustainably and cost effectively. Our primary objective is deliver positive free cash flow consistently. In the Q2, we had strong cash conversion of receivables that were built up in the Q1, 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 6 months of the year.

Speaker 2

We expect to be free cash flow positive for the year. We are committed to start returning value back to our shareholders. Given our generation of free cash flow over the 1st 6 months and our expectation that we will remain free cash flow positive for the year, we expect to communicate our plans 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 markets. In the Q2, we continue to build off our solid first quarter performance.

Speaker 2

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. 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. 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' interest in mind in everything we do.

Speaker 2

And with that, I'll turn the call over to our CFO, Lee Beckelman.

Speaker 3

Thanks, Chuck. Now I'll go through some of the highlights of the Q2 2024 compared to our Q1 2024 results. We sold 1,270,000 tons in the 2nd quarter, a 5% decrease from the 1st quarter sales volumes of 1,340,000 tons. Total revenues for the 2nd quarter were $73,800,000 compared to $83,100,000 in the 1st quarter. Total revenues were lower in the Q2 due primarily to lower sand sales volumes, lower average frac sand sales prices and lower smart systems revenues from reduced utilization of our fleet.

Speaker 3

Our cost of sales for the quarter were $60,700,000 compared to Q1 of $71,200,000 a 15% decrease. The decrease was due primarily to lower sales volumes in the quarter coupled with ongoing cost and efficiency initiatives to reduce production costs. Total operating expense were $9,500,000 in the 2nd quarter compared to $11,000,000 in the Q1. The decrease sequentially was primarily due to higher incentive compensation and higher royalties from increased sales volumes in the Q1. During the Q2, we had a $1,300,000 loss on the extinguishment debt.

Speaker 3

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 $19,800,000 or $15.53 per tonne in the 2nd quarter. First quarter contribution margin was $18,500,000 or $13.85 per tonne. Adjusted EBITDA in the 2nd quarter was $11,900,000 compared to $9,300,000 in the 1st quarter. Our 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 3

Q2 2024, we had $14,900,000 in cash provided by operating activities, which led to $13,500,000 in free cash flow after we spent $1,400,000 on capital expenditures. This compares to $3,900,000 cash used by operating activities and a negative $5,500,000 in free cash flow in the Q1. 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 2nd quarter with $2,000,000 in borrowings on our credit facility. Today, there are no outstanding borrowings on our credit facility.

Speaker 3

We had approximately $6,300,000 in cash and cash equivalents at the end of the second quarter. It's when cash and availability from our credit facility, we currently have available liquidity in excess of 28,000,000 dollars In June, we completed the refinancing our Oakdale equipment financing along with a couple of smaller equipment financings. We refinanced this debt with a new $10,000,000 facility. This new facility amortizes over a 4 year term and has an implied interest rate of approximately 8.6 percent. Our current $20,000,000 ABL credit facility comes due in December.

Speaker 3

We are in the process of refinancing this facility and expect to close this new facility in the Q3. Our sales volumes did moderate in the Q2. We still delivered solid sales results and improved contribution margin, adjusted EBITDA and free cash flow. As Chuck highlighted, we do expect some pullback in Marcellus due to lower current natural gas prices, but that should be mitigated some by expected increased volumes in the Bakken in the 3rd quarter as well as new sales volumes into the Utica Basin. Currently, we expect 3rd quarter sales sand sales volumes to be in the $1,000,000 to $1,200,000 range.

Speaker 3

Contribution margin per ton improved to $15.53 per ton in the 2nd quarter. We expect Q3 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 $10,000,000 to $13,000,000 range. The increase in capital expenditures in the second half of the year from the $3,000,000 spent through June is primarily due to the completion of projects that were started in the first half of the year.

Speaker 3

We delivered strong free cash flow in the Q2 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 will now open the call for questions.

Operator

Thank you, sir. We will now begin the question and answer session. And we now have our first question And this comes from the line of Stephen Gengaro from Stifel. Your line is now open. Please go ahead.

Speaker 4

Thanks and good morning everybody.

Speaker 5

Good morning Steve.

Speaker 4

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 net score 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 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?

Speaker 3

Hi, great, Stephen. That's 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 it could it could pitch on average reduce our production costs by potentially $1 or $2 per ton on average if we're operating at a fairly high utilization.

Speaker 5

Yes. And Stephen, what I would add to that is I think with a lot of the removal of the yellow iron, 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 $5 $6 that provides the real headwind to us that 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 too much about that stuff.

Speaker 4

Okay. That helps. It's obviously a very positive trend. So the other question I had just quickly is when you look at the various markets you're serving, I mean, we heard 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?

Speaker 3

In terms of pricing?

Speaker 4

Yes, in terms of pricing.

Speaker 3

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 5

Yes, I would just add to that. It's a little bit market dependent. Canada seems to allow for a little bit higher pricing in some of the markets in the U. S. Are a little bit lower pricing.

Speaker 5

But we have been in a relatively stable pricing environment now for quite a while, right? And we're not seeing kind of what we were seeing back when the market weak, teen pricing in the teens not sustainable. 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 5

You've heard us say that before. And I think that going forward, we don't anticipate much of that's going to change.

Speaker 2

And one other thing I'd add is our sand, Northern White sand is heavily dependent on rail logistics. And our rail logistics setup is premier in the industry. We have the best assets.

Speaker 4

Great. Thank you. And maybe just one quick one on that. 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?

Speaker 5

Yes. So the yes, it sounds like, I think August 22 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. That doesn't impact the lower 48 where the bulk of our volume goes today. But yes, we're hopeful that that gets resolved in a way that doesn't impact our operation.

Speaker 5

Similar to the rail situation in the U. S. A few years ago, where it went right to 11,000 and got resolved and ended up impacting us. But our Canadian market is still a growing market for us. It's certainly going to be a very important market for us.

Speaker 5

But I think that this strike assuming it's resolved relatively quickly shouldn't have too much of an impact on us.

Speaker 4

Excellent. Thank you for all the details.

Speaker 3

Thanks, David.

Speaker 5

Thank you.

Operator

Thank you. And the next question comes from the line of Josh Jain from Daniel Energy Partners. Your line is now open. Please go ahead.

Speaker 6

Thanks. Good morning.

Speaker 4

Hey, Josh. Hey,

Speaker 6

Josh. 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, it's been holding up much better in Canada than the U. S.

Speaker 6

So could you talk about how much sand demand annually is coming from the Canadian market, for Northern White?

Speaker 3

Yes, Josh. Right now, obviously, it fluctuates 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 demand currently in that market probably in the 8000000 to 10000000 ton range, and we think that market could grow substantially over the next couple of years. Most of the activity is going up into Northwest Alberta and Northeast British Columbia and the Duvernay and Montney Shell and that gas is really being driven by the LNG export capacity on the West Coast and we're really seeing a good pickup in activity and we expect that to be a growing and strong market for us.

Speaker 3

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.

Speaker 6

And is there much of a difference between what you're selling just from a grade standpoint into the Marcellus versus the Canadian market? Could you talk about that a

Speaker 5

bit? Yes. That's actually a pretty good question, Josh. So that mine that we got up there in Blair is slightly coarser than our other reserves. But the Canadian market tends to be a little bit coarser than the Lower forty eight market.

Speaker 5

And so when we produce call it the 30seventy product for Canada, we produce a decent amount of 100 mesh that we keep down here primarily. So 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. So 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.

Speaker 6

Okay. That's helpful. Thanks. I wanted to ask sort of a follow-up on supply demand. You mentioned in your prepared remarks, the market is balanced and there was a question on pricing.

Speaker 6

But when I think about capacity today at Oakdale, let's just call it nameplate is 5,500,000 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?

Speaker 5

Yes. So 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 where we are today versus getting to $5,500,000 it's not a substantial increase in staffing. There is some increasing increase in staffing, but we've got 5 dry plants in Oakdale, 2 wet plants and we operate to varying degrees all of those plants all the time. So to increase that doesn't require doubling the staff or any of that kind of stuff at Oakdale.

Speaker 5

There'll be a little bit of increase in variable costs there to do that. But it is not a 2x thing. It is adding a handful of staff here and there just to move to full 24 hour operation 7 days a week and not shutting plants down. So we think that that's a really good tailwind for us as market demand increases. At Blair, it's kind of a similar story.

Speaker 5

Blair is a single it's got 2 dry plants and 1 wet plant all on-site with the rail there. And so 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 variable costs with employees and whatnot.

Speaker 2

Additionally, Josh, the reserve at Oakdale really lines up well with what the market demand is. So that's probably our premier asset.

Speaker 6

For sure. And just to follow-up, I guess, a little bit deeper. I think what I'm trying to get at is, if nameplate is 5,500,000 tons and that was 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 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?

Speaker 3

Well, Josh, we don't get into specific of yields by plant, but generally, you can think about that we're probably in a 70%, 80% yield on average. And so getting up to 5,500,000 tons in terms of the sand we'd be producing, 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. And we have 10,000,000 tons of total capacity.

Speaker 3

And so actually Oakdale and Blair can are very synergistic because they can serve some of the same markets. So depending on what's the best rail access is, etcetera, or what the mix of our sand is in terms of sales, we can toggle sales back and forth between the 2 of those. So it's not necessarily the max volume that Oakdale can do. It's a combination of our assets and what we can get to on a combined basis relative to the market demand for the particular products.

Speaker 5

Yes. And Josh, what I would add to that is just kind of a it's a point in time, but in February this year Oakdale produced beyond the 5,500,000 tons in February, right? So from a run rate perspective Oakdale can do it. It's just it's market demand and things like that. But Oakdale does have ability a really good ability to flex even in months that aren't particularly favorable weather wise like February.

Speaker 5

So it does have that ability.

Speaker 3

I think it's fair to say with our current staffing, we could be we could get our sales volumes up north of 7,000,000 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 an incremental investment probably in people and a bit of equipment.

Speaker 6

Understood. Thank you guys for the answers. I'll turn it back.

Speaker 5

As we

Speaker 2

go to those higher levels, things like adding additional terminals, which we have plans to in Canada right now, things like that additionally help us. We need the throughput for the sand all right through to the basin. Okay.

Speaker 3

Thanks. Thanks, Josh.

Operator

Thank you. And the next question comes from the line of Bruce Geller from Geller Ventures. Your line is now open. Please go ahead.

Speaker 7

Hi, good morning, gentlemen.

Speaker 3

Hi, Bruce. Good morning, Bruce.

Speaker 7

You mentioned the sales or the beginning of sales into Utica in the second half. Any sense you can provide of the tonnage levels to expect in the second half of this year into that basin? And also 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 3

Yes. 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. So one of the opportunities we're having is shifting from 3rd party terminals to our terminal. And over time, typically, we can operate a terminal at lower cost than a third party.

Speaker 3

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. In terms of volumes, we don't give 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 reduction in the Marcellus, but over time we think it's going to be additive.

Speaker 3

And I think one way to think about it over time, we would hope that the Utica could get up to levels in the next year or 2 that at least up to the Canadian levels are higher in terms of what we're selling in Canada in terms of percentage of ourselves.

Speaker 7

That's great. 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? And is that also saying that you would expect tonnage in 2025 to be an improvement over 2024?

Speaker 3

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, there is a real belief that demand for natural gas is going to grow and particularly related to the LNG export capacity that's coming online over the next 3 or 5 years as well as 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 those drivers for that. And I think that's going to lead to good incremental demand for natural gas, which could really helps us in terms of the activities in some of the basins that we operate in.

Speaker 3

So we see good growth. It's a little too early to give any kind of guidance on 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. But as this expected demand starts to pick up, we think over the next in 'twenty five and going on in 'twenty six and 'twenty seven, 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 in today.

Speaker 2

I'd also add as we add terminals with unit train where they can receive unit trains, usually our volumes follow that. So and that's kind of like what we're working on right now.

Speaker 7

Great. That's very encouraging. I also had a clarification question on the free cash flow 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 8,000,000 dollars I was confused if you were 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 $8,000,000 generated in the first half?

Speaker 3

Yes. I guess, 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 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.

Speaker 7

Okay. And along those lines, you mentioned some initiatives for capital return to shareholders being discussed sometime in the second half. Just curious what in particular you're considering? Is it a dividend, a share repurchase or some combination thereof that you're currently contemplating?

Speaker 3

I think right now we're open and we're considering what the various options would be and looking at to kind of your question in terms of what how we believe our cash flow generation is going to be and the consistency of that to kind of determine the best approach in terms of starting to deliver value back to the shareholder and a combination of a dividend and or shareholder repurchase. So we haven't fully finalized our thoughts on that. We are still focused on moving towards bringing share value back to our shareholders. You got to remember last year we bought back 11% of our shares. So we did actually start that process in 2023.

Speaker 3

And right now, we're just evaluating the best opportunity in a 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 next earnings call. But I think we're open and we're evaluating all the various options.

Speaker 7

Great. Well, I really appreciate those initiatives on shareholders' behalf. I think that's a 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.

Speaker 7

I'm curious how the initiatives in that regard are going and if you can provide any insight on that going forward?

Speaker 5

Yes, sure. So our industrial initiatives continue. We've installed cooling and blending capabilities at our Utica mine and we continue to grow that market. It is a it's an interesting market and something that we're relatively excited about from a margin perspective. From a volume perspective, it will likely be 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.

Speaker 7

All right. Thank you and best of luck. Thanks, Bruce.

Operator

Thank you. And we don't have any further questions. I would now like to hand the call over back to Chuck Young for closing remarks. Please go ahead, sir.

Speaker 2

Thanks for joining our Q2 earnings call. We look forward to speaking with you again in November.

Operator

Thank you. This concludes our conference for today. Thank you all for participating. You may now disconnect.

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