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Hi-Crush Inc (NYSE:HCR)
Q4 2019 Earnings Call
Feb 20, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Hi-Crush Inc., Fourth Quarter and Full Year 2019 Conference Call. [Operator Instructions]

At this time, for opening remarks and introductions, I would like to turn the call over to Caldwell Bailey, Investor Relations Manager of Hi-Crush. Please proceed, sir.

Caldwell Bailey -- Manager, Investor Relations

Thank you. Good morning, everyone, and thanks for joining us today. With me are Bob Rasmus, Chairman and Chief Executive Officer of Hi-Crush Inc.; Phil McCormick, Chief Financial Officer; and Alan Oehlert, Chief Operating Officer. Before we provide our prepared remarks, I would like to remind all participants that our comments today will include forward-looking statements, which are subject to certain risks and uncertainties. Actual results could differ materially from those projected in any forward-looking statements. Additionally, we may refer to the non-GAAP measures of EBITDA, adjusted EBITDA, free cash flow and contribution margin during the call. Please refer to our public filings for definitions of our non-GAAP measures and reconciliations to their most directly comparable GAAP measures as well as a discussion of risks and uncertainties.

With that, I would now like to turn the call over to our CEO, Bob Rasmus.

Robert Rasmus -- Chief Executive Officer

Thanks, Caldwell. And thank you to everyone for joining us this morning. 2019 was a year of transformation and innovation for Hi-Crush, as we continue to evolve from a supplier of frac sand to a fully integrated frac sand solutions provider with an emphasis on logistics. I'd like to start by highlighting some of our key accomplishments from the year. We expanded our last mile capabilities and operational footprint with the acquisition and integration of Pronghorn Logistics. We advanced our technology platform and deepened our inventory management, logistics optimization, data collection and analysis capabilities with the acquisition and integration of PropDispatch. We advanced our strategy of partnering with E&P customers, achieving 70% of total frac sand sold directly to E&Ps during the fourth quarter, up from 51% in the fourth quarter of 2018. We achieved successful deployment of our next-generation NexStage silo systems.

We converted from an MLP to a C-Corp to best position our business for the future and more effectively address the evolution of our industry. We maintained a strong and flexible balance sheet and exited the year with over $100 million of total liquidity. And more recently, in the last few weeks, we announced the development of our OnCore mobile processing solution. Importantly, these accomplishments are fully aligned with our strategy of addressing each customer's specific needs through a fully integrated frac sand and logistics solution offering. Carrying out this strategy requires regular review and enhancement of Hi-Crush's fully integrated platform. I will talk more about that platform in a minute.

But first, I would like to provide an update on our industry, its competitive dynamics and how executing on our strategy will impact the broader industry and benefit both our customers and investors. The frac sand production and logistics industry currently faces several significant challenges, including low barriers to entry, too much supply and a high level of fragmentation. This fragmentation, despite strong demand, has resulted in irrational pricing, inconsistent service quality and destruction of value. The problem, stemming from poor service quality, lack of available trucking and ineffective production operations that many, but not Hi-Crush, experienced at year-end and into January, are a direct result of this fragmentation, low pricing, curtailed investment and deferred maintenance. The commoditization of frac sand production and low barriers to entry have compounded the industry's challenges by deterring capital investment. The resulting lack of access to the capital markets is reflected in public equity prices across the sector. To break this cycle, the industry requires structural change, including supply and company rationalization.

So how does our fully integrated platform position Hi-Crush to break out of this cycle, and how does it differentiate and position us to create value for our investors. It starts with our customers, specifically who they are and what they need. The customers that most directly benefit from our integrated platform are those that are increasingly dominating the current phase of development, the large E&Ps. These customers demand an efficient, reliable, high-quality, technology-enabled solutions provider, one capable of increasing their drilling and completions efficiency as they transition to mass manufacturing style operations. This helps reduce their costs and improve safety while providing important environmental and sustainability benefits to the industry. Hi-Crush is the only company that offers a differentiated, comprehensive and fully integrated solutions platform, combined with execution expertise. Our platform includes several key ingredients.

Among these innovative technology are a range of last mile and wellsite equipment, efficient production and operational excellence. This leads to increased efficiency, better safety, enhanced sustainability and better profitability. Many in our industry have tried to compete on price versus equipment and service quality. This results in virtually all cost savings from efficiencies and other factors being passed along to the end users of sand. Our fully integrated platform is the only one resulting in a true win-win, lower customer costs and increasing Hi-Crush profitability. This will widen the gap between the haves like Hi-Crush and they have nots. Our recently announced OnCore fully mobile processing unit is the next significant step in our change of innovation and strategy of delivering differentiated customer solutions, not just products.

OnCore makes sense as part of a fully integrated platform combined with Pronghorn Logistics and trucking services, NexStage silo storage of frac sand and PropDispatch technology, integrating and coordinating all aspects of the operation. Hi-Crush can provide at all, while very few of our competitors can provide more than one piece. By incorporating OnCore into our offering, Hi-Crush will unlock value, bringing frac sand production as near as possible to the wellsite, increasing truck turns per day, increasing delivered truckload waits in some cases, and being able to analyze all the collected data with our customers, all in-house. OnCore gives Hi-Crush a first-mover advantage in this emerging segment and creates further separation from our peers. The advantages of this next-generation solution are numerous. It gives operators the ability to move their sand supply point as close as possible to their areas of development. It allows for optimization of logistics, including a significant reduction in trucking distances.

It has significantly smaller footprint and investment requirement than traditional large-scale fixed-position plants. It's mobile, which means it can change locations and be ready to run again in as little as a week. It requires substantially less manpower to operate. And it can dramatically reduce truck traffic by an estimated 1.2 million miles per OnCore unit per year, resulting in tangible benefits to both safety and sustainability. OnCore is an important piece in the Hi-Crush's suite of offerings and is consistent with our strategy of providing the highest value to customers and simplifying their supply chain. With the development of the OnCore Processing unit and integration into our broader solutions platform, we have, in effect, created barriers to entry. OnCore will make it even more critical that fixed asset facilities operate highly efficiently and at low cost, attributes that Hi-Crush has a long track record of delivering. Further, we believe OnCore will accelerate the speed with which inefficient plants and those companies without a clear strategy or capabilities outside of basic sand production are forced to exit the market.

A critical enabler of integration across our platform is PropDispatch, our logistics software. PropDispatch technology wraps around the entirety of our solutions offering and increases efficiency while further integrating Hi-Crush into the customers' supply chain. Having a single point of accountability with visibility into all aspects of operations also increases reliability and efficiency. And above all, we hold ourselves accountable. After listening to our customers early last year, we made the decision to pull our silo systems from the market. Our goal was to translate customer feedback into a solution that was clearly best-in-class. Not just as good as the competition, but demonstrably better. As difficult as that decision was, I am pleased to say we were successful in achieving our goals. Our rebranded next-generation NexStage silo systems with our innovative features are now being deployed in the market. In a competition based on quality, efficiency and reliability, this upgraded equipment is positioned to win.

As a result of the opportunity to deliver industry-leading innovation through the development of OnCore and the expansion of NexStage silos, we will be investing in the future of Hi-Crush. In the near term, this will defer free cash flow generation while providing for greater long-term benefit. The market's emphasis on free cash flow recognizes the industry's weak competitive structure and a shortage of competitively advantaged investment opportunities. We are confident that disruptive technologies we've developed, combined with short payback periods, will drive better performance and returns for investors and all stakeholders over the short, intermediate and long term. We are more focused than ever on positioning Hi-Crush for the industry's evolving needs, driving innovation to better address customer challenges and delivering value to shareholders.

To emphasize again, Hi-Crush is the only company with the capability to deliver fully integrated expertise in production, equipment services and logistics to oil and gas customers. We have this capability today and we've been working on it tirelessly while others in our space are trying to deemphasize their oil and gas market exposure. The frac sand sector will look very different at the end of 2020 than it does today, driven by integrated service providers partnering with large E&P and oilfield service firms, providing flexible, innovative and tech-enabled solutions. This is an environment where Hi-Crush can excel and best create value for all stakeholders.

With that, I'd like to turn things over to Alan to discuss our operational results for the quarter.

Alan Oehlert -- Chief Operating Officer

Thanks, Bob. Before I get into the results for the quarter, I want to provide greater detail around OnCore Processing and our thinking behind why this is the correct logistics optimization solution to add to our existing capabilities. One of the biggest challenges that the oil and gas industry has long sought to address has been the logistics associated with delivering large quantities of consumables. Whether you're talking about chemicals, water, equipment or sand, the industry has had to consistently improve the way in which it sources, delivers and manages the multiple inputs that make oil and gas development possible. Until now, there have been many limits on how efficient delivering sand to the wellsite can be due to the fixed nature of supply. Large capacity mines with sizable reserves or rail terminals near customers' activity, these are large fixed assets that require significant capital investment.

Add to this, additional factors such as weight restrictions on public roads, traffic congestion and safety concerns that come with long-distance trucking, the result has been a cap on how much the supply chain was capable of being streamlined and how efficient operations could become. Various solutions to the logistics problem have been discussed, in our view, non went far enough toward addressing the underlying issue. Whether conveying, slurring or railing sand long distances, no alternatives fully resolve the issue associated with trying to optimize the delivery of sand from fixed points of supply to ever-shifting areas of demand. While other solutions may partially address these challenges, they can't move locations along with operator activity. In contrast, OnCore Processing units will allow the source of supply to follow activity. Each OnCore unit is entirely mobile, consisting of a wet and dry plants mounted separately on road-legal chassis.

Each system will have approximately 750,000 tons of annual production capacity and can run on a variety of power sources. The integration of OnCore into our logistics offering means that Hi-Crush, in partnership with our customers, can optimize the entire sand supply chain for individual well programs, taking a holistic view on how best to produce, transport and manage sand in each case. When activity moves on, OnCore units can move as well, redeploy and be processing wet sand in a new location in as little as a week. And Pronghorn services and NexStage equipment can move along with it. The revolutionary nature of this equipment has garnered a lot of interest from customers and we expect delivery of the first unit in April. Besides the excitement around the announcement of OnCore Processing's addition to Hi-Crush's portfolio, the fourth quarter saw significant milestones for our other business lines as well. We were successful in expanding our Pronghorn services customer base during the fourth quarter, signing four new logistics and service contracts with E&P customers for work that has begun in late 2019 and early 2020.

It's important to note that all of the new work is for customers' activity outside of the Permian, further diversifying Hi-Crush's operational footprint. The Pronghorn team was also intensely focused on executing on behalf of its existing customers. The combination of the significant reduction in December activity, paired with the holiday break, resulted in a shortage of available trucks and drivers, leading to NPT for some operators as their service providers struggle to secure the trucks necessary to keep adequate frac sand inventory on site. The Pronghorn team, in contrast, was able to keep trucks rolling and recorded no truck-related NPT throughout December until today. This is a testament to how hard our team works and the effective methods we employed to exceed customer expectations. Truckloads delivered remained steady relative to the third quarter levels until a significant drop in activity during the latter half of December drove a 19% reduction in overall truckloads delivered for the quarter. We are pleased with the operational performance and growth Pronghorn achieved for the full year 2019, including 264,000 truckloads delivered.

Of these, 45% were third-party halls, not Hi-Crush sand. We have seen activity pick up quickly on the new year and pleased with the start of 2020. As Bob discussed a minute ago, development of the NexStage business was not without its challenges. With the team choosing to pull back deployed silos for retrofits and upgrades, during the pullback, we committed ourselves to designing, engineering and manufacturing a market-leading innovative design. Today, I can tell you that we've done that and the positive response and adoption has been immediate, with NexStage deploying silos late in 2019, customers looking to expand those deployments and displacing competitors to do so. With the changes that we have made, we are able to accurately meet our stand deployed into the blender at rates up to GBP21,000 a minute from a single silo.

Meeting the demands of the most intense job designs in the U.S., we can also continue to fill a silo, while the stage is pumping from that same silo, something competitors cannot do. These are features that matter to customers and differentiate us from competitors. Our frac sand production business also had a successful quarter in the face of challenges that accelerated in the year-end. During the fourth quarter, we continued to optimize plant utilization and sell to customers from our Kermit complex as well as our active facilities in Wisconsin. While the backdrop was challenging, we did see tightening in the frac sand market due to mine curtailments and idlings across the industry. This is a positive sign and one in which benefits companies that can most efficiently serve the frac sand customers through leading production cost and efficiency. Hi-Crush with our deep mining and facility operations experience is clearly positioned to win in this environment.

During the fourth quarter, we also continued to expand the capabilities of PropDispatch. This round of software updates were primarily focused on process automation and improved system integration. Updating and upgrading of PropDispatch is a continual process, like with all software, and our team finding new ways to make operations leaner and more efficient every day through the technology. From an operational perspective, we have never been in a better place to take advantage of our capabilities. Our integrated solution with the addition of OnCore, further complements our life cycle of frac sand bundled offering. We can now mine as close to the customers' activity as acceptable sand deposits will allow. We can move the sand and provide on-site support with Pronghorn. We have the best-in-class wellsite storage equipment to deploy the sand into the blender, and PropDispatch allows all of this to be measured, monitored and analyzed throughout the frac sand life cycle.

I'll now turn it over to Phil for a more detailed discussion on our financial performance and strategy.

Phil McCormick -- Chief Financial Officer

Thanks, Alan. I'd like to start by highlighting how our financial position supports the operational and strategic initiatives that both Bob and Alan have discussed and then review our financial results. We have consistently spoken about the flexibility that our financial position affords. Our team, alongside the Board, has been focused on maintaining cash and liquidity, an approach which has served us well through the cycles over the past few years. This period is no different and the approach has positioned us to invest in OnCore Processing units and further deploy next-generation NexStage silos, two pillars of our logistics strategy. We are confident this financial discipline is a correct approach, given the industry outlook and what it will take for companies to succeed in our industry going forward. In combination with our operational strategy, our financial approach will allow Hi-Crush to break out of the current OFS industry malaise, differentiate ourselves amid undifferentiated companies that find it harder and harder to survive and continue to be a leader investing in innovation.

At the same time, we continue to evaluate and strive to further reduce cost in all areas of our business to align with current market realities and the structure of our industry long term. With that context, I will now discuss our results for the fourth quarter and full year 2019. Sand sales volumes for the full year 2019 were 9.9 million tons, down slightly from 10.4 million tons sold for the full year 2018. Sand sales volumes for the fourth quarter of 2019 were 2.1 million tons compared to 2.7 million tons sold in the third quarter of 2019. The reduction in sales volumes during the fourth quarter was primarily the result of activity declines due to operator budget exhaustion and the seasonal factors as previously discussed. Average sales price was $37 per ton in the fourth quarter down from $43 in the third quarter of 2019, as sales mix has shifted more and more to in-basin sand from Northern White sand.

Total revenues for the full year and fourth quarter of 2019 were $636.4 million and $125.5 million, respectively. Revenues from sales of frac sand were $77.3 million for the fourth quarter of 2019 compared to $114.2 million in the third quarter, reflecting the decrease in activity quarter-over-quarter, combined with the decreased average pricing I mentioned, largely as a result of mix shift. Revenues associated with logistics services were $47.8 million in the fourth quarter of 2019 compared to $57.4 million in the third quarter. The reduction was primarily a result of reduced activity in the second half of December, which affected the number of delivered truckloads. For the full year 2019, logistics revenue was $194.6 million. Logistics services revenue accounted for 31% and 38% of consolidated revenue for the full year and fourth quarter of 2019, respectively. Revenues also include $9.3 million and $400,000 in sales of logistics equipment by our NexStage business during the full year 2019 and fourth quarter, respectively.

Adjusted EBITDA for the fourth quarter of 2019 totaled $7.2 million compared to $17.9 million in the third quarter. For the full year 2019, adjusted EBITDA totaled $67.4 million. Contribution margin per ton was $9.02 in the fourth quarter of 2019, down from $10.99 in the third quarter. For the full year 2019, contribution margin was $11.62. G&A was $11.6 million in the fourth quarter of 2019, excluding nonrecurring expenses of $100,000 associated with business development compared to third quarter 2019 G&A of $11.5 million, excluding similar nonrecurring business development expenses of $500,000. Total depreciation, depletion and amortization was $13.3 million for the fourth quarter of 2019, compared to $16.1 million in the third quarter. Full year 2019 DD&A was $58.1 million as compared to $42.1 million for the full year 2018, reflecting the increased asset base with the growth of our logistics and wellsite operations.

Interest expense was relatively flat quarter-over-quarter at $11.6 million for the fourth quarter. On February 3, we made our semiannual interest payment of $21.4 million on our senior notes. Our next interest payment is due in August of 2020. Total capital expenditures for the fourth quarter of 2019 totaled $5.4 million, below the guidance provided at the end of the third quarter of $7 million to $10 million. Growth capex was $3.5 million to support logistics operations and maintenance capex was $1.9 million. We exited the fourth quarter of 2019 with total liquidity of $101.5 million, including $57.6 million in cash and $43.9 million of availability under our ABL. We have no balances drawn under our ABL facility. We paid no U.S. cash income taxes during the fourth quarter of 2019 and do not expect to pay any significant cash income taxes over the next few years due to net operating loss carryforwards. Our annual effective tax rate for 2019 is 22.2%, in line with our previous guidance. Fourth quarter and full year 2019 results reflect a tax benefit of $3.8 million and $84.9 million, respectively, including the tax effect of the noncash impairment charges.

In terms of activity in the first quarter of 2020, we expect that early year dynamics and the restarting activity will mirror the trends over the last two years, ramping early in the year as E&P capex budgets are refreshed and seasonal factors abate. We have experienced a good start to the first quarter, with the strongest January in truckloads and sand sale volumes we've ever had. We expect truckloads to increase more than 25% from fourth quarter levels as work for new Pronghorn customers begins and overall activity increases. We forecast frac sand sales volumes will increase to a range of 2.4 million to 2.6 million tons, an increase of approximately 15% to 25% from the 2.1 million tons sold in the fourth quarter. We are updating our capital expenditure guidance for 2020 to support the development and deployment of innovative equipment as we take advantage of improving service demand. We now expect total capex for 2020 to range between $45 million and $60 million, including maintenance capex of between $10 million and $15 million, with remaining growth capex spent incrementally along with explicit customer demand for equipment and services.

At the same time, we continue to look to reduce our overall cost portfolio. We anticipate G&A will continue to be around $11 million per quarter in the first quarter of 2020. DD&A will be in the range of $12 million to $14 million for the first quarter. Interest expense will remain at about $11.5 million each quarter. With the payment of our semiannual interest payment on February 3, other routine quarterly payments and a typical slow December as previously described, cash now stands at $20.1 million. We will focus on maintaining liquidity during all of 2020 and forecast ending the first quarter with $25 million to $30 million in cash. We do not anticipate any borrowings under our ABL facility in 2020. We believe that our disciplined approach to growth, our unique, fully integrated offering and our customer focus will make us truly differentiated in the marketplace, where smaller competitors are less and less able to compete and deliver the products and services demanded by large E&Ps. We're excited about where we are and where we are headed.

I'd now like to turn it back to Bob for some closing remarks.

Robert Rasmus -- Chief Executive Officer

Thanks, Phil. Our ability to differentiate our company based on service quality and integrated solutions is more critical than ever. We remain focused on doing that by providing efficient, high-quality, technology-enabled solutions that simplify our customers' supply chain, driving increased drilling and completion efficiency and lower cost. The addition of OnCore Processing into our portfolio of solutions further sets Hi-Crush apart from the competition. Leveraging all of our capabilities will allow Hi-Crush to deliver unmatched customer service, deliver increased profitability and increased value creation for our shareholders. I am excited about what 2020 has in-store for Hi-Crush.

Now, I'd like to turn it back to the operator for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Tommy Moll with Stephens. Please proceed with your question.

Cameron -- Stephens -- Analyst

Hey good morning. Thanks for taking our questions. This is actually Cameron [Phonetic] on for Tommy.

Robert Rasmus -- Chief Executive Officer

Okay, good morning Cameron.

Cameron -- Stephens -- Analyst

I was hoping we could talk a little bit more about the OnCore offering. It sounds like you guys are really excited about it. There's some tremendous benefits, which is great. Obviously, if we could talk a little bit about customer appetite? I know you guys are it looks like you're deploying a couple this year. Maybe first, where we see that growing over time? And then from the customers' perspective, maybe talk about what the costs are associated with deploying something like this versus your traditional processing units? Anything give us on that would be helpful.

Robert Rasmus -- Chief Executive Officer

Sure. We've seen tremendous demand from the customer discussions, which we've already taken place. And just to reiterate, the target market for this is the majors, super majors, the large independents and the large caps. And really, that target market is those who have reserves on their acreage or adjacent land and his operations are otherwise economically disadvantaged from other sand pull points. And we think the savings are really substantial for them, both in terms of quantitative dollars saved and efficiency as well as the substantial ESG benefits that the OnCore solution can provide in terms of reduced truck traffic on public roads and reduced greenhouse gas emission. So it's a combination of both quantitative and qualitative factors that provide savings.

Cameron -- Stephens -- Analyst

Great. Thank you. That's super helpful. Appreciate it. And then if we could just move to Pronghorn. Talk about the logistics a little bit. We saw a 19% decline in the quarter, which is pretty much in line with volumes. I was hoping you guys could talk about some of the benefits. I mean, you're in, now, it looks like five or six basins. What are the benefits of having a wide program like that versus being concentrated in just one or two basins? If you could talk about that.

Robert Rasmus -- Chief Executive Officer

I think the benefits are substantial. And what customers want is a bundle of offering. What really the customers have requested is efficiency, reliability, repeatability, ESG savings, as I mentioned, or ESG benefits and reduce costs. And that's something that our footprint, both in terms of Pronghorn operating across all major basins and being integrated into our bundled platform provides the customer. It provides a single point of accountability, a single point of efficiency, a single point of focus and what the customers are really interested in is that repeatability, reliability and cost savings. And so they're very much interested in a partnership with a provider like Hi-Crush, and we're the only ones who can provide that entire platform under one bundled offering.

Cameron -- Stephens -- Analyst

Right. Got it. Okay. Well, thank you. I'll turn it back. Appreciate it.

Robert Rasmus -- Chief Executive Officer

Thanks, Cameron.

Operator

[Operator Instructions] Our next question comes from John Watson with Simmons & Company. Please proceed with your question.

John Watson -- Simmons and Company -- Analyst

Thank you. Good morning.

Robert Rasmus -- Chief Executive Officer

Good morning, John.

Phil McCormick -- Chief Financial Officer

Good morning, John.

John Watson -- Simmons and Company -- Analyst

Bob, I was hoping you could speak to some of the tightness that we've heard about in the Permian? And how that might impact contribution margin per ton in Q1? And also, any thoughts more generally as we head into Q2?

Robert Rasmus -- Chief Executive Officer

Sure. There has been some tightness in the marketplace. We have seen a rise in spot prices for both in-basin sand and Northern White. I think these prices have plateaued. Where they are right now, they are above, certainly, the fourth quarter levels and fourth quarter exit levels. And as I mentioned in the prepared remarks, some of that tightness is driven by an increase in activity and some of it is driven by some of the supply coming off the market and some of the existing supply, just not being able to meet that demand because they haven't maintained their equipment and haven't been able to provide the efficiencies that the customers demand.

John Watson -- Simmons and Company -- Analyst

Okay, got it. And then I wanted to follow up on OnCore as well. When that first facility comes online, I think we now have a decent framework for what the volume contribution might be. Can you help us think about the profitability of that site as well as how that site fits into your broader portfolio? And if it might cannibalize volumes from some of your other mines?

Alan Oehlert -- Chief Operating Officer

Yes, John, this is Alan. I think when you think about this as far as the cost saving, as Bob discussed, the majority of it has always been in transportation of sand, whether you're long distance in a truck or by rail and that's why we believe it fits so well with the other service lines. As Bob mentioned, everybody is focused on if they're going to unbundle and trust one company, they want everything under they want one source of supply, and that kind of feeds right into the Pronghorn and the delivery and all the storage offerings that we have. So when we look at it, it's more in how do we reduce the long-distance halls on trucks and kind of targeting early on these areas that have that are challenged with those distances truck-wise. So the basins that we're focused on are primarily where they have logistics challenges. That's where the customer focus will be initially. But in addition to that, we don't see there will be any early cannibalization.

John Watson -- Simmons and Company -- Analyst

Okay. Thanks for that. Alan, maybe as a quick follow-up. That specific site, the first OnCore site, is there a return threshold or a contribution margin per ton contribution that you are contemplating internally with the increase in capex? I'm just trying to think through what type of return you're expecting from that investment?

Robert Rasmus -- Chief Executive Officer

The return has to be substantial because when you look at the emphasis on the industry on free cash flow right now. And this is clearly an alternative to returning money to investors and our shareholders. And the reason there's been such a focus on free cash flow is that there's a dearth of competitively advantaged or differentiated investment opportunities. And we think the development of OnCore really presents an opportunity to deliver industry-leading innovation and disruption of the current status quo. So how does this all play into the return margin or return hurdles? Well, it has to compete against alternative uses, and it has to be a substantial benefit relative to alternative uses, and we think that the OnCore definitely meets that threshold and exceeds that.

John Watson -- Simmons and Company -- Analyst

All right, thanks for that Bob. I'll turn it back. Thank you.

Operator

At this time, I would like to turn the call back over to Mr. Bob Rasmus for closing comments.

Robert Rasmus -- Chief Executive Officer

Thanks, Latania. From an operational perspective, we've never been in a better place to take full advantage of our capabilities. Our fully innovative solution with the addition of OnCore further complements our bundled offering. We can now mine as close to customers' activity as acceptable sand deposits will allow. We can move the sand and provide on-site support through Pronghorn. We have best-in-class wellsite storage equipment to deploy the sand into the blender with NexStage. And PropDispatch allows all of this to be measured, monitored and analyzed. Our business plan is to utilize our platform, to develop partnerships with our customers, to capture cost savings that benefit both our customers and Hi-Crush. Thank you for your time today, and we look forward to talking with you on our next call.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Caldwell Bailey -- Manager, Investor Relations

Robert Rasmus -- Chief Executive Officer

Alan Oehlert -- Chief Operating Officer

Phil McCormick -- Chief Financial Officer

Cameron -- Stephens -- Analyst

John Watson -- Simmons and Company -- Analyst

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