Smart Sand, Inc. (SND) Earnings

Management highlights

• Proactively managed cost structure and capital expenditures led to positive free cash flow for the quarter, with cash flow positive for 2024 and a special dividend of $0.10 per share paid, along with a share buyback plan of up to $10 million. • Secured a new $30 million five-year ABL credit facility with First Citizens Bank. • Began delivering sand to new terminals in Denison and Minerva, Ohio, with approximately 18% of volumes sold through these terminals. • Blair mine continues to grow, supporting Canadian and Northeast US markets. • IPS sales volumes increased 38% sequentially, positioning for new contracts in 2025, particularly with glass and foundry customers. • Uniquely positioned with over 75% fine mesh sand reserves, limited new Northern White capacity expected due to high startup costs and logistical challenges.

Guidance

• 2024: Cash flow positive, special dividend paid, share buyback plan announced. Fourth quarter sand sales volumes expected in the 1.1 million to 1.4 million ton range. Total capital expenditures for 2024 expected at or under $10 million. • 2025: Excited about growing natural gas demand in US and Canada, oil activity increase in Utica. Anticipates pricing improvement in 2025 due to demand for fine mesh sand and limited new capacity, with IPS expected to grow to 10% of total sales volumes, and Smart Sand well-positioned to take advantage of Northern White sand demand growth.

Segment performance

In the third quarter of 2024, Smart Sand delivered sales volumes of just under 1.2 million tons. Canadian volumes represented about 11% of sales. IPS sales volumes increased by 38% sequentially. Third quarter total revenues were $63.2 million, adjusted EBITDA was $5.7 million, and contribution margin was $13.2 million. Canadian volumes accounted for approximately 11% of sales, and IPS was positioned to grow from under 5% of revenue base to the 10% range of total sales volumes in 2025.

Risks & headwinds

• Industry subject to variability due to changes in commodity prices, supply, demand dynamics, seasonal weather impact, and political uncertainties. • Limited additional Northern White capacity expected as startup costs for idle mines are significant and logistical challenges remain.

Analyst Q&A

• Q: Just given what the efficiency gains we’ve seen regarding completion and the rise in profit demand per well, I was just curious like how you see that evolving going forward. Should we start to see a plateau around current levels or continue to rise maybe at a more moderate pace? And just kind of overlaying that with your positive outlook for demand heading into 2025?

  A: Yes. Well, so, it’s a good question. Obviously, we’ve seen proppant per foot, kind of go almost hockey stick like on a graph over the last few years. You probably could see a little bit of moderation. But what we are seeing is when you have these multi-well pads, we’re seeing the demand for large amounts of sand to be on site on a consistent basis, which is driving kind of demand across the board, right? So if you have a pad that’s got five or six wells on it, you tend to have to have the ability to have that sand there quicker and they’re putting it down the hole faster. So you might see some moderation on proppant per foot, but certainly proppant per well pad is getting it there and doing more wells in a particular month. That seems to be the focus of our customer base. They’re also extending their laterals too. So laterals are getting longer per well, which is leading to more sand per well as you get to the longer laterals for that they’re drilling. The other thing I would add too is some of the other basins that we operate in. So certainly the Marcellus has always been a relatively high proppant per foot market, but we’re seeing other basins, the Bakken, certainly with our new experience up in Canada, we’re starting to see those markets expand their proppant per foot also.

• Q: First question is on IPS. I think in your prepared remarks you noted that it could go from 5% of volumes to 10% of volumes in 2025, which would be significant. Is that based on orders you already have today or things you’re still bidding on and what markets potentially would be driving this? Just a little more color there would be great.

  A: Yes, sure. It’s business we’re working on, Josh, and it consists of kind of some of the traditional environments, glass sand being the one that drives the most volume in that space, right? So it’s not frac sand volumes, right? Glass is the only one that even has any kind of volumes that kind of move the needle from that perspective. But there’s a lot of recreational, there’s foundry and those types of things. And so that business we’re excited about. But we think that as we grow from 5% kind of to 10%, I don’t know that it’ll get particularly bigger than that over time, but it is a market I’m kind of bullish on. But at the same time, frac is going to be the one that drives the bulk of our volumes going forward.

• Q: Just you talked about the Canadian market being 11% of your sales and Blair continuing to ramp. Can you just update us on your thoughts on the Canadian market, how you see that going forward in 2025 and beyond and what you’re seeing?

  A: Yes, look, the Canadian market, I think, Josh, our Blair facility there, we’re very excited about. It’s a 3 million ton a year facility. It’s got fantastic logistics. The Canadian market, our customer base up there has a lot of their own logistics capabilities. We’re going to be adding our own up there. And we think that that market is logistically constrained, but they’ve got pipelines in place to the West Coast that require an awful lot of natural gas to be produced. And so we’re cautiously optimistic on the Canadian market. And I’m spending a good amount of time up there working on it. We’re very excited about that market, Josh. And at the LNG facilities and coming online, we think that’s going to be a great place to be. They need a lot of sand.