Smart Sand, Inc. Q3 FY2023 earnings call

Key Points

• Smart Sand delivered strong operating and financial results in Q3 2023, with 1.2 million tons sold, $21M contribution margin, $13.3M adjusted EBITDA, and positive free cash flow. For the first nine months of 2023, $17.5M in free cash flow generated, cash flow-positive for 2023, paid off over $9M in debt, and bought back ~11% of common shares.
• Focus on being the premium provider of Northern White Sand and Logistics Services, aiming to be a partner in sustainable sand supply. Strong demand for Northern White frac sand in Bakken, Appalachian, and Canadian basins; first quarter fully operating Blair facility with Canadian sales at 10% of Q3 volume.
• Constructing improvements at Utica facility for cooling and blending capabilities to expand industrial products market; industrial sand sales expected to grow in 2024. Introduced Smart Belt direct to blender technology, with 10 SmartSystems with SmartPath and Smart Belt technology ready to deploy by year-end, expecting increased utilization in 2024.

In the third quarter, Smart Sand sold approximately 1.2 million tons, generating $21 million in contribution margin and $13.3 million in adjusted EBITDA. Canadian sales represented approximately 10% of third quarter sales volume. Industrial sand sales volumes have been approximately 5% of sales volume over the last few quarters, with the company constructing improvements at its Utica facility in the fourth quarter to add cooling and blending capabilities, expecting growth in 2024.

• Expect overall sand sales volumes for 2024 to be at least 10% higher than 2023.
• Fourth quarter sales volumes expected in the 900,000 to 1.1-million-ton range.
• Contribution margin per ton in Q4 expected to be in the mid double-digit range of $12 to $16 per ton.
• Capital expenditures for 2023 expected in the $20 million to $23 million range, including startup of Blair facility, expansion of Waynesburg terminal, and investment in Utica facility's cooling and blending capabilities.
• Aim to be free cash flow-positive for 2023.

Q: Commentary about 24 volumes being up 10%, any incremental color?

A: Some is from signing new customers and increasing volumes with existing customers, longer laterals/more stages per lateral leading to more sand per well, and Canadian market ramp-up.

Q: Insight on Canadian market margin?

A: Margins relatively consistent with other regions, with Blair production costs expected to come down to levels similar to Oakdale as utilization increases.

Q: Granularity on industrial end markets and Canadian industrial penetration?

A: Industrial markets focus on glass, foundry; blending and cooling capability at Utica allows entry into new markets; Canadian industrial focus ongoing with efforts to penetrate the market.