Smart Sand, Inc. Q4 FY2023 earnings call

2023 Performance - Smart Sand delivered strong operating and financial results in 2023 with record sales volume, revenue, contribution margin, and adjusted EBITDA. Fourth quarter volumes were lower due to seasonal slowdown, but first quarter 2024 started strong. ### Cost Efficiency - Adjusted administrative and operating staff levels, and implemented initiatives to improve product yields and reduce waste to lower production costs. ### Facilities and Terminals - Acquired two idle terminals in Northeast Ohio, with Minerva expected to be operational by end of Q1 2024 and Denison by Q2 2024. Blair facility in Wisconsin is ramping up with volumes expected to double quarter-over-quarter. ### Industrial Expansion - Transitioning Utica, Illinois facility for industrial sand, completed blending and cooler projects, and installing a bagging system. Target to increase industrial sand sales by 50% in 2024. ### Last-Mile Innovation - Introduced SmartBelt direct to blender technology, expanding SmartSystems fleet offering with SmartBelt conveyor and SmartPath transloader. Expect last-mile service revenues and contribution margins to increase by 50% or more in 2024.

In 2023, Smart Sand achieved record sales volume of 4.5 million tons and revenue of $296 million. Contribution margin was $67 million and adjusted EBITDA was $34.1 million. For the fourth quarter of 2023, sales volume was 1 million tons, revenue was $61.9 million, contribution margin was $9.2 million, and adjusted EBITDA was $1 million. Industrial sand accounted for approximately 4% of 2023 sales volumes, with an expectation to increase industrial sand sales by 50% in 2024 to reach 5% of overall sales volume. The last-mile services achieved positive contribution margin in 2023, with an expectation to grow in 2024 by expanding SmartSystems fleets, with SmartSystems fleets expected to average 4-5 per month in 2024 and silo-only fleets in Oklahoma operating consistently at current levels.

Sales Volumes - Full-year 2024 sales volumes expected 5%-10% higher than 2023 levels. First quarter 2024 sales volume expected 25%-40% higher than Q4 2023. ### Contribution Margin - First quarter 2024 contribution margin per ton expected in mid-teens range. ### CapEx - 2024 CapEx expected $18 million to $23 million, directed towards efficiencies, sustainability of operations at Oakdale, Utica, and Blair, and some SmartSystems investments.

Seasonal Slowdowns - Fourth quarter 2023 volumes were lower due to seasonal slowdown and customer budget exhaustion. ### Natural Gas Prices - Impact on drilling activities and gas basins later in the year could affect volumes. ### M&A Activity - Recent M&A in in-basin sand could impact market dynamics, but Smart Sand believes in strong Northern White franchise, markets have strong demand, supply and demand relatively balanced.

Q: Impact of gas on 2024 volumes?

A: Natural gas prices and activity in Marcellus Basin impact volumes, but Bakken and Utica (oil-driven) balance potential pullback in gas. Long-term gas fundamentals strong.

Q: Spot price market and contracted volumes?

A: About half of volumes contracted, pricing stable, anticipated to continue.

Q: M&A and valuations on Northern White sand?

A: Smart Sand believes in strong Northern White franchise, markets have strong demand, supply and demand relatively balanced.

Q: Current nameplate capacity and Canada?

A: Current nameplate capacity 10 million tons, serves Bakken, Marcellus, Utica, Canada. Canada evolving, with Blair facility on CN Rail aiding growth, coarser sand for Canada complements finer products in U.S.

Q: Last-mile business utilization and CapEx?

A: Silo-only fleets in Oklahoma at 100% utilization, SmartSystems fleets expected to average 5-6 per month in 2024. CapEx for last-mile focuses on increasing utilization and reducing operating expenses, possibly adding one fleet.