Smart Sand, Inc. Q2 FY2024 earnings call

• Strong second quarter results with sales volume exceeding projections, contribution margin and adjusted EBITDA improved.
• Free cash flow positive for the year through June and expected to remain positive for the full year, with plans to return value to shareholders later in the year.
• Focus on managing cost structure, driving down production and administrative costs.
• Executing long-term goals: strengthening Northern White franchise, building market share in Bakken and Marcellus, expanding into Canadian market, opening new terminals in Ohio to access Utica Shale, and growing Industrial Product Solutions business.
• Updates on facilities: Oakdale facility conversion to hydro mining, investments in terminals in North Dakota and Pennsylvania to enhance market share.

In the second quarter, Smart Sand had sales volume just under 1.3 million tons, which exceeded projections. Contribution margin was $19.8 million, adjusted EBITDA was $11.8 million, and free cash flow was $13.5 million. Sales volume for June 2024 was 15% higher than the first six months of 2023. The company's Northern White franchise is being strengthened, with market share building in the Bakken and Marcellus basins through the Blair facility. Canadian sales volume represented approximately 10% of total sales in the first half of 2024. The Utica Shale formation was opened as a market with new operational terminals in Minerva and Denison, Ohio.

• Expect to remain free cash flow positive for the full year.
• Plan to announce shareholder value return plans later in the year.
• Third quarter sand sales volume expected to be in the $1 million to $1.2 million range.
• Contribution margin per ton expected to be in the $14 to $16 per ton range for the third quarter.
• Capital expenditures for the year expected to be in the $10 million to $13 million range.

• Fluctuations in oil and gas demand, especially in natural gas basins due to price changes.
• Potential impact of Canadian rail strike, though expected to be mitigated if resolved quickly.
• Dependence on rail logistics for sand delivery, which could pose risks if not managed properly.

Q: Can you quantify cost savings and their stickiness for future modeling?

A: Lee Beckelman mentioned cost savings could reduce production cost by $1-$2 per ton on average with labor management and hydro mining. William Young added hydro mining mitigates diesel price spikes.

Q: What's seen on the spot market relative to contracted volumes?

A: Lee Beckelman said pricing has been relatively flat. William Young noted Canadian market is closer and Blair mine product is balanced with Canadian and Lower 48 demand.

Q: Maximum sand sales capacity based on current staffing?

A: William Young said Oakdale and Blair can increase sales without huge staff increases, with some variable cost increases. Lee Beckelman mentioned with current staffing, could get sales volumes north of 7 million tons with incremental staffing.

Q: Tonnage levels and profitability for Utica sales in second half?

A: Lee Beckelman said profitability relatively consistent, terminal operation lowers cost. Volumes not specified but expected to be additive.

Q: Free cash flow and capital return plans?

A: Lee Beckelman said expected free cash flow positive for the year, evaluating dividend and share repurchase for shareholder value return.

Q: Progress on industrial end markets?

A: William Young said industrial initiatives continue with cooling and blending capabilities at Utica mine, expected to continue growing.