Q4 2023 Smart Sand Inc Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to the Smart Sand Inc. Q4 and full year 2023 earnings call. At this time, all lines are in listen-only mode.

Good morning, ladies and gentlemen, and welcome to the Smart Sand, Inc, Q4, and full year 2023 earnings call.

At this time all lines are in listen only mode.

Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, March 12, 2024. I would now like to turn the conference over to Chris Green, please go ahead. Good morning, and thank you for joining us for Smart Sand's fourth quarter and full year 2023 earnings call. On the call today, we have Chuck Young, Founder and Chief Executive Officer, Lee Beckelman, Chief Financial Officer, and John Young, Chief Operating Officer. Before we begin, I would like to remind all participants that our comments made today will include forward-looking statements that are subject to certain risks and uncertainties that could cause actual results or events to materially differ from those anticipated.

Following the presentation, we will conduct a question and answer session.

If at any time during this call you required immediate assistance. Please press star zero for the operator.

This call is being recorded.

March 'twenty.

'twenty 'twenty four.

I would now like to turn the conference over to Chris Green. Please go ahead.

Good morning, and thank you for joining us for smart Sand's fourth quarter and full year 2023 earnings call on the call today, we have Chuck Young founder and Chief Executive Officer leave back Allman, Chief Financial Officer, and John Young Chief operating Officer.

Before we begin I would like to remind all participants that our comments made today will include forward looking statements, which are subject to certain risks and uncertainties that could cause actual results or events to materially differ from those assets.

Operator: For a complete discussion of such risks and uncertainties, please refer to the company's press release and our documents on file with the SEC. Smart Sand disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. The conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 12, 2024. Additionally, we will refer to the non-GAAP financial measures of contribution margin, adjusted EBITDA, and pre-tax flow during this call.

For a complete discussion of such risks and uncertainties. Please refer to the company's press release and our.

That's on file with the SEC.

<unk> disclaims any intention or obligation to update.

Eight or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.

This call contains time sensitive information that's accurate only as of the live broadcast today March 12 2024.

Additionally, we will refer to the non-GAAP financial measures are contribution margin adjusted EBITDA and free cash flow during this call.

Christopher Green: These measures, when used in combination with our GAAP results, provide us and our investors with useful information to better understand our business. Please refer to our most recent press release or our public filings for our reconciliations of gross profit to contribution margin, net income to adjusted EBITDA, and cash flow provided by operating activities to pre-tax. I would now like to turn the call over to our CEO, Jeff Jones. Thanks, Chris, and good morning.

These measures when used in combination with our GAAP results provide us and our investors with useful information to better understand our business.

Please refer to our most recent press release or our public filings for our reconciliations of gross profit contribution margin net income to adjusted EBITDA and cash flow provided by operating activities to free cash flow.

I'd now like to turn the call over to our CEO shutdown.

Thanks, Chris and good morning, Smart sand delivered strong operating and financial results for 2023, and 2023 we achieved record levels of sales volumes and revenues, we sold four and a half million tons and had revenue of $296 million, we had $67 million and contribution margin.

Charles Edwin Young: Smart Sand delivered strong operating and financial results for 2023. In 2023, we achieved record levels of sales volume and revenues. We sold 4.5 million tons and had revenue of $296 million. We had $67 million in contribution margin and $34.1 million in adjusted EBITDA, both solid improvements over 2022 results. For the full year of 2023, we generated $8 million in free cash flow.

$34 1 million and adjusted EBITDA, both solid improvements over 2022 results for the full year of 2023, we generated $8 million in free cash flow.

Charles Edwin Young: While we had a great 2023 overall, our fourth quarter results were lower than expected, and the fourth quarter marked an activity drop due to seasonal slowdowns and an overall general reduction in activity from customer budget exhaustion. However, we largely maintained our workforce and associated costs during the fourth quarter as part of our plan to take advantage of what we expect to be a record-setting first quarter. And that planning is paying off.

While we had a great 2023 overall, our fourth quarter results were lower than expected in the fourth quarter marked the code activity dropped due to seasonal slowdowns and an overall general reduction in activity from customer budget exhaustion. However, we largely maintained our workforce and associated costs during the fourth quarter as part of our plan to take it.

Vantage of what we expect to be a record setting first quarter.

And that planning is paying off activity in 2024 in fact started off at record levels demand has been strong in the first two months of the year and we're seeing strong demand continue into March currently we expect first quarter sales volume to be at least 25% to 40% higher than fourth quarter 2023 results.

Charles Edwin Young: Activity in 2024, in fact, started off at record levels. Demand has been strong in the first two months of the year, and we are seeing that strong demand continue into March. Currently, we expect first quarter sales volume to be at least 25% to 40% higher than fourth quarter 2023 results. We are continuing our commitment to being a low-cost producer.

We are continuing our commitment to being a low cost producer, we understand that we need to be cost effective and as efficient as possible to be able to deliver positive operating and financial results throughout the operating cycles with this in mind, we have made adjustments to our administrative and operating staff levels to be more efficient and we're implementing.

Charles Edwin Young: We understand that we need to be cost-effective and as efficient as possible to be able to deliver positive operating and financial results throughout the operating cycle. With this in mind, we have made adjustments to our administrative and operating staff levels to be more efficient, and we are implementing initiatives to improve our product yields and reduce waste sand in our processes to drive down our production costs. While we continue to target strategic opportunities for growing our market share in key markets we serve, we remain focused on operating in a cost-effective and efficient manner. In 2024, we plan to remain true to our core business principles and operating philosophy.

Initiatives to improve our product yields and reduce waste and in our processes to drive down our production costs, while we continue to target strategic opportunities for growing our market share in key markets. We serve we remain focused on operating in a cost effective and efficient manner.

In 2024, we plan to remain true to our core business principles and operating philosophy. Our primary goal continues to be the premier provider of northern White sand and logistics services in North America, we strive not only to be a supplier of sand to our customers, but to be their partner and efficiently providing high quality efficient environmentally.

Charles Edwin Young: Our primary goal continues to be the premier provider of northern white sand and logistics services in North America. We strive not only to be a supplier of sand to our customers but to be their partner in efficiently providing high quality, efficient, environmentally friendly, and sustainable long-term sand supply. Our goal is to continue to increase the utilization of our three operating mines in Oakdale, Utica, and Blair and to expand our market share in every basin we serve. We have approximately 10 million tons of high-quality northern white capacity available to serve the frac, sand, and industrial sand markets. This capacity is tied directly into four Class One railroads.

Friendly and sustainable long term sand supply.

Our goal is to continue to increase the utilization of our three operating mines in Oakdale, Utica and Blair and to expand our market share in every basin. We serve we have approximately 10 million tons of high quality northern white capacity available to serve the frac sand and industrial sand markets. This capacity is tied directly into four class one railroads.

We have the best in class terminals, serving the key pocket and Appalachian basins, and a network of high quality well positioned third party terminal partners. We can serve every market in North America through our efficient low cost logistics footprint.

Charles Edwin Young: We have the best in class terminals serving the Key, Bakken, and Appalachian basins, and a network of high quality, well-positioned third-party terminal partners. We can serve every market in North America through our efficient, low-cost logistics footprint. With our smart systems technology, we can meet the increasing demands of customers looking for higher volumes of sand delivered to the blender in a safe and efficient manner. We continue to invest strategically to expand our logistics capabilities to increase our market penetration in key northern white sand markets. In late December 2023 and January of this year, we gained access to two idle terminals in Northeast Ohio, one in Minerva, Ohio, and one in Denison, Ohio.

With our smart systems technology, we can meet the increasing demands of customers looking for higher volume of sand delivered to the blender and a safe and efficient manner.

We continue to invest strategically to expand our logistics capabilities to increase our market penetration in key northern white sand markets in late December 2023 in January of this year, we gained access to two idled terminals in northeast, Ohio, One in Minerva, Ohio, and one in Dennison, Ohio, we acquire.

Charles Edwin Young: We acquired the rights to these terminals for $1.25 million and are investing approximately $1 million in 2024 to bring these terminals online. We expect our Minerva location to be operational by the end of the first quarter, with Denison becoming available in the second quarter. These terminals not only increase our access to the Marcellus but also provide us entry into the Utica Shale Basin. We are seeing increasing activity from EMPs in the Utica, which is primarily an oil and liquids opportunity. We are excited about the prospect of expanding our market share sales volumes in the Appalachian Basins through these new terminals. These two new terminals, combined with our Waynesburg terminal in the southwest of Pennsylvania and our broad network of third-party terminals in the region, will allow us to continue to be one of the leading suppliers of FracSan into the Northeast United States.

The rights to these terminals for $1 million to $5 million and our investing approximately $1 million in 2020 for bringing these terminals online we expect a more narrower location to be operational by the end of first quarter with Denison, becoming available in the second quarter. These terminals not only increase our access to the Marcellus, but also provide us entry into the.

Utica Shale basin, we're seeing increasing activity from E&ps in the Utica, which is primarily in oil and liquids opportunity. We're excited about the prospects of expanding our market share sales volumes in the Appalachian basins through these new terminals. The two new terminals combined with our Waynesboro terminal in the southwest, Pennsylvania and our broad.

Network of third party terminals in the region will allow us to continue to be one of the leading suppliers of frac sand into the northeast United States are Blair facility in Wisconsin is ramping up as well and we expect volumes out of this facility to double quarter over quarter. We're excited about the progress that our Blair facility and expect it to be a significant contributor to our <unk>.

Charles Edwin Young: Our Blair facility in Wisconsin is ramping up as well, and we expect volumes out of this facility to double quarter over quarter. We are excited about the progress at our Blair facility and expect it to be a significant contributor to our northern white sand franchise going forward. We are confident that the foundation for northern white sand demand is strong and will be durable over time.

Northern White sand franchise going forward.

We are confident that the foundation for northern White sand demand is strong it will be durable over time.

Charles Edwin Young: We believe the long-term demand fundamentals for natural gas supply in the United States and Canada continue to be positive, notwithstanding the current low prices. Thus, we expect to see continued demand in the natural gas basins we serve, including the Marcellus. We do not expect to see any slowdown in activity in the Bakken. We are also seeing increasing activity in the Utica Shale Basin in northeast Ohio. Both the Bakken and Utica are oil-driven basins.

We believe the long term demand fundamentals for natural gas supply in the United States and Canada continue to be positive notwithstanding the current low pricing. Thus, we expect to see continued demand and natural gas basins, we serve including myself.

We do not expect to see any slowdown in activity in the Bakken. We are also seeing increasing activity in the Utica shale basin in northeast, Ohio, both the Bakken and Utica or oil driven basins with a well documented reduction in Permian well performance. We are seeing E&P is starting to pick up their oil drilling and completions activity in other basins.

Charles Edwin Young: With a well-documented reduction in Permian well performance, we are seeing EMPs starting to pick up their oil drilling and completions activity in other basins. We are well positioned to take advantage of this shift in oil market activity into basins outside of the Permian. We continue to move forward on expanding our industrial product solution. The transitioning of our Utica, Illinois facility to compete more effectively in the industrial sand markets continues to make progress. We completed the blending and cooler projects, and we're now installing a bagging system at the plant.

We are well positioned to take advantage of this shift in oil market activity into basins outside of the Permian. We continue to move forward on expanding our industrial product solutions, the transitioning of our Utica, Illinois facility to compete more effectively in the industrial sand markets continues to make progress we completed the blending and cooler projects and we are at.

Installing a bagging system at the plant in 2023, approximately 4% of our sales volumes were industrial sand currently for 2024, we expect to increase our industrial sand sales by 50% over 2023 sales volume levels and to be in 5% range of our overall sales volume.

Charles Edwin Young: In 2023, approximately 4% of our sales volumes were industrial sand. Currently, for 2024, we expect to increase our industrial sand sales by 50% over 2023 levels and to be in the 5% range of our overall sales volumes. We continue to make progress penetrating the last mile market. With the introduction of our Smart Belt Direct-to-Blender technology, we are delivering to customers what they want. Faster fracks, and less trucking through maximizing payload per truck and minimizing unload times.

We continue to make progress penetrating the last mile market with the introduction of our smart belt director Blender technology, we were delivering to the customers what they want faster fracs less trucking through maximizing payload for truck and minimizing unload times in response to customer demand, our smart systems fleet offering now <unk>.

<unk>, our smart belt conveyor system, and our proprietary smart power Trans lever, we're excited about the prospects of growing our last mile business in 2024 and 2023, we delivered our best operating results for last mile service offering we achieved positive contribution margin for the year for 2024, we expect to continue to grow this.

Charles Edwin Young: In response to customer demand, our Smart Systems Fleet Offering now includes our Smart Belt Conveyor System and our proprietary SmartPath Transloader. We are excited about the prospect of growing our last mile business in 2024. In 2023, we delivered our best operating results for our last mile service offering, and we achieved positive contribution margin for the year. For 2024, we expect to continue to grow this business as we expand the utilization of our Smart Systems Fleets. We currently operate four silo-only fleets in Oklahoma and expect activity to remain at these levels in 2024.

Business as we expand the utilization of our smart systems fleets, we consistently operate four silo only fleets in Oklahoma and expect activity to remain at these levels in 2024 for our smart systems fleets in 2023, we average two to three fleets operating on a monthly basis with the addition of the smart belt and our ability to handle <unk>.

Inefficiently higher sand volumes at the well site demand for our systems is increasing currently we expect to operate on an average of 4% to five smart systems fleets from us in 2024 with an expected increase in utilization of Smart systems. We currently expect our last mile service revenues and contribution margins to increase by 50% or more over.

Charles Edwin Young: For our Smart Systems Fleets, in 2023, we averaged two to three fleets operating on a monthly basis. With the addition of the Smart Belt and our ability to handle significantly higher stand volumes at the well site, demand for our systems is increasing. Currently, we expect to operate on an average of four to five Smart Systems Fleets a month in 2024.

2023 results.

We will continue to look for ways to increase shareholder value in 2023, we bought back approximately 11% of our shares we have a strong balance sheet with one of the lowest leverage levels in the industry, which allows us to manage effectively throughout the cycles in the energy business and provides us the ability to move quickly to take advantage of new <unk>.

Charles Edwin Young: With this expected increase in utilization of Smart Systems, we currently expect our last mile service revenues and contribution margins to increase by 50% or more over 2023. We will continue to look for ways to increase shareholder value. In 2023, we bought back approximately 11% of our shares. We have a strong balance sheet with one of the lowest leverage levels in the industry, which allows us to manage effectively throughout the cycles in the energy business and gives us the ability to move quickly to take advantage of new opportunities in the market. Our goal is to deliver positive free cash flow consistently while still taking advantage of opportunities to grow the business. We are focused on generating positive free cash flow.

Opportunities in the market.

Our goal is to deliver positive free cash flow consistently while still taking advantage of opportunities to grow the business. We are focused on generating positive free cash flow.

Back to a positive free cash flow in 2024 and are in the early stages of exploring ways to return value to our shareholders potentially through dividends and stock buybacks, which we hope to discuss further on a future call. We believe the northern white sand will continue to be a key product for both the energy and industrial sand markets and smart sand is key.

Committed to being a leading provider of northern White sand 2023 was a strong year for smart sand. We couldnt have delivered these results without the hard work and dedication of our employees I want to thank all of our employees for their continued support and dedication to smart sand as always we'll keep our employee and shareholders' interest in mind in everything we do.

Charles Edwin Young: We expect to have positive free cash flow in 2024 and are in the early stages of exploring ways to return value to our shareholders, potentially through dividends and stock buybacks, which we hope to discuss further on a future call. We believe Northern White Sand will continue to be a key product for both the energy and industrial sand markets, and Smart Sand is committed to being a leading provider of Northern White Sand.

And with that I'll turn the call over to our CFO Lee <unk>.

Thanks, Chuck now I'll go through some of the highlights of the fourth quarter and full year.

Starting with sales volumes.

Approximately 1 million tons in the fourth quarter, a decline over third quarter volumes of one 2 million tonnes as expected due to seasonal slowdown and some weather related delays in the polygon.

Lee E. Beckelman: 2023 was a strong year for Smart Sand. We couldn't have delivered these results without the hard work and dedication of our employees. I want to thank all of our employees for their continued support and dedication to Smart Sand. As always, we'll keep our employees and shareholders' interests in mind in everything we do. And with that, I'll turn the call over to our CFO, Lee Beckelman. Thanks, Chuck.

For the full year 2023 total tons sold were $4 5 million.

<unk> to $4 3 million in 2022.

Four 2% increase year over year, and a record year so far.

As Chuck highlighted while we experienced the normal seasonal drop in market activity in the fourth quarter.

Lee E. Beckelman: Now I'll go through some of the highlights of the fourth quarter and full year, starting with sales volume. We sold approximately 1 million tons in the fourth quarter, a decline over third-quarter volumes of 1.2 million, as expected due to the seasonal slowdown and some weather-related delays in the bottom. For the full year of 2023, total tons sold were $4.5 million, compared to $4.3 million in 2022, a 4.2% increase year-over-year and a record year for Smart Sand Inc. Chuck highlighted that while we experienced a normal seasonal drop in Total revenues for the fourth quarter of 2023 were $61.9 million, compared to $76.9 million in the third quarter, which reflects lower volumes.

<unk> has picked up considerably in the first quarter.

Total revenues for the fourth quarter, 2023, or 61 9 million compared to $76 9 million in the third quarter, which reflects the lower volumes sequentially.

Total revenues for 2023.

Or $296 million compared to $255 7 million in 2022.

Revenues in 2023 were a record so smart.

Higher sales volumes and average pricing.

Sales and higher utilization of our smart system fleets were all contributing factors to the 16% increase in revenue year over year.

Cost of sales for the quarter were $59 1 million compared to $62 5 million last quarter.

A 5% reduction sequentially due to lower sales volumes.

Cost of sales did not drop at the same rate as sales volumes due primarily to maintaining staffing in anticipation of the pickup in activity that we expected in the first quarter.

Lee E. Beckelman: Total revenues for 2023 were $296 million, compared to $255.7 million in 2021. Revenues in 2023 were a record for Smart Sand Inc. Higher cell volumes and average price, IPS sales, and higher utilization of our smart system were all contributing factors to the 16% increase in revenue year-over-year. Cost of sales for the quarter were $59.1 million, compared to $62.5 million last year.

Our cost of sales for the full year of 2023 was $234 4 million compared to $226 1 million in 2022.

The year over year increase was primarily due to higher volumes sold and the related increase in production and freight costs.

Total operating expenses were $10 7 million in the fourth quarter compared to $19 5 million last quarter.

Operating expenses were higher sequentially, primarily due to noncash accounting adjustments cash costs remaining fairly consistent.

Lee E. Beckelman: 5% reduction sequentially due to lower sales volumes. Calcicel did not drop at the same rate as sales volumes due primarily to maintaining staffing in anticipation of the pickup and activity that we expected in the first. Our cost of sales for the full year of 2023 was $254.4 million compared to $226.1 million in 2020. The year-over-year increase was primarily due to higher volume sold and the related increase in production and freight. Total operating expenses were $10.7 million in the fourth quarter, compared to $9.5 million last year.

For the full year total operating expenses were $43 1 million for the year.

Year ended December 31, 2023, compared to $32 7 million for the year ended December 31 2022.

Net increases in royalties as well as salaries benefits and payroll taxes, primarily due to the beginning of operations at our Blair, Wisconsin facility.

2023 also included $1 8 million related to the noncash write off some assets as we reconfigured one of our plants.

Net loss for the fourth quarter was $4 8 million compared to net income of $6 7 million for the third quarter of 2023.

Lee E. Beckelman: Operating expenses were higher sequentially, primarily due to non-cash accounting and cash costs for many fairly. For the full year, total operating expenses were $43.1 million for the year ended December 31st, 2023, compared to $32.7 million for the year ended December 31st, 2022. We had increases in royalties, as well as salaries, benefits, and payroll taxes, primarily due to the beginning of operations at our Blair, Wisconsin facility. 2023 also included $1.8 million related to the non-cash write-off of some assets, as we reconfigured one of our. The net loss for the fourth quarter was $4.8 million, compared to net income of $6.7 million for the third quarter of 2020.

The driver for the decline is primarily the reduced sales volumes along with higher operating expenses.

Our 2023 net income was $4 6 million.

Compared to a net loss of $2 7 million in 2022.

The increase in net income year over year was attributable to an increase in total volume sold and higher average sales prices of our seed.

This was partially offset by higher operating costs, primarily due to increased wages and benefits from additional management and administrative headcount to support the El Cubo plant.

In 2023, we also had higher Ips and smart systems activity.

Additionally, 2000 trying to your operating expenses include the $1 8 million write off previously discussed along with a larger benefit from income taxes that was recorded in the current period.

Lee E. Beckelman: The driver for the decline is primarily reduced sales volumes, along with higher operating costs. For 2023, Net Income is $4.6 billion, compared to a net loss of $0.7 million in 2009. The increase in net income year over year was attributable to an increase in total volume sold, and higher average sales prices, which was partially offset by higher operating costs, primarily due to increased wages and benefits from additional management and administrative headcount to support the opening. In 2023, we also had higher IPS and Smart Sand. Additionally, 2023 operating expenses included the $1.8 million write-off previously discussed, along with a larger benefit from income taxes that was recorded in the current period. For the fourth quarter of 2023, contribution margin was $9.2 million and adjusted EBITDA was $1 million, compared to a third-quarter contribution margin of $21 million and adjusted even to a 13-point free fall. Third quarter 2023 results included higher shortfall revenues of approximately $2.4 million, as well as higher sales.

For the fourth quarter 2023 contribution margin was $9 2 million and adjusted EBITDA was $1 million.

Compared to third quarter contribution margin of $21 million and adjusted EBITDA of $33 million.

Third quarter 2023 results included higher shortfall revenues of approximately $2 4 million as well as higher sales volumes.

For the full year 2023 contribution margin was $67 million and adjusted EBITDA was $34 1 million.

<unk> to the full year 2022 contribution margin of $54 6 million and adjusted EBITDA of $29 3 million.

The increase in contribution margin and adjusted EBITDA over the prior year was primarily due to higher sales volumes.

And a higher average sales price, partially offset by higher cost of sales and operating expenses.

For the fourth quarter 2023, we had negative free cash flow of $9 6 million due to the use of $2 7 million in operating cash and $6 9 million of capital expenditures.

The decline in sales volumes and working capital pressure led to the use of cash in operations in the quarter.

We currently expect to have higher working capital requirements early in 2020.

Lee E. Beckelman: For the full year 2023, contribution margin was $67 million, and Adjusted Eva Dye was $34.1 million, compared to the full year 2022 contribution margin of $54.6 million and adjusted even to $29.3 million. The increase in contribution margin in adjusted EBITDA over the prior year was primarily due to higher sales volume and a Higher Average Sales Project. Partially offset by higher costs of sales and operations. For the fourth quarter of 2023, we had a negative free cash flow of $9.6 billion.

Due to the increased sales volumes, which could lead to negative free cash flow in the first quarter.

However, we expect cash from operating activities to improve over the course of the year and we currently expect to generate positive free cash flow for 2024.

For the full year 2023.

We generated $31 million and net cash provided by operating activities, which ultimately supported our capex spend for the year of 'twenty treatment.

Resulting in positive free cash flow of $8 million for the year.

We expect 2020 for free cash flow to be equal or higher in 2023 results.

We ended 2023 of approximately $6 1 million in cash and cash equivalents and $8 million drawn on our 20 million.

Lee E. Beckelman: Due to the use of 2.7 million in operating, and 6.9 million in capital. The decline in sales volumes and working capital pressure led to the use of cash in operations. We currently expect to have higher working capital requirements early in 2014 due to increased sales volumes, which could lead to negative free cash flow in the first quarter. However, we expect cash-from-operating activities to improve over the course of the year, and we currently expect to generate positive free cash flow for 20 for the four-year period 2023. We generated $31 million in net cash provided by the Operating Act, which ultimately supported our CapEx span for the year of 23 months, resulting in positive free cash flow of $8 million for the year. We expect 2024 free cash flow to be equal to or higher than 2025. We ended 2023 with approximately $6.1 million in cash and cash equivalents and $8 million drawn on our $20 million ABL facility.

Al facility.

In 2023, we purchased 518 million shares of common stock representing approximately 12% of our shares outstanding.

We continue to be focused on how we can return value to our shareholders in 2024 and go on.

We currently expect sales volumes to be in the one to 5 million to $1 $4 million range in the first quarter 2024.

Chuck highlighted market activity has been strong so far in the first quarter.

We are keeping a close eye on natural gas prices and what impact that may have on drilling activities and gas stations.

We currently expect activity to pick up in the Bakken in the second quarter, our new terminals in northeast, Ohio are opening up new opportunities for us in the Utica Basin, which is primarily an oil liquids play and we continue to make inroads into the Canadian market.

Full year 2024, we currently expect sales volumes to be 5% to 10% higher in 2023.

We currently that our contribution margin per ton will be in the mid teens range in the first quarter 2024.

We expect capital expenditures for 2024 to be in the 18 million to $23 million range.

Lee E. Beckelman: In 2023, we purchased 5.18 million shares of common stock, representing approximately 12% of our shares. We continue to be focused on how we can return value to our shareholders in 2024 and move on to the next phase. We currently expect sales volumes to be in the $1.25 million to $1.4 million range in the first quarter of 2021. As Chuck highlighted, market activity has been strong so far this year. We are keeping a close eye on natural gas prices and what impact that may have on drilling activities in gas basins later this year. At the moment, we currently expect activity to pick up in the Balkans in the second half of the year.

This concludes our prepared comments and we will now open the call for questions.

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one of your Touchtone phone.

You'll hear a prompt that Johan has been raised should you wish to come from the polling process. Please press star followed by the Q.

If you're using a speaker phone please lift the handset before pressing the keys.

Your first question comes from Stephen <unk> with Stifel. Please go ahead.

Hi, Thanks, good morning, everybody.

Hey, good morning, David.

Excuse the background noise.

Lee E. Beckelman: Our new terminals in Northeast Ohio are opening up new opportunities for us in Utica. This is primarily an oil-liquid play, and we continue to make inroads into Canada for the four-year 2020, currently expect sales volumes to be 5% to 10% higher in 2023. We currently believe that our contribution margin per ton will be in the mid-teens range in the first quarter of 2020. We expect capital expenditures for 2024 to be in the $18 million to $23 million range.

A couple of quick ones well a couple of questions for me.

First.

Oh boy.

Cool.

In closing commentary.

Okay.

Alright.

In tax, but can you talk about the.

Yes.

Yes.

Got it.

Right.

I know you won't you don't disclose kind of specifics around volumes don't want a specific basin.

Sort of.

Operator: This concludes our prepared comments, and we will now open the call. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number on your touchtone phone. You will hear a prompt that your hand has been raised.

That's the biggest variable between Tommy.

Ranges of outcomes for 44.

Yeah, Steve I think you're asking about natural gas prices in natural gas activity in general in the course of 2024 is that correct.

Stephen David Gengaro: Should you wish to confirm the polling process, please press star followed by the, If you are using a speaker phone, please lift the handset before pressing any. Your first question comes from Stephen Gengaro on Stifel. Please go ahead. Thanks. Good morning, everybody.

Im hearing Oh, yes, I'm asking about that.

What are the big Delta in your guidance or whether that's driven by natural gas.

Yes, I think the delta in our guidance in terms of our volumes for the year is a little bit.

Charles Edwin Young: All right. Thank you. Excuse the background noise because I'm outside, but so a couple of quick ones, the first: you gave a lot of color on 22 work, including commentary on the impact. But can you talk about the impact of gas in general, like how big of an impact you think, critically, I know you won't, you don't disclose kind of specifics around volumes on a specific basis, but sort of, is that the biggest variable between kind of your Yeah, Steve, I think you're asking about natural gas prices and natural gas activity in general during the course of 2024. Is that correct? We had a hard time hearing you.

Do ship a good proportion of our volumes into the Marcellus basin. Historically, we're kind of 50 50 natural gas oil based and so.

In terms of the back half of the year, we are keeping a very close eye on natural gas and so that could impact some of our buying activity second half of the year, we haven't seen it yet.

Again, we have very strong volumes in the first quarter a lot of that's being driven by the activities in our natural gas basins that we supply them, but that will be balanced out there is a pullback in natural gas.

The second and third quarter, typically our strongest quarters into the Bakken, which is more oil driven and with our new terminals in the northeast and going into the Utica basin, that's going to be more oil and liquids driven as well so that may help balance out any potential short term pullback in natural gas and still we believe the long term fund.

Charles Edwin Young: Oh, yes. Yeah. I'm asking about the sort of delta in your guidance and whether that's driven by natural gas. Yeah, I think the delta in our guidance in terms of our volumes for the year is a little bit because, you know, we do ship a good proportion of our volumes into the Marcellus Basin. Historically, we're kind of a 50-50 natural gas and oil base. So, in terms of the back half of the year, we are keeping a very close eye on natural gas, and that could impact some of our volume activities in the second half of the year. We haven't seen it yet,

Minerals and gas are still strong and so while there might be some pullback in the second half of this year, we think overall.

The fundamentals for natural gas drilling and development are strong and we're well positioned to take advantage of that going into 'twenty five and beyond.

Okay.

Okay.

Steven are you still there.

Yeah.

Yes.

Two more for me I had you muted so I wouldn't.

Charles Edwin Young: Again, we have very strong volumes in the first quarter. A lot of that is being driven by the activities in our natural gas basins that we supply, but that will be balanced out.

You will hear the background noise, but two other ones. One is when you think about the spot price market right now and kind of what you have contracted versus kind of opened April 2024 can you give us color on that.

Charles Edwin Young: There is a pullback in natural gas. The second and third quarters are typically our strongest quarters in the Bakken, which is oil-driven. And with our new terminals in the northeast going into the Utica Basin, that's going to be more oil- and liquids-driven as well. So that may help balance out any potential short-term pullback in natural gas. And still, we believe the long-term fundamentals of gas are still strong, and so while there might be some pullback in the second half of this year, we think overall the fundamentals for natural gas drilling and development are strong, and we're well-positioned to take advantage of that going into 2025. Stephen, are you still there?

Yeah, I mean, Steve as John here, we haven't seen a pricing about flat right now we've got a good amount of our volumes are contracted where about half of our volumes are contracted so.

Not overly exposed.

Two.

Pricing coming down or whatever we think are.

The pricing has been pretty stable over the past kind of year or so and so we would anticipate that that will continue.

So hopefully that answers your question.

Yeah, that's great. Thanks, and then the final one for me.

Stephen David Gengaro: Yes, sorry. I said two more for me. I had you muted so you wouldn't hear the background noise, but two other ones.

Kind of a bigger picture question, but we've seen some M&A, obviously recently on that on the in basin side, we all kind of do the math on what that means for four other people's businesses.

John Young: One is, when you think about the spot price market right now and kind of what you have contracted versus kind of open into 2024, can you give us some color on that? Yeah, I mean, Steve. It's John here. We haven't seen a, you know, pricing's about flat right now, you know, we've got a good amount of our volumes contracted. We're about, you know, half of our volumes are contracted. So, you know, we're not overly exposed to the pricing coming down or whatever. We think, you know, the pricing has been pretty stable over the past kind of, you know, year or so. And so we would anticipate that that'll continue. So hopefully, that answers your question.

How do you think about sort of evaluation being paid for northern White sand excuse me for in basin sand and the relative value.

Northern White delivers on.

I'm, just trying to triangulate some data points, but kind of curious about your thoughts on recent M&A and valuations.

Well I mean.

I don't know quite how to answer that question Stephen but the reality is we believe we've built a very good franchise in northern white and that the northern white markets that we serve are very strong as we continue to have pretty strong demand and then overall, we believe the supply and demand in northern White is relatively imbalanced. So any increase in demand is only going to be.

Charles Edwin Young: Yes, great, thanks. And then the final one for me, it's kind of a bigger picture question, but we've seen some M&A obviously recently on the in-basin side, and we all kind of do the math on what that means for other people's businesses. How do you think about the sort of valuation being paid for northern white sand, excuse me, for in-basin sand and the relative value that northern white delivers? I'm just trying to triangulate some data points.

To northern White providers benefit so I think in our view there has been a little bit.

You that northern white.

He is going to continue to diminish in terms of the overall value proposition in terms of profit in the market and we believe that northern white markets will stay primarily northern white and we will continue to have good growth rates in those markets and that we're well positioned to take advantage of that and so yes, I think the market has been made.

Stephen David Gengaro: We're kind of curious about your thoughts on recent M&A and valuations, www.larryweaver.com. Well, I mean, I don't quite know how to answer that question, Stephen, but the reality is we believe we've built a very good franchise in Northern White and that the Northern White markets that we serve are very strong or continue to have pretty strong demand, and that overall, we believe the supply and demand in Northern White is So I think, in our view, there's been a little bit of a view that Northern White is going to continue to diminish in terms of the overall value proposition in terms of profit in the market, and we believe the Northern White markets will stay primarily Northern White and will continue to have good growth rates in those markets, and that we're well-positioned to take advantage of that.

Be undervalued northern white resin relative to regional is are focused primarily on the Permian and the Texas markets and that is the largest percentage of activity in the U S. But there is still very good and consistent activity in the northern white markets that we serve in those markets. They do have some depending.

Depending on which market. It has some potential competition for regional they are primarily going to stay.

Juruti, northern white and with that we think we have the opportunity to grow with that with the capacity available capacity, we have which is available that we don't have to spend a lot of money to be able to increase our volumes and growth in market as those markets grow.

Excellent. Thank you for all the color. Thank you.

Yeah.

Your next question comes from Luke Lemoine with Piper Sandler. Please go ahead.

Hey, good morning.

Chuck you comment on your industrial business, a growing in 'twenty, four and maybe being about 5%.

Stephen David Gengaro: And so yes, I think the market has been maybe undervalued Northern White relative to regional because they're focused primarily on the Permian and the Texas markets, and that is the largest percentage of activity in the U.S., but there is still very good and consistent activity in the Northern White markets that we serve, and those markets, while they do have some, depending on which market it is, some potential competition for regional, they're primarily going to stay majority Northern White, and with that, we think we have the opportunity to grow with that, with the available capacity we have, which is available that we don't have to spend a lot of money to be able to increase our volumes and grow with the market itself. Excellent. Thank you for all the color.

Restaurant 20, Ford, but I'm wondering if you can just kind of give us a longer look in industrial and how do you see this playing out. The next few years and then also what kind of or what.

What's your best uptake as far as industrial end markets I mean, a lot of different end markets there.

Where are you seeing the demand and what you are selling into.

Yes, so the industrial space is something that we got into <unk>.

We had a byproduct out of the Frac space I mean, smart hands is going to be.

Primarily a.

Frac sand company by volume over time, but the margin opportunities in the industrial space are attractive.

Luke Lemoine: Thank you. Your next question comes from Luke Lemoine with Piper Sandler. Please go ahead. Hey, good morning. Chuck, you kind of are on your industrial business, hey, growing in 24, and maybe being about 5%. You have kind of wrapped here in 24.

So.

We've been we've been investing steadily and that we've got cooling and blending technology in place at our Utica mine, we're continuing to serve some industrial out of our other two mines in Blair and.

Oh Dale.

Charles Edwin Young: But wondering if you just kind of give us a longer look at industrial and how you see this playing out in the next few years. And then also, you know, what kind of or what's your best uptake as far as industrial end markets are concerned? I mean, a lot of different end markets there.

Look it's hard for us to give kind of a view as to where we see industrial going long term with us from a percentage for you from a volume percentage, but we do think it's going to be a valuable piece of our business.

Certainly from a rebate if you from a margin standpoint going through and in general the products are very complementary to what we produced on the Frac side of the house. So hopefully that kind of gives you a little bit of color on how we think about industrial.

Charles Edwin Young: But kind of where are you seeing the demand and what you're doing Yeah, so, the industrial space is something that we got into because we had a byproduct out of the frac space. I mean, Smart Sand is going to be primarily a frac sand company by volume over time, but the margin opportunities in the industrial space are attractive. And so, you know, we've been investing steadily in that. We have cooling and blending technology in place at our Utica mine.

Okay got it and then.

Lee Thanks for all the guidance as usual on the contribution margin.

Yes.

This is a fairly stable should the contribution margin would be pretty stable. The rest of the year or two or is there an upward bias to that or how should we think about that.

Okay.

Well I think the way to think about is traditionally achieved.

Charles Edwin Young: We're continuing to serve some industrial customers out of our other two mines in Blair and Oakdale. Look, it's hard for us to give kind of a view as to where we see industrial going long term with us from a percentage, you know, from a volume percentage, but we do think it's going to be a valuable piece of our business, certainly from a revenue and from a margin standpoint going forward. And in general, the products are very complementary to what we produce on the frac side of the house. So hopefully, that kind of gives you a little bit of color on how we think about industrial. Okay, I got it.

Typically the fourth quarter and the first quarter, our lower contribution margin quarters, because of our accounting adjustment works for inventories, we pull inventory out there in the winter and then we build inventory in the summer so.

If pricing stays relatively flat and we get consistent volume activity in the second and third quarter, our margins should improve a little bit it's probably in the second and third quarter, but then you might see a little pullback in the fourth quarter, but overall for the year I think right now we feel kind of where we guided to in that mid teens range.

Assuming we get the activity, we expect to meet that we've guided to we should be in that overall for the year in that mid teen range, but you will see some fluctuation quarter to quarter.

Lee E. Beckelman: And then, Lee, thanks for all the guidance as usual, but on the contribution margin, if prices are fairly stable, should the contribution margin be pretty stable the rest of the year too, or is there an upward bias to that, or how should we think about that?

Because of that accounting adjustments relative to inventory.

Okay.

And then last question just on the Capex guidance for the year of $18 million to $23 million. Lee can you help unpack that a little more just kind of where the spending spree interacted.

Lee E. Beckelman: Well, I think the way to think about it is traditionally, as you know, Luke, typically, the fourth quarter and the first quarter are our lower contribution margin quarters because of how our accounting adjustment works for inventories. We pull inventory out during the winter, and then we build inventory in the summer. So if pricing stays relatively flat and we get consistent volume activity in the second and third quarter, our margins should improve a little bit, probably in the second and third quarter, but then you might see a little pullback in the fourth quarter. But overall, for the year, I think right now we feel kind of where we got it to in that mid-teens range, assuming we get the activity we expect that we got it to, we should be in that Because of that, you know, we're counting adjustments.

Yeah.

What part is fitting is like we said $1 million or going to specific limited terminals we have.

Some of the spending is really what we call what I call maintenance sustainable capital, where youre investing in the plants for normal kind of efficiency improvements and also investments in the basically to make sure you have the the mining activity you need available to.

To be able to support the volume activity and also we are making investments to improve our mining activities kind of bring down our cost of production.

So most of that money is going into primarily those types of investments there is a little incremental investment in our smart systems. This year as well, but that's a relatively low number but most of the investment is going into support.

The efficiencies and sustainability of our operations, primarily in Oakdale Utica and Blair.

Lee E. Beckelman: Okay, and then last question, just on the CapEx guidance for the year of 18 to 23 million, Lee, can you help impact that a little more, just kind of where the spending's being? Well, part of the spending, like we said, a million dollars is going specifically to the new terminals we have. Some of the spending is really what I call maintenance sustainable capital, where you're investing in the plants just for normal kind of efficiency improvements, and also investments to basically make sure you have the mining activity you need available to be able to support your volume activity, and also we are making investments to improve our mining activity, kind of bring down our cost of production. And so most of that money is going into primarily those types of investments.

Okay perfect.

Perfect. Thanks, a bunch.

Ladies and gentlemen, as a reminder, should you have a question. Please press star One. Your next question comes from James <unk> with <unk>.

Cuyahoga capital. Please go ahead.

Hello.

James Your line is open.

Your next question comes from Stephen <unk> with Stifel. Please go ahead.

Hi, Thanks, Thanks for taking the follow up.

Can you just update us on your total current nameplate capacity and.

Where that goes to when everything is completely operational.

So our current nameplate capacity is 10 million tons.

And basically it goes to the Bakken and the Marcellus.

Utica.

Lee E. Beckelman: There is a little incremental investment in our smart systems this year as well, but that's a relatively low number, but most of the investment is going into support. The efficiency and sustainability of our operations, primarily at Oakdale Utica. Okay, perfect. Thanks a lot.

Canada.

And then some volumes go into the western United States as well into the powder River Basin and DJ Basin.

And so from time to time, Texas markets, but it's not a big part of our business today.

Thanks, and I was kinda evolving I know its been.

Our market opportunity for you guys for growth.

Operator: Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from James Costell with... Cuyahoga Capital. Please go ahead. Hello.

How is that playing out right now and kind of what's the what's the outlook for 'twenty four and five just didnt just kind of from a high level.

Yeah I think.

Operator: James, your line is open. Your next question comes from Stephen Gengaro on Stifo. Please go ahead.

Yeah, we're pretty we're pretty optimistic about Canada, I mean keep in mind.

You know until we picked up Blair Canada was a.

Stephen David Gengaro: Thanks. Thanks for taking the follow-up. Can you just update us on your total current nameplate capacity and where that goes to when everything is completely operational? So our current nameplate capacity is 10 million, and it basically goes to the Bach and the Marcella, www.

We are very small player in Canada.

Serving what they call the Canadian Bakken, a little bit kind of just north of North Dakota, but now with picking up our asset in Blair in being on CN rail.

That business kind of grow in a fashion that is.

Relatively exciting right. So we think Canada has got a long term.

Charles Edwin Young: SmartSandInc.com and some volumes going to the Western United States as well as to the Powder River Basin and D.G. And we do sell from time to time down in Texas markets, but it's not a big part of it. Thanks.

It's going to be a good part of our business in our portfolio. The products that are taken up there are very complimentary to products that the U S. One so just to give you an example.

Canada tends to be a.

Coarser sand market than the U S and so when we make that core sand from Canadian market.

Charles Edwin Young: And how is Canada evolving? I mean, I know it's been a market opportunity for you guys for growth. How is that playing out right now?

The finer mesh products say like 100 mesh and things like that we tend to be able to find a home for those in the U S. So pretty pretty optimistic on the Canadian market the development and how it kind of dovetails off the other assets that we've built.

Charles Edwin Young: And kind of what's the outlook for 24 and five, just kind of at a high level? Yeah, I think, you know, we're pretty optimistic about Canada. I mean, keep in mind, you know, until we picked up Blair, Canada was, you know, we were a very small player in Canada, serving what they call the Canadian Bakken a little bit, kind of, you know, just north of North Dakota.

Built over the years, both at Oakdale and Utica.

Thanks, and just one final one from me is there any pricing.

Difference between the Canadian market and the U S market.

Charles Edwin Young: But now, with picking up our asset in Blair and being on CN Rail, we're seeing that business kind of grow in a fashion that is, you know, relatively exciting, right? So, you know, we think Canada is, for the long term, going to be a good part of our business and our portfolio. The products that are taken up there are very complementary to products that the US wants. So, you know, just to give you an example, Canada tends to be a coarser sand market than the US.

The Canadian market.

Depending on the.

At the time of the year matters in the Canadian market right. It is.

It's a market that has what they call breakup up there, which is a period of lower activity as the frost is coming out of the ground. So you'll see a bit more variability on pricing at certain times of the market but.

The pricing is not that much different than the U S.

Okay, great. Thanks, again for all your color.

Charles Edwin Young: And so, when we make that coarse sand for the Canadian market, the finer mesh products, say, like 100 mesh and things like that, we tend to be able to find a home for those in the US. So, pretty optimistic about the Canadian market, the development, and how it, you know, kind of dovetails off the other assets that we've built over the years, both at Oakdale and Utica. Thanks. And just one final one for me. Is there any price difference between the Canadian market and the U.S. market?

Youre welcome.

Your next question comes from Blake Mclean with Daniel Energy Partners. Please go ahead.

Hey, good morning, guys.

Hey, Brian.

I appreciate you guys sneaking me in here most of my questions have been answered, but I thought maybe you could provide just a bit more color on the last mile business I know, there's some capital going there, but are you guys planning to build additional units there.

This year and kind of what does the utilization look like in that business.

Charles Edwin Young: The Canadian market, depending, you know, the time of the year matters in the Canadian market, right? It is a it's a market that has what they call breakup up there, which is a period of lower activity as the frost is coming out of the ground. So you see a bit more variability in pricing at certain times in the market, but you know, the pricing is not that much different than the, Okay, great.

Yeah, So our last mile business, we've seen.

A good increase in activity going into the first quarter.

We're probably utilization.

On our silo only fleets in Oklahoma Theres four fleets there that have been pretty consistent so that's 100% utilization on that we have nine smart systems, which includes our smart path of which we kind of believe on average this year, there will be averaging utilization of 5% to six of those going in the course of the year and that's up from two to three from last year. So.

Stephen David Gengaro: Thanks again for your call. Your next question comes from Blake McLean with Daniel Energy. Go ahead. Hey, good morning, guys. Hey, Bartlett.

Just on a current activity in our plan our utilization of our existing fleet on.

Blake McLean: Appreciate you guys sneaking me in here. Most of my questions have been answered, but I thought maybe you could provide just a bit more color on the Last Mile business. I know there's some capital going there, but are you guys planning to build additional units there this year and kind of what does utilization look like in that business? Yes, so our last mile business, we've seen a good increase in activity going into the first quarter. We're probably at 100% utilization on our silo-only fleets in Oklahoma. There are four fleets there that have been pretty consistent, so that's 100% utilization on that.

On the smart system side could be you know is looking is to increase and potentially double in activity and our investment is really more around we might add one fleet, it's morally around adding some conveyors and maybe potentially adding one potential smart path, but we're not really looking to add a lot of incremental capacity.

Our real focus is really two areas. There is to increase the utilization of the assets. We have and then secondly, a get a better return on those assets by reducing our operating expenses. Yeah. I would also add that one of the kind of R. R.

Primary objective on our last mile systems too is the drag along sales.

Charles Edwin Young: We have nine smart systems, which includes our SmartPath, of which we kind of believe, on average, this year that we'll be averaging utilization of five to six of those over the course of the year, and that's up from two to three from last year. So based on our current activity and our plan, our utilization of our existing fleet on the smart system side is looking to increase and potentially double. Our investment is really more around, we might add one fleet; it's more around adding some conveyors and maybe potentially adding one potential smart path, but we're not really looking to add a lot of incremental capacity. Our real focus is really two areas there. www.smartsandinc.com Yeah, I would also add that one of the, you know, kind of our, The primary objective of our last mile systems, too, is to drag along sand sales with the deployments of these systems, right?

Sand sales with.

With the deployments of these systems right and so one of the things that we're seeing out in the market and the customers that are using this as they appreciate the throughput that those systems are able to offer that we are fully capable of using bottom dump trailers, which allows greater throughput on the trucking side fewer trucks on the road and things like that so we're trying.

To leverage.

Sand sales as part of the last mile and we're seeing a pretty good take up on that and that's yeah, that's exciting from a business perspective.

Alright, good. Thank you that's that's all I had.

Thanks. Thank you thanks, Mike.

Okay.

There are no further questions at this time. Please proceed.

Thank you for joining us on our earnings call. We look forward to talking to you again in May.

Okay.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and I. Thank you. Please disconnect your lines.

Charles Edwin Young: And so one of the things that we're seeing out in the market and among customers that are using this is that they appreciate the throughput that those systems are able to offer, that we are fully capable of using bottom dump trailers, which allows greater throughput on the trucking side, fewer trucks on the road, and things like that. So we're trying to leverage sand sales as part of the last mile, and we're seeing a pretty good take-up on that, and that's exciting from the business side.

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Okay.

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Blake McLean: All right, good. Thank you. That's all I had.

Operator: Thank you. There are no further questions at this time. Thank you for joining us on our earnings call. We look forward to talking to you again in May. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line. Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music

Okay.

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