Q1 2024 Smart Sand Inc Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to the Smart Sand Q1 2024 earnings call. At this time, all lines are in listen-only mode.

Good morning, ladies and gentlemen, and welcome to the Smart cell Q1, 'twenty 'twenty four earnings call.

Speaker Change: 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, May 14, 2024. I would now like to turn the conference over to Christopher Green, Vice President of Accounting. Please go ahead.

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

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

Speaker Change: This call is being recorded on Tuesday may 14th 2024.

Speaker Change: I would now like to turn the conference over to Christopher Green Vice President of accounting.

Christopher Green: Please go ahead.

Speaker Change: Good morning, and thank you for joining us for Smart Sand's first quarter 2024 earnings call on the call today, we have Chuck Young founder and Chief Executive Officer leave back women, 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.

Christopher Green: Good morning, and thank you for joining us for Smart Sand's first quarter 2024 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.

Christopher Green: 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. For a complete discussion of such risks and uncertainties, please refer to the company's press release and our documents on file with the SBA. 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.

Charles Edwin Young: Include forward looking statements, which are subject to certain risks and uncertainties that could cause actual results or events to materially differ from those anticipated.

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.

Speaker Change: 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.

Christopher Green: This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 14, 2024. Additionally, we will refer to the non-GAAP financial measures of contribution margin, adjusted EBITDA, and free cash flow during this call. 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 free cash flow. I would now like to turn the call over to our CEO, Chuck Jones.

Speaker Change: This conference call contains time sensitive information that is out.

Speaker Change: Only as of the live broadcast today May 14 2024.

Speaker Change: Additionally, we will refer to the non-GAAP financial measures the contribution margin adjusted EBITDA and free cash flow. During this call. These measures when used in combination with our GAAP results provide us and our investors with useful information to better understand our business.

Speaker Change: Please refer to our most recent press release or a public filings for our reconciliations of gross profit contribution margin.

Speaker Change: Come to adjusted EBITDA and cash flow provided by operating activities to free cash flow.

Speaker Change: I would now like to turn the call over to our CEO checkout.

Charles Edwin Young: Thanks Chris, and good morning. As we guided on our last earnings call in March, we had strong sales volumes in the first quarter. Sales volumes increased by approximately 31% to 1.3 million tons, a quarterly record for Smart Sand. With the increased sales volumes, contribution margin improved to $18.5 million, and adjusted EBITDA increased to $9.3 million, both substantial improvements over fourth quarter 2023 results.

Thanks, Chris and good morning.

Speaker Change: We got it on our last earnings call in March we had strong sales volumes in the first quarter.

Chris: Sales volumes increased by approximately 31% to $1 3 million a quarter.

Chris: Italy record for smart sand with.

Chris: With the increased sales volumes contribution margin improved to $18 5 million.

Chris: EBITDA increased to $9 $3 million, both substantial improvements over fourth quarter 2023 results.

Charles Edwin Young: The improved results in the first quarter demonstrate the long-term value of our strategic plan. Our long-term vision for Smart Sand has four main components. First, we are focused on expanding our Northern White Sand franchise. We believe Northern White Sand is the premier sand for both energy and industrial applications. Research clearly demonstrates that using Northern White Sand instead of lower quality regional sand results in greater economic value to oil and gas producers.

Chris: Improved results in the first quarter demonstrates the long term value of our strategic plan.

Charles Edwin Young: Additionally, the unique properties of our sand make it ideal for many industrial sand applications. Second, we continue to look for opportunities to open new markets for our products and services. We have made investments in two new terminals in Northeast Ohio to expand our market presence in the Utica Shale Basin. Oil drilling activity is increasing in this basin. These two new terminals provide us with great access to compete in this growing market for northern white sand.

Chris: Our long term vision for smart sand has four main components first we are focused on expanding our northern white sand franchise, we believe northern white sand as the premier sand for both energy and industrial applications. The research clearly demonstrates that using northern white sand instead of lower quality regional standards results and greater economic value.

Chris: The oil and gas producers. Additionally, the unique properties of our sand makes it ideal for many industrial sand applications.

Speaker Change: Second we continue to look for opportunities to open new markets for our products and services. We have made investments in two new terminals northeast, Ohio to expand our market presence in the Utica shale basin well.

Speaker Change: Oil drilling activity is increasing in this space and these two new terminals provide us with great access to compete in this growing market for northern White sand.

Charles Edwin Young: With our Blair facility being on the Canadian National Rail Line, we now have access to the growing demand for northern white sand in the Montenay, Duvernay, and Horn River shales of northwest Alberta and eastern British Columbia. Combined with our access to the Cardium Basin from our Oakdale facility on the Canadian Pacific, we have unmatched access to Canada and expect it to be a growing market for our products going forward. Our smart systems, well site storage, and delivery solutions continue to deliver sand into the blender of pressure pumping equipment efficiently and at high rates.

Speaker Change: With our Blair facility being on the Canadian National Rail line, we now have access to the growing demand for northern white sand and the Montney Duvernay and Horn River shale of northwest, Alberta, and Eastern British Columbia.

unknown: And with their access to the Cardium basin from our Oakdale facility on the Canadian Pacific, We have unmatched access to Canada and expect it to be a growing market for our products going forward.

Speaker Change: Our smart systems, well site storage and delivery solutions continued to deliver sand into the blender of pressure pumping equipment efficiently and at high rates, we made investments last year in our Utica, Illinois facility to a cooling and blending capabilities to allow us to market, our industrial product solutions to a broader base of customers.

Charles Edwin Young: We made investments last year in our Utica, Illinois facility to add cooling and blending capabilities to allow us to market our industrial product solutions to a broader base of customers. We have 10 million tons of capacity of high-quality northern white sand available today to serve the market, and we will continue to look for new ways to take advantage of our unique position to expand our market presence. Third, we remain focused on organizational improvements to increase the efficiency and sustainability of our mining, processing, and logistics operations. We are continually evaluating our operating and financial processes to enhance our business. This year we are making changes to our wet and dry plant processing to improve yields and reduce overall costs.

Speaker Change: We have 10 million tons of capacity of high quality, northern white sand available today to serve the market and we will continue to look for new ways to take advantage of our unique position to expand our market presence.

Speaker Change: Third we remain focused on organizational improvements to increase the efficiency and sustainability of our mining processing and logistics operations.

Speaker Change: We are continually evaluating our operating and financial processes to enhance our business. This year, we were making changes to our wet and dry plants processing to improve the yields and reduce overall costs.

Charles Edwin Young: We are working on a more coordinated approach between our three main operating plants to match our consolidated production with our overall sales needs to reduce inefficiencies and waste in our operation. We're investing in an ERP system that will allow us to automate more of our data entry and financial reporting and provide information to management on a more timely basis to make operating decisions. Fourth, we continue to focus on our cost structure to help manage our business throughout the operating cycle. In the first quarter, we were able to reduce staffing at both the administrative and operational levels as a result of operating efficiency gains and strategic restructuring.

Speaker Change: We were working on a more coordinated approach between our three main operating plants to match, our consolidated production with our overall sales needs to reduce inefficiencies and waste in our operation.

Speaker Change: We're investing in an ERP system that will allow us to automate more of our data entry and financial reporting and provide information to management and more time on a more timely basis to make operating decisions.

Speaker Change: We continue to focus on our cost structure to help manage our business throughout the operating cycles in the first quarter, we were able to reduce staffing at both the administrative and operational levels as a result of operating efficiency gain and strategic restructuring.

Charles Edwin Young: We continue to expand the use of hydraulic mining at our Oakdale facility to reduce mining costs. We're committed to being the premier provider of Northern White Sand in North America, and we're confident that the foundation for Northern White Sand demand is strong and will be durable over time. However, we recognize that the oil and gas demand for FracSan can and will continue to fluctuate based on current and expected prices for oil and natural gas.

Speaker Change: We continue to expand the use of hydraulic mining at our oakdale facility to reduce mining costs.

Speaker Change: We're committed to being the premier provider of northern White sand in North America, and we're confident that the foundation for northern White sand demand is strong and will be durable over time.

Speaker Change: However, we recognized in the oil and gas demand for Frac sand and then we will continue to fluctuate based on current and expected prices for oil and natural gas.

Charles Edwin Young: We recognize that the current lower natural gas prices may impact sales volume in the short term in the Marcellus market. However, we had strong demand in the Marcellus in the first quarter, and while we have seen some drop off in demand in this basin, it has not been significant to date.

Speaker Change: We recognize the current lower natural gas prices may impact sales volume in the short term in the Marcellus market. However, we had strong demand in the Marcellus in the first quarter and while we have seen some drop off in demand in this space and it has not been significant to date, we will continue to keep a close eye on this market for the remainder of 2024.

Charles Edwin Young: We will continue to keep a close eye on this market for the remainder of 2024, but we believe the long-term demand fundamentals for natural gas supply in the United States and Canada are strong. We expect this market to be a growing part of our business as we look out to 2025 and beyond. While pricing for natural gas is currently low, oil prices have remained at healthy levels.

We: But we believe the long term demand fundamentals for natural gas supply in the United States and Canada is strong we expect this market to be a growing part of our business as we look out to 2025 and beyond.

We: While pricing for natural gas is currently low oil prices have remained at healthy levels. We serve the Bakken market in North Dakota, which is an oil basin and demand remains consistent in this market.

Charles Edwin Young: We serve the Bakken Market in North Dakota, which is an oil basin, and demand remains consistent in this market. One of the reasons we invested in terminals in Ohio is that this new activity in the Utica Basin is focused on oil opportunities. Having these new terminals allows us to balance out our sales activity between oil and gas applications. Gaining access to new markets has two additional benefits for Smart Sand. First, it provides an opportunity to market to existing customers in a new basin.

Speaker Change: One of the reasons, we invested in terminals in Ohio is this new activity in the Utica Basin is focused on oil opportunities, adding these new terminals allows us to balance out our sales activity between oil and gas applications.

Charles Edwin Young: Many of our customers operate in multiple basins, and having logistics capabilities in the new basin allows us to expand our relationships and sales opportunities with existing long-term customers. Second, it opens up marketing opportunities to new customers now that we can provide efficient and cost-effective logistics options in the market where they operate.

Speaker Change: Gaining access to new markets to additional benefits for smarts at first it provides the opportunity to market to existing customers and a new basin.

Speaker Change: Many of our customers operate in multiple basins and having logistics capabilities in the new base and allows us to expand our relationships and sales opportunities with existing long term customers.

Speaker Change: Second it opens up marketing opportunities to new customers now that we can provide efficient and cost effective logistics options and it's in a market where they operate.

Charles Edwin Young: We're committed to starting returning value back to our shareholders in 2024. We are still formalizing the right approach for Smart Sand and plan to communicate our plans to start returning value to our shareholders later this year. That being said, we remain committed to a strong balance sheet, low leverage levels, and adequate liquidity levels to support our operating needs through any cycle. Our primary objective is to deliver positive free cash flow consistently. In this first quarter, we had negative free cash flow. That was primarily due to the increased working capital investments required to support the ramp-up in sales.

Speaker Change: We are committed to start returning value back for our shareholders in 2024.

Speaker Change: We are still formalizing the right approach for smart sand and plan to communicate our plans to start returning value to our shareholders. Later this year that being said, we remain committed to a strong balance sheet low leverage level and adequate liquidity levels to support our operating needs through any cycle.

Speaker Change: Our primary objective is to deliver positive free cash flow consistently and this first quarter, we had negative free cash flow that was primarily due to the increased working capital investments required to support the ramp up in sales, we expect our working capital needs to moderate over the remainder of 2024.

Lee E. Beckelman: We expect our working capital needs to moderate over the remainder of 2024, but we still expect to be free cash flow positive for the year. To be able to start returning value to shareholders, we have to be free cash flow positive, so delivering positive free cash flow consistently is a key objective for the company going forward. We believe Northern White Sand will continue to be a key product for both the energy and industrial sand market.

Speaker Change: We still expect to be free cash flow positive for the year.

Speaker Change: To be able to start returning value to shareholders, we have to be free cash flow positive. So delivering positive free cash flow consistently is a key objective for the company going forward.

Speaker Change: We believe northern White sand will continue to be a key product for both the energy and industrial sand markets. The first quarter was a strong start for the year for smart sand.

Lee E. Beckelman: The first quarter was a strong start for the year for Smart Sand. While there are some short-term headwinds in natural gas basins due to the current low natural gas prices, the long-term fundamentals for Northern White Sand in general, and Smart Sand in particular, continue to be strong. We believe no other company is better positioned to take advantage of the market for Northern White Sand than Smart Sand. We couldn't have delivered these results without the hard work and dedication of our employees.

Smart Sand: There are some short term headwinds in natural gas basins due to current low natural gas prices. The long term fundamentals for northern white sand in general and smart sand in particular continue to be strong. We believe no. Other company is better positioned to take advantage of the market for northern white sand and smart sand we.

Speaker Change: We couldn't have delivered these results without the hard work and dedication of our employees I want to thank all our employees for their continued support and dedication to smart sand.

Lee E. Beckelman: I want to thank all 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.

Lee E. Beckelman: As always we will keep our employee and shareholders' interest in mind in everything we do and with that I'll turn the call over to our CFO Lee <unk>.

Lee E. Beckelman: Thanks Chuck. Now, I'll go through some of the highlights of our first quarter 2024 results compared to our fourth quarter 2023 results. We sold 1.3 million tons in the first quarter, a 31% increase over fourth-quarter sales volumes of one million tons. Total revenues for the first quarter were $83.1 million, compared to $61.9 million in the fourth quarter. Total revenues were higher in the first quarter due primarily to higher sand sales volumes and improved smart system revenues from increased utilization of our fleet.

Lee E. Beckelman: Thanks, Chuck now I'll go through some of the highlights of the first quarter 2024 results compared to our fourth quarter 2023 results.

Speaker Change: We sold one 3 million tons in the first quarter, a 31% increase over fourth quarter sales volumes of 1 million tonnes.

Speaker Change: Total revenues for the first quarter were $83 1 million compared to $61 9 million in the fourth quarter.

Chuck: Other revenues were higher in the first quarter due primarily to higher sales volumes and improved smart system revenues from increased utilization of our fleet.

Lee E. Beckelman: In the first quarter, we averaged four silo-only fleets and five complete smart system fleets operating. Our cost of sales for the quarter was $71.2 million compared to $59.1 million in the fourth quarter. The increase is primarily due to higher cell volumes in the current quarter. Total operating expenses were $11 million in the first quarter, compared to $10.7 million in the fourth quarter. The increase sequentially was primarily due to higher incentive compensation and higher royalties from the increased sales.

Speaker Change: First quarter, we averaged four silo only fleet and five complete smart system fleets operate.

Speaker Change: Our cost of sales for the quarter were $71 2 million compared to fourth quarter, a $59 1 million increase.

Speaker Change: The increase was primarily due to the higher sales volumes in the current quarter.

Speaker Change: Total operating expenses of 11 million in the first quarter compared to $10 7 million in the fourth quarter.

Speaker Change: The increase sequentially was primarily due to higher incentive compensation and higher royalties from increased sales volumes.

Speaker Change: Contribution margin was $18 5 million or.

Lee E. Beckelman: Contribution margin was $18.5 million, or $13.85 per ton, in the first quarter. Fourth quarter contribution margin was $9.2 million, or $9.07 per ton. Adjusted EBITDA in the first quarter was $9.3 million, compared to $0.7 million in the fourth quarter. The sequential increase in contribution margin in adjusted EBITDA was primarily due to increased sales volume and higher utilization of our smart systems. For the first quarter of 2024, we used $3.9 million in cash in operating activities, leading to a negative $5.5 million in free cash flow. Hatch always spent $1.6 million on capital expenditures.

Speaker Change: $13 85 per ton in the first quarter fourth quarter contribution margin was $9 2 million or $9 seven per ton.

Speaker Change: Adjusted EBITDA in the first quarter was $9 3 million.

Speaker Change: Care to <unk> seven.

Speaker Change: $7 million in the fourth quarter.

Speaker Change: The sequential increase in contribution margin and adjusted EBITDA was primarily due to increased sales volume and higher utilization of our smart system sleep.

Speaker Change: For the first quarter 2024.

Speaker Change: Use $3 $9 million in cash in operating activities, leading to negative $5 5 million in free cash flow. After we spent $1 6 million on capital expenditures.

Lee E. Beckelman: The negative cash provided by operating activities was primarily due to increased working capital investment to support growth and sales. We expect our working capital investment to moderate beginning in the second quarter, which should lead to improved operating cash flow beginning in the second quarter. We ended the first quarter with $14 million in borrowings on our credit facility. Today, our current outstandings in the credit facility are $9 million.

Speaker Change: The negative cash provided by operating activities was primarily due to increased working capital investment to support the growth themselves.

Speaker Change: We expect our working capital investment to moderate beginning in the second quarter, which should lead to improve operating cash flow beginning in the second quarter.

Speaker Change: We ended the first quarter with 14 million and borrowings on our credit facility today, our current outstandings on our credit facility, our $9 million, we had approximately $4 6 million cash and cash equivalents at the end of the first quarter we.

Lee E. Beckelman: We had approximately $4.6 million in cash and cash equivalents at the end of the first quarter. We paid down $5 million on our credit facility since the quarter end, and between cash and availability from our credit facility, we currently have available liquidity of approximately $15 million. As Chuck highlighted, sales volumes were strong in the first quarter as customers rebounded from lower activity in the fourth quarter last year due to budget exhaustion and seasonal weather issues and hit the ground running in the first quarter of 2024 as they ramped up their budgeted activities for the year.

Speaker Change: We paid down $5 million on our credit facility since the quarter end and between cash and availability from our credit facility.

Speaker Change: Currently have available liquidity of approximately $15 million.

Speaker Change: As Chuck highlighted sales volumes were strong in the first quarter.

Speaker Change: Rumours rebounded from lower activity in the fourth quarter last year due to budget exhaustion and seasonal weather issues and hit the ground running in the first quarter of 2024 as they ramped up their budgeted activities for the year.

Lee E. Beckelman: We do expect demand to moderate in the second quarter as we are seeing some pullback in activity in the Marcellus due to lower natural gas prices. This, however, will be mitigated partially by increased activity in the Bakken and Canada.

Speaker Change: We do expect demand to moderate in the second quarter as we are seeing some pullback in activity in the Marcellus.

Speaker Change: Natural gas prices.

Speaker Change: This however will be mitigated partially by increased activity in the Bakken and Canada.

Operator: Currently, we expect second quarter sand sales volumes to be in the $1 million to $1.2 million trend bracket. Contribution margin per ton improved to $13.85 per ton in the first quarter. We expect the second quarter contribution margin per ton to be in the $13 to $16 per ton bracket. We've made adjustments to our capital expenditures for the year and currently expect to be in the $15 million to $20 million range for 2024.

Speaker Change: Currently we expect second quarters same sales volumes to be in the $1 million to $1 2 million ton range.

Speaker Change: Contribution margin per ton improved to $13 85 per ton in the first quarter.

Speaker Change: We expect the second quarter contribution margin per ton to being a $13 to $16 per ton range.

Speaker Change: We've made adjustments to our capital expenditures for the year and currently expect to be in the 15 million to $20 million range for 2024.

Operator: While we had negative free cash flow in the first quarter due to the increased working capital investment to support the increased sales activity, we still expect to be free cash flow positive for the year. This concludes our prepared comments, and we will now open the call for questions.

Speaker Change: While we had negative free cash flow in the first quarter due to the increased working capital investment to support the increased sales activity, we still expect to be free cash flow positive for the year.

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

Lee: Good morning Lee.

Lee: Yes.

Operator: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys.

Speaker Change: Thank you, ladies and gentlemen, well now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone.

Speaker Change: Our prompt that your hand has been raised should you wish to decline from the polling process. Please press the star followed by the Q. If you are using a speaker phone. Please lift the handset before pressing any keys one moment. Please for your first question.

Operator: One moment, please, for your first question. Your first question comes from Josh Jane with Daniel Energy Partners. Your line is now open.

Speaker Change: Your first question comes from Josh Jayne with Daniel Energy Partners. Your line is now open.

Josh Jayne: Thanks, Good morning.

Josh: Hey, Josh.

Josh: First question Chuck in his prepared remarks talked about some capital improvements that you were doing to improve yield on.

Josh Jane: The first question: Chuck, in his prepared remarks, talked about some capital improvements that you were doing to improve yield on your plants. Could you talk about those capital investments and, ultimately, the return that you expect to see on them?

Josh Jayne: Your plants could you talk about those capital investments and ultimately the return that you would expect to see on those.

John Young: Yes, so Josh it's John here I'll take I'll take the first part of that and then Lee can talk about.

John Young: Yeah, so Josh, it's John here. I'll take the first part of that, and then Lee can talk about the dollars and cents of it. So yeah, over the past few years, we've made significant investments in hydraulic mining. These are investments that significantly reduce the amount of yellow iron required in our process. What it effectively does is tie our mining operation to our processing plants without hauling. Part of that is that you gain a tremendous amount of efficiency in that you're not burning diesel fuel, you're not using up yellow iron equipment, haul trucks, excavators, and things like that.

John Young: The dollars and cents of it so yeah over the over the past few years, we've made significant investments into hydraulic mining.

Lee: These are investments that reduce significantly the amount of yellow iron required in our process. What it effectively does this tie our mining operation to our processing plant without hauling and.

Speaker Change: Part of that as.

Speaker Change: You gain a tremendous amount of efficiency in that that you're not burning diesel fuel youre not using up yellow iron equipment, a haul trucks excavators and things like that and then once you get into the plant and some of the things. We've done is we've changed the way that we wash our sand to make sure that where we can we're cutting out the products or the.

John Young: And then once you get into the plant, some of the things we've done is changed the way that we wash our sand to make sure that where we can, we are cutting out products or the size of grains of sand that are not really in demand anymore. So if you think about it, it used to be that fracked sand was considered to be 1630, 2040 coarse grains of sand. What we do is we tend to wash those out in the wet plant process, which is a lot more efficient than putting the energy in, drying that sand, and then screening those grains out.

Speaker Change: Okay.

Speaker Change: <unk> of grains of sand that are not really in demand anymore. So if you think about it.

Speaker Change: It used to be that Frac sand was considered to be <unk>.

Speaker Change: <unk> 2040, coarse grains of sand and what we do is we tend to wash those out in the wet plant process, which is a lot more efficient than putting the energy and drive that sand and then screening those grades out so.

John Young: So making changes, incremental changes to our wash plants and the way we wash the sand out there has allowed us to remove that sand before it gets into the more expensive process of drying. So that's what Chuck's referring to, both sides, the mining and the wet.

Speaker Change: Making changes incremental changes to our wash plants and the way we watched the standout there has allowed us to remove that sand before it gets into the more extensive process of dry.

Speaker Change: That's what Chuck referring to both sides of the mining and the wet processing.

Lee E. Beckelman: And then another one, go ahead Lee, sorry. A lot of it is driven by volumes and scale. We think these changes in the hydro mining help us reduce yellow iron. The wet plant changes help improve our yield, and we think this could lead to..., you know, maybe a dollar to two dollars per ton or more improved cost savings. Okay.

Speaker Change: And then another one Oh go ahead, sorry, Josh I think.

Chuck: You know a lot of it's driven by volumes and scale, but to the extent. We think these changes in the hydro mining helped us reduce yellow iron and in the management of our cost of that piece and then the wet plant changes helps improve our yield and we think this could lead to.

Speaker Change: You know, maybe a dollar to $2 per ton or more improved cost savings.

Speaker Change: Okay.

Lee E. Beckelman: And then one other one, just when you think about the business, another thing that was alluded to in the prepared remarks was continuing to expand the business. And as a northern white player, you guys have been pretty acquisitive since 2020, adding both sand plants and terminals to your portfolio. Could you just talk about how you're thinking about the asset base today? Are there still opportunities to grow your asset base? Or are the next few years sort about, you know, more executing on the asset base that you have? Just maybe you could talk through that a bit.

Speaker Change: And then one other one just when you think about the business and the other thing that was alluded to in the prepared remarks was continuing to expand the business.

Speaker Change: As a northern White player you guys have been pretty acquisitive since 2020.

Adding both sand plants and terminals to your portfolio could you just talk about how youre thinking about the asset base today are there still opportunities to grow your asset base.

Speaker Change: Or are the next few years sort about more executing on the asset base that you have just maybe you could talk through that a bit.

Lee E. Beckelman: Yes, Josh, currently, we have 10 million tons of northern white capacity on a very diversified rail portfolio. So really around that, we think we'll just build or get terminal access to enhance the ability of that sand to move into base. I'll let John run through our asset base that we have currently, and what we have in place, and what we're looking for.

Speaker Change: Yeah. So Josh currently we have 10 million tons of northern white capacity on a very diversified rail portfolio.

Speaker Change: So really around that way it will just build.

Speaker Change: Or get in terminal access to enhance the ability of that sand to move into basins I'll, let John run through.

Speaker Change: Asset base that we have currently.

John: What we have in place and what we're looking for yeah. So in addition to what Chuck said.

John Young: Yeah, Josh. So, you know, in addition to what Chuck says, I mean, we've spent our tenure here at Smart Sand building that diversified rail portfolio. We currently originate on four Class 1 railroads. We believe we have best-in-class logistics.

John: We spent.

Speaker Change: Our our tenure here at Spartan building that diversified rail portfolio, we originate.

Speaker Change: Currently on <unk>.

Chuck: Four class one railroads.

Chuck: We believe we are best in class logistics.

John Young: You know, our current markets where we're very strong are the Marcellus, the Utica, the Bakken, and Canada would be the primary markets we're targeting. And our assets include mines in Illinois and Wisconsin, three operating mines there, Oakdale, Blair, and Utica, Illinois, as opposed to Utica, the basin in Ohio. The railroads serving us are the CPKC, the Canadian National, the Burlington Northern, BNSF, and the Union Pacific, UP. And we have owned terminal assets in the Marcellus. We have two in the Utica Basin.

Speaker Change: Current markets, where we're very strong in the Marcellus the Utica Bakken and.

CPE Casey: Canada would be the primary markets, we're targeting and our assets include mines in Illinois, and Wisconsin, three operating mines, there Oakdale Blair and Utica, Illinois as opposed to Utica Basin in Ohio. The railroad serving us are the CPE Casey the Canadian National.

Speaker Change: <unk>, the Burlington, Northern B, NSF and the unite Union Pacific.

Speaker Change: And we have owned terminal assets in the Marcellus we have two in the Utica Basin, we have an asset in the Bakken are gigantic trans load there and then in Canada. We're in the process of duplicating.

John Young: We have an asset in the Bakken, a gigantic transload facility there. And then in Canada, we're in the process of duplicating an asset that looks similar to those assets that we've made in the lower 48. So, we're pretty excited about our ability to not only deliver the sand that we're delivering today but also, as Chuck mentioned, get more of that 10 million tons of capacity out into the market and down the hole for our customers.

Speaker Change: An asset that looks similar to those assets that we've made in the lower 48. So we are we're pretty excited about our ability to.

Speaker Change: Not only deliver the sand that we're delivering today, but also as Chuck had mentioned get more of that 10 million tons of capacity out into the market and down the hole for our customers and a big part of that is our last mile and the ability for our last mile solutions to unload and deliver sand at the highest rates demanded by <unk>.

John Young: And a big part of that is our last mile and the ability for our last mile solutions to unload and deliver sand at the highest rates demanded by our most efficient operators. So, we are putting that sand down the hole at rates that the best guys out there are demanding, which are super high. So, we're pretty excited about the kind of asset base we have. And I think Chuck will talk a little bit more about being opportunistic about additional opportunities out there, but so far, we're pretty pleased with where our asset base sits today. Yeah, as utilization, again, goes up, so does our cost of production go down. So, it's as we develop.

Chuck: Our most efficient operator, so we're putting that found down the hall at rates that the best guys out there are demanding which are super high. So we're pretty excited about kind of the asset base, we have and I think Chuck will talk a little bit more about being opportunistic about additional opportunities out there, but so far we're pretty pleased with.

Chuck: We're asset sits today.

Chuck: Utilization again goes up so does our cost of production goes down so.

Chuck: As we develop that that's great.

Chuck: Area for Us long term.

John Young: Maybe one last question before I turn it back. Could you just talk about the differences that you see moving forward with the Canadian market versus the U.S. market? I know some softness a little bit here with what we've seen on the natural gas side domestically. Could you just talk about those two markets and the differences you potentially see?

Chuck: Maybe one just last question before I turn it back the could you just talk about the differences that you see.

Speaker Change: Moving forward with the Canadian market versus the U S market I know some softness a little bit here with.

Speaker Change: What we've seen on the natural gas side domestically could you just talk about those two markets and the difference that you potentially see.

Charles Edwin Young: So in Canada, you know, we see LNG terminals that are coming online, pipelines that have been put in place. So, you know, as the activity starts there, it's going to continue to feed those plants. So we feel really, really good about that. John, I don't know if you have some additional questions.

Speaker Change: So in Canada, we see LNG terminals that are coming online.

Speaker Change: Pipelines that have been put in place so.

John: As as the activity starts there it's going to continue to feed those plants. So we feel really really good about that John I don't know if you have some additional yeah I think from a standpoint of when we look at the Nat gas fundamentals out there. The majority of our gas customers are focused on the long term fundamentals of Nat gas, which.

John Young: Yeah, I think, you know, from a standpoint of when we look at the NatGas fundamentals out there, you know, the majority of our gas customers, you know, are focused on the long-term fundamentals of NatGas, which all look pretty positive. And what's interesting about that is we're seeing a consistent message, whether it's the Marcellus or in Canada, kind of the two primary NatGas markets we have, you know, there's no question, as Chuck had mentioned, there's a tailwind provided by the Canadian take-away capacity improvements, right, those assets are there today, and they're in really good shape for having a place for that gas to go, and the Marcellus is improving every day on that.

John: I'll look.

John: Pretty positive and what's interesting about that is we're seeing a consistent message whether it's the Marcellus or in Canada kind of the two primary Nat gas market.

John: Have.

John: There's no question as Chuck had mentioned Theres a tailwind provided.

John: By the Canadian.

John: Take away capacity improvements right.

Chuck: Those assets are there today and they're in really good shape for having a place for that gas to go and the Marcellus is improving every day on that but the key message from our larger customers is that they they believe long term the fundamentals of Nat gas. We're excited about it we're excited about.

John Young: But, you know, the key message from our larger customers is that they believe long-term in the fundamentals of NatGas, we're excited about it, we're excited that we also It's a great place and we've got some great customers about that.

Speaker Change: That we also get to diversify our northeast operations with the Utica, which is more of an oil play right and so that.

Speaker Change: That that provides kind of a balanced market position up in the northeast that before this bringing on of what it looks like it's going to be pretty attractive and Utica. We didnt have that at the same time, but let us be clear of the Marcellus we're extremely.

Speaker Change: <unk> about that market long term, we think thats going to be a great place and then we've got some great customers out there that are doing great things.

Speaker Change: Excited about that.

Speaker Change: Thanks, I'll turn it back.

Speaker Change: Okay.

Speaker Change: Your next question comes from Steven.

Operator: Your next question comes from Stephen. Gengaro with Stiefel, your line is now open.

Jane: Jane <unk> with Stifel. Your line is now open.

Stephen David Gengaro: Thanks. Good morning, everybody.

Speaker Change: Thanks, Good morning, everybody.

Speaker Change: Sure.

Stephen David Gengaro: A couple of things, but just one quick clarification, on the income statement, the smart systems revenue you break out, is that surely just the well site, sand, and storage, or are there other pieces that go into that number?

Speaker Change: A couple of things, but just one quick clarification.

Steven: On the income statement the smart systems revenue you breakout is that purely just the well site sand storage or are there other pieces that go into that number.

Lee E. Beckelman: Now today, that is just purely the well-side storage business going forward, so that breakout will be just for that business line item.

Jane Stifel: Now today that is just purely the well site storage business going forward. So that breakout will be just for that business line item.

Lee E. Beckelman: Okay, great. Thank you. Can you talk a little bit about the dynamics of supply and demand in the U.S. sand market and how you see that kind of impacting the pricing dynamic over the next couple quarters?

Jane Stifel: Okay, great. Thank you.

Jane Stifel: Can you talk a little bit about.

Speaker Change: The dynamics of the supply demand in the in the U S sand market and how you see that kind of impacting the pricing dynamic over the next couple of quarters.

John Young: Yeah, I can talk a little bit about that. So, you know, as I've said in the past on some of these calls, the northern white market is in a relative supply and demand balance. You know, certainly there is some, you know, we certainly have additional capacity to be responsive to increases in demand that may come about as, you know, as we see some of these new opportunities. You mentioned Utica before, you know; we don't we don't really focus too much on the regional sand stuff down in the Permian. For example, we're not really a player there, such that we send sand into the Permian.

Speaker Change: Yes, I can talk a little bit about that so.

Speaker Change: As I've said in the past on these calls is the northern white market is in relative supply and demand balance.

Speaker Change: Certainly.

Speaker Change: There is some.

Speaker Change: We certainly have additional capacity to be responsive to increases in demand that may come about as as we see some of these new.

Speaker Change: Opportunities you mentioned the Utica before.

Speaker Change: We don't we don't really focus too much on the regional sand stuff down in the Permian for example, we're not really a player there such that we sent sand into the Permian. It's for folks that are kind of looking at their well results and.

Lee E. Beckelman: It's for folks that are kind of looking at their well results and trying to test a little bit with some northern white. So we see a little bit of uptake there, but that market doesn't impact us. But the northern white market has, you know, been through its consolidation with regard to supply. You know, I think that there are some different numbers out there on what the actual supply is available. But so far, our view on this is that it remains in kind of a relative supply and demand balance, which yields relatively stable pricing that we've seen now for a little while.

Speaker Change: Trying to test a little bit with some northern white, so we see a little bit of uptake there, but that market doesn't impact us, but the northern white market has had been through its consolidation with regard to supply.

Speaker Change: I think that there is some different numbers out there on what the actual supply is.

Speaker Change: Available, but so far our view on is that it remains in your kind of relative supply demand balance.

Speaker Change: Which yields relatively stable pricing that we've seen now for a little while and I think there is potentially some tailwind to <unk>.

Lee E. Beckelman: And I think there's potentially some tailwind to pricing, being able to get some price moving forward as some of these markets, like Canada for us and potentially some of these new markets in Ohio, come to fruition. So, I think it's generally a positive scenario, but I think the supply and demand are still in relative balance.

Speaker Change: Pricing being able to get some price moving forward as some of these markets like Canada for us and.

Speaker Change: Actually some of these new markets.

Speaker Change: Ohio come to fruition. So I think it's generally a positive scenario, but I think the supply and demand are still in relative balance.

Lee E. Beckelman: To the extent that Northern White does pick up, and we see Utica growing in oil and Canada's demand growing, and we still believe Northern White is a superior product to regional sand, and think some folks in the Permian and others may start looking at that harder. To the extent there is an uptick or an increase in Northern White, we're probably the best positioning company to take advantage of that because of the available capacity we have in our logistics footstool.

Speaker Change: Hey, how are you going to extend that.

Speaker Change: Northern White does pick up and we see with the Utica growing in oil in Canada demand growing and we still believe northern White is a more superior product to regional sand and I think some folks in the Permian and others may start looking at that harder to the extent there is an uptick or an increase in northern white, we're probably the best positioned company to take advantage of that because of the available capacity.

Speaker Change: We have in our logistics footprint.

Lee E. Beckelman: Yeah, Lee, I was actually going to ask as a follow-up, have you heard any incremental interest from EMPs as far as, and we talked about, tier one to tier two acreage and longer laterals, etc. And how they're kind of dealing with the client curves. I'm just curious if there's been any kind of increase in any kind of increase and or northern white demand for from tax.

Speaker Change: Yes, I was actually going to ask as a follow up.

Speaker Change: Have you heard any incremental interest from e&ps as far as and when we talk about.

Speaker Change: Tier one to tier two acreage and longer laterals et cetera, and how they are kind of dealing with decline curves I'm. Just curious if there's if there's been any kind of increase in kind of <unk>.

Speaker Change: Inquiries <unk> northern white demand for from taxes.

Stephen: So there's definitely been an increase Stephen.

Lee E. Beckelman: So there's definitely been an increase, Stephen, you know, and it seems to be picking up. I mean, we sponsored a conference earlier this year at the FPE conference in the Woodlands, which did get a lot of attention on the basic economics of Northern White versus regional, didn't it?

Speaker Change: And it seems to be picking up I mean, we sponsored a conference earlier or we sponsored a presentation earlier this year.

Stephen: FTE in the woodlands, which did get a lot of attention on.

Stephen David Gengaro: Basic economics of northern White versus read.

Speaker Change: Regional right and so I think thats going to take some time in the market to sort itself out.

John Young: And so, you know, I think that's going to take some time for the market to sort itself out. You know, as I mentioned before, we see a little bit of uptake on Northern White, but, you know, we're not blind to the fact that, you know, that Northern White market down there is probably five, maybe 10% of the overall take up in the Western Permian. But I think there are major EMPs out there searching for answers on decline curves.

Speaker Change: As I mentioned before we see a little bit of uptake on northern white, but.

Speaker Change: We're not.

Speaker Change: Blind to the fact that that northern white market down there, it's probably five maybe 10% of the overall.

E&P: Take up in the Western Permian, but I think there are major E&P is out there searching for answers on decline curves.

E&P: And in the past we've said it.

John Young: And you know, in the past, we've said it, we think in the past everyone was focused on everything but sand, but, you know, there is a pretty strong correlation between when these changes were made to regional sand from Northern White that was kind of the start of these, you know, kind of unexplained decline curves. So we think there's a potential tailwind there, but again, our business is very focused on what we do today, and, you know, such that if any sand comes back into the Permian, that'll be a tremendous benefit for us.

Speaker Change: We think in the past everyone's been focused on everything but sand, but there is a pretty strong correlation between when these changes were made to regional sand from northern White that you know that was kind of the start of these kind of unexplained decline curve. So we think there is a potential tailwind there, but again our businesses is very focused on.

Speaker Change: What we do today and such that any sand comes back in the Permian that will be a tremendous benefit for us.

Lee E. Beckelman: And just one final question, on the industrial piece of the business, can you give us a rough idea of what percentage of the business it currently is? And look at how you see that evolving over the next year or two.

Speaker Change: Thank you and then just one final one.

Speaker Change: On the industrial piece of the business can you give us a rough idea of what percentage of the business. It currently is and.

Speaker Change: Kind of how you see that evolving over the next year or two.

Lee E. Beckelman: Yeah, right now, the business is kind of in the 5% range or so in terms of our total volumes, and I think we're still trying to establish ourselves, and we have a lot of potential contracts coming up in 25 and 26 that we're looking to try to line up for, and we could hopefully see this business grow to at least 10% or more over the next two or three years. Our goal is to get industrial to at least 10% or better and have it be great. Thank you.

Ron: Yeah, Ron out of the business.

Ron: It's kind of in the 5% range or so in terms of our total volumes and I think we're still trying to establish ourselves.

Ron Smith: We have a lot of potential contracts coming up in 'twenty, five and 26 that we're looking to turn a lineup for and we can hopefully see this business to be.

Speaker Change #102: <unk> at least 10% or more than that over the next two or three years. Our goal is to get industrial to at least 10% or better and have it consistently at those levels on a go forward basis.

Stephen David Gengaro: Great, thank you for the color, gentlemen.

Speaker Change: Great. Thank you for the color gentlemen, thanks.

Dave: Thanks, Dave.

Speaker Change: Yes.

Charles Edwin Young: There are no further questions at this time. I will now turn the call over to Chuck Young for closing remarks.

Speaker Change: There are no further questions at this time I will now turn the call over to Chuck Young for closing remarks.

Charles Edwin Young: Thanks for joining us for our earnings call look forward to speaking with you again in August Thank you.

Charles Edwin Young: Thanks for joining us for our earnings call. I look forward to speaking with you again in August.

Speaker Change: Okay.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Charles Edwin Young: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

Speaker Change: [music].

Speaker Change: Okay.

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Speaker Change: Yes.

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