PART I FINANCIAL INFORMATION [ITEM 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents Smart Sand, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows, with detailed notes on business, accounting policies, debt, leases, revenue, income taxes, and concentrations for the period ended March 31, 2024 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in thousands) | Item | March 31, 2024 | December 31, 2023 | Change | % Change | | :--------------------------------- | :------------- | :---------------- | :----- | :------- | | Cash and cash equivalents | $4,598 | $6,072 | $(1,474) | -24.3% | | Accounts receivable | $37,698 | $23,231 | $14,467 | 62.3% | | Total current assets | $71,169 | $61,904 | $9,265 | 15.0% | | Total assets | $349,261 | $346,300 | $2,961 | 0.9% | | Accounts payable | $9,935 | $16,041 | $(6,106) | -38.1% | | Accrued expenses and other liabilities | $15,402 | $11,024 | $4,378 | 39.7% | | Current portion of long-term debt | $22,045 | $15,711 | $6,334 | 40.3% | | Total current liabilities | $59,311 | $54,466 | $4,845 | 8.9% | | Total liabilities | $106,733 | $104,033 | $2,700 | 2.6% | | Total stockholders' equity | $242,528 | $242,267 | $261 | 0.1% | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | % Change | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :----- | :------- | | Sand revenue | $79,719 | $80,019 | $(300) | -0.4% | | SmartSystems revenue | $3,333 | $2,331 | $1,002 | 43.0% | | Total revenue | $83,052 | $82,350 | $702 | 0.9% | | Total cost of goods sold | $71,241 | $70,713 | $528 | 0.7% | | Gross profit | $11,811 | $11,637 | $174 | 1.5% | | Total operating expenses | $11,027 | $13,245 | $(2,218) | -16.7% | | Operating income (loss) | $784 | $(1,608) | $2,392 | 148.8% | | Net loss | $(216) | $(3,599) | $3,383 | 94.0% | | Basic net loss per common share | $(0.01) | $(0.09) | $0.08 | 88.9% | | Diluted net loss per common share | $(0.01) | $(0.09) | $0.08 | 88.9% | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(216) | $(3,599) | | Foreign currency translation adjustment | $(26) | $(66) | | Comprehensive loss | $(242) | $(3,665) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Changes in Stockholders' Equity (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Balance at December 31 | $242,267 | $243,471 | | Stock-based compensation | $642 | $779 | | Employee stock purchase plan issuance | $25 | $33 | | Restricted stock buy back | $(170) | $(3) | | Net loss | $(216) | $(3,599) | | Balance at March 31 | $242,528 | $231,772 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash (used in) provided by operating activities | $(3,863) | $5,105 | | Net cash used in investing activities | $(1,645) | $(4,017) | | Net cash provided by financing activities | $4,034 | $1,006 | | Net (decrease) increase in cash and cash equivalents | $(1,474) | $2,094 | | Cash and cash equivalents at end of period | $4,598 | $7,604 | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on the company's organization, accounting policies, inventory, property, debt, leases, asset retirement obligations, revenue, income taxes, concentrations, and contingencies, offering essential context to the unaudited financial statements [NOTE 1 — Organization and Nature of Business](index=9&type=section&id=NOTE%201%20%E2%80%94%20Organization%20and%20Nature%20of%20Business) - **Smart Sand, Inc.** operates as a fully integrated frac and industrial sand supply and services company, offering mine-to-wellsite proppant solutions and industrial sand[30](index=30&type=chunk) - The company's operating facilities (Oakdale, Utica, Blair) have a total annual processing capacity of approximately **10.0 million tons**, with the Blair facility commencing operations in April 2023[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk)[91](index=91&type=chunk) - Smart Sand provides proppant logistics solutions through a network of in-basin transloading terminals, including new terminals in Minerva, Ohio, and Dennison, Ohio, expected to commence operations in Q2 2024[34](index=34&type=chunk)[92](index=92&type=chunk) - The company offers proprietary **SmartSystems™** for wellsite proppant storage and management, including **SmartDepot** silos, **SmartPath** transloaders, and **SmartBelt** conveyors, designed for efficiency, safety, and dust suppression[35](index=35&type=chunk)[93](index=93&type=chunk) - Smart Sand has expanded its **Industrial Product Solutions (IPS)** to diversify its customer base and markets, with blending and cooling assets installed at its Utica facility in 2023[30](index=30&type=chunk)[94](index=94&type=chunk) [NOTE 2 — Summary of Significant Accounting Policies](index=10&type=section&id=NOTE%202%20%E2%80%94%20Summary%20of%20Significant%20Accounting%20Policies) - The company reclassified prior year revenue line items: '**Sand revenue**' now includes sand sales, shortfall, railcar rental, and transportation, while '**SmartSystems revenue**' covers equipment rental and related services, with no change in revenue recognition methods[39](index=39&type=chunk) - Management relies on significant estimates for financial reporting, including asset impairment, asset retirement obligations, fair value of acquired assets, deferred tax assets, inventory reserves, and collectability of receivables[41](index=41&type=chunk) - Global events (Ukraine, Middle East conflicts) and policy changes (LNG permits) may affect oil and natural gas prices, leading to volatility in the oilfield service sector, with an uncertain material adverse effect on the company's financial position or results[42](index=42&type=chunk) - Recent FASB ASUs on Segment Reporting (**ASU 2023-07**, effective 2024/2025) and Income Taxes (**ASU 2023-09**, effective 2025/2026) are expected to primarily affect note disclosures upon adoption[44](index=44&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) [NOTE 3 — Inventory](index=11&type=section&id=NOTE%203%20%E2%80%94%20Inventory) Inventory Breakdown (in thousands) | Inventory Type | March 31, 2024 | December 31, 2023 | | :--------------- | :------------- | :---------------- | | Raw material | $1,509 | $467 | | Work in progress | $6,076 | $9,391 | | Finished goods | $9,237 | $8,244 | | Spare parts | $8,762 | $8,721 | | Total inventory | $25,584 | $26,823 | [NOTE 4 — Property, Plant and Equipment, net](index=11&type=section&id=NOTE%204%20%E2%80%94%20Property,%20Plant%20and%20Equipment,%20net) Property, Plant and Equipment, net (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Machinery, equipment and tooling | $41,748 | $40,632 | | SmartSystems | $31,127 | $30,651 | | Plant and building | $215,098 | $213,756 | | Total gross PP&E | $417,436 | $414,230 | | Less: accumulated depreciation and depletion | $166,052 | $159,138 | | Total property, plant and equipment, net | $251,384 | $255,092 | - Depreciation expense for the three months ended March 31, 2024, was **$6,981 thousand**, up from **$6,342 thousand** in the prior year period[50](index=50&type=chunk) [NOTE 5 — Accrued and Other Expenses](index=12&type=section&id=NOTE%205%20%E2%80%94%20Accrued%20and%20Other%20Expenses) Accrued and Other Expenses (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Employee related expenses | $2,128 | $1,767 | | Accrued freight and delivery charges | $3,226 | $2,066 | | Accrued real estate tax | $1,703 | $1,044 | | Accrued utilities | $1,217 | $604 | | Other accrued liabilities | $2,040 | $58 | | Total accrued liabilities | $15,402 | $11,024 | [NOTE 6 — Debt](index=12&type=section&id=NOTE%206%20%E2%80%94%20Debt) Debt Breakdown (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Current portion of long-term debt: | | | | ABL Credit Facility | $14,000 | $8,000 | | Oakdale Equipment Financing | $6,854 | $6,462 | | Notes payable | $983 | $1,011 | | Finance leases | $208 | $238 | | Total current portion of long-term debt | $22,045 | $15,711 | | Long-term debt, net of current portion: | | | | Oakdale Equipment Financing | $0 | $1,388 | | Notes payable | $1,972 | $1,519 | | Finance leases | $473 | $542 | | Total long-term debt | $2,445 | $3,449 | - The ABL Credit Facility had **$14.0 million** outstanding and **$6.0 million** available as of March 31, 2024, with a weighted average interest rate of **8.25%** for Q1 2024. The company is in the process of refinancing this facility[57](index=57&type=chunk)[134](index=134&type=chunk) - The Oakdale Equipment Financing bears a fixed interest rate of **5.79%**, with an outstanding balance of **$6.9 million** as of March 31, 2024[58](index=58&type=chunk)[134](index=134&type=chunk) - Notes payable, primarily for heavy equipment and SmartSystems, bear interest rates between **3.99%** and **7.49%**, totaling **$3.0 million** as of March 31, 2024[59](index=59&type=chunk)[134](index=134&type=chunk) [NOTE 7 — Leases](index=14&type=section&id=NOTE%207%20%E2%80%94%20Leases) Lease Liabilities and Right-of-Use Assets (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Total right-of-use assets | $21,145 | $24,173 | | Total lease liabilities | $22,305 | $25,372 | | Operating lease cost (Q1 2024) | $3,387 | $3,195 | | Finance lease cost (Q1 2024) | $75 | $110 | - The weighted average remaining lease term for operating leases was **2.7 years** (March 31, 2024) with a weighted average discount rate of **6.53%**[65](index=65&type=chunk) [NOTE 8 — Asset Retirement Obligations](index=15&type=section&id=NOTE%208%20%E2%80%94%20Asset%20Retirement%20Obligations) Asset Retirement Obligations (in thousands) | Item | Amount | | :--------------------------------- | :----- | | Balance at December 31, 2023 | $19,923 | | Accretion expense | $249 | | Balance at March 31, 2024 | $20,172 | [NOTE 9 — Revenue](index=16&type=section&id=NOTE%209%20%E2%80%94%20Revenue) Revenue Disaggregation (in thousands) | Revenue Type | Q1 2024 Revenue | % of Total | Q1 2023 Revenue | % of Total | | :------------- | :-------------- | :--------- | :-------------- | :--------- | | Sand revenue | $79,719 | 96% | $80,019 | 97% | | SmartSystems revenue | $3,333 | 4% | $2,331 | 3% | | Total revenue | $83,052 | 100% | $82,350 | 100% | - Unsatisfied performance obligations as of March 31, 2024, totaled **$184.180 million**, with **$98.950 million** expected in the remainder of 2024 and **$85.230 million** in 2025[72](index=72&type=chunk) [NOTE 10 — Income Taxes](index=16&type=section&id=NOTE%2010%20%E2%80%94%20Income%20Taxes) - The effective tax rate for Q1 2024 was approximately **155.2%**, compared to **(79.9)%** in Q1 2023, based on the annual effective tax rate net of discrete federal and state taxes[74](index=74&type=chunk) - The company recorded a liability for uncertain tax positions of **$2.240 million** and a partial valuation allowance against gross deferred tax assets of **$874 thousand** as of December 31, 2023, with no material change in Q1 2024[75](index=75&type=chunk)[76](index=76&type=chunk) [NOTE 11 — Concentrations](index=16&type=section&id=NOTE%2011%20%E2%80%94%20Concentrations) - Four customers accounted for **63%** of total accounts receivable as of March 31, 2024 (down from **70%** at Dec 31, 2023)[78](index=78&type=chunk) - Three customers accounted for **60%** of total revenues for Q1 2024 (up from **57%** in Q1 2023). Specific customers for Q1 2024 were Equitable Gas Corporation (**37.4%**), Halliburton Energy Services (**11.4%**), and Encino Energy (**11.2%**)[78](index=78&type=chunk)[141](index=141&type=chunk) - Two vendors accounted for **29%** of accounts payable as of March 31, 2024, and two vendors accounted for **35%** of cost of goods sold for Q1 2024[81](index=81&type=chunk) - The company faces geographic risk due to its primary product (**Northern White sand**) and mining operations being limited to Wisconsin and Illinois[82](index=82&type=chunk) [NOTE 12 — Commitments and Contingencies](index=17&type=section&id=NOTE%2012%20%E2%80%94%20Commitments%20and%20Contingencies) - The company is involved in litigation regarding negligence and nuisance claims at its Blair facility, with HCR agreeing to indemnify for pre-acquisition actions; the outcome is uncertain[84](index=84&type=chunk) - Total aggregate principal amount of performance bonds outstanding was **$19.727 million** as of March 31, 2024[85](index=85&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance for the three months ended March 31, 2024, covering business overview, market trends, GAAP results, non-GAAP measures, liquidity, and critical accounting policies, highlighting increased SmartSystems revenue and reduced net loss amid market volatility and inflation [Overview](index=18&type=section&id=Overview) - **Smart Sand, Inc.** is a fully integrated frac and industrial sand supply and services company, offering low-cost, high-quality **Northern White sand** and comprehensive logistics solutions[89](index=89&type=chunk) - The company operates mining and processing facilities in Oakdale, Utica, and Blair, with a combined annual processing capacity of approximately **10.0 million tons**, and access to all Class I rail lines[91](index=91&type=chunk) - Smart Sand controls five in-basin transloading facilities and offers **SmartSystems™** wellsite proppant storage and management solutions, including **SmartDepot** silos, **SmartPath** transloaders, and **SmartBelt** conveyors, to enhance efficiency and safety[92](index=92&type=chunk)[93](index=93&type=chunk) - The company is expanding its **Industrial Product Solutions (IPS)** to diversify its customer base and markets, with blending and cooling assets installed at its Utica facility in 2023[94](index=94&type=chunk) [Market Trends](index=19&type=section&id=Market%20Trends) - During Q1 2024, the **Northern White Sand** market experienced a relative balance of supply and demand, with increased volumes (approximately **12%**) but lower average sand prices compared to Q1 2023[96](index=96&type=chunk)[105](index=105&type=chunk) - Sand pricing moderated in the second half of 2023 and stabilized in Q1 2024, while high levels of inflation continued to increase operating expenses[96](index=96&type=chunk) - Geopolitical events (Ukraine, Middle East) and policy changes (LNG permits) could impact oil and natural gas prices, leading to demand and pricing volatility, and customer reluctance for long-term contracts, favoring spot market purchases[96](index=96&type=chunk)[99](index=99&type=chunk) - The **IPS** business offers relative stability due to diverse macroeconomic drivers and is expected to help diversify sales and mitigate price volatility from the oil and gas industry[101](index=101&type=chunk) [GAAP Results of Operations](index=21&type=section&id=GAAP%20Results%20of%20Operations) GAAP Results of Operations (in thousands, except per share amounts) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | % Change | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :----- | :------- | | Total revenue | $83,052 | $82,350 | $702 | 0.9% | | Sand revenue | $79,719 | $80,019 | $(300) | -0.4% | | SmartSystems revenue | $3,333 | $2,331 | $1,002 | 43.0% | | Total cost of goods sold | $71,241 | $70,713 | $528 | 0.7% | | Gross profit | $11,811 | $11,637 | $174 | 1.5% | | Total operating expenses | $11,027 | $13,245 | $(2,218) | -16.7% | | Operating income (loss) | $784 | $(1,608) | $2,392 | 148.8% | | Net loss | $(216) | $(3,599) | $3,383 | 94.0% | | Basic net loss per common share | $(0.01) | $(0.09) | $0.08 | 88.9% | - Total volumes sold increased by approximately **12%** (**1,336,000 tons** in Q1 2024 vs. **1,195,000 tons** in Q1 2023), but average sand prices were lower, while **SmartSystems** revenue grew due to higher utilization and expanded **SmartBelt** technology[105](index=105&type=chunk) - Operating expenses decreased significantly due to cost reduction measures and a non-recurring **$1.9 million** net loss on disposal of fixed assets in Q1 2023[109](index=109&type=chunk)[113](index=113&type=chunk) - The effective tax rate was **155.2%** in Q1 2024, compared to **(79.9)%** in Q1 2023, influenced by income tax credits, tax depletion deduction, and state apportionment changes[111](index=111&type=chunk) [Non-GAAP Financial Measures](index=22&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP financial measures like Contribution Margin, EBITDA, Adjusted EBITDA, and Free Cash Flow to offer supplemental insights into operational performance, liquidity, and debt servicing ability, complementing GAAP financial statements [Contribution Margin](index=23&type=section&id=Contribution%20Margin) Contribution Margin (in thousands, except per ton amounts) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Gross profit | $11,811 | $11,637 | | Depreciation, depletion, and accretion of ARO | $6,697 | $6,159 | | Contribution margin | $18,508 | $17,796 | | Contribution margin per ton | $13.85 | $14.89 | | Total tons sold | 1,336 | 1,195 | - Overall contribution margin increased due to higher tons sold and increased **SmartSystems** utilization, while contribution margin per ton decreased due to lower average sand sales prices[121](index=121&type=chunk) [EBITDA and Adjusted EBITDA](index=23&type=section&id=EBITDA%20and%20Adjusted%20EBITDA) EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(216) | $(3,599) | | Depreciation, depletion and amortization | $7,200 | $6,551 | | Income tax expense and other taxes | $607 | $1,845 | | Interest expense | $496 | $442 | | EBITDA | $8,087 | $5,239 | | Net loss on disposal of fixed assets | $3 | $1,889 | | Equity compensation | $581 | $736 | | Acquisition and development costs | $308 | $271 | | Cash charges related to restructuring and retention of employees | $107 | $0 | | Accretion of asset retirement obligations | $249 | $200 | | Adjusted EBITDA | $9,335 | $8,335 | - **Adjusted EBITDA** increased primarily due to higher sales volumes, increased **IPS** sales, and higher utilization of the **SmartSystems** fleet[126](index=126&type=chunk) [Free Cash Flow](index=24&type=section&id=Free%20Cash%20Flow) Free Cash Flow Reconciliation (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash (used in) provided by operating activities | $(3,863) | $5,105 | | Purchases of property, plant and equipment | $(1,646) | $(4,018) | | Free cash flow | $(5,509) | $1,087 | - The decrease in **free cash flow** was primarily due to a decrease in net cash provided by operating activities, attributed to an increase in working capital to support higher sales volumes[130](index=130&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) - As of March 31, 2024, the company had **$4.6 million** in cash and cash equivalents and **$6.0 million** in undrawn availability on its ABL Credit Facility, which is currently being refinanced[131](index=131&type=chunk) - Expected capital expenditures for full year 2024 are between **$15.0 million** and **$20.0 million**, primarily for process improvement, equipment upgrades, and the build-out of new Ohio terminals[133](index=133&type=chunk) - Debt facilities include the Oakdale Equipment Financing (**$6.9 million** outstanding) and various notes payable (**$3.0 million** outstanding) as of March 31, 2024[134](index=134&type=chunk) - Operating lease liabilities totaled **$21.6 million** as of March 31, 2024, with anticipated minimum cash payments of **$8.3 million** for the remainder of 2024[135](index=135&type=chunk) - The company has **$19.7 million** in outstanding performance bonds as of March 31, 2024, and annual minimum payments of approximately **$2.5 million** for mineral rights contracts over the next **13 years**[136](index=136&type=chunk)[137](index=137&type=chunk) - The business is affected by seasonality, with wet sand processing capacity historically limited during winter months, leading to lower cash operating costs in Q1/Q4 and higher in Q2/Q3 due to inventory build-up[140](index=140&type=chunk) - For Q1 2024, Equitable Gas Corporation, Halliburton Energy Services, and Encino Energy accounted for **37.4%**, **11.4%**, and **11.2%** of total revenue, respectively[141](index=141&type=chunk) [Critical Accounting Policies and Estimates](index=27&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - There have been no material changes in the company's critical accounting policies and procedures during the three months ended March 31, 2024[143](index=143&type=chunk) - Management continues to rely on significant estimates for financial reporting, acknowledging that actual results could differ materially due to additional information or future economic uncertainties[144](index=144&type=chunk)[145](index=145&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures about Market Risk](index=28&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the company's market risk exposure, primarily interest rate risk from its ABL Credit Facility, which management deems non-material, confirming no other significant changes since the prior annual report - The company's primary market risk is interest rate risk, mainly from its ABL Credit Facility, which had **$14.0 million** outstanding at March 31, 2024, bearing a variable interest rate. This is not considered a material interest rate risk[146](index=146&type=chunk) - There have been no additional material changes to the company's exposure to market risks from those described in its Annual Report on Form 10-K for the year ended December 31, 2023[147](index=147&type=chunk) [ITEM 4. Controls and Procedures](index=28&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting during the quarter - The company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024[148](index=148&type=chunk) - There have been no changes in internal control over financial reporting for the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[149](index=149&type=chunk) PART II OTHER INFORMATION [ITEM 1. Legal Proceedings](index=29&type=section&id=ITEM%201.%20Legal%20Proceedings) This section incorporates by reference the disclosure regarding legal proceedings from Note 12 – Commitments and Contingencies – Litigation, within Part I, Item 1 of this Form 10-Q - Disclosure regarding legal proceedings is incorporated by reference from Note 12 of the condensed consolidated financial statements[151](index=151&type=chunk) [ITEM 1A. Risk Factors](index=29&type=section&id=ITEM%201A.%20Risk%20Factors) The company states there have been no material changes to the risk factors previously outlined in its Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes to the risk factors described in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2023[152](index=152&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended March 31, 2024, the company did not engage in any unregistered sales of equity securities - No shares were sold by the company without registration under the Securities Act of 1933, as amended, during the three months ended March 31, 2024[153](index=153&type=chunk) [ITEM 3. Defaults upon Senior Securities](index=29&type=section&id=ITEM%203.%20Defaults%20upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period covered by this report - There were no defaults upon senior securities[154](index=154&type=chunk) [ITEM 4. Mine Safety Disclosures](index=29&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) The company maintains a strong commitment to mine safety, operating under stringent MSHA and OSHA regulations, including those for respirable silica exposure, with compliance detailed in Exhibit 95.1 - The company's mining operations are subject to safety regulations by the U.S. Mining Safety and Health Administration (**MSHA**) and the U.S. Occupational Safety and Health Administration (**OSHA**)[155](index=155&type=chunk)[156](index=156&type=chunk) - Workplace exposure to respirable silica is closely monitored, and potential future stricter exposure limits could necessitate capital expenditures for equipment[156](index=156&type=chunk) - The company complies with the **Federal Mine Safety and Health Act of 1977**, and information concerning mine safety violations is included in **Exhibit 95.1**[157](index=157&type=chunk) [ITEM 5. Other Information](index=30&type=section&id=ITEM%205.%20Other%20Information) This section indicates no other information to report for the period - No other information is reported in this section[158](index=158&type=chunk) [ITEM 6. Exhibits](index=31&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including various certifications, the Mine Safety Disclosure Exhibit, and XBRL interactive data files - The report includes certifications pursuant to **Rule 13a-14(a)** of the Securities Exchange Act of 1934 and **18 U.S.C. 906** of the **Sarbanes-Oxley Act of 2002**[159](index=159&type=chunk) - Mine Safety Disclosure **Exhibit 95.1** is filed with the report[159](index=159&type=chunk) - **XBRL** Instance Document and Taxonomy Extensions (Schema, Calculation, Definition, Label, Presentation Linkbases) are included as exhibits[159](index=159&type=chunk) SIGNATURES [Signatures](index=32&type=section&id=Signatures) The report was officially signed on May 13, 2024, by Lee E. Beckelman, Chief Financial Officer, and Christopher M. Green, Vice President of Accounting, confirming its submission - The report was signed on **May 13, 2024**, by Lee E. Beckelman, Chief Financial Officer, and Christopher M. Green, Vice President of Accounting[164](index=164&type=chunk)

Smart Sand, Inc. (NASDAQ:SND) Q4 2023 Earnings Conference Call March 12, 2024 10:00 AM ET Company Participants Christopher Green - Vice President of Accounting Charles Young - Chief Executive Officer Lee Beckelman - Chief Financial Officer William John Young - Chief Operating Officer Conference Call Participants Stephen Gengaro - Stifel Luke Lemoine - Piper Sandler Jim Kostell - Cuyahoga Capital Blake McLean - Daniel Energy Partners Operator Good morning, ladies and gentlemen, and welcome to the Smart Sand, ...

[Executive Summary & Business Overview](index=1&type=section&id=Executive%20Summary%20%26%20Business%20Overview) [Full Year 2023 Highlights](index=1&type=section&id=Full%20Year%202023%20Highlights) Smart Sand achieved strong operational and financial results in fiscal year 2023, with record sales volume, **16%** revenue growth, a return to profitability with **$4.6 million** net income, and significantly increased operating cash flow - Fiscal year 2023 sales volume reached a **company record high**[1](index=1&type=chunk) Key Financial Metrics for Fiscal Year 2023 (Year-over-Year) | Metric | FY 2023 (Millions) | FY 2022 (Millions) | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $296.0 | $255.7 | +16% | | Sand Sales Revenue | $283.2 | $243.2 | +16% | | Total Volume Sold (Thousands of Tons) | 4,514 | 4,333 | +4% | | Net Income (Loss) | $4.6 | $(0.7) | Switched from Loss to Profit | | Basic and Diluted EPS (Loss) | $0.12 | $(0.02) | Switched from Loss to Profit | | Net Cash Provided by Operating Activities | $31.0 | $5.4 | +474% | | Contribution Margin | $67.0 | $54.6 | +22.7% | | Contribution Margin Per Ton | $14.85 | $12.61 | +17.8% | | Adjusted EBITDA | $34.1 | $29.3 | +16.4% | [Fourth Quarter 2023 Highlights](index=1&type=section&id=Fourth%20Quarter%202023%20Highlights) Smart Sand's Q4 2023 operational and financial performance was negatively impacted by seasonal weather and slower customer spending, resulting in sequential and year-over-year declines in revenue and volume, and a net loss - Fourth quarter sales volume decreased primarily due to seasonal weather issues and a slowdown in market activity, as customers reduced spending due to year-end budget exhaustion[1](index=1&type=chunk)[8](index=8&type=chunk) Key Financial Metrics for Fourth Quarter 2023 (Sequential and Year-over-Year) | Metric | Q4 2023 (Millions) | Q3 2023 (Millions) | Sequential Change | Q4 2022 (Millions) | Year-over-Year Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $61.9 | $76.9 | -19% | $73.8 | -16% | | Total Volume Sold (Thousands of Tons) | 1,016 | 1,219 | -17% | 1,175 | -14% | | Net Income (Loss) | $(4.8) | $6.7 | Loss | $2.6 | Loss | | Basic and Diluted EPS (Loss) | $(0.12) | $0.18 | Loss | $0.06 | Loss | | Contribution Margin | $9.2 | $21.0 | -56.2% | $17.4 | -47.1% | | Contribution Margin Per Ton | $9.07 | $17.20 | -47.3% | $14.77 | -38.6% | | Adjusted EBITDA | $1.0 | $13.3 | -92.5% | $10.7 | -90.7% | | Net Cash Provided by (Used in) Operating Activities | $(2.7) | N/A | N/A | N/A | N/A | | Free Cash Flow | $(9.6) | N/A | N/A | N/A | N/A | [Strategic Initiatives and Outlook](index=1&type=section&id=Strategic%20Initiatives%20and%20Outlook) Smart Sand enhanced its market position and logistics capabilities in 2023 through strategic expansion and investments, anticipating improved performance in the first quarter of 2024 - The company entered the Canadian frac sand market through operations at its Blair, Wisconsin facility[1](index=1&type=chunk) - Logistics capabilities in the Appalachian Basin's Marcellus and Utica formations were improved through the expansion of the Waynesburg, Pennsylvania terminal[1](index=1&type=chunk) - Investment in cooling and blending capabilities at the Utica, Illinois facility supports industrial sand business growth[1](index=1&type=chunk) - Last-mile service coverage was expanded in the Bakken and Appalachian Basins[1](index=1&type=chunk) - Rights were secured to operate two additional terminals in Northeast Ohio, supporting increased activity in the Appalachian Basin[1](index=1&type=chunk) - Operating and financial results are expected to improve in Q1 2024, with monthly sales volumes already recovering to Q3 2023 levels or higher[1](index=1&type=chunk) [Financial Statements](index=4&type=section&id=Financial%20Statements) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) This section details Smart Sand's quarterly and annual operating results for 2023 and 2022, presenting key financial data including revenue, costs, and net income (loss) [Quarterly Operating Results](index=4&type=section&id=Quarterly%20Operating%20Results) In Q4 2023, the company experienced sequential and year-over-year declines in total revenue and sand sales, leading to reduced gross profit and operating income, and ultimately a net loss Consolidated Statements of Operations (Quarterly) | Metric (Thousands) | December 31, 2023 | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | :--- | | Sand Sales Revenue | 60,147 | 72,480 | 71,099 | | Deficiency Revenue | - | 2,389 | 414 | | Logistics Revenue | 1,800 | 2,031 | 2,316 | | **Total Revenue** | **61,947** | **76,900** | **73,829** | | Cost of Sales | 59,116 | 62,502 | 62,657 | | **Gross Profit** | **2,831** | **14,398** | **11,172** | | Operating Expenses | 10,736 | 9,472 | 9,516 | | **Operating (Loss) Income** | **(7,905)** | **4,926** | **1,656** | | Pre-tax (Loss) Income | (8,118) | 4,848 | 1,704 | | Income Tax Benefit | (3,332) | (1,879) | (923) | | **Net (Loss) Income** | **(4,786)** | **6,727** | **2,627** | | Basic (Loss) Earnings Per Share | (0.12) | 0.18 | 0.06 | | Diluted (Loss) Earnings Per Share | (0.12) | 0.18 | 0.06 | [Annual Operating Results](index=5&type=section&id=Annual%20Operating%20Results) In fiscal year 2023, the company achieved significant growth in total revenue and sand sales, improved gross profit, reduced operating loss, and returned to net income profitability Consolidated Statements of Operations (Annual) | Metric (Thousands) | December 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Sand Sales Revenue | 283,160 | 243,162 | | Deficiency Revenue | 4,304 | 5,010 | | Logistics Revenue | 8,509 | 7,568 | | **Total Revenue** | **295,973** | **255,740** | | Cost of Sales | 254,418 | 226,149 | | **Gross Profit** | **41,555** | **29,591** | | Operating Expenses | 43,059 | 32,719 | | **Operating Loss** | **(1,504)** | **(3,128)** | | Pre-tax Loss | (2,252) | (3,908) | | Income Tax Benefit | (6,901) | (3,205) | | **Net Income (Loss)** | **4,649** | **(703)** | | Basic Earnings (Loss) Per Share | 0.12 | (0.02) | | Diluted Earnings (Loss) Per Share | 0.12 | (0.02) | [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2023, Smart Sand's total assets slightly decreased, cash and cash equivalents increased, total liabilities reduced, and stockholders' equity remained relatively stable Consolidated Balance Sheets (Thousands) | Metric | December 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and Cash Equivalents | 6,072 | 5,510 | | Accounts Receivable | 23,231 | 35,746 | | Inventory | 26,823 | 20,185 | | **Total Current Assets** | **61,904** | **68,113** | | Property, Plant, and Equipment, Net | 255,092 | 258,843 | | **Total Assets** | **346,300** | **360,003** | | **Liabilities and Stockholders' Equity** | | | | Accounts Payable | 16,041 | 14,435 | | Current Portion of Long-Term Debt | 15,711 | 6,183 | | **Total Current Liabilities** | **54,466** | **51,917** | | Long-Term Debt | 3,449 | 9,807 | | **Total Liabilities** | **104,033** | **116,532** | | **Total Stockholders' Equity** | **242,267** | **243,471** | | **Total Liabilities and Stockholders' Equity** | **346,300** | **360,003** | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details Smart Sand's quarterly and annual cash flows for 2023 and 2022, outlining cash flow from operating, investing, and financing activities [Quarterly Cash Flow Analysis](index=7&type=section&id=Quarterly%20Cash%20Flow%20Analysis) In Q4 2023, the company reported **$2.7 million** cash outflow from operations and **$6.9 million** from investing, partially offset by **$6.3 million** from financing, leading to a net decrease in cash Consolidated Statements of Cash Flows (Quarterly, Thousands) | Activity | December 31, 2023 | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | (2,659) | 12,477 | 5,589 | | Net Cash Used in Investing Activities | (6,899) | (6,831) | (3,121) | | Net Cash Provided by (Used in) Financing Activities | 6,321 | (1,829) | (7,329) | | Net Increase (Decrease) in Cash and Cash Equivalents | (3,237) | 3,817 | (4,861) | | Cash and Cash Equivalents, End of Period | 6,072 | 9,309 | 5,510 | [Annual Cash Flow Analysis](index=8&type=section&id=Annual%20Cash%20Flow%20Analysis) In fiscal year 2023, net cash from operating activities significantly increased to **$31.0 million**, with **$22.9 million** used in investing and **$7.5 million** in financing, resulting in a net increase in cash Consolidated Statements of Cash Flows (Annual, Thousands) | Activity | December 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 30,991 | 5,420 | | Net Cash Used in Investing Activities | (22,902) | (18,208) | | Net Cash Used in Financing Activities | (7,527) | (7,290) | | Net Increase (Decrease) in Cash and Cash Equivalents | 562 | (20,078) | | Cash and Cash Equivalents, End of Period | 6,072 | 5,510 | [Non-GAAP Financial Measures](index=9&type=section&id=Non-GAAP%20Financial%20Measures) [Contribution Margin](index=9&type=section&id=Contribution%20Margin) Contribution Margin is a non-GAAP metric for financial and operational performance, defined as total revenue less cost of sales (excluding depreciation, depletion, and asset retirement obligation amortization) - Contribution Margin is defined as total revenue less cost of sales, excluding depreciation, depletion, and amortization of asset retirement obligations[29](index=29&type=chunk) Reconciliation of Contribution Margin to Gross Profit (Thousands) | Metric | December 31, 2023 (Quarterly) | September 30, 2023 (Quarterly) | December 31, 2022 (Quarterly) | December 31, 2023 (Annual) | December 31, 2022 (Annual) | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 61,947 | 76,900 | 73,829 | 295,973 | 255,740 | | Cost of Sales | 59,116 | 62,502 | 62,657 | 254,418 | 226,149 | | **Gross Profit** | **2,831** | **14,398** | **11,172** | **41,555** | **29,591** | | Depreciation, Depletion, and Amortization of Asset Retirement Obligations Included in Cost of Sales | 6,381 | 6,573 | 6,184 | 25,469 | 25,038 | | **Contribution Margin** | **9,212** | **20,971** | **17,356** | **67,024** | **54,629** | | Contribution Margin Per Ton | $9.07 | $17.20 | $14.77 | $14.85 | $12.61 | | Total Volume Sold (Thousands of Tons) | 1,016 | 1,219 | 1,175 | 4,514 | 4,333 | [EBITDA and Adjusted EBITDA](index=10&type=section&id=EBITDA%20and%20Adjusted%20EBITDA) EBITDA and Adjusted EBITDA are supplementary non-GAAP metrics for evaluating financial condition and operating results; EBITDA adds back depreciation, amortization, income tax, and interest to net income, with Adjusted EBITDA further adjusting for non-recurring or non-cash items - EBITDA is defined as net income plus depreciation, depletion, and amortization expense; income tax expense (benefit); interest expense; and franchise tax[33](index=33&type=chunk) - Adjusted EBITDA further adjusts EBITDA for loss (gain) on disposal of property, plant, and equipment, stock-based compensation, acquisition and development costs, non-recurring cash costs related to restructuring and retention, and amortization of asset retirement obligations[33](index=33&type=chunk) Reconciliation of EBITDA and Adjusted EBITDA (Thousands) | Metric | December 31, 2023 (Quarterly) | September 30, 2023 (Quarterly) | December 31, 2022 (Quarterly) | December 31, 2023 (Annual) | December 31, 2022 (Annual) | | :--- | :--- | :--- | :--- | :--- | :--- | | Net (Loss) Income | (4,786) | 6,727 | 2,627 | 4,649 | (703) | | Depreciation, Depletion, and Amortization | 7,078 | 6,985 | 6,590 | 27,363 | 26,521 | | Income Tax Benefit | (3,332) | (1,879) | (923) | (6,901) | (3,205) | | Interest Expense | 329 | 304 | 379 | 1,532 | 1,661 | | Franchise Tax | 300 | 66 | 85 | 804 | 353 | | **EBITDA** | **(411)** | **12,203** | **8,758** | **27,447** | **24,627** | | Loss (Gain) on Disposal of Property, Plant, and Equipment | (19) | (92) | 188 | 1,802 | (294) | | Stock-based Compensation | 1,003 | 850 | 706 | 3,391 | 2,729 | | Acquisition and Development Costs | 204 | 70 | 241 | 545 | 675 | | Amortization of Asset Retirement Obligations | 234 | 235 | 189 | 904 | 758 | | **Adjusted EBITDA** | **1,025** | **13,266** | **10,721** | **34,121** | **29,271** | [Free Cash Flow](index=12&type=section&id=Free%20Cash%20Flow) Free Cash Flow is a supplementary non-GAAP metric for assessing business liquidity, defined as net cash provided by operating activities less purchases of property, plant, and equipment - Free Cash Flow is defined as net cash provided by operating activities less purchases of property, plant, and equipment[38](index=38&type=chunk) Reconciliation of Free Cash Flow (Thousands) | Metric | December 31, 2023 (Quarterly) | September 30, 2023 (Quarterly) | December 31, 2022 (Quarterly) | December 31, 2023 (Annual) | December 31, 2022 (Annual) | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | (2,659) | 12,477 | 5,589 | 30,991 | 5,420 | | Purchases of Property, Plant, and Equipment | (6,905) | (6,881) | (3,196) | (23,031) | (12,731) | | **Free Cash Flow** | **(9,564)** | **5,596** | **2,393** | **7,960** | **(13,858)** | [Company Information & Disclosures](index=2&type=section&id=Company%20Information%20%26%20Disclosures) [About Smart Sand](index=3&type=section&id=About%20Smart%20Sand) Smart Sand is a fully integrated frac and industrial sand supply and services company, offering mine-to-wellsite proppant and logistics solutions, and producing low-cost, high-quality Northern White sand from its Wisconsin and Illinois facilities with major rail access - Smart Sand is a **fully integrated frac and industrial sand supply and services company**[17](index=17&type=chunk) - The company provides complete mine-to-wellsite proppant and logistics solutions, along with a broad range of industrial sand products[17](index=17&type=chunk) - It produces **low-cost, high-quality Northern White sand** for hydraulic fracturing and various industrial applications[17](index=17&type=chunk) - Logistics solutions are offered through in-basin transload terminals and SmartSystems wellsite storage and sand management capabilities[17](index=17&type=chunk) - The company owns and operates **premium sand mines and processing facilities** in Wisconsin and Illinois, with access to four Class I railroads, serving the US and Canada[17](index=17&type=chunk) [Forward-looking Statements](index=3&type=section&id=Forward-looking%20Statements) This report contains forward-looking statements about future performance, which are not guarantees and are subject to risks and uncertainties that could cause actual results to differ materially; the company undertakes no obligation to update these statements unless legally required - Forward-looking statements contain the company's current expectations for future results but are **not guarantees of future performance**[14](index=14&type=chunk) - Actual results may differ materially from forward-looking statements due to factors such as fluctuations in product demand, regulatory changes, adverse weather, increased fuel prices, higher transportation costs, capital access, increased competition, and changes in economic or political conditions[15](index=15&type=chunk) - The company undertakes **no obligation to publicly update or revise any forward-looking statements** unless required by law[16](index=16&type=chunk) [Conference Call & Investor Information](index=2&type=section&id=Conference%20Call%20%26%20Investor%20Information) Smart Sand will host a conference call and webcast on March 12, 2024, to discuss Q4 and full-year 2023 financial results, encouraging investors to access important information via its investor relations website - Smart Sand will host a conference call and webcast on **March 12, 2024, at 10:00 AM ET**, to discuss Q4 and full-year 2023 financial results[13](index=13&type=chunk) - Investors can participate by dialing in or accessing the webcast via the 'Investors' section of the company's website[13](index=13&type=chunk) - The company disseminates important information through SEC filings, press releases, public conference calls and webcasts, and its investor relations website, encouraging investors to review these sources[18](index=18&type=chunk) - Investor Contact: **Lee Beckelman, Chief Financial Officer**, at **(281) 231-2660** or **lbeckelman@smartsand.com**[41](index=41&type=chunk)

[Front Matter](index=1&type=section&id=Front%20Matter) [Form 10-K Filing Details](index=1&type=section&id=Form%2010-K%20Details) SMART SAND, INC.'s annual report for December 31, 2023, details its Nasdaq-listed stock (SND) and status as a non-accelerated, smaller reporting company - SMART SAND, INC.'s annual report filing date is **December 31, 2023**[2](index=2&type=chunk) Company Registration Information | Metric | Detail | | :--- | :--- | | Jurisdiction of Incorporation | Delaware | | Stock Symbol | SND | | Exchange Listed | Nasdaq Global Select Market | | Filing Status | Non-accelerated Filer, Smaller Reporting Company | - As of June 30, 2023, the aggregate market value of the company's common stock held by non-affiliates was approximately **$45.91 million**, with a closing price of **$1.64 per share**[4](index=4&type=chunk) - As of March 4, 2024, the company had **43,008,960 shares** of common stock outstanding[5](index=5&type=chunk) [Table of Contents](index=2&type=section&id=Table%20of%20Contents) The report's table of contents clearly outlines the four parts of Form 10-K, covering business, risk factors, financial condition, management's discussion and analysis, financial statements, and other legal and corporate governance information - The Form 10-K report is divided into four main parts: PART I (Business Information), PART II (Financial Information), PART III (Corporate Governance), and PART IV (Exhibits)[10](index=10&type=chunk) [Certain Definitions](index=3&type=section&id=Certain%20Definitions) This section defines common terms used in the report, including company names, stock, ABL credit facilities, Oakdale equipment financing, and abbreviations for regulations and accounting standards, ensuring consistent understanding Key Term Definitions | Term | Definition | | :--- | :--- | | "We", "Us", "Company", "Smart Sand" or "Our" | Smart Sand, Inc. and its subsidiaries | | "shares", "stock" | Common stock of Smart Sand, Inc., par value $0.001 per share | | "ABL Credit Facility", "ABL Credit Agreement", "ABL Security Agreement" | Five-year senior secured asset-based revolving credit facility dated December 13, 2019, with Jefferies Finance LLC | | "Oakdale Equipment Financing", "MLA" | Five-year master lease agreement dated December 13, 2019, with Nexseer Capital, for a sale-leaseback financing arrangement for Oakdale facility equipment | | "Exchange Act" | Securities Exchange Act of 1934, as amended | | "Securities Act" | Securities Act of 1933, as amended | | "FASB", "ASU", "ASC", "GAAP" | Financial Accounting Standards Board, Accounting Standards Update, Accounting Standards Codification, U.S. Generally Accepted Accounting Principles | [Disclaimer Regarding Forward-looking Statements and Risk Factor Summary](index=4&type=section&id=Disclaimer%20Regarding%20Forward-looking%20Statements%20and%20Risk%20Factor%20Summary) This section warns investors that the report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from expectations, outlining key risk factors and advising reference to detailed sections - All non-historical statements in the report are forward-looking, pertaining to financial condition, operating results, plans, objectives, future performance, and business[12](index=12&type=chunk) - Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations[12](index=12&type=chunk) - Key risks include: fluctuations in frac sand demand, customer business cyclicality, operational risks (e.g., transportation, energy price changes), reliance on the Oakdale mine, oil and gas industry activity levels, development of alternative proppants or new hydraulic fracturing techniques, increased competition, regulatory policy changes, litigation risks, supply chain shortages, geopolitical events (e.g., Ukraine and Middle East conflicts), capital expenditure capacity, debt limitations, global pandemics, contractual obligations, accuracy of mineral reserve estimates, labor shortages, loss of key personnel, labor relations, quality control, seasonal weather, information technology system disruptions (including cyberattacks), environmental regulations, silica dust-related health issues and litigation, and financial assurance for mining property reclamation[13](index=13&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk) [PART I](index=8&type=section&id=PART%20I) [ITEM 1. — BUSINESS](index=8&type=section&id=ITEM%201.%20%E2%80%94%20BUSINESS) Smart Sand, Inc. is an integrated frac sand and industrial sand supply and service company, offering mine-to-wellsite proppant supply and logistics solutions, producing high-quality Northern White Sand and SmartSystems wellsite proppant storage solutions, while expanding capacity, logistics, and diversifying into Industrial Products Solutions (IPS) - Smart Sand is an integrated frac sand and industrial sand supply and service company, providing mine-to-wellsite proppant supply and logistics solutions[21](index=21&type=chunk) - The company produces low-cost, high-quality Northern White Sand for hydraulic fracturing and various industrial applications[21](index=21&type=chunk) - Proppant logistics services are provided through SmartSystems wellsite proppant storage solutions and in-basin transload terminals[22](index=22&type=chunk) - The Industrial Products Solutions (IPS) business was established in late 2021 to diversify the customer base and markets[23](index=23&type=chunk) - The company operates mines and processing facilities in Oakdale, Utica, and Blair, with a total annual processing capacity of approximately **10 million tons**[24](index=24&type=chunk) - Smart Sand directly controls five in-basin transload facilities and can utilize third-party transload stations, covering all major North American oil and gas basins[25](index=25&type=chunk) - SmartSystems products, including SmartDepot/SmartDepotXL silo systems, SmartPath transloaders, and SmartBelt conveyor systems, aim to enhance wellsite operational efficiency, safety, reliability, and reduce carbon footprint[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) - The company possesses a long-life, strategically located, high-quality reserve base, with estimated mine lives of **61 years** for Oakdale, **106 years** for Utica, and **45 years** for Blair[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) - The company has inherent logistical advantages, utilizing its own rail facilities and access to all Class I railroads for efficient, low-cost product transportation[32](index=32&type=chunk)[33](index=33&type=chunk) - Smart Sand is committed to being a low-cost provider by optimizing production processes, investing in efficiency projects, and strategic acquisitions[34](index=34&type=chunk)[35](index=35&type=chunk) - Sales activities are flexible, focusing on short-term contracts and spot sales to respond to market fluctuations[36](index=36&type=chunk) - The company maintains ample liquidity and financial flexibility, with **$6.1 million** in cash and **$12 million** available under its ABL credit facility as of December 31, 2023[37](index=37&type=chunk)[38](index=38&type=chunk) - The management team is highly experienced, possessing deep expertise in industry operations and technology[39](index=39&type=chunk) - The company prioritizes safety and environmental stewardship, participating in Wisconsin's Green Tier program and holding ISO 9001 and ISO 14001 certifications[40](index=40&type=chunk)[41](index=41&type=chunk) - Capital expenditures for 2024 are projected to be between **$19 million and $23 million**, primarily for efficiency projects at mine and processing facilities and investment in new Ohio transload stations[42](index=42&type=chunk)[43](index=43&type=chunk) - North American proppant market demand was approximately **132 million tons** in 2023, a **5% increase** from 2022, with 2024 demand expected to be flat compared to 2023[44](index=44&type=chunk)[45](index=45&type=chunk) - The frac sand industry is highly competitive, with key factors including service capability, product quality, transportation capacity, supply reliability, price, and logistics services[46](index=46&type=chunk)[47](index=47&type=chunk) - Business is affected by seasonal weather conditions, with reduced mining and wet sand processing in winter, potentially leading to cash flow fluctuations[48](index=48&type=chunk)[49](index=49&type=chunk) - The company's intellectual property primarily includes trade secrets, proprietary technology, and trademarks, with patents for SmartSystems wellsite proppant storage solutions[50](index=50&type=chunk)[51](index=51&type=chunk) - The company is subject to federal, state, local, and international environmental, mining, health, and safety regulations, incurring significant compliance costs[52](index=52&type=chunk)[53](index=53&type=chunk) - As of December 31, 2023, the company employed **378 individuals**, with **42 employees** covered by a collective bargaining agreement expiring on **April 30, 2024**[54](index=54&type=chunk)[55](index=55&type=chunk) [ITEM 1A. — RISK FACTORS](index=21&type=section&id=ITEM%201A.%20%E2%80%94%20RISK%20FACTORS) This section details various risks that could materially adversely affect the company's business, operating results, and financial condition, including those related to oil and gas industry activity levels, customer concentration, competition, capital expenditures, operational disruptions, regulatory environment, climate change, intellectual property, and common stock ownership - The company's business and financial performance are highly dependent on oil and gas industry activity levels, where fluctuations in oil and gas prices, alternative energy development, or regulatory changes could decrease frac sand demand[13](index=13&type=chunk)[103](index=103&type=chunk) - Revenue is highly concentrated among a few customers, and the loss, default, or significant reduction in purchases by any major customer could adversely affect the business[14](index=14&type=chunk)[104](index=104&type=chunk) - The frac sand industry is highly competitive, and new entrants, increased regional frac sand supply, or competitor vertical integration could lead to market share loss and price pressure[17](index=17&type=chunk)[107](index=107&type=chunk) - The company may require significant capital expenditures to maintain and develop its asset base, with no guarantee of sufficient returns, and difficulty obtaining satisfactory capital or financing terms could limit future growth[19](index=19&type=chunk)[109](index=109&type=chunk) - Inaccurate estimates of sand reserves and quality could lead to lower-than-expected sales and higher-than-expected production costs[110](index=110&type=chunk) - Any adverse developments at production facilities, rail transload stations, or rail lines (e.g., catastrophic events, weather, disruptions) could prevent the company from fulfilling contractual delivery obligations[115](index=115&type=chunk) - Restrictions from the ABL credit facility may limit the company's ability to pursue potential acquisitions and other business opportunities, and the facility's expiration in **December 2024** poses renewal risk[111](index=111&type=chunk) - Distribution and logistics challenges, including increased transportation costs, rail service disruptions, or inadequate infrastructure, could impact product delivery efficiency and operating costs[112](index=112&type=chunk) - The development of alternative proppants or new hydraulic fracturing techniques could lead to decreased demand for frac sand[113](index=113&type=chunk) - Operations face operational risks and unforeseen shutdowns from natural disasters or pandemics, and insurance may not fully cover all losses[116](index=116&type=chunk) - Production processes consume substantial natural gas and electricity, and rising energy prices or supply interruptions could significantly increase production costs[117](index=117&type=chunk) - Rising diesel prices could adversely affect transportation costs[118](index=118&type=chunk) - Facility closures involve significant fixed costs, and early closure could adversely affect operating results[119](index=119&type=chunk) - Operations depend on the renewal or acquisition of mining rights and government permits, and any delays or denials could materially adversely affect the business[120](index=120&type=chunk) - Shortages of skilled labor and rising labor costs could further increase operating costs, and the loss of key personnel could also harm the business[121](index=121&type=chunk][122](index=122&type=chunk) - Failure to maintain effective quality control systems could negatively impact the business[123](index=123&type=chunk) - Seasonal and adverse weather conditions could reduce product processing and delivery capabilities, leading to cash flow fluctuations[124](index=124&type=chunk)[125](index=125&type=chunk) - The company does not own the land where its transload facilities are located, limiting its rights at these facilities[126](index=126&type=chunk) - Terrorist attacks or armed conflicts could affect the economy and oil and gas demand, impacting the company's business[127](index=127&type=chunk) - Reduced access to water resources could affect sand processing capabilities[128](index=128&type=chunk) - Information technology system disruptions or cyberattacks could lead to data loss, operational interruptions, and financial losses[129](index=129&type=chunk) - Failure to adequately protect intellectual property or involvement in third-party intellectual property disputes could result in loss of competitive advantage and significant costs[130](index=130&type=chunk)[131](index=131&type=chunk) - Current reliance on a few suppliers for certain SmartSystems equipment and materials poses price and delivery risks[132](index=132&type=chunk) - Poor safety performance could negatively impact customer relationships and revenue[133](index=133&type=chunk) - The company may face legal claims for personal injury and property damage, with uncertain litigation outcomes[134](index=134&type=chunk) - Economic downturns could negatively impact business, operating results, financial condition, and liquidity[135](index=135&type=chunk) - Failure to effectively manage expanded operations (e.g., Blair facility and Ohio transload stations acquisition) could impair future performance[136](index=136&type=chunk) - Federal, state, and local legislative and regulatory measures related to hydraulic fracturing, along with potential litigation, could increase customer costs, restrict operations, and reduce frac sand demand[137](index=137&type=chunk) - The company and its customers are subject to extensive environmental and occupational health and safety regulations, which entail significant costs and liabilities, with stricter future regulations potentially increasing these burdens[138](index=138&type=chunk) - Silica dust-related legislation, health concerns, and litigation could materially adversely affect the business, reputation, or operating results[139](index=139&type=chunk) - The company is subject to the Federal Mine Safety and Health Act of 1977, which imposes stringent health and safety standards on many aspects of its operations, and non-compliance could have adverse effects[140](index=140&type=chunk) - Failure to obtain, maintain, or renew financial assurances for mining property reclamation and restoration could materially adversely affect the business[141](index=141&type=chunk) - Climate change legislation and regulatory measures (e.g., Inflation Reduction Act, SEC disclosure rules, Paris Agreement) could increase compliance costs for the company and its customers, and impact oil and gas demand[142](index=142&type=chunk) - A negative shift in investor sentiment towards the oil and gas industry and increasing focus on environmental, social, and governance (ESG) and conservation matters could adversely affect the company's stock price, financing capabilities, and reputation[143](index=143&type=chunk) - Stock price may fluctuate, and investors may not be able to resell common stock at or above the purchase price[144](index=144&type=chunk) - The company is subject to certain requirements of Section 404 of the Sarbanes-Oxley Act, and failure to comply in a timely manner or high compliance costs could adversely affect financial reporting reliability and stock price[145](index=145&type=chunk) - The concentrated ownership of the company's capital stock by the largest shareholder and its affiliates will limit investors' ability to influence company affairs[146](index=146&type=chunk) - Common stock price may fluctuate significantly, and investors could lose part or all of their investment[147](index=147&type=chunk) - If securities or industry analysts do not publish research reports or publish unfavorable reports, common stock price and trading volume may decline[148](index=148&type=chunk) - The company's amended and restated certificate of incorporation and bylaws, along with Delaware law, contain provisions that could deter acquisition offers or merger proposals, potentially adversely affecting the market price of common stock[149](index=149&type=chunk) - The company currently does not pay common stock dividends, and debt agreements impose certain restrictions on dividend payments[150](index=150&type=chunk) - Future sales of common stock in the public market could depress the stock price, and issuing equity or convertible securities could dilute ownership[151](index=151&type=chunk) - The company may issue preferred stock, whose terms could adversely affect the voting rights or value of common stock[152](index=152&type=chunk) - The company's amended and restated certificate of incorporation designates the Delaware Court of Chancery as the sole and exclusive forum for certain types of actions, which may limit shareholders' ability to obtain a favorable judicial forum for disputes with the company or its directors, officers, employees, or agents[153](index=153&type=chunk) [ITEM 1B. — UNRESOLVED STAFF COMMENTS](index=39&type=section&id=ITEM%201B.%20%E2%80%94%20UNRESOLVED%20STAFF%20COMMENTS) The company has no unresolved staff comments for the reporting period - The company has no unresolved staff comments for the reporting period[209](index=209&type=chunk) [ITEM 1C. — CYBERSECURITY](index=40&type=section&id=ITEM%201C.%20%E2%80%94%20CYBERSECURITY) The company has established a cyber risk management program to identify, assess, manage, mitigate, and respond to cybersecurity threats, adhering to standards like the NIST Cybersecurity Framework, and has not experienced any material cybersecurity incidents - The company implements a cyber risk management program, adhering to standards such as the NIST Cybersecurity Framework, to identify, assess, manage, mitigate, and respond to cybersecurity threats[210](index=210&type=chunk) - Various security tools are utilized to prevent, identify, escalate, investigate, resolve, and recover from vulnerabilities and security incidents[210](index=210&type=chunk) - An incident response plan is in place, defining procedures for assessing, identifying, and managing cybersecurity incidents[211](index=211&type=chunk) - The Vice President of Technology is responsible for all IT functions, possessing over **29 years** of IT professional experience, including **7 years** with Smart Sand[212](index=212&type=chunk)[213](index=213&type=chunk) - The Board of Directors receives regular updates on the cybersecurity program[214](index=214&type=chunk) - To date, no cybersecurity incidents have occurred that resulted in unauthorized access to customer, vendor, employee, or company data, and have had a material adverse effect on the company's business, operations, or consolidated financial condition[215](index=215&type=chunk) [PART II](index=53&type=section&id=PART%20II) [ITEM 5. — MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=53&type=section&id=ITEM%205.%20%E2%80%94%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock (SND) has traded on the Nasdaq Global Select Market since November 4, 2016, with **43,008,960 shares** outstanding held by approximately **31 registered shareholders** as of March 4, 2024, and no current common stock dividends are paid - The company's common stock (SND) has been publicly traded on the Nasdaq Global Select Market since **November 4, 2016**[282](index=282&type=chunk) Common Stock Information | Metric | Detail | | :--- | :--- | | Stock Symbol | SND | | Listing Date | November 4, 2016 | | Shares Outstanding as of March 4, 2024 | 43,008,960 shares | | Registered Shareholders as of March 4, 2024 | Approximately 31 | - The company currently does not pay common stock dividends, and future dividend payments are at the discretion of the Board of Directors, subject to Delaware corporate law, company bylaws, and the ABL Credit Agreement[284](index=284&type=chunk) [ITEM 6. — RESERVED](index=54&type=section&id=ITEM%206.%20%E2%80%94%20RESERVED) This section is reserved and contains no specific information disclosure - This section is reserved and contains no specific information disclosure[289](index=289&type=chunk) [ITEM 7. — MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=55&type=section&id=ITEM%207.%20%E2%80%94%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's detailed discussion and analysis of the company's financial condition and operating results, covering factors affecting financial outcomes, business overview, recent developments, assets and operations, revenue sources, operating costs, industry trends, and outlook, along with GAAP and non-GAAP financial metrics, liquidity, capital resources, material cash requirements, off-balance sheet arrangements, environmental matters, seasonality, customer concentration, and critical accounting estimates [Factors Affecting Comparability of Our Financial Results](index=55&type=section&id=Factors%20Affecting%20Comparability%20of%20Our%20Financial%20Results) The comparability of the company's historical performance is influenced by operational expansion (new mines, terminals, and industrial products business), fluctuations in frac sand market prices (due to COVID-19, oil and gas demand, inflation, and geopolitical events), a 2021 litigation settlement, and inventory impairment losses - Operational expansion: Recent additions of two mines, multiple terminals, and expansion into industrial products business have increased revenue, cost of sales, operating costs, and capital investments, reducing period comparability[293](index=293&type=chunk) - Market trends: Frac sand prices have fluctuated, with a significant demand drop in **2020** due to COVID-19, a gradual recovery from late **2020** to mid-**2023**, and a slowdown in demand in **Q4 2023**; high inflation increased operating expenses in **2022** and **2023**; the Ukraine conflict, Middle East situation, and LNG permit pauses may cause oil and gas price and activity volatility in **2024**[293](index=293&type=chunk) - Litigation settlement: In **2021**, approximately **$19.6 million** in bad debt was recorded, with **$35 million** cash collected through a settlement agreement, resolving **$54.6 million** in accounts receivable[293](index=293&type=chunk) - Inventory impairment: In **2021**, **$2.2 million** in inventory impairment losses were recorded, with no impairment losses in **2022** and **2023**[293](index=293&type=chunk) [Overview](index=56&type=section&id=Overview) Smart Sand is an integrated frac sand and industrial sand supply and service company, providing mine-to-wellsite proppant supply and logistics solutions, producing high-quality Northern White Sand and SmartSystems wellsite storage solutions, and has expanded capacity at Oakdale, Utica, and Blair through acquisitions, directly controlling five in-basin transload stations with access to all Class I railroads, and diversifying into Industrial Products Solutions (IPS) - Smart Sand provides frac sand and industrial sand supply and logistics solutions, including Northern White Sand production and SmartSystems wellsite storage services[296](index=296&type=chunk) - The Oakdale facility has an annual processing capacity of approximately **5.5 million tons**, Utica **1.6 million tons**, and Blair **2.9 million tons**, significantly increasing total capacity[296](index=296&type=chunk)[297](index=297&type=chunk) - The company directly controls five in-basin transload stations, including Van Hook, Waynesburg, El Reno, and plans to operate Minerva and Dennison (Ohio) terminals in **Q2 2024**[298](index=298&type=chunk)[299](index=299&type=chunk) - SmartSystems products (SmartDepot, SmartPath, SmartBelt, rapid deployment trailers) offer wellsite proppant unloading, storage, and delivery capabilities, enhancing efficiency, flexibility, and safety, while reducing carbon footprint[300](index=300&type=chunk) - The Industrial Products Solutions (IPS) business expanded in late **2021**, with mixing and cooling assets installed at the Utica facility in **2023** to serve industrial markets like glass, foundry, and building products[302](index=302&type=chunk)[303](index=303&type=chunk) [Recent Developments](index=57&type=section&id=Recent%20Developments) The company recently expanded its Appalachian Basin logistics network by acquiring Minerva and Dennison transload stations in Ohio, expected to be operational in **Q2 2024**, and the Blair mine and processing facility became operational in **Q2 2023**, adding approximately **2.9 million tons** of annual capacity and Canadian National Railway Class I access - In late **2023** and early **2024**, the company acquired operating rights for unit train transload facilities in Minerva and Dennison, Ohio, expected to be operational in **Q2 2024**, to expand its customer base in the Appalachian Basin[304](index=304&type=chunk) - The Blair mine and processing facility commenced operations in **April 2023**, with an annual processing capacity of approximately **2.9 million tons** and direct access to the Class 1 Canadian National Railway, enhancing market reach in Canada and North America[305](index=305&type=chunk) [Assets and Operations](index=57&type=section&id=Assets%20and%20Operations) The company possesses high-quality frac sand reserves and processing facilities in Oakdale, Utica, and Blair, totaling approximately **484 million tons** of proven and probable reserves, complemented by significant logistical advantages including multiple Class I rail accesses and SmartSystems wellsite storage solutions to optimize customer supply chain efficiency and costs - The Oakdale facility holds **243 million tons** of proven and probable reserves, with an estimated mine life of **61 years**, offering competitive logistics options through dual Class I rail access (Canadian Pacific and Union Pacific)[306](index=306&type=chunk)[307](index=307&type=chunk) - The Utica facility has **127 million tons** of proven and probable reserves, with an estimated mine life of **106 years**, accessing the BNSF railway via the Peru transload station to serve western U.S. basins and Midwest industrial markets[309](index=309&type=chunk)[310](index=310&type=chunk) - The Blair facility contains **114 million tons** of proven and probable reserves, with an estimated mine life of **45 years**, providing direct access to the Class 1 Canadian National Railway, further enhancing logistical advantages[311](index=311&type=chunk)[312](index=312&type=chunk) - The logistics network includes transload stations such as Van Hook (Bakken Basin), Waynesburg (Appalachian Basin), Minerva and Dennison (Ohio, expected **Q2 2024** operation), and El Reno (Woodford and SCOOP/STACK Basins)[313](index=313&type=chunk) - SmartSystems offers wellsite proppant storage and management solutions, including SmartDepot silos, SmartPath transloaders, and SmartBelt conveyors, designed to improve efficiency, reduce trucking and fuel consumption, and lower customer carbon footprints[314](index=314&type=chunk) - The company currently has direct access to **four Class I railroads** and can access all Class I railroads in the U.S. and Canada to maximize product transportation, improve railcar utilization, and reduce transportation costs[314](index=314&type=chunk) [How We Generate Revenue](index=59&type=section&id=How%20We%20Generate%20Revenue) The company primarily generates revenue by extracting and processing frac sand for oil and gas industry customers through short-term, long-term, and spot sales, charging for transportation and handling services, with additional revenue from SmartSystems equipment leasing and related services, and Industrial Products Solutions (IPS) - Frac sand sales revenue: Generated by extracting and processing frac sand, sold to oil and gas industry customers via short-term, long-term contracts, or spot sales, with revenue recognized upon product delivery; in-basin sales also include transportation and handling service fees[315](index=315&type=chunk) - Take-or-pay revenue: Derived from minimum purchase commitments in long-term contracts, with revenue recognized upon expiration of the right-to-use period[316](index=316&type=chunk) - Logistics revenue: Primarily from SmartSystems equipment leasing and related services, railcar usage fees, and transportation service fees, with revenue recognized as obligations are fulfilled[317](index=317&type=chunk) - Industrial Products Solutions (IPS): Began providing industrial sand in **Q4 2021**, with expected expansion in **2024** to serve markets such as glass, foundry, and building products[317](index=317&type=chunk) [Costs of Conducting Our Business](index=59&type=section&id=Costs%20of%20Conducting%20Our%20Business) The company's primary direct operating costs include freight (transportation and railcar leasing) and production costs (labor, maintenance, utilities, equipment, extraction, and depreciation of property, plant, and equipment), with energy costs being particularly susceptible to market fluctuations - Primary direct costs: Freight (transportation and railcar lease expenses) and production costs[318](index=318&type=chunk) - Production cost components: Labor, maintenance, utilities (electricity and natural gas), equipment, extraction, and depreciation of property, plant, and equipment[318](index=318&type=chunk) - Cost fluctuations: Utility costs (electricity and natural gas) are susceptible to market fluctuations[318](index=318&type=chunk) - Inventory costs: Processing costs, overhead allocation, depreciation, and depletion are capitalized as inventory components and expensed as cost of sales when inventory is sold[318](index=318&type=chunk) [Overall Trends and Outlook](index=59&type=section&id=Overall%20Trends%20and%20Outlook) North American proppant market demand grew **5%** in **2023** and is expected to remain stable in **2024**, with ongoing industry consolidation and limited Northern White Sand supply; the company is expanding its asset base and product lines to capitalize on market opportunities, anticipating healthy frac sand demand and stable prices in **2024** driven by longer horizontal wells and higher proppant usage per well North American Proppant Market Demand | Year | Demand (million tons) | Year-over-year Change | | :--- | :--- | :--- | | 2023 | 132 | +5% | | 2022 | 127 | - | | 2024 (projected) | 132 | 0% | - Supply trends: Industry consolidation continues, with limited Northern White Sand supply concentrated in specific regions, constraining new supply; the market shift towards finer mesh frac sand and lower-cost regional sand has led to the closure or idling of some coarse sand mines[320](index=320&type=chunk)[321](index=321&type=chunk) - Management outlook: The company is capitalizing on market opportunities by expanding its terminal network (Waynesburg, Minerva, Dennison), increasing capacity (Blair mine), and growing its IPS business[323](index=323&type=chunk) - The Blair facility's operation provides the company with direct access to **four Class I railroads** and access to all Class I railroads in the U.S. and Canada[324](index=324&type=chunk) - Frac sand demand is expected to remain healthy in **2024**, with relatively stable prices, benefiting from trends towards longer horizontal wells and higher proppant usage per well by oil and gas companies[325](index=325&type=chunk)[326](index=326&type=chunk) - Oil and gas companies are adopting a more disciplined approach to new drilling activities, leading to a relatively balanced supply and demand and rising oil and gas prices[327](index=327&type=chunk) - The Bakken and Marcellus formations, along with the Canadian market, remain key markets for the company, which will expand market share through strategic initiatives[328](index=328&type=chunk) - Industry trends support continued frac sand demand growth and increased SmartSystems demand as customers seek to improve wellsite sand management efficiency[329](index=329&type=chunk) [GAAP Results of Operations](index=61&type=section&id=GAAP%20Results%20of%20Operations) The company's **2023** net income was **$4.6 million**, a significant improvement from a **$0.7 million** net loss in **2022**, primarily due to increased sales volume and higher average selling prices, partially offset by rising operating costs; **2022** total revenue reached **$255.7 million**, a **102% increase** from **2021**, driven by higher volume and prices, but still resulted in a **$0.7 million** net loss, a substantial reduction from the **$50.7 million** loss in **2021** 2023 vs. 2022 GAAP Operating Results (thousand dollars) | Metric | 2023 | 2022 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Sand Sales Revenue | $283,160 | $243,162 | $39,998 | 16% | | Take-or-Pay Revenue | $4,304 | $5,010 | $(706) | (14)% | | Logistics Revenue | $8,509 | $7,568 | $941 | 12% | | **Total Revenue** | **$295,973** | **$255,740** | **$40,233** | **16%** | | Cost of Sales | $254,418 | $226,149 | $28,269 | 13% | | **Gross Profit** | **$41,555** | **$29,591** | **$11,964** | **40%** | | Total Operating Expenses | $43,059 | $32,719 | $10,340 | 32% | | Operating Loss | $(1,504) | $(3,128) | $1,624 | 52% | | Other (Expense) Income, Net | $(748) | $(780) | $32 | 4% | | Loss Before Income Taxes | $(2,252) | $(3,908) | $1,656 | 42% | | Income Tax Benefit | $(6,901) | $(3,205) | $(3,696) | 115% | | **Net Income (Loss)** | **$4,649** | **$(703)** | **$5,352** | **761%** | | Basic Net Income (Loss) Per Share | $0.12 | $(0.02) | - | - | | Diluted Net Income (Loss) Per Share | $0.12 | $(0.02) | - | - | | Basic Weighted Average Shares | 38,948 | 42,408 | - | - | | Diluted Weighted Average Shares | 39,046 | 42,408 | - | - | - **2023** revenue increased by **16%** to **$296 million**, primarily due to a **4% increase** in sales volume and higher sand prices[332](index=332&type=chunk) - **2023** gross profit increased by **40%** to **$41.6 million**, mainly driven by higher sales volume and average selling prices[333](index=333&type=chunk) - **2023** operating expenses increased by **32%** to **$43.1 million**, primarily due to increased headcount, Blair facility-related maintenance, royalties, insurance expenses, and a **$1.8 million** net loss on disposal of fixed assets[334](index=334&type=chunk)[335](index=335&type=chunk) - **2023** net interest expense was **$1.3 million**, and income tax benefit was **$6.9 million**, resulting in an effective tax rate of approximately **306.4%**[336](index=336&type=chunk)[337](index=337&type=chunk) - **2023** net income was **$4.6 million**, a significant improvement from a **$0.7 million** net loss in **2022**, primarily due to increased sales volume and prices, and a higher income tax benefit[338](index=338&type=chunk) 2022 vs. 2021 GAAP Operating Results (thousand dollars) | Metric | 2022 | 2021 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Sand Sales Revenue | $243,162 | $117,402 | $125,760 | 107% | | Take-or-Pay Revenue | $5,010 | $4,421 | $589 | 13% | | Logistics Revenue | $7,568 | $4,825 | $2,743 | 57% | | **Total Revenue** | **$255,740** | **$126,648** | **$129,092** | **102%** | | Cost of Sales | $226,149 | $140,384 | $85,765 | 61% | | Inventory Impairment Loss | $0 | $2,170 | $(2,170) | (100)% | | **Gross Profit** | **$29,591** | **$(15,906)** | **$45,497** | **(286)%** | | Total Operating Expenses | $32,719 | $47,579 | $(14,860) | (31)% | | Operating Loss | $(3,128) | $(63,485) | $60,357 | (95)% | | Other (Expense) Income, Net | $(780) | $3,794 | $(4,574) | (121)% | | Loss Before Income Taxes | $(3,908) | $(59,691) | $55,783 | (93)% | | Income Tax Benefit | $(3,205) | $(9,017) | $5,812 | (64)% | | **Net Income (Loss)** | **$(703)** | **$(50,674)** | **$49,971** | **(99)%** | | Basic Net Income (Loss) Per Share | $(0.02) | $(1.21) | - | - | | Diluted Net Income (Loss) Per Share | $(0.02) | $(1.21) | - | - | | Basic Weighted Average Shares | 42,408 | 41,775 | - | - | | Diluted Weighted Average Shares | 42,408 | 41,775 | - | - | - **2022** revenue increased by **102%** to **$255.7 million**, primarily due to a **36% increase** in sales volume and higher sand prices[342](index=342&type=chunk) - **2022** gross profit was **$29.6 million**, a significant improvement from a **$15.9 million** loss in **2021**, mainly due to increased sales volume and average selling prices[343](index=343&type=chunk) - **2022** operating expenses decreased by **31%** to **$32.7 million**, primarily due to a **$19.6 million** non-cash bad debt expense recorded in **2021**, though compensation, benefits, and selling, general, and administrative expenses increased[344](index=344&type=chunk)[345](index=345&type=chunk) - **2022** net interest expense was **$1.6 million**, and income tax benefit was **$3.2 million**, resulting in an effective tax rate of approximately **82.0%**[346](index=346&type=chunk)[347](index=347&type=chunk) - **2022** net loss was **$0.7 million**, a significant reduction from a **$50.7 million** net loss in **2021**, primarily due to increased sales volume and prices, and a decrease in non-cash bad debt expense from the prior year[348](index=348&type=chunk)[349](index=349&type=chunk][350](index=350&type=chunk) [Non-GAAP Financial Measures](index=64&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP metrics such as contribution margin, EBITDA, Adjusted EBITDA, and free cash flow to assess financial and operational performance, providing insights into asset financial performance, capital expenditure project viability, debt service capacity, and operational performance, also used for debt covenant compliance - Non-GAAP financial measures include contribution margin, EBITDA, Adjusted EBITDA, and free cash flow, used to assess financial condition and operating performance[351](index=351&type=chunk)[353](index=353&type=chunk) Contribution Margin (thousand dollars) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenue | $295,973 | $255,740 | $126,648 | | Cost of Sales | $254,418 | $226,149 | $140,384 | | Gross Profit | $41,555 | $29,591 | $(13,736) | | Depreciation, Depletion, and Amortization of ARO included in Cost of Sales | $25,469 | $25,038 | $24,258 | | **Contribution Margin** | **$67,024** | **$54,629** | **$10,522** | | Contribution Margin Per Ton | $14.85 | $12.61 | $3.30 | | Total Volume (thousand tons) | 4,514 | 4,333 | 3,189 | - **2023** contribution margin was **$67 million** (**$14.85 per ton**), an increase from **$54.6 million** (**$12.61 per ton**) in **2022**, primarily due to increased sales volume, higher average selling prices, and production cost savings, partially offset by higher freight costs[356](index=356&type=chunk) - **2022** contribution margin was **$54.6 million** (**$12.61 per ton**), a significant increase from **$10.5 million** (**$3.30 per ton**) in **2021**, primarily due to increased sales volume, higher average selling prices, growth in IPS sales, and improved SmartSystems fleet utilization[357](index=357&type=chunk) EBITDA and Adjusted EBITDA (thousand dollars) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Income (Loss) | $4,649 | $(703) | $(50,674) | | Depreciation, Depletion, and Amortization | $27,363 | $26,521 | $25,495 | | Income Tax Benefit | $(6,901) | $(3,205) | $(9,017) | | Interest Expense | $1,532 | $1,661 | $2,014 | | Franchise Tax | $804 | $353 | $290 | | **EBITDA** | **$27,447** | **$24,627** | **$(31,892)** | | (Gain) Loss on Disposal of Fixed Assets | $1,802 | $(294) | $555 | | Stock-based Compensation | $3,391 | $2,729 | $2,933 | | Royalty Stock Issuance | $0 | $639 | $0 | | Employee Retention Credit | $0 | $0 | $(5,026) | | Acquisition and Development Costs | $545 | $675 | $28 | | Non-cash Impairment | $0 | $0 | $2,170 | | Restructuring and Retention Related Cash Expenses | $32 | $137 | $9 | | Amortization of Asset Retirement Obligations | $904 | $758 | $740 | | **Adjusted EBITDA** | **$34,121** | **$29,271** | **$(30,483)** | - **2023** Adjusted EBITDA was **$34.1 million**, an increase from **$29.3 million** in **2022**, primarily due to increased sales volume and production cost savings, partially offset by higher freight costs[363](index=363&type=chunk)[364](index=364&type=chunk) - **2022** Adjusted EBITDA was **$29.3 million**, a significant increase from negative **$30.5 million** in **2021**, primarily due to a reduced net loss (higher sales volume and prices) and the **$19.6 million** non-cash bad debt expense recorded in **2021**[366](index=366&type=chunk) Free Cash Flow (thousand dollars) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $30,991 | $5,420 | $32,438 | | Acquisition of Blair Facility | $0 | $(6,547) | $0 | | Purchases of Property, Plant, and Equipment | $(23,031) | $(12,731) | $(11,220) | | **Free Cash Flow** | **$7,960** | **$(13,858)** | **$21,218** | - **2023** free cash flow was **$8 million**, with net cash provided by operating activities increasing to **$31 million**, primarily due to higher sales volume and selling prices, and capital expenditures of **$23 million**[369](index=369&type=chunk) - **2022** free cash flow was negative **$13.9 million**, with net cash provided by operating activities at **$5.4 million**, primarily impacted by increased working capital needs at the beginning of the year, and the acquisition of the Blair facility and planned capital expenditures exceeding cash provided by operating activities[370](index=370&type=chunk) [Liquidity and Capital Resources](index=67&type=section&id=Liquidity%20and%20Capital%20Resources) The company primarily obtains liquidity through cash flow from operations, ABL credit facilities, and equipment financing; as of December 31, 2023, it had **$6.1 million** in cash and **$12 million** available under its ABL credit facility, expecting existing liquidity to meet cash needs for the next **12 months**, including efficiency project investments and new terminal expansion - Primary liquidity sources: Cash flow from operating activities, ABL credit facility, and equipment financing[371](index=371&type=chunk) - As of December 31, 2023, cash and cash equivalents totaled **$6.1 million**[372](index=372&type=chunk) - ABL credit facility: **$20 million** senior secured asset-based revolving credit facility, with **$8 million** borrowed and **$12 million** available as of December 31, 2023, set to expire on **December 13, 2024**[372](index=372&type=chunk) - Total available liquidity: **$18.1 million** as of December 31, 2023 (cash plus available borrowings)[372](index=372&type=chunk) - The company expects existing liquidity to be sufficient to meet cash needs for the next **12 months**, including investments in efficiency projects at Oakdale, Blair, and Utica facilities, and the expansion and customization of newly acquired Ohio terminals[372](index=372&type=chunk) [Material Cash Requirements](index=67&type=section&id=Material%20Cash%20Requirements) The company anticipates **$19 million to $23 million** in capital expenditures for **2024**, mainly for facility efficiency and new terminal expansion; debt includes **$7.9 million** for Oakdale equipment financing, **$2.5 million** in notes payable, and **$8 million** under the ABL credit facility, with operating lease liabilities of **$24.6 million** and minimum annual mineral property payments of approximately **$2.5 million** - Capital requirements: Projected **2024** capital expenditures are between **$19 million and $23 million**, primarily for efficiency projects at Oakdale, Blair, and Utica facilities, and the expansion and customization of new Ohio terminals[373](index=373&type=chunk) - Debt: As of December 31, 2023, Oakdale equipment financing balance was **$7.9 million** (**$6.8 million** minimum cash payment in **2024**), notes payable were **$2.5 million** (**$1.1 million** minimum cash payment in **2024**), and outstanding borrowings under the ABL credit facility were **$8 million**[374](index=374&type=chunk)[375](index=375&type=chunk) - Operating leases: As of December 31, 2023, operating lease liabilities were **$24.6 million** (**$11.8 million** minimum cash payment in **2024**)[376](index=376&type=chunk) - Mineral property: Minimum payment obligations of approximately **$2.5 million** annually for the next **13 years**[376](index=376&type=chunk) [Off-Balance Sheet Arrangements](index=68&type=section&id=Off-Balance%20Sheet%20Arrangements) As of December 31, 2023, the company had **$18.9 million** in outstanding performance bonds, securing obligations such as reclamation plans, public road maintenance, and restoration Outstanding Performance Bonds (thousand dollars) | Year | Amount | | :--- | :--- | | December 31, 2023 | $18,900 | | December 31, 2022 | $17,700 | [Environmental Matters](index=68&type=section&id=Environmental%20Matters) The company is subject to federal, state, and local environmental laws and regulations concerning hazardous substances, air and water emissions, environmental contamination, and reclamation, incurring and continuing to incur compliance expenditures, though the exact future amounts are unpredictable - The company is subject to federal, state, and local environmental laws and regulations, and has incurred and will continue to incur compliance expenditures[378](index=378&type=chunk) [Seasonality](index=68&type=section&id=Seasonality) The company's business is affected by seasonal weather fluctuations, with reduced wet sand processing in winter leading to lower cash operating costs in Q1 and Q4 and higher costs in Q2 and Q3; however, indoor wet processing facilities at Oakdale and Utica help maintain wet sand inventory year-round, mitigating some seasonal impact, while customer budget discipline may slow demand in Q4 - Seasonal weather impacts wet sand processing capacity, leading to lower cash operating costs in **Q1** and **Q4** and higher costs in **Q2** and **Q3**[379](index=379&type=chunk) - Indoor wet processing facilities at Oakdale and Utica help produce wet sand inventory year-round, mitigating seasonal impacts[379](index=379&type=chunk) - Adverse weather conditions can reduce drilling activity in oil and gas basins, affecting sales volume[379](index=379&type=chunk) - Customer budget discipline may lead to a slowdown in activity and decreased sand demand in **Q4**[379](index=379&type=chunk) [Customer Concentration](index=69&type=section&id=Customer%20Concentration) The company exhibits high customer concentration in both revenue and accounts receivable; in **2023**, two customers accounted for **42%** of total revenue; in **2022**, four customers accounted for **60%**; and in **2021**, three customers accounted for **58%** Customer Revenue Concentration | Year | Customer | Percentage of Total Revenue | | :--- | :--- | :--- | | 2023 | Equitable Gas Corporation, Liberty Oilfield Services | 30.2%, 11.4% (Total 41.6%) | | 2022 | Equitable Gas Corporation, Halliburton Energy Services, Encino Energy, Liberty Oilfield Services | 22.3%, 15.4%, 14.4%, 13.7% (Total 65.8%) | | 2021 | Equitable Gas Corporation, Halliburton Energy Services, Liberty Oilfield Services | 24.3%, 18.3%, 14.8% (Total 57.4%) | - As of December 31, 2023, **four customers** accounted for **70%** of the company's total accounts receivable; as of December 31, 2022, **four customers** accounted for **65%** of total accounts receivable[381](index=381&type=chunk)[540](index=540&type=chunk) [Critical Accounting Estimates](index=69&type=section&id=Critical%20Accounting%20Estimates) The preparation of the company's financial statements relies on several critical accounting estimates and assumptions, including asset retirement obligations, inventory valuation, long-lived asset impairment, and income taxes, which involve high uncertainty, and actual results may differ materially from these estimates - Asset retirement obligations: Estimates future costs for dismantling, restoring, and reclaiming operating mine sites, recognized as a liability at estimated fair value and amortized over time[384](index=384&type=chunk) - Inventory valuation: Sand inventory is measured at the lower of cost or net realizable value, with cost including extraction, processing, overhead, depreciation, and depletion; physical counts and production adjustments are performed periodically, with a **$21.7 million** inventory impairment in **2021**[385](index=385&type=chunk)[386](index=386&type=chunk) - Long-lived asset impairment: Periodically assesses whether the carrying value of long-lived assets is recoverable, recognizing an impairment loss measured at fair value if not recoverable; no impairment charges were recorded in **2023**[388](index=388&type=chunk)[389](index=389&type=chunk) - Income taxes: Uses the balance sheet method to recognize deferred tax assets and liabilities and assesses the realizability of deferred tax assets; as of December 31, 2023, **$22.4 million** in uncertain tax position liabilities and a **$0.9 million** valuation allowance for deferred tax assets were recorded[390](index=390&type=chunk)[391](index=391&type=chunk)[392](index=392&type=chunk) [ITEM 7A. — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=71&type=section&id=ITEM%207A.%20%E2%80%94%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's market risk is primarily associated with commodity price fluctuations, interest rate changes, and customer credit risk; it hedges commodity price risk through fixed-price contracts, most debt carries fixed interest rates, and customer credit risk is assessed, with no speculative trading and minimal perceived impact from inflation on financial condition - Commodity price risk: Frac sand and storage equipment markets are indirectly affected by crude oil and natural gas price fluctuations, impacting customer drilling and completion activities; natural gas, electricity, and diesel price volatility also affect operating costs; the company hedges some commodity price risk through fixed-price contracts[393](index=393&type=chunk) - Interest rate risk: Most debt carries fixed interest rates; the ABL credit facility's borrowing rate is based on LIBOR or ABR plus an applicable margin, with **$8 million** outstanding as of December 31, 2023, not posing a significant interest rate risk[394](index=394&type=chunk) - Credit risk: High customer concentration exists, and customers within the industry may be affected by similar economic and regulatory conditions; customer defaults or non-renewal of contracts upon expiration could adversely affect gross profit and cash flow[395](index=395&type=chunk) - Foreign currency risk: Primary revenues and expenses are denominated in U.S. dollars, but Canadian SmartSystems manufacturing facilities involve Canadian dollar transactions; Canadian dollar transactions did not materially impact operating results in **2023**, **2022**, and **2021**[396](index=396&type=chunk) - Inflation: The company believes inflation has not had a material impact on its financial condition or operating results[397](index=397&type=chunk) [PART III](index=102&type=section&id=PART%20III) [ITEM 10. — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](index=102&type=section&id=ITEM%2010.%20%E2%80%94%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) The information required for this section is disclosed by reference to the "Election of Directors" and "Executive Officers of the Registrant" sections in the **2024** Proxy Statement - Director and corporate governance information is disclosed by reference to the "Election of Directors" section in the **2024** Proxy Statement[558](index=558&type=chunk) - Executive officer information is disclosed in Part I, "Executive Officers of the Registrant," of the Form 10-K report[559](index=559&type=chunk) - Section 16(a) beneficial ownership reporting compliance information is disclosed by reference to the "Section 16(a) Beneficial Ownership Reporting Compliance" section in the **2024** Proxy Statement[560](index=560&type=chunk) [ITEM 11. — EXECUTIVE COMPENSATION](index=102&type=section&id=ITEM%2011.%20%E2%80%94%20EXECUTIVE%20COMPENSATION) The executive compensation information required for this section is disclosed by reference to the "Executive Compensation" section in the **2024** Proxy Statement - Executive compensation information is disclosed by reference to the "Executive Compensation" section in the **2024** Proxy Statement[561](index=561&type=chunk) [ITEM 12. — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS](index=102&type=section&id=ITEM%2012.%20%E2%80%94%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) The information required for this section, including equity compensation plan information and security ownership of certain beneficial owners and management, is disclosed by reference to the relevant sections in the **2024** Proxy Statement - Equity compensation plan information is disclosed by reference to the relevant tables in the **2024** Proxy Statement[562](index=562&type=chunk) - Security ownership information of certain beneficial owners and management is disclosed by reference to the "Principal Stockholders" section in the **2023** Proxy Statement[563](index=563&type=chunk) [ITEM 13. — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE](index=102&type=section&id=ITEM%2013.%20%E2%80%94%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) The information required for this section, including certain relationships and related transactions and director independence, is disclosed by reference to the relevant sections in the **2024** Proxy Statement - Information on certain relationships and related transactions, and director independence, is disclosed by reference to the "Certain Relationships and Related Party Transactions" and "Corporate Governance" sections in the **2024** Proxy Statement[564](index=564&type=chunk) [ITEM 14. — PRINCIPAL ACCOUNTANT FEES AND SERVICES](index=102&type=section&id=ITEM%2014.%20%E2%80%94%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) The principal accountant fees and services information required for this section is disclosed by reference to the relevant section in the **2024** Proxy Statement - Principal accountant fees and services information is disclosed by reference to the "Ratification of the Selection of Grant Thornton LLP as the Company’s Independent Registered Public Accounting Firm for the Year Ended December 31, 2023" section in the **2024** Proxy Statement[565](index=565&type=chunk) [PART IV](index=103&type=section&id=PART%20IV) [ITEM 15. — EXHIBITS, FINANCIAL STATEMENT SCHEDULES](index=103&type=section&id=ITEM%2015.%20%E2%80%94%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the financial statements, financial statement schedules, and all exhibits included in the Form 10-K report, such as equity purchase agreements, company bylaws, credit agreements, product purchase agreements, technical report summaries, subsidiary lists, and various certification documents - Financial statements are included in Item 8 of Part II of the Form 10-K report[567](index=567&type=chunk) Schedule II - Valuation and Qualifying Accounts (thousand dollars) | Year | Balance at Beginning of Year | Charged to Costs and Expenses | Additions/Deductions | Balance at End of Year | | :--- | :--- | :--- | :--- | :--- | | December 31, 2022 | $1,574 | $14 | $0 | $1,588 | | December 31, 2023 | $1,588 | $0 | $714 | $874 | - Report exhibits include equity purchase agreements, company bylaws, credit agreements, product purchase agreements, technical report summaries, subsidiary lists, independent registered public accounting firm consent letters, and various certification documents[568](index=568&type=chunk)[569](index=569&type=chunk)[570](index=570&type=chunk) [ITEM 16. — FORM 10-K SUMMARY](index=105&type=section&id=ITEM%2016.%20%E2%80%94%20FORM%2010-K%20SUMMARY) This report does not contain a Form 10-K summary - This report does not contain a Form 10-K summary[571](index=571&type=chunk) [SIGNATURES](index=106&type=section&id=SIGNATURES) [Signatures](index=106&type=section&id=Signatures) This report was signed on March 11, 2024, by authorized representatives of the registrant, including the Chief Executive Officer, Chief Financial Officer, Controller and Vice President of Accounting, and members of the Board of Directors - The Form 10-K report was signed on **March 11, 2024**[573](index=573&type=chunk) - Signatories include: Charles E. Young (Chief Executive Officer), Lee E. Beckelman (Chief Financial Officer), Christopher Green (Controller and Vice President of Accounting), Andrew Speaker (Director), Sharon Spurlin (Director), and Timothy J. Pawlenty (Director)[573](index=573&type=chunk)[574](index=574&type=chunk)

Smart Sand, Inc. (NASDAQ:SND) Q3 2023 Earnings Conference Call November 8, 2023 10:00 AM ET Company Participants Christopher Green - vice President-Accounting Charles Young - Chief Executive Officer Lee Beckelman - Chief Financial Officer William John Young - Chief Operating Officer Conference Call Participants John Daniel - Daniel Energy Partners Patrick Ouellette - Stifel William Bremer - Vanquish Capital Partners Operator Good morning and welcome to the Smart Sand, Inc. Third quarter 2023 Earnings Confer ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ___ to ___ Commission file number 001-37936 Washington, D.C. 20549 _____________________________________________________ FORM 10-Q _____________________________________________________ SMART SAND, INC. ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Exact name of registrant as specified in its cha ...

Market Overview - North America proppant demand is projected to increase by approximately 5% [1] - Northern White Sand supply can meet frac sand demand in basins where in-basin supply is insufficient [3] - The ability of in-basin facilities in the key Permian Basin market has now dropped below forecasted demand [80] Smart Sand's Position - Smart Sand now has the second-largest annual capacity of Northern White Sand providers in North America [4] - Smart Sand's Oakdale, WI facility has 247 million tons of reserves and 5.5 million tons of annual processing capacity [30] - Smart Sand's Utica, IL facility has 128 million tons of reserves and 1.6 million tons of annual processing capacity [30] - Smart Sand's Blair, WI facility has 115 million tons of reserves and 2.9 million tons of annual processing capacity [30] - Smart Sand has approximately 10 million tons of total plant annual capacity across three facilities [51] Financial Performance - Smart Sand's Q2 2023 revenue was $74.8 million [33] - Smart Sand's Q2 2023 contribution margin per ton was $17.57 [33] - Smart Sand's Q2 2023 adjusted EBITDA was $11.4 million [33] Northern White Sand Value Proposition - Rystad Energy study indicates that in 85% of cases analyzed, short-term cash benefits of using in-basin sand were negated within the first year or two [6] - Six of seven operators analyzed have seen a negative economic impact using in-basin Sand compared to wells completed with Northern White Sand [6]

Financial Data and Key Metrics Changes - In Q2 2023, the company sold approximately 1.1 million tons, generating $19 million in contribution margin and $11.4 million in adjusted EBITDA, showing solid improvements over Q2 2022 and Q1 2023 results [8][10] - Total revenues for Q2 2023 were $74.8 million, down from $82.4 million in Q1 2023, primarily due to lower tons sold and contractual shortfall revenue recognized in Q1 2023 [33] - Contribution margin per ton increased to $17.57 in Q2 2023 from $14.89 in Q1 2023, with adjusted EBITDA rising from $8.4 million in Q1 to $11.4 million in Q2 [35][41] - The company ended Q2 with no outstanding borrowings on its credit facility and approximately $5.5 million in cash, with total available liquidity exceeding $24 million [42] Business Line Data and Key Metrics Changes - The SmartSystems last mile offering showed substantial improvement, with operational results benefiting from lower maintenance costs and increased efficiency [24][25] - Industrial Product Solutions sales volume increased by 70% over Q1 2023, representing approximately 5% of overall sales volume in Q2 2023 [27] Market Data and Key Metrics Changes - Demand for Northern White frac sand remained strong, particularly in the Bakken region, with expectations for continued strong demand through Q3 2023 [12] - Sales volume in the Marcellus region moderated due to lower gas prices, but was still healthy compared to the same period last year [14] - The company expects sales volumes into Canada to represent 10% to 15% of tons sold in the second half of 2023, with the Blair facility operational and making first shipments [16] Company Strategy and Development Direction - The company aims to maintain its strong balance sheet while focusing on providing high-quality Northern White sand efficiently and sustainably [10] - Expansion plans include the Waynesburg terminal to capture expected increased activity in the Marcellus region and investments in cooling and blending capabilities at the Utica facility [15][27] - The company is committed to diversifying its business beyond oil and gas through its Industrial Product Solutions segment [28] Management's Comments on Operating Environment and Future Outlook - Management expects some moderation in demand in Q4 2023 but remains optimistic about the fundamentals for Northern White sand [46] - The potential listing of the dunes sagebrush lizard as an endangered species could impact regional sand supply in the Permian Basin, potentially increasing demand for Northern White sand [20] - The company anticipates continued positive free cash flow for 2023, despite potential higher capital expenditures in the second half of the year [62] Other Important Information - The company is investing in additional SmartSystems to enhance operational efficiency and expects to have nine fully functional systems available in 2024 [26] - The company has made significant capital investments in operational efficiency at its mine sites, which are expected to yield benefits in the future [69] Q&A Session Summary Question: Update on industry supply and demand for frac sand - Management expects some moderation in demand in Q4 but sees promising fundamentals for Northern White sand, with a balanced supply-demand situation [46] Question: Margin improvement from deliveries to Canada - Margin improvement was primarily due to lower production costs, with Canadian sales currently on an FOB mine basis leading to lower average sales prices [48] Question: Current level of capital spending and future expectations - Expected capital expenditures for the year are $20 million to $25 million, with maintenance and efficiency capital typically around $10 million to $15 million annually [51] Question: Volume under long-term contracts - Approximately 50% of volumes are under some term portion of contracts, ranging from 6 months to multiyear agreements [52] Question: Competitors in the Canadian market - The Canadian market is primarily served by companies like Source and Badger, with strong activity expected from E&Ps [54] Question: Reception of the white paper on Northern White sand - E&Ps are increasingly interested in improving production and well results, with the potential impact of the dunes sagebrush lizard also being monitored [55] Question: Spot pricing softness in Texas - There has been moderation in pricing in Texas, but Northern White sand remains in relative supply-demand balance [74] Question: Changes in cost side and future expectations - Investments in efficiency are expected to help margins and costs, particularly as volumes increase [77] Question: Evolution of frac sand demand per stage - There is ongoing growth in the amount of sand used per stage, driven by longer laterals and the need for efficient logistics [78]

PART I FINANCIAL INFORMATION This section presents Smart Sand, Inc.'s unaudited condensed consolidated financial statements and management's discussion [ITEM 1. Financial Statements](index=3&type=section&id=ITEM%201.%20Financial%20Statements) This section provides Smart Sand, Inc.'s unaudited condensed consolidated financial statements, detailing financial position, performance, and liquidity [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This table presents the company's financial position, including assets, liabilities, and equity, as of June 30, 2023, and December 31, 2022 | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :--------------------------- | :------------------------------- | :-------------------- | | Cash and cash equivalents | $5,492 | $5,510 | $(18) | | Accounts receivable | $29,996 | $35,746 | $(5,750) | | Inventory | $23,005 | $20,185 | $2,820 | | Total current assets | $60,304 | $68,113 | $(7,809) | | Property, plant and equipment, net | $256,790 | $258,843 | $(2,053) | | Total assets | $348,635 | $360,003 | $(11,368) | | Accounts payable | $15,201 | $14,435 | $766 | | Total current liabilities | $50,772 | $51,917 | $(1,145) | | Total liabilities | $109,833 | $116,532 | $(6,699) | | Total stockholders' equity | $238,802 | $243,471 | $(4,669) | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This table details the company's revenues, costs, and net income (loss) for the three and six months ended June 30, 2023 and 2022 | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :------------------------ | :------------------------------------ | :------------------------------------ | :---------------------------------- | :---------------------------------- | | Total revenue | $74,776 | $68,714 | $157,126 | $110,319 | | Cost of goods sold | $62,087 | $59,743 | $132,800 | $103,329 | | Gross profit | $12,689 | $8,971 | $24,326 | $6,990 | | Operating income (loss) | $3,083 | $1,387 | $1,475 | $(8,561) | | Net income (loss) | $6,307 | $(90) | $2,708 | $(6,013) | | Basic EPS | $0.17 | $0.00 | $0.07 | $(0.14) | | Diluted EPS | $0.17 | $0.00 | $0.07 | $(0.14) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) This table presents net income (loss) and other comprehensive income (loss) components for the three and six months ended June 30, 2023 and 2022 | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :---------------------------------- | :---------------------------------- | | Net income (loss) | $6,307 | $(90) | $2,708 | $(6,013) | | Foreign currency translation adjustment | $(41) | $(74) | $(107) | $(58) | | Comprehensive income (loss) | $6,266 | $(164) | $2,601 | $(6,071) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) This section outlines changes in stockholders' equity, including net income, stock-based compensation, and treasury stock transactions | Date | Total Stockholders' Equity (in thousands) | | :-------------------- | :------------------------------------ | | December 31, 2022 | $243,471 | | March 31, 2023 | $231,772 | | June 30, 2023 | $238,802 | - For the six months ended June 30, 2023, key changes included net income of **$2,708 thousand**, stock-based compensation of **$1,612 thousand**, and treasury stock purchases totaling **$(8,925) thousand**[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This table details cash flows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 | Activity | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | | Operating activities | $21,173 | $(10,949) | | Investing activities | $(9,172) | $(11,684) | | Financing activities | $(12,019) | $(857) | | Net decrease in cash | $(18) | $(23,490) | | Cash and cash equivalents at beginning of year | $5,510 | $25,588 | | Cash and cash equivalents at end of period | $5,492 | $2,098 | - Net cash provided by operating activities significantly improved to **$21,173 thousand** for the six months ended June 30, 2023, compared to a net cash used of **$(10,949) thousand** in the prior year, primarily due to positive net income and changes in working capital[28](index=28&type=chunk) [Notes to the Condensed Consolidated Financial Statements (Unaudited)](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section provides explanatory notes to the unaudited condensed consolidated financial statements, detailing accounting policies and specific financial items [NOTE 1 — Organization and Nature of Business](index=10&type=section&id=NOTE%201%20%E2%80%94%20Organization%20and%20Nature%20of%20Business) This note describes Smart Sand, Inc.'s business as a frac and industrial sand supplier and its key operational facilities - Smart Sand, Inc. operates as a fully integrated frac and industrial sand supply and services company, offering mine-to-wellsite proppant solutions for the oil and natural gas industry[31](index=31&type=chunk) - The company diversified its customer base by creating the Industrial Product Solutions (IPS) business in late 2021, serving various industrial uses such as glass, foundry, and building products[31](index=31&type=chunk) - Key facilities include Oakdale (**5.5 million tons/year**), Utica (**1.6 million tons/year**), and the Blair facility (**2.9 million tons/year**), which commenced operations in April 2023, all with Class I rail access[32](index=32&type=chunk)[33](index=33&type=chunk)[35](index=35&type=chunk) [NOTE 2 — Summary of Significant Accounting Policies](index=11&type=section&id=NOTE%202%20%E2%80%94%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the significant accounting policies used in preparing the unaudited interim financial statements, including reclassifications and credit recognition - The unaudited interim statements are prepared in accordance with SEC rules for Form 10-Q and do not include all GAAP information, with all adjustments being of a normal recurring nature[41](index=41&type=chunk) - An immaterial misclassification in 2022 operating expenses (overstatement of salaries, understatement of SG&A by **$1,462 thousand**) was reclassified with no effect on previously reported net income[42](index=42&type=chunk) - The company recognized **$522 thousand** and **$1,180 thousand** in prepaid expenses for federal employee retention credits as of June 30, 2023, and December 31, 2022, respectively[45](index=45&type=chunk) [NOTE 3 — Acquisition](index=12&type=section&id=NOTE%203%20%E2%80%94%20Acquisition) This note details the acquisition of Hi-Crush Blair LLC, including the purchase price, operational status, and asset retirement obligation adjustments - On March 4, 2022, Smart Sand acquired Hi-Crush Blair LLC (Blair facility) for **$6,450 thousand** in cash, which was accounted for as an asset acquisition[50](index=50&type=chunk)[52](index=52&type=chunk) - The Blair facility, an idle frac sand mine with **2.9 million tons** annual processing capacity, commenced operations in April 2023[51](index=51&type=chunk) - The initial asset retirement obligation estimate of **$8,281 thousand** was subsequently revised to **$1,988 thousand** based on the mine plan as of December 31, 2022[52](index=52&type=chunk) [NOTE 4 — Inventory](index=12&type=section&id=NOTE%204%20%E2%80%94%20Inventory) This note provides a breakdown of inventory components and highlights changes between December 31, 2022, and June 30, 2023 | Category | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--------------- | :--------------------------- | :------------------------------- | | Raw material | $753 | $844 | | Work in progress | $4,975 | $6,240 | | Finished goods | $10,178 | $7,534 | | Spare parts | $7,099 | $5,567 | | Total inventory | $23,005 | $20,185 | - Total inventory increased by **$2,820 thousand** from December 31, 2022, to June 30, 2023, primarily driven by an increase in finished goods and spare parts[54](index=54&type=chunk) [NOTE 5 — Property, Plant and Equipment, net](index=13&type=section&id=NOTE%205%20%E2%80%94%20Property%2C%20Plant%20and%20Equipment%2C%20net) This note details the composition of property, plant, and equipment, net, and reports depreciation expenses for the periods presented | Category | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------- | :------------------------------- | | Machinery, equipment and tooling | $38,417 | $36,483 | | SmartSystems | $29,683 | $28,376 | | Plant and building | $201,148 | $200,480 | | Land and land improvements | $40,486 | $40,433 | | Construction in progress | $14,158 | $10,421 | | Total property, plant and equipment, net | $256,790 | $258,843 | - Depreciation expense for the three months ended June 30, 2023, was **$6,543 thousand**, an increase from **$6,449 thousand** in the prior year, and for the six months, it was **$12,885 thousand**, up from **$12,810 thousand**[57](index=57&type=chunk) [NOTE 6 — Accrued and Other Expenses](index=13&type=section&id=NOTE%206%20%E2%80%94%20Accrued%20and%20Other%20Expenses) This note presents a breakdown of accrued liabilities and explains the changes between December 31, 2022, and June 30, 2023 | Category | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :--------------------------- | :------------------------------- | | Employee related expenses | $1,812 | $1,172 | | Accrued royalties | $2,624 | $3,470 | | Accrued freight and delivery charges | $2,138 | $4,117 | | Sales tax liability | $2,141 | $829 | | Total accrued liabilities | $12,691 | $13,430 | - Total accrued liabilities decreased by **$739 thousand** from December 31, 2022, to June 30, 2023, primarily due to decreases in accrued freight and delivery charges and accrued royalties, partially offset by increases in sales tax liability and employee related expenses[58](index=58&type=chunk) [NOTE 7 — Debt](index=14&type=section&id=NOTE%207%20%E2%80%94%20Debt) This note outlines the company's debt structure, including current and long-term portions, available credit, and interest rates | Category | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------ | :--------------------------- | :------------------------------- |\ | Current portion of long-term debt | $5,521 | $6,183 | | Long-term debt | $7,462 | $9,807 | | Total debt | $12,983 | $15,990 | - The ABL Credit Facility had **$19,000 thousand** available to be drawn as of June 30, 2023, with a weighted average interest rate of **7.89%** for the six months ended June 30, 2023[62](index=62&type=chunk)[65](index=65&type=chunk) - An unsecured promissory note for **$4,425 thousand**, issued to Clearlake Capital Partners II (Master), L.P. as part of a common stock purchase, was paid in full by June 30, 2023[68](index=68&type=chunk) [NOTE 8 — Leases](index=15&type=section&id=NOTE%208%20%E2%80%94%20Leases) This note details the company's operating and financing lease assets and liabilities, including lease costs, terms, and discount rates | Category | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------- | :--------------------------- | :------------------------------- | | Operating ROU assets | $25,055 | $26,075 | | Financing ROU assets | $853 | $699 | | Total ROU assets | $25,908 | $26,774 | | Operating lease liabilities | $26,760 | $28,552 | | Financing lease liabilities | $966 | $820 | | Total lease liabilities | $27,726 | $29,372 | - Total lease cost for the six months ended June 30, 2023, was **$6,808 thousand**, an increase from **$6,403 thousand** in the prior year[72](index=72&type=chunk) - The weighted average remaining lease term for operating leases is **2.8 years** with a discount rate of **6.09%**, while for finance leases it is **3.2 years** with a discount rate of **9.30%** as of June 30, 2023[72](index=72&type=chunk) [NOTE 9 — Asset Retirement Obligations](index=17&type=section&id=NOTE%209%20%E2%80%94%20Asset%20Retirement%20Obligations) This note outlines the total reclamation liability for asset retirement obligations and the primary drivers of changes in the period - The total reclamation liability for asset retirement obligations was **$19,323 thousand** as of June 30, 2023, increasing from **$18,888 thousand** at December 31, 2022, primarily due to accretion expense of **$435 thousand**[75](index=75&type=chunk)[76](index=76&type=chunk) [NOTE 10 — Revenue](index=17&type=section&id=NOTE%2010%20%E2%80%94%20Revenue) This note provides a breakdown of revenue by type and details unsatisfied performance obligations and their expected recognition | Revenue Type | 3 Months Ended June 30, 2023 (in thousands) | % of Total | 3 Months Ended June 30, 2022 (in thousands) | % of Total | 6 Months Ended June 30, 2023 (in thousands) | % of Total | 6 Months Ended June 30, 2022 (in thousands) | % of Total | | :---------------- | :------------------------------------ | :--------- | :------------------------------------ | :--------- | :------------------------------------ | :--------- | :------------------------------------ | :--------- | | Sand sales revenue | $72,435 | 97% | $67,111 | 98% | $150,533 | 96% | $105,400 | 95% | | Logistics revenue | $2,341 | 3% | $1,603 | 2% | $4,678 | 3% | $3,004 | 3% | | Total revenue | $74,776 | 100% | $68,714 | 100% | $157,126 | 100% | $110,319 | 100% | - As of June 30, 2023, the company had **$218,402 thousand** in unsatisfied performance obligations, with **$74,680 thousand**, **$71,386 thousand**, and **$72,336 thousand** expected to be recognized in the remainder of 2023, 2024, and 2025, respectively[78](index=78&type=chunk) [NOTE 11 — Earnings Per Share](index=18&type=section&id=NOTE%2011%20%E2%80%94%20Earnings%20Per%20Share) This note presents basic and diluted weighted average common shares outstanding and discusses anti-dilutive equity-based awards | Metric | 3 Months Ended June 30, 2023 (in thousands) | 3 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Weighted average common shares outstanding (Basic) | 37,968 | 42,181 | 39,611 | 42,134 | | Weighted average common shares outstanding (Diluted) | 37,968 | 42,181 | 39,659 | 42,134 | - Shares underlying equity-based awards excluded from diluted EPS calculation due to their anti-dilutive effect were **3,162 thousand** for the three months ended June 30, 2023, and **2,196 thousand** for the six months ended June 30, 2023[82](index=82&type=chunk) [NOTE 12 — Income Taxes](index=18&type=section&id=NOTE%2012%20%E2%80%94%20Income%20Taxes) This note details the effective tax rates, statutory tax rate, and adjustments from credits, depletion, and uncertain tax positions | Period | Effective Tax Rate | | :-------------------------------- | :----------------- | | Three Months Ended June 30, 2023 | (108.9)% | | Three Months Ended June 30, 2022 | 108.7% | | Six Months Ended June 30, 2023 | (166.0)% | | Six Months Ended June 30, 2022 | 34.1% | - The statutory tax rate was **21.0%** for all periods, with the effective tax rate including modifications from income tax credits, tax depletion deduction, carrybacks, and state apportionment changes[85](index=85&type=chunk) - A liability for uncertain tax positions of **$2,240 thousand** was recorded as of December 31, 2022, with no material change for the six months ended June 30, 2023, and a partial valuation allowance of **$1,588 thousand** against deferred tax assets[86](index=86&type=chunk)[87](index=87&type=chunk) [NOTE 13 — Concentrations](index=18&type=section&id=NOTE%2013%20%E2%80%94%20Concentrations) This note identifies significant customer concentrations in accounts receivable and revenue, and geographic risks related to mining operations - As of June 30, 2023, **five customers** accounted for **70%** of total accounts receivable, compared to **four customers** accounting for **65%** at December 31, 2022[89](index=89&type=chunk) - For the three months ended June 30, 2023, **one customer** accounted for **29%** of total revenues, a decrease from **three customers** accounting for **72%** in the prior year period[92](index=92&type=chunk) - The company's mining operations are limited to Wisconsin and Illinois, posing a risk of loss from significant environmental, legal, or economic changes in these geographic areas or the oil and natural gas producing basins they serve[95](index=95&type=chunk) [NOTE 14 — Commitments and Contingencies](index=20&type=section&id=NOTE%2014%20%E2%80%94%20Commitments%20and%20Contingencies) This note discusses legal proceedings, including cases against Hi-Crush Blair LLC, and outlines outstanding performance bonds for reclamation and permitting - The company is involved in legal proceedings, including two cases against Hi-Crush Blair LLC alleging negligence and nuisance, with HCR agreeing to indemnify the company for pre-acquisition actions[97](index=97&type=chunk) - Total aggregate principal amount of performance bonds outstanding was **$17,308 thousand** as of June 30, 2023, related to reclamation, permitting, and roadway maintenance[98](index=98&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Smart Sand, Inc.'s financial condition, results of operations, liquidity, and cash flows, including market trends and non-GAAP measures [Overview](index=21&type=section&id=Overview) This section provides an overview of Smart Sand, Inc.'s business, operational facilities, logistics solutions, and relevant market trends [The Company](index=21&type=section&id=The%20Company) Smart Sand, Inc. is a fully integrated frac and industrial sand supplier, offering Northern White sand and SmartSystems logistics solutions - Smart Sand, Inc. is a fully integrated frac and industrial sand supply and services company, providing Northern White sand and logistics solutions (SmartSystems) to oil and natural gas customers and industrial markets[102](index=102&type=chunk) - The company operates three main facilities: Oakdale (**5.5 million tons/year**), Utica (**1.6 million tons/year**), and Blair (**2.9 million tons/year**), which became operational in April 2023, all with strategic rail access[104](index=104&type=chunk)[105](index=105&type=chunk) - SmartSystems, including SmartDepot silos and SmartPath transloaders, offer portable wellsite storage and management solutions designed to enhance efficiency, safety, and reduce customers' carbon footprint[107](index=107&type=chunk) [Market Trends](index=22&type=section&id=Market%20Trends) This section discusses frac sand demand, pricing improvements, and the diversification strategy through Industrial Product Solutions (IPS) - Frac sand demand, after declining in 2020 due to COVID-19, rebounded and experienced pricing improvements from Q1 2022 through Q2 2023 due to shifting supply and demand fundamentals[110](index=110&type=chunk)[113](index=113&type=chunk) - Demand for Northern White sand is expected to continue, supported by customer focus on long-term well performance, logistical advantages in key basins (Appalachian, Bakken, Canada), and increased proppant usage per well[115](index=115&type=chunk) - The Industrial Product Solutions (IPS) business aims to diversify sales into more stable, consumer-driven markets to mitigate price volatility in the oil and gas industry, with demand primarily influenced by macroeconomic drivers[116](index=116&type=chunk) [GAAP Results of Operations](index=24&type=section&id=GAAP%20Results%20of%20Operations) This section analyzes the company's financial performance based on GAAP for the three and six months ended June 30, 2023 and 2022 [Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022](index=24&type=section&id=Three%20Months%20Ended%20June%2030%2C%202023%20Compared%20to%20Three%20Months%20Ended%20June%2030%2C%202022) This section compares the company's financial results for the second quarter of 2023 against the same period in 2022, highlighting revenue and profit changes | Metric | Q2 2023 (in thousands) | Q2 2022 (in thousands) | Change (Dollars) (in thousands) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :------------------------------ | :--------- | | Total revenue | $74,776 | $68,714 | $6,062 | 9% | | Sand sales revenue | $72,435 | $67,111 | $5,324 | 8% | | Logistics revenue | $2,341 | $1,603 | $738 | 46% | | Gross profit | $12,689 | $8,971 | $3,718 | 41% | | Operating income (loss) | $3,083 | $1,387 | $1,696 | 122% | | Net income (loss) | $6,307 | $(90) | $6,397 | 7,108% | - Despite a marginal decrease in tons sold (from **1,196,000** to **1,084,000**), sand sales revenue increased by **8%** due to higher average sales prices, reflecting strong demand for frac sand[122](index=122&type=chunk) - Logistics revenue grew by **46%** to **$2,300 thousand**, driven by higher utilization of the SmartSystems fleet[122](index=122&type=chunk) [Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022](index=26&type=section&id=Six%20Months%20Ended%20June%2030%2C%202023%20Compared%20to%20Six%20Months%20Ended%20June%2030%2C%202022) This section compares the company's financial results for the first half of 2023 against the same period in 2022, focusing on revenue, profit, and expense changes | Metric | H1 2023 (in thousands) | H1 2022 (in thousands) | Change (Dollars) (in thousands) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :------------------------------ | :--------- | | Total revenue | $157,126 | $110,319 | $46,807 | 42% | | Sand sales revenue | $150,533 | $105,400 | $45,133 | 43% | | Logistics revenue | $4,678 | $3,004 | $1,674 | 56% | | Gross profit | $24,326 | $6,990 | $17,336 | 248% | | Operating income (loss) | $1,475 | $(8,561) | $10,036 | 117% | | Net income (loss) | $2,708 | $(6,013) | $8,721 | 145% | - Sand sales revenue increased by **43%** due to an **11%** increase in total volumes sold (from **2,048,000** to **2,279,000 tons**) and higher average sales prices[136](index=136&type=chunk) - Operating expenses increased by **47%** to **$22,900 thousand**, primarily due to increased staffing, a **$1,900 thousand** net loss on disposal of fixed assets, and additional costs from the Blair facility acquisition[140](index=140&type=chunk) [Non-GAAP Financial Measures](index=27&type=section&id=Non-GAAP%20Financial%20Measures) This section provides an analysis of key non-GAAP financial measures, including Contribution Margin, EBITDA, Adjusted EBITDA, and Free Cash Flow [Contribution Margin](index=29&type=section&id=Contribution%20Margin) This section details the contribution margin and contribution margin per ton, highlighting factors influencing their changes | Metric | 3 Months Ended June 30, 2023 (in thousands) | 3 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :-------------------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Contribution margin | $19,045 | $15,254 | $36,841 | $19,504 | | Contribution margin per ton | $17.57 | $12.75 | $16.17 | $9.52 | | Total tons sold | 1,084 | 1,196 | 2,279 | 2,048 | - The increase in contribution margin for both periods was primarily due to higher average sales prices, and for the six-month period, also due to higher sales volumes, increased IPS sales, and greater utilization of SmartSystems[152](index=152&type=chunk) [EBITDA and Adjusted EBITDA](index=29&type=section&id=EBITDA%20and%20Adjusted%20EBITDA) This section presents EBITDA and Adjusted EBITDA, explaining the drivers behind their changes for the reported periods | Metric | 3 Months Ended June 30, 2023 (in thousands) | 3 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Net gain (loss) | $6,307 | $(90) | $2,708 | $(6,013) | | EBITDA | $10,328 | $8,243 | $15,656 | $5,141 | | Adjusted EBITDA | $11,408 | $9,159 | $19,832 | $7,258 | - Adjusted EBITDA increased to **$11,400 thousand** for Q2 2023 (from **$9,200 thousand** in Q2 2022) and to **$19,800 thousand** for H1 2023 (from **$7,300 thousand** in H1 2022), driven by higher average sales prices, sales volumes, IPS sales, and SmartSystems utilization[157](index=157&type=chunk) [Free Cash Flow](index=31&type=section&id=Free%20Cash%20Flow) This section analyzes the company's free cash flow, highlighting significant improvements driven by operating activities and working capital | Metric | 3 Months Ended June 30, 2023 (in thousands) | 3 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Net cash provided by (used in) operating activities | $16,068 | $(2,287) | $21,173 | $(10,949) | | Purchases of property, plant and equipment, net | $(5,227) | $(1,369) | $(9,245) | $(5,137) | | Free cash flow | $10,841 | $(3,656) | $11,928 | $(22,633) | - Free cash flow significantly increased for both the three and six months ended June 30, 2023, primarily due to positive cash flows from operating activities and higher conversion of working capital to cash, as well as the Blair facility acquisition in the prior year[163](index=163&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's liquidity sources, capital requirements, and management's assessment of its ability to meet future cash needs - Primary sources of liquidity are cash flow from operations and availability under the ABL Credit Facility and other equipment financing. As of June 30, 2023, cash on hand was **$5,500 thousand**, with **$19,000 thousand** undrawn on the ABL Credit Facility[164](index=164&type=chunk) - Management believes the company has sufficient liquidity and capital resources to meet cash needs for the next twelve months[165](index=165&type=chunk) [Material Cash Requirements](index=31&type=section&id=Material%20Cash%20Requirements) This section outlines expected capital expenditures, outstanding debt obligations, operating lease liabilities, and mineral rights contract payments - Expected full year 2023 capital expenditures are between **$20,000 thousand** and **$25,000 thousand**, primarily for efficiency projects at Oakdale and Utica facilities and commencement of operations at the Blair facility[166](index=166&type=chunk) - Outstanding debt includes **$9,900 thousand** for Oakdale Equipment Financing and **$2,100 thousand** for notes payable as of June 30, 2023, with minimum payments of **$2,300 thousand** and **$700 thousand**, respectively, for the remainder of 2023[167](index=167&type=chunk) - Operating lease liabilities totaled **$26,800 thousand** as of June 30, 2023, with anticipated minimum cash payments of **$6,100 thousand** for the remainder of 2023[168](index=168&type=chunk) - The company has annual minimum payments of approximately **$2,500 thousand** for mineral rights property contracts for the next 14 years[169](index=169&type=chunk) [Off-Balance Sheet Arrangements](index=32&type=section&id=Off-Balance%20Sheet%20Arrangements) This section discloses the company's off-balance sheet arrangements, specifically outstanding performance bonds - The company had **$17,300 thousand** in outstanding performance bonds as of June 30, 2023[170](index=170&type=chunk) [Contractual Obligations](index=32&type=section&id=Contractual%20Obligations) This section lists the company's various contractual obligations, including debt, leases, royalties, and capital commitments - Contractual obligations include the ABL Credit Facility, Oakdale Equipment Financing, notes payable, operating and finance leases, royalties, minimum payments for mining rights, capital expenditures, asset retirement obligations, and commitments to municipalities[171](index=171&type=chunk) [Environmental Matters](index=32&type=section&id=Environmental%20Matters) This section addresses the company's compliance with environmental laws and regulations and anticipated future expenditures - The company is subject to various federal, state, and local environmental laws and regulations and expects to incur future expenditures for compliance, though the full amount cannot be predicted[172](index=172&type=chunk) [Seasonality](index=32&type=section&id=Seasonality) This section explains how seasonal weather impacts excavation, wet sand processing, and cash operating costs, and mitigation strategies - Business operations are affected by seasonal weather, which limits excavation and wet sand processing during winter months, leading to lower cash operating costs in Q1/Q4 and higher in Q2/Q3 due to overproduction for winter demand[173](index=173&type=chunk) - Indoor wet processing facilities at all plant locations help mitigate some effects of seasonality by allowing year-round wet sand inventory production[173](index=173&type=chunk) [Customer Concentration](index=33&type=section&id=Customer%20Concentration) This section identifies key customers that account for significant portions of the company's total revenue for the reported period - For the six months ended June 30, 2023, EQT Production Corporation, Liberty Oilfield Services, and Enerplus Resources Corporation accounted for **30.6%**, **10.2%**, and **8.7%** of total revenue, respectively[174](index=174&type=chunk) [Critical Accounting Policies and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms no material changes to critical accounting policies and procedures during the six months ended June 30, 2023 - There have been no material changes in critical accounting policies and procedures during the six months ended June 30, 2023[175](index=175&type=chunk) [Use of Estimates](index=33&type=section&id=Use%20of%20Estimates) This section highlights the significant estimates required for financial statements and the uncertainties of future economic performance - The preparation of financial statements requires significant estimates, including asset impairment, asset retirement obligations, fair values of acquired assets, deferred tax assets, inventory reserve, and collectability of receivables[176](index=176&type=chunk) - Future economic performance is uncertain due to current high inflation and other economic concerns, making it difficult to estimate the impact of future events on financial position and results of operations[177](index=177&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures about Market Risk](index=34&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details the company's market risk exposure, primarily interest rate risk, confirming no material changes since the last annual report - The majority of the company's debt is financed under fixed interest rates, and there was no outstanding balance under the ABL Credit Facility as of June 30, 2023, indicating no material interest rate risk[179](index=179&type=chunk) - No additional material changes to market risk exposure have occurred during the six months ended June 30, 2023, compared to those described in the Annual Report on Form 10-K for the year ended December 31, 2022[180](index=180&type=chunk) [ITEM 4. Controls and Procedures](index=34&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management evaluates the effectiveness of disclosure controls and procedures, reporting on any changes in internal control over financial reporting - Management, with the participation of the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[181](index=181&type=chunk) - There have been no changes in internal control over financial reporting for the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[182](index=182&type=chunk) PART II OTHER INFORMATION This section covers additional information, including legal proceedings, risk factors, mine safety, and exhibits [ITEM 1. Legal Proceedings](index=35&type=section&id=ITEM%201.%20Legal%20Proceedings) This section incorporates by reference detailed disclosures on legal proceedings from the notes to the condensed consolidated financial statements - Disclosure regarding legal proceedings is incorporated by reference from Part I, Item 1, Note 14 - Commitments and Contingencies - Litigation of the notes to the condensed consolidated financial statements[184](index=184&type=chunk) [ITEM 1A. Risk Factors](index=35&type=section&id=ITEM%201A.%20Risk%20Factors) This section confirms no material changes to the risk factors previously identified in the Annual Report on Form 10-K - There have been no material changes to the risk factors described in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2022[185](index=185&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no unregistered sales of equity securities by the company during the three months ended June 30, 2023 - No shares were sold by the Company without registration under the Securities Act of 1933, as amended, during the three months ended June 30, 2023[186](index=186&type=chunk) [ITEM 3. Defaults upon Senior Securities](index=35&type=section&id=ITEM%203.%20Defaults%20upon%20Senior%20Securities) This section reports no defaults upon senior securities during the current reporting period - There were no defaults upon senior securities[187](index=187&type=chunk) [ITEM 4. Mine Safety Disclosures](index=35&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This section details the company's mine safety commitment, regulatory compliance, and potential impacts of future respirable silica regulations - The company prioritizes mine safety and is subject to stringent health and safety standards enforced by the U.S. Mining Safety and Health Administration (MSHA), which conducts at least two unannounced inspections annually[188](index=188&type=chunk) - Operations are also subject to OSHA regulations for workplace exposure to respirable silica, and MSHA is expected to adopt similar rules, which may require future capital expenditures to reduce exposure[189](index=189&type=chunk) - Failure to comply with the Federal Mine Safety and Health Act of 1977, or changes in its interpretation, could materially affect the business and financial condition[190](index=190&type=chunk) [ITEM 5. Other Information](index=35&type=section&id=ITEM%205.%20Other%20Information) This section confirms no other information is reported under this item for the current period - No other information is reported under this item[191](index=191&type=chunk) [ITEM 6. Exhibits](index=37&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications, mine safety disclosures, and XBRL files - Exhibits include certifications pursuant to Rule 13a-14(a) and 18 U.S.C. 906, a Mine Safety Disclosure Exhibit (95.1), and various XBRL taxonomy extension documents[192](index=192&type=chunk) [SIGNATURES](index=38&type=section&id=SIGNATURES) This section contains required signatures from principal financial and accounting officers, certifying the quarterly report's accuracy - The report was signed on August 8, 2023, by Lee E. Beckelman, Chief Financial Officer (Principal Financial Officer), and Christopher M. Green, Vice President of Accounting (Principal Accounting Officer)[197](index=197&type=chunk)

Investor Presentation – May 2023 This presentation contains forward-looking statements within the meaning of the federal securities laws. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include the words "believe," "expect," "anticipate," "intend," "estimate" and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forwardlooking statements. Our forward-looking statement ...