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 ...

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q1 2023 was $8.1 million, a significant improvement compared to Q1 2022, despite seasonal production cost impacts [6] - Total revenues for Q1 2023 were $82.4 million, up from $73.8 million in Q4 2022, driven by improved average sales prices and $1.9 million in contractual shortfall revenue [15][17] - Contribution margin per ton increased to $14.89 in Q1 2023 from $14.77 in Q4 2022, with a total contribution margin of $17.8 million [18][34] Business Line Data and Key Metrics Changes - Sales volume for Q1 2023 was 1.195 million tons, a 40% increase compared to Q1 2022 and a slight increase from Q4 2022 [14] - The SmartSystems last-mile offering showed improvement, contributing positively in Q1 2023, with expectations for continued operational profitability growth [11][12] Market Data and Key Metrics Changes - The Canadian market is currently 80% supplied by Northern White sand, indicating strong long-term growth potential for this market [8] - Strong demand was noted in the Appalachian Basin, although some moderation is expected due to low natural gas prices [24][35] Company Strategy and Development Direction - The company is focused on generating higher returns from its existing asset base while maintaining prudent leverage levels [13] - Strategic investments in the Blair mine and processing facility are aimed at establishing the company as a premier provider of Northern White sand and logistics services [29][30] Management's Comments on Operating Environment and Future Outlook - Management anticipates that production costs will moderate in Q2 2023, with expected sales volumes in the range of 1 million to 1.2 million tons [45][48] - The company remains optimistic about long-term natural gas fundamentals, driven by increased LNG export activity in North America [24] Other Important Information - The company ended Q1 2023 with $7 million outstanding on its revolver and approximately $7.6 million in cash, with available liquidity exceeding $25 million [47] - Capital expenditures for the year are expected to be in the range of $20 million to $25 million, with higher expenditures anticipated in Q2 due to the Blair facility startup [49] Q&A Session Summary Question: Current frac sand price environment? - Management has not seen any deterioration in frac sand pricing to date, despite concerns about natural gas demand [50] Question: Any slowdown in demand from the Marcellus region? - There is a slight moderation in the Marcellus, but the company maintains good long-term contracts and logistical advantages in the region [52]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________________________________ FORM 10-Q _____________________________________________________ OR ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2023 Commission file number 001-37936 SMART SAND, INC. (Exact name of registrant as specified in ...

Smart Sand, Inc. (NASDAQ:SND) Q4 2022 Earnings Conference Call March 1, 2023 10:00 AM ET Company Participants Chris Green - Principal Accounting Officer Chuck Young - Founder and Chief Executive Officer Lee Beckelman - Chief Financial Officer Conference Call Participants Operator Good day and thank you for standing by. Welcome to the Q4 2022 Smart Sand, Inc. Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answe ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________________________ FORM 10-K __________________________________________________ ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Annual Period Ended December 31, 2022 OR ☐ 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 __________________________ ...