Smart Sand Reports Strong Q2, Thoughts Ahead Of The Earnings Call

Core Viewpoint - Smart Sand reported better than expected performance in Q2 2024, with strong volumes, revenues, margins, EBITDA, and free cash flow despite a backdrop of weakening U.S. oilfield activity levels [1][3] Sales and Financial Performance - Tons sold in Q2 2024 reached 1.274 million, an 18% year-over-year growth, although sequentially it was down from a record 1.336 million in Q1 2024 [2] - Revenue for Q2 2024 was $73.8 million, reflecting a slight 1% decrease year-over-year and an 11% decrease sequentially [2] - Contribution margin per ton was $15.53, exceeding guidance and showing improvement from previous quarters [2] - EBITDA for Q2 2024 was $11.9 million, with an EBITDA margin of 16%, marking a 27% sequential growth [2] - Free cash flow for Q2 2024 was $13.5 million, a significant recovery from negative free cash flow in previous quarters [2] Operational Efficiency - The company implemented several efficiency measures that led to improved production costs and administrative expenses, positively impacting contribution margin, adjusted EBITDA, and free cash flow [3][7] - Management noted that they are operating at just over 50% of capacity, indicating potential for increased production as demand rises [2][7] Market Outlook - Smart Sand continues to see strong demand in its main operating basins, despite potential slowdowns in natural gas basins in the second half of the year [3][4] - The company is preparing to adjust operations in response to any slowdown in activity levels [3][4] - Long-term fundamentals for natural gas activity are viewed as strong, with expectations for increased activity in 2025 driven by LNG exports and power demand [4][9] Strategic Developments - Smart Sand plans to begin sales into the Ohio Utica in Q3 2024, targeting the oil window of the Utica [5] - The company is also expected to provide updates on sales volumes from the Bakken and Canada during the upcoming call [5] Financial Health - The balance sheet shows a low net debt to annualized EBITDA ratio of 0.1x, indicating ample liquidity [6] - There are discussions about potential return of capital, with a projected upturn in activity in 2025 possibly leading to a base dividend [6]