Smart Sand(US:SND)2023-08-09 15:40Financial 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]