Smart Sand, Inc. Q1 FY2023 earnings call

• Smart Sand delivered strong operational and financial results in the first quarter, with sales of approximately 1.2 million tons for the fourth consecutive quarter of 1.1 million tons or more.
• Generated $17.8 million in contribution margin and $1.1 million in free cash flow, both for the third consecutive quarter.
• Saw solid market demand in the Appalachian Basin, while Bakken's first quarter was weak due to winter weather but picked up later.
• Entered the Canadian market with the Blair mine and processing facility, which started shipping sand this month, connecting to multiple Class I rail lines.
• Utilization of SmartSystems last-mile offering improved, with added belt technology to handle greater volumes of sand at the wellsite.
• Industrial Product Solutions division is a long-term commitment for business diversification and is expected to grow in 2023 and beyond.

In the first quarter, Smart Sand sold approximately 1.195 million tons. Total revenues were $82.4 million. Contribution margin was $17.8 million. Adjusted EBITDA was $8.4 million. Sales volume in the first quarter of 2023 increased by 40% compared to the first quarter of 2022. Cost of sales was $70.7 million, and total operating expenses were $13.2 million. Contribution margin per ton was $14.89 per ton in the first quarter of 2023, compared to $14.77 per ton in the fourth quarter of 2022. Net cash provided by operating activities was $5.1 million, and free cash flow was $1.1 million after capital expenditures of $4 million.

• Expect second quarter sales volumes to be in the $1 million to $1.2 million range, with April's weather and other issues possibly leading to the lower end of this range.
• Production costs are expected to moderate in the second and third quarters as inventory is built.
• Annual capital expenditures are expected to be in the $20 million to $25 million range, with higher spending in the second quarter due to Blair's startup and other efficiency projects.
• Full-year free cash flow is expected to be positive.
• Shortfall revenue will be less in the second quarter as the majority of the reported shortfall revenue in the first quarter was related to one contract expiring in the third quarter.

• Short-term moderation in demand in the Appalachian Basin due to current low natural gas prices.
• Winter weather and rail slowdowns impacted Bakken activity in the first quarter.
• Increased operating expenses due to a net loss on disposable fixed assets and higher compensation expenses.

Q: Hey, good morning, everyone. This is Pat on for Stephen Gengaro. Gentlemen, thanks for taking the questions. I was wondering if you could elaborate on the current pricing environment you're seeing?

A: The current frac sand price environment? Yes. So we haven't seen any deterioration in frac sand pricing to date. I mean we're definitely a little bit concerned about nat gas but we seem to have a good as to kind of nat gas demand. We've got good contracted customers in that respect. And depending again it's a seasonal thing if we get a hot summer nat gas pricing could come up. But we haven't seen any real deterioration in frac sand pricing. And with the Bakken coming on strong we're seeing the ability to move that sand elsewhere.