NASDAQ:SND Smart Sand Q1 2024 Earnings Report $2.06 +0.07 (+3.52%) Closing price 04/17/2025 04:00 PM EasternExtended Trading$2.06 0.00 (0.00%) As of 04/17/2025 04:05 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Smart Sand EPS ResultsActual EPS-$0.01Consensus EPS $0.05Beat/MissMissed by -$0.06One Year Ago EPSN/ASmart Sand Revenue ResultsActual Revenue$83.05 millionExpected Revenue$75.20 millionBeat/MissBeat by +$7.85 millionYoY Revenue GrowthN/ASmart Sand Announcement DetailsQuarterQ1 2024Date5/13/2024TimeN/AConference Call DateTuesday, May 14, 2024Conference Call Time10:00AM ETUpcoming EarningsSmart Sand's Q1 2025 earnings is scheduled for Monday, May 12, 2025, with a conference call scheduled on Tuesday, May 13, 2025 at 10:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Smart Sand Q1 2024 Earnings Call TranscriptProvided by QuartrMay 14, 2024 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00This call is being recorded on Tuesday, May 14, 2024. I would now like to turn the conference over to Christopher Green, Vice President of Accounting. Operator00:00:10Please go ahead. Speaker 100:00:14Good morning, and thank you for joining us for Smart Sand's Q1 2024 Earnings Call. On the call today, we have Chuck Young, Founder and Chief Executive Officer Lee Bekleman, Chief Financial Officer and John Young, Chief Operating Officer. Before we begin, I would like to remind all participants that our comments made today will include forward looking statements, which are subject to certain risks and uncertainties that could cause actual results or events to materially differ from those anticipated. For a complete discussion of such risks and uncertainties, please refer to the company's press release and our documents on file with the SEC. Smart Sand disclaims any intention or obligation to update or revise any financial projections or forward looking statements whether because of new information, future events or otherwise. Speaker 100:01:01This conference call contains time sensitive information and is accurate only as of the live broadcast today, May 14, 2024. Additionally, we will refer to the non GAAP financial measures of contribution margin, adjusted EBITDA and free cash flow during this call. These measures, when used in combination with our GAAP results, provide us and our investors with useful information to better understand our business. Please refer to our most recent press release or our public filings for our reconciliations of gross profit to contribution margin, net income to adjusted EBITDA and cash flow provided by operating activities to free cash flow. I would now like to turn the call over to our CEO, Chuck Jones. Speaker 200:01:43Thanks, Chris, and good morning. As we guided on our last earnings call in March, we had strong sales volumes in the Q1. Sales volumes increased by approximately 31 percent to 1,300,000 tons, a quarterly record for Smart Sand. With the increased sales volumes, contribution margin improved to $18,500,000 and adjusted EBITDA increased to $9,300,000 both substantial improvements over Q4 2023 results. Improved results in the Q1 demonstrate the long term value of our strategic plan. Speaker 200:02:17Our long term vision for Smart Sand has 4 main components. First, we are focused on expanding our Northern White Sand franchise. We believe Northern White Sand is the premier sand for both energy and industrial applications. Gas producers. Additionally, the unique properties of our sand make it ideal for many industrial sand applications. Speaker 200:02:462nd, we continue to look for opportunities to open new markets for our products and services. We've made investments in 2 new terminals in Northeast Ohio to expand our market presence in the Utica Shale Basin. Oil drilling activity is increasing in this basin. These 2 new terminals provide us with great access to compete in this growing market for Northern White sand. With our Blair facility being on the Canadian National Rail line, we now have access to the growing demand for Northern White sand in the Montney, Duvernay and Horn River Shales of Northwest Alberta and Eastern British Columbia. Speaker 200:03:22Combined with our access to the Cardium Basin from our Oakdale facility on the Canadian Pacific, we have unmatched access to Canada and expect it to be a growing market for our products going forward. Our smart systems well site storage and delivery solutions continue to deliver sand into the blender of pressure pumping equipment efficiently and at high rates. We have made investments last year in our Utica, Illinois facility to add cooling and blending capabilities to allow us to market our industrial product solutions to a broader base of customers. We have 10,000,000 tons of capacity of high quality Northern White sand available today to serve the market and we will continue to look for new ways to take advantage of our unique position to expand our market presence. 3rd, we remain focused on organizational improvements to increase the efficiency and sustainability of our mining, processing and logistics operations. Speaker 200:04:18We are continually evaluating our operating and financial processes to enhance our business. This year, we are making changes to our wet and dry plants processing to improve the yields and reduce overall costs. We are working on a more coordinated approach between our 3 main operating plants to match our consolidated production with our overall sales needs to reduce inefficiencies and waste in our operation. We are investing in an ERP system that will allow us to automate more of our data entry and financial reporting and provide information to management and more time on a more timely basis to make operating decisions. 4th, we continue to focus on our cost structure to help manage our business throughout the operating cycles. Speaker 200:05:03In the Q1, we were able to reduce staffing at both the administrative and operational levels as a result of operating efficiency gains and strategic restructuring. We continue to extend the use of hydraulic mining at our Oakdale facility to reduce mining costs. We are committed to being the premier provider of Northern White Sand in North America, and we are confident that the foundation for Northern White Sand demand is strong and will be durable over time. However, we recognize that the oil and gas demand for frac sand can and will continue to fluctuate based on current and expected prices for oil and natural gas. We recognize that the current lower natural gas prices may impact sales volume in the short term in the Marcellus market. Speaker 200:05:47However, we had strong demand in the Marcellus in the Q1. And while we have seen some drop off in demand in this basin, it has not been significant to date. We will continue to keep a close eye on this market for the remainder of 2024, but we believe the long term demand fundamentals for natural gas supply in the United States and Canada is strong. We expect this market to be a growing part of our business as we look out to 2025 and beyond. While pricing for natural gas is currently low, oil prices have remained at healthy levels. Speaker 200:06:20We serve the Bakken market in North Dakota, which is an oil basin and demand remains consistent in this market. One of the reasons we invested in terminals in Ohio is this new activity in the Utica basin is focused on oil opportunities. Having these new terminals allows us to balance out our sales activity between oil and gas applications. Gaining access to new markets has 2 additional benefits for Smart Sand. First, it provides the opportunity to market to existing customers in a new basin. Speaker 200:06:51Many of our customers operate in multiple basins and having logistics capabilities in the new basin allows us to expand our relationships and sales opportunities with existing long term customers. 2nd, it opens up marketing opportunities to new customers now that we can provide efficient and cost effective logistics options into the market where they operate. We are committed to start returning value back to our shareholders in 2024. We are still formalizing the right approach for Smart Sand and plan to communicate our plans to start returning value to our shareholders later this year. That being said, we remain committed to a strong balance sheet, low leverage levels and adequate liquidity levels to support our operating needs through any cycle. Speaker 200:07:37Our primary objective is to deliver positive free cash flow consistently. In this first quarter, we had negative free cash flow. That was primarily due to the increased working capital investments required to support the ramp up in sales. We expect our working capital needs to moderate over the remainder of 2024. We still expect to be free cash flow positive for the year. Speaker 200:08:01To be able to start returning value to shareholders, we have to be free cash flow positive. So delivering positive free cash flow consistently is a key objective for the company going forward. We believe Northern White sand will continue to be a key product for both the energy and industrial sand markets. The Q1 was a strong start for the year for Smart Sand. While there are some short term headwinds in natural gas basins due to current low natural gas prices, the long term fundamentals for Northern White Sand in general and Smart Sand in particular continue to be strong. Speaker 200:08:34We believe no other company is better positioned to take advantage of the market for Northern White Sand than Smart Sand. We couldn't have delivered these results without the hard work and dedication of our employees. I want to thank all our employees for their continued support and dedication to Smart Sand. As always, we'll keep our employee and shareholders' interest in mind in everything we do. And with that, I'll turn the call over to our CFO, Lee Beckelman. Speaker 300:09:02Thanks, Chuck. Now I'll go through some of the highlights of the Q1 2024 results compared to our Q4 2023 results. We sold 1,300,000 tons in the 1st quarter, a 31% increase over 4th quarter sales volumes of 1,000,000 tons. Total revenues for the Q1 were $83,100,000 compared to $61,900,000 in the 4th quarter. Total revenues were higher in the Q1 due primarily to higher sand sales volumes and improved smart system revenues from increased utilization of our fleet. Speaker 300:09:35In the Q1, we averaged 4 silo only fleets and 5 complete smart system fleets operating. Our cost of sales for the quarter were $71,200,000 compared to Q4 of $59,100,000 The increase was primarily due to the higher sales volumes in the current quarter. Total operating expenses were $11,000,000 in the 1st quarter compared to $10,700,000 in the 4th quarter. Increase sequentially was primarily due to higher incentive compensation and higher royalties from increased sales volumes. Contribution margin was $18,500,000 or $13.85 per ton in the 1st quarter. Speaker 300:10:174th quarter contribution margin was $9,200,000 or $9.07 per ton. Adjusted EBITDA in the Q1 was $9,300,000 compared to $700,000 in the 4th quarter. The sequential increase in contribution margin and adjusted EBITDA was primarily due to increased sales volume and higher utilization of our smart system fleet. For the Q1 2024, we used $3,900,000 in cash in operating activities, leading to negative $5,500,000 in free cash flow, Actually, we spent $1,600,000 on capital expenditures. The negative cash provided by operating activities was primarily due to increased working capital investment to support the growth in sales. Speaker 300:11:01We expect our working capital investment to moderate beginning in the second quarter, which should lead to improve operating cash flow beginning in the second quarter. We ended the Q1 with $14,000,000 in borrowings on our credit facility. Today, our current outstandings in the credit facility are $9,000,000 We had approximately $4,600,000 cash and cash equivalents at the end of the Q1. We paid down $5,000,000 on our credit facility since the quarter end. Between cash and availability from our credit facility, we currently have available liquidity of approximately 15,000,000 dollars As Chuck highlighted, sales volumes were strong in the Q1 as customers rebounded from lower activity in the Q4 last year due to budget exhaustion and seasonal weather issues and hit the ground running in the Q1 of 2024 as they ramped up their budgeted activities for the year. Speaker 300:11:51We do expect demand to moderate in the Q2 as we are seeing some pullback in activity in the Marcellus due to lower natural gas prices. This however will be mitigated partially by increased activity in the Bakken and Canada. Currently, we expect 2nd quarter sand sales volumes to be in the 1,000,000 to 1,200,000 ton range. Contribution margin per ton improved to $13.85 per ton in the Q1. We expect the 2nd quarter contribution margin per ton to be in the $13 to $16 ton range. Speaker 300:12:25We've made adjustments to our capital expenditures for the year and currently expect to be in the $15,000,000 to $20,000,000 range for 2024. While we had negative free cash flow in the Q1 due to the increased working capital investment to support the increased sales activity, we still expect to be free cash flow positive for the year. This concludes our prepared comments and we will now open the call for questions. Operator00:12:50Good morning. Thank you, ladies and gentlemen. We will now begin the question and answer Your first question comes from Josh Jain with Daniel Energy Partners. Your line is now open. Speaker 400:13:25Thanks. Good morning. Speaker 500:13:27Hey, Josh. Speaker 400:13:30First question, Chuck in his prepared remarks talked about some capital improvements that you were doing to improve yield on your plants. Could you talk about those capital investments and ultimately the return that you expect to see on those? Speaker 500:13:46Yes. So Josh, it's John here. I'll take the first part of that and Lee can talk about the dollars and cents of it. So yes, over the past few years, we've made significant investments into hydraulic mining. These are investments that reduce significantly the amount of yellow iron required in our process. Speaker 500:14:06What it effectively does is tie our mining operation to our processing plants without hauling. And part of that is that so you gain a tremendous amount of efficiency in that you're not burning diesel fuel, you're not using up yellow iron equipment, haul trucks, excavators and things like that. And then once you get into the plant, some of the things we've done is we've changed the way that we wash our sand to make sure that where we can we are cutting out the products or the size of grains of sand that are not really in demand anymore. So if you think about it, it used to be that frac sand was considered to be sixteen-thirty-twenty-forty coarse grains of sand. What we do is we tend to wash those out in the wet plant process which is a lot more efficient than putting the energy and drying that sand and then screening those grades out. Speaker 500:15:00So making changes incremental changes to our wash plants and the way we wash the sand out there has allowed us to remove that sand before it gets into the more expensive process of drying. So that's what Chuck's referring to both sides, the mining and the wet processing. Speaker 400:15:19And then another go Speaker 100:15:21ahead, Lee. Speaker 600:15:22Josh, I think a lot of it's driven by volumes and scale, but to the extent we think these changes in the hydro mining helped us reduce yellow iron and the management of our cost of that piece. And then the wet plant changes helps improve our yield. And we think this could lead to maybe $1 to $2 per ton or more improved cost savings. Speaker 400:15:47Okay. And then one other one, just when you think about the business, another thing that was alluded to in the prepared remarks was continuing to expand the business. And as a Northern White player, you guys have been pretty acquisitive since 2020, adding both sand plants and terminals to your portfolio. Could you just talk about how you're thinking about the asset base today? Are there still opportunities to grow your asset base? Speaker 400:16:11Or are the next few years sort of about more executing on the asset base that you have? Just maybe you could talk through that a bit. Speaker 200:16:18Yes. So Josh, currently we have 10,000,000 tons of Northern White capacity Speaker 700:16:23on a Speaker 200:16:23very diversified rail portfolio. So really around that, I think we'll just build or get terminal access to enhance the ability of that sand to move into basins. I'll let John run through our asset base that we have currently and what we in place and what we're looking for. Speaker 500:16:43Yes, Josh. So in addition to what Chuck says, I mean we've spent tenure here at Smart Sand building that diversified rail portfolio. We originate currently on 4 Class 1 railroads. We believe we have best in class logistics. Our current markets where we're very strong in are the Marcellus, the Utica, the Bakken and Canada would be the primary markets we're targeting. Speaker 500:17:10And our assets include mines in Illinois and Wisconsin, 3 operating mines there Oakdale, Blair and Utica, Illinois as opposed to Utica, the basin in Ohio. The railroads serving us are the CPKC, the Canadian National, the Burlington Northern, BNSF and the Union Pacific UP. And we have owned terminal assets in the Marcellus. We have 2 in the Utica Basin. We have an asset in the Bakken, a gigantic transload there. Speaker 500:17:43And then in Canada, we're in the process of duplicating an asset that looks similar to those assets that we've made in the Lower forty eight. So we're pretty excited about our ability to not only deliver the sand that we're delivering today, but also as Chuck had mentioned, get more of that 10,000,000 tons of capacity out into the market and down the hole for our customers. And a big part of that is our last mile and the ability for our last mile solutions to unload and deliver sand at the highest rates demanded by our most efficient operators. So we are putting that sound down the hole at rates that the best guys out there are demanding which are super high. So we're pretty excited about kind of the asset base we have. Speaker 500:18:30And I think Chuck will talk a little bit more about being opportunistic about additional opportunities out there. But so far we're pretty pleased with where asset base sits today. Speaker 200:18:39Yes. And as utilization again goes up, so does our cost of production goes down. So it's as we develop that, it's a great scenario for us long term. Speaker 400:18:51Maybe one just last question before I turn it back. Could you just talk about the differences that you see moving forward with the Canadian market versus the U. S. Market? I know some softness a little bit here with what we've seen on the natural gas side domestically. Speaker 400:19:05Could you just talk about those two markets and the differences you potentially see? Speaker 200:19:10So in Canada, we see LNG terminals that are coming online, pipelines that have been put in place. So as the activity starts there, it's going to continue to defeat those plants. So we feel really, really good about that. John, I don't know if you have some additional. Speaker 500:19:28Yes. I think from a standpoint of when we look at the natgas fundamentals out there, the majority of our gas customers are focused on the long term fundamentals of natgas, which all look pretty positive. And what's interesting about that is we're seeing a consistent message whether it's the Marcellus or in Canada kind of the 2 primary nat gas market that we have. There's no question as Chuck had mentioned, there's a tailwind provided by the Canadian takeaway capacity improvements, right? Those assets are there today and they're in really good shape for having a place for that gas to go. Speaker 500:20:09And the Marcellus is improving every day on that. But the key message from our larger customers is that they believe long term in the fundamentals in nat gas. We're excited about it. We're excited about that we also get to diversify our Northeast operations with the Utica, which is more of an oil play, right? And so that provides kind of a balanced market position up in the Northeast that before this bringing on of what looks like it's going to be pretty attractive in Utica, we didn't Speaker 200:20:40have that. At the same time, let us be clear. The Marcellus were extremely positive about that market long term. We think that's going to be a great place and we've got some great customers up there that are doing great things. So we're excited about that. Speaker 400:20:56Thanks. I'll turn it back. Operator00:21:01Your next question comes from Stephen Gengaro with Stifel. Your line is now open. Speaker 700:21:08Thanks. Good morning, everybody. Speaker 500:21:10Hi, Steve. Good morning, Steve. Speaker 700:21:12A couple of things, but just one quick clarification. On the income statement, the smart systems revenue you break out, is that purely just the well site sand storage or are there other pieces that go into that number? Speaker 600:21:28No. Today that is just purely the wellsite storage business going forward. So that breakout will be just for that business line item. Speaker 700:21:35Okay, great. Thank you. Can you talk a little bit about the dynamics of the just supply demand in the U. S. Sand market and how you see that kind of impacting the pricing dynamic over the next couple of quarters? Speaker 500:21:54Yes, I can talk a little bit about that. So, as I've said in the past on some of these calls, the Northern White is in relative supply and demand balance. Certainly, there is some we certainly have additional capacity to be responsive to increases in demand that may come about as we see some of these new opportunities. I mentioned the Utica before. We don't really focus too much on the regional sand stuff down in the Permian, for example. Speaker 500:22:26We're not really a player there, such that we send sand into the Permian. It's for folks that are kind of looking at their well results and trying to test a little bit with some Northern White. So we see a little bit of uptake there, but that market doesn't impact us. But the Northern White market has been through its consolidation with regard to supply. I think that there's some different numbers out there on what the actual supply is available. Speaker 500:22:54But so far our view on is that it remains in kind of relative supply demand balance, which yields relative stable pricing that we've seen now for a little while. And I think there's potentially some tailwind to pricing being able to get some price moving forward as some of these markets like Canada for us and potentially some of these new markets in Ohio come to fruition. So I think it's generally a positive scenario, but I think the supply and demand are still in relative balance. And yes, Stephen, Speaker 600:23:30to the extent that Northern White does pick up and we see with the Utica growing in oil and Canada demand growing and we still believe Northern White is a more superior product to regional sand and think some folks in the Permian and others may start looking at that harder to the extent there is an uptick or an increase in Northern White, we're probably the best positioned company to take advantage of that because of the available capacity we have in our logistics footprint. Yes. Lee, I was Speaker 700:23:56actually going to ask as a follow-up. When have you heard any incremental interest from E and Ps as far as when we talk about Tier 1 to Tier 2 acreage and longer laterals, etcetera, and how they're kind of dealing with decline curves? I'm just curious if there's been any kind of increase in kind of inquiries and or Northern White demand from Texas? Speaker 500:24:22So there's definitely been an increase, Stephen, and it seems to be picking up. I mean, we sponsored a conference earlier or we sponsored a presentation earlier this year at the FTE conference in The Woodlands, which did get a lot of attention on the basic economics of Northern White versus regional, right? And so I think that's going to take some time in the market to sort itself out. As I mentioned before, we see a little bit of uptake on Northern White, but we're not blind to the fact that Northern White market down there is probably 5%, maybe 10% of the overall take up in the Western Permian. But I think there are major E and Ps out there searching for answers on decline curves. Speaker 500:25:08And in the past we've said it, we think in the past everyone's been focused on everything but sand, but there is a pretty strong correlation between when these changes were made to regional sand from Northern White that you that was kind of the start of these kind of unexplained decline curves. So we think there's a potential tailwind there, but again our business is very focused on what we do today and such that any sand comes back in the Permian that will be a tremendous benefit for us. Speaker 700:25:40Thank you. And then just one final one. On the industrial piece of the business, can you give us a rough idea of what percentage of the business it currently is and kind of how you see that evolving over the next year or 2? Speaker 600:25:54Yes, right now the business is kind of in the 5% range or so in terms of our total volumes. And I think we're still trying to establish ourselves Speaker 300:26:02and we have a lot Speaker 500:26:03of potential contracts coming Speaker 600:26:03up in 20 potential contracts coming up in 'twenty five and 'twenty six that we're looking to turn the line up for. And we could hopefully see this business to be grow to at least 10% or more than that over the next 2 or 3 years. Our goal is to get industrial to at least 10% or better and have it consistent at those levels on a go forward Speaker 700:26:23basis. Great. Thank you for the color, gentlemen. Speaker 500:26:25Thanks, Steve. Thanks, Steve. Operator00:26:29There are no further questions at this time. I will now turn the call over to Chuck Young for closing remarks. Speaker 200:26:36Thanks for joining us for our earnings call. Look forward to speaking with you again in August. Thank you. Operator00:26:43Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you pleaseRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallSmart Sand Q1 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Smart Sand Earnings Headlines7SND : Price Over Earnings Overview: Smart SandApril 9, 2025 | benzinga.comSMART SAND, INC. 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Sign up for Earnings360's daily newsletter to receive timely earnings updates on Smart Sand and other key companies, straight to your email. Email Address About Smart SandSmart Sand (NASDAQ:SND), an integrated frac and industrial sand supply and services company, engages in the excavation, processing, and sale of sands or proppant for use in hydraulic fracturing operations in the oil and gas industry in the United States. It also provides proppant logistics services; and wellsite storage solutions through SmartSystems products and services. The company sells its products primarily to oil and natural gas exploration and production companies, oilfield service companies, and industrial manufacturers. 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There are 8 speakers on the call. Operator00:00:00This call is being recorded on Tuesday, May 14, 2024. I would now like to turn the conference over to Christopher Green, Vice President of Accounting. Operator00:00:10Please go ahead. Speaker 100:00:14Good morning, and thank you for joining us for Smart Sand's Q1 2024 Earnings Call. On the call today, we have Chuck Young, Founder and Chief Executive Officer Lee Bekleman, Chief Financial Officer and John Young, Chief Operating Officer. Before we begin, I would like to remind all participants that our comments made today will include forward looking statements, which are subject to certain risks and uncertainties that could cause actual results or events to materially differ from those anticipated. For a complete discussion of such risks and uncertainties, please refer to the company's press release and our documents on file with the SEC. Smart Sand disclaims any intention or obligation to update or revise any financial projections or forward looking statements whether because of new information, future events or otherwise. Speaker 100:01:01This conference call contains time sensitive information and is accurate only as of the live broadcast today, May 14, 2024. Additionally, we will refer to the non GAAP financial measures of contribution margin, adjusted EBITDA and free cash flow during this call. These measures, when used in combination with our GAAP results, provide us and our investors with useful information to better understand our business. Please refer to our most recent press release or our public filings for our reconciliations of gross profit to contribution margin, net income to adjusted EBITDA and cash flow provided by operating activities to free cash flow. I would now like to turn the call over to our CEO, Chuck Jones. Speaker 200:01:43Thanks, Chris, and good morning. As we guided on our last earnings call in March, we had strong sales volumes in the Q1. Sales volumes increased by approximately 31 percent to 1,300,000 tons, a quarterly record for Smart Sand. With the increased sales volumes, contribution margin improved to $18,500,000 and adjusted EBITDA increased to $9,300,000 both substantial improvements over Q4 2023 results. Improved results in the Q1 demonstrate the long term value of our strategic plan. Speaker 200:02:17Our long term vision for Smart Sand has 4 main components. First, we are focused on expanding our Northern White Sand franchise. We believe Northern White Sand is the premier sand for both energy and industrial applications. Gas producers. Additionally, the unique properties of our sand make it ideal for many industrial sand applications. Speaker 200:02:462nd, we continue to look for opportunities to open new markets for our products and services. We've made investments in 2 new terminals in Northeast Ohio to expand our market presence in the Utica Shale Basin. Oil drilling activity is increasing in this basin. These 2 new terminals provide us with great access to compete in this growing market for Northern White sand. With our Blair facility being on the Canadian National Rail line, we now have access to the growing demand for Northern White sand in the Montney, Duvernay and Horn River Shales of Northwest Alberta and Eastern British Columbia. Speaker 200:03:22Combined with our access to the Cardium Basin from our Oakdale facility on the Canadian Pacific, we have unmatched access to Canada and expect it to be a growing market for our products going forward. Our smart systems well site storage and delivery solutions continue to deliver sand into the blender of pressure pumping equipment efficiently and at high rates. We have made investments last year in our Utica, Illinois facility to add cooling and blending capabilities to allow us to market our industrial product solutions to a broader base of customers. We have 10,000,000 tons of capacity of high quality Northern White sand available today to serve the market and we will continue to look for new ways to take advantage of our unique position to expand our market presence. 3rd, we remain focused on organizational improvements to increase the efficiency and sustainability of our mining, processing and logistics operations. Speaker 200:04:18We are continually evaluating our operating and financial processes to enhance our business. This year, we are making changes to our wet and dry plants processing to improve the yields and reduce overall costs. We are working on a more coordinated approach between our 3 main operating plants to match our consolidated production with our overall sales needs to reduce inefficiencies and waste in our operation. We are investing in an ERP system that will allow us to automate more of our data entry and financial reporting and provide information to management and more time on a more timely basis to make operating decisions. 4th, we continue to focus on our cost structure to help manage our business throughout the operating cycles. Speaker 200:05:03In the Q1, we were able to reduce staffing at both the administrative and operational levels as a result of operating efficiency gains and strategic restructuring. We continue to extend the use of hydraulic mining at our Oakdale facility to reduce mining costs. We are committed to being the premier provider of Northern White Sand in North America, and we are confident that the foundation for Northern White Sand demand is strong and will be durable over time. However, we recognize that the oil and gas demand for frac sand can and will continue to fluctuate based on current and expected prices for oil and natural gas. We recognize that the current lower natural gas prices may impact sales volume in the short term in the Marcellus market. Speaker 200:05:47However, we had strong demand in the Marcellus in the Q1. And while we have seen some drop off in demand in this basin, it has not been significant to date. We will continue to keep a close eye on this market for the remainder of 2024, but we believe the long term demand fundamentals for natural gas supply in the United States and Canada is strong. We expect this market to be a growing part of our business as we look out to 2025 and beyond. While pricing for natural gas is currently low, oil prices have remained at healthy levels. Speaker 200:06:20We serve the Bakken market in North Dakota, which is an oil basin and demand remains consistent in this market. One of the reasons we invested in terminals in Ohio is this new activity in the Utica basin is focused on oil opportunities. Having these new terminals allows us to balance out our sales activity between oil and gas applications. Gaining access to new markets has 2 additional benefits for Smart Sand. First, it provides the opportunity to market to existing customers in a new basin. Speaker 200:06:51Many of our customers operate in multiple basins and having logistics capabilities in the new basin allows us to expand our relationships and sales opportunities with existing long term customers. 2nd, it opens up marketing opportunities to new customers now that we can provide efficient and cost effective logistics options into the market where they operate. We are committed to start returning value back to our shareholders in 2024. We are still formalizing the right approach for Smart Sand and plan to communicate our plans to start returning value to our shareholders later this year. That being said, we remain committed to a strong balance sheet, low leverage levels and adequate liquidity levels to support our operating needs through any cycle. Speaker 200:07:37Our primary objective is to deliver positive free cash flow consistently. In this first quarter, we had negative free cash flow. That was primarily due to the increased working capital investments required to support the ramp up in sales. We expect our working capital needs to moderate over the remainder of 2024. We still expect to be free cash flow positive for the year. Speaker 200:08:01To be able to start returning value to shareholders, we have to be free cash flow positive. So delivering positive free cash flow consistently is a key objective for the company going forward. We believe Northern White sand will continue to be a key product for both the energy and industrial sand markets. The Q1 was a strong start for the year for Smart Sand. While there are some short term headwinds in natural gas basins due to current low natural gas prices, the long term fundamentals for Northern White Sand in general and Smart Sand in particular continue to be strong. Speaker 200:08:34We believe no other company is better positioned to take advantage of the market for Northern White Sand than Smart Sand. We couldn't have delivered these results without the hard work and dedication of our employees. I want to thank all our employees for their continued support and dedication to Smart Sand. As always, we'll keep our employee and shareholders' interest in mind in everything we do. And with that, I'll turn the call over to our CFO, Lee Beckelman. Speaker 300:09:02Thanks, Chuck. Now I'll go through some of the highlights of the Q1 2024 results compared to our Q4 2023 results. We sold 1,300,000 tons in the 1st quarter, a 31% increase over 4th quarter sales volumes of 1,000,000 tons. Total revenues for the Q1 were $83,100,000 compared to $61,900,000 in the 4th quarter. Total revenues were higher in the Q1 due primarily to higher sand sales volumes and improved smart system revenues from increased utilization of our fleet. Speaker 300:09:35In the Q1, we averaged 4 silo only fleets and 5 complete smart system fleets operating. Our cost of sales for the quarter were $71,200,000 compared to Q4 of $59,100,000 The increase was primarily due to the higher sales volumes in the current quarter. Total operating expenses were $11,000,000 in the 1st quarter compared to $10,700,000 in the 4th quarter. Increase sequentially was primarily due to higher incentive compensation and higher royalties from increased sales volumes. Contribution margin was $18,500,000 or $13.85 per ton in the 1st quarter. Speaker 300:10:174th quarter contribution margin was $9,200,000 or $9.07 per ton. Adjusted EBITDA in the Q1 was $9,300,000 compared to $700,000 in the 4th quarter. The sequential increase in contribution margin and adjusted EBITDA was primarily due to increased sales volume and higher utilization of our smart system fleet. For the Q1 2024, we used $3,900,000 in cash in operating activities, leading to negative $5,500,000 in free cash flow, Actually, we spent $1,600,000 on capital expenditures. The negative cash provided by operating activities was primarily due to increased working capital investment to support the growth in sales. Speaker 300:11:01We expect our working capital investment to moderate beginning in the second quarter, which should lead to improve operating cash flow beginning in the second quarter. We ended the Q1 with $14,000,000 in borrowings on our credit facility. Today, our current outstandings in the credit facility are $9,000,000 We had approximately $4,600,000 cash and cash equivalents at the end of the Q1. We paid down $5,000,000 on our credit facility since the quarter end. Between cash and availability from our credit facility, we currently have available liquidity of approximately 15,000,000 dollars As Chuck highlighted, sales volumes were strong in the Q1 as customers rebounded from lower activity in the Q4 last year due to budget exhaustion and seasonal weather issues and hit the ground running in the Q1 of 2024 as they ramped up their budgeted activities for the year. Speaker 300:11:51We do expect demand to moderate in the Q2 as we are seeing some pullback in activity in the Marcellus due to lower natural gas prices. This however will be mitigated partially by increased activity in the Bakken and Canada. Currently, we expect 2nd quarter sand sales volumes to be in the 1,000,000 to 1,200,000 ton range. Contribution margin per ton improved to $13.85 per ton in the Q1. We expect the 2nd quarter contribution margin per ton to be in the $13 to $16 ton range. Speaker 300:12:25We've made adjustments to our capital expenditures for the year and currently expect to be in the $15,000,000 to $20,000,000 range for 2024. While we had negative free cash flow in the Q1 due to the increased working capital investment to support the increased sales activity, we still expect to be free cash flow positive for the year. This concludes our prepared comments and we will now open the call for questions. Operator00:12:50Good morning. Thank you, ladies and gentlemen. We will now begin the question and answer Your first question comes from Josh Jain with Daniel Energy Partners. Your line is now open. Speaker 400:13:25Thanks. Good morning. Speaker 500:13:27Hey, Josh. Speaker 400:13:30First question, Chuck in his prepared remarks talked about some capital improvements that you were doing to improve yield on your plants. Could you talk about those capital investments and ultimately the return that you expect to see on those? Speaker 500:13:46Yes. So Josh, it's John here. I'll take the first part of that and Lee can talk about the dollars and cents of it. So yes, over the past few years, we've made significant investments into hydraulic mining. These are investments that reduce significantly the amount of yellow iron required in our process. Speaker 500:14:06What it effectively does is tie our mining operation to our processing plants without hauling. And part of that is that so you gain a tremendous amount of efficiency in that you're not burning diesel fuel, you're not using up yellow iron equipment, haul trucks, excavators and things like that. And then once you get into the plant, some of the things we've done is we've changed the way that we wash our sand to make sure that where we can we are cutting out the products or the size of grains of sand that are not really in demand anymore. So if you think about it, it used to be that frac sand was considered to be sixteen-thirty-twenty-forty coarse grains of sand. What we do is we tend to wash those out in the wet plant process which is a lot more efficient than putting the energy and drying that sand and then screening those grades out. Speaker 500:15:00So making changes incremental changes to our wash plants and the way we wash the sand out there has allowed us to remove that sand before it gets into the more expensive process of drying. So that's what Chuck's referring to both sides, the mining and the wet processing. Speaker 400:15:19And then another go Speaker 100:15:21ahead, Lee. Speaker 600:15:22Josh, I think a lot of it's driven by volumes and scale, but to the extent we think these changes in the hydro mining helped us reduce yellow iron and the management of our cost of that piece. And then the wet plant changes helps improve our yield. And we think this could lead to maybe $1 to $2 per ton or more improved cost savings. Speaker 400:15:47Okay. And then one other one, just when you think about the business, another thing that was alluded to in the prepared remarks was continuing to expand the business. And as a Northern White player, you guys have been pretty acquisitive since 2020, adding both sand plants and terminals to your portfolio. Could you just talk about how you're thinking about the asset base today? Are there still opportunities to grow your asset base? Speaker 400:16:11Or are the next few years sort of about more executing on the asset base that you have? Just maybe you could talk through that a bit. Speaker 200:16:18Yes. So Josh, currently we have 10,000,000 tons of Northern White capacity Speaker 700:16:23on a Speaker 200:16:23very diversified rail portfolio. So really around that, I think we'll just build or get terminal access to enhance the ability of that sand to move into basins. I'll let John run through our asset base that we have currently and what we in place and what we're looking for. Speaker 500:16:43Yes, Josh. So in addition to what Chuck says, I mean we've spent tenure here at Smart Sand building that diversified rail portfolio. We originate currently on 4 Class 1 railroads. We believe we have best in class logistics. Our current markets where we're very strong in are the Marcellus, the Utica, the Bakken and Canada would be the primary markets we're targeting. Speaker 500:17:10And our assets include mines in Illinois and Wisconsin, 3 operating mines there Oakdale, Blair and Utica, Illinois as opposed to Utica, the basin in Ohio. The railroads serving us are the CPKC, the Canadian National, the Burlington Northern, BNSF and the Union Pacific UP. And we have owned terminal assets in the Marcellus. We have 2 in the Utica Basin. We have an asset in the Bakken, a gigantic transload there. Speaker 500:17:43And then in Canada, we're in the process of duplicating an asset that looks similar to those assets that we've made in the Lower forty eight. So we're pretty excited about our ability to not only deliver the sand that we're delivering today, but also as Chuck had mentioned, get more of that 10,000,000 tons of capacity out into the market and down the hole for our customers. And a big part of that is our last mile and the ability for our last mile solutions to unload and deliver sand at the highest rates demanded by our most efficient operators. So we are putting that sound down the hole at rates that the best guys out there are demanding which are super high. So we're pretty excited about kind of the asset base we have. Speaker 500:18:30And I think Chuck will talk a little bit more about being opportunistic about additional opportunities out there. But so far we're pretty pleased with where asset base sits today. Speaker 200:18:39Yes. And as utilization again goes up, so does our cost of production goes down. So it's as we develop that, it's a great scenario for us long term. Speaker 400:18:51Maybe one just last question before I turn it back. Could you just talk about the differences that you see moving forward with the Canadian market versus the U. S. Market? I know some softness a little bit here with what we've seen on the natural gas side domestically. Speaker 400:19:05Could you just talk about those two markets and the differences you potentially see? Speaker 200:19:10So in Canada, we see LNG terminals that are coming online, pipelines that have been put in place. So as the activity starts there, it's going to continue to defeat those plants. So we feel really, really good about that. John, I don't know if you have some additional. Speaker 500:19:28Yes. I think from a standpoint of when we look at the natgas fundamentals out there, the majority of our gas customers are focused on the long term fundamentals of natgas, which all look pretty positive. And what's interesting about that is we're seeing a consistent message whether it's the Marcellus or in Canada kind of the 2 primary nat gas market that we have. There's no question as Chuck had mentioned, there's a tailwind provided by the Canadian takeaway capacity improvements, right? Those assets are there today and they're in really good shape for having a place for that gas to go. Speaker 500:20:09And the Marcellus is improving every day on that. But the key message from our larger customers is that they believe long term in the fundamentals in nat gas. We're excited about it. We're excited about that we also get to diversify our Northeast operations with the Utica, which is more of an oil play, right? And so that provides kind of a balanced market position up in the Northeast that before this bringing on of what looks like it's going to be pretty attractive in Utica, we didn't Speaker 200:20:40have that. At the same time, let us be clear. The Marcellus were extremely positive about that market long term. We think that's going to be a great place and we've got some great customers up there that are doing great things. So we're excited about that. Speaker 400:20:56Thanks. I'll turn it back. Operator00:21:01Your next question comes from Stephen Gengaro with Stifel. Your line is now open. Speaker 700:21:08Thanks. Good morning, everybody. Speaker 500:21:10Hi, Steve. Good morning, Steve. Speaker 700:21:12A couple of things, but just one quick clarification. On the income statement, the smart systems revenue you break out, is that purely just the well site sand storage or are there other pieces that go into that number? Speaker 600:21:28No. Today that is just purely the wellsite storage business going forward. So that breakout will be just for that business line item. Speaker 700:21:35Okay, great. Thank you. Can you talk a little bit about the dynamics of the just supply demand in the U. S. Sand market and how you see that kind of impacting the pricing dynamic over the next couple of quarters? Speaker 500:21:54Yes, I can talk a little bit about that. So, as I've said in the past on some of these calls, the Northern White is in relative supply and demand balance. Certainly, there is some we certainly have additional capacity to be responsive to increases in demand that may come about as we see some of these new opportunities. I mentioned the Utica before. We don't really focus too much on the regional sand stuff down in the Permian, for example. Speaker 500:22:26We're not really a player there, such that we send sand into the Permian. It's for folks that are kind of looking at their well results and trying to test a little bit with some Northern White. So we see a little bit of uptake there, but that market doesn't impact us. But the Northern White market has been through its consolidation with regard to supply. I think that there's some different numbers out there on what the actual supply is available. Speaker 500:22:54But so far our view on is that it remains in kind of relative supply demand balance, which yields relative stable pricing that we've seen now for a little while. And I think there's potentially some tailwind to pricing being able to get some price moving forward as some of these markets like Canada for us and potentially some of these new markets in Ohio come to fruition. So I think it's generally a positive scenario, but I think the supply and demand are still in relative balance. And yes, Stephen, Speaker 600:23:30to the extent that Northern White does pick up and we see with the Utica growing in oil and Canada demand growing and we still believe Northern White is a more superior product to regional sand and think some folks in the Permian and others may start looking at that harder to the extent there is an uptick or an increase in Northern White, we're probably the best positioned company to take advantage of that because of the available capacity we have in our logistics footprint. Yes. Lee, I was Speaker 700:23:56actually going to ask as a follow-up. When have you heard any incremental interest from E and Ps as far as when we talk about Tier 1 to Tier 2 acreage and longer laterals, etcetera, and how they're kind of dealing with decline curves? I'm just curious if there's been any kind of increase in kind of inquiries and or Northern White demand from Texas? Speaker 500:24:22So there's definitely been an increase, Stephen, and it seems to be picking up. I mean, we sponsored a conference earlier or we sponsored a presentation earlier this year at the FTE conference in The Woodlands, which did get a lot of attention on the basic economics of Northern White versus regional, right? And so I think that's going to take some time in the market to sort itself out. As I mentioned before, we see a little bit of uptake on Northern White, but we're not blind to the fact that Northern White market down there is probably 5%, maybe 10% of the overall take up in the Western Permian. But I think there are major E and Ps out there searching for answers on decline curves. Speaker 500:25:08And in the past we've said it, we think in the past everyone's been focused on everything but sand, but there is a pretty strong correlation between when these changes were made to regional sand from Northern White that you that was kind of the start of these kind of unexplained decline curves. So we think there's a potential tailwind there, but again our business is very focused on what we do today and such that any sand comes back in the Permian that will be a tremendous benefit for us. Speaker 700:25:40Thank you. And then just one final one. On the industrial piece of the business, can you give us a rough idea of what percentage of the business it currently is and kind of how you see that evolving over the next year or 2? Speaker 600:25:54Yes, right now the business is kind of in the 5% range or so in terms of our total volumes. And I think we're still trying to establish ourselves Speaker 300:26:02and we have a lot Speaker 500:26:03of potential contracts coming Speaker 600:26:03up in 20 potential contracts coming up in 'twenty five and 'twenty six that we're looking to turn the line up for. And we could hopefully see this business to be grow to at least 10% or more than that over the next 2 or 3 years. Our goal is to get industrial to at least 10% or better and have it consistent at those levels on a go forward Speaker 700:26:23basis. Great. Thank you for the color, gentlemen. Speaker 500:26:25Thanks, Steve. Thanks, Steve. Operator00:26:29There are no further questions at this time. I will now turn the call over to Chuck Young for closing remarks. Speaker 200:26:36Thanks for joining us for our earnings call. Look forward to speaking with you again in August. Thank you. Operator00:26:43Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you pleaseRead morePowered by