Earnings call transcript Q2 2023

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Operator

Good morning, and welcome to the Smart Sand Second Quarter Investor Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask question. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Chris Green, Corporate Controller. ahead. go Please

Chris Green

thank second and joining for us Good XXXX you earnings Sand's quarter call. Smart morning for

On the and call Chief today we have, Chuck Lee Operating Chief Chief Executive Young, Beckelman, Financial Young, Officer; John Officer. Officer; Founder and

to we anticipated. that participants our all results could forward-looking which cause comments to certain to events include that are will actual I subject like materially today risks Before those begin, statements, remind differ would from made and or uncertainties

and risks file uncertainties, refer a complete such For and on of company's the documents release with please press discussion to SEC. our the

disclaims to events is broadcast as of financial because any intention contains otherwise. Sand today Smart statements new accurate only August of any call or and or update or whether information live forward-looking or obligation the This revise XXXX. future X, information, conference projections time-sensitive

with financial Additionally, of used flow this we call. measures These free information us to with contribution better useful margin, release combination GAAP business. the refer press when our cash to to to margin, EBITDA EBITDA and operating by and income our during our will measures investors results provide non-GAAP adjusted in Please to flow public activities reconciliations cash our gross provided most and refer flow. contribution net for recent free to profit cash adjusted our of filings understand our or

CEO, like I call Young. Chuck our turn would to to now over the

Chuck Young

results and quarter financial in million solid $XX.X tons, the first and and Chris, million quarter in adjusted Smart In another quarter morning. quarter results. over good in second EBITDA margin Thanks results. operating quarter, strong million contribution Sand $XX XXXX improvements approximately both we and of second generated XXXX we X.X the sold delivered

the year, quarter. free approximately first the including approximately million we in generated the $XX in in million Additionally, half cash flow $XX of

remain We free for XXXX. positive cash to flow expect

debt. quarter, the we in down million $XX paid In approximately

the oil to us successfully the and allow in maintaining to balance gas sheet our manage We operating are to continue cycles industry. committed strong that will

our North business efficient of continues for throughout and deliver customers to White high-quality in value fashion providing strategy results focused Northern sand America long-term an shareholders. our financial Our to and sustainable strong

not our want their could continued Sand. have for of these efforts without thank commitment I to our work the dedication employees. employees to We and and achieved results Smart hard

strongest In basin from sand. third strong saw the second in the producers quarter, due continued demand quarter. strong the for currently periods basin. demand quarters summer see through majority second White sand for we third of as months. their the to slowdown in the this We the end completion seasonal currently expect normal fourth activity quarter. increased activity quarter the Bakken Bakken moderate in the year and and in Northern Typically activity most of to this substantially the first of in expect demand are completion frac the We to plan in the Activity the

key Northern With to Dakota, believe our the leader be in Van allows White continue into the Northern efficient market. frac to a have this which Bakken, sand Hook of terminal movement North most we us Way market we in

higher first sold the on basin this sales than moderate highlighted still we volume prices, gas year period the Marcellus healthy did were than As same shipments quarter a at our lower quarter with into was second were activity the call, levels. to ago. the due the in quarter first Tons Marcellus lower in in slightly

and pick over the will completion Marcellus the Marcellus activity sales lower should volumes in third Marcellus are in up signs in we fourth activity in where Currently, gas expect quarter. We the fundamentals the long-term grow in seeing we're believe time. be quarter, natural of to strong

and activity in to expanding allow increase to the is the future us to terminal take This to key market. share expected Marcellus currently advantage before expansion be We of completed market our Northern expected Southwestern year-end. Pennsylvania our in increased this are in Waynesburg White in the

operational Blair is in Our facility into Canada made quarter. this and Wisconsin we our shipments first

While to Blair we being sales sales, expect are sold grow Canadian our volumes half expect to market. the still We of the of line, to market. With well into this Canada year. continue to in this a compete overall in directly rail tons volumes sand XX% of CN be positioned frac sales in small XX% the portion we on currently second to

in cost on of now the a We of Marcellus leader Bakken markets. undeniably frac sand believe believe has focus become regional alternatives. from Smart frac effective is well. sustainable the a the Canadian sand delivery site the Northern Northern provides Our the as of efficient leader sand a to well market Blair facility mine sand to to and We as and established market sand proppant market superior us White White Sand an in opportunity

Northern While markets focus believe White markets, performance Ford using in well better our well we share have the Northern regional and primary Eagle continue to growing that completion leads sand Northern Permian be results can by E&P primary companies market long-term other well will sand and their White the designs. in sand and White long-term the our to and on improve

as the completion studies regional completed wells striking. completed in results with using Rystad clearly Northern to on in these results The by commissioned wells demonstrate well study firm proppant White consulting achieve a you build a are website Midland We done XXXX, They results White the improved Basin energy of well paper to for and designs. our white read with Delaware the producers Energy, sand. performance their that of since evaluated to leading comparing the potential sand that can on sand the Northern

big versus This listing XX a significantly or early producers to increased scheduled of and dunes and could production, basin. is sand, is Permian White. is how is to spend are sand based to as listed tell for in improve over of have Permian species potential threat ultimately lead this in next for regional too an an impact facing time, that drill Northern Permian have long-term should XX increased results, flow may listing watch on less producers capital in lead the the dunes White the sand It sand or have mining to as the to production Northern Northern well which choosing lower the sand to regional this now a higher demand regional we in the Also, But By cash be Basin wells on. potentially endangered supply operations sagebrush demand higher as will same deliver is something keeping White that lizard impact close lizard the could the in the higher to mines levels. free supply potential to sagebrush months. sand

to be sand into have United the basins sand successful. not States does Sand Smart clear, regional Southwestern the that are currently of by be to sell operating primarily To supplied

strong As financial deliver current we continue will White operating demonstrated to markets. by financial our performance the serving by solid results, and key Northern

we volume E&Ps, deliver sufficiently expand can the in However, into we Ford White Northern sustainably Permian Sand basins, for be Eagle we sales and can sand particular Smart and and high-quality a can believe as win-win generate be can which over able benefit into results, flow, from they production they should to drill. long-term more every free well cash these from them lead to time and better well higher generate markets E&Ps which

mile our other strong, of reducing allows well to sand our the grow greater improve. while We continues last SmartPath are site, which our business lines. technology to volumes offering, look sales continuing ongoing remain While our we service to at performance handle The SmartSystems sand our requirements. to offering added frac us of maintenance to

saw and to We our second operated our substantial lower SmartPath results in two fleets SmartSystems in quarter operating a costs. with the improvement maintenance system due

into the equipment leading well mile with pressure technology, delivery at delivery to Additionally, the SmartSystems pressure producers sand compared can the of blender more to our efficient pumping valve site. options higher the for volumes and new other pumpers support directly last

belts to existing We are in to these extend fleet to further additional investing savings. our add smart

We the nine starting new this functional in expect market with to available XXXX. have serve fully to technology SmartSystems

our see improvement profitability forward. in operational to expect mile continued offering We going the of last

overall Industrial sales volume Industrial this the Solutions Product to also quarter quarter volume Solutions our increased Our quarter. results represented business over XX% of sales Product grow. first X% and approximately in continues

capabilities industrial which allow foundry year-end. to to in our should and us more market cooling We blending applications. the This facility, completed at other by is to investment investing are Utica, markets Illinois aggressively be and expected

business sales from volumes to the for X% be utilize expect in We're there. and Industrial more our effectively our oil and range, Product We base. gas grow the beyond or better to and diversify asset the of help to XXXX Solutions market to committed remainder

the taking for are long-term this the business build success. to We time

keep our eye on we future. will to always, As continue the

allow cycles asset us successfully higher oil industry. We returns operating the are through and from maintaining while and base capabilities that generating quality prudent our logistics the manage leverage focused existing levels on our to gas in business

a to we always delivering to Our in goal everything markets. mind consistently be Northern and White keep market and And do. is cash in leader we deliver of employees high sand our free to shareholders will interest industrial frac sand and quality flow

over And Lee to turn I'll our with CFO, that, the call Beckelman.

Lee Beckelman

Thanks, Chuck.

which the go We quarter the XXXX, Now some is of of of relatively with through X.X million sales tons. volumes quarter. tons of million X.X consistent quarter I'll second first sold in highlights second the

due slightly quarter the XTotal Total revenues tons lower to $XX.X the first second shortfall of quarter to of sold in contractual XXXX. in $XX.X XXXX, million quarter compared in XXXX. quarter XXXX were million revenue primarily second of first for the were the and revenues lower recognized

due cost costs compared to second last as Production the sales inventory quarter. primarily in quarters was of year, build were quarter months. the production third sales we to for later the typically year The we lower months demand million the $XX.X winter enter the warmer over decrease seasonal in lower Our the to as costs. support of and are million, $XX.X

lower Additionally, to in-basin due expenses mix. shift our freight we sales had in a sequentially

million previous in as the decreased compared of paid in in expenses the $X.X to of due net operating million quarter quarter well were XXXX to to as of primarily the quarter $X.X XXXX included year-end million on disposable Total XXXX. $XX.X first fixed first quarter, the bonuses in a assets loss second that

higher contribution for Adjusted adjusted second expenses. margin The was contribution sequentially compared of was quarter lower primarily in $XX.X production and million SmartSystems million. million was costs $X.X and first and the the our due margins the $XX adjusted to contribution due fleets. EBITDA operating of to EBITDA margin million lower contribution XXXX, was of and higher For increase margin quarter $XX.X improved to margin EBITDA

of margin compared For per contribution quarter quarter $XX.XX XXXX, the ton per second per first ton XXXX. ton $XX.XX of the in was to

million $XX.X quarter by million flow. $X.X spent end to on free million in provided of second the the of XXXX, in operating million expenditures. after generated capital of net have cash $XX.X activities through we flow, leading free June, we For we generated cash $XX.X cash Year-to-date

We our Between the ended credit approximately and no available the facility. We million. end cash million second excess borrowings second outstanding with and cash credit had in at availability quarter. $X.X from cash on equivalents $XX our of quarter we liquidity of facility, currently have in the

$X.X to to ton quarter. consistent of contribution range Currently, $XX ton the believe million to in we with the the per million in $X expect volumes last range margin in three per mid-double-digit be quarter sales the third third remain quarters. We $XX

the Shortfall third The the contract one recorded first and reported quarter each that related first being revenue shortfall quarter revenue. in is the to majority third This quarter, will be quarter in year. revenue to year. the in expires of in shortfall this the XXXX recognizes shortfall contract third revenue similar of

terminal the $XX his flow expansion Utica investment capital cooling the Waynesburg to positive Blair as facility million of for capital mentioned expect be for and still comments. the in and range We the related includes expect capabilities in which as Chuck the to free to the year well million the is We in to start-up be blending which $XX still the at expenditures operational the of that now cash year. expenditures

and we our This up open now concludes will for prepared comments, the questions. call

Operator

question [Operator Patrick comes the first ahead. Ouellette of go We session. from Stifel. question-and-answer will And Instructions] our begin Please now

Pat Ouellette

Thanks today. taking Hi, this the financial Gengaro questions. for Pat on is for Stephen

Chuck Young

doing? you How

Pat Ouellette

play So, update demand Northern to supply sand? year frac for And the and XXXX? half you give it out and industry the could like specifically And demand what second us in how White? maybe, into looks you on of for an expect

John Young

Yes.

in quarter his expect of Chuck quarter. said going fourth a the say, the kind balance. at demand the on little supply market comments, of that's bit some be. is time of the as this White, kind demand and moderation to to fundamentals But been right of relatively dark year. hard a shot has in look what It's certainly, now. fourth So, The always we in had in in The Northern good

year, And for third it's nice going from we kind And of us, think a spot so, Canada that into bright perspective. this going promising this of also fourth the to a is volume that for quarter be rest year. think the and we

Pat Ouellette

Great.

Okay. And talking then Thanks. off Canada. about just building

of gross Regarding you sales on based you the profit to. noted basins mix were improvements delivering sequentially

of any that from improvement Canada? deliveries is So, to coming the margin

Lee Beckelman

down of comments quarter production and in first again, quarter, the and capitalize Well, as draw higher second our lower inventory. little the costs in press costs the we we lower highlighted a part was improvement we'll see the we have typically then production third and release fourth and we the because costs quarter inventory and margin second in in as

quarter second quarter. basically that versus relatively that. a was first the the in was driver of So Pricing flat

overall in FOB basis. of to right most are now sales Canada, help but Canada on do In an expect sales we our that mine

pricing actually expense will little have with we'll on average our to that price lower sales that. be even associated a less lead So though an freight

the right So Canada be in now similar margins in to the we're US. what fairly seeing to seem

Pat Ouellette

Okay. turn very helpful. That's it Great. back I'll

Operator

of Barrett [ph] Investments. go question from Please Barrett comes Next Jim ahead.

Unidentified Analyst

addition current Maybe subside for XXXX? year this capital XXXX the or morning, spending for level spending to of you on you is that do normal new plans everyone. for expect Good growth the SmartSystems, Blair your and and of given

Lee Beckelman

highlighted $XX Well, Blair, $XX IPS growth million as the year specific to this which as expecting spend expansion expansion. well at about included of Waynesburg we're as to we the initiatives million

we but another evaluate, that $X is efficiency typically generally be in we going capital the maintenance say $XX And So growth to then depending million $XX our can initiatives to every $XX million to might and year. I tie-up year a probably see million. million on

So each on a our I current range depending probably under growth million think three mines initiatives CapEx with year operating and million our structure to $XX we'll continue per year. $XX to

Unidentified Analyst

under a your volumes long-term note of currently On can how much separate are you tell us contracts?

Lee Beckelman

XX% Well, term our about today roughly under some are contracts goes. of that volumes of portion

of XX few structure contract kind multiyear. that from volumes months go X Our and today of have do months we half a maybe anywhere long-term out go those contracts to for

Unidentified Analyst

of who -- the is Canadian to the what And sand give that us can competitive you customers? I sort see. sense could those Chuck, market a you you framework up And in are just service tell us competitors of there?

Chuck Young

Yeah.

for National see Canadian Canadian originations. the So market we basically, the most part it's

E&Ps very are existing companies. market. Source we good be and But It So, that's really feeling like The looks is that going Badger very, put market place about that we're activity see companies pipeline the there. on and strong. being infrastructure with to that the in

Unidentified Analyst

the interest, of as or narrative of that to markets relative the customers my different Good. in sands? early superior Ford. Texas customers is generating White on the highlighted is economics last very still in your that the and was as Permian the innings Okay. any the white in using to sand additional paper And question like the that Northern from reception of types are website educating Any the -- Eagle you of

Chuck Young

Yes.

in general their the and seeing think lot wells a I of you're ways at looking production E&Ps the to impact in for their now really that. and Permian right looking

So think we on definitely radar. it's the

in Additionally, their down drilling the could people have the on only not on thing mining down Basin, acreage way in Permian has potential there. Dunes impact Lizard impacting a of but holdings also Sagebrush sand

very general of we what's this. down much going there's kind but right capital Again, we're So down not I there, there. think on now watching this in on concern on spending a are

Unidentified Analyst

thank much. you very both Well, Okay.

Chuck Young

Thank you.

John Young

Thank you.

Operator

Management go from ahead. Jonathan of The Catlin comes Please next [ph]. Capital Catlin question

Unidentified Analyst

two and questions. morning, Good quarter. I John a terrific just congratulations had on Hi.

you're year. that for going the flow say be to cash positive You

I You're the just a second we're that think is flow flow? mean negative Does cash for see And cash to positive already the year. substantially more two question. general half going of number

on substantial you gain. This moving looks seems areas had estimates and kind -- those quarter which are? you the evolving bit you some profitability did the just they areas or -- seeing where it a loss like better performance and color markets surprise how of like of kind the your was are -- business market. into give sustainable you more a of looks you analyst in It is profitable Can are estimated

Lee Beckelman

We cash the answer question. strong in of I'll flow year. half the have the first do Well, free first

potentially $XX little complete we million We half highlighted will that spent million Chuck $XX in see a higher to the projects CapEx second these half. about in of We $X.X guided year. million the his comments. first in as We've the

the we second So higher the CapEx little year. could in of a half see

third some for typically capital have And inventory quarter fourth working build a in moderate quarter. the that bigger of we'll the should in little

expect cash cash would not strong but to half flow the in free year, have I to and some do flow free year. the generate us of of positive -- positive year second free be in overall for expect second flow half the So full as cash I the the be

again terminal to in then be Marcellus Chuck leaders And in. strong Bakken to terminal, in and us the to markets, the be can continue But join the Hook continue of in and markets. particular Van I those Waynesburg and of we the to leaders lead think still because advantages in in John invested and we've expect logistics in our what believe particular we market terms in

forward going that we same can believe we thing the in And do Canada.

into potential So efficient well our in based grow Canada. expand us Marcellus good the for build us that to be shares look really is our with low-cost partners model to Bakken and the as to to real production our market on that railroads continue as the assuming the continue upside same and movement and

of in three talk in but see we three those individual prospects so all then Northern a still -- efficiencies. our it's be in part to those business by being of good still traction continue of we basins to we as their improve SmartSystems -- small terms those White. primary additionally, operational basin, And basins continue our our don't And profitability long-term about while necessarily get

going to to And margin we be additive overall to expect contribution so it continue forward.

inroads Product we into Solutions. Industrial And starting to are make

As we said this quarter, it's X% quarter-over-quarter. our improvement of sales substantial

So we potentially as sand two top of being as the forward. business should additive go as well help those that us on see frac we positive

John Young

And at thing Yes. operational some the I'd that capital to only we've pay years mine our And sites. that some made efficiency starting investments investments are over the to – dividends. is and add those

little certainly of on tailwind here. something that's a operating providing So bit results that's

that hopefully something that made So investments that some and doing we're advantage been think have continues. were seeing at We these looking been for them. we've

Unidentified Analyst

Thank you very very helpful. much. That’s

John Young

Thank you.

Operator

ahead. question comes go from Please Stifel. Stephen Next Gengaro of

Stephen Gengaro

Thanks. gentlemen. Good morning,

Chuck Young

Good morning, Steve.

Stephen Gengaro

wondering are pricing of heard the a Texas. softness curious, lot market? product for supply-demand I spot destinations definitely what so impact And And was contracts? spot we in the of I or sort given White any that you different your hear for seeing a how was the about drivers does – lot we – in and Northern existing kind

Chuck Young

Yes.

keep in what's sure down the some on pricing what's not we and that. entirely eye has there, an Texas driving happening there obviously, been in moderation So

I demand think dramatically. there's a there impact market lot in of supply pretty hiccups any that and down can

those continuing hard we grade of White, to it. a the exactly down depending things. we with work see individual competitive Northern an In to sand sure types softening. of to But customers. We certain of product that – there. offer and – pricing it's moderating work grain on market is size cases pin keep We our eye and in in on close with railroads We closely closely a we're something make

relative in – call supply the of that in the remain of demand mines some to has that existence, we've it given no in and are Northern seen longer White downturn balance. in But over supply since balance COVID demand been

I know And so if don't haven't coming – Northern to continues. any I great coming of I heard degree. don't online additional White or in supply that Stephen, onboard any

like that. either rigs or it prices see mostly the the like are to upset in demand that. is when seems is market upside relative balance. what we But But or has right potential of seasonality the moderating things kind any more So now moving downside there affect the and on

Stephen Gengaro

for far – other see me. and I one side. the then forward seen know a much change? And done should there got lot side might as you've much you cutoff, you as done cost about be based managing positive of – mentioned from And as I this cost you. the Have But Thank has good you thinking job change Great. but have the on basically go a we we any been COGS here? movements work on the on line,

Lee Beckelman

highlighted Oakdale have improve as those facility think our mining I and about particularly around to efficiency, starting just we we John at we're kind our actually earlier, made talked Well, investments and of processes.

and extent And higher we to higher expect increase really To we fixed margins kind utilization, into go XXXX. have we high get driven that So costs as start that's do operating would we our by also of volumes leverage. helping and the again, volumes.

volumes our fixed So as we well. spread costs, more can as costs per and sell our that down ton drive helps

can I increase into volumes on So cost on per down assuming initiatives bring ton our basis a in our maintain or mining down efficiencies new cost to help going and improving expect XXXX. we these keep would particular our

Stephen Gengaro

the about usage Thank you growth? you. stand more Do just we could in. kind obviously of And that's about When now? demand that? think Is stage years. that slip or still improved should over per Where modest the sand think How see frac we does stabilizing? if evolution it of one I

John Young

get to want we back the sand cause we got often of and to really that more sustainably sand pump in down calls continue think we of which think of it hole. and ability folks this quantities is growth, The talk that are that sure operating the the any you've to amount on I get these stage. when per logistics making about in, comes seeing that basin the the deliver well down kind reliably given faster. we're them are really Well, the They forcing growth to right? stages do we want laterals the longer And -- in sand to about stages are

about to from you wellsite. the So this thinking to the be mine have

And we've amount of was launched reserve solutions. our mousetrap base. have the a huge Smart these down sand and ability in of got mentioned that forcing think that a to by the support for requirement the certainly that And good wellsite this laterals. had Belt we've short on time. amounts longer primarily new driven for technology well we Chuck We the

over sand. We of XXX production have million We certainly have tons the capacity.

We sand. about guys we right tons available million do have have XX the that grain mix capacity with going these of annual to comports what fine are and to

we like into have So make the that we we're delivery and feel -- logistics infrastructure with sand rail market. to the

Chuck Young

our Yeah. a system people up to last down against mile our sand much day. can recognize anybody's pumped think And how are a system really We put system that. be on starting I hole that

Stephen Gengaro

all for you Thank John. detail, Great. Okay. the

John Young

Thanks, Stephen.

Operator

Instructions] concludes Young turn session. for question-and-answer remarks. to our Chuck closing conference to [Operator I any the like over back would This

Chuck Young

quarter joining again our call. to forward Look for Thanks us to second on you speaking in November.

Operator

disconnect. now Conference you Thank has now attending concluded. presentation and may you today's for

Smart Sand (SND) 9 Aug 232023 Q2 Earnings call transcript