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Smart Sand Inc (SND) (Q1 2024) Earnings Call Transcript Highlights: Robust Growth and Strategic ...

GuruFocus Research
·4-min read

  • Sales Volumes: Increased by approximately 31% to 1.3 million tons.

  • Contribution Margin: Improved to $18.5 million.

  • Adjusted EBITDA: Increased to $9.3 million.

  • Total Revenues: $83.1 million in Q1 2024, up from $61.9 million in Q4 2023.

  • Cost of Sales: $71.2 million in Q1 2024, up from $59.1 million in Q4 2023.

  • Operating Expenses: $11 million in Q1 2024, compared to $10.7 million in Q4 2023.

  • Free Cash Flow: Negative $5.5 million in Q1 2024.

  • Cash and Cash Equivalents: Approximately $4.6 million at the end of Q1 2024.

  • Borrowings: $14 million on credit facility at the end of Q1 2024, reduced to $9 million currently.

  • Capital Expenditures: $1.6 million in Q1 2024.

Release Date: May 14, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Record sales volumes of 1.3 million tons in Q1 2024, a 31% increase from the previous quarter, demonstrating strong market demand.

  • Contribution margin and adjusted EBITDA saw significant improvements, with contribution margin reaching $18.5 million and adjusted EBITDA at $9.3 million.

  • Expansion into new markets with investments in two new terminals in Northeast Ohio, enhancing market presence in the Utica shale basin.

  • Strategic focus on organizational improvements aimed at increasing efficiency and sustainability in mining, processing, and logistics operations.

  • Continued focus on Northern White sand, leveraging its superior qualities for both energy and industrial applications, ensuring long-term value creation.

Negative Points

  • Negative free cash flow of $5.5 million in Q1 2024, primarily due to increased working capital investments required to support sales ramp-up.

  • Current lower natural gas prices may impact sales volumes in the short term, particularly in the Marcellus market.

  • Despite high sales volumes, the company still faces challenges in consistently generating positive free cash flow.

  • The need for further adjustments in capital expenditures, indicating potential financial strain or reevaluation of investment strategies.

  • Dependence on the oil and gas sectors, which are susceptible to volatile market conditions and price fluctuations.

Q & A Highlights

Q: Could you talk about the capital investments to improve yield in your plants and the expected return on these investments? A (William Young - COO): We've invested in hydraulic mining to reduce the use of heavy equipment and improve efficiency by linking mining operations directly to processing plants. We've also optimized our sand washing processes to remove less demanded grain sizes early, which saves costs in drying and screening. These improvements could potentially reduce costs by $1 to $2 per ton.

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Q: Are there opportunities to grow your asset base, or will the focus be on executing with the current assets? A (Charles Young - CEO): We currently have significant Northern White sand capacity and a diversified rail portfolio. Our focus is on enhancing terminal access to improve sand movement into key markets. We're also looking at being opportunistic about additional opportunities.

Q: Can you discuss the differences between the Canadian and US markets, especially in light of current natural gas price dynamics? A (Charles Young - CEO): In Canada, LNG terminals and pipelines are boosting activity, which we expect to continue. In the US, particularly in the Marcellus and Utica regions, we see strong long-term fundamentals for natural gas, despite current price softness. Our operations in these areas are well-positioned to balance market demands.

Q: How do you see the supply-demand dynamics in the US sand market affecting pricing in the coming quarters? A (William Young - COO): The Northern White sand market is currently in balance, which has led to stable pricing. We anticipate potential pricing tailwinds in markets like Canada and new developments in Ohio. Our capacity and logistics are well-positioned to respond to any increases in demand.

Q: Have there been any increases in inquiries or demand for Northern White sand from Texas, considering the decline curves in oil production? A (Charles Young - CEO): Yes, there's been a noticeable increase in interest, particularly as operators look for solutions to address decline curves potentially linked to the use of regional sand. While Northern White sand usage in the Permian is still a small fraction, any shift back could significantly benefit us due to our available capacity and logistics.

Q: What is the current and future outlook for the industrial sand segment of your business? A (William Young - COO): Industrial sand currently represents about 5% of our total volumes. We are actively pursuing contracts that could significantly increase this segment, potentially doubling its proportion to at least 10% in the next few years.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.