8-K: Smart Sand Inc. Reports Strong Second Quarter 2024 Results Driven by Cost Efficiencies

Smart Sand, Inc. announced positive second quarter 2024 results, highlighted by improved profitability and free cash flow, despite a slight decrease in sales volume.

Summary

• Smart Sand, Inc. reported its second quarter 2024 results, showing a total of approximately 1.3 million tons of sand sold.
• The company's revenue for the quarter was $73.8 million, with a net income before income taxes of $1.9 million.
• Adjusted EBITDA for the quarter reached $11.9 million.
• While total tons sold decreased by 5% sequentially compared to the first quarter of 2024, they increased by 18% compared to the second quarter of 2023.
• Revenues decreased compared to the first quarter of 2024 due to lower total sand sales, but were relatively consistent with the second quarter of 2023 due to higher sales volumes offsetting lower average selling prices.
• The company achieved a contribution margin of $19.8 million, or $15.53 per ton sold, which is an increase compared to the first quarter of 2024.
• Smart Sand returned to being free cash flow positive in the second quarter, with a free cash flow of $13.5 million, and expects to remain free cash flow positive for the full year 2024.
• The company refinanced and extended its Oakdale Equipment financing with a new $10 million, four-year equipment financing.
• Smart Sand anticipates starting to market sand in the Utica shale formation in the third quarter of 2024 through new terminals in northeast Ohio.

Sentiment

Score: 7

Explanation: The sentiment is positive due to improved financial metrics and a return to positive free cash flow, but there are some concerns about lower sales volumes and the impact of low natural gas prices.

Positives

• The company implemented cost-cutting measures that improved contribution margin, adjusted EBITDA, and free cash flow compared to the first quarter of 2024.
• Smart Sand returned to being free cash flow positive in the second quarter of 2024 and expects to remain so for the full year.
• The company's liquidity levels are strong, and leverage levels remain low.
• The company is expanding into the Utica shale formation, which is expected to balance sales volumes between oil and gas markets.
• The company's net cash provided by operating activities was $14.9 million in the second quarter of 2024, a significant improvement from the first quarter.

Negatives

• Total tons sold decreased by 5% sequentially compared to the first quarter of 2024.
• Revenues decreased in the second quarter of 2024 compared to the first quarter of 2024, primarily due to lower total sand sales.
• Net income before income taxes in the second quarter of 2024 was lower compared to the second quarter of 2023, primarily due to a loss on extinguishment of debt.
• The company experienced lower average selling prices for sand in the second quarter of 2024.

Risks

• Natural gas prices remain at low levels, which could impact activity levels in natural gas basins.
• Exploration and production companies are front-loading their budget spending, which could lead to a slowdown in activity in the second half of the year.
• The company is monitoring activity levels and is prepared to right-size operations if needed.
• The company's future performance is subject to fluctuations in product demand, regulatory changes, adverse weather conditions, increased fuel prices, higher transportation costs, access to capital, increased competition, and changes in economic or political conditions.

Future Outlook

The company expects to be free cash flow positive for 2024 and anticipates increased activity in natural gas basins in 2025. They also plan to start marketing sand in the Utica shale formation in the third quarter of 2024.

Management Comments

• Smart Sand had a strong second quarter stated Charles Young, Smart Sands Chief Executive Officer.
• We implemented several efficiency measures during the quarter to reduce our production costs and administrative expenses that led to our contribution margin, adjusted EBITDA and free cash flow all improving compared to first quarter 2024 results.
• We returned to being free cash flow positive in the second quarter and we expect to be free cash flow positive for 2024.
• We believe long-term fundamentals for natural gas activity remain strong and we are well positioned to take advantage of expected increased activity in natural gas basins in 2025.
• We remain focused on generating positive free cash flow on a consistent basis going forward.

Industry Context

The announcement reflects the current trends in the oil and gas industry, with companies focusing on cost efficiencies and adapting to fluctuating natural gas prices. The expansion into the Utica shale formation indicates a strategic move to diversify and balance sales volumes between oil and gas markets.

Comparison to Industry Standards

• Smart Sand's performance is being compared to other frac sand providers, with a focus on cost management and operational efficiency.
• The company's ability to generate positive free cash flow is a key metric, as many companies in the sector are struggling with profitability.
• The expansion into the Utica shale formation is a strategic move to compete with companies that have a strong presence in that region.
• The company's focus on logistics solutions through its SmartSystems is a differentiator compared to companies that only provide sand.

Stakeholder Impact

• Shareholders will likely view the improved financial performance and return to positive free cash flow favorably.
• Employees may benefit from the company's improved financial stability and expansion into new markets.
• Customers will continue to receive high-quality sand and logistics solutions.
• Suppliers may see increased demand for their products and services.
• Creditors will be reassured by the company's strong liquidity and low leverage levels.

Next Steps

• Smart Sand will host a conference call on August 14, 2024, to discuss the second quarter 2024 results.
• The company expects to start marketing sand in the Utica shale formation in the third quarter of 2024.
• The company will continue to monitor activity levels and adjust operations as needed.

Key Dates

Keywords

frac sand, proppant, EBITDA, free cash flow, sand sales, logistics, SmartSystems, Utica shale, Northern White sand, oil and gas