Smart Sand, Inc. (SND) Q4 2023 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights strong financial performance with increased revenue, net income, and positive free cash flow. The Q&A section reveals stable product pricing and optimistic growth in industrial and Canadian markets. Despite some uncertainties in natural gas prices and management's unclear responses on long-term outlooks, the overall sentiment is positive due to strong sales, improved margins, and strategic market positioning. The company's guidance for improved contribution margins and utilization further supports a positive outlook, likely leading to a stock price increase in the short term.

Key Financial Performance

Sales Volume 4.5 million tons sold in 2023, a 4.2% increase from 4.3 million tons in 2022.

Revenue $296 million in 2023, a 16% increase from $255.7 million in 2022.

Contribution Margin $67 million in 2023, an increase from $54.6 million in 2022.

Adjusted EBITDA $34.1 million in 2023, up from $29.3 million in 2022.

Net Income $4.6 million in 2023, compared to a net loss of $0.7 million in 2022.

Free Cash Flow $8 million in 2023, compared to negative free cash flow in 2022.

Operating Expenses $43.1 million in 2023, up from $32.7 million in 2022.

Cost of Sales $254.4 million in 2023, compared to $226.1 million in 2022.

Cash and Cash Equivalents $6.1 million at the end of 2023.

Share Repurchase 5.18 million shares repurchased in 2023, representing approximately 12% of shares outstanding.

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Operating Highlights

Industrial Sand Sales Growth: In 2023, approximately 4% of sales volumes were industrial sand. For 2024, a 50% increase in industrial sand sales volume is expected.

SmartSystems Technology Expansion: The SmartSystems fleet now includes SmartBelt and SmartPath transloader, enhancing last-mile delivery capabilities.

New Terminal Access: Acquired rights to two idle terminals in Northeast Ohio for $1.25 million, with an additional $1 million investment to bring them online.

Market Share Expansion: Expecting to increase market share in the Appalachian basins through new terminals and existing infrastructure.

Operational Efficiency Initiatives: Adjustments to administrative and operating staff levels to improve efficiency and reduce production costs.

Production Capacity Utilization: Plans to increase utilization of three operating mines and expand market share in every basin served.

Shareholder Value Initiatives: Exploring ways to return value to shareholders through dividends and stock buybacks.

Long-term Demand Strategy: Focus on being a premier provider of Northern White sand and logistics services in North America.

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Risk or Challenges

Fourth Quarter Results: The fourth quarter results were lower than expected due to seasonal slowdowns and a general reduction in customer activity from budget exhaustion.

Cost Management: Despite lower sales volumes, the company maintained workforce and associated costs in anticipation of a market rebound, which could lead to inefficiencies if the expected demand does not materialize.

Market Activity: The company is closely monitoring natural gas prices and their potential impact on drilling activities, which could affect future sales volumes.

Supply Chain Challenges: Weather-related delays in the Bakken impacted sales volumes in the fourth quarter.

Regulatory Issues: The company is subject to regulatory changes that could impact operational costs and market access.

Economic Factors: The overall economic environment, including fluctuations in energy prices, could affect demand for sand and logistics services.

Cash Flow Concerns: The company experienced negative free cash flow in the fourth quarter due to reduced sales volumes and increased capital expenditures, with expectations of higher working capital requirements in early 2024.

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Guidance & Outlook

Sales Volume Expectations: For Q1 2024, sales volume is expected to be at least 25% to 40% higher than Q4 2023 results.

Market Share Growth: Smart Sand aims to increase market share in key markets, particularly in the Appalachian basins through new terminal access.

Logistics Expansion: Investment in two idle terminals in Northeast Ohio for $1.25 million, with an additional $1 million in 2024 to bring them online.

Industrial Sand Sales Growth: Expecting a 50% increase in industrial sand sales volume in 2024 compared to 2023.

Last-Mile Service Growth: Expecting last-mile service revenues and contribution margins to increase by 50% or more over 2023 results.

Revenue Expectations: For full-year 2024, sales volumes are expected to be 5% to 10% higher than 2023 levels.

Contribution Margin Projections: Contribution margin per ton is expected to be in the mid-teens range in Q1 2024.

Capital Expenditures: Expected capital expenditures for 2024 are projected to be in the $18 million to $23 million range.

Free Cash Flow Expectations: Expecting positive free cash flow for 2024, equal to or higher than 2023 results.

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Shareholder Return Plan

Share Repurchase: In 2023, Smart Sand repurchased approximately 5.18 million shares of common stock, representing about 12% of its shares outstanding.

Future Shareholder Return Plans: Smart Sand is exploring ways to return value to shareholders, potentially through dividends and stock buybacks, with discussions expected in future calls.

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Key Q&A

Q:Can you talk about the impact of gas in general?

A:Yes, the delta in our guidance in terms of our volumes for the year is a little bit that we do ship a good portion of our volumes into the Marcellus Basin. Historically, we're kind of 50-50 natural gas oil-based. In terms of the back half of the year, we are keeping a very close eye on natural gas. That could impact some of our volume activity in the second half of the year.

Q:Can you give us color on the spot price market and what you have contracted versus open into 2024?

A:We haven't seen a pricing drop; it's about flat right now. About half of our volumes are contracted, so we're not overly exposed to pricing coming down.

Q:How do you think about the valuations being paid for Northern White sand and the relative value that Northern White delivers?

A:I don't quite know how to answer that question, but we believe we've built a very good franchise in Northern White and that the Northern White markets that we serve are very strong and going to continue to have pretty strong demand.

Q:Can you provide a lumber look in industrial and how you see this playing out in the next few years?

A:It's hard for us to give a view as to where we see industrial going long-term with us from a volume percentage, but we do think it's going to be a valuable piece of our business certainly from a margin standpoint.

Q:Should the contribution margin be pretty stable for the rest of the year?

A:Typically, the fourth quarter and the first quarter are lower contribution margin quarters. If pricing stays relatively flat and we get consistent volume activity, our margins should improve a little bit in the second and third quarters.

Q:Can you help unpack the CapEx guidance for the year of $18 million to $23 million?

A:Part of the spending is on new terminals, maintenance sustainable capital, and investments to improve our mining activity to bring down our cost of production.

Q:Can you update us on your total current nameplate capacity?

A:Our current nameplate capacity is 10 million tons and goes to the Bakken, the Marcellus, the Utica, Canada.

Q:How is Canada evolving?

A:We're pretty optimistic about Canada. We think Canada has got a long term -- is going to be a good part of our business and our portfolio.

Q:Is there any pricing difference between the Canadian market and the U.S. market?

A:The pricing is not that much different than the U.S.

Q:Can you provide just a bit more color on the last-mile business?

A:We've seen a good increase in activity going into the first quarter. Our utilization on our silo-only fleets in Oklahoma is 100%.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer to the question about valuations being paid for Northern White sand, using vague language and not providing specific details.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

SND Transcript

Smart Sand, Inc. (SND) Q3 2024 Earnings Call Transcript

Unknown11-13

The earnings call summary presents mixed signals. Basic financial performance shows a decline in sales volumes and contribution margin, but positive free cash flow and liquidity are maintained. Product development is promising with new terminals and IPS growth. Market strategy is unclear due to competitive pressures and economic factors. Expenses have increased, impacting financial health negatively. Shareholder returns are positive with dividends and buybacks. The Q&A indicates potential pricing improvements but lacks clarity on IPS volume growth. Overall, the stock price is likely to remain stable, with a potential slight upward bias.

Smart Sand, Inc. (SND) Q2 2024 Earnings Call Transcript

Positive8-14

The earnings call summary presents a positive outlook with increased sales volumes and improved financial metrics like adjusted EBITDA and free cash flow. The Q&A section supports this sentiment, highlighting growth potential in Canada and consistent profitability in Utica. Despite some risks like market fluctuations and refinancing, the company's strong free cash flow and potential shareholder returns are promising. The overall sentiment is positive, with expectations of maintaining free cash flow positivity and exploring shareholder return options, indicating a likely stock price increase of 2% to 8% over the next two weeks.

Smart Sand, Inc. (SND) Q1 2024 Earnings Call Transcript

Positive5-14

Smart Sand's earnings call reveals strong financial performance with record sales volumes and improved margins. Despite negative free cash flow, the company plans to improve efficiency and expand its market reach. The Q&A session highlights strategic investments and growth potential in Northern White sand and industrial segments. While management provided limited specifics on some topics, the overall sentiment is positive due to strong revenue growth, strategic expansion plans, and stable market conditions. The lack of market cap data limits precise prediction, but the outlook is positive given the anticipated growth and strategic initiatives.

Smart Sand, Inc. (SND) Q4 2023 Earnings Call Transcript

Positive3-12

SND Report

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