SEC Form 10-Q filed by Smart Sand Inc.

11/12/24 4:16:14 PM ET

Mining & Quarrying of Nonmetallic Minerals (No Fuels)

Industrials

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________

FORM 10-Q

_____________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ___ to ___

Commission file number 001-37936

SMART SAND, INC.

(Exact name of registrant as specified in its charter)


Delaware			45-2809926
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

1000 Floral Vale Boulevard, Suite 225
Yardley, Pennsylvania 19067			(281) 231-2660
(Address of principal executive offices)			(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

SND

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated Filer ☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Number of shares of common stock outstanding, par value $0.001 per share, as of November 5, 2024: 42,919,298

TABLE OF CONTENTS


		PAGE
PART I	FINANCIAL INFORMATION

ITEM 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited)	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2024 and 2023 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (Unaudited)	8
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	31
ITEM 4.	Controls and Procedures	31

PART II	OTHER INFORMATION	32

ITEM 1.	Legal Proceedings	32
ITEM 1A.	Risk Factors	32
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
ITEM 3.	Defaults upon Senior Securities	32
ITEM 4.	Mine Safety Disclosures	32
ITEM 5.	Other Information	33
ITEM 6.	Exhibits	34

SIGNATURES		35

Certain Definitions

The following definitions apply throughout this quarterly report unless the context requires otherwise:


“We”, “Us”, “Company”, “Smart Sand” or “Our”						Smart Sand, Inc., a company organized under the laws of Delaware, and its subsidiaries.

“shares”, “stock”						The common stock of Smart Sand, Inc., nominal value $0.001 per share.

“Former ABL Credit Facility”, “Former ABL Credit Agreement”, “Former ABL Security Agreement”						The five-year senior secured asset-based lending credit facility (the “Former ABL Credit Facility”) pursuant to: (i) a Former ABL Credit Agreement, dated December 13, 2019, between the Company and Jefferies Finance LLC, as amended from time to time (as amended, the “Former ABL Credit Agreement”); and (ii) a Guarantee and Collateral Agreement, dated December 13, 2019, between the Company and Jefferies Finance LLC, as agent, as amended from time to time (as amended, the “Security Agreement”). This facility was terminated on September 3, 2024.

“FCB ABL Credit Facility”, “FCB Credit Agreement”, “FCB Security Agreement”						On September 3, 2024, the Company entered into a new five-year senior secured asset-based credit facility (the “FCB ABL Credit Facility”) pursuant to: (i) a credit agreement among the Company, the subsidiary borrowers and guarantors party thereto, First-Citizens Bank & Trust Company, as issuing bank, swingline lender and agent, and certain other lenders from time to time party thereto (the “FCB Credit Agreement”); and (ii) a guarantee and collateral agreement among the Company, the subsidiary borrowers and guarantors party thereto and First-Citizens Bank & Trust Company, as agent (the “FCB Security Agreement”).

“Oakdale Equipment Financing”, “MLA”						The five-year Master Lease Agreement, dated December 13, 2019, between Nexseer Capital (“Nexseer”) and related lease schedules in connection therewith (collectively, the “MLA”). The MLA was structured as a sale-leaseback of substantially all of the equipment at the Company’s mining and processing facility located near Oakdale, Wisconsin. The Oakdale Equipment Financing was considered a lease under article 2A of the Uniform Commercial Code but was considered a financing arrangement (and not a lease) for accounting or financial reporting purposes. The MLA and all schedules were paid and full and terminated on June 28, 2024.

“VFI Equipment Financing”						The four-year Master Lease Agreement, dated May 9, 2024, between Varilease Finance, Inc. (“VFI”) and related lease schedule entered into on June 26, 2024 in connection therewith (collectively, the “VFI Equipment Financing”). The VFI Equipment Financing was structured as a sale-leaseback of specific SmartSystemsTM wellsite proppant storage equipment owned by the Company. The VFI Equipment Financing is considered a lease under article 2A of the Uniform Commercial Code but is considered a financing arrangement (and not a lease) for accounting and financial reporting purposes.


“Exchange Act”						The Securities Exchange Act of 1934, as amended.

“Securities Act”						The Securities Act of 1933, as amended.



“FASB”, “ASU”, “ASC”, “GAAP”						Financial Accounting Standards Board, Accounting Standards Update, Accounting Standards Codification, Accounting Principles Generally Accepted in the United States, respectively.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SMART SAND, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2024		December 31, 2023
	(unaudited)
	(in thousands, except share amounts)
Assets
Current assets:
Cash and cash equivalents	$	7,215	$	6,072
Accounts receivable	24,164		23,231
Unbilled receivables	2,743		2,561
Inventory	27,839		26,823
Prepaid expenses and other current assets	2,786		3,217
Total current assets	64,747		61,904
Property, plant and equipment, net	241,889		255,092
Operating lease right-of-use assets	22,742		23,265
Intangible assets, net	5,282		5,876
Other assets	1,151		163
Total assets	$	335,811	$	346,300
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	10,860	$	16,041
Accrued expenses and other liabilities	12,427		11,024
Deferred revenue	1,351		1,154

Current portion of long-term debt	3,664		15,711
Current portion of operating lease liabilities	9,497		10,536
Total current liabilities	37,799		54,466

Long-term debt	9,906		3,449
Long-term operating lease liabilities	13,964		14,056
Deferred tax liabilities, net	9,884		12,101
Asset retirement obligations	20,670		19,923
Other non-current liabilities	38		38
Total liabilities	92,261		104,033
Commitments and contingencies (Note 13)
Stockholders’ equity
Common stock, $0.001 par value, 350,000,000 shares authorized; 46,573,353 issued and 39,016,629 outstanding at September 30, 2024; 45,858,022 issued and 38,486,762 outstanding at December 31, 2023	39		39
Treasury stock, at cost, 7,556,724 and 7,371,260 shares at September 30, 2024 and December 31, 2023, respectively	(14,624)		(14,249)
Additional paid-in capital	184,390		181,973
Retained earnings	73,795		74,539
Accumulated other comprehensive loss	(50)		(35)
Total stockholders’ equity	243,550		242,267
Total liabilities and stockholders’ equity	$	335,811	$	346,300

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SMART SAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(in thousands, except per share amounts)
Revenues:
Sand revenue	$	62,232	$	74,869	$	212,971	$	227,332
SmartSystems revenue	926		2,031		7,038		6,694
Total revenue	63,158		76,900		220,009		234,026
Cost of goods sold:
Sand cost of goods sold	55,601		61,490		183,470		189,878
SmartSystems cost of goods sold	1,070		1,012		5,168		5,424
Total cost of goods sold	56,671		62,502		188,638		195,302
Gross profit	6,487		14,398		31,371		38,724
Operating expenses:
Selling, general and administrative	9,703		8,917		28,924		28,634
Depreciation and amortization	633		647		1,978		1,868
Loss (gain) on disposal of fixed assets, net	1,063		(92)		1,069		1,821


Total operating expenses	11,399		9,472		31,971		32,323
Operating income	(4,912)		4,926		(600)		6,401
Other income (expenses):

Loss on extinguishment of debt	(31)		—		(1,341)		—
Interest expense, net	(344)		(276)		(1,226)		(940)
Other income	53		198		224		405
Total other expenses, net	(322)		(78)		(2,343)		(535)
Income (loss) before income tax expense (benefit)	(5,234)		4,848		(2,943)		5,866
Income tax expense (benefit)	(5,136)		(1,879)		(2,199)		(3,569)
Net (loss) income	$	(98)	$	6,727	$	(744)	$	9,435
Net (loss) income per common share:
Basic	$	—	$	0.18	$	(0.02)	$	0.24
Diluted	$	0.00	$	0.18	$	(0.02)	$	0.24
Weighted-average number of common shares:
Basic	38,926		38,253		38,735		39,153
Diluted	38,926		38,412		38,735		39,239

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SMART SAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(in thousands)
Net (loss) income	$	(98)	$	6,727	$	(744)	$	9,435
Other comprehensive (loss) income:
Foreign currency translation adjustment	38		(147)		(15)		(254)
Comprehensive (loss) income	$	(60)	$	6,580	$	(759)	$	9,181

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SMART SAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

Nine Months Ended September 30, 2024


	Common Stock			Treasury Stock			Additional Paid-in Capital				Accumulated Other Comprehensive (Loss) Income		Total Stockholders’ Equity
	Outstanding Shares	Par Value		Shares	Amount				Retained Earnings
	(in thousands, except share amounts)
Balance at December 31, 2023	38,486,762	$	39	7,371,260	$	(14,249)	$	181,973	$	74,539	$	(35)	$	242,267
Foreign currency translation adjustment	—	—		—	—		—		—		(26)		(26)
Vesting of restricted stock	288,817	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		642		—		—		642
Employee stock purchase plan compensation	—	—		—	—		6		—		—		6
Employee stock purchase plan issuance	17,891	—		—	—		25		—		—		25
Restricted stock buy back	(87,462)	—		87,462	(170)		—		—		—		(170)
Net loss	—	—		—	—		—		(216)		—		(216)
Balance at March 31, 2024	38,706,008	$	39	7,458,722	$	(14,419)	$	182,646	$	74,323	$	(61)	242,528
Foreign currency translation adjustment	—	—		—	—		—		—		(27)		(27)
Vesting of restricted stock	89,911	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		840		—		—		840
Employee stock purchase plan compensation	—	—		—	—		6		—		—		6
Restricted stock buy back	(24,702)	—		24,702	(52)		—		—		—		(52)
Net loss	—	—		—	—		—		(430)		—		(430)
Balance at June 30, 2024	38,771,217	$	39	7,483,424	$	(14,471)	$	183,492	$	73,893	$	(88)	$	242,865
Foreign currency translation adjustment	—	—		—	—		—		—		38		38
Vesting of restricted stock	303,087	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		866		—		—		866
Employee stock purchase plan compensation	—	—		—	—		6		—		—		6
Employee stock purchase plan issuance	15,625	—		—	—		26		—		—		26
Restricted stock buy back	(73,300)	—		73,300	(153)		—		—		—		(153)
Net loss	—	—		—	—		—		(98)		—		(98)
Balance at September 30, 2024	39,016,629	39		7,556,724	(14,624)		184,390		73,795		(50)		$	243,550

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Nine Months Ended September 30, 2023


	Common Stock			Treasury Stock			Additional Paid-in Capital				Accumulated Other Comprehensive (Loss) Income		Total Stockholders’ Equity
	Outstanding Shares	Par Value		Shares	Amount				Retained Earnings
	(in thousands, except share amounts)
Balance at December 31, 2022	43,088,106	$	43	2,010,961	$	(5,075)	$	178,386	$	69,890	$	227	$	243,471
Foreign currency translation adjustment	—	—		—	—		—		—		(66)		(66)
Vesting of restricted stock	4,750	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		779		—		—		779
Employee stock purchase plan compensation	—	—		—	—		7		—		—		7
Employee stock purchase plan issuance	21,810	—		—	—		33		—		—		33
Purchase of treasury stock	(5,175,688)	(5)		5,175,688	(8,845)		—		—		—		(8,850)
Restricted stock buy back	(1,618)	—		1,618	(3)		—		—		—		(3)
Net loss	—	—		—	—		—		(3,599)		—		(3,599)
Balance at March 31, 2023	37,937,360	$	38	7,188,267	$	(13,923)	$	179,205	$	66,291	$	161	231,772
Foreign currency translation adjustment	—	—		—	—		—		—		(41)		(41)
Vesting of restricted stock	228,036	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		833		—		—		833
Employee stock purchase plan compensation	—	—		—	—		8		—		—		8
Restricted stock buyback	(48,131)	—		48,131	(77)		—		—		—		(77)
Net income	—	—		—	—		—		6,307		—		6,307
Balance at June 30, 2023	38,117,265	$	38	7,236,398	$	(14,000)	$	180,046	$	72,598	$	120	$	238,802
Foreign currency translation adjustment	—	—		—	—		—		—		(147)		(147)
Vesting of restricted stock	247,368	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		860		—		—		860
Employee stock purchase plan compensation	—	—		—	—		5		—		—		5
Employee stock purchase plan issuance	16,611	—		—	—		23		—		—		23
Purchase of treasury stock	(69,530)	—		69,530	(124)		—		—		—		(124)
Net income	—	—		—	—		—		6,727		—		6,727
Balance at September 30, 2023	38,311,714	$	38	7,305,928	$	(14,124)	$	180,934	$	79,325	$	(27)	$	246,146

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SMART SAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
	2024		2023
	(in thousands)
Operating activities:
Net (loss) income	$	(744)	$	9,435
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and accretion of asset retirement obligations	21,090		20,359
Amortization of intangible assets	596		596
Net loss on disposal of fixed assets	1,069		1,821
Amortization of deferred financing cost	89		79
Accretion of debt discount	92		140
Loss on extinguishment of debt	1,341		—
Deferred income taxes	(2,217)		(4,096)
Stock-based compensation, net	2,348		2,472
Employee stock purchase plan compensation	18		20
Changes in assets and liabilities:
Accounts receivable	(933)		11,888
Unbilled receivables	(181)		(244)
Inventory	(1,015)		(5,770)
Prepaid expenses and other assets	(39)		4,856
Deferred revenue	196		(4,942)
Accounts payable	(6,219)		(3,871)
Accrued and other expenses	1,338		907
Net cash provided by operating activities	16,829		33,650
Investing activities:
Purchases of property, plant and equipment	(5,135)		(16,126)
Proceeds from disposal of assets	81		123
Net cash used in investing activities	(5,054)		(16,003)
Financing activities:
Proceeds from the issuance of notes payable	9,755		—
Repayments of notes payable	(9,540)		(8,952)
Proceeds from revolving credit facility	16,975		15,000
Repayment of revolving credit facility	(24,975)		(15,000)
Payments under finance leases	(167)		(323)
Payment of deferred financing and debt issuance costs	(1,129)		—
Payment for debt extinguishment costs	(1,227)		—
Employee stock purchase plan issuance	51		56
Purchase of treasury stock	(375)		(4,629)
Net cash used in financing activities	(10,632)		(13,848)
Net increase (decrease) in cash and cash equivalents	1,143		3,799
Cash and cash equivalents at beginning of year	6,072		5,510
Cash and cash equivalents at end of period	$	7,215	$	9,309
Supplemental disclosure of cash flow information
Purchases of property, plant and equipment in accounts payable and accrued expenses	$	1,517	$	2,351
Treasury stock purchased with debt	$	—	$	4,425
Fixed assets purchased with debt	$	2,214	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

NOTE 1 — Organization and Nature of Business

The Company was incorporated in July 2011 and is headquartered in Yardley, Pennsylvania. The Company primarily operates as a fully integrated frac and industrial sand supply and services company. The Company offers complete mine to wellsite proppant supply and logistics solutions to our frac sand customers in the oil and natural gas industry. These operations include the excavation, processing and sale of sand, or proppant, for hydraulic fracturing operations as well as proppant logistics and wellsite storage solutions through its SmartSystemsTM products and services. The Company also provides sand to customers for industrial uses through its Industrial Product Solutions (“IPS”), such as glass, foundry, building products, filtration, geothermal, renewables, ceramics, turf & landscape, retail, and recreation.

Sand Mines and Processing Facilities

The Company’s integrated Oakdale, Wisconsin facility, with on-site rail infrastructure and wet and dry sand processing facilities, has access to two Class I rail lines, the Canadian Pacific Railway through its onsite rail terminal and the Union Pacific Railway through its nearby Byron, Wisconsin facility. The Company commenced operations at its mine and processing facility near Oakdale, Wisconsin in July 2012, and subsequently expanded its operations in 2014, 2015 and 2018. The annual processing capacity at the Oakdale facility is approximately 5.5 million tons.

In September 2020, the Company acquired two frac sand mines and related processing facilities in Ottawa, Illinois and New Auburn, Wisconsin. The annual processing capacity at the Ottawa, Illinois facility is approximately 1.6 million tons and it has access to the Class I Burlington Northern Santa Fe railway through the Company’s nearby Peru, Illinois transload facility. The Company began operating the Ottawa, Illinois mine and Peru, Illinois transload facility in October 2020. The Company currently has no plans to operate the New Auburn facility for the foreseeable future.

In March 2022, the Company acquired a frac sand mine and processing facility in Blair, Wisconsin. The annual processing capacity at the Blair facility is approximately 2.9 million tons and contains an onsite, unit train capable rail terminal with access to the Class 1 Canadian National Railway. The Company commenced operations at the Blair facility in April 2023.

Transload & Logistics Solutions

The Company also offers proppant logistics solutions to its customers through, among other things, its network of in-basin transloading terminals and its SmartSystemsTM wellsite proppant storage and management capabilities. The Company has direct access to four Class I rail lines and the ability to access all Class 1 rail lines within the United States and Canada. The Company’s network of terminals and rail line access enables it to provide cost-effective delivery options to its customers.

The Company has several in-basin rail terminals. The Company acquired rights in March 2018 to operate a unit train capable transloading terminal in Van Hook, North Dakota to service the Bakken Formation in the Williston Basin. In 2020, the Company, as part of its acquisition of the Ottawa, Illinois facility, obtained rights to use a rail terminal located in El Reno, Oklahoma. In September 2021, the Company acquired the rights to construct and operate a transloading terminal in Waynesburg, Pennsylvania to service the Appalachian Basin, including the Marcellus and Utica Formations, which became operational in January 2022 and was further expanded in the fourth quarter of 2023. In December 2023 and January 2024, the Company acquired rights to use transloading terminals in Minerva, Ohio and Dennison, Ohio, respectively, which service the Appalachian Basin. The Minerva terminal became operational in the second quarter of 2024 and the Dennison terminal became operational in the third quarter of 2024.

The Company’s SmartSystems offer proppant storage solutions that create efficiencies, flexibility, enhanced safety and reliability for customers by providing the capability to unload, store and deliver proppant at the wellsite, as well as having the ability to rapidly set up, takedown and transport the entire system. The SmartDepotTM silo includes passive and active dust suppression technology, along with the capability of gravity-fed operation. The SmartPath® transloader is a mobile sand transloading system designed to work with bottom dump trailers and features a drive over conveyor, surge bin, and dust collection system. The Company has developed the SmartbeltTM a belt system to pair with its SmartPath, which allows for feeding sand directly into the hopper at the wellsite. Rapid deployment trailers are designed for quick setup, takedown and transportation of the entire SmartSystem, and they detach from the wellsite equipment, which allows for removal from the wellsite during operation. A proprietary software program, the SmartSystem TrackerTM, allows customers to monitor silo-specific information, including location, proppant type and proppant inventory.

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

NOTE 2 — Summary of Significant Accounting Policies

The information presented below supplements the complete description of our significant accounting policies disclosed in our 2023 Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 11, 2024.

Revision of Previously Issued Financial Statements

The Company has reclassified some prior year line items on its condensed consolidated statements of operations to conform to the current financial statement presentation. These reclassifications have no effect on previously reported total revenue or net income. The Company changed the names and types of revenue and cost of goods sold that are reported on each line item on its statements of operations. Sand revenue and cost of goods sold now includes sand sales, shortfall, railcar rental, and transportation. SmartSystems revenue and cost of goods sold is primarily the rental of our patented SmartSystems equipment and related services provided to customers. There has been no change in the manner in which we recognize revenue or costs.

Basis of Presentation and Consolidation

The accompanying unaudited quarterly condensed consolidated financial statements (“interim statements”) of the Company are presented in accordance with the rules and regulations of the SEC for quarterly reports on Form 10-Q and therefore do not include all the information and notes required by GAAP. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. All adjustments are of a normal recurring nature. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. The consolidated balance sheet as of December 31, 2023 was derived from the audited consolidated financial statements as of and for the year ended December 31, 2023. These interim statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2023.

Use of Estimates

The preparation of interim statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates used in the preparation of these financial statements include, but are not limited to: impairment considerations of assets, including intangible assets, fixed assets, and inventory; estimated cost of future asset retirement obligations; fair value of acquired assets and assume liabilities; recoverability of deferred tax assets; inventory reserve; the collectability of receivables; and certain liabilities.

Actual results could differ from management’s best estimates as additional information or actual results become available in the future, and those differences could be material. Additionally, global events such as the ongoing conflict in Ukraine and the recent conflict in the Middle East may affect oil and natural gas prices and significant volatility in the oilfield service sector. The Company is currently unable to estimate the effect of current or future events on its future financial position and results of operations. Therefore, the Company can give no assurances that these events will not have a material adverse effect on its financial position or results of operations.

Employee Retention Credit

The Company qualified for federal government assistance through employee retention credit provisions of the Consolidated Appropriations Act of 2021. As of September 30, 2024 and December 31, 2023, the Company included $522 in prepaid expenses and other current assets on its consolidated balance sheets related to receivables for the employee retention credits. The calculation of the credit was based on employees continued employment and represents a portion of the wages paid to them. For income tax purposes, the credit will result in decreased expense related to the wages it offsets in the period received.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting, which updates various reportable disclosure requirements, primarily through incremental disclosures of segment expenses in both annual and interim reporting. The Update is effective for the Company as of the annual reporting period beginning January 1, 2024 and interim periods beginning January

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

1, 2025. While the Company is still in the process of evaluating the effects of ASU 2023-07 and its related updates on the consolidated financial statements, at the time of adoption, it believes the primary effect will be updated note disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes, which updates various disclosures including enhancing the income tax rate reconciliation and income taxes paid disclosures by requiring greater disaggregation of information. The other amendments in this Update are intended to improve the effectiveness and comparability of disclosures. The Update is effective for the Company for the annual reporting period beginning January 1, 2025 and for interim periods beginning January 1, 2026. While the Company is still in the process of evaluating the effects of ASU 2023-07 and its related updates on the consolidated financial statements, at the time of adoption, it believes the primary effect will be updated note disclosures.

NOTE 3 — Inventory

Inventory consisted of the following:


	September 30, 2024		December 31, 2023
Raw material	$	574	$	467
Work in progress	7,754		9,391
Finished goods	9,216		8,244
Spare parts	10,295		8,721
Total inventory	$	27,839	$	26,823

NOTE 4 — Property, Plant and Equipment, net

Net property, plant and equipment consisted of:


	September 30, 2024		December 31, 2023
Machinery, equipment and tooling	$	41,832	$	40,632
SmartSystems	32,299		30,651
Vehicles	3,800		4,082
Furniture and fixtures	1,368		1,466
Plant and building	218,055		213,756
Real estate properties	6,980		7,209
Railroad and sidings	35,728		35,491
Land and land improvements	40,704		40,519
Asset retirement obligations	22,910		22,910
Mineral properties	7,442		7,442
Deferred mining costs	3,838		3,802
Construction in progress	4,612		6,270
	419,568		414,230
Less: accumulated depreciation and depletion	177,679		159,138
Total property, plant and equipment, net	$	241,889	$	255,092

Depreciation expense was $6,946 and $6,776 for the three months ended September 30, 2024 and 2023, respectively, and $20,924 and $19,661 for the nine months ended September 30, 2024 and 2023, respectively.

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

During the three months ended September 30, 2024, the Company relocated its manufacturing facility from Saskatoon, Canada to Oakdale, Wisconsin in the United States and recorded a net loss of $1,063 on the disposal of fixed assets related to this relocation.

NOTE 5 — Accrued and Other Expenses

Accrued and other expenses were comprised of the following:


	September 30, 2024		December 31, 2023
Employee related expenses	$	1,988	$	1,767

Accrued equipment expense	201		524
Accrued professional fees	641		461
Accrued royalties	2,652		3,149
Accrued freight and delivery charges	1,872		2,066
Accrued real estate tax	2,061		1,044
Accrued utilities	1,225		604
Sales tax liability	366		486
Income tax payable	817		865
Other accrued liabilities	604		58
Total accrued liabilities	$	12,427	$	11,024

NOTE 6 — Debt

The current portion of long-term debt consists of the following:


	September 30, 2024		December 31, 2023

Former ABL Credit Facility	$	—	$	8,000
VFI Equipment Financing	2,432		—
Oakdale Equipment Financing	—		6,462
Notes payable	1,034		1,011
Finance leases	198		238
Current portion of long-term debt	$	3,664	$	15,711

Long-term debt, net of current portion consists of the following:


	September 30, 2024		December 31, 2023
FCB ABL Credit Facility	$	—	$	—
VFI Equipment Financing	6,793		—
Oakdale Equipment Financing	—		1,388
Notes payable	2,723		1,519
Finance leases	390		542
Long-term debt	$	9,906	$	3,449

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

The follow summarizes the maturity of our debt:


	FCB ABL Credit Facility		VFI Equipment Financing		Notes Payable		Finance Leases		Total
Remainder of 2024	$	—	$	735	$	266	$	59	$	1,060
2025	—		2,940		1,217		272		4,429
2026	—		2,940		1,148		262		4,350
2027	—		2,940		888		65		3,893
2028	—		1,225		538		7		1,770
2029 and thereafter	—		—		240		—		240
Total minimum payments	—		10,780		4,297		665		15,742
Amount representing interest	—		(1,555)		(540)		(77)		(2,172)
Present value of payments							588
Less: current portion	—		(2,432)		(1,034)		(198)		(3,664)
Total long-term debt	$	—	$	6,793	$	2,723	$	390	$	9,906

FCB ABL Credit Facility

On September 3, 2024, the Company entered into a $30,000 five-year senior secured asset-based credit facility with First-Citizens Bank & Trust Company. The FCB ABL Credit Facility provides for non-amortizing revolving loans in an aggregate principal amount of up to $30,000, subject to a borrowing base comprised of eligible inventory and accounts receivable. Additionally, obligations under the FCB ABL Credit Facility are guaranteed by certain of our wholly-owned domestic subsidiaries and secured by a first-priority security interest in certain non-real estate assets. Borrowings under the FCB ABL Credit Facility bear interest at a rate equal to the secured overnight financing rate (“SOFR”) plus a margin of 2.75%.

The ABL Credit Facility contains a number of covenants that, among other things, restrict our ability to incur liens or other indebtedness, make certain restricted payments, merge or consolidate and dispose of assets. In addition, the FCB ABL Credit Facility requires us in certain limited circumstances to maintain a minimum fixed charge coverage ratio of 1.1 to 1.0. The FCB ABL Credit Facility also contains certain affirmative covenants and events of default customary for facilities of this type. The Company was compliant with all requirements of this facility.

The available borrowing amount under the FCB ABL Credit Facility as of September 30, 2024 was $30,000 and is based on the Company’s eligible accounts receivable and inventory. The Company had no borrowings outstanding and $30,000 available to be drawn under this facility as of September 30, 2024. The combined weighted average interest rate for all variable debt for the nine months ended September 30, 2024 was 8.04%.

Former ABL Credit Facility

On December 13, 2019, the Company entered into a $20,000 five-year senior secured asset-based credit facility with Jefferies Finance LLC. This facility was terminated on September 3, 2024.

VFI Equipment Financing

On June 28, 2024, the Company entered into an equipment financing arrangement with VFI with a principal amount of $10,000. The VFI Equipment Financing is legally comprised of a Master Lease Agreement and one lease schedule. The VFI Equipment Financing is considered a lease under article 2A of the Uniform Commercial Code but is considered a financing arrangement for accounting and financial reporting purposes, and not a lease. The collateral under the VFI Equipment Financing includes the majority of the Company’s SmartSystems equipment. The VFI Equipment Financing bears interest at a fixed rate of 8.56%. The Company used the net proceeds to repay in full and terminate the Oakdale Equipment Financing, and the remainder was added to working capital. The VFI Equipment Financing matures on May 8, 2028. The Company has the right to reacquire the underlying equipment on the lease schedule upon maturity for one dollar.

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

Oakdale Equipment Financing

On December 13, 2019, the Company received net proceeds of $23,000 in an equipment financing arrangement with Nexseer. Substantially all of the Company’s mining and processing equipment at its Oakdale facility were pledged as collateral under the Oakdale Equipment Financing. The Oakdale Equipment Financing bore interest at a fixed rate of 5.79%. This facility was paid in full and terminated on June 28, 2024.

Notes Payable

The Company has entered into various financing arrangements, primarily to finance heavy equipment. As of September 30, 2024, these notes payable bear interest at rates between 3.99% and 8.49%.

On February 28, 2023, the Company purchased 5,176 shares of the Company’s common stock from Clearlake Capital Partners II (Master), L.P., an affiliate of Clearlake Capital Group (“Clearlake”), for $8,850, of which $4,425 was paid in cash and the remainder was financed through an unsecured promissory note, bearing interest of 10.00%, issued to Clearlake. This purchase represented all of the common stock previously owned by Clearlake and approximately 11.3% outstanding shares of the Company’s common stock as of immediately prior to the purchase. At the time of purchase, Clearlake was a related party to the Company, and José Feliciano, the Co-Founder and Managing Partner of Clearlake, was on our board of directors. The promissory note was repaid in May 2023 and Mr. Feliciano resigned from our board of directors as of December 31, 2023.

NOTE 7 — Leases

Lessee

The operating and financing components of the Company’s right-of-use assets and lease liabilities on the consolidated balance sheets were as follows:


	Balance Sheet Location	September 30, 2024		December 31, 2023
Right-of-use assets
Operating	Operating right-of-use assets	$	22,742	$	23,265
Financing	Property, plant and equipment, net	582		908
Total right-of use assets		$	23,324	$	24,173

Lease liabilities
Operating	Operating lease liabilities, current and long-term portions	$	23,461	$	24,592
Financing	Long-term debt, current and long-term portions	588		780
Total lease liabilities		$	24,049	$	25,372

Operating lease costs are recorded as a single expense on the statement of operations and allocated to the right-of-use assets and the related lease liabilities as depreciation expense and interest expense, respectively. Lease cost recognized in the consolidated statement of operations for the three and nine months ended September 30, 2024 and 2023 was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Finance lease cost
Amortization of right-of-use assets	$	58	$	89	$	173	$	232
Interest on lease liabilities	14		21		48		55
Operating lease cost	3,452		3,692		10,232		10,305
Short-term lease cost	4		9		22		27


Total lease cost	$	3,528	$	3,811	$	10,475	$	10,619

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

Other information related to the Company’s leasing activity for the nine months ended September 30, 2024 and 2023 is as follows:


	Nine Months Ended September 30,
	2024			2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for finance leases	$	49		$	55
Operating cash flows used for operating leases	$	10,823		$	11,112
Financing cash flows used for finance leases	$	167		$	323


Right-of-use assets obtained in exchange for new operating lease liabilities	$	9,033		$	7,805


Weighted average remaining lease term - finance leases	2.6 years			3.4 years
Weighted average discount rate - finance leases	9.56		%	9.63		%
Weighted average remaining lease term - operating leases	2.8 years			2.7 years
Weighted average discount rate - operating leases	7.10		%	6.32		%

Maturities of the Company’s lease liabilities as of September 30, 2024 are as follows:


	Operating Leases		Finance Leases		Total
Remainder of 2024	$	2,583	$	59	$	2,642
2025	10,639		272		10,911
2026	6,665		262		6,927
2027	3,842		65		3,907
2028	1,750		7		1,757
Thereafter	472		—		472
Total cash lease payments	25,951		665		26,616
Less: amounts representing interest	(2,490)		(77)		(2,567)
Total lease liabilities	$	23,461	$	588	$	24,049

NOTE 8 — Asset Retirement Obligations

The Company had a post-closure reclamation and site restoration obligation of $20,670 as of September 30, 2024. The following is a reconciliation of the total reclamation liability for asset retirement obligations.



Balance at December 31, 2023	$	19,923

Accretion expense	747

Balance at September 30, 2024	$	20,670

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

NOTE 9 — Revenue

Disaggregation of Revenue

The following table presents the Company’s revenues disaggregated by type and percentage of total revenues for the periods indicated.


	Three Months Ended September 30,								Nine Months Ended September 30,
	2024				2023				2024				2023
	Revenue		Percentage of Total Revenue		Revenue		Percentage of Total Revenue		Revenue		Percentage of Total Revenue		Revenue		Percentage of Total Revenue
Sand revenue	$	62,232	99	%	$	74,869	97	%	$	212,971	97	%	$	227,332	97	%
SmartSystems revenue	926		1	%	2,031		3	%	7,038		3	%	6,694		3	%
Total revenue	$	63,158	100	%	$	76,900	100	%	$	220,009	100	%	$	234,026	100	%

The Company recorded $1,154 of deferred revenue on the consolidated balance sheet as of December 31, 2023, all of which has been recognized in the nine months ended September 30, 2024. As of September 30, 2024, the Company had $106,508 in unsatisfied performance obligations related to contracts with customers. The Company expects to perform these obligations and recognize revenue of $24,191 and $82,317 in the remainder of 2024 and 2025, respectively.

NOTE 10 — Earnings Per Share

Basic net income (loss) per share of common stock is computed by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, excluding the dilutive effects of restricted stock. Diluted net income (loss) per share of common stock is computed by dividing the net income attributable to common stockholders by the sum of the weighted-average number of shares of common stock outstanding during the period plus the potential dilutive effects of shares of restricted stock outstanding during the period calculated in accordance with the treasury stock method, although shares of restricted stock are excluded if their effect is anti-dilutive. The number of shares underlying equity-based awards that were excluded from the calculation of diluted earnings per share as their effect would be anti-dilutive was 1,158 and 1,915 for the three months ended September 30, 2024 and 2023, respectively. The number of shares underlying equity-based awards that were excluded from the calculation of diluted earnings per share as their effect would be anti-dilutive was 1,158 and 1,922 for the nine months ended September 30, 2024 and 2023, respectively. In periods with a net loss, there is no difference between basic and diluted net loss per share of common stock. The following table reconciles the weighted-average common shares outstanding used in the calculation of basic net (loss) income per share to the weighted average common shares outstanding used in the calculation of diluted net income per share.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
Weighted average common shares outstanding	38,926	38,253	38,735	39,153
Assumed conversion of restricted stock	—	159	—	86
Diluted weighted average common stock outstanding	38,926	38,412	38,735	39,239

NOTE 11 — Income Taxes

The Company calculates its interim income tax provision by estimating the annual expected effective tax rate and applying that rate to its ordinary year-to-date earnings or loss. In addition, the effect of changes in enacted tax laws, rates or tax status is recognized in the interim period in which the change occurs.

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

For the three months ended September 30, 2024 and 2023, the effective tax rate was approximately 98.1% and (38.8)%, respectively, based on the annual effective tax rate net of discrete federal and state taxes. For the nine months ended September 30, 2024 and 2023, the effective tax rate was approximately 74.7% and (60.8)%, respectively, based on the annual effective tax rate net of discrete federal and state taxes. For the three and nine months ended September 30, 2024 and 2023, the statutory tax rate was 21.0%. The computation of the effective tax rate includes modifications from the statutory rate such as income tax credits, tax depletion deduction, carrybacks, and state apportionment changes, among other items.

The Company has recorded a liability for uncertain tax positions included in its consolidated balance sheet of $2,240 as of December 31, 2023. There was no material change for the nine months ended September 30, 2024.

The Company determined that it is more likely than not that it will not be able to fully realize the benefits of certain existing deductible temporary differences and has recorded a partial valuation allowance against the gross deferred tax assets, which is included in the long-term deferred tax liabilities, net on its consolidated balance sheets. At December 31, 2023, the Company recorded a partial valuation allowance against the gross deferred tax assets on its consolidated balance sheet in the amount of $874. There was no material change for the three and nine months ended September 30, 2024.

The Company’s federal income tax returns subsequent to 2017 remain open to audit by taxing authorities. The Company has not been informed that its tax returns are the subject of any audit or investigation by taxing authorities.

NOTE 12 — Concentrations

As of September 30, 2024, four customers accounted for 71% of the Company’s total accounts receivable. As of December 31, 2023, four customers accounted for 70% of the Company’s total accounts receivable.

During the three months ended September 30, 2024, 67% of the Company’s revenues were earned from four customers. During the three months ended September 30, 2023, 40% of the Company’s revenues were earned from two customers. During the nine months ended September 30, 2024, 54% of the Company’s revenues were earned from three customers. During the nine months ended September 30, 2023, 41% of the Company’s revenues were earned from two customers.

As of September 30, 2024, two vendors accounted for 26% of the Company’s accounts payable. As of December 31, 2023, one vendor accounted for 11% of the Company’s accounts payable.

During the three months ended September 30, 2024, two vendors accounted for 33% of the Company’s cost of goods sold. During the three months ended September 30, 2023, one vendor accounted for 21% of the Company’s cost of goods sold. During the nine months ended September 30, 2024, two vendors accounted for 36% of the Company’s cost of goods sold. During the nine months ended September 30, 2023, two vendors accounted for 33% of the Company’s cost of goods sold.

The Company’s primary product is Northern White sand, and its mining operations are limited to Wisconsin and Illinois. There is a risk of loss if there are significant environmental, legal or economic changes to the geographic areas of our mines, the oil and natural gas producing basins they serve, or the transportation routes between them.

NOTE 13 — Commitments and Contingencies

Litigation

In addition to the matters described below, the Company may be subject to various legal proceedings, claims and governmental inspections, audits or investigations arising out of our operations in the normal course of business, which cover matters such as general commercial, governmental and trade regulations, product liability, environmental, intellectual property, employment and other actions. Although the outcomes of these routine claims cannot be predicted with certainty, in the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on our financial statements.

Cory Berg, et al. v. Hi-Crush Blair LLC, LLC et al., Case No. 2019-cv-65, Trempealeau County, Wisconsin

Leland Drangstveit, et al. v. Hi-Crush Blair, LLC, et al., Case No. 2019-cv-66, Trempealeau County, Wisconsin

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

On April 22, 2019 and September 29, 2021, Cory Berg, et al. and Leland Drangstveit, et al., respectively (collectively, the “Plaintiffs”), filed complaints and an amended complaint in separate actions against Blair, certain of its subcontractors and its and their respective insurance companies in the Circuit Court of the State of Wisconsin in and for Trempealeau County (Case Nos. 19-CV-65 and 19-CV-66, respectively). The Plaintiffs allege that Blair and its subcontractors were negligent and created a nuisance by, among other things, generating excessive noise, light and dust. The Plaintiffs are seeking unspecified monetary damages and other relief. The insurance companies included as defendants have asserted counterclaims seeking declarations as to their rights and liabilities under their respective applicable commercial general liability insurance policies. HCR has agreed under the Purchase Agreement to indemnify the Company for any actions or omissions of HCR or its affiliates (including Blair) that occurred prior to the closing of the Company’s acquisition of Blair. In late August, several of the defendants, including Blair, agreed to settlement terms with the Plaintiffs, and the parties expect to finalize settlement paperwork in the fourth quarter, which will result in a dismissal with prejudice of all claims against Blair.

Bonds

The Company has performance bonds with various public and private entities regarding reclamation, permitting and maintenance of public roadways. Total aggregate principal amount of performance bonds outstanding as of September 30, 2024 was $19,727.

NOTE 14 — Subsequent Events

On October 3, 2024, the Board of Directors of the Company declared a special dividend of $0.10 per share of common stock, which was paid on October 28, 2024 to stockholders of record at the close of business on October 15, 2024.

On October 3, 2024, the Board of Directors of the Company also approved an eighteen month share repurchase program under which the Company may purchase up to $10.0 million of its ordinary shares (the “Repurchase Program”). Pursuant to the Repurchase Program, the Company may repurchase its ordinary shares from time to time, in amounts, at prices and at such times as it deems appropriate, subject to market conditions and other considerations. The Company may make repurchases in the open market, privately negotiated transactions, accelerated repurchase programs or structured share repurchase programs. The Repurchase Program will be conducted in compliance with applicable legal requirements and shall be subject to market conditions and other factors. The Repurchase Program does not obligate the Company to acquire any particular amount of ordinary shares and the Repurchase Program may be modified or suspended at any time at the Company’s discretion.

SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(UNAUDITED)

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of the Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related information contained herein and our audited financial statements as of December 31, 2023 contained in our Annual Report on Form 10-K. We use contribution margin, EBITDA, adjusted EBITDA and free cash flow herein as non-GAAP measures of our financial performance. For further discussion of contribution margin, EBITDA, adjusted EBITDA and free cash flow, see the section entitled “Non-GAAP Financial Measures.” We define various terms to simplify the presentation of information in this Quarterly Report on Form 10-Q (this “Report”). All share amounts are presented in thousands.

Forward-Looking Statements

This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed herein and in the section entitled “Risk Factors” in our Form 10-K for the year ended December 31, 2023. Our estimates and forward-looking statements are primarily based on our current expectations and estimates of future events and trends, which affect or may affect our business and operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. Important factors, in addition to the factors described in this Report, may adversely affect our results as indicated in forward-looking statements. You should read this Report and the documents that we have filed as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. The words “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “might,” “would,” “continue” or the negative of these terms or other comparable terminology and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and, except to the extent required by law, we undertake no obligation to update, to revise or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. As a result of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this Report might not occur and our future results, level of activity, performance or achievements may differ materially from those expressed in these forward-looking statements due to, including, but not limited to, the factors mentioned above, and the differences may be material and adverse. Because of these uncertainties, you should not place undue reliance on these forward-looking statements.

Overview

The Company

We are a fully integrated frac and industrial sand supply and services company. We offer complete mine to wellsite proppant supply and logistics solutions to our frac sand customers. We produce low-cost, high quality Northern White sand, which is a premium sand used as proppant to enhance hydrocarbon recovery rates in the hydraulic fracturing of oil and natural gas wells and for a variety of industrial applications. We also offer proppant logistics solutions to our customers through our in-basin transloading terminals and our SmartSystems™ wellsite storage capabilities. In recent years, we have expanded our product line to offer Industrial Products Solutions (“IPS”) in order to diversify our customer base and markets we serve by offering sand for industrial uses. We market our products and services to oil and natural gas exploration and production companies, oilfield service companies, and industrial manufacturers. We sell our sand through long-term contracts, short-term supply agreements or spot sales in the open market. We provide wellsite proppant storage solutions services and equipment under flexible contract terms custom tailored to meet the needs of our customers. We believe that, among other things: (i) the size and favorable geologic characteristics of our sand reserves; (ii) the strategic location and logistical advantages of our facilities; (iii) our proprietary SmartDepot™ portable wellsite storage silos, SmartPath® transloader and SmartBelt™ conveyor;

SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(UNAUDITED)

(iv) access to all Class I rail lines; and (v) the industry experience of our senior management team make us as a highly attractive provider of sand and logistics services.

We incorporated in Delaware in July 2011 and began operations at our Oakdale, Wisconsin facility with 1.1 million tons of annual processing capacity in July 2012. After several expansions, our current annual processing capacity at our Oakdale facility, which has access to both the Canadian Pacific and Union Pacific rail networks, is approximately 5.5 million tons. In 2020, we acquired our Ottawa, Illinois mine and processing facility, which has an annual processing capacity of approximately 1.6 million tons and access to the Burlington Northern Santa Fe rail network. In March 2022, we acquired our Blair, Wisconsin facility, which has approximately 2.9 million tons of total annual processing capacity and contains an onsite, unit train capable rail terminal with access to the Class 1 Canadian National rail network. We commenced operations at the Blair facility in the second quarter of 2023. Our total annual processing capacity of our operating facilities is approximately 10.0 million tons.

We directly control five in-basin transloading facilities and have access to third party transloading terminals in all operating basins. We operate a unit train capable transloading terminal in Van Hook, North Dakota to service the Bakken Formation in the Williston Basin. We also serve the Appalachian Basin through three company-controlled terminals. In January 2022, we began operations at a unit train capable transloading terminal in Waynesburg, Pennsylvania, which we expanded in 2023. In December 2023, we acquired the right to operate a terminal in Minerva, Ohio and in January 2024, we acquired the right to operate a terminal in Dennison, Ohio. The Minerva terminal became operational in the second quarter of 2024 and the Dennison terminal became operational in the third quarter of 2024. We also have the right to use a rail terminal located in El Reno, Oklahoma. These terminals allow us to offer more efficient and sustainable delivery options to our customers. Additionally, we have longstanding relationships with third party terminal operators that provide us with access to all oil and natural gas exploration production basins of North America.

We offer to our customers portable wellsite proppant storage and management solutions through our SmartSystems products and services. Our SmartSystems provide our customers with the capability to unload, store and deliver proppant at the wellsite, as well as the ability to rapidly set up, takedown and transport the entire system. This capability creates efficiencies, flexibility, enhanced safety and reliability for customers. Through our SmartSystems wellsite proppant storage solutions, we offer the SmartDepot and SmartDepotXL™ silo systems, SmartPath transloader, SmartBelt conveyor, and our rapid deployment trailers. Our SmartDepot silos include passive and active dust suppression technology, along with the capability of a gravity-fed operation. Our SmartPath transloader is designed to work with bottom dump trailers and features a drive over conveyor, surge bin, and dust collection system. Our SmartBelt conveyor is designed to work with our SmartPath transloader to directly feed sand into the blender. Our rapid deployment trailers are designed for quick setup, takedown and transportation of the entire SmartSystem, which allows for efficient removal from the wellsite during operation. We believe the system has the ability to keep up with any hydraulic fracturing operation. We have also developed a proprietary software program, the SmartSystem Tracker™, which allows our SmartSystems customers to monitor silo-specific information, including location, proppant type and proppant inventory. We believe that our SmartSystems reduce trucking and related fuel consumption for our customers, helping them reduce their carbon footprint in their daily operations.

We have expanded our product line to offer industrial sand through IPS. In 2023, we completed the installation of blending and cooling assets at our Ottawa, Illinois facility that we believe will provide new opportunities to increase our customer base in the IPS business. While sales of IPS to customers were a small portion of our overall sand sales in 2022 and 2023, going forward, we expect to continue to expand and diversify to serve the major industrial markets throughout North America, including glass, foundry, building products, filtration, geothermal, renewables, ceramics, turf & landscape, retail, recreation and more.

Market Trends

Our historical results of operations and cash flows may not be indicative of results of operations and cash flows to be expected in the future.

During 2023 and through the third quarter of 2024, supply and demand for Northern White Sand has been in relative balance. We saw an increase in the volume of sand sold in the first half of 2023 followed by a slowdown in activity later in the year due to customers having frontloaded their budgeted spending earlier in the year. Activity also improved in the first half of 2024 as customers ramped up activity based on 2024 budget plans followed by a decline in the third quarter of 2024. Pricing for

SMART SAND, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(UNAUDITED)

sand has trended downward since the second half of 2023 due to stabilized supply and demand. High levels of inflation led to increasing operating expenses in 2023, which have continued at increased levels through the third quarter of 2024. Softening economic activities in certain countries, the continuation of the war in Ukraine, the conflicts in the Middle East, along with President Biden’s pause on liquified natural gas export permits could impact oil and natural gas prices and overall oil and gas activity thereby leading to substantial volatility in demand and pricing in the future. The continued volatility in oil and natural gas demand and the current availability of sufficient supply of sand has led to continued reluctance by some customers to enter into long-term contracts. As such, some customers have instead trended toward purchasing their frac sand supply in the spot market or under short term supply agreements at current market prices. We cannot predict macroeconomic events or if pricing trends for our products will continue, increase, decrease or stabilize.

Supplies of high-quality Northern White frac sand are limited to select areas, predominantly in western Wisconsin and limited areas of Minnesota and Illinois. We believe the ability to obtain large contiguous reserves in these areas is a key constraint and can be an important supply consideration when assessing the economic viability of a potential frac sand processing facility. Further constraining the supply and throughput of Northern White frac sand is that not all of the large reserve mines have on-site excavation, processing or logistics capabilities, which impact the long-term competitiveness of these mines due to lower efficiency and higher cost structures. Historically, much of the capital investment in Northern White frac sand mines was used for the development of coarser deposits in western Wisconsin, which is inconsistent with the increasing demand for finer mesh frac sand in recent years. As such, competitors in the Northern White frac sand market have shuttered or idled operations at certain facilities due to the higher demand for finer sands and due to lower cost regional sand sources that have eroded the ongoing economic viability of mines with coarser reserve deposits and inefficient mining and logistics facilities.

Demand in the IPS business is relatively stable as customers are spread over a wide range of industries including glass, foundry, building products, filtration, geothermal, renewables, ceramics, turf & landscape, retail, recreation and more. The IPS business is primarily influenced by macroeconomic drivers such as consumer demand and population growth. We believe that as this business grows, it will provide us with the ability to diversify our sales into more stable, consumer-driven products to help mitigate price volatility in the oil and gas industry.

SMART SAND, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(UNAUDITED)

GAAP Results of Operations

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

The following table summarizes our revenue and expenses for the periods indicated.


	Three Months Ended September 30,				Change
	2024		2023		Dollars		Percentage

Revenues:
Sand revenue	$	62,232	$	74,869	$	(12,637)	(17)	%
SmartSystems revenue	926		2,031		(1,105)		(54)	%
Total revenue	63,158		76,900		(13,742)		(18)	%
Cost of goods sold:
Sand cost of goods sold	55,601		61,490		(5,889)		(10)	%
SmartSystems cost of goods sold	1,070		1,012		58		6	%
Total cost of goods sold	56,671		62,502		(5,831)		(9)	%
Gross profit	6,487		14,398		(7,911)		(55)	%
Operating expenses:
Selling, general and administrative	9,703		8,917		786		9	%
Depreciation and amortization	633		647		(14)		(2)	%
Loss (gain) on disposal of fixed assets, net	1,063		(92)		1,155		1,255	%
Total operating expenses	11,399		9,472		1,927		20	%
Operating income	(4,912)		4,926		(9,838)		(200)	%
Other income (expenses):
Loss on extinguishment of debt	(31)		—		(31)		Not meaningful
Interest expense, net	(344)		(276)		(68)		25	%
Other income	53		198		(145)		(73)	%
Total other expenses, net	(322)		(78)		(244)		313	%
Income (loss) before income tax expense (benefit)	(5,234)		4,848		(10,082)		(208)	%
Income tax expense (benefit)	(5,136)		(1,879)		(3,257)		173	%
Net (loss) income	$	(98)	$	6,727	$	(6,825)	(101)	%

Revenues

Revenues were $63.2 million and tons sold were approximately 1,189,000 for the three months ended September 30, 2024. Revenues for the three months ended September 30, 2023 were $76.9 million, during which time we sold approximately 1,219,000 tons of sand. The key factors contributing to the revenues for the three months ended September 30, 2024 being lower, as compared to the three months ended September 30, 2023 were as follows:

•Sand revenue was 17% lower at $62.2 million for the three months ended September 30, 2024 versus $74.9 million for the three months ended September 30, 2023. The lower sand revenue was due to lower sand volumes sold along with lower average sand prices.

SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(UNAUDITED)

•SmartSystems revenue was approximately $0.9 million for the three months ended September 30, 2024 compared to $2.0 million for the three months ended September 30, 2023. The decrease in SmartSystems revenue was due to lower utilization of our SmartSystems fleet.

Cost of Goods Sold

Cost of goods sold was $56.7 million and $62.5 million for the three months ended September 30, 2024 and 2023, respectively. The decrease in cost of goods sold for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, was primarily due to reduced costs of production on lower volumes sold and cost initiatives to reduce labor and maintenance expenses.

Gross Profit

Gross profit was $6.5 million for the three months ended September 30, 2024, compared to $14.4 million for the three months ended September 30, 2023. The decline in profitability for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was primarily due to the combination of lower sales volumes and lower average sales prices on our products.

Operating Expenses

Selling, general and administrative expenses increased to $9.7 million for the three months ended September 30, 2024 compared to $8.9 million for the three months ended September 30, 2023, due primarily to $1.3 million in banking and legal fees associated with refinancing our ABL facility. Additionally, in September 2024, we closed our Saskatoon, Canada manufacturing facility and relocated it to the United States. We recorded a net loss of $1.1 million on the disposal of fixed assets related to this facility.

Interest Expense, net

We incurred $0.3 million and $0.3 million of net interest expense for the three months ended September 30, 2024 and 2023, respectively.

Income Tax Expense (Benefit)

For the three months ended September 30, 2024 and 2023, our effective tax rate was approximately 98.1% and (38.8)%, respectively. To estimate the interim period income tax expense (benefit), the company calculates the estimated effective tax rate for the full year and applies that rate to the net income for the period. The computation of the effective tax rate includes modifications from the statutory rate such as income tax credits, tax depletion deduction, carrybacks, and state apportionment changes, among other items that are specific to our Company.

As of September 30, 2024, we have recorded a liability for uncertain tax positions included in our balance sheet, related to our depletion deduction methodology. As of September 30, 2024, we determined that it is more likely than not that we will not be able to fully realize the benefits of certain existing deductible temporary differences and have recorded a partial valuation allowance against the gross deferred tax assets, which is included in liabilities, long-term, net on our balance sheet, and a corresponding increase to the income tax expense on our condensed consolidated statement of operations.

Net (Loss) Income

Net loss was $(0.1) million for the three months ended September 30, 2024 as compared to net income of $6.7 million for the three months ended September 30, 2023. Gross profit was negatively affected in the current period by the decline in sales and as well as increased operating expenses due to the ABL refinancing and closure of the Saskatoon facility.

SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(UNAUDITED)

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

The following table summarizes our revenue and expenses for the periods indicated.


	Nine Months Ended September 30,				Change
	2024		2023		Dollars		Percentage
	(in thousands)
Revenues:
Sand revenue	$	212,971	$	227,332	$	(14,361)	(6)	%
SmartSystems revenue	7,038		6,694		344		5	%
Total revenue	220,009		234,026		(14,017)		(6)	%
Cost of goods sold:
Sand cost of goods sold	183,470		189,878		(6,408)		(3)	%
SmartSystems cost of goods sold	5,168		5,424		(256)		(5)	%
Total cost of goods sold	188,638		195,302		(6,664)		(3)	%
Gross profit	31,371		38,724		(7,353)		(19)	%
Operating expenses:
Selling, general and administrative	28,924		28,634		290		1	%
Depreciation and amortization	1,978		1,868		110		6	%
Loss (gain) on disposal of fixed assets, net	1,069		1,821		(752)		(41)	%
Total operating expenses	31,971		32,323		(352)		(1)	%
Operating income	(600)		6,401		(7,001)		(109)	%
Other income (expenses):
Loss on extinguishment of debt	(1,341)		—		(1,341)		Not meaningful
Interest expense, net	(1,226)		(940)		(286)		30	%
Other income	224		405		(181)		(45)	%
Total other expenses, net	(2,343)		(535)		(1,808)		338	%
Income (loss) before income tax benefit	(2,943)		5,866		(8,809)		(150)	%
Income tax expense (benefit)	(2,199)		(3,569)		1,370		38	%
Net (loss) income	$	(744)	$	9,435	$	(10,179)	(108)	%

Revenues

Revenues were $220.0 million and tons sold were approximately 3,799,000 for the nine months ended September 30, 2024. Revenues for the nine months ended September 30, 2023 were $234.0 million, during which time we sold approximately 3,498,000 tons of sand. The key factors contributing to the change in revenues for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 were as follows:

•Sand revenue declined to $213.0 million for the nine months ended September 30, 2024 versus $227.3 million for the nine months ended September 30, 2023. Total volumes increased by approximately 9%, however, average sand prices were lower in 2024 as supply and demand shifts have become more in balance compared to the same period in 2023. We also recognized higher contractual shortfall revenue in the prior year.

•SmartSystems revenue, was approximately $7.0 million for the nine months ended September 30, 2024 compared to $6.7 million for the nine months ended September 30, 2023. The increase in SmartSystems revenue was due to slightly higher utilization our SmartSystems fleet in early 2024.

SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(UNAUDITED)

Cost of Goods Sold

Cost of goods sold was $188.6 million and $195.3 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. Cost of goods sold remained relatively flat with reduced freight on a per ton basis due to a shift in delivery location and more tons sold at the minegate, partially offset by higher total cost of production due to higher volumes sold.

Gross Profit

Gross profit was $31.4 million and $38.7 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. The gross profit for the nine months ended September 30, 2024 was lower, compared to the nine months ended September 30, 2023, due primarily to lower average sales prices of our sand relative to the cost to produce and deliver products to our customers.

Operating Expenses

Selling, general and administrative expenses were consistent in total at $28.9 million for the nine months ended September 30, 2024 compared to $28.6 million for the nine months ended September 30, 2023. Cost reduction efforts in most SG&A accounts were largely offset by higher royalties on larger sales volumes and bank and legal fees associated with the refinancing of our Former ABL Credit Facility. Additionally, in September 2024, we closed our Saskatoon manufacturing facility and disposed of fixed assets there and recorded a net loss on the disposal of $1.1 million, compared to a $1.9 million net loss on disposal of fixed assets in 2023 as we reconfigured one of our wet plants to increase the efficiency of its operations and upgraded some of our mining equipment.

Interest Expense, net

We incurred $1.2 million and $0.9 million of net interest expense for the nine months ended September 30, 2024 and September 30, 2023, respectively.

Income Tax Expense (Benefit)

For the nine months ended September 30, 2024 and September 30, 2023, our effective tax rate was approximately 74.7% and (60.8)%, respectively. To estimate the interim period income tax expense (benefit), the company calculates the estimated effective tax rate for the full year and applies that rate to the net income for the period. The computation of the effective tax rate includes modifications from the statutory rate such as income tax credits, tax depletion deduction, carrybacks, and state apportionment changes, among other items that are specific to our Company.

As of September 30, 2024, we have recorded a liability for uncertain tax positions included on our balance sheet, related to our depletion deduction methodology. As of September 30, 2024, we determined that it is more likely than not that we will not be able to fully realize the benefits of certain existing deductible temporary differences and have recorded a partial valuation allowance against the gross deferred tax assets, which is included in liabilities, long-term, net on our balance sheet, and a corresponding increase to the income tax expense on our condensed consolidated statement of operations.

Net Loss

Net loss was $0.7 million for the nine months ended September 30, 2024 as compared to net income of $9.4 million for the nine months ended September 30, 2023. Gross profit was negatively affected in the current period by the decline in sales.

Non-GAAP Financial Measures

Contribution margin, EBITDA, adjusted EBITDA and free cash flow are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial condition and results of operations. Gross profit is the GAAP measure most directly comparable to contribution margin, net income is the GAAP measure most directly comparable to EBITDA and adjusted

SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(UNAUDITED)

EBITDA and net cash provided by operating activities is the GAAP measure most directly comparable to free cash flow. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measures. Each of these non-GAAP financial measures has important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP financial measures. You should not consider contribution margin, EBITDA, adjusted EBITDA or free cash flow in isolation or as substitutes for an analysis of our results as reported under GAAP. Because contribution margin, EBITDA, adjusted EBITDA and free cash flow may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

Contribution Margin

We use contribution margin, which we define as total revenues less cost of goods sold excluding depreciation, depletion and accretion of asset retirement obligations, to measure our financial and operating performance. Contribution margin excludes other operating expenses and income, including costs not directly associated with the operations of our business such as accounting, human resources, information technology, legal, sales and other administrative activities.

We believe that reporting contribution margin and contribution margin per ton sold provides useful performance metrics to management and external users of our financial statements, such as investors and commercial banks, because these metrics provide an operating and financial measure of our ability, as a combined business, to generate margin in excess of our operating cost base.

Gross profit is the GAAP measure most directly comparable to contribution margin. Contribution margin should not be considered an alternative to gross profit presented in accordance with GAAP. Since contribution margin may be defined differently by other companies in our industry, our definition of contribution margin may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. The following table presents a reconciliation of gross profit to contribution margin.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(in thousands, except per ton amounts)
Revenue	$	63,158	$	76,900	$	220,009	$	234,026
Cost of goods sold	56,671		62,502		188,638		195,302
Gross profit	6,487		14,398		31,371		38,724
Depreciation, depletion, and accretion of asset retirement obligations	6,700		6,573		20,111		19,088
Contribution margin	$	13,187	$	20,971	$	51,482	$	57,812
Contribution margin per ton	$	11.09	$	17.20	$	13.55	$	16.53
Total tons sold	1,189		1,219		3,799		3,498

Contribution margin was $13.2 million and $21.0 million, or $11.09 and $17.20 per ton sold, for the three months ended September 30, 2024 and 2023, respectively. Contribution margin was $51.5 million and $57.8 million, or $13.55 and $16.53 per ton sold, for the nine months ended September 30, 2024 and 2023, respectively. The decline in overall contribution margin for both the three and nine month periods ended September 30, 2024, when compared to the same periods in 2023, was primarily due to lower average selling price of our sand, partially mitigated by cost reduction measures throughout the Company.

EBITDA and Adjusted EBITDA

We define EBITDA as net income, plus: (i) depreciation, depletion and amortization expense; (ii) income tax expense (benefit) and other results of operations based taxes; and (iii) interest expense. We define adjusted EBITDA as EBITDA, plus: (i) gain or loss on sale of fixed assets or discontinued operations; (ii) integration and transition costs associated with specified transactions; (iii) equity compensation; (iv) acquisition and development costs; (v) non-recurring cash charges related to restructuring, retention and other similar actions; (vi) earn-out, contingent consideration obligations; and (vii) non-cash charges

SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(UNAUDITED)

and unusual or non-recurring charges. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and commercial banks, to assess:

•the financial performance of our assets without regard to the impact of financing methods, capital structure or historical cost basis of our assets;

•the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities;

•our ability to incur and service debt and fund capital expenditures;

•our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods or capital structure; and

•our debt covenant compliance, as adjusted EBITDA is a key component of critical covenants to the ABL Credit Facility.

We believe that our presentation of EBITDA and adjusted EBITDA will provide useful information to investors in assessing our financial condition and results of operations. Net income is the GAAP measure most directly comparable to EBITDA and adjusted EBITDA. EBITDA and adjusted EBITDA should not be considered alternatives to net income presented in accordance with GAAP. Because EBITDA and adjusted EBITDA may be defined differently by other companies in our industry, our definitions of EBITDA and adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. The following table presents a reconciliation of net loss to EBITDA and adjusted EBITDA for each of the periods indicated.


	Three Months Ended September 30, 2024				Nine Months Ended September 30, 2024
	2024		2023		2024		2023
	(in thousands)
Net (loss) income	$	(98)	$	6,727	$	(744)	$	9,435
Depreciation, depletion and amortization	7,161		6,985		21,574		20,285
Income tax expense and other taxes	(5,136)		(1,879)		(2,199)		(3,569)
Interest expense	383		304		1,286		1,203
EBITDA	$	2,310	$	12,137	$	19,917	$	27,354
Net loss on disposal of fixed assets	1,063		(92)		1,069		1,821
Equity compensation	765		850		2,072		2,388
Acquisition and development costs	8		70		316		341
Loss on extinguishment of debt	31		—		1,341		—
Cash charges related to restructuring and retention of employees	—		—		148		18
Bank and legal costs related to financing not closed	1,294		—		1,294		—
Accretion of asset retirement obligations	249		235		747		670
Adjusted EBITDA	$	5,720	$	13,200	$	26,904	$	32,592

Adjusted EBITDA was $5.7 million for the three months ended September 30, 2024 compared to $13.2 million for the three months ended September 30, 2023. The lower Adjusted EBITDA for the three months ended September 30, 2024, compared to the three months ended September 30, 2023 was due to the combination of lower sales volumes and lower average sales prices of our sand. Adjusted EBITDA was $26.9 million for the nine months ended September 30, 2024 compared to $32.6 million for the nine months ended September 30, 2023. The decrease in adjusted EBITDA for the nine months ended September 30, 2024, compared to the same period in 2023, was primarily due to lower average sales prices of our sand.

SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(UNAUDITED)

Free Cash Flow

Free cash flow, which we define as net cash provided by operating activities less purchases of property, plant and equipment, is used as a supplemental financial measure by our management and by external users of our financial statements, such as investors and commercial banks, to measure the liquidity of our business.

Net cash provided by operating activities is the GAAP measure most directly comparable to free cash flows. Free cash flows should not be considered an alternative to net cash provided by operating activities presented in accordance with GAAP. Because free cash flows may be defined differently by other companies in our industry, our definition of free cash flows may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. The following table presents a reconciliation of net cash provided by operating activities to free cash flows.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(in thousands, except per ton amounts)
Net cash provided by operating activities	$	5,810	$	12,477	$	16,829	$	33,650
Purchases of property, plant and equipment	(2,135)		(6,881)		(5,135)		(16,126)
Free cash flow	$	3,675	$	5,596	$	11,694	$	17,524

Free cash flow was $3.7 million for the three months ended September 30, 2024 compared to $5.6 million for the three months ended September 30, 2023. Free cash flow was $11.7 million for the nine months ended September 30, 2024 compared to $17.5 million for the nine months ended September 30, 2023. The positive free cash flow for the three and nine months ended September 30, 2024 was primarily due to management’s focus on reducing operating expenses and focus on lower capital expenditures. The decline in average selling prices in 2024 has negatively affected free cash flow.

Liquidity and Capital Resources

In September 2024 we refinanced our former $20.0 million ABL facility to a new $30.0 million FCB ABL facility. Our primary sources of liquidity are cash flow generated from operations and availability under our FCB ABL Credit Facility and other equipment financing sources. As of September 30, 2024, cash on hand was $7.2 million and we had $30.0 million in undrawn availability on our FCB ABL Credit Facility.

Based on our balance sheet, cash flows, current market conditions, and information available to us at this time, we believe that we have sufficient liquidity and other available capital resources, to meet our cash needs for the next twelve months.

Material Cash Requirements

Dividends and Share Repurchase Program

On October 3, 2024, the Smart Sand Board of Directors declared a special dividend of $0.10 per share of common stock, which was paid on October 28, 2024 to stockholders of record at the close of business on October 15, 2024. The initial dividend payment was approximately $3.9 million.

On October 3, 2024, the Smart Sand Board of Directors also approved an eighteen-month share repurchase program under which we may purchase up to $10.0 million of our ordinary shares (the “Repurchase Program”). Pursuant to the Repurchase Program, we may repurchase our ordinary shares from time to time, in amounts, at prices and at such times as management deems appropriate, subject to market conditions and other considerations. Management may make repurchases in the open market, privately negotiated transactions, accelerated repurchase programs or structured share repurchase programs. The Repurchase Program will be conducted in compliance with applicable legal requirements and shall be subject to market conditions and other factors. The Repurchase Program does not obligate management to acquire any particular amount of ordinary shares and the Repurchase Program may be modified or suspended at any time.

SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(UNAUDITED)

Capital Requirements

We expect full year 2024 capital expenditures to be between $8.0 million and $10.0 million. Our expected capital expenditures for 2024 are primarily for process improvement and efficiency projects at our mine sites, upgrading mining equipment and the build out of our new Ohio terminals. We expect to fund these capital expenditures with cash from operations, equipment financing options available to us or borrowings under the FCB ABL Credit Facility.

Indebtedness

Our debt facilities include the VFI Equipment Financing, various notes payable and our FCB ABL Credit Facility. Our VFI Equipment Financing is secured by a substantial portion of the Company’s SmartSystems equipment. The outstanding balance under the VFI Equipment Financing as of September 30, 2024 was $9.2 million. Minimum cash payments on this facility for the remainder of 2024 are anticipated to be $0.7 million. Our various notes payable are primarily secured by heavy equipment. Total debt under these notes payable as of September 30, 2024 was $3.8 million. Minimum cash payments on these notes payable for the remainder of 2024 are anticipated to be $0.3 million. There were no outstanding borrowings on our FCB ABL Credit Facility as of September 30, 2024.

Operating Leases

We use leases primarily to procure certain office space, railcars and heavy equipment as part of our operations. The majority of our lease payments are fixed and determinable. Our operating lease liabilities as of September 30, 2024 were $23.5 million. Minimum cash payments on operating leases for the remainder of 2024 are anticipated to be $2.6 million.

Mineral Rights Property

The Company is obligated under certain contracts for minimum payments for the right to use land for extractive activities. The annual minimum payments under these contracts are approximately $2.5 million per year in the aggregate for the next 13 years.

Off-Balance Sheet Arrangements

We had outstanding performance bonds of $19.7 million as of September 30, 2024.

Contractual Obligations

As of September 30, 2024, we had contractual obligations for the FCB ABL Credit Facility, VFI Equipment Financing, notes payable, operating and finance leases, delivery of sand, royalties and similar minimum payments for the rights to mine land, capital expenditures, asset retirement obligations, and other commitments to municipalities for maintenance.

Environmental Matters

We are subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, air and water emissions, environmental contamination and reclamation and the protection of the environment and natural resources. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures.

Seasonality

Our business is affected to some extent by seasonal fluctuations in weather that impact the production levels for a portion of our wet sand processing capacity. While our dry plants are able to process finished product volumes evenly throughout the year, some of our excavation and our wet sand processing activities have historically been limited during winter months. As a consequence, we typically have experienced lower cash operating costs in the first and fourth quarter of each calendar year, and higher cash operating costs in the second and third quarter of each calendar year when we have overproduced sand to meet demand in the winter months. These higher cash operating costs are capitalized into inventory and expensed when these tons

SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(UNAUDITED)

are sold, which can lead to us having higher overall cost of production in the first and fourth quarters of each calendar year as we expense inventory costs that were previously capitalized. We have indoor wet processing facilities at two of our plant locations, which allow us to produce wet sand inventory year-round to support a portion of our dry sand processing capacity, which may reduce some of the effects of this seasonality. We may also sell frac sand for use in oil and natural gas producing basins where severe weather conditions may curtail drilling activities and, as a result, our sales volumes to those areas may be reduced during such severe weather periods.

Customer Concentration

For the nine months ended September 30, 2024, EQT Corporation, Encino Energy and Liberty Oilfield Services accounted for 53.9% of total revenue. For the nine months ended September 30, 2023, revenue from EQT Corporation and Liberty Oilfield Services accounted for 27.6%, and 12.9% respectively, of total revenue.

Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies and procedures during the nine months ended September 30, 2024.

Use of Estimates

The preparation of interim statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates used in the preparation of these financial statements include but are not limited to: impairment considerations of assets, including intangible assets, fixed assets, and inventory; estimated cost of future asset retirement obligations; fair values of acquired assets and assumed liabilities; recoverability of deferred tax assets; inventory reserve; and the collectability of receivables; and certain liabilities.

Actual results could differ from management’s best estimates as additional information or actual results become available in the future, and those differences could be material. Future economic performance is uncertain due to current high inflation and other economic concerns. We continue to actively monitor the global impact of current events, but we are unable to estimate the impact of future events on our financial position and results of operations or give any assurances that these events will not have a material adverse effect on our financial position or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The majority of our debt is financed under fixed interest rates. Borrowings under the FCB ABL Credit Facility bear interest at a rate equal to the secured overnight financing rate (“SOFR”) plus a margin of 2.75%. There were no outstanding borrowings under our FCB ABL Credit Facility as of September 30, 2024. We do not believe this represents a material interest rate risk.

We have considered other changes in our exposure to market risks during the nine months ended September 30, 2024 and have determined that there have been no additional material changes to our exposure to market risks from those described in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 11, 2024.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes that occurred during the third quarter of fiscal year 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Effective July 1, 2024, the Company upgraded its enterprise management and accounting system. Management has maintained its control environment during this transition through risk evaluation, monitoring, communication and separation of duties. Detective and preventative controls have been maintained or enhanced in the new system. We will continue to evaluate whether there are changes that materially affect or are reasonably likely to have materially affected, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we may be involved in litigation relating to claims arising out of our operations in the normal course of business. The disclosure called for by Part II, Item 1 regarding our legal proceedings is incorporated by reference herein from Part I, Item 1. Note 14 - Commitments and Contingencies - Litigation of the notes to the condensed consolidated financial statements in this Form 10-Q for the three and nine months ended September 30, 2024.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended September 30, 2024, no shares were sold by the Company without registration under the Securities Act of 1933, as amended.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On October 3, 2024, the Board of Directors of the Company approved an eighteen-month share repurchase program under which the Company may purchase up to $10.0 million of its ordinary shares (the “Repurchase Program”). Pursuant to the Repurchase Program, the Company may repurchase its ordinary shares from time to time, in amounts, at prices and at such times as it deems appropriate, subject to market conditions and other considerations. The Company may make repurchases in the open market, privately negotiated transactions, accelerated repurchase programs or structured share repurchase programs. The Repurchase Program will be conducted in compliance with applicable legal requirements and shall be subject to market conditions and other factors. The Repurchase Program does not obligate the Company to acquire any particular amount of ordinary shares and the Repurchase Program may be modified or suspended at any time at the Company’s discretion.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

We are committed to maintaining a culture that prioritizes mine safety. We believe that our commitment to safety, the environment and the communities in which we operate is critical to the success of our business. Our sand mining operations are subject to mining safety regulation. The U.S. Mining Safety and Health Administration (“MSHA”) is the primary regulatory organization governing frac sand mining and processing. Accordingly, MSHA regulates quarries, surface mines, underground mines and the industrial mineral processing facilities associated with and located at quarries and mines. The mission of MSHA is to administer the provisions of the Federal Mine Safety and Health Act of 1977 and to enforce compliance with mandatory miner safety and health standards. As part of MSHA’s oversight, representatives perform at least two unannounced inspections annually for each above-ground facility.

We are also subject to regulations by the U.S. Occupational Safety and Health Administration, which has promulgated rules for workplace exposure to respirable silica for several other industries. Respirable silica is a known health hazard for workers exposed over long periods. In April 2024, MSHA adopted its final rule lowering the permissible exposure limit for respirable crystalline silica, establishing an action level for respirable crystalline silica, implementing medical surveillance for metal/non-metal mines and updating the respiratory protection standard. Airborne respirable silica is associated with work areas at our site and is monitored closely through routine testing and MSHA inspection. We do not expect this to have a material affect on the Company or its operations.

Our operations are subject to the Federal Mine Safety and Health Act of 1977, as amended by the Mine Improvement and New Emergency Response Act of 2006, which imposes stringent health and safety standards on numerous aspects of mineral extraction and processing operations, including the training of personnel, operating procedures, operating equipment, and other matters. Our failure to comply with such standards, or changes in such standards or the interpretation or enforcement thereof, could have a material adverse effect on our business and financial condition or otherwise impose significant restrictions on our ability to conduct mineral extraction and processing operations. Following passage of The Mine Improvement and New Emergency Response Act of 2006, MSHA significantly increased the numbers of citations and orders charged against mining operations. The dollar penalties assessed for citations issued has also increased in recent years. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this Report.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


3.1						Second Amended and Restated Certificate of Incorporation of Smart Sand, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 15, 2016)
3.2						Second Amended and Restated Bylaws of Smart Sand, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 15, 2016)
10.1						ABL Credit Agreement, dated September 3, 2024, among Smart Sand, Inc., the subsidiary borrowers and guarantors party thereto, First-Citizens Bank & Trust Company, as issuing bank, swingline lender and agent, and certain other lenders from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2024)
10.2						Guarantee and Collateral Agreement, dated September 3, 2024, among the Company, the subsidiary borrowers and guarantors party thereto and First-Citizens Bank & Trust Company, as agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2024)
31.1*						Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*						Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*†						Certification Pursuant to 18 U.S.C. adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*†						Certification Pursuant to 18 U.S.C. adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
95.1*						Mine Safety Disclosure Exhibit
101.INS						Extracted XBRL Instance Document - the instance document does not appear in the Interactive Data File as XBRL tags are embedded in the Inline XBRL document.
101.SCH*						XBRL Taxonomy Extension Schema
101.CAL*						XBRL Taxonomy Extension Calculation Linkbase
101.DEF*						XBRL Taxonomy Extension Definition Linkbase
101.LAB*						XBRL Taxonomy Extension Label Linkbase
101.PRE*						XBRL Taxonomy Extension Presentation Linkbase
104*						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


*			Filed Herewith.
†			This certification is deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Smart Sand, Inc.

November 12, 2024	By:	/s/ Lee E. Beckelman
		Lee E. Beckelman, Chief Financial Officer
		(Principal Financial Officer)


	Smart Sand, Inc.

November 12, 2024	By:	/s/ Christopher M. Green
		Christopher M. Green, Vice President of Accounting
		(Principal Accounting Officer)

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SEC Form 10-Q filed by Smart Sand Inc.

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Smart Sand Inc. filed SEC Form 8-K: Results of Operations and Financial Condition, Financial Statements and Exhibits