MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
access to the Class 1 Canadian Pacific Railway and nearby access to the Class I Union Pacific Railroad through our Byron, Wisconsin transload facility.
In September 2020, we acquired from Eagle all of the issued and outstanding equity interests in Eagle Oil and Gas Proppants Holdings, LLC. This acquisition included our Ottawa , Illinois processing facility, which has approximately 1.6 million tons of annual sand processing capacity. We commenced operations at the Ottawa facility in October, 2020.
In March 2022, we acquired all of the issued and outstanding equity interests in Hi-Crush Blair, LLC, which included our Blair, Wisconsin processing facility. This facility has approximately 2.9 million tons of total annual sand processing capacity and contains an onsite, unit train capable rail terminal with access to the Class 1 Canadian National Railway. We commenced operations at the Blair facility in the second quarter of 2023.
We directly control five in-basin transloading facilities and have access to third party transloading terminals in all operating basins. These terminals allow us to offer more efficient and sustainable delivery options to our customers. We operate a unit train capable transloading terminal in Van Hook, North Dakota to service the Bakken Formation in the Williston Basin. We operate this terminal under a long-term agreement with Canadian Pacific Railway. 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 rights to operate a terminal in Dennison, Ohio. These two Ohio terminals became operational in 2024. In 2025, we expanded the Dennison, Ohio terminal. We also have rights to use a rail terminal located in El Reno, Oklahoma. Additionally, we have long-standing relationships with third party terminal operators that allow us access to substantially all oil and natural gas exploration production basins of North America.
We also offer our customers portable wellsite storage and management solutions through our SmartSystems products and services. Our Smart Systems enable customers to unload, store, and deliver proppant at the wellsite and rapidly set up, take down, and transport the entire system. This capability enhances our customers’ efficiency, safety, and reliability. Through our SmartSystems wellsite proppant storage solutions, we offer the SmartDepot and SmartDepotXL silo systems, the SmartBelt conveyor, the SmartPath wellsite proppant management system, and our rapid deployment trailers. The SmartDepot silos feature passive and active dust suppression technology and support gravity-fed operation. Our self-contained SmartPath wellsite proppant management system is a mobile sand transloading solution that works with bottom-dump trailers. These systems include a drive-over conveyor, surge bin, silo storage, bucket elevators, and integrated dust collection. In 2024, we developed new dual bucket elevators to enhance our vertical material handling capabilities. We also increased our silo storage capacity and streamlined proppant delivery directly to the blender. This addition provides greater flexibility for customers with varying wellsite configurations while maintaining the efficiency, safety, and reliability that define our SmartSystems solutions. Our rapid deployment trailers are designed for quick setup, takedown, and transportation of the entire SmartSystem. They detach from the wellsite equipment, allowing for removal from the wellsite during operations. We believe our SmartSystems help customers reduce trucking and related fuel consumption, reducing the carbon footprint of their daily operations.
We have expanded our IPS product line in 2023 by completing the installation of blending and cooling equipment at our Ottawa, Illinois facility, which we believe provides new opportunities to increase our customer base in the IPS business. 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 and recreational uses.
Recent Developments
Ohio Transload Terminals
In late 2023 and early 2024, we acquired the rights to operate unit train capable transloading facilities located in Minerva, Ohio and Dennison, Ohio. These sites became operational in 2024 and we believe that they provide us with the opportunity to sell additional sand to existing and potential customers in the Appalachian Basin.
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Blair Mine and Processing Facility
In April 2023, our processing facility located in Blair, Wisconsin became operational. This facility has approximately 2.9 million tons of total annual sand processing capacity and contains an onsite, unit train capable rail terminal with access to the Class 1 Canadian National Railway. We believe this facility provides us with opportunities to expand our customer base in Canada along with other portions of North America.
Assets and Operations
Oakdale, Wisconsin
Our sand reserves in Oakdale include a mix of coarse and fine sand with a majority of the reserves being the finer grades. With demand currently in the frac sand market being primarily for finer mesh sands, we believe our reserve mix provides us relatively higher mining yields and lower processing costs than frac sand mines with predominantly coarse sand reserves. We have approximately 228 million tons of proven and probably recoverable reserves with an estimated life of mine of approximately 71 years, based on expected sales volumes.
Our Oakdale facility is purpose-built to exploit the reserve profile in place and produce high-quality frac sand. Unlike some of our competitors, our primary processing and rail loading facilities are located in close proximity to the mine site, which limits the need for us to truck sand on public roads between the mine and the production facility, between wet and dry processing facilities, or from the processing facility to rail loading facilities. Our on-site transportation assets include approximately nine miles of rail track in a triple-loop configuration and four railcar loading facilities that are connected to the Class I Canadian Pacific Railway. This enables us to simultaneously accommodate multiple unit trains and significantly increases our efficiency in meeting our customers’ frac sand transportation needs. Additionally, we have our unit train capable transload facility approximately three miles from the Oakdale facility in Byron Township, Wisconsin, which provides us with the ability to ship sand to our customers on the Class I Union Pacific rail network. We believe that we are the only sand facility in Wisconsin that has dual served rail capabilities, which should create competition among our rail carriers and allow us to provide more competitive logistics options for our customers.
Ottawa & Peru, Illinois
Our Ottawa facility also has a large high-quality reserve base of primarily fine-mesh sand that is contiguous to the production facility and in close proximity to our Peru transload facility located on the BNSF railway. We have approximately 125 million tons of proven and probable reserves, and an estimated life of mine of approximately 149 years, based on expected sales volumes. Our owned Peru transload facility provides direct access to the BNSF rail line and has significant logistics assets to support our Ottawa operations. This facility is capable of handling multiple unit trains simultaneously and provides access to operating basins in the western United States. Additionally, the CSX rail line, as well as diversified industrial and commercial customers in the greater Chicago area and other Midwestern metropolitan markets are within short trucking distances.
Blair, Wisconsin
Our Blair facility also has a large high-quality reserve base of primarily fine-mesh sand that is contiguous to the production facility and significant logistics assets located on the Canadian National Railway. We have approximately 109 million tons of proven and probable reserves and an estimated life of mine of approximately 67 years, based on expected sales volumes. Our Blair facility provides us with significant logistics assets that further increases our logistics advantage, including access to the Canadian National Railway, a Class I rail line. In the second quarter of 2023, we commenced operations at the Blair facility.
Logistics
From our three operating facilities of Oakdale, Ottawa and Blair, we have direct access to four Class I rail lines and all Class I rail lines within the United States and Canada. We believe this allows us to deliver frac sand to all operating basins in North America on a sustainable, efficient and cost-effective basis. We expect to continue to capitalize the logistics networks of our three operating facilities to maximize our product shipments, increase our railcar utilization and lower our transportation costs.
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Through our transloading terminal in Van Hook, North Dakota, we provide one of the most efficient and lowest-cost sources of Northern White sand in-basin to customers operating in the Bakken Formation in the Williston Basin. In 2021, we acquired the right to operate the Waynesburg, Pennsylvania terminal. In December 2023, we acquired rights to operate a transloading terminal in Minerva, Ohio. In January 2024 we acquired rights to operate a terminal in Dennison, Ohio. With these three terminals in the Appalachian Basin, we believe we are one of the premier providers of low cost high-quality Northern White Sand serving the Marcellus and Utica formations. We also acquired a rail terminal from the Eagle acquisition located in El Reno, Oklahoma, which allows us to economically provide frac sand to customers operating nearby, including customers using our SmartSystems last mile equipment.
Through our SmartSystems offering, we have the technology, production capacity and management team to compete further in the frac sand supply chain for our customers by offering logistics services from the mine all the way to the wellsite. Our SmartSystems consist of our SmartDepot proppant storage silos, our SmartPath wellsite proppant management system, our SmartBelt conveyor and our rapid deployment trailer system.
We believe our patented SmartDepot silos will outperform our competitors in that they can be set up or taken down rapidly, they include industry-leading passive and active dust suppression technology, they have the capability of gravity-fed operation and they can be filled by both pneumatic and gravity dump trailers. Our trailers detach, which reduces their footprint on the wellsite. In 2020, we developed a self-contained SmartPath wellsite proppant management system, which is a mobile sand transloading system designed to work with bottom dump trailers and features a drive over conveyor, surge bin, silo storage, and integrated dust collection system. In 2024, we developed new dual bucket elevators to enhance our vertical material handling capabilities. We also increased our silo storage capacity and streamlined proppant delivery directly to the blender. This addition provides greater flexibility for customers with varying wellsite configurations while maintaining the efficiency, safety, and reliability that define our SmartSystems solutions. We believe the system has the ability to keep up with any hydraulic fracturing operation. Our SmartBelt conveyor is designed to work with our SmartPath wellsite proppant management system to directly feed sand into the blender. Our 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. We have also developed a proprietary software program, the SmartSystem Tracker TM , which allows our SmartSystems customers to monitor silo-specific information, including location, proppant type and proppant inventory.
Through the expansion of our SmartSystems fleet and other logistics options, we continue evaluating ways to reduce the landed cost of our products in-basin and to the wellsite for our customers while increasing our customized service offerings to provide additional delivery and pricing alternatives, including selling product on an “as-delivered” basis to the wellsite. We believe that our SmartSystems reduce trucking and related fuel consumption for our customers, helping them reduce their carbon footprint in their daily operations.
How We Generate Revenue
We generate revenue by excavating and processing frac sand, which we sell to our customers in the oil and gas industry under short and long-term contracts agreements or as spot sales at prevailing market rates. For in-basin sales, revenues also include a charge for transportation and handling services provided to customers. Our contracts typically contain a minimum volume purchase requirement and provide for delivery of frac sand from one of our processing facilities, transloading terminals or another location specified by our customers. Revenue is generally recognized as products are delivered to customers in accordance with the contract.
We generate revenue from our SmartSystems by renting equipment and providing services to our customers under contract terms tailored to meet their short-term or long-term needs with any number of SmartDepots, SmartPaths, SmartBelts or trailers they require. We recognize revenue when the equipment is made available for the customer to use, services are provided, or other obligations in the contract are met.
In the fourth quarter of 2021, we expanded our product line to begin offering 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. We expect to continue to expand and diversify to serve the major industrial
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
markets throughout North America, including glass, foundry, building products, filtration, geothermal, renewables, ceramics, turf & landscape, retail and recreational uses.
Costs of Conducting Our Business
The principal direct costs involved in operating our business are freight charges, which include transportation, railcar rental and transload expenses, and production costs, which consists of labor, maintenance, utilities, equipment, excavation and depreciation of our property, plant and equipment. We incur labor costs associated with employees at our processing facilities which represent the most significant cost of converting sand to finished products. Our sand processing and logistics facilities undergo maintenance to minimize unscheduled downtime and ensure the ongoing quality of our sand and ability to meet customer demands. We incur utility costs in connection with the operation of our processing and logistics facilities, primarily electricity and natural gas, which are both susceptible to market fluctuations. We lease equipment in many areas of our operations including some of our mining and hauling equipment and logistics services. Excavation costs relate to the blasting and excavation of sand and other materials in order to retrieve desirable sand products. In addition, other costs including processing costs, overhead allocation, depreciation and depletion are capitalized as a component of inventory and are reflected in cost of goods sold when inventory is sold.
Overall Trends and Outlook
Demand Trends
Demand for frac sand declined moderately during 2025. According to Spears, North America proppant demand decreased by approximately 2% compared to 2024. Despite lower drilling and completion activity during the year, overall frac sand demand remained relatively stable, supported by longer lateral well lengths and increased sand volume per linear foot of lateral well. Frac sand demand is expected to increase moderately in 2026. In addition, demand may continue to grow over the next five years, driven by expected increases in natural gas demand to support expanded LNG export capacity and potential incremental power demand from data centers.
Supply Trends
Supplies of high-quality Northern White frac sand are limited to select areas, predominantly in western Wisconsin and limited areas of Minnesota, Illinois and Missouri. 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, we’ve seen competitors in the Northern White frac sand market reduce their capacity by shuttering or idling operations due to the shift to finer sands in hydraulic fracturing of oil and natural gas wells and due to lower cost regional sand sources that has eroded the ongoing economic viability of mines with coarser reserve deposits and inefficient mining and logistics facilities.
Management’s Outlook
In 2021, we started several strategic initiatives to take advantage of the market downturn to set ourselves up for success in future years. These initiatives primarily consisted of growing our asset base and product offerings. We have increased the size of our terminal network by opening our Waynesburg, Pennsylvania transloading terminal in 2022, expanding it in 2023, commencing operations at two transloading terminals at Minerva, Ohio and Dennison, Ohio in 2024 and expanding the Dennison terminal in 2025. With these three terminals in the Appalachian Basin, we believe we are one of the premier providers of low-cost high-quality Northern White Sand into this key market. We also increased our production capacity with our acquisition of the Blair, Wisconsin mine and processing facility in 2022. This facility, which has approximately 2.9 million tons of total annual sand processing capacity, contains an onsite, unit train capable rail terminal with access to the Class 1 Canadian National Railway and became operational in the second quarter of 2023. With this acquisition, we now have direct access to four Class I rail lines and the ability to access all Class 1 rail lines within the United States and Canada.
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
In the fourth quarter of 2021, we expanded our product line to begin offering IPS. Since then, we have worked to expand and diversify our customer base to serve the major industrial markets throughout North America, including glass, foundry, building products, filtration, geothermal, renewables, ceramics, turf & landscape, retail and recreation. Our IPS business has continued to grow after we completed the installation of blending and cooling assets in 2023 and we believe will continue to expand this business in 2026 and beyond.
We expect the demand for frac sand in 2026 to continue to moderately increase. We believe higher demand driven by increased laterals and higher amounts of sand per well completed should lead to sand prices remaining relatively stable in 2026.
In recent years, exploration and production companies have been more disciplined in their drilling activity which has led to less volatility in supply and demand of oil and natural gas which has stabilized oil and natural gas prices at levels sufficient to support consistent drilling and completion activity. Demand for both frac sand and our SmartSystems is influenced by the number of oil and natural gas wells being drilled and completed, as well as the types of wells that are completed and the volume of sand being used in each well. We expect the Bakken, Marcellus and Utica shale formations as well as the Montney and Duvernay shale basins in Canada to continue to be key markets for us and we look to expand our market share in these key areas through our current strategic initiatives.
Additionally, growth in AI-driven data centers is expected to indirectly support increased demand for frac sand by driving incremental natural gas consumption and, in turn, increased levels of natural gas drilling and completion activity. As natural gas needs increase to meet rising power demand, producers may increase development in key shale basins, leading to higher well completions and greater use of frac sand.
The industry trends continue towards drilling and completing wells with longer laterals and more frac stages per lateral foot drilled. This trend is leading to higher volumes of sand per well and the need for oil and natural gas exploration companies to manage larger volumes of sand at the wellsite. We believe these trends support continued demand for frac sand and increased demand for SmartSystems as customers look to create synergies in the time and cost of managing their sand needs at the wellsite.
We generally expect the price of frac sand to fluctuate based on the level of drilling and completions activity for oil and natural gas as well as overall supply for frac sand relative to demand. We believe the supply of sand to be stabilizing or contracting as consolidation in the industry continues. The willingness of exploration and production companies to engage in new drilling is determined by a number of factors, the most important of which are the prevailing and projected prices of oil and natural gas, the cost to drill, complete and operate a well, the availability and cost of capital and environmental and government regulations, as well as their ability to source sand delivered to the wellsite. We generally expect the level of drilling to correlate with long-term trends in commodity prices. Similarly, oil and natural gas production levels nationally and regionally generally tend to correlate with drilling activity.
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
GAAP Results of Operations
Year Ended December 31, 2025 compared to the Year Ended December 31, 2024:
Year Ended December 31,
Change
Dollars
Percentage
(in thousands, except percentage change)
Revenues:
Sand revenue
SmartSystems revenue
Total revenue
Cost of goods sold:
Sand cost of goods sold
SmartSystems cost of goods sold
Total cost of goods sold
Gross profit
Operating expenses:
Selling, general and administrative
Depreciation and amortization
(Gain) loss on disposal of fixed assets, net
Total operating expenses
Operating income (loss)
Other (expenses) income:
Interest expense, net
Loss on extinguishment of debt
Other income
Total other (expenses), net
(Loss) income before income tax benefit (expense)
Income tax (benefit) expense
Net income
Revenue
Total revenue was $330.2 million for the year ended December 31, 2025 compared to $311.4 million for the year ended December 31, 2024.
Sand revenue for the year ended December 31, 2025 increased by 7% to $325.8 million generated from 5.4 million tons of sand sold, as compared to sand revenue for the year ended December 31, 2024 of $303.6 million generated from 5.3 million tons of sand. The increase in sand revenue was primarily due to a 3% increase in sand volumes and slightly increased sand pricing from 2024 to 2025. Sand revenue for the years ended December 31, 2025 and 2024 also included $4.4 million and $4.8 million, respectively, related to contractual charges for tons sold in excess of certain contractual thresholds.
SmartSystems revenue was $4.4 million for the year ended December 31, 2025, a decline from $7.8 million for the year ended December 31, 2024. The decline was due to lower overall utilization of our SmartSystems fleet in 2025.
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Cost of Goods Sold
Sand cost of goods sold was $287.8 million and $258.8 million, for the years ended December 31, 2025 and December 31, 2024, respectively. The increase was primarily due to higher volumes sold and the related increase in production costs and freight and transloading costs.
SmartSystems cost of goods sold was $4.5 million and $7.7 million, for the years ended December 31, 2025 and December 31, 2024, respectively. The decrease was primarily due to decreased costs associated with lower overall utilization of our SmartSystems fleet in 2025.
Gross Profit
Gross profit was $37.9 million and $44.8 million for the years ended December 31, 2025 and December 31, 2024, respectively. The decrease in gross profit for the year ended December 31, 2025 was primarily due to higher freight and delivery costs as well as increased production costs.
Operating Expenses
Operating expenses were $42.3 million and $41.8 million for the years ended December 31, 2025 and December 31, 2024, respectively. Overall, selling, general and administrative costs increased $2.4 million primarily due to increased wages and benefits and a $1.0 million payment to one of our utility providers to support planned growth at our Oakdale facility. The gain on disposal of assets of $0.6 million for the year ended December 31, 2025 was primarily related to the sale of vacant land that was part of a previous acquisition. The loss on the disposal of assets of $1.1 million for the year ended December 31, 2024 was primarily related to the closing our Saskatoon, Canada manufacturing facility and relocating it to the United States.
Other Expense / Income
We incurred $1.5 million and $1.8 million of net interest expense for the years ended December 31, 2025 and 2024, respectively.
Income Tax Benefit
Income tax benefit was $6.9 million for the year ended December 31, 2025 compared to income tax benefit of $2.7 million for the year ended December 31, 2024. For the years ended December 31, 2025 and 2024, our effective tax rate was approximately 124.1% and (1087.3)%, respectively. The computation of the effective tax rate for the years ended December 31, 2025 and 2024 included modifications from the statutory rate such as income tax credits, depletion deductions, and state taxes, NOL carrybacks and carryforwards, and the partial release of the reserve for uncertain tax positions in 2025, among other items.
Net Income
Net income was $1.3 million for year ended December 31, 2025 compared to net income of $3.0 million for the year ended December 31, 2024. The change in net income is attributable to an increase in volumes sold with slightly increased pricing offset by the increase in cost of goods sold due to increased freight and transloading costs. Additionally, a larger benefit from income taxes was recorded in the current period.
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023:
Year Ended December 31,
Change
Dollars
Percentage
(in thousands, except percentage change)
Revenues:
Sand revenue
SmartSystems revenue
Total revenue
Cost of goods sold:
Sand cost of goods sold
SmartSystems cost of goods sold
Total cost of goods sold
Gross profit
Operating expenses:
Selling, general and administrative
Depreciation and amortization
(Gain) loss on disposal of fixed assets, net
Total operating expenses
Operating income (loss)
Other (expenses) income:
Interest expense, net
Loss on extinguishment of debt
Not meaningful
Other income
Total other (expenses), net
(Loss) income before income tax benefit (expense)
Income tax (benefit) expense
Net income
Revenue
Total revenue was $311.4 million for the year ended December 31, 2024 compared to $296.0 million for the year ended December 31, 2023.
Sand revenue for the year ended December 31, 2024 increased by 6% to $303.6 million generated from 5.3 million tons of sand sold, as compared to sand revenue for the year ended December 31, 2023 of $287.5 million generated from 4.5 million tons of sand. The increase in sand revenue was primarily due to an increase in sand volumes by 17% from 2023 to 2024. Sand prices declined during the second half of the year, which partially offset the increase in sales volumes.
SmartSystems revenue was $7.8 million for the year ended December 31, 2024, a decline from $8.5 million for the year ended December 31, 2023. The decline was due to lower overall utilization of our SmartSystems fleet in 2024.
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Cost of Goods Sold
Sand cost of goods sold was $258.8 million and $247.2 million, for the years ended December 31, 2024 and December 31, 2023, respectively. The increase was primarily due to higher volumes sold and the related increase in production costs and freight costs that accompany higher volumes.
SmartSystems cost of goods sold was relatively consistent for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Gross Profit
Gross profit was $44.8 million and $41.6 million for the years ended December 31, 2024 and 2023, respectively. The increase in gross profit for the year ended December 31, 2024 was primarily due to higher sand sales volumes which was partially offset by lower average sale prices of our sand relative to the cost to produce and deliver products to our customers.
Operating Expenses
Operating expenses were $41.8 million and $43.1 million for the years ended December 31, 2024 and December 31, 2023, respectively. Overall, selling, general and administrative costs declined as management continued to focus on cost-cutting measures. Royalties increased due to higher volumes sold for the year ended December 31, 2024 and bank and legal fees were higher as we completed debt refinancing in 2024. Wages, maintenance and insurance costs declined, driven by management efforts to reduce costs. The loss on disposal of assets of $1.1 million for the year ended December 31, 2024 was primarily related to closing our Saskatoon, Canada manufacturing facility and relocating it to the United States. The loss on the disposal of assets of $1.8 million for the year ended December 31, 2023 was primarily related to the reconfiguration of one of our wet plants to increase the efficiency of its operations.
Other Expense / Income
We incurred $1.8 million and $1.3 million of net interest expense for the years ended December 31, 2024 and 2023, respectively. We recorded a $1.3 million loss on extinguishment of debt for the year ended December 31, 2024 related to the payoff of previous fixed-rate debt, which was refinanced with the VFI Equipment Financing.
Income Tax Benefit
Income tax benefit was $2.7 million for the year ended December 31, 2024 compared to income tax benefit of $6.9 million for the year ended December 31, 2023. For the years ended December 31, 2024 and 2023, our effective tax rate was approximately (1087.3)% and 306.4%, respectively, based on the annual effective tax rate net of discrete federal and state taxes. The computation of the effective tax rate for the year ended December 31, 2024 and 2023 included modifications from the statutory rate such as income tax credits, depletion deductions, NOL carrybacks and carryforwards and state income taxes, among other items.
Net Income
Net Income was $3.0 million for year ended December 31, 2024 compared to net income of $4.6 million for the year ended December 31, 2023. The change in net income is attributable to an increase in operating income of $4.5 million which was attributable to an increase in total sand volumes sold and lower operating expenses, partially offset by smaller benefit from income taxes recorded in the 2024.
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 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
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
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 costs 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.
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. We believe contribution margin is a meaningful measure because it provides an operating and financial measure of our ability to generate margin in excess of our operating cost base. Because 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 contribution margin to gross profit.
Year Ended December 31,
(in thousands)
Revenue
Cost of goods sold
Gross profit
Depreciation, depletion, and accretion of asset retirement obligations included in cost of goods sold
Contribution margin
Contribution margin per ton
Total tons sold
Contribution margin was $65.1 million, or $11.96 per ton sold, for the year ended December 31, 2025 compared to $71.7 million, or $13.62 per ton sold, for the year ended December 31, 2024. The decrease in overall contribution margin for the year ended December 31, 2025, as compared to the prior year, was primarily due to the increase in logistics costs due to higher sales volumes, the delivery location of our sales and increased mining costs.
Contribution margin was $71.7 million, or $13.62 per ton sold, for the year ended December 31, 2024 compared to $67.0 million, or $14.85 per ton sold, for the year ended December 31, 2023. The increase in overall contribution margin for the year ended December 31, 2024, as compared to the prior year, was primarily due to higher sales volumes, which was partially offset by lower average sale prices per ton, which also caused the decline in contribution margin per ton.
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 other acquisition and development costs; and (vii) non-cash charges 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:
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
• 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 EBITDA and Adjusted EBITDA to net income for each of the periods indicated.
Year Ended December 31,
(in thousands)
Net income
Depreciation, depletion and amortization
Income tax benefit and other taxes
Interest expense
EBITDA
Net loss (gain) on sale of fixed assets
Equity compensation
Acquisition and development costs (1)
Bank and legal costs related to financing not closed
Cash charges related to restructuring and retention
Accretion of asset retirement obligations
Loss on extinguishment of debt
Adjusted EBITDA
(1) Represents costs incurred related to the business combinations and current development project activities. The year ended December 31, 2025 includes a $1,000 payment to one of our utility providers to support planned growth at our Oakdale facility. The year ended December 31, 2024 includes $308 related to a disposal from the Eagle Materials acquisition. The year ended December 31, 2023 includes $271 of costs related to the acquisition of the Blair facility and $274 related to the Minerva, Ohio terminal.
Adjusted EBITDA was $29.9 million for the year ended December 31, 2025 compared to $38.8 million for the year ended December 31, 2024. The decrease in Adjusted EBITDA for the year ended December 31, 2025, as compared to the prior year, was primarily due to higher logistics costs due to the delivery location of frac sand sales and higher mining costs.
Adjusted EBITDA was $38.8 million for the year ended December 31, 2024 compared to $33.3 million for the year ended December 31, 2023. The increase in Adjusted EBITDA for the year ended December 31, 2024, as compared to the prior year, was primarily due to higher sales volumes and production costs savings, partially offset by declining average selling prices in the second half of 2024.
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 free cash flows to net cash provided by operating activities.
Year Ended December 31,
(in thousands)
Net cash provided by operating activities
Purchases of property, plant and equipment
Free cash flow
Free cash flow was $32.5 million for the year ended December 31, 2025. Net cash provided by operating activities increased to $44.1 million in 2025, compared to $17.9 million in 2024, primarily due to higher cash generated from increased sales volumes, a customer payment of $9.2 million related to prior year contractual volume targets, of which $4.8 million was included in the prior year’s unbilled receivables balance, and a customer prepayment of $9.8 million for sand sales for 2026, currently in deferred revenue. Capital expenditures for the year ended December 31, 2025 were $11.6 million compared to $7.0 million for the year ended December 31, 2024, primarily due to increased growth-related capital spent in 2025.
Free cash flow was $10.9 million for the year ended December 31, 2024. Net cash provided by operating activities decreased to $17.9 million in 2024, compared to $31.0 million in 2023, primarily due to working capital pressure as a result of higher sales volumes in the fourth quarter of 2024. Our accounts receivables convert to cash slower than our payables related to sand shipments, which results in lower free cash flows in months immediately following increasing sales activity. Capital expenditures for the year ended December 31, 2024 were $7.0 million compared to $23.0 million for the year ended December 31, 2023, primarily due to less growth-related capital spent in 2024 and management’s continued focus on managing costs.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flow generated from operations, availability under the FCB ABL Credit Facility and other equipment financing sources. As of December 31, 2025, cash on hand was $22.6 million and we had $30.0 million in undrawn availability under the 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, including continued investment in efficiency projects at our Oakdale, Blair and Ottawa facilities, as well as a potential new terminal to service the Montney and Duvernay shale basins in Canada.
Material Cash Requirements
Dividends and Share Repurchase Program
Our returns to shareholders for the year ended December 31, 2025 totaled $8.6 million, including dividends and share repurchases.
On November 18, 2025, our Board of Directors declared a special dividend of $0.05 per share of common stock, which was paid on December 16, 2025 to stockholders of record at the close of business on December 2, 2025. The dividend payment returned approximately $2.1 million to our shareholders.
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
On July 23, 2025, our Board of Directors declared a special dividend of $0.10 per share of common stock, which was paid on August 14, 2025 to stockholders of record at the close of business on August 4, 2025. The dividend payment returned approximately $4.4 million to our shareholders.
On October 3, 2024, our board of directors approved the eighteen-month Repurchase Program. Pursuant to the Repurchase Program, we may repurchase up to $10.0 million of 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. We repurchased $2.1 million of shares under this repurchase program in 2025.
On February 23, 2026, our board of directors approved a share repurchase program authorizing us to repurchase up to $20.0 million of its outstanding shares of common stock. The plan will take effect on April 4, 2026 after completion of our current share repurchase plan and will continue through April 3, 2028. The timing, manner, price, and amount of any repurchases under the share repurchase program will be determined at our discretion. Purchases may be effected through open market transactions, privately negotiated transactions, transactions structured through investment banking institutions, or other means. The Repurchase Program does not obligate us to acquire any particular amount of ordinary shares and the Repurchase Program may be modified or suspended at any time at our discretion.
10b5-1 Trading Plan
On November 20, 2025, we entered into a written trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. We implemented this written trading plan in connection with our Repurchase Program. The trading plan permitted the purchase of up to a total of $2.5 million of our shares (including commissions). The number of shares of Company common stock to be purchased on any purchase day was up to the maximum daily target volume allowable under Rule 10b-18 of the Exchange Act. No shares have been repurchased under this 10b5-1 Trading Plan.
On May 22, 2025, we entered into a written trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. We implemented this written trading plan in connection with our Repurchase Program. The trading plan permitted the purchase of up to a total of $1.5 million of our shares (including commissions). The number of shares of Company common stock to be purchased on any purchase day was up to the maximum daily target volume allowable under Rule 10b-18 of the Exchange Act. We purchased $1.5 million of shares under the 10b5-1 Trading Plan and the plan was terminated in July 2025.
Capital Requirements
We expect 2026 capital expenditures to be between $15.0 million and $20.0 million, consisting primarily of capital to open new mining areas for development, efficiency projects at our Oakdale, Blair and Ottawa facilities and potential investment in one or more new terminals. We expect to fund these capital expenditures with existing cash, cash generated from operations, borrowings under the FCB ABL Credit Facility or other financing sources, such as equipment finance providers.
Indebtedness
We have two primary debt facilities including the VFI Equipment Financing and our FCB ABL Credit Facility. Our VFI Equipment Financing is secured by the majority of our SmartSystems equipment. The outstanding balance under the VFI Equipment Financing as of December 31, 2025 was $6.6 million. The VFI facility amortizes to one dollar in 2028. Minimum cash payments on this facility in 2026 are $2.9 million. There were no borrowings outstanding on our FCB ABL Credit Facility as of December 31, 2025.
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 December 31, 2025 were $23.2 million. Minimum cash payments on operating leases in 2026 are $10.2 million.
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Mineral Rights Propert y
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 is approximately $2.5 million per year for the next 11 years.
Off-Balance Sheet Arrangements
We had $19.7 million of outstanding performance bonds for each of the years ended December 31, 2025 and 2024, respectively. These performance bonds assure our performance under our reclamation plan, maintenance and restoration of public roadways.
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, our excavation and our wet sand processing activities at some of our mines have historically been limited to primarily non-winter months. As a consequence, we 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 overproduce wet sand to meet dry sand demand in the winter months. These higher cash operating costs are capitalized into inventory and expensed when these tons 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 our Oakdale and Ottawa plant locations that allow us to produce wet sand inventory year-round to support a portion of our dry sand processing capacity, which may reduce certain 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 weather periods. Additionally, over the last several years, exploration and production companies have become more disciplined in their spending patterns relative to their budgets, which has led to some of our customers completing their budgeted spending earlier in the year. This spending discipline could potentially lead to a in activity by our customers and lower sand demand in the fourth quarter of the year.
Customer Concentration
For the year ended December 31, 2025, EQT Corporation and EOG Resources, Inc. accounted for 27.7% and 10.9% respectively, of total revenue. For the year ended December 31, 2024, EQT Corporation, Encino Energy and Liberty Oilfield Services accounted for 31.9%, 13.8% and 10.2%, respectively, of total revenue. For the year ended December 31, 2023, EQT Corporation and Liberty Oilfield Services accounted for 30.2% and 11.4%, respectively, of total revenue.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that we believe to be reasonable under the circumstances. The results of these
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.
Listed below are the accounting estimates that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved.
Asset Retirement Obligation
We estimate the future cost of dismantling, restoring and reclaiming operating excavation sites and related facilities in accordance with federal, state and local regulatory requirements and recognize reclamation obligations when extraction occurs and record them as liabilities at estimated fair value. In addition, a corresponding increase in the carrying amount of the related asset is recorded and depreciated over such asset’s useful life or the estimated number of years of extraction. The reclamation liability is accreted to expense over the estimated productive life of the related asset and is subject to adjustments to reflect changes in value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. If the asset retirement obligation is settled for more or less than the carrying amount of the liability, a loss or gain will be recognized, respectively. The asset retirement obligation estimate is calculated by estimating the cost to reclaim an area as of the estimation date and inflating that cost to an estimated reclamation date, then discounting that inflated cost back to the reporting period date. Changes in the current estimate or the interest rates used for inflation or discount can have a material effect on the liability reported. In addition, due to the nature or our business, changes in mine planning can result in changes to our estimated future reclamation dates.
Inventory Valuation
Sand inventory is stated at the lower of cost or net realizable value using the average cost method. Costs applied to inventory include direct excavation costs, processing costs, overhead allocation, depreciation and depletion. Reserves are estimated for moisture loss and waste during production. Stockpile tonnages are calculated by measuring the number of tons added and removed from the stockpile. Tonnages are verified periodically by a survey. Costs are calculated on a per ton basis and are applied to the stockpiles based on the number of tons in the stockpile. There was no writedown of inventory value based on the lower of cost or net realizable value calculation.
Impairment of Long-Lived Assets
We periodically evaluate whether current events or circumstances indicate that the carrying value of our long-lived assets may not be recoverable. If circumstances indicate that the carrying value may not be recoverable, we estimate future undiscounted net cash flows, estimated future sales prices (considering historical and current prices, price trends and related factors) and anticipated operating costs and capital expenditures. If the carrying value of our long-lived assets is less than the undiscounted cash flows, the assets are measured at fair value and an impairment is recorded if that fair value is less than the carrying value. During the year ended December 31, 2025, we did not record any impairment charges based on the analysis of our long-lived assets.
Income Taxes
Under the balance sheet approach to provide for income taxes, we recognize deferred tax assets and liabilities for the expected future tax consequences of net operating loss carryforwards and temporary differences between the carrying amounts and the tax bases of assets and liabilities. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. If we determine it is more likely than not that we will not be able to realize the benefits of the deductible temporary differences, we would record a valuation allowance against the net deferred tax asset.
We recognize uncertain tax positions at the largest amount that, in our judgment, is more-likely-than-not to be required to be recognized upon examination by a taxing authority.
We have recorded a liability of $0.6 million and $2.2 million for uncertain tax positions included in deferred tax liabilities, long-term, net on our consolidated balance sheet as of December 31, 2025 and 2024, respectively, related to our depletion deduction methodology, and a corresponding decrease to the income tax expense on our consolidated statements of operations.
SMART SAND, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
As of December 31, 2025, we determined 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 valuation allowance against the deferred tax liabilities, long-term, net on our consolidated balance sheet in the amount of $1.9 million. The valuation allowance as of December 31, 2024 was $2.2 million. The corresponding increase to the income tax benefit on our consolidated statements of operations for the year ended December 31, 2025 was $0.3 million.
