Smart Sand, Inc.

(IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1 —Organization and Nature of Business

The Company was incorporated in July 2011 and is headquartered in Yardley, Pennsylvania. The Company 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. 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 SmartSystems TMproducts and services. In late 2021, the Company created its Industrial Productions Solutions (“IPS”) business to diversify its customer base and markets it serves by offering sand to customers for industrial uses, 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. Currently, the annual processing capacity at the Oakdale facility is approximately 5.5 million tons.

In September 2020, the Company acquiredtwo frac sand mines and related processing facilities in Ottawa, Illinois and New Auburn, Wisconsin. The Ottawa facility has an annual processing capacity of approximately 1.6 million tons and access to the Burlington Northern Santa Fe (“BNSF”) Class I rail line through the Peru, Illinois transload facility. The Company began operating the Ottawa, Illinois mine and processing facility and Peru, Illinois transload facility in October 2020. The Company has no plans to operate the New Auburn facility for the foreseeable future.

In March 2022, the Company acquired its Blair, Wisconsin frac sand mine and related processing facility. 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 I Canadian National Railway. The Company began operating the Blair mine and processing facility in May 2023.

Transload & Logistics Solutions

In March 2018, the Company acquired the rights to operate a unit train capable transloading terminal in Van Hook, North Dakota to service the Bakken Formation in the Williston Basin and began providing Northern White sand in-basin in April 2018.

In September 2020, the Company acquired the 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. The Company began providing sand to customers through this terminal in January 2022 and expanded the facility’s capacity in late 2023.

In December 2023 and January 2024, the Company acquired rights to use transloading terminals in Minerva, Ohio and Dennison, Ohio, respectively and commenced operations servicing the Appalachian Basin in 2024.

In June 2018, the Company acquired substantially all of the assets of Quickthree Solutions, Inc. (“Quickthree”), a manufacturer of portable vertical proppant storage solution systems. Quickthree formed the basis for the Company’s SmartSystems under which it offers various 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 the ability to rapidly set up, takedown and transport the entire system.

NOTE 2 —Summary of Significant Accounting Policies

The information presented below supplements the complete description of our significant accounting policies disclosed in our 2024 Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 4, 2025.

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, 2024 was derived from the audited consolidated financial statements as of and for the year ended December 31, 2024. These interim statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 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 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, events such as the ongoing conflicts in Ukraine and the Middle East, rapidly changing trade policies between the United States and other countries, and recent output changes by the Organization of the Petroleum Exporting Countries may affect oil and natural gas prices and create significant volatility in the oilfield service sector. The Company’s sales into Canada and Mexico are currently subject to tariffs, set at 25%. During the first quarter 2025, approximately 10% of sand volumes sold went to Canada and Mexico. The Company anticipates that its customers would be responsible for the increased cost, which may result in customers sourcing their sand needs from other suppliers within their own countries. 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 March 31, 2025 and December 31, 2024, 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.

Performance Obligations

The Company recorded $54 of deferred revenue on the consolidated balance sheet as of December 31, 2024, of which $26 has been recognized in the three months ended March 31, 2025 and the remaining amount is expected to be recognized during the remainder of 2025. As of March 31, 2025, the Company had $118,787 in unsatisfied performance obligations related to contracts with customers. The Company expects to perform these obligations and recognize revenue of $108,131 and $10,656 in the remainder of 2025 and 2026, respectively.

Recent Accounting Pronouncements

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.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures, which updates various disclosures including enhancing the disclosure of certain costs and expenses in the notes to the financial statements. The Update is effective for the Company for its annual financial statements for 2027 and interim periods thereafter. Early adoption is permitted. While the Company is still in the process of evaluating the effects of ASU 2024-03, at the time of adoption, it believes the primary effect will be disaggregation of the cost of goods sold and selling, general and administrative line items on the face of the financial statements or within the notes to the financial statements.

NOTE 3 —Inventory

Inventory consisted of the following:

NOTE 4 —Property, Plant and Equipment, net

Net property, plant and equipment consisted of:

Depreciation expense was $6,998 and $6,981 for the three months ended March 31, 2025 and 2024, respectively.

NOTE 5 —Accrued and Other Expenses

Accrued and other expenses were comprised of the following:

NOTE 6 —Debt

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

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

The following summarizes the maturity of our debt:

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 FCB 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 financial requirements of this facility.

The available borrowing amount under the FCB ABL Credit Facility as of March 31, 2025 was $30,000 and is based on the Company’s eligible accounts receivable and inventory. The Company hadno borrowings outstanding and $30,000 available to be drawn under this facility as of March 31, 2025. The combined weighted average interest rate for all variable debt for the three months ended March 31, 2025 was 10.81%.

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.

Notes Payable

The Company has entered into various financing arrangements, primarily to finance heavy equipment. As of March 31, 2025, these notes payable bear interest at rates between 3.99% and 8.49%.

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:

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 months ended March 31, 2025 and 2024 was as follows:

Other information related to the Company’s leasing activity for the three months ended March 31, 2025 and 2024 is as follows:

Maturities of the Company’s lease liabilities as of March 31, 2025 are as follows:

NOTE 8 —Asset Retirement Obligations

The Company had a post-closure reclamation and site restoration obligation of $21,585 as of March 31, 2025. The following is a reconciliation of the total reclamation liability for asset retirement obligations.

NOTE 9 —Segment Reporting

The Company hastwo reportable segments, Sand and SmartSystems as of March 31, 2025. The Company evaluates its segment reporting on an ongoing basis. The Company does not currently provide asset information by reportable segment as it does not routinely evaluate the total asset position by segment. The Company’s operations in foreign countries are immaterial. The chief operating decision maker (“CODM”) is Charles Young, the Company’s chief executive officer. The CODM regularly reviews the Company’s GAAP financial statements, as well as the non-GAAP reporting measures when considering the profit and loss of the company and uses this information in deciding how to allocate resources.

The Sand segment includes both frac sand sales and IPS sales. The sand production process begins the same way for each of these revenue streams. Frac Sand consists of four primary sizes of sand, called grades. IPS begins with these same frac sand grades and may contain additional sizes or custom blends of a variety of grades.

The SmartSystems segment revenue is primarily from the rental of our patented SmartSystems equipment and related services provided to customers. This segment offers customers portable wellsite storage and management solutions that enable customers to unload, store, and deliver proppant at the wellsite.

During the year ended December 31, 2024, four of the Company’s customers had revenues of more than 10%. Of these four customers, all had revenues only in the Sand Segment. The following tables present additional segment information for the three months ended March 31, 2025 and a reconciliation to amounts on the Consolidated Statement of Operations.

The following tables present additional segment information for the three months ended March 31, 2024 and a reconciliation to amounts on the Consolidated Statement of Operations.

NOTE 10 —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. For the three months ended March 31, 2025 and 2024, the effective tax rate was approximately (233.6)% and 155.2%, respectively. The computation of the effective tax rate includes modifications from the statutory rate such as income tax credits, tax depletion deduction, carrybacks, and state taxes, among other items. For the three months ended March 31, 2025 and 2024, the statutory tax rate was 21.0%.

The Company has recorded a liability for uncertain tax positions included in its consolidated balance sheet of $2,240 as of December 31, 2024. There was no material change for the three months ended March 31, 2025.

The Company believes it will not be able to use all of its tax benefits from some of its tax deductions. Because of this, it has recorded a partial valuation allowance against those benefits, which is included in the long-term deferred tax liabilities, net on its consolidated balance sheets. At December 31, 2024, the Company recorded a partial valuation allowance against the gross deferred tax assets on its consolidated balance sheet in the amount of $2,156. There was no material change for the three months ended March 31, 2025.

The Company’s federal income tax returns subsequent to 2020 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 11 —Concentrations

As of March 31, 2025, five customers accounted for 73% of the Company’s total accounts and unbilled receivables. As of December 31, 2024, four customers accounted for 84% of the Company’s total accounts receivable.

During the three months ended March 31, 2025,74% of the Company’s revenues were earned from four customers. During the three months ended March 31, 2024,60% of the Company’s revenues were earned from two customers.

As of March 31, 2025, two vendors accounted for 35% of the Company’s accounts payable. As of December 31, 2024, one vendor accounted for 17% of the Company’s accounts payable.

During the three months ended March 31, 2025, two vendors accounted for 40% of the Company’s cost of goods sold. During the three months ended March 31, 2024, two vendors accounted for 35% 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 the Company’s mines, the oil and natural gas producing basins they serve, or the transportation routes between them.

NOTE 12 —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

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. The parties finalized settlement paperwork in February 2025 and the matter is closed.

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 March 31, 2025 was $19,727.