# DEAR FELLOW STOCKHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-equipment-services/NASDAQ_SND_2018/NASDAQ_SND_2018.mmd` · pages 2-8_

---

DEAR FELLOW STOCKHOLDERS,

We are now a fully integrated frac sand supply and services company, offering complete mine to wellsite solutions to our customers. We produce low-cost, high quality Northern White frac sand and provide proppant logistics solutions to our customers through our in-basin transloading terminal and wellsite storage capabilities.

2018 was a tale of two halves. Demand for frac sand was strong during the first half of 2018 supported by improving oil prices, increased drilling activity, and increasing sand usage per well. This was followed by a slowdown in completions activity in the second half of the year that began in September and continued through the end of the fourth quarter. This decrease was due to a variety of factors, including lower oil prices, takeaway capacity for oil out of the Permian Basin, and budget fatigue for exploration and production companies as they reduced expenditures in the second half of the year to try to keep spending in line with expected cash flows. Despite this volatility in the market, Smart Sand continued to deliver strong, positive financial results including increases in Adjusted EBITDA and Contribution Margin in 2018 of 116% and 90%, respectively, over 2017 results.

Our strategy remains centered around our ability to quickly adapt to the constantly changing industry landscape, while operating safely and efficiently to maximize profitability through all industry cycles. During 2018, we operated at the highest production levels in our history, producing and selling approximately 3.0 million tons of Northern White frac sand. Operating at this record level would not have been possible without the hard work and dedication of our talented employees. Our dedicated workforce combined with our long-term take-or-pay contracts, low cost operating structure, and strategic investments in logistics infrastructure at our Oakdale facility have allowed Smart Sand to be both competitive and profitable in a market environment for frac sand that continues to be volatile.

<--- Page Split --->

## EXPANDING TO MEET OUR
CUSTOMERS' LONG-TERM NEEDS

We expanded our annual production capacity at our Oakdale facility to approximately 5.5 million tons to meet the long-term market demand for our high quality, finer mesh Northern White frac sand. The expansion was completed during the second quarter of 2018. Our Oakdale facility is situated on 1,256 acres of land and has remaining proven reserves of 317 million tons, giving Oakdale the land and reserve base to expand substantially as market demand grows for frac sand. As of December 31, 2018, we had approximately 58% of our capacity under long-term take-or-pay contracts. These contracts provide us with a solid base to support our operations, while our increased capacity provides room to grow with the market with minimal new capital investment.

In March 2018, we 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, which became operational in April 2018. Since operations commenced, we have moved more than 480,000 tons through the Van Hook Terminal. With this terminal, the share of our sales volume in the Bakken went from 4% in 2017 to 25% in 2018. We believe this new terminal will continue to provide us with an opportunity to expand our customer base and offer more efficient delivery options to customers operating in the Williston Basin.
"OUR OAKDALE FACILITY IS SITUATED ON 1,256 ACRES OF LAND AND HAS REMAINING PROVEN RESERVES OF 317 MILLION TONS, GIVING OAKDALE THE LAND AND RESERVE BASE TO EXPAND SUBSTANTIALLY AS MARKET DEMAND GROWS FOR FRAC SAND."

In June 2018, we acquired Quickthree Solutions, Inc., a manufacturer of portable vertical proppant storage solution systems. We believe that this acquisition provides us with both the technology, production capacity and management team to compete further in the proppant logistics market and the opportunity to expand our customer base by offering proppant logistics services all the way to the wellsite.

With the additions of the Van Hook terminal and our portable vertical wellsite storage solutions, Smart Sand now provides an integrated service offering to its customer base to meet their frac sand needs from production of sand at the mine to the efficient and cost effective delivery of sand to the operating basin and, ultimately, into the blender of the pressure pumping equipment at the wellsite.

## Smart Sand's Business Offerings

![](images/3_0.jpg)

Large Finer Mesh
Northern White Reserve

Consistent High-Quality Proppant

5.5mm Tons Annual Production Capability

![](images/3_1.jpg)

Dual-Served (CP&UP)

Over 16 Miles of Track Space

Unit Train Capable

![](images/3_2.jpg)

Planning Ahead
Reduces Risks

Redundancy in the Supply Chain

Avoid Trucking
Congestion

![](images/3_3.jpg)

Safe and Reliable

Helps Eliminate
Demurrage

Smaller Fleet and
More Turns per Day

![](images/3_4.jpg)

Wellsite Storage

Direct to the Blender
Delivery

Realtime Inventory Control

Result: Consistently Reliable Supply Chain

<--- Page Split --->

## STRATEGIC OPTIONS AVAILABLE
FOR FUTURE GROWTH

At our Oakdale facility, we believe that with further development and permitting, this facility could be expanded to allow production of up to 9 million tons of frac sand per year.

In addition to our Oakdale facility, we own a second mine location in Wisconsin, the Hixton facility. This location is currently undeveloped and is estimated to hold approximately 100 million tons of Northern White sand. This facility is located on the Canadian National rail line, is fully permitted, and is well positioned to serve the Canadian market should we see opportunities for growth there.

## SAND RESERVE OVERVIEW

Hixton Mine
Proven 100%
100mm tons

![](images/4_0.jpg)

We believe Northern White frac sand will continue to be the premier proppant of choice. Its intrinsic properties of higher crush strength and superior turbidity to regional sands result in better production from oil and natural gas wells. As operators continue to see the negative effects that regional sand has on their long-term results, we believe the solution will be superior Northern White frac sand.

We also have two locations under lease in West Texas, with access to approximately 4,219 acres of land in the Permian Basin. These locations are available to us for future development to provide frac sand directly to customers in this operating basin.

Our ability to expand Oakdale coupled with our undeveloped locations in Hixton and the Permian Basin, provides us with multiple options for expanding our dry sand processing and maximum flexibility to add capacity at the location that best supports changing market trends and long-term needs.

![](images/4_1.jpg)

## EXPANDING AND OPTIMIZING OUR
LOGISTICS INFRASTRUCTURE

We believe that the frac sand industry is ultimately a bulk commodity business. And like all bulk commodity businesses, logistics matter. Therefore, we believe logistics is the future of Smart Sand. We intend to further optimize our logistics infrastructure and develop additional destination points through the addition of one or more terminals in other oil and natural gas operating basins and expanding our wellsite storage solutions fleets.

Benefits of our long-term growth strategy for in-basin delivery of sand include new contracted customers by marketing through our own terminal, and more opportunity for spot sales by forward deploying sand. This allows us to capture incremental margin on the sale of sand farther down the supply chain by managing the cost of rail, terminal and wellsite storage operations.

Our in-basin presence gives us a base of operations from which to market our wellsite storage solutions. Our wellsite storage solution provides all of the benefits of boxes, silos and hybrids in one package. We believe our wellsite storage solutions compare favorably to our competitors in that:

• our portable silos can be set up or taken down rapidly;

- our trailers detach, which reduces their footprint on the wellsite;

- our storage silos include industry-leading passive and active dust suppression technology; and

- our patented system has the capability of a gravity-fed operation and our silos can be filled by both pneumatic and gravity dump trailers.

Through the expansion of our wellsite storage solutions fleet and the addition of one or more terminals, we continue evaluating ways to reduce the landed cost of our products in the basin and to the wellsite for our customers while increasing our customized service offerings to provide our customers with additional delivery and pricing alternatives, including selling product on an "as-delivered" basis to the wellsite.

<--- Page Split --->

![](images/5_0.jpg)

## FINANCIAL STRENGTH

We generated \(51 million in cash flows from operations and \)66 million in adjusted EBITDA in 2018, and we are one of the lowest levered companies in our industry. We exited 2018 with $31 million in liquidity between cash, our credit facility and availability under our other financing arrangements. We remain flexible in our capital spending, able to scale up and down rapidly to respond to market demand.

## 2019 AND BEYOND

Our focus in 2019 is to take advantage of the abundance of opportunities put in place during 2018. We are looking to increase the utilization of our capacity at Oakdale with new and renewed long-term contracts while continuing to be the premier provider of proppant in the Williston Basin. Our key access to reliable and economical rail, coupled with our best-in-class wellsite storage solutions positions us well to take advantage of the need for expanded logistics in all operating basins.

Looking forward, we plan to stay the course in continuing to execute on our already-profitable plan, and continue to deliver long-term value to the Company, our employees, our customers, and our stockholders.

Sincerely,

![](images/5_1.jpg)

Charles E. Young
Chief Executive Officer

![](images/5_2.jpg)

"WE GENERATED \(51 MILLION IN CASH FLOWS FROM OPERATIONS AND \)66 MILLION IN ADJUSTED EBITDA IN 2018, AND WE ARE ONE OF THE LOWEST LEVERED COMPANIES IN OUR INDUSTRY."

![](images/5_3.jpg)