# DEAR FELLOW STOCKHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-equipment-services/NASDAQ_SND_2019/NASDAQ_SND_2019.mmd` · pages 2-8_

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DEAR FELLOW STOCKHOLDERS,

In 2019, we continued to execute our profitable and sustainable long-term strategy of providing sand and logistics services from the mine to the wellsite. Our guiding principle strategies are:

• Being the lowest-cost producer of high-quality Northern White Sand;

• Maintaining low debt levels and being one of the lowest leveraged companies in the proppant supply and services industry;

• Delivering efficient and sustainable supply chain logistics from the mine all the way to the wellsite;

• Increasing the utilization of our Oakdale facility and our last mile SmartSystems;

• Working with our existing and new customers to provide flexible solutions to meet their long-term sand needs; and

• Maintaining our commitments to quality and safety, two pillars of our long-term success.

We know that the quality of our sand and the quality of our service is the key to our success; our ability to deliver both consistently is what keeps our customers coming back to us over and over again.

Smart Sand prioritizes safety. For years we have operated to meet or exceed MSHA's requirements for respirable silica, and our new SmartSystems technology is tailor-made for the new OSHA silica standards. When our sand is paired with our SmartSystems technology, we believe we offer the safest and most efficient frac sand product and management system available on the market today.

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## ENVIRONMENTAL, SOCIAL & GOVERNANCE

We remain committed to high environmental, social and governance standards. Our existing policies and business operations are compatible with current United Nations principles. Building on this, we recently announced the launch of our formal Environmental, Social and Governance (ESG) program. Smart Sand is committed to operating in a sustainable and environmentally responsible manner and improving our social value for employees, customers, communities and vendors. We will continue to support our ESG efforts through an ethical, fair, independent and diverse governance structure.

## RECENT DEVELOPMENTS

As of the date of this mailing, the COVID-19 Coronavirus continues to spread throughout the United States and the world. We are facing an unpredictable and volatile situation with respect to the progress of this global pandemic. The health and safety of our employees, customers and shareholders are of paramount concern to us and we are closely monitoring developments and following all recommendations provided by the World Health Organization (WHO) and the U.S. Center for Disease Control (CDC).

## FINANCIAL STRENGTH

Smart Sand remains focused on generating positive cash flow from operations and maintaining low debt levels. In 2019, we generated \(45 million in cash flow from operations, \)87 million in adjusted EBITDA and reduced our net debt by more than $15 million.

In addition to the cash flow we generate from operations, we now have a five-year equipment financing, that we used to refinance our existing debt, a five-year revolver, and potential additional sources of equipment financing that provide capital and flexible liquidity to support the continued expansion of our SmartSystems fleet and the maintenance of our Oakdale and Van Hook assets. These new long-term financings have significantly improved our capital structure and will provide support for our operations during the current worldwide challenges and potentially for years to come. We continue to be one of the lowest levered companies in the proppant industry and the oil field service sector.

The downturn in the oil markets in the first quarter of 2020 provided a harsh reminder of the need to prudently manage leverage and cash flow. As we've said time and time again, we believe maintaining a strong balance sheet and low debt levels are essential to remaining successful and competitive in this commodity business.

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## LOOKING TO THE FUTURE

We remain focused on delivering solid long-term returns on capital for our shareholders. We plan to do that by continuing to execute on our long-term strategy while responding to current market conditions. We intend to broaden our customer base through expanded offerings of sand, logistics and wellsite storage solutions. We believe the market will ultimately reward providers that can provide sustainable, efficient sourcing and delivery of sand from the mine all the way to the wellsite. Our strategy is based on three critical components:

Maximizing the utilization of our Oakdale facility: We produce low-cost, high-quality Northern White Frac Sand. Our Oakdale facility, with its access to two Class I railroads, can efficiently deliver sand to every operating basin in the United States. Our focus continues to be increasing sales volumes from Oakdale through sales under long-term contracts and in the spot market.

"Sand supply shouldn't be the limiting factor in well stage completion. Our SmartSystems solve problems where others have failed. Our SmartSystems don't over-build the market, they improve upon it by maximizing efficiency at the wellsite."
Leveraging our logistics capabilities and expertise: Our ability to combine our high quality, low cost sand from our Oakdale mine with our superior logistics services nationwide will be a key driver of our current and long-term success. We believe customers want to partner with companies that can provide sustainable and efficient sand logistics from the mine all the way to the wellsite. We have developed strong relationships with our railroad partners, which allows us to offer our customers lower prices, faster turnarounds, and any size shipment anywhere in the country. Additionally, through our Van Hook terminal, we are able to front-load inventory to the Bakken to meet the growing demand in that basin.

Expanding our Wellsite Storage Solutions footprint: We remain committed to the continued development of our SmartSystems wellsite proppant storage solution. We believe this system provides the most efficient and sustainable solution for sand management at the wellsite. We continue to work with operators desiring to move away from outdated and unsafe box technology in favor of our safer and more efficient-to-operate silos. With both active and passive dust suppression, our silos are engineered to operate safely with minimal respirable silica. They also allow for loading from both pneumatic and gravity dump trailers and offer the smallest footprint on a wellsite that we've seen, while maximizing storage capabilities. We continue to develop our SmartPath™ transloading technology for use on the wellsite that complements our SmartDepot™ silos.

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We proudly produce high quality Northern White sand. We strongly believe that by using our sand, our customers will ultimately have better long-term well results. We believe finer mesh Northern White sand outperforms regional sand in every measurable way, most importantly in crush strength and turbidity. As lateral lengths continue to grow, so does the need for Northern White sand. Northern White sand continues to be the proppant of choice in the Bakken, Marcellus and Utica basins and we believe that there remains a value proposition in the other operating basins as well.

We also understand that we are in a bulk commodity business. Being able to provide sustainable, efficient and cost-effective logistics services to deliver our product to the wellsite is a key driver to successfully competing in the sand business. Our investment in our Van Hook terminal and our SmartSystems wellsite storage solutions, along with our continued partnership with the railroads to deliver competitive shipping costs, are key components that we believe will provide us with the necessary tools to meet our customers' needs for their current and long-term proppant supply and services needs.

We continue to believe that as E&Ps focus on delivering higher long term returns on capital to their shareholders, they will come to appreciate the benefits of high quality Northern White sand being delivered in a cost-effective manner to the wellsite as it will help them achieve better long-term well results and ultimately, higher cash flows and higher returns on their invested capital.

As recent developments demonstrate, we operate in a volatile industry and in uncertain times. However, we believe we are built for long term success. With our strong balance sheet and our strategy of providing quality sand and logistics services from the mine to the wellsite, we believe we can continue to deliver positive long-term operating results.

Sincerely,

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Charles E. Young
Chief Executive Officer

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