Smart Sand, Inc. (NASDAQ: SND) (the “Company” or “Smart Sand”), a
pure-play, low-cost producer of high quality Northern White raw
frac sand, today announced results for the second quarter ended
June 30, 2018.
“I’m pleased to report that Smart Sand has
posted strong quarterly results with significant sequential
improvements in sales volumes, net income and Adjusted EBITDA. We
also continued to execute on our long-range plan to become an
integrated, full service provider of frac sand and logistics
support to deliver mine to wellsite proppant solutions for our
customers,” stated Charles Young, Chief Executive Officer. He
added, “During the second quarter we completed our nameplate
capacity expansion at our Oakdale facility and expanded our
logistics capabilities through the acquisition of Quickthree
Solutions, Inc., a maker of portable frac sand storage solutions,
while achieving the highest quarterly sales volumes in Company
history. We continue to see new customer interest for our high
quality Northern White sand from E&P companies that see
benefits in well performance from using Northern White Sand over
regional sand. Additionally, in the quarter, we benefited from
incremental in-basin sales to customers purchasing sand through our
Van Hook, North Dakota terminal.”
Second Quarter 2018
Highlights
Revenues were $54.4 million in the second
quarter of 2018, a 28% increase compared to first quarter 2018
revenues of $42.6 million. Second quarter 2018 revenues increased
by 83% compared to second quarter 2017 revenues of $29.8 million.
The increase in revenues year over year was primarily due to higher
sales volumes and a higher average selling price per ton sold,
partially offset by lower freight revenue.
Overall tons sold were approximately 839,000 in
the second quarter of 2018, the highest in Company history,
compared to approximately 723,000 tons sold in the first quarter of
2018 and 531,000 tons sold in the second quarter of 2017, increases
of 16% and 58%, respectively.
Net income was $10.0 million, or $0.25 per basic
and diluted share, for the second quarter of 2018, compared with
net income of $1.0 million, or $0.02 per basic and diluted share,
for the first quarter of 2018 and net income of $2.6 million, or
$0.07 per basic and $0.06 per diluted share, for the second quarter
of 2017.
Adjusted EBITDA was $19.3 million for the second
quarter of 2018 compared to $6.3 million during the same period
last year, an increase of 204% on a year-over-year basis and an
increase of 229% compared to first quarter 2018 Adjusted EBITDA of
$5.9 million. The increase in Adjusted EBITDA compared to the
second quarter of 2017 was primarily due to higher sales volumes
and a higher average selling price per ton sold offset by increased
cost of goods sold due to the higher sales volumes. The
increase in Adjusted EBITDA compared to the first quarter of 2018
was primarily due to higher sales volumes and a higher selling
price per ton. Additionally, we had higher fixed cost
leverage in the second quarter of 2018 as we ramped up production
and we capitalized more costs into inventory as we began wet plant
operations during the quarter which resulted in lower cost of goods
sold sequentially. In the second quarter of 2018, we also had
one-time costs of $0.8 million, or $0.20 per share, included in
selling, general and administrative expenses related to the
acquisition of Quickthree Solutions, Inc.
Capital Expenditures
Smart Sand’s capital expenditures totaled $49.9
million for the second quarter ended June 30, 2018, of which $29.9
million related to the acquisition of Quickthree Solutions,
Inc. The remainder was largely associated with the nameplate
capacity expansion at our Oakdale sand processing facility,
investment in various enhancement and cost improvement projects and
our terminal investment in the Bakken. The Company estimates
that full year 2018 capital expenditures will be approximately $125
to $135 million, excluding any additional acquisitions. This range
of investment gives consideration to the acquisition of Quickthree
and also includes approximately $7 to $10 million in capital to
manufacture initial last mile systems for deployment to our
customers. At June 30, 2018, the Company had approximately
$1.7 million of cash on hand. On April 6, 2018, the Company
amended its credit facility to increase the amount available by $15
million to $60 million, of which $15 million is currently available
to support liquidity needs in 2018.
Conference Call
Smart Sand will host a conference call and live
webcast for analysts and investors this morning, August 9th, at
10:00 a.m. Eastern Time to discuss the Company’s second quarter
2018 financial results. Investors are invited to listen to a live
audio webcast of the conference call, which will be accessible on
the “Investors” section of the Company’s website at
www.smartsand.com. To access the live webcast, please log in 15
minutes prior to the start of the call to download and install any
necessary audio software. An archived replay of the call will also
be available on the website following the call. The call can also
be accessed live by dialing (888) 799-5165 or, for international
callers, (478) 219-0056. The passcode for the call is
1375109. A replay will be available shortly after the call and can
be accessed by dialing (855) 859-2056 or, for international
callers, (404) 537-3406. The conference ID for the replay is
1375109.
Forward-looking Statements
All statements in this news release other than
statements of historical facts are forward-looking statements that
contain our current expectations about our future results. We
have attempted to identify any forward-looking statements by using
words such as “expect," “will," “estimate," “believe” and
other similar expressions. Although we believe that the
expectations reflected and the assumptions or bases underlying our
forward-looking statements are reasonable, we can give no assurance
that such expectations will prove to be correct. Such
statements are not guarantees of future performance or events and
are subject to known and unknown risks and uncertainties that could
cause the Company's actual results, events or financial positions
to differ materially from those included within or implied by such
forward-looking statements.
Factors that could cause our actual results to
differ materially from the results contemplated by such
forward-looking statements include, but are not limited to,
fluctuations in product demand, regulatory changes, adverse weather
conditions, increased fuel prices, higher transportation costs,
access to capital, increased competition, changes in economic or
political conditions, and such other factors discussed or
referenced in the “Risk Factors” section of the Company’s Form 10-K
for the year ended December 31, 2017, filed by the Company with
the U.S. Securities and Exchange Commission on March
15, 2018.
You should not place undue reliance on our
forward-looking statements. Any forward-looking statement speaks
only as of the date on which such statement is made, and we
undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events, changed circumstances or otherwise, unless required
by law.
About Smart Sand
Smart Sand is a pure-play, low-cost producer of
high-quality Northern White raw frac sand. We sell our products
primarily to oil and natural gas exploration and production
companies and oilfield service companies. We own and operate a raw
frac sand mine and processing facility near Oakdale, Wisconsin, at
which we currently have approximately 321 million tons of proven
recoverable reserves. We currently have 5.5 million tons of annual
nameplate processing capacity. For more information, please
visit www.smartsand.com.
|
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS |
|
|
|
Three Months Ended |
|
|
June 30, 2018 |
|
March 31, 2018 |
|
June 30, 2017 |
|
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
|
(in thousands, except per share
amounts) |
Revenues |
|
$ |
54,448 |
|
|
$ |
42,628 |
|
|
$ |
29,787 |
|
Cost of goods sold |
|
34,678 |
|
|
35,413 |
|
|
21,407 |
|
Gross
profit |
|
19,770 |
|
|
7,215 |
|
|
8,380 |
|
Operating
expenses: |
|
|
|
|
|
|
Salaries,
benefits and payroll taxes |
|
2,790 |
|
|
2,573 |
|
|
2,167 |
|
Depreciation and amortization |
|
476 |
|
|
188 |
|
|
120 |
|
Selling,
general and administrative |
|
3,595 |
|
|
3,101 |
|
|
2,283 |
|
Total
operating expenses |
|
6,861 |
|
|
5,862 |
|
|
4,570 |
|
Operating income |
|
12,909 |
|
|
1,353 |
|
|
3,810 |
|
Other
income (expenses): |
|
|
|
|
|
|
Interest
expense, net |
|
(500 |
) |
|
(180 |
) |
|
(115 |
) |
Other
income |
|
25 |
|
|
34 |
|
|
83 |
|
Total
other income (expenses), net |
|
(475 |
) |
|
(146 |
) |
|
(32 |
) |
Income before income
tax expense |
|
12,434 |
|
|
1,207 |
|
|
3,778 |
|
Income
tax expense |
|
2,413 |
|
|
232 |
|
|
1,154 |
|
Net income |
|
$ |
10,021 |
|
|
$ |
975 |
|
|
$ |
2,624 |
|
|
|
|
|
|
|
|
Net income per common
share: |
|
|
|
|
|
|
Basic |
|
0.25 |
|
|
$ |
0.02 |
|
|
$ |
0.07 |
|
Diluted |
|
0.25 |
|
|
$ |
0.02 |
|
|
$ |
0.06 |
|
Weighted-average number
of common shares: |
|
|
|
|
|
|
Basic |
|
40,499 |
|
|
40,412 |
|
|
40,347 |
|
Diluted |
|
40,550 |
|
|
40,441 |
|
|
40,453 |
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE
SHEETS |
|
|
|
|
|
June 30, 2018 |
|
December 31, 2017 |
|
(unaudited) |
|
(audited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and
cash equivalents |
|
$ |
1,745 |
|
|
$ |
34,740 |
|
Restricted cash |
|
— |
|
|
487 |
|
Accounts
receivable |
|
24,086 |
|
|
23,377 |
|
Unbilled
receivables |
|
4,907 |
|
|
1,192 |
|
Inventories |
|
11,546 |
|
|
9,532 |
|
Prepaid
expenses and other current assets |
|
4,829 |
|
|
3,849 |
|
Total
current assets |
|
47,113 |
|
|
73,177 |
|
Property, plant and
equipment, net |
|
223,993 |
|
|
171,762 |
|
Intangible assets,
net |
|
19,686 |
|
|
— |
|
Goodwill |
|
16,892 |
|
|
— |
|
Deferred financing
costs, net |
|
438 |
|
|
892 |
|
Other assets |
|
3,360 |
|
|
971 |
|
Total
assets |
|
$ |
311,482 |
|
|
$ |
246,802 |
|
|
|
|
|
|
Liabilities and
Stockholders’ Equity |
|
|
|
|
Current
liabilities: |
|
|
|
|
Accounts
payable |
|
$ |
13,367 |
|
|
$ |
26,123 |
|
Accrued
and other expenses |
|
11,372 |
|
|
7,576 |
|
Deferred
revenue |
|
4,805 |
|
|
— |
|
Current
portion of equipment financing obligations |
|
432 |
|
|
572 |
|
Current
portion of notes payable |
|
— |
|
|
288 |
|
Total
current liabilities |
|
29,976 |
|
|
34,559 |
|
Revolving credit
facility, net |
|
44,654 |
|
|
— |
|
Deferred tax
liabilities, long-term, net |
|
15,886 |
|
|
13,239 |
|
Asset retirement
obligation |
|
9,476 |
|
|
8,982 |
|
Contingent
consideration |
|
9,200 |
|
|
— |
|
Total
liabilities |
|
109,192 |
|
|
56,780 |
|
|
|
|
|
|
Stockholders’
equity |
|
|
|
|
Common
stock |
|
40 |
|
|
40 |
|
Treasury
stock, at cost |
|
(839 |
) |
|
(666 |
) |
Additional paid-in capital |
|
160,428 |
|
|
159,059 |
|
Retained
earnings |
|
42,585 |
|
|
31,589 |
|
Accumulated other comprehensive income |
|
76 |
|
|
— |
|
Total
stockholders’ equity |
|
202,290 |
|
|
190,022 |
|
Total
liabilities and stockholders’ equity |
|
$ |
311,482 |
|
|
$ |
246,802 |
|
Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
We define EBITDA as our net income, plus (i)
depreciation, depletion and amortization expense, (ii) income tax
expense (benefit), (iii) interest expense and (iv) franchise taxes.
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, including
our initial public offering, (iii) equity compensation; (iv)
development costs; (v) non-recurring cash charges related to
restructuring, retention and other similar actions, (vi) earn-out
and contingent consideration obligations 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:
- 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 and capital structure; and
- our debt covenant compliance as Adjusted EBITDA is a key
component of critical covenants in our credit agreement.
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 definition 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:
|
|
|
Three Months Ended |
|
June 30, 2018 |
|
|
March 31, 2018 |
|
June 30, 2017 |
|
(in thousands) |
Net income |
$ |
10,021 |
|
|
$ |
975 |
|
|
$ |
2,624 |
|
Depreciation, depletion
and amortization |
|
4,296 |
|
|
3,160 |
|
|
1,693 |
|
Income tax expense |
|
2,413 |
|
|
232 |
|
|
1,154 |
|
Interest expense |
|
509 |
|
|
219 |
|
|
182 |
|
Franchise taxes |
|
109 |
|
|
220 |
|
|
10 |
|
EBITDA |
$ |
17,348 |
|
|
$ |
4,806 |
|
|
$ |
5,663 |
|
(Gain) loss on sale of
fixed assets (1) |
|
— |
|
|
— |
|
|
194 |
|
Equity compensation
(2) |
|
668 |
|
|
490 |
|
|
464 |
|
Acquisition and
development costs (3) |
|
914 |
|
|
328 |
|
|
— |
|
Cash charges related to
restructuring and retention (4) |
|
270 |
|
|
94 |
|
|
— |
|
Non-cash charges
(5) |
|
57 |
|
|
134 |
|
|
20 |
|
Adjusted
EBITDA |
$ |
19,257 |
|
|
$ |
5,852 |
|
|
$ |
6,341 |
|
- Includes gains related to the sale and disposal of certain
assets in property, plant and equipment.
- Represents the non-cash expenses for stock-based awards issued
to our employees and employee stock purchase plan compensation
expense.
- Represents costs incurred related to the business combinations
and current development project activities. The three and six
months ended June 30, 2018 includes $0.8 million and $1.2 million,
respectively, of costs related to the acquisition of Quickthree
Solutions, Inc.
- Represents costs associated with the retention and relocation
of employees.
- Represents accretion of asset retirement obligations.
Contribution Margin
We also 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.
Historically, we have reported production costs
and production cost per ton as non-GAAP measures. As we expand our
logistics activities and continue to sell sand closer to the
wellhead, our sand production costs will only be a portion of our
overall cost structure. As such, we believe that it is no longer
relevant to report production costs or production cost per ton on a
standalone basis.
We believe that a transition to reporting
contribution margin and contribution margin per ton sold will
provide a better performance metric to management and external
users of our financial statements, such as investors and commercial
banks, because these metrics provide an operating and financial
measure of our ability, as a combined business, to generate margin
in excess of our operating cost base.
Gross profit is the GAAP measure most directly
comparable to contribution margin. Contribution margin should not
be considered an alternative to gross profit presented in
accordance with GAAP. 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.
|
|
|
Three Months Ended |
|
June 30, 2018 |
|
March 31, 2018 |
|
June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
Revenue |
$ |
54,448 |
|
|
$ |
42,628 |
|
|
$ |
29,787 |
|
Cost of goods sold |
|
34,678 |
|
|
35,413 |
|
|
21,407 |
|
Gross
profit |
$ |
19,770 |
|
|
$ |
7,215 |
|
|
$ |
8,380 |
|
Depreciation,
depletion, and accretion of asset retirement obligations |
|
3,878 |
|
|
3,106 |
|
|
1,588 |
|
Contribution
margin |
$ |
23,648 |
|
|
$ |
10,321 |
|
|
$ |
9,968 |
|
Contribution
margin per ton |
$ |
28.19 |
|
|
$ |
14.28 |
|
|
$ |
18.77 |
|
Total tons sold |
|
839 |
|
|
723 |
|
|
531 |
|
|
Investor Contacts
Lee Beckelman
CFO
(281) 231-2660
LBeckelman@smartsand.com
Phil Cerniglia
Investor Relations and Budgeting Manager
(281) 231-2660
PCerniglia@smartsand.com
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