Smart Sand, Inc. (NASDAQ: SND) (the “Company” or “Smart Sand”), a
fully integrated frac sand supply and services company, a low-cost
producer of high quality Northern White raw frac sand and provider
of proppant logistics solutions through both its in-basin
transloading terminal and SmartSystems™ products and services,
today announced results for the fourth quarter and full year ended
December 31, 2020.
Charles Young, Smart Sand’s Chief Executive Officer, stated
“Despite volatile market conditions throughout 2020, Smart Sand
continued to demonstrate its ability to manage through the cycles
in our industry, and I want to thank all of our employees for their
continued diligence and efforts to support the company through
challenging times.”
“Although the market was challenging last year, we were able to
generate positive free cash flow and reduce our debt levels.
Additionally, we were able to acquire the Eagle Materials proppants
business at a very attractive price. This acquisition provides us
incremental capacity to serve the market as it recovers and
increased logistics capabilities through the access to another
Class I railroad. We believe the acquisition combined with existing
low cost operations and our low leverage levels will allow us to
continue to compete effectively in the market to provide
sustainable sand supply and logistics solutions to our customers in
2021 and beyond.”
Full Year 2020 Highlights
Revenues were $122.3 million for the full year 2020, compared to
$233.1 million for the full year of 2019, an overall decrease
of 48%. Revenue in 2020 was negatively impacted by
depressed energy prices driven by the continued oversupply relative
to the decreased demand for oil and natural gas due to the COVID-19
coronavirus pandemic which led to reduced drilling and completions
activity for new oil and gas wells in the United States.
Overall tons sold were 1,886,000 for the full year 2020,
compared to full year 2019 volume of 2,462,000 tons, a decrease of
23%. Due to the decreased demand from the COVID-19 coronavirus
pandemic, sales volumes dropped dramatically in the second and
third quarters of 2020 before rebounding in the fourth quarter. The
increased activity in the fourth quarter was not enough to overcome
the reduced demand earlier in the year leading to sales volume
dropping in 2020, compared to 2019 levels.
Income tax benefit was $13.0 million for the full year 2020,
compared with income tax expense of $7.8 million for the full year
2019. The 2020 income tax benefit included the effects of the
non-taxable gain on bargain purchase related to the acquisition of
Eagle Proppants Holdings, as well as $9.7 million related to
the anticipated benefit to be received from the carryback of net
operating losses, including those related to depletion deduction,
to tax years with a 35% corporate tax rate.
Net income was $38.0 million, or $0.94 per basic and diluted
share for the full year 2020, compared with net income of $31.6
million, or $0.79 per basic and $0.78 per diluted share, for the
full year 2019, an increase of 20% year over year. The increase in
net income was primarily due to the gain on bargain purchase
related to our acquisition of Eagle Proppants Holdings, current
year income tax benefit and impairment of intangible assets in the
prior year, offset by the lower shortfall revenue and the lower
volumes sold during the COVID-19 coronavirus pandemic.
Net cash provided by operating activities was $25.5 million for
the year ended December 31, 2020, which included income of $38.0
million, partially offset by non-cash items of $10.8 million and
$1.6 million in changes in operating assets and liabilities.
Adjusted EBITDA was $20.5 million for the full year 2020
compared to Adjusted EBITDA of $87.1 million for the full year
2019, a decrease of 77% year over year. The decrease in
Adjusted EBITDA for the year ended December 31, 2020, as compared
to the prior year, was primarily attributable to both lower
shortfall revenue and lower total volumes sold due to depressed oil
prices and decreased demand.
Contribution margin was $39.1 million, or $20.75 per ton sold,
for the full year 2020 compared to $106.5 million, or $43.24 per
ton sold, for the full year 2019. The decrease in contribution
margin was primarily due to lower total volumes sold and pricing
pressure in the current period due to depressed oil prices and
decreased demand and lower shortfall revenue.
Fourth Quarter 2020 Highlights
Revenues were $25.3 million in the fourth quarter of 2020,
compared to third quarter 2020 revenues of $23.4 million. Fourth
quarter 2020 revenues decreased by 47% compared to fourth quarter
2019 revenues of $47.7 million. Sand sales revenue were up in the
fourth quarter, compared to the third quarter, due to higher sales
volumes but this was mitigated by lower shortfall revenues leading
to overall revenues being relatively flat with third quarter
results. The decrease in revenue compared to the fourth quarter of
2019 was primarily due to higher shortfall and logistics revenues
in 2019.
Overall tons sold were 612,000 for the fourth quarter of 2020,
compared to 309,000 tons for the third quarter of 2020 and 462,000
tons in the fourth quarter 2019, increases of 98% and of 32%,
respectively. Sales volumes improved substantially in the fourth
quarter 2020, compared to the third quarter 2020, due to improved
oil prices from increased demand as the economy began to show some
improvement from the depressed levels caused by the start of the
pandemic earlier in 2020. Due to this increase in activity later in
the year, sales volume for the fourth quarter 2020 were higher than
the same period a year ago which had lower volumes due to normal
year end spending reductions to drill and complete new wells.
Income tax benefit was $18.6 million for the fourth quarter of
2020, compared with income tax expense of $0.3 million for the full
year 2019. The fourth quarter 2020 income tax benefit resulted from
the loss in the current quarter as well as $7.8 million
related to the anticipated benefit to be received from the
carryback of net operating losses, including those related to
depletion deduction, to tax years with a 35% corporate tax
rate.
For the fourth quarter of 2020, the Company had a net loss of
$2.9 million, or $(0.07) per basic and diluted share, compared to
net income of $36.3 million, or $0.91 per basic and diluted share
for the third quarter of 2020, and net income of $2.4 million, or
$0.06 per basic share and diluted share, for the fourth quarter
2019. Net income was lower sequentially due to the gain on the
bargain purchase related to our acquisition of Eagle Proppants
Holdings recognized in the third quarter. In the fourth quarter
2020, the Company took an impairment charge of $5.1 million on our
Permian basin long-lived assets and incurred a $1.3 million sales
tax audit settlement charge. Due to the increased sales volumes and
seasonality of our operations in the fourth quarter, compared to
the third quarter, we had more cost recognized as inventory was
depleted from the winter stockpile and higher freight expense. Net
income in the fourth quarter of 2019 was higher than the fourth
quarter 2020 results due primarily to higher shortfall and
logistics revenue partially offset by an impairment charge of $7.9
million on our Hixton site.
Adjusted EBITDA was $(7.7) million for the fourth quarter of
2020, compared to $6.1 million for the third quarter 2020 and $19.6
million for the fourth quarter of 2019. The decrease in Adjusted
EBITDA compared to the third quarter of 2020 and the fourth quarter
of 2019 was primarily due to lower shortfall and logistics revenue
and more costs recognized as inventory was depleted from the winter
stockpile and higher freight expense.
Capital and Liquidity
For the full year 2020, we generated $16.9 million in free cash
flow, generating $25.5 million in cash flow from operations while
spending $8.6 million on capital expenditures. For the fourth
quarter of 2020, we generated $2.1 million in free cash flow,
generating $3.3 million in cash flow from operations while spending
$1.2 million on capital expenditures. The majority of the capital
spent during the year was for investment in SmartPath transloaders
for our SmartSystems last mile logistics fleets. As of December 31,
2020, we had cash on hand of $11.7 million, $9.5 million in undrawn
availability on our ABL Credit Facility and $5.0 million in undrawn
availability on the Acquisition Liquidity Support Facility.
Business Combination
On September 18, 2020, we acquired the Oil and Gas Proppants
Segment of Eagle Materials Inc, which includes frac sand mines and
related processing facilities in Utica, Illinois and New Auburn,
Wisconsin, with approximately 3.5 million tons of total annual
processing capacity, 1.6 million tons of which has access to the
BNSF Class I rail line through the Peru, Illinois transload
facility. The transaction is considered a bargain purchase whereby
we purchased total net assets with a fair value of $41.7 million
for total consideration of $2.1 million, resulting in a bargain
purchase gain of $39.6 million, included in net income for the year
ended December 31, 2020. In connection with the acquisition, we
entered into a Liquidity Support Loan Agreement, whereby we may
draw loans in an aggregate amount up to $5.0 million during the
twelve month period ending September 18, 2021 and repay those
amounts over the subsequent three years. As of December 31, 2020,
there was no amounts outstanding under this facility.
We believe that this acquisition broadens our mine to wellsite
capabilities by adding high quality sand mining and processing
assets coupled with enhanced logistics options which provide direct
access to an additional Class I rail line. We believe that these
additional mining and logistics resources help secure its ability
to be the preferred provider of Northern White Sand in the
proppants market. With this acquisition, we believe we will be able
to expand our footprint into new basins, gain access to new and
enhanced logistics options, broaden our customer base and
complement our mine to wellsite supply and logistics
capabilities.
Conference Call
Smart Sand will host a conference call and live webcast for
analysts and investors this morning, March 3, 2021 at 10:00
a.m. Eastern Time to discuss the Company’s fourth quarter and full
year 2020 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 4665968. 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 4665968.
Forward-looking Statements
All statements in this news release other than statements of
historical facts are forward-looking statements that contain our
Company’s 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 our 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, continued effects of the global pandemic, changes in
economic or political conditions, and such other factors discussed
or referenced in the “Risk Factors” section of our Company’s Form
10-K for the year ended December 31, 2020, to be filed by us with
the U.S. Securities and Exchange
Commission on March 3, 2021.
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
We are a fully integrated frac sand supply and services company,
offering complete mine to wellsite proppant logistics, storage and
management solutions to our customers. We produce low-cost, high
quality Northern White frac sand and offer proppant logistics,
storage and management solutions to our customers through our
in-basin transloading terminal and our SmartSystems wellsite
proppant storage capabilities. We provide our products and services
primarily to oil and natural gas exploration and production
companies and oilfield service companies. We own and operate
premium frac sand mines and related processing facilities in
Wisconsin and Illinois, which have access to three Class I rail
lines, allowing us to deliver products substantially anywhere in
the United States and Canada. For more information, please visit
www.smartsand.com.
Availability of Information on Smart Sand’s
Website
We routinely announce material information using U.S. Securities
and Exchange Commission filings, press releases, public conference
calls and webcasts and the Smart Sand investor relations website.
While not all of the information that we post to the Smart Sand
investor relations website is of a material nature, some
information could be deemed to be material. Accordingly, we
encourage investors, the media, and others interested in Smart Sand
to review the information that we share at the “Investors” link
located at the top of the page on www.smartsand.com.
SMART SAND, INC.
CONSOLIDATED INCOME
STATEMENTS
|
Three Months Ended |
|
December 31, 2020 |
|
September 30, 2020 |
|
December 31, 2019 |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(in thousands, except per share amounts) |
Revenues: |
|
|
|
|
|
Sand sales revenue |
$ |
20,093 |
|
|
$ |
12,445 |
|
|
$ |
22,960 |
|
Shortfall revenue |
1,133 |
|
|
6,842 |
|
|
11,600 |
|
Logistics revenue |
4,111 |
|
|
4,122 |
|
|
13,107 |
|
Total revenue |
25,337 |
|
|
23,409 |
|
|
47,667 |
|
Cost of
goods sold |
32,999 |
|
|
18,227 |
|
|
29,793 |
|
Gross (loss) profit |
(7,662 |
) |
|
5,182 |
|
|
17,874 |
|
Operating expenses: |
|
|
|
|
|
Salaries, benefits and payroll taxes |
2,878 |
|
|
2,058 |
|
|
3,094 |
|
Depreciation and amortization |
557 |
|
|
440 |
|
|
457 |
|
Selling, general and administrative |
5,134 |
|
|
3,933 |
|
|
3,045 |
|
Change in the estimated fair value of contingent consideration |
(390 |
) |
|
— |
|
|
(515 |
) |
Impairment loss |
5,115 |
|
|
— |
|
|
7,914 |
|
Total operating expenses |
13,294 |
|
|
6,431 |
|
|
13,995 |
|
Operating income loss |
(20,956 |
) |
|
(1,249 |
) |
|
3,879 |
|
Other (expenses) income: |
|
|
|
|
|
Gain on bargain purchase |
(289 |
) |
|
39,889 |
|
|
— |
|
Interest expense, net |
(515 |
) |
|
(497 |
) |
|
(678 |
) |
Loss on extinguishment of debt |
— |
|
|
— |
|
|
(561 |
) |
Other income |
320 |
|
|
80 |
|
|
42 |
|
Total other (expenses) income, net |
(484 |
) |
|
39,472 |
|
|
(1,197 |
) |
(Loss)
income before income tax (benefit) expense |
(21,440 |
) |
|
38,223 |
|
|
2,682 |
|
Income tax (benefit) expense |
(18,556 |
) |
|
1,941 |
|
|
294 |
|
Net
(loss) income |
$ |
(2,884 |
) |
|
$ |
36,282 |
|
|
$ |
2,388 |
|
|
|
|
|
|
|
Net
(loss) income per common share: |
|
|
|
|
|
Basic |
$ |
(0.07 |
) |
|
$ |
0.91 |
|
|
$ |
0.06 |
|
Diluted |
$ |
(0.07 |
) |
|
$ |
0.91 |
|
|
$ |
0.06 |
|
Weighted-average number of common shares: |
|
|
|
|
|
Basic |
41,324 |
|
|
39,973 |
|
|
40,234 |
|
Diluted |
41,324 |
|
|
39,973 |
|
|
40,238 |
|
|
|
|
|
|
|
SMART SAND, INC.
CONSOLIDATED INCOME
STATEMENTS
|
Year Ended December 31, |
|
2020 |
|
2019 |
|
(in thousands, except per share amount) |
Revenues: |
|
|
|
Sand sales revenue |
70,902 |
|
|
109,621 |
|
Shortfall revenue |
23,281 |
|
|
49,259 |
|
Logistics revenue |
28,157 |
|
|
74,193 |
|
Total revenue |
$ |
122,340 |
|
|
$ |
233,073 |
|
Cost of
goods sold |
104,221 |
|
|
152,021 |
|
Gross profit |
18,119 |
|
|
81,052 |
|
Operating expenses: |
|
|
|
Salaries, benefits and payroll taxes |
9,993 |
|
|
11,560 |
|
Depreciation and amortization |
1,911 |
|
|
2,411 |
|
Selling, general and administrative |
15,527 |
|
|
11,328 |
|
Change in the estimated fair value of contingent consideration |
(1,410 |
) |
|
(3,272 |
) |
Impairment loss |
5,115 |
|
|
15,542 |
|
Total operating expenses |
31,136 |
|
|
37,569 |
|
Operating (loss) income |
(13,017 |
) |
|
43,483 |
|
Other
income (expenses): |
|
|
|
Gain on bargain purchase |
39,600 |
|
|
— |
|
Interest expense, net |
(2,091 |
) |
|
(3,621 |
) |
Loss on extinguishment of debt |
— |
|
|
(561 |
) |
Other income |
482 |
|
|
131 |
|
Total other income (expenses), net |
37,991 |
|
|
(4,051 |
) |
Income
before income tax (benefit) expense |
24,974 |
|
|
39,432 |
|
Income tax (benefit) expense |
(12,980 |
) |
|
7,809 |
|
Net
income |
$ |
37,954 |
|
|
$ |
31,623 |
|
Net
income per common share: |
|
|
|
Basic |
$ |
0.94 |
|
|
$ |
0.79 |
|
Diluted |
$ |
0.94 |
|
|
$ |
0.78 |
|
Weighted-average number of common shares: |
|
|
|
Basic |
40,260 |
|
|
40,135 |
|
Diluted |
40,260 |
|
|
40,337 |
|
|
|
|
|
|
|
SMART SAND, INC.
CONSOLIDATED BALANCE SHEETS
|
December 31, |
|
2020 |
|
2019 |
|
(in thousands) |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
11,725 |
|
|
$ |
2,639 |
|
Accounts receivable, net |
69,720 |
|
|
58,925 |
|
Unbilled receivables |
127 |
|
|
4,765 |
|
Inventories |
19,136 |
|
|
21,415 |
|
Prepaid expenses and other
current assets |
11,378 |
|
|
4,433 |
|
Total current assets |
112,086 |
|
|
92,177 |
|
Property, plant and equipment,
net |
274,676 |
|
|
230,461 |
|
Operating lease right-of-use
assets |
32,099 |
|
|
28,178 |
|
Intangible assets, net |
8,253 |
|
|
9,046 |
|
Other assets |
563 |
|
|
3,541 |
|
Total assets |
$ |
427,677 |
|
|
$ |
363,403 |
|
Liabilities and
Stockholders’ Equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
3,268 |
|
|
$ |
3,961 |
|
Accrued expenses and other
liabilities |
13,142 |
|
|
8,578 |
|
Deferred revenue, current |
6,875 |
|
|
7,654 |
|
Income taxes payable |
— |
|
|
542 |
|
Long-term debt, net, current |
6,901 |
|
|
6,175 |
|
Operating lease liabilities,
current |
7,077 |
|
|
13,108 |
|
Total current liabilities |
37,263 |
|
|
40,018 |
|
Deferred revenue, net |
3,482 |
|
|
1,670 |
|
Long-term debt, net |
22,445 |
|
|
28,240 |
|
Operating lease liabilities,
long-term |
27,020 |
|
|
15,469 |
|
Deferred tax liabilities,
long-term, net |
32,981 |
|
|
24,408 |
|
Asset retirement obligation |
14,996 |
|
|
6,142 |
|
Contingent consideration |
180 |
|
|
1,900 |
|
Other non-current
liabilities |
503 |
|
|
— |
|
Total liabilities |
138,870 |
|
|
117,847 |
|
Commitments and
contingencies |
|
|
|
Stockholders’ equity |
|
|
|
Common stock |
42 |
|
|
40 |
|
Treasury stock, at cost |
(4,134 |
) |
|
(2,979 |
) |
Additional paid-in capital |
171,209 |
|
|
165,223 |
|
Retained earnings |
121,267 |
|
|
83,313 |
|
Accumulated other comprehensive income (loss) |
423 |
|
|
(41 |
) |
Total stockholders’ equity |
288,807 |
|
|
245,556 |
|
Total liabilities and stockholders’ equity |
$ |
427,677 |
|
|
$ |
363,403 |
|
|
|
|
|
|
|
|
|
SMART SAND,
INC.CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
Year Ended December 31, |
|
Three Months Ended |
|
2020 |
|
2019 |
|
December 31, 2020 |
|
(audited) |
|
(audited) |
|
(unaudited) |
|
(in thousands) |
Operating activities: |
|
|
|
|
|
Net income (loss) |
$ |
37,954 |
|
|
$ |
31,623 |
|
|
$ |
(2,884 |
) |
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
|
|
|
Depreciation, depletion and accretion of asset retirement
obligation |
22,130 |
|
|
26,425 |
|
|
6,038 |
|
Impairment loss |
5,115 |
|
|
15,542 |
|
|
5,115 |
|
Amortization of intangible assets |
793 |
|
|
1,394 |
|
|
197 |
|
Asset retirement obligation settlement |
— |
|
|
(2,753 |
) |
|
— |
|
Loss (gain) on disposal of assets |
237 |
|
|
(42 |
) |
|
(62 |
) |
Loss on extinguishment of debt |
— |
|
|
561 |
|
|
— |
|
Amortization of deferred financing cost |
105 |
|
|
212 |
|
|
26 |
|
Accretion of debt discount |
185 |
|
|
649 |
|
|
47 |
|
Deferred income taxes |
(2,573 |
) |
|
6,123 |
|
|
(2,811 |
) |
Stock-based compensation |
3,831 |
|
|
2,909 |
|
|
922 |
|
Employee stock purchase plan compensation |
34 |
|
|
41 |
|
|
5 |
|
Change in contingent consideration fair value |
(1,410 |
) |
|
(3,272 |
) |
|
(390 |
) |
Gain on bargain purchase, net of cash acquired |
(39,291 |
) |
|
— |
|
|
289 |
|
Changes in assets and liabilities: |
|
|
|
|
0 |
Accounts receivable |
(10,719 |
) |
|
(41,063 |
) |
|
(3,690 |
) |
Unbilled receivables |
4,638 |
|
|
3,058 |
|
|
9,129 |
|
Inventories |
4,738 |
|
|
(1,021 |
) |
|
4,432 |
|
Prepaid expenses and other assets |
(5,327 |
) |
|
1,879 |
|
|
(9,078 |
) |
Deferred revenue |
1,032 |
|
|
5,229 |
|
|
(2,880 |
) |
Accounts payable |
(370 |
) |
|
(4,680 |
) |
|
(165 |
) |
Accrued and other expenses |
4,981 |
|
|
1,277 |
|
|
5,587 |
|
Income taxes payable |
(542 |
) |
|
542 |
|
|
(6,510 |
) |
Net cash provided by operating
activities |
25,541 |
|
|
44,632 |
|
|
3,317 |
|
Investing activities: |
|
|
|
|
|
Purchases of property, plant and equipment |
(8,620 |
) |
|
(25,525 |
) |
|
(1,176 |
) |
Proceeds from disposal of assets |
61 |
|
|
100 |
|
|
10 |
|
Net cash used in investing
activities |
(8,559 |
) |
|
(25,425 |
) |
|
(1,166 |
) |
Financing activities: |
|
|
|
|
|
Proceeds from the issuance of notes payable |
952 |
|
|
31,202 |
|
|
— |
|
Repayments of notes payable |
(4,802 |
) |
|
(2,808 |
) |
|
(1,275 |
) |
Payments under equipment financing obligations |
(123 |
) |
|
(103 |
) |
|
(36 |
) |
Payment of deferred financing and debt issuance costs |
(20 |
) |
|
(2,262 |
) |
|
— |
|
Proceeds from revolving credit facility |
6,000 |
|
|
52,750 |
|
|
— |
|
Repayment of revolving credit facility |
(8,500 |
) |
|
(94,750 |
) |
|
— |
|
Payment of contingent consideration |
(310 |
) |
|
(1,995 |
) |
|
— |
|
Proceeds from equity issuance |
62 |
|
|
71 |
|
|
— |
|
Purchase of treasury stock |
(1,155 |
) |
|
(140 |
) |
|
(109 |
) |
Net cash used in financing
activities |
(7,896 |
) |
|
(18,035 |
) |
|
(1,420 |
) |
Net increase in cash and cash
equivalents |
9,086 |
|
|
1,173 |
|
|
731 |
|
Cash and cash equivalents at beginning of period |
2,639 |
|
|
1,466 |
|
|
10,994 |
|
Cash and cash equivalents at end of period |
$ |
11,725 |
|
|
$ |
2,639 |
|
|
$ |
11,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
We define EBITDA as 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; (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:
- 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.
The following tables present a reconciliation of EBITDA and
Adjusted EBITDA to net income for each of the periods
indicated:
|
Three Months Ended |
|
December 31, 2020 |
|
September 30, 2020 |
|
December 31, 2019 |
|
(in thousands) |
Net (loss) income |
$ |
(2,884 |
) |
|
$ |
36,282 |
|
|
$ |
2,388 |
|
Depreciation, depletion and
amortization |
6,070 |
|
|
5,529 |
|
|
7,250 |
|
Income tax (benefit) expense |
(18,556 |
) |
|
1,941 |
|
|
294 |
|
Interest expense |
524 |
|
|
506 |
|
|
679 |
|
Franchise taxes |
63 |
|
|
63 |
|
|
51 |
|
EBITDA |
$ |
(14,783 |
) |
|
$ |
44,321 |
|
|
$ |
10,662 |
|
Gain on sale of fixed
assets |
(11 |
) |
|
(27 |
) |
|
(1 |
) |
Equity compensation (1) |
831 |
|
|
832 |
|
|
708 |
|
Acquisition and development costs
(2) |
(514 |
) |
|
823 |
|
|
(315 |
) |
Gain on bargain purchase |
289 |
|
|
(39,889 |
) |
|
— |
|
Non-cash impairment of long-lived
and intangible assets |
5,115 |
|
|
— |
|
|
7,914 |
|
Cash charges related to
restructuring and retention |
— |
|
|
— |
|
|
55 |
|
Accretion of asset retirement
obligations |
157 |
|
|
88 |
|
|
64 |
|
Loss on extinguishment of
debt |
— |
|
|
— |
|
|
561 |
|
Sales tax audit
settlement |
1,250 |
|
|
— |
|
|
— |
|
Adjusted EBITDA |
$ |
(7,666 |
) |
|
$ |
6,148 |
|
|
$ |
19,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents the non-cash expenses for stock-based awards
issued to our employees and employee stock purchase plan
compensation expense.(2) Represents costs incurred related to the
business combinations and current development project activities.
The three months ended December 31, 2020 includes fair value
adjustment of contingent consideration of $390, and acquisition
costs of $74. The three months ended September 30, 2020 includes
acquisition cost of $817. The three months ended December 31, 2019
includes $515 fair value adjustment partially offset by $200
related to development project activities.
|
Year Ended December 31, |
|
2020 |
|
2019 |
|
(in thousands) |
Net income |
$ |
37,954 |
|
|
$ |
31,623 |
|
Depreciation, depletion and
amortization |
22,536 |
|
|
27,135 |
|
Income tax (benefit) expense |
(12,980 |
) |
|
7,809 |
|
Interest expense |
2,129 |
|
|
3,626 |
|
Franchise taxes |
275 |
|
|
285 |
|
EBITDA |
$ |
49,914 |
|
|
$ |
70,478 |
|
Loss (gain) on sale of fixed
assets |
237 |
|
|
(42 |
) |
Equity compensation (1) |
3,431 |
|
|
2,755 |
|
Acquisition and development costs
(2) |
(369 |
) |
|
(3,047 |
) |
Gain on bargain purchase |
(39,600 |
) |
|
— |
|
Non-cash impairment loss(3) |
5,115 |
|
|
15,542 |
|
Cash charges related to
restructuring and retention of employees |
82 |
|
|
137 |
|
Accretion of asset retirement
obligations |
396 |
|
|
687 |
|
Loss on extinguishment of
debt |
— |
|
|
561 |
|
Sales tax audit settlement |
1,250 |
|
|
— |
|
Adjusted EBITDA |
$ |
20,456 |
|
|
$ |
87,071 |
|
|
|
|
|
|
|
|
|
(1) Represents the non-cash expenses for stock-based awards
issued to employees and employee stock purchase plan compensation
expense.(2) Represents costs incurred related to the business
combinations and current development project activities. The year
ended December 31, 2020 includes acquisition cost of $891, offset
by $1,410 fair value adjustment of contingent consideration. The
year ended December 31, 2019 includes $3,272 decrease in the
estimated fair value of contingent consideration related to the
acquisition of Quickthree and $225 related to development project
activities.(3) The year ended December 31, 2020 represents a $5,115
full impairment of long-lived assets in the Permian basin. The year
ended December 31, 2019 includes an impairment charge of $7,628
related to the Quickload system and $7,914 related to our Hixton
Wisconsin property. The year ended December 31, 2018 represents a
$17,835 impairment of goodwill and other indefinite-lived
intangible assets.
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 its
financial and operating performance. Contribution margin excludes
other operating expenses and income, including costs not directly
associated with the operations of the Company’s 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 financial 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.
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 the 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 |
|
December 31, 2020 |
|
September 30, 2020 |
|
December 31, 2019 |
|
(in thousands) |
Revenue |
$ |
25,337 |
|
|
$ |
23,409 |
|
|
$ |
47,667 |
|
Cost of goods sold |
32,999 |
|
|
18,227 |
|
|
29,793 |
|
Gross profit |
(7,662 |
) |
|
5,182 |
|
|
17,874 |
|
Depreciation, depletion, and
accretion of asset retirement obligations included in cost of goods
sold |
2,468 |
|
|
5,177 |
|
|
6,858 |
|
Contribution margin |
$ |
(5,194 |
) |
|
$ |
10,359 |
|
|
$ |
24,732 |
|
Contribution margin per ton |
$ |
(8.49 |
) |
|
$ |
33.52 |
|
|
$ |
53.53 |
|
Total tons sold |
612 |
|
|
309 |
|
|
462 |
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
2020 |
|
2019 |
|
(in thousands) |
Revenue |
$ |
122,340 |
|
|
$ |
233,073 |
|
Cost of goods sold |
104,221 |
|
|
152,021 |
|
Gross profit |
18,119 |
|
|
81,052 |
|
Depreciation, depletion, and
accretion of asset retirement obligations included in cost of goods
sold |
21,022 |
|
|
25,412 |
|
Contribution margin |
$ |
39,141 |
|
|
$ |
106,464 |
|
Contribution margin per ton |
$ |
20.75 |
|
|
$ |
43.24 |
|
Total tons sold |
1,886 |
|
|
2,462 |
|
|
|
|
|
|
|
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 flow. Free cash flow 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 flow may not be comparable to
similarly titled measures of other companies, thereby diminishing
its utility. The following table presents a reconciliation of free
cash flow to net cash provided by operating activities.
|
Year Ended December 31, |
|
Three Months Ended |
|
2020 |
|
2019 |
|
December 31, 2020 |
|
(in thousands) |
Net cash provided by operating activities |
$ |
25,541 |
|
|
$ |
44,632 |
|
|
$ |
3,317 |
|
Purchases of property, plant and equipment |
(8,620 |
) |
|
(25,525 |
) |
|
(1,176 |
) |
Free cash flow |
$ |
16,921 |
|
|
$ |
19,107 |
|
|
$ |
2,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor Contacts:
Josh JayneDirector of Finance, Assistant Treasurer(281)
231-2660jjayne@smartsand.com |
|
Lee BeckelmanCFO(281) 231-2660lbeckelman@smartsand.com |
|
|
|
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