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 second quarter 2021.

Charles Young, Smart Sand’s Chief Executive Officer, stated “We are pleased to have put the U.S. Well Service lawsuit behind us with the favorable judgement and our negotiated settlement of $35 million in cash. This brings this issue to a positive conclusion, provides us with additional liquidity to support the business and allows us the ability to fully focus on the path ahead for Smart Sand. Although second quarter sales volumes were basically flat with first quarter sales, our activity levels for the first half of 2021 were higher than we achieved in the first half of 2019, before the pandemic severely impacted market activity. Should commodity prices continue to stay in their current pricing ranges, we believe activity will start to improve over the next twelve months. With our high quality asset base, ample liquidity and strong balance sheet, we are well positioned to compete in the market going forward.”

Second Quarter 2021 Results

Revenues were $29.6 million in the second quarter of 2021, compared to $27.5 million in the first quarter of 2021 and $26.1 million in the second quarter of 2020. Revenues were up in the second quarter, compared to the first quarter of 2021, due to higher sand sales revenues resulting from higher in-basin sales volumes, partially offset by a decrease in logistics and shortfall revenues. Logistics revenue decreased in the second quarter of 2021, as compared to the first quarter of 2021, due to increased in-basin shipments, which include transportation and other handling services, rather than mine gate shipments. The increase in revenue in the second quarter of 2021, as compared to the second quarter of 2020, was primarily due to the negative impact of COVID-19 on sales during 2020, which was partially offset by shortfall revenue.

Tons sold were approximately 767,000 in the second quarter of 2021, compared with approximately 760,000 tons in the first quarter of 2021 and 208,000 tons in the second quarter of 2020, increases of 1% and 269%, respectively. Sales volumes were relatively consistent in the second quarter of 2021, compared to the first quarter of 2021, and significantly higher than the same period in the prior year. Demand has increased from last year as the overall economy has improved from the depressed levels caused by COVID-19 in 2020.

For the second quarter of 2021, the Company had a net loss of $(27.3) million, or $(0.65) per basic and diluted share, compared to net loss of $(3.9) million, or $(0.09) per basic and diluted share, for the first quarter of 2021 and net income of $4.6 million, or $0.12 per basic and diluted share, for the second quarter of 2020. The higher net loss in the second quarter of 2021, as compared to the first quarter of 2021 is primarily due to $19.6 million recorded as non-cash bad debt expense in the current period, which is the difference between the $54.6 million accounts receivable balance that was subject to the Company’s litigation with U.S. Well Services, LLC (“U.S. Well”) and the $35.0 million cash received in the settlement of such litigation, partially offset by higher average sand prices over the previous quarter. While the Company wrote down a portion of the receivables that it had previously recorded related to the disputed contract with U.S. Well, it increased its cash position by $35.0 million as a result of the proceeds received in the settlement.

The difference in net (loss) income in the second quarter of 2021 compared to the second quarter of 2020 was primarily due to $19.6 million non-cash bad debt expense recorded against the residual balance of accounts receivable previously under litigation with U.S. Well, combined with lower average sale prices per ton of our sand and no shortfall revenue in the current period.

Contribution margin was $3.5 million, or $4.55 per ton sold, for the second quarter of 2021 compared to $1.0 million, or $1.36 per ton sold, for the first quarter of 2021 and $19.3 million, or $92.62 per ton sold, for the second quarter of 2020. The sequential increase in contribution margin and contribution margin per ton in the second quarter of 2021 compared to the first quarter of 2021 was primarily due to production cost savings as we remain focused on being the lowest cost provider of northern white frac sand. The decrease in contribution margin and contribution margin per ton in the second quarter of 2021 compared to the same period in the prior year was due primarily to shortfall revenue in the prior year period on historically low sales volumes as the COVID-19 pandemic began to impact the global economy.

Adjusted EBITDA was $(21.5) million for the second quarter of 2021, compared with $(3.5) million for the first quarter of 2021 and $15.6 million for the second quarter of 2020. Adjusted EBITDA declined in the second quarter of 2021 compared to the first quarter of 2021 as a result of the $19.6 million bad debt expense recorded in the second quarter of 2021 related to the settlement of litigation with U.S. Well, partially offset by lower production costs. The decrease in Adjusted EBITDA compared to the second quarter of 2020 was primarily due to the bad debt expense recorded in the quarter and no shortfall revenue recognized in the current period.

Liquidity

Our primary sources of liquidity are cash on hand, cash flow generated from operations and available borrowings under our ABL Credit Facility and the Acquisition Liquidity Support Facility from our recent acquisition. As of June 30, 2021, cash on hand was $39.3 million and we had $12.9 million in undrawn availability on our ABL Credit Facility, with no borrowings outstanding under our ABL Credit Facility or the Acquisition Liquidity Support Facility. In the second quarter, we received a $35 million cash payment as a settlement of our litigation with U.S. Well. For the six months ended June 30, 2021, we spent approximately $5.0 million on capital expenditures. We estimate that full year 2021 capital expenditures will be between $10.0 million and $12.0 million. We continue to remain focused on a strong balance sheet and low leverage levels. During the first six months of 2021, we paid down approximately $3.3 million in long term debt.

Conference Call

Smart Sand will host a conference call and live webcast for analysts and investors on August 4, 2021 at 10:00 a.m. Eastern Time to discuss the Company’s second quarter 2021 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 6365240. 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 6365240.

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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) on March 3, 2021, and in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, filed by the Company with the SEC on August 4, 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.

SMART SAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

  Three Months Ended
  June 30, 2021   March 31, 2021   June 30, 2020
  (unaudited)   (unaudited)   (unaudited)
  (in thousands, except per share amounts)
Revenues:          
Sand sales revenue $ 28,801     23,147     7,375  
Shortfall revenue     1,741     14,000  
Logistics revenue 838     2,562     4,731  
Total revenue 29,639     27,450     26,106  
Cost of goods sold 31,999     32,427     11,906  
Gross (loss) profit (2,360 )   (4,977 )   14,200  
Operating expenses:          
Salaries, benefits and payroll taxes 2,285     2,375     2,155  
Depreciation and amortization 577     561     461  
Selling, general and administrative 3,855     3,154     2,930  
Bad debt expense 19,592          
Total operating expenses 26,309     6,090     5,546  
Operating (loss) income (28,669 )   (11,067 )   8,654  
Other income (expenses):          
Interest expense, net (513 )   (547 )   (607 )
Other income 3,467     198     63  
Total other expenses, net 2,954     (349 )   (544 )
(Loss) income before income tax expense (benefit) (25,715 )   (11,416 )   8,110  
Income tax expense (benefit) 1,552     (7,504 )   3,470  
Net (loss) income $ (27,267 )   $ (3,912 )   $ 4,640  
Net (loss) income per common share:          
Basic $ (0.65 )   $ (0.09 )   $ 0.12  
Diluted $ (0.65 )   $ (0.09 )   $ 0.12  
Weighted-average number of common shares:          
Basic 41,748     41,629     39,644  
Diluted 41,748     41,629     39,644  
                 

SMART SAND, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

  June 30, 2021(unaudited)   December 31, 2020
Assets (in thousands) 
Current assets:      
Cash and cash equivalents $ 39,278     $ 11,725  
Accounts receivable 10,371     69,720  
Unbilled receivables 1,220     127  
Inventory 15,937     19,136  
Prepaid expenses and other current assets 14,860     11,378  
Total current assets 81,666     112,086  
Property, plant and equipment, net 268,417     274,676  
Operating lease right-of-use assets 29,028     32,099  
Intangible assets, net 7,857     8,253  
Other assets 490     563  
Total assets $ 387,458     $ 427,677  
Liabilities and Stockholders’ Equity      
Current liabilities:      
Accounts payable $ 4,942     $ 3,268  
Accrued expenses and other liabilities 10,037     13,142  
Deferred revenue, current 4,827     6,875  
Long-term debt, net, current 7,177     6,901  
Operating lease liabilities, current 7,602     7,077  
Total current liabilities 34,585     37,263  
Deferred revenue, net 6,984     3,482  
Long-term debt, net 18,826     22,445  
Operating lease liabilities, long-term 24,497     27,020  
Deferred tax liabilities, long-term, net 27,141     32,981  
Asset retirement obligation 16,108     14,996  
Contingent consideration     180  
Other non-current liabilities 505     503  
Total liabilities 128,646     138,870  
Commitments and contingencies      
Stockholders’ equity      
Common stock 42     42  
Treasury stock (4,422 )   (4,134 )
Additional paid-in capital 172,512     171,209  
Retained earnings 90,088     121,267  
Accumulated other comprehensive income 592     423  
Total stockholders’ equity 258,812     288,807  
Total liabilities and stockholders’ equity $ 387,458     $ 427,677  
               

SMART SAND, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

  Three Months Ended
  June 30, 2021   March 31, 2021   June 30, 2020
  (unaudited)   (unaudited)   (unaudited)
  (in thousands)
Operating activities:          
Net (loss) income $ (27,267 )   $ (3,912 )   $ 4,640  
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation, depletion and accretion of asset retirement obligation 6,229     6,375     5,334  
Amortization of intangible assets 200     198     199  
Loss (gain) on disposal of assets (62 )   2     275  
Provision for bad debt 19,592          
Amortization of deferred financing cost 27     26     27  
Accretion of debt discount 46     47     47  
Deferred income taxes 1,852     (7,691 )   (260 )
Stock-based compensation 574     678     943  
Employee stock purchase plan compensation 7     7     12  
Changes in assets and liabilities:          
Accounts receivable 36,694     3,062     1,862  
Unbilled receivables (1,006 )   (88 )   181  
Inventories 1,609     1,590     (2,514 )
Prepaid expenses and other assets (3,531 )   1,140     2,393  
Deferred revenue (976 )   2,191     379  
Accounts payable 366     1,332     (2,409 )
Accrued and other expenses (1,788 )   (1,043 )   (1,086 )
Income taxes payable         3,758  
Net cash provided by operating activities 32,566     3,914     13,781  
Investing activities:          
Purchases of property, plant and equipment (2,830 )   (2,213 )   (2,238 )
Proceeds from disposal of assets 4     (2 )    
Net cash used in investing activities (2,826 )   (2,215 )   (2,238 )
Financing activities:          
Proceeds from the issuance of notes payable         952  
Repayments of notes payable (1,698 )   (1,672 )   (1,290 )
Payments under equipment financing obligations (34 )   (31 )   (24 )
Repayment of revolving credit facility         (6,000 )
Payment of contingent consideration     (180 )   (30 )
Proceeds from equity issuance     17      
Purchase of treasury stock (147 )   (141 )   (31 )
Net cash used in financing activities (1,879 )   (2,007 )   (6,423 )
Net increase in cash and cash equivalents 27,861     (308 )   5,120  
Cash and cash equivalents at beginning of period 11,417     11,725     11,523  
Cash and cash equivalents at end of period $ 39,278     $ 11,417     16,643  
                     

Non-GAAP Financial Measures

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
  June 30, 2021   March 31, 2021   June 30, 2020
  (in thousands, except per ton amounts)
Revenue $ 29,639     $ 27,450     $ 26,106  
Cost of goods sold $ 31,999     32,427     $ 11,906  
Gross profit (2,360 )   (4,977 )   14,200  
Depreciation, depletion, and accretion of asset retirement obligations included in cost of goods sold 5,851     6,013     5,065  
Contribution margin $ 3,491     $ 1,036     $ 19,265  
Contribution margin per ton $ 4.55     $ 1.36     $ 92.62  
Total tons sold 767     760     208  
                 

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 table presents a reconciliation of EBITDA and Adjusted EBITDA to net income for each of the periods indicated:

  Three Months Ended
  June 30, 2021   March 31, 2021   June 30, 2020
  (in thousands)
Net (loss) income $ (27,267 )   $ (3,912 )   $ 4,640  
Depreciation, depletion and amortization 6,317     6,460     5,450  
Income tax (benefit) expense 1,552     (7,504 )   3,470  
Interest expense 515     555     619  
Franchise taxes 97     98     94  
EBITDA $ (18,786 )   $ (4,303 )   $ 14,273  
(Loss) gain on sale of fixed assets (60 )   2     275  
Equity compensation(1) 581     685     842  
Employee retention credit(2) (3,352 )        
Acquisition and development costs (5 )   23     144  
Accretion of asset retirement obligations 111     114     76  
Adjusted EBITDA $ (21,511 )   $ (3,479 )   $ 15,610  
                       

(1) Represents the non-cash expenses for stock-based awards issued to our employees and employee stock purchase plan compensation expense.(2) Employee retention credit is part of the Consolidated Appropriations Act of 2021 and is recorded in other income on the income statements for the three and six months ended June 30, 2021. _________________________

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.

  Three Months Ended
  June 30, 2021   3/31/2021   June 30, 2020
  (in thousands)
Net cash provided by operating activities $ 32,566     $ 3,914     $ 13,781  
Purchases of property, plant and equipment (2,830 )   (2,213 )   (2,238 )
Free cash flow $ 29,736     $ 1,701     $ 11,543  
                       

Investor Contacts:

Josh JayneDirector of Finance, Assistant Treasurer(281) 231-2660jjayne@smartsand.com                    Lee BeckelmanChief Financial Officer(281) 231-2660lbeckelman@smartsand.com
     
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