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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________
FORM 10-Q
_____________________________________________________
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2022
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the Transition Period from ___ to ___
Commission file number 001-37936
SMART SAND, INC.
(Exact name of registrant as specified in its
charter)
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Delaware |
45-2809926 |
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(State or other jurisdiction of incorporation or
organization) |
(I.R.S. Employer Identification Number) |
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1725 Hughes Landing Blvd, Suite 800
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The Woodlands, Texas 77380
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(281) 231-2660
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(Address of principal executive offices) |
(Registrant’s telephone number) |
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Securities registered pursuant to Section 12(b) of the
Act: |
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Common Stock, par value $0.001 per share |
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SND |
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Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing
requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
Non-accelerated Filer ☒
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Smaller reporting company |
☒ |
Emerging Growth Company |
☐ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the
Act). Yes ☐ No ☒
Number of shares of common stock outstanding, par value $0.001 per
share, as of August 2, 2022: 45,293,519
Certain Definitions
The following definitions apply throughout this quarterly report
unless the context requires otherwise:
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“We”, “Us”, “Company”, “Smart Sand” or “Our” |
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Smart Sand, Inc., a company organized under the laws of Delaware,
and its subsidiaries. |
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“shares”, “stock” |
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The common stock of Smart Sand, Inc., nominal value $0.001 per
share. |
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“ABL Credit Facility”, “ABL Credit Agreement”,
“ABL Security Agreement” |
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The five-year senior secured asset-based lending credit facility
(the “ABL Credit Facility”) pursuant to: (i) an ABL Credit
Agreement, dated December 13, 2019, between the Company and
Jefferies Finance LLC, as amended from time to time (as amended,
the “ABL Credit Agreement”); and (ii) a Guarantee and Collateral
Agreement, dated December 13, 2019, between the Company and
Jefferies Finance LLC, as agent, as amended from time to time (as
amended, the “Security Agreement”). |
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“Oakdale Equipment Financing”, “MLA” |
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The five-year Master Lease Agreement, dated December 13, 2019,
between Nexseer Capital (“Nexseer”) and related lease schedules in
connection therewith (collectively, the “MLA”). The MLA is
structured as a sale-leaseback of substantially all of the
equipment at the Company’s mining and processing facility located
near Oakdale, Wisconsin. The Oakdale Equipment Financing is
considered a lease under article 2A of the Uniform Commercial Code
but is considered a financing arrangement (and not a lease) for
accounting or financial reporting purposes. |
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“Exchange Act” |
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The Securities Exchange Act of 1934, as amended. |
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“Securities Act” |
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The Securities Act of 1933, as amended. |
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“FASB”, “ASU”, “ASC”, “GAAP” |
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Financial Accounting Standards Board, Accounting Standards Update,
Accounting Standards Codification, Accounting Principles Generally
Accepted in the United States, respectively. |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SMART SAND, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30, 2022 |
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December 31, 2021 |
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(unaudited) |
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(in thousands, except share amounts) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
2,098 |
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$ |
25,588 |
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Accounts receivable |
32,224 |
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17,481 |
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Unbilled receivables |
4,751 |
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1,884 |
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Inventory |
16,875 |
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15,024 |
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Prepaid expenses and other current assets |
9,197 |
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13,886 |
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Total current assets |
65,145 |
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73,863 |
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Property, plant and equipment, net |
270,593 |
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262,465 |
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Operating lease right-of-use assets |
30,818 |
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29,828 |
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Intangible assets, net |
7,065 |
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7,461 |
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Other assets |
347 |
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402 |
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Total assets |
$ |
373,968 |
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$ |
374,019 |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
$ |
12,698 |
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$ |
8,479 |
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Accrued expenses and other liabilities |
14,146 |
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14,073 |
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Current portion of deferred revenue |
9,339 |
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9,842 |
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Current portion of long-term debt |
6,869 |
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7,127 |
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Current portion of operating lease liabilities |
10,663 |
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9,029 |
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Total current liabilities |
53,715 |
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48,550 |
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Long-term deferred revenue |
2,389 |
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6,428 |
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Long-term debt |
14,783 |
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15,353 |
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Long-term operating lease liabilities |
22,541 |
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23,690 |
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Deferred tax liabilities, long-term, net |
19,170 |
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22,434 |
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Asset retirement obligation |
24,816 |
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16,155 |
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Other non-current liabilities |
42 |
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249 |
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Total liabilities |
137,456 |
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132,859 |
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Commitments and contingencies (Note 14) |
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Stockholders’ equity |
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Common stock, $0.001 par value, 350,000,000 shares authorized;
44,115,732 issued and 42,242,852 outstanding at June 30, 2022;
43,789,814 issued and 42,012,813 outstanding at December 31,
2021
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42 |
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42 |
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Treasury stock, at cost, 1,872,880 and 1,777,001 shares at June 30,
2022 and December 31, 2021, respectively
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(4,776) |
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(4,535) |
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Additional paid-in capital |
176,150 |
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174,486 |
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Retained earnings |
64,580 |
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70,593 |
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Accumulated other comprehensive income |
516 |
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574 |
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Total stockholders’ equity |
236,512 |
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241,160 |
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Total liabilities and stockholders’ equity |
$ |
373,968 |
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$ |
374,019 |
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The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
SMART SAND, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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(in thousands, except per share amounts) |
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Revenues: |
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Sand sales revenue |
$ |
67,111 |
|
|
$ |
28,801 |
|
|
$ |
105,400 |
|
|
$ |
51,948 |
|
|
Shortfall revenue |
— |
|
|
— |
|
|
1,915 |
|
|
1,741 |
|
|
Logistics revenue |
1,603 |
|
|
838 |
|
|
3,004 |
|
|
3,400 |
|
|
Total revenue |
68,714 |
|
|
29,639 |
|
|
110,319 |
|
|
57,089 |
|
|
Cost of goods sold |
59,743 |
|
|
31,999 |
|
|
103,329 |
|
|
64,426 |
|
|
Gross profit |
8,971 |
|
|
(2,360) |
|
|
6,990 |
|
|
(7,337) |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Salaries, benefits and payroll taxes |
3,225 |
|
|
2,285 |
|
|
6,617 |
|
|
4,660 |
|
|
Depreciation and amortization |
563 |
|
|
577 |
|
|
1,090 |
|
|
1,138 |
|
|
Selling, general and administrative |
3,795 |
|
|
3,855 |
|
|
7,843 |
|
|
7,009 |
|
|
Bad debt expense |
1 |
|
|
19,592 |
|
|
1 |
|
|
19,592 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
7,584 |
|
|
26,309 |
|
|
15,551 |
|
|
32,399 |
|
|
Operating income (loss) |
1,387 |
|
|
(28,669) |
|
|
(8,561) |
|
|
(39,736) |
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
(406) |
|
|
(513) |
|
|
(833) |
|
|
(1,060) |
|
|
Other income |
56 |
|
|
3,467 |
|
|
268 |
|
|
3,665 |
|
|
Total other income (expenses), net |
(350) |
|
|
2,954 |
|
|
(565) |
|
|
2,605 |
|
|
Income (loss) before income tax expense (benefit) |
1,037 |
|
|
(25,715) |
|
|
(9,126) |
|
|
(37,131) |
|
|
Income tax expense (benefit) |
1,127 |
|
|
1,552 |
|
|
(3,113) |
|
|
(5,952) |
|
|
Net loss |
$ |
(90) |
|
|
$ |
(27,267) |
|
|
$ |
(6,013) |
|
|
$ |
(31,179) |
|
|
Net loss per common share: |
|
|
|
|
|
|
|
|
Basic |
$ |
0.00 |
|
|
$ |
(0.65) |
|
|
$ |
(0.14) |
|
|
$ |
(0.75) |
|
|
Diluted |
$ |
0.00 |
|
|
$ |
(0.65) |
|
|
$ |
(0.14) |
|
|
$ |
(0.75) |
|
|
Weighted-average number of common shares: |
|
|
|
|
|
|
|
|
Basic |
42,181 |
|
|
41,748 |
|
|
42,134 |
|
|
41,689 |
|
|
Diluted |
42,181 |
|
|
41,748 |
|
|
42,134 |
|
|
41,689 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
SMART SAND, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
(in thousands) |
|
Net loss |
$ |
(90) |
|
|
$ |
(27,267) |
|
|
$ |
(6,013) |
|
|
$ |
(31,179) |
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
(74) |
|
|
44 |
|
|
(58) |
|
|
169 |
|
|
Comprehensive loss |
$ |
(164) |
|
|
$ |
(27,223) |
|
|
$ |
(6,071) |
|
|
$ |
(31,010) |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
SMART SAND, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
(UNAUDITED)
Six Months Ended June 30, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Treasury Stock |
|
Additional Paid-in Capital |
|
|
|
Accumulated Other Comprehensive (Loss) Income |
|
Total Stockholders’ Equity |
|
|
Outstanding
Shares |
|
Par Value |
|
Shares |
|
Amount |
|
|
Retained
Earnings |
|
|
|
|
(in thousands, except share amounts) |
|
Balance at December 31, 2021 |
42,012,813 |
|
|
$ |
42 |
|
|
1,777,001 |
|
|
$ |
(4,535) |
|
|
$ |
174,486 |
|
|
$ |
70,593 |
|
|
$ |
574 |
|
|
$ |
241,160 |
|
|
Foreign currency translation adjustment |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
16 |
|
|
16 |
|
|
Vesting of restricted stock |
179,630 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
826 |
|
|
— |
|
|
— |
|
|
826 |
|
|
Employee stock purchase plan compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5 |
|
|
— |
|
|
— |
|
|
5 |
|
|
Employee stock purchase plan issuance |
16,285 |
|
|
— |
|
|
— |
|
|
— |
|
|
25 |
|
|
— |
|
|
— |
|
|
25 |
|
|
Purchase of treasury stock |
(56,400) |
|
|
— |
|
|
56,400 |
|
|
(127) |
|
|
— |
|
|
— |
|
|
— |
|
|
(127) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(5,923) |
|
|
— |
|
|
(5,923) |
|
|
Balance at March 31, 2022 |
42,152,328 |
|
|
$ |
42 |
|
|
1,833,401 |
|
|
$ |
(4,662) |
|
|
$ |
175,342 |
|
|
$ |
64,670 |
|
|
$ |
590 |
|
|
$ |
235,982 |
|
|
Foreign currency translation adjustment |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(74) |
|
|
(74) |
|
|
Vesting of restricted stock |
130,003 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
802 |
|
|
— |
|
|
— |
|
|
802 |
|
|
Employee stock purchase plan compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6 |
|
|
— |
|
|
— |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
(39,479) |
|
|
— |
|
|
39,479 |
|
|
(114) |
|
|
— |
|
|
— |
|
|
— |
|
|
(114) |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(90) |
|
|
— |
|
|
(90) |
|
|
Balance at June 30, 2022 |
42,242,852 |
|
|
$ |
42 |
|
|
1,872,880 |
|
|
$ |
(4,776) |
|
|
$ |
176,150 |
|
|
$ |
64,580 |
|
|
$ |
516 |
|
|
$ |
236,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SMART SAND, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY (continued)
(UNAUDITED)
Six Months Ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Treasury Stock |
|
Additional Paid-in Capital |
|
|
|
Accumulated Other Comprehensive (Loss) Income |
|
Total Stockholders’ Equity |
|
|
Outstanding
Shares |
|
Par Value |
|
Shares |
|
Amount |
|
|
Retained
Earnings |
|
|
|
|
(in thousands, except share amounts) |
|
Balance at December 31, 2020 |
41,575,129 |
|
|
$ |
42 |
|
|
1,618,265 |
|
|
$ |
(4,134) |
|
|
$ |
171,209 |
|
|
$ |
121,267 |
|
|
$ |
423 |
|
|
$ |
288,807 |
|
|
Foreign currency translation adjustment |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
125 |
|
|
125 |
|
|
Acquisition stock issuance |
14,430 |
|
|
— |
|
|
— |
|
|
— |
|
|
20 |
|
|
— |
|
|
— |
|
|
20 |
|
|
Vesting of restricted stock |
158,364 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
678 |
|
|
— |
|
|
— |
|
|
678 |
|
|
Employee stock purchase plan compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7 |
|
|
— |
|
|
— |
|
|
7 |
|
|
Employee stock purchase plan issuance |
19,483 |
|
|
— |
|
|
— |
|
|
— |
|
|
17 |
|
|
— |
|
|
— |
|
|
17 |
|
|
Purchase of treasury stock |
(48,077) |
|
|
— |
|
|
48,077 |
|
|
(140) |
|
|
— |
|
|
— |
|
|
— |
|
|
(140) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,912) |
|
|
— |
|
|
(3,912) |
|
|
Balance at March 31, 2021 |
41,719,329 |
|
|
$ |
42 |
|
|
1,666,342 |
|
|
$ |
(4,274) |
|
|
$ |
171,931 |
|
|
$ |
117,355 |
|
|
$ |
548 |
|
|
285,602 |
|
|
Foreign currency translation adjustment |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
44 |
|
|
44 |
|
|
Vesting of restricted stock |
162,253 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
574 |
|
|
— |
|
|
— |
|
|
574 |
|
|
Employee stock purchase plan compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7 |
|
|
— |
|
|
— |
|
|
7 |
|
|
Employee stock purchase plan issuance |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Purchase of treasury stock |
(48,793) |
|
|
— |
|
|
48,793 |
|
|
(148) |
|
|
— |
|
|
— |
|
|
— |
|
|
(148) |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(27,267) |
|
|
— |
|
|
(27,267) |
|
|
Balance at June 30, 2021 |
41,832,789 |
|
|
$ |
42 |
|
|
1,715,135 |
|
|
$ |
(4,422) |
|
|
$ |
172,512 |
|
|
$ |
90,088 |
|
|
$ |
592 |
|
|
$ |
258,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
SMART SAND, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2022 |
|
2021 |
|
|
(in thousands) |
|
Operating activities: |
|
|
|
|
Net loss |
$ |
(6,013) |
|
|
$ |
(31,179) |
|
|
Adjustments to reconcile net (loss) income to net cash provided by
operating activities: |
|
|
|
|
Depreciation, depletion and accretion of asset retirement
obligation |
13,206 |
|
|
12,604 |
|
|
Amortization of intangible assets |
398 |
|
|
398 |
|
|
Gain on disposal of assets |
(16) |
|
|
(58) |
|
|
Provision for bad debt |
1 |
|
|
19,592 |
|
|
Amortization of deferred financing cost |
53 |
|
|
53 |
|
|
Accretion of debt discount |
93 |
|
|
93 |
|
|
Deferred income taxes |
(3,264) |
|
|
(5,839) |
|
|
Stock-based compensation, net |
1,628 |
|
|
1,252 |
|
|
Employee stock purchase plan compensation |
11 |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
Accounts receivable |
(10,974) |
|
|
39,756 |
|
|
Unbilled receivables |
(6,635) |
|
|
(1,094) |
|
|
Inventory |
(1,850) |
|
|
3,199 |
|
|
Prepaid expenses and other assets |
1,854 |
|
|
(2,391) |
|
|
Deferred revenue |
(4,542) |
|
|
1,215 |
|
|
Accounts payable |
3,229 |
|
|
1,698 |
|
|
Accrued and other expenses |
1,872 |
|
|
(2,833) |
|
|
Net cash (used in) provided by operating activities |
(10,949) |
|
|
36,480 |
|
|
Investing activities: |
|
|
|
|
Acquisition of Blair facility |
(6,547) |
|
|
— |
|
|
Purchases of property, plant and equipment |
(5,137) |
|
|
(5,043) |
|
|
Proceeds from disposal of assets |
— |
|
|
2 |
|
|
Net cash used in investing activities |
(11,684) |
|
|
(5,041) |
|
|
Financing activities: |
|
|
|
|
Repayments of notes payable |
(3,581) |
|
|
(3,370) |
|
|
Payments under finance leases |
(60) |
|
|
(65) |
|
|
|
|
|
|
Proceeds from revolving credit facility |
3,000 |
|
|
— |
|
|
|
|
|
|
Payment of contingent consideration |
— |
|
|
(180) |
|
|
Employee stock purchase plan issuance |
25 |
|
|
17 |
|
|
Purchase of treasury stock |
(241) |
|
|
(288) |
|
|
Net cash used in financing activities |
(857) |
|
|
(3,886) |
|
|
Net decrease in cash and cash equivalents |
(23,490) |
|
|
27,553 |
|
|
Cash and cash equivalents at beginning of year |
25,588 |
|
|
11,725 |
|
|
Cash and cash equivalents at end of period |
$ |
2,098 |
|
|
$ |
39,278 |
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
Capitalized expenditures in accounts payable and accrued
expenses |
$ |
927 |
|
|
$ |
172 |
|
|
Issuance of acquisition common stock |
$ |
— |
|
|
$ |
20 |
|
|
Asset retirement obligation |
$ |
8,281 |
|
|
$ |
737 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 1 — Organization and Nature of Business & Market
Update
Organization and Nature of Business
The Company was incorporated in July 2011 and is headquartered in
The Woodlands, Texas. The Company primarily operates as a fully
integrated frac and industrial sand supply and services company.
The Company offers complete mine to wellsite proppant supply and
logistics solutions to our frac sand customers. These operations
include the excavation, processing and sale of sand, or proppant,
for use in hydraulic fracturing operations for the oil and natural
gas industry. The Company also offers proppant logistics and
wellsite storage solutions through its
SmartSystemsTM
products and services. In late 2021, the Company created its
Industrial Products Solutions (“IPS”) business in order to
diversify its customer base and markets it serves by offering sand
to customers for industrial uses, such as glass, foundry, building
products, filtration, geothermal, renewables, ceramics, turf &
landscape, retail, and recreation.
The Company commenced mining operations at its Oakdale, Wisconsin
facility in July 2012. Through multiple expansions at Oakdale and
the acquisition of the Utica, Illinois facility in September 2020,
the Company has current annual processing capacity of approximately
7.1 million tons. With the acquisition of the Blair, Wisconsin mine
and processing facility in March 2022, which is currently idled, we
have the ability to expand to approximately 10.0 million tons
should the Company decide to bring the Blair facility
online.
The Company acquired rights in 2018 to operate a unit train capable
transloading terminal in Van Hook, North Dakota to service the
Bakken Formation in the Williston Basin. In 2020, the Company, as
part of its acquisition of the Utica, Illinois facility, obtained
rights to use a rail terminal located in El Reno, Oklahoma. In
September 2021, the Company acquired the rights to construct and
operate another transloading terminal in Waynesburg, Pennsylvania
to service the Appalachian Basin, including the Marcellus and Utica
Formations, which became operational in January 2022.
The Company provides complete logistics solutions through its mine
sites and transload facilities with direct access to four Class I
rail lines, and has the ability to access all Class I rail lines
within the United States and Canada.
The Company provides proppant storage and management solutions
through its SmartSystems products and services under which it
offers various solutions that create efficiencies, flexibility,
enhanced safety and reliability for customers by providing the
capability to unload, store and deliver proppant at the wellsite,
as well as the ability to rapidly set up, takedown and transport
the entire system. The SmartDepotTM
silo system includes passive and active dust suppression
technology, along with the capability of a gravity-fed operation.
The self-contained SmartPathTM
transloader, is a mobile sand transloading system designed to work
with bottom dump trailers and features a drive over conveyor, surge
bin, and dust collection system. Rapid deployment trailers are
designed for quick setup, takedown and transportation of the entire
SmartSystem, and they detach from the wellsite equipment, which
allows for removal from the wellsite during operation. A
proprietary software program, the SmartSystem
TrackerTM
allows customers to monitor silo-specific information, including
location, proppant type and proppant inventory. We believe that our
SmartSystems reduce trucking and related fuel consumption for our
customers, helping them meet their goals to reduce their carbon
footprint in their daily operations.
NOTE 2 — Summary of Significant Accounting Policies
The information presented below supplements the complete
description of our significant accounting policies disclosed in our
2021 Form 10-K, filed with the Securities and Exchange Commission
(“SEC”) on March 8, 2022.
Basis of Presentation and Consolidation
The accompanying unaudited quarterly condensed consolidated
financial statements (“interim statements”) of the Company are
presented in accordance with the rules and regulations of the SEC
for quarterly reports on Form 10-Q and therefore do not include all
the information and notes required by GAAP. In the opinion of
management, all adjustments and disclosures necessary for a fair
presentation of these interim statements have been included. All
adjustments are of a normal recurring nature. The results reported
in these interim statements are not necessarily indicative of the
results that may be reported for the entire year. The consolidated
balance sheet as of December 31, 2021 was derived from the audited
consolidated financial statements as of and for the year ended
December 31, 2021. These interim statements should be read in
conjunction with the Company’s consolidated financial statements
for the year ended December 31, 2021.
SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Use of Estimates
The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the consolidated financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Significant estimates used in the
preparation of these financial statements include, but are not
limited to: impairment considerations of assets, including
intangible assets, fixed assets, and inventory; estimated cost of
future asset retirement obligations; fair value of acquired assets
and assume liabilities; recoverability of deferred tax assets;
inventory reserve; and the collectability of receivables; and
certain liabilities.
Actual results could differ materially from management’s best
estimates as additional information or actual results become
available in the future, and those differences could be material.
The decreases in demand related to the coronavirus (“COVID-19”)
pandemic in 2020 and 2021 and the ongoing conflict in Ukraine have
caused dramatic swings in oil and natural gas prices and
significant volatility in the oilfield service sector. The Company
is currently unable to estimate the impact of these events on its
future financial position and results of operations. Therefore, the
Company can give no assurances that these events will not have a
material adverse effect on its financial position or results of
operations.
Employee Retention Credit
The Company qualified for federal government assistance through
employee retention credit provisions of the Consolidated
Appropriations Act of 2021. As of December 31, 2021 and June 30,
2022, the Company included $4,676 and $4,317, respectively, in
prepaid expenses and other current assets on its consolidated
balance sheets related to receivables for the employee retention
credits. The calculation of the credit was based on employees
continued employment and represents a portion of the wages paid to
them. For income tax purposes, the credit will result in decreased
expense related to the wages it offsets in the period
received.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that materially
affect the financial statements of the Company.
NOTE 3 — Acquisition
Asset Acquisition Blair Facility
On March 4, 2022, the Company entered into a Membership Interest
Purchase Agreement (the “Purchase Agreement”) with Hi-Crush Inc., a
Delaware corporation (“HCR”), and Hi-Crush Blair LLC, a Delaware
limited liability company and wholly-owned subsidiary of HCR
(“Blair”), pursuant to which the Company acquired all of the issued
and outstanding limited liability company interest of Blair from
HCR for aggregate cash consideration of $6,450, subject to
customary purchase price adjustments as set forth in the Purchase
Agreement (the “Transaction”).
The primary assets of Blair consist of an idle frac sand mine and
related processing facility located in Blair, Wisconsin. The Blair
facility, once operational, will have approximately
2.9 million tons of total annual processing capacity and
contains an onsite, unit train capable rail terminal with access to
the Class 1 Canadian National Railway.
The Company accounted for this transaction as an asset acquisition
based on an evaluation of the guidance in ASC 805. The Company
determined that there was not a substantive process in place that
generates outputs that can be sold to a customer, and therefore the
acquisition did not meet the definition of a business. The Company
recognized identifiable assets acquired on a relative fair value
basis. All assets acquired are allocated to property, plant and
equipment, net on the balance sheet as of March 31, 2022. The
Company also recorded an increase to its asset retirement
obligations and a corresponding increase in purchases of property
plant and equipment in the amount of $8,281 for the six months
ended June 30, 2022.
The table below presents the calculation of the total purchase
consideration:
|
|
|
|
|
|
|
|
|
|
Base price consideration |
|
$ |
6,450 |
|
|
Net working capital adjustments and capitalized costs |
|
97 |
|
|
Total purchase consideration |
|
$ |
6,547 |
|
SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 4 — Inventory
Inventory consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
December 31, 2021 |
|
Raw material |
$ |
727 |
|
|
$ |
293 |
|
|
Work in progress |
3,063 |
|
|
3,082 |
|
|
Finished goods |
8,349 |
|
|
7,269 |
|
|
Spare parts |
4,736 |
|
|
4,380 |
|
|
Total inventory |
$ |
16,875 |
|
|
$ |
15,024 |
|
NOTE 5 — Property, Plant and Equipment, net
Net property, plant and equipment consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
December 31, 2021 |
|
Machinery, equipment and tooling |
$ |
32,993 |
|
|
$ |
30,813 |
|
|
SmartSystems
|
27,534 |
|
|
27,343 |
|
|
Vehicles |
3,199 |
|
|
3,066 |
|
|
Furniture and fixtures |
1,336 |
|
|
1,325 |
|
|
Plant and building |
200,129 |
|
|
199,958 |
|
|
Real estate properties |
6,507 |
|
|
6,496 |
|
|
Railroad and sidings |
33,622 |
|
|
27,703 |
|
|
Land and land improvements |
40,172 |
|
|
35,652 |
|
|
Asset retirement obligation |
28,818 |
|
|
20,536 |
|
|
Mineral properties |
7,442 |
|
|
7,442 |
|
|
Deferred mining costs |
2,455 |
|
|
2,455 |
|
|
Construction in progress |
9,064 |
|
|
9,574 |
|
|
|
393,271 |
|
|
372,363 |
|
|
Less: accumulated depreciation and depletion |
122,678 |
|
|
109,898 |
|
|
Total property, plant and equipment, net |
$ |
270,593 |
|
|
$ |
262,465 |
|
Depreciation expense was $6,449 and $6,037 for the three months
ended June 30, 2022 and 2021, respectively, and $12,810 and $12,213
for the six months ended June 30, 2022 and 2021,
respectively.
SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 6 — Accrued and Other Expenses
Accrued and other expenses were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
December 31, 2021 |
|
Employee related expenses |
$ |
1,615 |
|
|
$ |
806 |
|
|
|
|
|
|
Accrued equipment expense
|
— |
|
|
58 |
|
|
Accrued professional fees |
410 |
|
|
691 |
|
|
Accrued royalties |
2,617 |
|
|
2,701 |
|
|
Accrued freight and delivery charges |
3,818 |
|
|
2,164 |
|
|
Accrued real estate tax |
1,206 |
|
|
1,010 |
|
|
Accrued utilities |
1,720 |
|
|
1,264 |
|
|
Sales tax liability |
666 |
|
|
665 |
|
|
Income tax payable |
— |
|
|
2,332 |
|
|
Other accrued liabilities |
2,094 |
|
|
2,382 |
|
|
Total accrued liabilities |
$ |
14,146 |
|
|
$ |
14,073 |
|
NOTE 7 — Debt
The current portion of long-term debt consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
December 31, 2021 |
|
|
|
|
|
Oakdale Equipment Financing |
3,926 |
|
|
3,814 |
|
|
Finance leases |
115 |
|
|
117 |
|
|
Notes payable |
2,828 |
|
|
3,196 |
|
|
Long-term debt, net, current |
$ |
6,869 |
|
|
$ |
7,127 |
|
Long-term debt, net of current portion consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
December 31, 2021 |
|
ABL Credit Facility |
$ |
3,000 |
|
|
$ |
— |
|
|
Oakdale Equipment Financing, net |
9,709 |
|
|
11,608 |
|
|
|
|
|
|
Finance leases |
176 |
|
|
234 |
|
|
Notes payable |
1,898 |
|
|
3,511 |
|
|
Long-term debt, net |
$ |
14,783 |
|
|
$ |
15,353 |
|
SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
The follow summarizes the maturity of our debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABL Credit Facility |
|
Oakdale Equipment Financing |
|
Notes Payable |
|
Finance Leases |
|
Total |
|
Remainder of 2022 |
$ |
— |
|
|
$ |
2,319 |
|
|
$ |
1,596 |
|
|
$ |
66 |
|
|
$ |
3,981 |
|
|
2023 |
— |
|
|
4,639 |
|
|
2,073 |
|
|
245 |
|
|
6,957 |
|
|
2024 |
3,000 |
|
|
6,888 |
|
|
807 |
|
|
— |
|
|
10,695 |
|
|
2025 |
— |
|
|
1,724 |
|
|
187 |
|
|
— |
|
|
1,911 |
|
|
2026 |
— |
|
|
— |
|
|
181 |
|
|
— |
|
|
181 |
|
|
2027 and thereafter |
— |
|
|
— |
|
|
174 |
|
|
— |
|
|
174 |
|
|
Total minimum payments |
3,000 |
|
|
15,570 |
|
|
5,018 |
|
|
311 |
|
|
23,899 |
|
|
Amount representing interest |
— |
|
|
(1,481) |
|
|
(292) |
|
|
(20) |
|
|
(1,793) |
|
|
Amount representing unamortized lender fees |
— |
|
|
(454) |
|
|
— |
|
|
— |
|
|
(454) |
|
|
Present value of payments |
|
|
|
|
|
|
291 |
|
|
|
|
Less: current portion |
— |
|
|
(3,926) |
|
|
(2,828) |
|
|
(115) |
|
|
(6,869) |
|
|
Total long-term debt, net |
$ |
3,000 |
|
|
$ |
9,709 |
|
|
$ |
1,898 |
|
|
$ |
176 |
|
|
$ |
14,783 |
|
ABL Credit Facility
On December 13, 2019, the Company entered into a $20,000 five-year
senior secured asset-based credit facility with Jefferies Finance
LLC. The available borrowing amount under the ABL Credit Facility
as of June 30, 2022 was $20,000 and is based on the Company’s
eligible accounts receivable and inventory, as described in the ABL
Credit Agreement. As of June 30, 2022, there was $3,000 outstanding
under the ABL Credit Facility, $1,000 letters of credit and $16,000
was available to be drawn. As of June 30, 2022 and December 31,
2021, the Company was in compliance with all financial
covenants.
Oakdale Equipment Financing
On December 13, 2019, the Company received net proceeds of $23,000
in an equipment financing arrangement with Nexseer. Substantially
all of the Company’s mining and processing equipment at its Oakdale
facility are pledged as collateral under the Oakdale Equipment
Financing. The Oakdale Equipment Financing bears interest at a
fixed rate of 5.79%.
Notes Payable
The Company has entered into various financing arrangements,
primarily to finance its manufactured wellsite proppant storage
solutions equipment. Upon completion of the equipment
manufacturing, title to the subject equipment passes to the
financial institutions as collateral. All notes payable bear
interest at rates between 4.00% and 7.49%.
NOTE 8 — Leases
Lessee
The operating and financing components of the Company’s
right-of-use assets and lease liabilities on the consolidated
balance sheets were as follows:
SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location |
|
June 30, 2022 |
|
December 31, 2021 |
|
Right-of-use assets |
|
|
|
|
|
|
|
Operating |
|
Operating right-of-use assets |
|
$ |
30,818 |
|
|
$ |
29,828 |
|
|
Financing |
|
Property, plant and equipment, net |
|
161 |
|
|
262 |
|
|
Total right-of use assets |
|
|
|
$ |
30,979 |
|
|
$ |
30,090 |
|
|
|
|
|
|
|
|
|
|
Lease liabilities |
|
|
|
|
|
|
|
Operating |
|
Operating lease liabilities, current and long-term
portions |
|
$ |
33,204 |
|
|
$ |
32,719 |
|
|
Financing |
|
Long-term debt, current and long-term portions |
|
291 |
|
|
351 |
|
|
Total lease liabilities |
|
|
|
$ |
33,495 |
|
|
$ |
33,070 |
|
Operating lease costs are recorded as a single expense on the
statement of operations and allocated to the right-of-use assets
and the related lease liabilities as depreciation expense and
interest expense, respectively. Lease cost recognized in the
consolidated statement of operations for the three and six months
ended June 30, 2022 and 2021 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Finance lease cost |
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
$ |
31 |
|
|
$ |
35 |
|
|
$ |
66 |
|
|
$ |
70 |
|
|
Interest on lease liabilities |
5 |
|
|
7 |
|
|
11 |
|
|
15 |
|
|
Operating lease cost |
3,073 |
|
|
2,878 |
|
|
5,880 |
|
|
5,765 |
|
|
Short-term lease cost |
122 |
|
|
34 |
|
|
446 |
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease cost |
$ |
3,231 |
|
|
$ |
2,954 |
|
|
$ |
6,403 |
|
|
$ |
5,884 |
|
SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Other information related to the Company’s leasing activity for the
six months ended June 30, 2022 and 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2022 |
|
2021 |
|
Cash paid for amounts included in the measurement of lease
liabilities |
|
|
|
|
|
Operating cash flows used for finance
leases |
|
$ |
11 |
|
|
$ |
150 |
|
|
Operating cash flows used for operating
leases |
|
$ |
6,384 |
|
|
$ |
4,693 |
|
|
Financing cash flows used for finance
leases |
|
$ |
60 |
|
|
$ |
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease
liabilities |
|
$ |
5,948 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term - finance leases |
|
1.3 years |
|
2.0 years |
|
Weighted average discount rate - finance leases |
|
6.87 |
% |
|
6.60 |
% |
|
Weighted average remaining lease term - operating
leases |
|
3.2 years |
|
3.7 years |
|
Weighted average discount rate - operating leases |
|
5.81 |
% |
|
5.80 |
% |
Maturities of the Company’s lease liabilities as of June 30, 2022
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
Finance Leases |
|
Total |
|
Remainder of 2022 |
|
$ |
5,865 |
|
|
$ |
66 |
|
|
$ |
5,931 |
|
|
2023 |
|
12,199 |
|
|
245 |
|
|
12,444 |
|
|
2024 |
|
9,230 |
|
|
— |
|
|
9,230 |
|
|
2025 |
|
4,422 |
|
|
— |
|
|
4,422 |
|
|
2026 |
|
3,191 |
|
|
— |
|
|
3,191 |
|
|
Thereafter |
|
1,806 |
|
|
— |
|
|
1,806 |
|
|
Total cash lease payments |
|
36,713 |
|
|
311 |
|
|
37,024 |
|
|
Less: amounts representing interest |
|
(3,509) |
|
|
(20) |
|
|
(3,529) |
|
|
Total lease liabilities |
|
$ |
33,204 |
|
|
$ |
291 |
|
|
$ |
33,495 |
|
NOTE 9 — Asset Retirement Obligation
The Company had a post-closure reclamation and site restoration
obligation of $24,816 as of June 30, 2022. The following is a
reconciliation of the total reclamation liability for asset
retirement obligations.
|
|
|
|
|
|
|
Balance at December 31, 2021 |
$ |
16,155 |
|
|
Additions and revisions of prior estimates |
8,282 |
|
|
Accretion expense |
379 |
|
|
|
|
Balance at June 30, 2022 |
$ |
24,816 |
|
SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 10 — Revenue
Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated
by type and percentage of total revenues for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Revenue |
|
Percentage of Total Revenue |
|
Revenue |
|
Percentage of Total Revenue |
|
Revenue |
|
Percentage of Total Revenue |
|
Revenue |
|
Percentage of Total Revenue |
|
Sand sales revenue |
$ |
67,111 |
|
|
98 |
% |
|
$ |
28,801 |
|
|
97 |
% |
|
$ |
105,400 |
|
|
95 |
% |
|
$ |
51,948 |
|
|
91 |
% |
|
Shortfall revenue |
— |
|
|
— |
% |
|
— |
|
|
— |
% |
|
1,915 |
|
|
2 |
% |
|
1,741 |
|
|
3 |
% |
|
Logistics revenue |
1,603 |
|
|
2 |
% |
|
838 |
|
|
3 |
% |
|
3,004 |
|
|
3 |
% |
|
3,400 |
|
|
6 |
% |
|
Total revenue |
$ |
68,714 |
|
|
100 |
% |
|
$ |
29,639 |
|
|
100 |
% |
|
$ |
110,319 |
|
|
100 |
% |
|
$ |
57,089 |
|
|
100 |
% |
The Company recorded $16,270
of deferred revenue on the consolidated balance
sheet as of December 31, 2021, of which $5,493 has been recognized
in the six months ended June 30, 2022. Of the remaining amount, the
Company expects to recognize $4,556 through December 31, 2022 and
the remainder through 2023.
NOTE 11
—
Stock-Based Compensation
Equity Incentive Plan
In November 2016, in connection with its initial public offering,
the Company adopted the 2016 Omnibus Incentive Plan (“2016 Plan”)
which provides for the issuance of Awards (as defined in the 2016
Plan) of up to a maximum of 3,911 shares of the Company’s common
stock to employees, non-employee members of the Company’s board of
directors and consultants of the Company. On April 3, 2020, the
Company’s board of directors adopted an amendment to the 2016 Plan
to increase the available shares of common stock authorized for
issuance by an additional 2,088 shares. On July 27, 2021, the
Company’s board of directors authorized 231 shares currently held
in treasury stock for issuance under the 2016 Plan. On April 22,
2022, the board of directors adopted an amendment to the 2016 Plan
to increase the number of shares of common stock authorized for
issuance by an additional 3,900 shares.
During the six months ended June 30, 2022 and 2021, 824 and 0
shares of restricted stock were issued under the 2016 Plan,
respectively. The grant date fair value per share of all the
outstanding restricted stock was $1.78 - $5.77. The shares vest
over
one to four years from their respective grant dates. For
equity awards issued under the 2016 Plan, the grant date fair value
was either the actual market price of the Company’s shares or an
adjusted price using a Monte Carlo simulation for awards subject to
the Company’s performance as compared to a defined peer group. The
Company recognized, in operating expenses and cost of goods sold on
the condensed consolidated statement of operations, $802 and $572
of compensation expense for the restricted stock during the three
months ended June 30, 2022 and 2021, respectively. The Company
recognized, in operating expenses and cost of goods sold on the
condensed consolidated statement of operations, $1,628 and $1,252
of compensation expense for the restricted stock during the six
months ended June 30, 2022 and 2021, respectively. There is no
impact to the cash flows of the Company related to stock-based
compensation expense. At June 30, 2022, the Company had
unrecognized compensation expense of $7,155 related to granted but
unvested stock awards, which is to be recognized as
follows:
SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
Remainder of 2022 |
|
$ |
1,526 |
|
|
2023 |
|
2,684 |
|
|
2024 |
|
1,845 |
|
|
2025 |
|
955 |
|
|
2026 |
|
145 |
|
|
Total |
|
$ |
7,155 |
|
The following table summarizes restricted stock activity under the
Plans from December 31, 2021 through June 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares |
|
Weighted
Average |
|
Unvested, December 31, 2021 |
3,151 |
|
|
$ |
3.06 |
|
|
Granted |
824 |
|
|
$ |
3.43 |
|
|
Vested |
(310) |
|
|
$ |
4.75 |
|
|
Forfeited |
(577) |
|
|
$ |
2.68 |
|
|
Unvested, June 30, 2022 |
3,088 |
|
|
$ |
3.01 |
|
Employee Stock Purchase Plan
Shares of the Company’s common stock may be purchased by eligible
employees under the Company’s 2016 Employee Stock Purchase Plan in
six-month intervals at a purchase price equal to at least 85% of
the lesser of the fair market value of the Company’s common stock
on either the first day or the last day of each six-month offering
period. Employee purchases may not exceed 20% of their gross
compensation during an offering period.
NOTE 12 — Income Taxes
The Company calculates its interim income tax provision by
estimating the annual expected effective tax rate and applying that
rate to its ordinary year-to-date earnings or loss. In addition,
the effect of changes in enacted tax laws, rates or tax status is
recognized in the interim period in which the change
occurs.
For the three months ended June 30, 2022 and 2021, the effective
tax rate was approximately 108.7% and (6.0)%, respectively, based
on the annual effective tax rate net of discrete federal and state
taxes. For the six months ended June 30, 2022 and 2021, the
effective tax rate was approximately 34.1% and 16.0%, respectively,
based on the annual effective tax rate net of discrete federal and
state taxes. For the three and six months ended June 30, 2022 and
2021, the statutory tax rate was 21.0%. The computation of the
effective tax rate includes modifications from the statutory rate
such as income tax credits, tax depletion deduction, carrybacks,
and state apportionment changes, among other items.
The Company has recorded a liability for uncertain tax positions
included in its consolidated balance sheet as of June 30, 2022,
related to its depletion deduction methodology, and a corresponding
increase to the income tax expense on its condensed consolidated
statement of operations. There was $2,163 liability for uncertain
tax positions as of December 31, 2021 and there was no material
change for the six months ended June 30, 2022.
As of June 30, 2022, the Company determined that it is more likely
than not that it will not be able to fully realize the benefits of
certain existing deductible temporary differences and has recorded
a partial valuation allowance against the gross deferred tax
assets, which is included in the deferred tax liabilities,
long-term, net on its consolidated balance sheet, and a
corresponding increase to the income tax expense on its condensed
consolidated statement of operations. At December 31, 2021, the
Company recorded a partial valuation allowance against the gross
deferred tax assets on its consolidated balance sheet in the amount
of $1,574 and a corresponding increase to the income tax expense on
its consolidated statements of operations and there was no material
change for the three and six months ended June 30,
2022.
SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
The Company’s federal income tax returns subsequent to 2017 remain
open to audit by taxing authorities. The Company has not been
informed that its tax returns are the subject of any audit or
investigation by taxing authorities.
NOTE 13 — Concentrations
As of June 30, 2022 three customers accounted for 69% of the
Company’s total accounts receivable. As of December 31, 2021, 59%
of the Company’s total accounts receivable balance was with two
customers.
During the three months ended June 30, 2022, 72% of the Company’s
revenues were earned from three customers. During the three months
ended June 30, 2021, 75% of the Company’s revenues were earned from
four customers. During the six months ended June 30, 2022, 57% of
the Company’s revenues were earned from three customers. During the
six months ended June 30, 2021, 66% of the Company’s revenues were
earned from three customers.
As of June 30, 2022, one vendor accounted for 10% of the Company’s
accounts payable. As of December 31, 2021, one vendor
accounted for 19% of the Company’s accounts payable.
During the three months ended June 30, 2022, two suppliers
accounted for 37% of the Company’s cost of goods sold. During the
three months ended June 30, 2021, two suppliers accounted for 53%
of the Company’s cost of goods sold. During the six months ended
June 30, 2022, two suppliers accounted for 31% of the Company’s
cost of goods sold. During the six months ended June 30, 2021, two
suppliers accounted for 51% of the Company’s cost of goods
sold.
The Company’s primary product is Northern White sand and its mining
operations are limited to Wisconsin and Illinois. There is a risk
of loss if there are significant environmental, legal or economic
changes to these geographic areas of our mines, the oil and natural
gas producing basins they serve, or the transportation routes
between them.
NOTE 14 — Commitments and Contingencies
Litigation
We may be subject to various legal proceedings, claims and
governmental inspections, audits or investigations arising out of
our operations in the normal course of business, which cover
matters such as general commercial, governmental and trade
regulations, product liability, environmental, intellectual
property, employment and other actions. Although the outcomes of
these routine claims cannot be predicted with certainty, in the
opinion of management, the ultimate resolution of these matters
will not have a material adverse effect on our financial
statements.
Bonds
The Company has performance bonds with various public and private
entities regarding reclamation, permitting and maintenance of
public roadways. Total aggregate principal amount of performance
bonds outstanding as of June 30, 2022 was $17,651.
SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
ITEM 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis summarizes the significant
factors affecting the consolidated operating results, financial
condition, liquidity and cash flows of the Company as of and for
the periods presented below. The following discussion and analysis
should be read in conjunction with our unaudited condensed
consolidated financial statements and related information contained
herein and our audited financial statements as of December 31, 2021
contained in our Annual Report on Form 10-K. We use contribution
margin, EBITDA, Adjusted EBITDA and free cash flow herein as
non-GAAP measures of our financial performance. For further
discussion of contribution margin, EBITDA, Adjusted EBITDA and free
cash flow, see the section entitled “Non-GAAP Financial Measures.”
We define various terms to simplify the presentation of information
in this Quarterly Report on Form 10-Q (this “Report”). All
share amounts are presented in thousands.
Forward-Looking Statements
This discussion contains forward-looking statements that are based
on the beliefs of our management, as well as assumptions made by,
and information currently available to our management. Actual
results could differ materially from those discussed in or implied
by forward-looking statements as a result of various factors,
including those discussed herein and in the section entitled “Risk
Factors” in our Form 10-K for the year ended December 31, 2021. Our
estimates and forward-looking statements are primarily based on our
current expectations and estimates of future events and trends,
which affect or may affect our business and operations. Although we
believe that these estimates and forward-looking statements are
based upon reasonable assumptions, they are subject to several
risks and uncertainties and are made in light of information
currently available to us. Important factors, in addition to the
factors described in this Report, may adversely affect our results
as indicated in forward-looking statements. You should read this
Report and the documents that we have filed as exhibits hereto
completely and with the understanding that our actual future
results may be materially different from what we expect. The words
“may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,” “intend,” “potential,” “might,”
“would,” “continue” or the negative of these terms or other
comparable terminology and similar words are intended to identify
estimates and forward-looking statements. Estimates and
forward-looking statements speak only as of the date they were
made, and, except to the extent required by law, we undertake no
obligation to update, to revise or to review any estimate and/or
forward-looking statement because of new information, future events
or other factors. Estimates and forward-looking statements involve
risks and uncertainties and are not guarantees of future
performance. As a result of the risks and uncertainties described
above, the estimates and forward-looking statements discussed in
this Report might not occur and our future results, level of
activity, performance or achievements may differ materially from
those expressed in these forward-looking statements due to,
including, but not limited to, the factors mentioned above, and the
differences may be material and adverse. Because of these
uncertainties, you should not place undue reliance on these
forward-looking statements.
Overview
The Company
We are a fully integrated frac and industrial sand supply and
services company. The Company offers complete mine to wellsite
proppant supply and logistics solutions to our frac sand customers.
We produce low-cost, high quality Northern White sand, which is a
premium sand used as proppant used to enhance hydrocarbon recovery
rates in the hydraulic fracturing of oil and natural gas wells and
for a variety of industrial applications. We also offer proppant
logistics solutions to our customers through our in-basin
transloading terminals and our SmartSystemsTM
wellsite storage capabilities. In late 2021, we created our
Industrial Products Solutions (“IPS”) business in order to
diversify our customer base and markets we serve by offering sand
for industrial uses. We market our products and services to oil and
natural gas exploration and production companies, oilfield service
companies, and industrial manufacturers. We sell our sand through
long-term contracts or spot sales in the open market. We provide
wellsite proppant storage solutions services and equipment under
flexible contract terms custom tailored to meet the needs of our
customers. We believe that, among other things, the size and
favorable geologic characteristics of our sand reserves, the
strategic location and logistical advantages of our facilities, our
proprietary SmartDepotTM
portable wellsite
SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
storage silos and SmartPathTM
transloader, access to all Class I rail lines, and the industry
experience of our senior management team make us as a highly
attractive provider of sand and logistics services.
We incorporated in Delaware in July 2011 and began operations at
our Oakdale facility with 1.1 million tons of annual processing
capacity in July 2012. We currently have
7.1 million
tons of annual capacity at our Oakdale and Utica facilities with
the ability to expand annual processing capacity to approximately
10.0 million tons of sand should we bring the Blair facility
online.
We operate a unit train capable transloading terminal in Van Hook,
North Dakota to service the Bakken Formation in the Williston
Basin. We operate this terminal under a long-term agreement with
Canadian Pacific Railway to service the Van Hook terminal directly
along with the other key oil and natural gas exploration and
production basins of North America. In January 2022, we began
operations at an additional unit train capable transloading
terminal in Waynesburg, Pennsylvania to service the Appalachian
Basin, including the Marcellus and Utica Formations. These
terminals allow us to offer more efficient and sustainable delivery
options to our customers.
We also offer to our customers portable wellsite storage and
management solutions through our SmartSystems products and
services. Our SmartSystems provide our customers with the
capability to unload, store and deliver proppant at the wellsite,
as well as the ability to rapidly set up, takedown and transport
the entire system. This capability creates efficiencies,
flexibility, enhanced safety and reliability for customers. Through
our SmartSystems wellsite proppant storage solutions, we offer the
SmartDepot and SmartDepotXL™ silo systems, SmartPath transloader,
and our rapid deployment trailers. Our SmartDepot silos include
passive and active dust suppression technology, along with the
capability of a gravity-fed operation. Our self-contained SmartPath
transloader is a mobile sand transloading system designed to work
with bottom dump trailers and features a drive over conveyor, surge
bin, and dust collection system, and we believe the system has the
ability to keep up with any hydraulic fracturing operation. Our
rapid deployment trailers are designed for quick setup, takedown
and transportation of the entire SmartSystem, and detach from the
wellsite equipment, which allows for removal from the wellsite
during operation. We have also developed a proprietary software
program, the SmartSystem Tracker™, which allows our SmartSystems
customers to monitor silo-specific information, including location,
proppant type and proppant inventory. We believe that our
SmartSystems reduce tracking and related fuel consumption for our
customers, helping them meet their goals to reduce their carbon
footprint in their daily operations.
In the fourth quarter of 2021 we started our IPS business whereby
we offer our sand to customers for various industrial purposes,
such as glass, foundry, building products, filtration, geothermal,
renewables, ceramics, turf & landscape, retail, and recreation.
While we are still in the early stages of this business, we believe
that as it grows, it will provide us with the ability to diversify
our sales into more stable, consumer-driven products to help
mitigate price volatility in the oil and gas industry.
Recent Acquisitions
On March 4, 2022, we entered into a Membership Interest Purchase
Agreement (the “Purchase Agreement”) with Hi-Crush Inc., a Delaware
corporation (“HCR”), and Hi-Crush Blair LLC, a Delaware limited
liability company and wholly-owned subsidiary of HCR (“Blair”)
pursuant to which we acquired all of the issued and outstanding
limited liability company interest of Blair from HCR for aggregate
cash consideration of approximately $6.5 million, subject to
customary working capital adjustments.
Market Trends
Our historical results of operations and cash flows are not
indicative of results of operations and cash flows to be expected
in the future.
During most of 2020, demand for frac sand declined significantly as
a result of decreased demand for oil and natural gas as a result of
the ongoing effects of the coronavirus (“COVID-19”) pandemic, which
caused a global decrease in all means of travel, the closure of
borders between countries and a general slowing of economic
activity worldwide. Activity in the oil and gas industry began to
rebound in the fourth quarter of 2020 and through 2021 as the
global distribution of COVID-19 vaccines ramped up and travel
restrictions lessened. However, the prices of frac sand remained
depressed during 2021 as supply remained out of balance with demand
even though market activity was improving. Through the first six
months of 2022, supply and demand fundamentals have continued to
improve and frac sand prices began recovering from previous
historic lows.
SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Additionally, the ongoing conflict in the Ukraine has also
contributed to dramatic swings in oil and natural gas prices and
significant volatility in the oilfield service sector. However, we
cannot predict if this trend will continue or if sand prices will
increase, decrease or stabilize.
Northern White sand, which is found predominantly in Wisconsin and
limited portions of Minnesota, Illinois, and
Missouri,
is considered a premium proppant due to its favorable physical
characteristics. While we anticipate that regional sand will
continue to affect the demand for Northern White sand in some of
the oil and natural gas producing basins in which we operate, we
believe there will continue to be demand for our high-quality
Northern White sand. In particular, we believe that Northern White
sand has logistical advantages in the Appalachian basin, Bakken
basin, the western basins of Colorado, Wyoming, and in Canada. We
expect demand for our frac sand to continue to be supported by
customers who are focused on long-term well performance and
ultimate recovery of reserves from the oil and natural gas wells
they are completing as well as those interested in the efficiency
of their logistics supply chain and delivery of sand to the
wellsite. Additionally, we believe market trends continue to
support increased proppant usage per well drilled due to operator
focus on well efficiencies through increasing lengths of drilling
laterals, use of simul-fracking techniques and other well
enhancement strategies. As the amount of sand per well continues to
increase, we believe the delivery of sand to the operating basins
by rail in bulk shipments to terminals in close proximity to
drilling activity provides more sustainable and efficient delivery
of sand to meet a customer’s long term proppant needs. Finally, we
believe that the adoption of our SmartSystems in the marketplace,
which has a smaller footprint on customer sites than other sand
storage solutions, will allow us to sell more sand when packaged
with our last mile solutions. We believe the combination of our
high quality Northern White sand delivered in bulk to in basin
terminals and ultimately delivered to the wellsite through our
SmartSystems wellsite proppant storage solutions provides our
customers efficient and sustainable sand supply to the wellsite
that will reduce trucking and related fuel consumption for our
customers, helping them to meet their goals to reduce their carbon
footprint in their daily operations.
Demand in the IPS business is relatively stable as customers are
spread over a wide range of industries including glass, foundry,
building products, filtration, geothermal, renewables, ceramics,
turf & landscape, retail, recreation and more. The IPS business
is primarily influenced by macroeconomic drivers such as consumer
demand and population growth. We began our diversification into the
IPS business in late 2021 and we expect to see continued growth
throughout North America.
SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
GAAP Results of Operations
Three Months Ended June 30, 2022 Compared to Three Months Ended
June 30, 2021
The following table summarizes our revenue and expenses for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Change |
|
|
2022 |
|
2021 |
|
Dollars |
|
Percentage |
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
Sand sales revenue |
$ |
67,111 |
|
|
$ |
28,801 |
|
|
$ |
38,310 |
|
|
133 |
% |
|
|
|
|
|
|
|
|
|
Logistics revenue |
1,603 |
|
|
838 |
|
|
765 |
|
|
91 |
% |
|
Total revenue |
68,714 |
|
|
29,639 |
|
|
39,075 |
|
|
132 |
% |
|
Cost of goods sold |
59,743 |
|
|
31,999 |
|
|
27,744 |
|
|
87 |
% |
|
Gross profit |
8,971 |
|
|
(2,360) |
|
|
11,331 |
|
|
(480) |
% |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Salaries, benefits and payroll taxes |
3,225 |
|
|
2,285 |
|
|
940 |
|
|
41 |
% |
|
Depreciation and amortization |
563 |
|
|
577 |
|
|
(14) |
|
|
(2) |
% |
|
Selling, general and administrative |
3,795 |
|
|
3,855 |
|
|
(60) |
|
|
(2) |
% |
|
Bad debt expense |
1 |
|
|
19,592 |
|
|
(19,591) |
|
|
(100) |
% |
|
Total operating expenses |
7,584 |
|
|
26,309 |
|
|
(18,725) |
|
|
(71) |
% |
|
Operating income (loss) |
1,387 |
|
|
(28,669) |
|
|
30,056 |
|
|
(105) |
% |
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
(406) |
|
|
(513) |
|
|
107 |
|
|
(21) |
% |
|
Other income |
56 |
|
|
3,467 |
|
|
(3,411) |
|
|
(98) |
% |
|
Total other income (expenses), net |
(350) |
|
|
2,954 |
|
|
(3,304) |
|
|
(112) |
% |
|
Income (loss) before income tax expense (benefit) |
1,037 |
|
|
(25,715) |
|
|
26,752 |
|
|
(104) |
% |
|
Income tax expense (benefit) |
1,127 |
|
|
1,552 |
|
|
(425) |
|
|
(27) |
% |
|
Net loss |
$ |
(90) |
|
|
$ |
(27,267) |
|
|
$ |
27,177 |
|
|
(100) |
% |
Revenues
Revenues were $68.7 million for the three months ended June 30,
2022, during which time we sold approximately 1,196,000 tons of
sand. Revenues for the three months ended June 30, 2021 were $29.6
million, during which time we sold approximately 767,000 tons of
sand. The key factors contributing to the increase in revenues for
the three months ended June 30, 2022 as compared to the three
months ended June 30, 2021 were as follows:
•Sand
sales revenue increased from $28.8 million for the three months
ended June 30, 2021 to $67.1 million or 133% for the three months
ended June 30, 2022 as a result of an increase in total volumes
sold of approximately 56% and higher average sale prices of our
sand. Higher demand relative to supply for oil and natural gas has
led to increased prices in oil and natural gas which we believe has
led to increased demand for frac sand resulting in higher sand
prices.
•Logistics
revenue, which includes freight for certain mine gate sand sales,
railcar usage, logistics services, and SmartSystems rentals, was
approximately $1.6 million for the three months ended June 30, 2022
compared to $0.8 million for the three months ended June 30, 2021.
The increase in logistics revenue was due to a higher utilization
of our SmartSystems fleet.
SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Cost of Goods Sold
Cost of goods sold was $59.7 million and $32.0 million for the
three months ended June 30, 2022 and 2021, respectively. The
increase was primarily due to higher volumes sold in the current
period and the related increase in production costs and freight
costs that accompany higher volumes. Additionally, higher labor
costs and utilities have also contributed to an increase in cost of
goods sold.
Gross Profit
Gross profit was $9.0 million for the three months ended June 30,
2022, compared to $(2.4) million for the three months ended June
30, 2021. The increase in profitability for the three months ended
June 30, 2022 as compared to the three months ended June 30, 2021
was primarily due to higher sales volumes and higher average sale
prices of our sand relative to the cost to produce and deliver
products to our customers.
Operating Expenses
Operating expenses were $7.6 million and $26.3 million for the
three months ended June 30, 2022 and 2021, respectively. For the
three months ended June 30, 2021, we recorded non-cash bad debt
expense of $19.6 million, which is the difference between the $54.6
million accounts receivable balance that was subject to litigation
and the $35.0 million cash payment received under the Settlement
Agreement and Release, dated as of June 28, 2021 (the “Settlement
Agreement”), by and between the Company and U.S. Well Services, LLC
(“U.S. Well”). Salaries, benefits and payroll taxes increased to
$3.2 million for the three months ended June 30, 2022 as compared
to $2.3 million for the three months ended June 30, 2021, due
primarily to accrued bonuses as management has reinstated a formal
employee bonus plan based on company performance for 2022 and
increased staffing to support our IPS business segment.
Depreciation and amortization remained constant at $0.6 million for
the three months ended June 30, 2022 and 2021. Selling, general and
administrative expenses were $3.8 million for the three months
ended June 30, 2022 compared to $3.9 million for the three months
ended June 30, 2021.
Other Income
In 2021 we qualified for federal government assistance through
employee retention credit provisions of the Consolidated
Appropriations Act of 2021. During the three months ended June 30,
2021, we recorded $3.4 million in employee retention credits,
whereas for the three months ended June 30, 2022, we did not record
any employee retention credits.
Interest Expense
We incurred $0.4 million and $0.5 million of net interest expense
for the three months ended June 30, 2022 and 2021,
respectively.
Income Tax Expense (Benefit)
For the three months ended June 30, 2022 and 2021, our effective
tax rate was approximately 108.7% and (6.0)%, respectively, based
on the annual effective tax rate net of discrete federal and state
taxes. The computation of the effective tax rate includes
modifications from the statutory rate such as income tax credits,
tax depletion deduction, carrybacks, and state apportionment
changes, among other items.
As of June 30, 2022, we have recorded a liability for uncertain tax
positions included in deferred tax liabilities, long-term, net on
our balance sheet, related to our depletion deduction methodology.
As of June 30, 2022, we determined that it is more likely than not
that we will not be able to fully realize the benefits of certain
existing deductible temporary differences and have recorded a
partial valuation allowance against the gross deferred tax assets,
which is included in liabilities, long-term, net on our balance
sheet, and a corresponding increase to the income tax expense on
our condensed consolidated statement of operations.
Net Loss
Net loss was $(0.1) million for the three months ended June 30,
2022 as compared to net loss of $(27.3) million for the three
months ended June 30, 2021. The decrease in net loss is
attributable to an increase in total volumes sold and higher
average sale prices of our sand. Additionally, the difference was
also due to non-cash bad debt expense recorded against the residual
balance of accounts receivable that were previously the subject of
litigation for the three months ended June 30, 2021.
SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2022 Compared to Six Months Ended June
30, 2021
The following table summarizes our revenue and expenses for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change |
|
|
2022 |
|
2021 |
|
Dollars |
|
Percentage |
|
|
(in thousands) |
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
Sand sales revenue |
$ |
105,400 |
|
|
$ |
51,948 |
|
|
53,452 |
|
|
103 |
% |
|
Shortfall revenue |
1,915 |
|
|
1,741 |
|
|
174 |
|
|
10 |
% |
|
Logistics revenue |
3,004 |
|
|
3,400 |
|
|
(396) |
|
|
(12) |
% |
|
Total revenue |
110,319 |
|
|
57,089 |
|
|
53,230 |
|
|
93 |
% |
|
Cost of goods sold |
103,329 |
|
|
64,426 |
|
|
38,903 |
|
|
60 |
% |
|
Gross profit |
6,990 |
|
|
(7,337) |
|
|
14,327 |
|
|
(195) |
% |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Salaries, benefits and payroll taxes |
6,617 |
|
|
4,660 |
|
|
1,957 |
|
|
42 |
% |
|
Depreciation and amortization |
1,090 |
|
|
1,138 |
|
|
(48) |
|
|
(4) |
% |
|
Selling, general and administrative |
7,843 |
|
|
7,009 |
|
|
834 |
|
|
12 |
% |
|
Bad debt expense |
1 |
|
|
19,592 |
|
|
(19,591) |
|
|
(100) |
% |
|
|
|
|
|
|
|
|
|
Total operating expenses |
15,551 |
|
|
32,399 |
|
|
(16,848) |
|
|
(52) |
% |
|
Operating income (loss) |
(8,561) |
|
|
(39,736) |
|
|
31,175 |
|
|
(78) |
% |
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
(833) |
|
|
(1,060) |
|
|
227 |
|
|
(21) |
% |
|
Other income |
268 |
|
|
3,665 |
|
|
(3,397) |
|
|
(93) |
% |
|
Total other income (expenses), net |
(565) |
|
|
2,605 |
|
|
(3,170) |
|
|
(122) |
% |
|
Loss before income tax benefit |
(9,126) |
|
|
(37,131) |
|
|
28,005 |
|
|
(75) |
% |
|
Income tax benefit |
(3,113) |
|
|
(5,952) |
|
|
2,839 |
|
|
(48) |
% |
|
Net loss |
$ |
(6,013) |
|
|
$ |
(31,179) |
|
|
$ |
25,166 |
|
|
(81) |
% |
Revenues
Revenues were $110.3 million for the six months ended June 30,
2022, during which time we sold approximately 2,048,000 tons of
sand. Revenues for the six months ended June 30, 2021 were $57.1
million, during which time we sold approximately 1,527,000 tons of
sand. The key factors contributing to the increase in revenues for
the six months ended June 30, 2022 as compared to the six months
ended June 30, 2021 were as follows:
•Sand
sales revenue increased from $51.9 million for the six months ended
June 30, 2021 to $105.4 million for the six months ended June 30,
2022 as a result of an increase in total volumes sold of
approximately 34%. In addition to an increase in our volume, the
103% increase in our revenue is also attributable to higher average
sale prices of our sand. Sand prices have increased due to a shift
in supply and demand, which we believe is driven by increased
prices in oil and natural gas.
•We
had $1.9 million contractual shortfall revenue for the six months
ended June 30, 2022 compared to $1.7 million of contractual
shortfall revenue for the six months ended June 30, 2021. Our
customer contracts dictate whether shortfall is earned quarterly or
at the end of their respective contract year. We recognize revenue
to the extent of the unfulfilled minimum contracted quantity at the
shortfall price per ton as stated in the contract.
•Logistics
revenue, which includes freight for certain mine gate sand sales,
railcar usage, logistics services, and SmartSystems rentals, was
approximately $3.0 million for the six months ended June 30, 2022
compared to $3.4
SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
million for the six months ended June 30, 2021. The decrease in
logistics revenue was due to the shift from mine gate sales to
in-basin sales, which include transportation and any other handling
services, partially offset by higher utilization of our
SmartSystems fleet.
Cost of Goods Sold
Cost of goods sold was $103.3 million and $64.4 million for the six
months ended June 30, 2022 and June 30, 2021, respectively. The
increase was primarily due to higher volumes sold in the current
period and the related increase in production costs and freight
costs that accompany higher volumes. Additionally higher labor
costs and utilities have also contributed to an increase in cost of
goods sold.
Gross Profit
Gross profit was $7.0 million and $(7.3) million for the six months
ended June 30, 2022 and June 30, 2021, respectively. The
improvement in the gross profit for the six months ended June 30,
2022 as compared to the six months ended June 30, 2021 was
primarily due to higher sales volumes and higher average sale
prices of our sand relative to the cost to produce and deliver
products to our customers.
Operating expenses were $15.6 million and $32.4 million for the six
months ended June 30, 2022 and June 30, 2021, respectively. For the
six months ended June 30, 2021, we recorded non-cash bad debt
expense of $19.6 million, which is the difference between the $54.6
million accounts receivable balance that was subject to litigation
and the $35.0 million cash payment received under the Settlement
Agreement. Salaries, benefits and payroll taxes increased to $6.6
million for the six months ended June 30, 2022 as compared to $4.7
million for the six months ended June 30, 2021, due primarily to
accrued bonuses as management has reinstated a formal employee
bonus plan based on company performance for 2022 and increased
staffing to support our IPS business segment. Depreciation and
amortization remained constant at $1.1 million for the six months
ended June 30, 2022 and June 30, 2021. Selling, general and
administrative expenses increased to $7.8 million for the six
months ended June 30, 2022 compared to $7.0 million for the six
months ended June 30, 2021, primarily driven by higher travel costs
post-COVID-19, increased royalty expense due to higher total
volumes sold and development costs related to our Waynesburg
terminal.
Interest Expense
We incurred $0.8 million and $1.1 million of net interest expense
for the six months ended June 30, 2022 and June 30, 2021,
respectively. We continue to reduce debt levels and decrease
interest expense through scheduled amortizing
payments.
Income Tax Benefit
For the six months ended June 30, 2022 and June 30, 2021, our
effective tax rate was approximately 34.1% and 16.0%, respectively,
based on the annual effective tax rate net of discrete federal and
state taxes. The computation of the effective tax rate includes
modifications from the statutory rate such as income tax credits,
tax depletion deduction, carrybacks, and state apportionment
changes, among other items.
As of June 30, 2022, we have recorded a liability for uncertain tax
positions included on our balance sheet, related to our depletion
deduction methodology. As of June 30, 2022, we determined that it
is more likely than not that we will not be able to fully realize
the benefits of certain existing deductible temporary differences
and have recorded a partial valuation allowance against the gross
deferred tax assets, which is included in liabilities, long-term,
net on our balance sheet, and a corresponding increase to the
income tax expense on our condensed consolidated statement of
operations.
Net Loss
Net loss was $(6.0) million for the six months ended June 30, 2022
as compared to net loss of $(31.2) million for the six months ended
June 30, 2021. The decrease in net loss is attributable to an
increase in total volumes sold and higher average sale prices of
our sand in addition to non-cash bad debt expense recorded against
the residual balance of accounts receivable that were previously
the subject of litigation in June 30, 2021.
SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Non-GAAP Financial Measures
Contribution margin, EBITDA, Adjusted EBITDA and free cash flow are
not financial measures presented in accordance with GAAP. We
believe that the presentation of these non-GAAP financial measures
will provide useful information to investors in assessing our
financial condition and results of operations. Gross profit is the
GAAP measure most directly comparable to contribution margin, net
income is the GAAP measure most directly comparable to EBITDA and
Adjusted EBITDA and net cash provided by operating activities is
the GAAP measure most directly comparable to free cash flow. Our
non-GAAP financial measures should not be considered as
alternatives to the most directly comparable GAAP financial
measures. Each of these non-GAAP financial measures has important
limitations as analytical tools because they exclude some but not
all items that affect the most directly comparable GAAP financial
measures. You should not consider contribution margin, EBITDA,
Adjusted EBITDA or free cash flow in isolation or as substitutes
for an analysis of our results as reported under GAAP. Because
contribution margin, EBITDA, Adjusted EBITDA and free cash flow may
be defined differently by other companies in our industry, our
definitions of these non-GAAP financial measures may not be
comparable to similarly titled measures of other companies, thereby
diminishing their utility.
Contribution Margin
We use contribution margin, which we define as total revenues less
cost 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.
We believe that reporting contribution margin and contribution
margin per ton sold provides useful performance metrics 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.
Since 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, |
|
Six Months Ended June 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
(in thousands, except per ton amounts) |
|
Revenue |
$ |
68,714 |
|
|
$ |
29,639 |
|
|
$ |
110,319 |
|
|
$ |
57,089 |
|
|
Cost of goods sold |
59,743 |
|
|
31,999 |
|
|
103,329 |
|
|
64,426 |
|
|
Gross profit |
8,971 |
|
|
(2,360) |
|
|
6,990 |
|
|
(7,337) |
|
|
Depreciation, depletion, and accretion of asset retirement
obligations |
6,283 |
|
|
5,851 |
|
|
12,514 |
|
|
11,864 |
|
|
Contribution margin |
$ |
15,254 |
|
|
$ |
3,491 |
|
|
$ |
19,504 |
|
|
$ |
4,527 |
|
|
Contribution margin per
ton |
$ |
12.75 |
|
|
$ |
4.55 |
|
|
$ |
9.52 |
|
|
$ |
2.96 |
|
|
Total tons sold |
1,196 |
|
|
767 |
|
|
2,048 |
|
|
1,527 |
|
Contribution margin was $15.3 million and $3.5 million, or $12.75
and $4.55 per ton sold, for the three months ended June 30, 2022
and 2021, respectively. For the six months ended contribution
margin was $19.5 million and $4.5 million, or $9.52 and $2.96 per
ton sold, for the six months ended June 30, 2022 and 2021,
respectively. The increase in overall contribution margin and
contribution margin per ton was due primarily higher sales volumes
and higher average sale prices relative to the cost to produce and
deliver products to our customers.
SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
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 loss for each
of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
(in thousands) |
|
Net loss |
$ |
(90) |
|
|
$ |
(27,267) |
|
|
$ |
(6,013) |
|
|
$ |
(31,179) |
|
|
Depreciation, depletion and amortization |
6,658 |
|
|
6,317 |
|
|
13,225 |
|
|
12,777 |
|
|
Income tax expense (benefit) |
1,127 |
|
|
1,552 |
|
|
(3,113) |
|
|
(5,952) |
|
|
Interest expense |
417 |
|
|
515 |
|
|
851 |
|
|
1,070 |
|
|
Franchise taxes |
131 |
|
|
97 |
|
|
191 |
|
|
195 |
|
|
EBITDA |
$ |
8,243 |
|
|
$ |
(18,786) |
|
|
$ |
5,141 |
|
|
$ |
(23,089) |
|
|
Gain on sale of fixed assets |
(16) |
|
|
(60) |
|
|
(16) |
|
|
(58) |
|
|
Equity compensation |
636 |
|
|
581 |
|
|
1,311 |
|
|
1,266 |
|
|
|
|
|
|
|
|
|
|
Acquisition and development costs |
— |
|
|
(5) |
|
|
337 |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of asset retirement obligations |
190 |
|
|
111 |
|
|
379 |
|
|
225 |
|
|
Adjusted EBITDA |
$ |
9,159 |
|
|
$ |
(21,511) |
|
|
$ |
7,258 |
|
|
$ |
(24,990) |
|
Adjusted EBITDA was $9.2 million for the three months ended June
30, 2022 compared to $(21.5) million for the three months ended
June 30, 2021. Adjusted EBITDA was $7.3 million for the six months
ended June 30, 2022 compared to $(25.0) million for the six months
ended June 30, 2021. The increase in Adjusted EBITDA was primarily
due to higher sales volumes, and higher average sale prices of our
sand relative to the cost to produce and deliver products to our
customers.
SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
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 flows. Free cash flows 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 flows may not be comparable
to similarly titled measures of other companies, thereby
diminishing its utility. The following table presents a
reconciliation of free cash flows to net cash provided by operating
activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
(in thousands, except per ton amounts) |
|
Net cash (used in) provided by operating activities |
$ |
(2,287) |
|
|
$ |
32,566 |
|
|
$ |
(10,949) |
|
|
$ |
36,480 |
|
|
Acquisition of Blair facility |
— |
|
|
— |
|
|
(6,547) |
|
|
— |
|
|
Purchases of property, plant and equipment |
(1,369) |
|
|
(2,830) |
|
|
(5,137) |
|
|
(5,043) |
|
|
Free cash flow |
$ |
(3,656) |
|
|
$ |
29,736 |
|
|
$ |
(22,633) |
|
|
$ |
31,437 |
|
Free cash flow was $(3.7) million for the three months ended June
30, 2022 compared to $29.7 million for the three months ended June
30, 2021.
Free cash flow was $(22.6) million for the six months ended June
30, 2022 compared to $31.4 million for the six months ended June
30, 2021. The decrease in free cash flow was primarily attributable
to purchase of Blair for $6.5 million, increase in accounts
receivable, repayment of tax refund IRS mistakenly provided in
prior period of $2.3 million, and increase in unbilled
receivables in the six months ended June 30, 2022 compared to the
six months ended June 30, 2021. We expect that the investments made
in the current period will be cash-generating assets in the
future.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flow generated from
operations and availability under our ABL Credit Facility and other
equipment financing sources. As of June 30, 2022, cash on hand was
$2.1 million and we had $16.0 million in undrawn availability on
our ABL Credit Facility.
Based on our balance sheet, cash flows, current market conditions,
and information available to us at this time, we believe that we
have sufficient liquidity and other available capital resources, to
meet our cash needs for the next twelve months.
Material Cash Requirements
Capital Requirements
We expect full year 2022 capital expenditures to be between $20.0
million and $25.0 million, which we anticipate will primarily
support efficiency projects at Oakdale and Utica, capital related
to the Waynesburg terminal. We expect to fund these capital
expenditures with cash from operations, equipment financing options
available to us or borrowings under the ABL Credit Facility or
other financing sources, such as equipment finance providers. For
the six months ended June 30, 2022, we spent approximately $5.1
million on capital expenditures.
SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Indebtedness
We have several debt facilities, including the Oakdale Equipment
Financing, various notes payable and our ABL Credit Facility. Our
Oakdale Equipment Financing is secured by substantially all of the
assets at our Oakdale facility. The balance on this facility as of
June 30, 2022 was $13.6 million. Minimum cash payments on this
facility for the remainder of 2022 are anticipated to be $2.3
million. Our various notes payable are primarily secured by our
manufactured SmartSystems equipment. Total debt under these notes
payable as of June 30, 2022 was $4.7 million. Minimum cash
payments on these notes payable for the remainder of 2022 are
anticipated to be $1.6 million. There was $3.0 million outstanding
on our ABL Credit Facility as of June 30, 2022.
Operating Leases
We use leases primarily to procure certain office space, railcars
and heavy equipment as part of its operations. The majority of our
lease payments are fixed and determinable. Our operating lease
liabilities as of June 30, 2022 were $33.2 million. Minimum cash
payments on operating leases for the remainder of 2022 are
anticipated to be $5.9 million.
Mineral Rights Property
The Company is obligated under certain contracts for minimum
payments for the right to use land for extractive activities. The
annual minimum payments under these contracts are approximately
$2.5 million per year in the aggregate for the next 15
years.
Off-Balance Sheet Arrangements
We had outstanding performance bonds of $17.7 million and $8.6
million at June 30, 2022 and December 31, 2021, respectively. The
increase in performance bonds is due primarily to the acquisition
of the Blair facility and the assumption of performance bonds
related to its potential future reclamation
obligations.
Contractual Obligations
As of June 30, 2022, we had contractual obligations for the ABL
Credit Facility, Oakdale Equipment Financing, notes payable,
operating and finance leases, minimum payments for the rights to
mine land, capital expenditures, asset retirement obligations, and
other commitments to municipalities for maintenance.
Environmental Matters
We are subject to various federal, state and local laws and
regulations governing, among other things, hazardous materials, air
and water emissions, environmental contamination and reclamation
and the protection of the environment and natural resources. We
have made, and expect to make in the future, expenditures to comply
with such laws and regulations, but cannot predict the full amount
of such future expenditures.
Seasonality
Our business is affected to some extent by seasonal fluctuations in
weather that impact the production levels for a portion of our wet
sand processing capacity. While our dry plants are able to process
finished product volumes evenly throughout the year, our excavation
and our wet sand processing activities have historically been
limited to primarily non-winter months. As a consequence, we have
experienced lower cash operating costs in the first and fourth
quarter of each calendar year, and higher cash operating costs in
the second and third quarter of each calendar year when we
overproduced to meet demand in the winter months. These higher
cash operating costs were capitalized into inventory and expensed
when these tons are sold, which can lead to us having higher
overall cost of production in the first and fourth quarters of each
calendar year as we expense inventory costs that were previously
capitalized. We have indoor wet processing facilities at each of
our plant locations, which allow us to produce wet sand inventory
year-round to support a portion of our dry sand processing
capacity, which may reduce certain of the effects of this
seasonality. We may also sell frac sand for use in oil and natural
gas producing basins where severe weather
SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
conditions may curtail drilling activities and, as a result, our
sales volumes to those areas may be reduced during such severe
weather periods.
Customer Concentration
For the six months ended June 30, 2022, revenue from EQT Production
Corporation, Halliburton Energy Services, and Encino Energy
accounted for 28.3%, 18.7%, and 10.1%, respectively, of total
revenue. For the six months ended June 30, 2021, revenue from Rice
Energy (a predecessor of EQT Production Corporation), Halliburton
Energy Services, and Enerplus accounted for 30.9%, 21.8%, and
13.0%, respectively, of total revenue.
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting
policies and procedures during the six months ended June 30,
2022.
Use of Estimates
The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. Significant
estimates used in the preparation of these financial statements
include, but are not limited to: impairment considerations of
assets, including intangible assets, fixed assets, and inventory;
estimated cost of future asset retirement obligations; fair values
of acquired assets and assumed liabilities; recoverability of
deferred tax assets; inventory reserve; and the collectability of
receivables; and certain liabilities.
Actual results could differ from management’s best estimates as
additional information or actual results become available in the
future, and those differences could be material. The decreases in
demand related to COVID-19 pandemic in 2020 and 2021 and the
ongoing conflict in Ukraine have caused dramatic swings in oil and
natural gas prices and significant volatility in the oilfield
service sector since. We continue to actively monitor the global
impact of current events, but we are currently unable to estimate
the impact of these events on our future financial position and
results of operations or give any assurances that these events will
not have a material adverse effect on our financial position or
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Interest Rate Risk
The majority of our debt is financed under fixed interest rates.
Borrowings under the ABL Credit Facility bear interest at a rate
per annum equal to an applicable margin, plus, at our option,
either a LIBOR rate or an alternate base rate (“ABR”). The
applicable margin is 2.00% for LIBOR loans and 1.00% for ABR loans.
The balance on our ABL Credit Facility as of June 30, 2022 was $3.0
million. We do not believe this represents a material interest rate
risk.
We have considered other changes in our exposure to market risks
during the six months ended June 30, 2022 and have determined that
there have been no additional material changes to our exposure to
market risks from those described in our Annual Report on Form 10-K
for the year ended December 31, 2021, filed with the SEC on March
8, 2022.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the
end of the period covered by this Report. Based on such evaluation,
our Chief Executive Officer and Chief Financial Officer have
concluded that as of such date, our disclosure controls and
procedures were effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial
reporting for the quarter ended June 30, 2022 that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we may be involved in litigation relating to
claims arising out of our operations in the normal course of
business. The disclosure called for by Part II, Item 1
regarding our legal proceedings is incorporated by reference herein
from Part I, Item 1. Note 15 - Commitments and Contingencies -
Litigation of the notes to the condensed consolidated financial
statements in this Form 10-Q for the three and six months ended
June 30, 2022.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors described
in Part I, Item 1A of our Annual Report on Form 10-K for the year
ended December 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
During the quarter ended June 30, 2022, no shares were sold by the
Company without registration under the Securities Act of 1933, as
amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
We are committed to maintaining a culture that prioritizes mine
safety. We believe that our commitment to safety, the environment
and the communities in which we operate is critical to the success
of our business. Our sand mining operations are subject to mining
safety regulation. The U.S. Mining Safety and Health Administration
(“MSHA”) is the primary regulatory organization governing frac sand
mining and processing. Accordingly, MSHA regulates quarries,
surface mines, underground mines and the industrial mineral
processing facilities associated with and located at quarries and
mines. The mission of MSHA is to administer the provisions of the
Federal Mine Safety and Health Act of 1977 and to enforce
compliance with mandatory miner safety and health standards. As
part of MSHA’s oversight, representatives perform at least two
unannounced inspections annually for each above-ground
facility.
We are also subject to regulations by the U.S. Occupational Safety
and Health Administration, which has promulgated rules for
workplace exposure to respirable silica for several other
industries. Respirable silica is a known health hazard for workers
exposed over long periods. MSHA is expected to adopt similar rules
as part of its “Long Term Items” for rulemaking. Airborne
respirable silica is associated with work areas at our site and is
monitored closely through routine testing and MSHA inspection. If
the workplace exposure limit is lowered significantly, we may be
required to incur certain capital expenditures for equipment to
reduce this exposure.
Our operations are subject to the Federal Mine Safety and Health
Act of 1977, as amended by the Mine Improvement and New Emergency
Response Act of 2006, which imposes stringent health and safety
standards on numerous aspects of mineral extraction and processing
operations, including the training of personnel, operating
procedures, operating equipment, and other matters. Our failure to
comply with such standards, or changes in such standards or the
interpretation or enforcement thereof, could have a material
adverse effect on our business and financial condition or otherwise
impose significant restrictions on our ability to conduct mineral
extraction and processing operations. Following passage of The Mine
Improvement and New Emergency Response Act of 2006, MSHA
significantly increased the numbers of citations and orders charged
against mining operations. The dollar penalties assessed for
citations issued has also increased in recent
years. Information concerning mine safety violations or
other regulatory matters required by Section 1503(a) of the
Dodd-Frank Wall Street Reform and Consumer Protection Act and Item
104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1
to this Report.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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10.1* |
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31.1* |
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32.1*†
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32.2*†
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95.1* |
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101.INS |
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Extracted XBRL Instance Document - the instance document does not
appear in the Interactive Data File as XBRL tags are embedded in
the Inline XBRL document. |
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101.SCH* |
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101.CAL* |
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101.DEF* |
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Cover Page Interactive Data File (formatted as Inline XBRL and
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Filed Herewith. |
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This certification is deemed not filed for purposes of section 18
of the Exchange Act, or otherwise subject to the liability of that
section, nor shall it be deemed incorporated by reference into any
filing under the Securities Act of 1933, as amended, or the
Exchange Act. |
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
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Smart Sand, Inc. |
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August 9, 2022 |
By: |
/s/ Charles E. Young |
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Charles E. Young, Chief Executive Officer |
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(Principal Executive Officer) |
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Smart Sand, Inc. |
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August 9, 2022 |
By: |
/s/ Lee E. Beckelman |
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Lee E. Beckelman, Chief Financial Officer |
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(Principal Financial Officer) |
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