Smart Sand, Inc. (NASDAQ: SND) (the “Company” or “Smart Sand”), a
fully integrated frac sand supply and services company that is a
low-cost producer of high quality Northern White frac sand and
provider of proppant logistics and storage solutions through its
in-basin transloading terminal and SmartSystemsTM products and
services, today announced results for the second quarter 2020.
Charles Young, Smart Sand’s Chief Executive Officer, stated, “In
the second quarter, the United States faced an unprecedented drop
in drilling and completions activity due to the decline in
worldwide oil demand caused by the current COVID-19 coronavirus
pandemic. We reacted quickly and decisively to reduce our cost
structure and maintain our liquidity. During the second quarter, we
were able to reduce debt while maintaining our cash balances. At
quarter end, we had approximately $25 million in liquidity from
cash and availability under our credit facility. As we have
demonstrated in previous downturns, Smart Sand has the wherewithal
to navigate through periods of market uncertainty and to come out a
stronger competitor when market activity returns to normal
levels. I want to thank all of our employees for their
commitment and sacrifice to support Smart Sand during these
difficult times. We will continue to stay true to our core
principles of maintaining a strong balance sheet and delivering
sustainable high quality sand and logistics services to the energy
industry. Smart Sand is built to last.”
Second Quarter 2020 Highlights
Revenues were $26.1 million in the second quarter of 2020,
compared to $47.5 million in the first quarter of 2020 and $67.9
million in the second quarter of 2019. Included in revenues were
$14.0 million, $1.3 million, and $16.3 million of shortfall
revenues for each respective period. Revenue in the second quarter
of 2020 was negatively impacted by depressed oil prices driven by
continued oversupply relative to the decreased demand due to the
COVID-19 coronavirus pandemic.
Overall tons sold were approximately 208,000 in the second
quarter of 2020, compared with approximately 757,000 tons in the
first quarter of 2020 and 741,000 tons in the second quarter of
2019. Total volumes sold were negatively impacted by depressed oil
prices driven by Organization of the Petroleum Exporting Countries
(“OPEC”) and oversupply and decreased demand due to the COVID-19
coronavirus pandemic.
Net income was $4.6 million, or $0.12 per basic and diluted
share, for the second quarter of 2020, compared with net loss of
$84.0 thousand, or $0.00 per basic and diluted share, for the first
quarter of 2020 and net income of $14.3 million, or $0.36 per basic
and diluted share, for the second quarter of 2019. Shortfall
revenue in the current period offset the decline in total volumes
sold.
Adjusted EBITDA was $15.6 million for the second quarter of
2020, compared with $6.4 million for the first quarter of 2020 and
$26.2 million during the same period last year. The increase in
Adjusted EBITDA compared to the first quarter of 2020 was primarily
due to higher shortfall revenue, partially offset by lower total
volumes sold. The decrease in Adjusted EBITDA compared to the
second quarter of 2019 was due to both lower shortfall revenue and
lower total volumes sold due to depressed oil prices and decreased
demand.
Contribution margin was $19.3 million, or $92.62 per ton sold,
for the second quarter of 2020 compared to $11.5 million, or $15.20
per ton sold, for the first quarter of 2020 and $31.0 million, or
$41.80 per ton sold, for the second quarter of 2019. The increase
in contribution margin over the first quarter 2020 was primarily
due to higher shortfall revenue, which was partially offset by
lower total volumes sold. Lower overall contribution margin
compared to the same period last year was primarily due to lower
total volumes sold.
Capital Expenditures
Our primary sources of liquidity are cash on hand, cash flow
generated from operations and available borrowings under our ABL
Credit Facility. As of June 30, 2020, cash on hand was $16.6
million and we had $8.0 million in undrawn availability on our ABL
Credit Facility, with no borrowing outstanding under our ABL Credit
Facility. For the six months ended June 30, 2020, we spent
approximately $6.4 million on capital expenditures. The recent
decline in oil prices resulting from a combination of oversupply
and reduced demand related to the COVID-19 coronavirus pandemic has
led many exploration and production companies and oilfield service
companies to announce plans to slow or stop well completions
activity. In response, we have reduced our total capital
expenditure budget by up to $20 million, including a significant
reduction in our SmartSystems™ manufacturing plans. We now
estimate that full year 2020 capital expenditures will be less than
$10.0 million.
Market Update
We generally expect the price of frac sand to correlate with the
level of drilling and completions activity for oil and natural gas
and we generally expect the level of drilling and completions
activity to correlate with long-term trends in commodity prices.
Recently, oil prices have declined to all-time lows as a result of
decreased demand for oil from the COVID-19 coronavirus pandemic, as
well as an increase in global oil supply driven by disagreements
with respect to oil pricing between Russia and members of OPEC,
particularly Saudi Arabia. The COVID-19 coronavirus pandemic has
caused a global decrease in all means of travel, the closure of
borders between countries and a general slowing of economic
activity worldwide, which has decreased the demand for oil. In
early March, discussions between Russia and Saudi Arabia
deteriorated and the countries ended a three-year supply level
agreement, which resulted in each country increasing its oil
production. Subsequently, Russia and OPEC agreed to certain
production cuts to mitigate the decline in the price of oil;
however, such cuts may not be sufficient to stabilize the oil
market if the decline in demand due to the COVID-19 coronavirus
pandemic continues. Oil and natural gas prices are expected to
continue to be depressed as a result of the increase of near-term
supply and the decrease in overall demand caused by these events,
and we cannot predict when prices will improve or stabilize.
In response to market conditions, we have reduced our total
capital expenditure budget, primarily as a reduction to our
SmartSystems manufacturing plans. We have also put in place several
cost-cutting measures, including headcount reductions at our
Oakdale and Saskatoon, Canada operating facilities, salary
reductions and suspension of certain variable cash compensation
programs for all employees, and reduced compensation for board
members. We have also taken steps to limit cash outflows in
the near-term by negotiating for deferred payments on certain of
our operating leases, debt and minimum royalty payments. We have
put in place multiple initiatives to protect the health and
well-being of our workforce, including work-from-home arrangements
for all employees that are able to do so and implementing social
distancing requirements as prescribed by the federal, state and
local government authorities.
Conference Call
Smart Sand will host a conference call and live webcast for
analysts and investors on August 5, 2020 at 10:00 a.m. Eastern
Time to discuss the Company’s first quarter 2020 financial results.
Investors are invited to listen to a live audio webcast of the
conference call, which will be accessible on the “Investors”
section of the Company’s website at www.smartsand.com. To access
the live webcast, please log in 15 minutes prior to the start of
the call to download and install any necessary audio software. An
archived replay of the call will also be available on the website
following the call. The call can also be accessed live by dialing
(888) 799-5165 or, for international callers, (478) 219-0056.
The passcode for the call is 7627113. A replay will be available
shortly after the call and can be accessed by dialing (855)
859-2056 or, for international callers, (404) 537-3406. The
conference ID for the replay is 7627113.
Forward-looking Statements
All statements in this news release other than statements of
historical facts are forward-looking statements that contain our
current expectations about our future results. The Company
has attempted to identify any forward-looking statements by using
words such as “expect,” “will,” “estimate,” “believe” and
other similar expressions. Although the Company believes that
the expectations reflected and the assumptions or bases underlying
its forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct.
Such statements are not guarantees of future performance or events
and are subject to known and unknown risks and uncertainties that
could cause the Company’s actual results, events or financial
positions to differ materially from those included within or
implied by such forward-looking statements.
Factors that could cause our actual results to differ materially
from the results contemplated by such forward-looking statements
include, but are not limited to, the severity and duration of the
COVID-19 coronavirus pandemic, operational challenges relating to
the COVID-19 coronavirus pandemic and efforts to mitigate the
spread of the virus, the current significant surplus in the supply
of oil, fluctuations in product demand, regulatory changes, adverse
weather conditions, increased fuel prices, higher transportation
costs, access to capital, increased competition, changes in
economic or political conditions, and such other factors discussed
or referenced in the “Risk Factors” section of the Company’s Annual
Report on Form 10-K for the year ended December 31, 2019,
filed by the Company with the U.S. Securities and Exchange
Commission (“SEC”) on February 26, 2020, and the
Company’s Quarterly Report on Form 10-Q for the quarter ended June
30, 2020, filed by the Company with the SEC on August 5,
2020.
You should not place undue reliance on our forward-looking
statements. Any forward-looking statement speaks only as of the
date on which such statement is made, and we undertake no
obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events,
changed circumstances or otherwise, unless required by law.
About Smart Sand
We are a fully integrated frac sand supply and services company,
offering complete mine to wellsite proppant logistics, storage and
management solutions to our customers. We produce low-cost, high
quality Northern White frac sand and offer proppant logistics,
storage and management solutions to our customers through our
in-basin transloading terminal and our SmartSystemsTM wellsite
proppant storage capabilities. We provide our products and services
primarily to oil and natural gas exploration and production
companies and oilfield service companies. We own and operate a frac
sand mine and related processing facility near Oakdale, Wisconsin,
at which we have approximately 316 million tons of proven
recoverable sand reserves and approximately 5.5 million tons of
annual nameplate processing capacity. For more information, please
visit www.smartsand.com.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
|
Three Months Ended |
|
June 30, 2020 |
|
March 31, 2020 |
|
June 30, 2019 |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(in thousands, except per share amounts) |
Revenues |
$ |
26,106 |
|
|
|
$ |
47,488 |
|
|
|
$ |
67,941 |
|
|
Cost of goods sold |
11,906 |
|
|
|
41,089 |
|
|
|
43,068 |
|
|
Gross profit |
14,200 |
|
|
|
6,399 |
|
|
|
24,873 |
|
|
Operating expenses: |
|
|
|
|
|
Salaries, benefits and payroll taxes |
2,155 |
|
|
|
2,902 |
|
|
|
2,798 |
|
|
Depreciation and amortization |
461 |
|
|
|
453 |
|
|
|
655 |
|
|
Selling, general and administrative |
2,930 |
|
|
|
3,530 |
|
|
|
2,790 |
|
|
Change in the estimated fair value of contingent consideration |
— |
|
|
|
(1,020 |
) |
|
|
(575 |
) |
|
Total operating expenses |
5,546 |
|
|
|
5,865 |
|
|
|
5,668 |
|
|
Operating income |
8,654 |
|
|
|
534 |
|
|
|
19,205 |
|
|
Other income (expenses): |
|
|
|
|
|
Interest expense, net |
(607 |
) |
|
|
(472 |
) |
|
|
(994 |
) |
|
Other income |
63 |
|
|
|
19 |
|
|
|
37 |
|
|
Total other income (expenses), net |
(544 |
) |
|
|
(453 |
) |
|
|
(957 |
) |
|
Income before income tax
expense |
8,110 |
|
|
|
81 |
|
|
|
18,248 |
|
|
Income tax expense |
3,470 |
|
|
|
165 |
|
|
|
3,972 |
|
|
Net income (loss) |
$ |
4,640 |
|
|
|
$ |
(84 |
) |
|
|
$ |
14,276 |
|
|
Net income per common share: |
|
|
|
|
|
Basic |
$ |
0.12 |
|
|
|
$ |
— |
|
|
|
$ |
0.36 |
|
|
Diluted |
$ |
0.12 |
|
|
|
$ |
— |
|
|
|
$ |
0.36 |
|
|
Weighted-average number of common
shares: |
|
|
|
|
|
Basic |
39,644 |
|
|
|
40,091 |
|
|
|
40,074 |
|
|
Diluted |
39,644 |
|
|
|
40,091 |
|
|
|
40,173 |
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE
SHEETS
|
June 30, 2020 |
|
December 31, 2019 |
|
(unaudited) |
|
|
(in thousands) |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
16,643 |
|
|
|
$ |
2,639 |
|
|
Accounts receivable, net |
55,968 |
|
|
|
58,925 |
|
|
Unbilled receivables |
48 |
|
|
|
4,765 |
|
|
Inventories |
20,287 |
|
|
|
21,415 |
|
|
Prepaid expenses and other current assets |
4,107 |
|
|
|
4,433 |
|
|
Total current assets |
97,053 |
|
|
|
92,177 |
|
|
Property, plant and equipment, net |
225,165 |
|
|
|
230,461 |
|
|
Operating lease right-of-use assets |
24,892 |
|
|
|
28,178 |
|
|
Intangible assets, net |
8,649 |
|
|
|
9,046 |
|
|
Other assets |
3,475 |
|
|
|
3,541 |
|
|
Total assets |
$ |
359,234 |
|
|
|
$ |
363,403 |
|
|
Liabilities and
Stockholders’ Equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
3,234 |
|
|
|
$ |
3,961 |
|
|
Accrued and other expenses |
4,337 |
|
|
|
8,578 |
|
|
Deferred revenue, current |
6,717 |
|
|
|
7,654 |
|
|
Income taxes payable |
4,187 |
|
|
|
542 |
|
|
Long-term debt, net, current |
6,430 |
|
|
|
6,175 |
|
|
Operating lease liabilities, current |
8,202 |
|
|
|
13,108 |
|
|
Total current liabilities |
33,107 |
|
|
|
40,018 |
|
|
Deferred revenue, net |
277 |
|
|
|
1,670 |
|
|
Long-term debt, net |
24,865 |
|
|
|
28,240 |
|
|
Operating lease liabilities, long-term |
17,248 |
|
|
|
15,469 |
|
|
Deferred tax liabilities, long-term, net |
25,546 |
|
|
|
24,408 |
|
|
Asset retirement obligation |
6,293 |
|
|
|
6,142 |
|
|
Contingent consideration |
570 |
|
|
|
1,900 |
|
|
Total liabilities |
107,906 |
|
|
|
117,847 |
|
|
Commitments and contingencies |
|
|
|
Stockholders’ equity |
|
|
|
Common stock |
40 |
|
|
|
40 |
|
|
Treasury stock |
(4,024 |
) |
|
|
(2,979 |
) |
|
Additional paid-in capital |
167,263 |
|
|
|
165,223 |
|
|
Retained earnings |
87,869 |
|
|
|
83,313 |
|
|
Accumulated other comprehensive income (loss) |
180 |
|
|
|
(41 |
) |
|
Total stockholders’ equity |
251,328 |
|
|
|
245,556 |
|
|
Total liabilities and stockholders’ equity |
$ |
359,234 |
|
|
|
$ |
363,403 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
We define EBITDA as net income (loss), plus: (i) depreciation,
depletion and amortization expense; (ii) income tax expense; (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; and
- our operating performance as compared to those of other
companies in our industry without regard to the impact of financing
methods or capital structure;
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 (loss) is
the GAAP measure most directly comparable to EBITDA and Adjusted
EBITDA. EBITDA and Adjusted EBITDA should not be considered
alternatives to net income (loss) presented in accordance with
GAAP. Because EBITDA and Adjusted EBITDA may be defined differently
by other companies in our industry, our definitions of EBITDA and
Adjusted EBITDA may not be comparable to similarly titled measures
of other companies, thereby diminishing their utility. The
following table presents a reconciliation of EBITDA and Adjusted
EBITDA to net income for each of the periods indicated.
The following table presents a reconciliation of EBITDA and
Adjusted EBITDA to net income for each of the periods
indicated:
|
Three Months Ended |
|
June 30, 2020 |
|
March 31, 2020 |
|
June 30, 2019 |
|
(in thousands) |
Net income (loss) |
$ |
4,640 |
|
|
$ |
(84 |
) |
|
|
$ |
14,276 |
|
|
Depreciation, depletion and
amortization |
5,450 |
|
|
5,487 |
|
|
|
6,590 |
|
|
Income tax expense |
3,470 |
|
|
165 |
|
|
|
3,973 |
|
|
Interest expense |
619 |
|
|
480 |
|
|
|
997 |
|
|
Franchise taxes |
94 |
|
|
56 |
|
|
|
93 |
|
|
EBITDA |
$ |
14,273 |
|
|
$ |
6,104 |
|
|
|
$ |
25,929 |
|
|
(Gain) loss on sale of fixed
assets |
275 |
|
|
— |
|
|
|
(1 |
) |
|
Equity compensation (1) |
842 |
|
|
926 |
|
|
|
685 |
|
|
Acquisition and development costs
(2) |
144 |
|
|
(822 |
) |
|
|
(577 |
) |
|
Cash charges related to
restructuring and retention |
— |
|
|
82 |
|
|
|
41 |
|
|
Accretion of asset retirement
obligations |
76 |
|
|
75 |
|
|
|
166 |
|
|
Adjusted EBITDA |
$ |
15,610 |
|
|
$ |
6,365 |
|
|
|
$ |
26,243 |
|
|
|
|
|
|
|
|
(1) Represents the non-cash expenses for stock-based awards
issued to our employees and employee stock purchase plan
compensation expense.(2) The three months ended March 31, 2020
includes $1,020 fair value adjustment of contingent consideration,
partially offset by other acquisition and development costs. The
three months ended June 30, 2019 includes $575 fair value
adjustment of contingent
consideration._________________________
Contribution Margin
We also use contribution margin, which we define as total
revenues less costs of goods sold excluding depreciation, depletion
and accretion of asset retirement obligations, to measure our
financial and operating performance. Contribution margin excludes
other operating expenses and income, including costs not directly
associated with the operations of our business such as accounting,
human resources, information technology, legal, sales and other
administrative activities.
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.
Because contribution margin may be defined differently by other
companies in our industry, our definition of contribution margin
may not be comparable to similarly titled measures of other
companies, thereby diminishing its utility. The following table
presents a reconciliation of contribution margin to gross
profit.
|
Three Months Ended |
|
June 30, 2020 |
|
March 31, 2020 |
|
June 30, 2019 |
|
(in thousands) |
Revenue |
$ |
26,106 |
|
|
$ |
47,488 |
|
|
$ |
67,941 |
|
Cost of goods sold |
$ |
11,906 |
|
|
41,089 |
|
|
$ |
43,068 |
|
Gross profit |
14,200 |
|
|
6,399 |
|
|
24,873 |
|
Depreciation, depletion, and
accretion of asset retirement obligations included in cost of goods
sold |
5,065 |
|
|
5,109 |
|
|
6,101 |
|
Contribution
margin |
$ |
19,265 |
|
|
$ |
11,508 |
|
|
$ |
30,974 |
|
Contribution margin per
ton |
$ |
92.62 |
|
|
$ |
15.20 |
|
|
$ |
41.80 |
|
Total tons sold |
208 |
|
|
757 |
|
|
741 |
|
|
|
|
|
|
|
|
|
|
Investor Contacts
Josh JayneFinance Manager(281) 231-2660jjayne@smartsand.com
Lee BeckelmanCFO(281) 231-2660lbeckelman@smartsand.com
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