Smart Sand(SND) - 2019 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements The company's Q1 2019 financials show significant year-over-year growth in revenue and net income, with total assets increasing due to a new lease accounting standard Condensed Consolidated Balance Sheets Total assets grew to $362.3 million, driven by the adoption of a new lease standard which increased both right-of-use assets and lease liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total current assets | $57,625 | $50,096 | | Property, plant and equipment, net | $249,133 | $248,396 | | Operating right-of-use assets | $34,329 | $— | | Total assets | $362,340 | $320,292 | | Total current liabilities | $39,182 | $24,652 | | Long-term debt, net | $51,296 | $47,893 | | Long-term operating lease liabilities | $21,539 | $— | | Total liabilities | $147,986 | $110,932 | | Total stockholders' equity | $214,354 | $209,360 | Condensed Consolidated Income Statements First quarter 2019 revenue increased 21.5% to $51.8 million, leading to a substantial rise in net income to $4.0 million Q1 2019 vs Q1 2018 Income Statement (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2019 | Three Months Ended Mar 31, 2018 | | :--- | :--- | :--- | | Revenues | $51,775 | $42,628 | | Gross profit | $11,170 | $7,215 | | Operating income | $5,951 | $1,353 | | Net income | $4,033 | $975 | | Diluted EPS | $0.10 | $0.02 | Condensed Consolidated Statements of Cash Flows Net cash from operations turned positive at $6.3 million, a significant improvement from the prior year due to lower capital expenditures Q1 2019 vs Q1 2018 Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Mar 31, 2019 | Three Months Ended Mar 31, 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $6,323 | $(1,612) | | Net cash used in investing activities | $(8,499) | $(46,869) | | Net cash provided by financing activities | $3,079 | $15,876 | | Net increase (decrease) in cash | $903 | $(32,605) | Notes to the Condensed Consolidated Financial Statements Key notes detail the adoption of a new lease standard, revenue disaggregation, ongoing litigation, and significant customer concentration - The company adopted the new lease standard ASU 2016-02 (Topic 842) on January 1, 2019, recording initial operating right-of-use assets of $35.9 million and lease liabilities of $36.5 million[36][39] Disaggregation of Revenue (in thousands) | Revenue Type | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Sand sales revenue | $21,147 | $22,287 | | Reservation revenue | $4,500 | $6,628 | | Shortfall revenue | $5,756 | $— | | Logistics revenue | $20,372 | $13,713 | | Total revenues | $51,775 | $42,628 | - The company has filed lawsuits against U.S. Well Services, LLC and Schlumberger Technology Corporation for alleged breach of take-or-pay agreements, with $17.1 million in related receivables[112][113][114] - Significant customer concentration exists, with three customers accounting for 65% of revenues in Q1 2019 and four customers accounting for 74% of total accounts receivable[105] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue growth was driven by shortfall and logistics revenue, which improved gross profit and Adjusted EBITDA despite lower sand volumes sold Q1 2019 vs Q1 2018 Performance Summary (in thousands) | Metric | Q1 2019 | Q1 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $51,775 | $42,628 | 21% | | Gross Profit | $11,170 | $7,215 | 55% | | Operating Income | $5,951 | $1,353 | 340% | | Net Income | $4,033 | $975 | 314% | - The increase in Q1 2019 revenue was driven by $5.8 million in shortfall revenue and a $6.7 million increase in logistics revenue, which offset lower sand sales revenue[125][126][127] Non-GAAP Financial Measures Reconciliation (in thousands) | Measure | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Income (GAAP) | $4,033 | $975 | | Adjusted EBITDA | $12,423 | $5,852 | | Gross Profit (GAAP) | $11,170 | $7,215 | | Contribution Margin | $17,076 | $10,321 | - The company estimates full-year 2019 capital expenditures will be approximately $30 million to $40 million to support growth and efficiency initiatives[157] Quantitative and Qualitative Disclosures about Market Risk The company's market risk exposure has not materially changed from the previously disclosed factors in its 2018 Annual Report - There have been no material changes to the company's exposure to market risks during the three months ended March 31, 2019[172] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[174] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2019, that have materially affected, or are reasonably likely to materially affect, internal controls[175] PART II OTHER INFORMATION Legal Proceedings The company initiated litigation against two key customers, U.S. Well Services and Schlumberger, for alleged breach of take-or-pay contracts - Smart Sand filed a lawsuit against U.S. Well Services, LLC, alleging breach of a long-term take-or-pay Master Product Purchase Agreement and seeking monetary damages[113] - The company filed a separate lawsuit against Schlumberger Technology Corporation, also alleging breach of a long-term take-or-pay Master Product Purchase Agreement and seeking monetary damages[114] Risk Factors No material changes to risk factors have occurred since the company's 2018 year-end report - As of the date of this report, no material changes have occurred in the risk factors previously included in the company's 2018 Form 10-K[178] Mine Safety Disclosures Operations are subject to MSHA and OSHA regulations, with a focus on maintaining a culture of safety and compliance - The company's operations are subject to stringent health and safety standards under the Federal Mine Safety and Health Act of 1977, enforced by MSHA[181][183] - The company is also subject to OSHA regulations regarding workplace exposure to respirable silica and adheres to the National Industrial Sand Association's respiratory protection program[182] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and agreement amendments