Smart Sand(SND) - 2019 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements Unaudited financial statements show asset and liability growth, increased net income, and a going concern risk from the Credit Facility's 2020 maturity Condensed Consolidated Balance Sheets The balance sheets detail assets, liabilities, and equity, impacted by new lease accounting and credit facility reclassification Condensed Consolidated Balance Sheets Summary | Financial Metric | June 30, 2019 (Unaudited, in thousands) | December 31, 2018 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $68,499 | $50,096 | | Total Assets | $372,501 | $320,292 | | Total Current Liabilities | $75,265 | $24,652 | | Total Liabilities | $143,133 | $110,932 | | Total Stockholders' Equity | $229,368 | $209,360 | - The significant increase in current liabilities is primarily due to the reclassification of the Credit Facility ($38.3 million) to the current portion of long-term debt, as it matures on June 30, 2020[73][74] - The company adopted new lease accounting standards (ASC 842) on January 1, 2019, resulting in the recognition of $32.4 million in operating right-of-use assets and corresponding lease liabilities[11][40] Condensed Consolidated Income Statements The income statements show revenue and net income growth for both the quarter and six-month periods ending June 30, 2019 Condensed Consolidated Income Statements Summary | Metric (in thousands, except per share) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $67,941 | $54,448 | $119,716 | $97,076 | | Gross Profit | $24,873 | $19,770 | $36,043 | $26,985 | | Operating Income | $19,205 | $12,909 | $25,156 | $14,263 | | Net Income | $14,276 | $10,021 | $18,309 | $10,996 | | Diluted EPS | $0.36 | $0.25 | $0.46 | $0.27 | Condensed Consolidated Statements of Cash Flows The cash flow statements highlight changes in operating, investing, and financing activities, showing a net decrease in cash for the period Condensed Consolidated Statements of Cash Flows Summary | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,403 | $18,913 | | Net cash used in investing activities | $(13,869) | $(96,719) | | Net cash (used in) provided by financing activities | $(3,747) | $44,324 | | Net decrease in cash and cash equivalents | $(213) | $(33,482) | | Cash and cash equivalents at end of period | $1,253 | $1,745 | - Investing activities in H1 2019 were significantly lower at $13.9 million compared to $96.7 million in H1 2018, which included acquisitions and a major facility expansion[26][165] - Financing activities in H1 2019 showed a net cash use of $3.7 million, primarily for debt repayment, contrasting with a net cash provision of $44.3 million in H1 2018 from credit facility proceeds[26][166] Notes to the Condensed Consolidated Financial Statements The notes detail business operations, a 'Going Concern' risk, increased shortfall revenue, and pending litigation over significant receivables - Going Concern: The company's Credit Facility matures on June 30, 2020. Without refinancing, this raises substantial doubt about the company's ability to continue as a going concern. The company is pursuing refinancing plans[37] - Revenue Mix: Shortfall revenue, recognized from customers not meeting minimum take-or-pay contract volumes, increased dramatically to $16.3 million in Q2 2019 and $22.0 million in H1 2019, compared to just $0.7 million in the respective prior-year periods[89] - Litigation and Receivables: The company has filed lawsuits against U.S. Well Services and Schlumberger for breach of contract over failure to pay amounts due. As of June 30, 2019, $34.6 million of accounts and unbilled receivables are from customers with whom the company has pending litigation[114][115][116] - Customer Concentration: For the six months ended June 30, 2019, three customers accounted for 60% of total revenues. As of June 30, 2019, four customers accounted for 89% of total accounts receivable[105][106] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2019 revenue growth from shortfall revenue, a working capital deficit, 'Going Concern' risk, and strong non-GAAP measure performance Results of Operations This section details financial performance, highlighting revenue, gross profit, and net income changes for the quarter and six-month periods Results of Operations Summary | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Change % | | :--- | :--- | :--- | :--- | | Revenues | $67,941 | $54,448 | 25% | | Gross Profit | $24,873 | $19,770 | 26% | | Net Income | $14,276 | $10,021 | 42% | - The increase in Q2 2019 revenue was primarily driven by $16.3 million in shortfall revenue from take-or-pay contracts, compared to only $0.7 million in Q2 2018. This offset a decrease in sand sales volume from 839,000 tons in Q2 2018 to 741,000 tons in Q2 2019[130] - For the six months ended June 30, 2019, revenues increased 23% to $119.7 million, and net income increased 67% to $18.3 million compared to the same period in 2018, also driven by higher shortfall revenue[140][141][146] Non-GAAP Financial Measures This section presents non-GAAP financial metrics like Adjusted EBITDA and Contribution Margin, showing strong year-over-year growth Non-GAAP Financial Measures Summary | Non-GAAP Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Adjusted EBITDA | $26,243 | $19,257 | $38,665 | $25,110 | | Contribution Margin | $30,974 | $23,648 | $48,050 | $33,967 | - The increase in Adjusted EBITDA and Contribution Margin for both the three and six-month periods was primarily attributed to higher shortfall revenue and increased in-basin sales volumes[151][156] Liquidity and Capital Resources This section discusses the company's liquidity, capital resources, working capital changes, and the critical 'Going Concern' risk - Going Concern: Management explicitly states that the June 30, 2020 maturity of its Credit Facility raises substantial doubt about the company's ability to continue as a going concern if it is not refinanced[158][159] - Working capital shifted from a $25.4 million surplus at the end of 2018 to a $6.8 million deficit at June 30, 2019. This was mainly caused by classifying the Credit Facility as a short-term obligation[162] - As of June 30, 2019, the company had $16.0 million in undrawn availability under its $55.0 million Credit Facility[167] - The company estimates full-year 2019 capital expenditures to be between $25 million and $35 million[171] Quantitative and Qualitative Disclosures about Market Risk No material changes to the company's market risk exposure were reported for the period - There have been no material changes in the company's exposure to market risks during the six months ended June 30, 2019[186] Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[188] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2019, that have materially affected or are likely to materially affect internal controls[189] PART II OTHER INFORMATION Legal Proceedings The company is engaged in litigation with two major customers over alleged breach of long-term take-or-pay contracts and non-payment - Smart Sand filed a lawsuit against U.S. Well Services, LLC on January 14, 2019, for breach of contract related to a long-term take-or-pay agreement[115] - Smart Sand filed a lawsuit against Schlumberger Technology Corporation on January 3, 2019, also for breach of contract over a long-term take-or-pay agreement[116] Risk Factors Key risks include collection uncertainty from litigation-involved receivables and the inability to refinance the Credit Facility, raising going concern doubts - A substantial portion of accounts and unbilled receivables ($34.6 million as of June 30, 2019) are from two customers currently in litigation with the company, posing a significant collection risk[193] - The company's Credit Facility matures on June 30, 2020, and failure to refinance it could have a material adverse effect on the business and raises substantial doubt about the company's ability to continue as a going concern[194] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - There were no unregistered sales of equity securities during the period[195] Defaults upon Senior Securities No defaults upon senior securities were reported for the period - There were no defaults upon senior securities during the period[196] Mine Safety Disclosures The company's mining operations are subject to MSHA and OSHA regulations, including annual inspections and rules on respirable silica exposure - The company's operations are regulated by MSHA, which performs at least two unannounced inspections annually[197] - The company is subject to OSHA regulations for workplace exposure to respirable silica and may need to incur capital expenditures if exposure limits are lowered[198] Other Information No other material information was reported for the period - There was no other information to report[201] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL data