Smart Sand(SND) - 2023 Q4 - Annual Report

Front Matter Form 10-K Filing Details SMART SAND, INC.'s annual report for December 31, 2023, details its Nasdaq-listed stock (SND) and status as a non-accelerated, smaller reporting company - SMART SAND, INC.'s annual report filing date is December 31, 2023[2] Company Registration Information | Metric | Detail | | :--- | :--- | | Jurisdiction of Incorporation | Delaware | | Stock Symbol | SND | | Exchange Listed | Nasdaq Global Select Market | | Filing Status | Non-accelerated Filer, Smaller Reporting Company | - As of June 30, 2023, the aggregate market value of the company's common stock held by non-affiliates was approximately $45.91 million, with a closing price of $1.64 per share[4] - As of March 4, 2024, the company had 43,008,960 shares of common stock outstanding[5] Table of Contents The report's table of contents clearly outlines the four parts of Form 10-K, covering business, risk factors, financial condition, management's discussion and analysis, financial statements, and other legal and corporate governance information - The Form 10-K report is divided into four main parts: PART I (Business Information), PART II (Financial Information), PART III (Corporate Governance), and PART IV (Exhibits)[10] Certain Definitions This section defines common terms used in the report, including company names, stock, ABL credit facilities, Oakdale equipment financing, and abbreviations for regulations and accounting standards, ensuring consistent understanding Key Term Definitions | Term | Definition | | :--- | :--- | | "We", "Us", "Company", "Smart Sand" or "Our" | Smart Sand, Inc. and its subsidiaries | | "shares", "stock" | Common stock of Smart Sand, Inc., par value $0.001 per share | | "ABL Credit Facility", "ABL Credit Agreement", "ABL Security Agreement" | Five-year senior secured asset-based revolving credit facility dated December 13, 2019, with Jefferies Finance LLC | | "Oakdale Equipment Financing", "MLA" | Five-year master lease agreement dated December 13, 2019, with Nexseer Capital, for a sale-leaseback financing arrangement for Oakdale facility equipment | | "Exchange Act" | Securities Exchange Act of 1934, as amended | | "Securities Act" | Securities Act of 1933, as amended | | "FASB", "ASU", "ASC", "GAAP" | Financial Accounting Standards Board, Accounting Standards Update, Accounting Standards Codification, U.S. Generally Accepted Accounting Principles | Disclaimer Regarding Forward-looking Statements and Risk Factor Summary This section warns investors that the report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from expectations, outlining key risk factors and advising reference to detailed sections - All non-historical statements in the report are forward-looking, pertaining to financial condition, operating results, plans, objectives, future performance, and business[12] - Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations[12] - Key risks include: fluctuations in frac sand demand, customer business cyclicality, operational risks (e.g., transportation, energy price changes), reliance on the Oakdale mine, oil and gas industry activity levels, development of alternative proppants or new hydraulic fracturing techniques, increased competition, regulatory policy changes, litigation risks, supply chain shortages, geopolitical events (e.g., Ukraine and Middle East conflicts), capital expenditure capacity, debt limitations, global pandemics, contractual obligations, accuracy of mineral reserve estimates, labor shortages, loss of key personnel, labor relations, quality control, seasonal weather, information technology system disruptions (including cyberattacks), environmental regulations, silica dust-related health issues and litigation, and financial assurance for mining property reclamation[13][14][15][16][17][18][19][20][103][104][105][106][107][108][109][110][111][112][113][114][115][116][117][118][119][120][121][122][123][124][125][126][127][128][129][130][131][132][133][134][135][136][137][138][139][140][141][142][143][144][145][146][147][148][149][150][151][152][153][154][155][156][157][158][159][160][161][162][163][164][165][166][167][168][169][170][171][172][173][174][175][176][177][178][179][180][181][182][183][184][185][186][187][188][189][190][191][192][193][194][195][196][197][198][199][200][201][202][203][204][205][206][207][208] PART I ITEM 1. — BUSINESS Smart Sand, Inc. is an integrated frac sand and industrial sand supply and service company, offering mine-to-wellsite proppant supply and logistics solutions, producing high-quality Northern White Sand and SmartSystems wellsite proppant storage solutions, while expanding capacity, logistics, and diversifying into Industrial Products Solutions (IPS) - Smart Sand is an integrated frac sand and industrial sand supply and service company, providing mine-to-wellsite proppant supply and logistics solutions[21] - The company produces low-cost, high-quality Northern White Sand for hydraulic fracturing and various industrial applications[21] - Proppant logistics services are provided through SmartSystems wellsite proppant storage solutions and in-basin transload terminals[22] - The Industrial Products Solutions (IPS) business was established in late 2021 to diversify the customer base and markets[23] - The company operates mines and processing facilities in Oakdale, Utica, and Blair, with a total annual processing capacity of approximately 10 million tons[24] - Smart Sand directly controls five in-basin transload facilities and can utilize third-party transload stations, covering all major North American oil and gas basins[25] - SmartSystems products, including SmartDepot/SmartDepotXL silo systems, SmartPath transloaders, and SmartBelt conveyor systems, aim to enhance wellsite operational efficiency, safety, reliability, and reduce carbon footprint[26][27][28] - The company possesses a long-life, strategically located, high-quality reserve base, with estimated mine lives of 61 years for Oakdale, 106 years for Utica, and 45 years for Blair[29][30][31] - The company has inherent logistical advantages, utilizing its own rail facilities and access to all Class I railroads for efficient, low-cost product transportation[32][33] - Smart Sand is committed to being a low-cost provider by optimizing production processes, investing in efficiency projects, and strategic acquisitions[34][35] - Sales activities are flexible, focusing on short-term contracts and spot sales to respond to market fluctuations[36] - The company maintains ample liquidity and financial flexibility, with $6.1 million in cash and $12 million available under its ABL credit facility as of December 31, 2023[37][38] - The management team is highly experienced, possessing deep expertise in industry operations and technology[39] - The company prioritizes safety and environmental stewardship, participating in Wisconsin's Green Tier program and holding ISO 9001 and ISO 14001 certifications[40][41] - Capital expenditures for 2024 are projected to be between $19 million and $23 million, primarily for efficiency projects at mine and processing facilities and investment in new Ohio transload stations[42][43] - North American proppant market demand was approximately 132 million tons in 2023, a 5% increase from 2022, with 2024 demand expected to be flat compared to 2023[44][45] - The frac sand industry is highly competitive, with key factors including service capability, product quality, transportation capacity, supply reliability, price, and logistics services[46][47] - Business is affected by seasonal weather conditions, with reduced mining and wet sand processing in winter, potentially leading to cash flow fluctuations[48][49] - The company's intellectual property primarily includes trade secrets, proprietary technology, and trademarks, with patents for SmartSystems wellsite proppant storage solutions[50][51] - The company is subject to federal, state, local, and international environmental, mining, health, and safety regulations, incurring significant compliance costs[52][53] - As of December 31, 2023, the company employed 378 individuals, with 42 employees covered by a collective bargaining agreement expiring on April 30, 2024[54][55] ITEM 1A. — RISK FACTORS This section details various risks that could materially adversely affect the company's business, operating results, and financial condition, including those related to oil and gas industry activity levels, customer concentration, competition, capital expenditures, operational disruptions, regulatory environment, climate change, intellectual property, and common stock ownership - The company's business and financial performance are highly dependent on oil and gas industry activity levels, where fluctuations in oil and gas prices, alternative energy development, or regulatory changes could decrease frac sand demand[13][103] - Revenue is highly concentrated among a few customers, and the loss, default, or significant reduction in purchases by any major customer could adversely affect the business[14][104] - The frac sand industry is highly competitive, and new entrants, increased regional frac sand supply, or competitor vertical integration could lead to market share loss and price pressure[17][107] - The company may require significant capital expenditures to maintain and develop its asset base, with no guarantee of sufficient returns, and difficulty obtaining satisfactory capital or financing terms could limit future growth[19][109] - Inaccurate estimates of sand reserves and quality could lead to lower-than-expected sales and higher-than-expected production costs[110] - Any adverse developments at production facilities, rail transload stations, or rail lines (e.g., catastrophic events, weather, disruptions) could prevent the company from fulfilling contractual delivery obligations[115] - Restrictions from the ABL credit facility may limit the company's ability to pursue potential acquisitions and other business opportunities, and the facility's expiration in December 2024 poses renewal risk[111] - Distribution and logistics challenges, including increased transportation costs, rail service disruptions, or inadequate infrastructure, could impact product delivery efficiency and operating costs[112] - The development of alternative proppants or new hydraulic fracturing techniques could lead to decreased demand for frac sand[113] - Operations face operational risks and unforeseen shutdowns from natural disasters or pandemics, and insurance may not fully cover all losses[116] - Production processes consume substantial natural gas and electricity, and rising energy prices or supply interruptions could significantly increase production costs[117] - Rising diesel prices could adversely affect transportation costs[118] - Facility closures involve significant fixed costs, and early closure could adversely affect operating results[119] - Operations depend on the renewal or acquisition of mining rights and government permits, and any delays or denials could materially adversely affect the business[120] - Shortages of skilled labor and rising labor costs could further increase operating costs, and the loss of key personnel could also harm the business[121](index=121&type=chunk][122] - Failure to maintain effective quality control systems could negatively impact the business[123] - Seasonal and adverse weather conditions could reduce product processing and delivery capabilities, leading to cash flow fluctuations[124][125] - The company does not own the land where its transload facilities are located, limiting its rights at these facilities[126] - Terrorist attacks or armed conflicts could affect the economy and oil and gas demand, impacting the company's business[127] - Reduced access to water resources could affect sand processing capabilities[128] - Information technology system disruptions or cyberattacks could lead to data loss, operational interruptions, and financial losses[129] - Failure to adequately protect intellectual property or involvement in third-party intellectual property disputes could result in loss of competitive advantage and significant costs[130][131] - Current reliance on a few suppliers for certain SmartSystems equipment and materials poses price and delivery risks[132] - Poor safety performance could negatively impact customer relationships and revenue[133] - The company may face legal claims for personal injury and property damage, with uncertain litigation outcomes[134] - Economic downturns could negatively impact business, operating results, financial condition, and liquidity[135] - Failure to effectively manage expanded operations (e.g., Blair facility and Ohio transload stations acquisition) could impair future performance[136] - Federal, state, and local legislative and regulatory measures related to hydraulic fracturing, along with potential litigation, could increase customer costs, restrict operations, and reduce frac sand demand[137] - The company and its customers are subject to extensive environmental and occupational health and safety regulations, which entail significant costs and liabilities, with stricter future regulations potentially increasing these burdens[138] - Silica dust-related legislation, health concerns, and litigation could materially adversely affect the business, reputation, or operating results[139] - The company is subject to the Federal Mine Safety and Health Act of 1977, which imposes stringent health and safety standards on many aspects of its operations, and non-compliance could have adverse effects[140] - Failure to obtain, maintain, or renew financial assurances for mining property reclamation and restoration could materially adversely affect the business[141] - Climate change legislation and regulatory measures (e.g., Inflation Reduction Act, SEC disclosure rules, Paris Agreement) could increase compliance costs for the company and its customers, and impact oil and gas demand[142] - A negative shift in investor sentiment towards the oil and gas industry and increasing focus on environmental, social, and governance (ESG) and conservation matters could adversely affect the company's stock price, financing capabilities, and reputation[143] - Stock price may fluctuate, and investors may not be able to resell common stock at or above the purchase price[144] - The company is subject to certain requirements of Section 404 of the Sarbanes-Oxley Act, and failure to comply in a timely manner or high compliance costs could adversely affect financial reporting reliability and stock price[145] - The concentrated ownership of the company's capital stock by the largest shareholder and its affiliates will limit investors' ability to influence company affairs[146] - Common stock price may fluctuate significantly, and investors could lose part or all of their investment[147] - If securities or industry analysts do not publish research reports or publish unfavorable reports, common stock price and trading volume may decline[148] - The company's amended and restated certificate of incorporation and bylaws, along with Delaware law, contain provisions that could deter acquisition offers or merger proposals, potentially adversely affecting the market price of common stock[149] - The company currently does not pay common stock dividends, and debt agreements impose certain restrictions on dividend payments[150] - Future sales of common stock in the public market could depress the stock price, and issuing equity or convertible securities could dilute ownership[151] - The company may issue preferred stock, whose terms could adversely affect the voting rights or value of common stock[152] - The company's amended and restated certificate of incorporation designates the Delaware Court of Chancery as the sole and exclusive forum for certain types of actions, which may limit shareholders' ability to obtain a favorable judicial forum for disputes with the company or its directors, officers, employees, or agents[153] ITEM 1B. — UNRESOLVED STAFF COMMENTS The company has no unresolved staff comments for the reporting period - The company has no unresolved staff comments for the reporting period[209] ITEM 1C. — CYBERSECURITY The company has established a cyber risk management program to identify, assess, manage, mitigate, and respond to cybersecurity threats, adhering to standards like the NIST Cybersecurity Framework, and has not experienced any material cybersecurity incidents - The company implements a cyber risk management program, adhering to standards such as the NIST Cybersecurity Framework, to identify, assess, manage, mitigate, and respond to cybersecurity threats[210] - Various security tools are utilized to prevent, identify, escalate, investigate, resolve, and recover from vulnerabilities and security incidents[210] - An incident response plan is in place, defining procedures for assessing, identifying, and managing cybersecurity incidents[211] - The Vice President of Technology is responsible for all IT functions, possessing over 29 years of IT professional experience, including 7 years with Smart Sand[212][213] - The Board of Directors receives regular updates on the cybersecurity program[214] - To date, no cybersecurity incidents have occurred that resulted in unauthorized access to customer, vendor, employee, or company data, and have had a material adverse effect on the company's business, operations, or consolidated financial condition[215] PART II ITEM 5. — MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The company's common stock (SND) has traded on the Nasdaq Global Select Market since November 4, 2016, with 43,008,960 shares outstanding held by approximately 31 registered shareholders as of March 4, 2024, and no current common stock dividends are paid - The company's common stock (SND) has been publicly traded on the Nasdaq Global Select Market since November 4, 2016[282] Common Stock Information | Metric | Detail | | :--- | :--- | | Stock Symbol | SND | | Listing Date | November 4, 2016 | | Shares Outstanding as of March 4, 2024 | 43,008,960 shares | | Registered Shareholders as of March 4, 2024 | Approximately 31 | - The company currently does not pay common stock dividends, and future dividend payments are at the discretion of the Board of Directors, subject to Delaware corporate law, company bylaws, and the ABL Credit Agreement[284] ITEM 6. — RESERVED This section is reserved and contains no specific information disclosure - This section is reserved and contains no specific information disclosure[289] ITEM 7. — MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's detailed discussion and analysis of the company's financial condition and operating results, covering factors affecting financial outcomes, business overview, recent developments, assets and operations, revenue sources, operating costs, industry trends, and outlook, along with GAAP and non-GAAP financial metrics, liquidity, capital resources, material cash requirements, off-balance sheet arrangements, environmental matters, seasonality, customer concentration, and critical accounting estimates Factors Affecting Comparability of Our Financial Results The comparability of the company's historical performance is influenced by operational expansion (new mines, terminals, and industrial products business), fluctuations in frac sand market prices (due to COVID-19, oil and gas demand, inflation, and geopolitical events), a 2021 litigation settlement, and inventory impairment losses - Operational expansion: Recent additions of two mines, multiple terminals, and expansion into industrial products business have increased revenue, cost of sales, operating costs, and capital investments, reducing period comparability[293] - Market trends: Frac sand prices have fluctuated, with a significant demand drop in 2020 due to COVID-19, a gradual recovery from late 2020 to mid-2023, and a slowdown in demand in Q4 2023; high inflation increased operating expenses in 2022 and 2023; the Ukraine conflict, Middle East situation, and LNG permit pauses may cause oil and gas price and activity volatility in 2024[293] - Litigation settlement: In 2021, approximately $19.6 million in bad debt was recorded, with $35 million cash collected through a settlement agreement, resolving $54.6 million in accounts receivable[293] - Inventory impairment: In 2021, $2.2 million in inventory impairment losses were recorded, with no impairment losses in 2022 and 2023[293] Overview Smart Sand is an integrated frac sand and industrial sand supply and service company, providing mine-to-wellsite proppant supply and logistics solutions, producing high-quality Northern White Sand and SmartSystems wellsite storage solutions, and has expanded capacity at Oakdale, Utica, and Blair through acquisitions, directly controlling five in-basin transload stations with access to all Class I railroads, and diversifying into Industrial Products Solutions (IPS) - Smart Sand provides frac sand and industrial sand supply and logistics solutions, including Northern White Sand production and SmartSystems wellsite storage services[296] - The Oakdale facility has an annual processing capacity of approximately 5.5 million tons, Utica 1.6 million tons, and Blair 2.9 million tons, significantly increasing total capacity[296][297] - The company directly controls five in-basin transload stations, including Van Hook, Waynesburg, El Reno, and plans to operate Minerva and Dennison (Ohio) terminals in Q2 2024[298][299] - SmartSystems products (SmartDepot, SmartPath, SmartBelt, rapid deployment trailers) offer wellsite proppant unloading, storage, and delivery capabilities, enhancing efficiency, flexibility, and safety, while reducing carbon footprint[300] - The Industrial Products Solutions (IPS) business expanded in late 2021, with mixing and cooling assets installed at the Utica facility in 2023 to serve industrial markets like glass, foundry, and building products[302][303] Recent Developments The company recently expanded its Appalachian Basin logistics network by acquiring Minerva and Dennison transload stations in Ohio, expected to be operational in Q2 2024, and the Blair mine and processing facility became operational in Q2 2023, adding approximately 2.9 million tons of annual capacity and Canadian National Railway Class I access - In late 2023 and early 2024, the company acquired operating rights for unit train transload facilities in Minerva and Dennison, Ohio, expected to be operational in Q2 2024, to expand its customer base in the Appalachian Basin[304] - The Blair mine and processing facility commenced operations in April 2023, with an annual processing capacity of approximately 2.9 million tons and direct access to the Class 1 Canadian National Railway, enhancing market reach in Canada and North America[305] Assets and Operations The company possesses high-quality frac sand reserves and processing facilities in Oakdale, Utica, and Blair, totaling approximately 484 million tons of proven and probable reserves, complemented by significant logistical advantages including multiple Class I rail accesses and SmartSystems wellsite storage solutions to optimize customer supply chain efficiency and costs - The Oakdale facility holds 243 million tons of proven and probable reserves, with an estimated mine life of 61 years, offering competitive logistics options through dual Class I rail access (Canadian Pacific and Union Pacific)[306][307] - The Utica facility has 127 million tons of proven and probable reserves, with an estimated mine life of 106 years, accessing the BNSF railway via the Peru transload station to serve western U.S. basins and Midwest industrial markets[309][310] - The Blair facility contains 114 million tons of proven and probable reserves, with an estimated mine life of 45 years, providing direct access to the Class 1 Canadian National Railway, further enhancing logistical advantages[311][312] - The logistics network includes transload stations such as Van Hook (Bakken Basin), Waynesburg (Appalachian Basin), Minerva and Dennison (Ohio, expected Q2 2024 operation), and El Reno (Woodford and SCOOP/STACK Basins)[313] - SmartSystems offers wellsite proppant storage and management solutions, including SmartDepot silos, SmartPath transloaders, and SmartBelt conveyors, designed to improve efficiency, reduce trucking and fuel consumption, and lower customer carbon footprints[314] - The company currently has direct access to four Class I railroads and can access all Class I railroads in the U.S. and Canada to maximize product transportation, improve railcar utilization, and reduce transportation costs[314] How We Generate Revenue The company primarily generates revenue by extracting and processing frac sand for oil and gas industry customers through short-term, long-term, and spot sales, charging for transportation and handling services, with additional revenue from SmartSystems equipment leasing and related services, and Industrial Products Solutions (IPS) - Frac sand sales revenue: Generated by extracting and processing frac sand, sold to oil and gas industry customers via short-term, long-term contracts, or spot sales, with revenue recognized upon product delivery; in-basin sales also include transportation and handling service fees[315] - Take-or-pay revenue: Derived from minimum purchase commitments in long-term contracts, with revenue recognized upon expiration of the right-to-use period[316] - Logistics revenue: Primarily from SmartSystems equipment leasing and related services, railcar usage fees, and transportation service fees, with revenue recognized as obligations are fulfilled[317] - Industrial Products Solutions (IPS): Began providing industrial sand in Q4 2021, with expected expansion in 2024 to serve markets such as glass, foundry, and building products[317] Costs of Conducting Our Business The company's primary direct operating costs include freight (transportation and railcar leasing) and production costs (labor, maintenance, utilities, equipment, extraction, and depreciation of property, plant, and equipment), with energy costs being particularly susceptible to market fluctuations - Primary direct costs: Freight (transportation and railcar lease expenses) and production costs[318] - Production cost components: Labor, maintenance, utilities (electricity and natural gas), equipment, extraction, and depreciation of property, plant, and equipment[318] - Cost fluctuations: Utility costs (electricity and natural gas) are susceptible to market fluctuations[318] - Inventory costs: Processing costs, overhead allocation, depreciation, and depletion are capitalized as inventory components and expensed as cost of sales when inventory is sold[318] Overall Trends and Outlook North American proppant market demand grew 5% in 2023 and is expected to remain stable in 2024, with ongoing industry consolidation and limited Northern White Sand supply; the company is expanding its asset base and product lines to capitalize on market opportunities, anticipating healthy frac sand demand and stable prices in 2024 driven by longer horizontal wells and higher proppant usage per well North American Proppant Market Demand | Year | Demand (million tons) | Year-over-year Change | | :--- | :--- | :--- | | 2023 | 132 | +5% | | 2022 | 127 | - | | 2024 (projected) | 132 | 0% | - Supply trends: Industry consolidation continues, with limited Northern White Sand supply concentrated in specific regions, constraining new supply; the market shift towards finer mesh frac sand and lower-cost regional sand has led to the closure or idling of some coarse sand mines[320][321] - Management outlook: The company is capitalizing on market opportunities by expanding its terminal network (Waynesburg, Minerva, Dennison), increasing capacity (Blair mine), and growing its IPS business[323] - The Blair facility's operation provides the company with direct access to four Class I railroads and access to all Class I railroads in the U.S. and Canada[324] - Frac sand demand is expected to remain healthy in 2024, with relatively stable prices, benefiting from trends towards longer horizontal wells and higher proppant usage per well by oil and gas companies[325][326] - Oil and gas companies are adopting a more disciplined approach to new drilling activities, leading to a relatively balanced supply and demand and rising oil and gas prices[327] - The Bakken and Marcellus formations, along with the Canadian market, remain key markets for the company, which will expand market share through strategic initiatives[328] - Industry trends support continued frac sand demand growth and increased SmartSystems demand as customers seek to improve wellsite sand management efficiency[329] GAAP Results of Operations The company's 2023 net income was $4.6 million, a significant improvement from a $0.7 million net loss in 2022, primarily due to increased sales volume and higher average selling prices, partially offset by rising operating costs; 2022 total revenue reached $255.7 million, a 102% increase from 2021, driven by higher volume and prices, but still resulted in a $0.7 million net loss, a substantial reduction from the $50.7 million loss in 2021 2023 vs. 2022 GAAP Operating Results (thousand dollars) | Metric | 2023 | 2022 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Sand Sales Revenue | $283,160 | $243,162 | $39,998 | 16% | | Take-or-Pay Revenue | $4,304 | $5,010 | $(706) | (14)% | | Logistics Revenue | $8,509 | $7,568 | $941 | 12% | | Total Revenue | $295,973 | $255,740 | $40,233 | 16% | | Cost of Sales | $254,418 | $226,149 | $28,269 | 13% | | Gross Profit | $41,555 | $29,591 | $11,964 | 40% | | Total Operating Expenses | $43,059 | $32,719 | $10,340 | 32% | | Operating Loss | $(1,504) | $(3,128) | $1,624 | 52% | | Other (Expense) Income, Net | $(748) | $(780) | $32 | 4% | | Loss Before Income Taxes | $(2,252) | $(3,908) | $1,656 | 42% | | Income Tax Benefit | $(6,901) | $(3,205) | $(3,696) | 115% | | Net Income (Loss) | $4,649 | $(703) | $5,352 | 761% | | Basic Net Income (Loss) Per Share | $0.12 | $(0.02) | - | - | | Diluted Net Income (Loss) Per Share | $0.12 | $(0.02) | - | - | | Basic Weighted Average Shares | 38,948 | 42,408 | - | - | | Diluted Weighted Average Shares | 39,046 | 42,408 | - | - | - 2023 revenue increased by 16% to $296 million, primarily due to a 4% increase in sales volume and higher sand prices[332] - 2023 gross profit increased by 40% to $41.6 million, mainly driven by higher sales volume and average selling prices[333] - 2023 operating expenses increased by 32% to $43.1 million, primarily due to increased headcount, Blair facility-related maintenance, royalties, insurance expenses, and a $1.8 million net loss on disposal of fixed assets[334][335] - 2023 net interest expense was $1.3 million, and income tax benefit was $6.9 million, resulting in an effective tax rate of approximately 306.4%[336][337] - 2023 net income was $4.6 million, a significant improvement from a $0.7 million net loss in 2022, primarily due to increased sales volume and prices, and a higher income tax benefit[338] 2022 vs. 2021 GAAP Operating Results (thousand dollars) | Metric | 2022 | 2021 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Sand Sales Revenue | $243,162 | $117,402 | $125,760 | 107% | | Take-or-Pay Revenue | $5,010 | $4,421 | $589 | 13% | | Logistics Revenue | $7,568 | $4,825 | $2,743 | 57% | | Total Revenue | $255,740 | $126,648 | $129,092 | 102% | | Cost of Sales | $226,149 | $140,384 | $85,765 | 61% | | Inventory Impairment Loss | $0 | $2,170 | $(2,170) | (100)% | | Gross Profit | $29,591 | $(15,906) | $45,497 | (286)% | | Total Operating Expenses | $32,719 | $47,579 | $(14,860) | (31)% | | Operating Loss | $(3,128) | $(63,485) | $60,357 | (95)% | | Other (Expense) Income, Net | $(780) | $3,794 | $(4,574) | (121)% | | Loss Before Income Taxes | $(3,908) | $(59,691) | $55,783 | (93)% | | Income Tax Benefit | $(3,205) | $(9,017) | $5,812 | (64)% | | Net Income (Loss) | $(703) | $(50,674) | $49,971 | (99)% | | Basic Net Income (Loss) Per Share | $(0.02) | $(1.21) | - | - | | Diluted Net Income (Loss) Per Share | $(0.02) | $(1.21) | - | - | | Basic Weighted Average Shares | 42,408 | 41,775 | - | - | | Diluted Weighted Average Shares | 42,408 | 41,775 | - | - | - 2022 revenue increased by 102% to $255.7 million, primarily due to a 36% increase in sales volume and higher sand prices[342] - 2022 gross profit was $29.6 million, a significant improvement from a $15.9 million loss in 2021, mainly due to increased sales volume and average selling prices[343] - 2022 operating expenses decreased by 31% to $32.7 million, primarily due to a $19.6 million non-cash bad debt expense recorded in 2021, though compensation, benefits, and selling, general, and administrative expenses increased[344][345] - 2022 net interest expense was $1.6 million, and income tax benefit was $3.2 million, resulting in an effective tax rate of approximately 82.0%[346][347] - 2022 net loss was $0.7 million, a significant reduction from a $50.7 million net loss in 2021, primarily due to increased sales volume and prices, and a decrease in non-cash bad debt expense from the prior year[348][349](index=349&type=chunk][350] Non-GAAP Financial Measures The company uses non-GAAP metrics such as contribution margin, EBITDA, Adjusted EBITDA, and free cash flow to assess financial and operational performance, providing insights into asset financial performance, capital expenditure project viability, debt service capacity, and operational performance, also used for debt covenant compliance - Non-GAAP financial measures include contribution margin, EBITDA, Adjusted EBITDA, and free cash flow, used to assess financial condition and operating performance[351][353] Contribution Margin (thousand dollars) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenue | $295,973 | $255,740 | $126,648 | | Cost of Sales | $254,418 | $226,149 | $140,384 | | Gross Profit | $41,555 | $29,591 | $(13,736) | | Depreciation, Depletion, and Amortization of ARO included in Cost of Sales | $25,469 | $25,038 | $24,258 | | Contribution Margin | $67,024 | $54,629 | $10,522 | | Contribution Margin Per Ton | $14.85 | $12.61 | $3.30 | | Total Volume (thousand tons) | 4,514 | 4,333 | 3,189 | - 2023 contribution margin was $67 million ($14.85 per ton), an increase from $54.6 million ($12.61 per ton) in 2022, primarily due to increased sales volume, higher average selling prices, and production cost savings, partially offset by higher freight costs[356] - 2022 contribution margin was $54.6 million ($12.61 per ton), a significant increase from $10.5 million ($3.30 per ton) in 2021, primarily due to increased sales volume, higher average selling prices, growth in IPS sales, and improved SmartSystems fleet utilization[357] EBITDA and Adjusted EBITDA (thousand dollars) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Income (Loss) | $4,649 | $(703) | $(50,674) | | Depreciation, Depletion, and Amortization | $27,363 | $26,521 | $25,495 | | Income Tax Benefit | $(6,901) | $(3,205) | $(9,017) | | Interest Expense | $1,532 | $1,661 | $2,014 | | Franchise Tax | $804 | $353 | $290 | | EBITDA | $27,447 | $24,627 | $(31,892) | | (Gain) Loss on Disposal of Fixed Assets | $1,802 | $(294) | $555 | | Stock-based Compensation | $3,391 | $2,729 | $2,933 | | Royalty Stock Issuance | $0 | $639 | $0 | | Employee Retention Credit | $0 | $0 | $(5,026) | | Acquisition and Development Costs | $545 | $675 | $28 | | Non-cash Impairment | $0 | $0 | $2,170 | | Restructuring and Retention Related Cash Expenses | $32 | $137 | $9 | | Amortization of Asset Retirement Obligations | $904 | $758 | $740 | | Adjusted EBITDA | $34,121 | $29,271 | $(30,483) | - 2023 Adjusted EBITDA was $34.1 million, an increase from $29.3 million in 2022, primarily due to increased sales volume and production cost savings, partially offset by higher freight costs[363][364] - 2022 Adjusted EBITDA was $29.3 million, a significant increase from negative $30.5 million in 2021, primarily due to a reduced net loss (higher sales volume and prices) and the $19.6 million non-cash bad debt expense recorded in 2021[366] Free Cash Flow (thousand dollars) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $30,991 | $5,420 | $32,438 | | Acquisition of Blair Facility | $0 | $(6,547) | $0 | | Purchases of Property, Plant, and Equipment | $(23,031) | $(12,731) | $(11,220) | | Free Cash Flow | $7,960 | $(13,858) | $21,218 | - 2023 free cash flow was $8 million, with net cash provided by operating activities increasing to $31 million, primarily due to higher sales volume and selling prices, and capital expenditures of $23 million[369] - 2022 free cash flow was negative $13.9 million, with net cash provided by operating activities at $5.4 million, primarily impacted by increased working capital needs at the beginning of the year, and the acquisition of the Blair facility and planned capital expenditures exceeding cash provided by operating activities[370] Liquidity and Capital Resources The company primarily obtains liquidity through cash flow from operations, ABL credit facilities, and equipment financing; as of December 31, 2023, it had $6.1 million in cash and $12 million available under its ABL credit facility, expecting existing liquidity to meet cash needs for the next 12 months, including efficiency project investments and new terminal expansion - Primary liquidity sources: Cash flow from operating activities, ABL credit facility, and equipment financing[371] - As of December 31, 2023, cash and cash equivalents totaled $6.1 million[372] - ABL credit facility: $20 million senior secured asset-based revolving credit facility, with $8 million borrowed and $12 million available as of December 31, 2023, set to expire on December 13, 2024[372] - Total available liquidity: $18.1 million as of December 31, 2023 (cash plus available borrowings)[372] - The company expects existing liquidity to be sufficient to meet cash needs for the next 12 months, including investments in efficiency projects at Oakdale, Blair, and Utica facilities, and the expansion and customization of newly acquired Ohio terminals[372] Material Cash Requirements The company anticipates $19 million to $23 million in capital expenditures for 2024, mainly for facility efficiency and new terminal expansion; debt includes $7.9 million for Oakdale equipment financing, $2.5 million in notes payable, and $8 million under the ABL credit facility, with operating lease liabilities of $24.6 million and minimum annual mineral property payments of approximately $2.5 million - Capital requirements: Projected 2024 capital expenditures are between $19 million and $23 million, primarily for efficiency projects at Oakdale, Blair, and Utica facilities, and the expansion and customization of new Ohio terminals[373] - Debt: As of December 31, 2023, Oakdale equipment financing balance was $7.9 million ($6.8 million minimum cash payment in 2024), notes payable were $2.5 million ($1.1 million minimum cash payment in 2024), and outstanding borrowings under the ABL credit facility were $8 million[374][375] - Operating leases: As of December 31, 2023, operating lease liabilities were $24.6 million ($11.8 million minimum cash payment in 2024)[376] - Mineral property: Minimum payment obligations of approximately $2.5 million annually for the next 13 years[376] Off-Balance Sheet Arrangements As of December 31, 2023, the company had $18.9 million in outstanding performance bonds, securing obligations such as reclamation plans, public road maintenance, and restoration Outstanding Performance Bonds (thousand dollars) | Year | Amount | | :--- | :--- | | December 31, 2023 | $18,900 | | December 31, 2022 | $17,700 | Environmental Matters The company is subject to federal, state, and local environmental laws and regulations concerning hazardous substances, air and water emissions, environmental contamination, and reclamation, incurring and continuing to incur compliance expenditures, though the exact future amounts are unpredictable - The company is subject to federal, state, and local environmental laws and regulations, and has incurred and will continue to incur compliance expenditures[378] Seasonality The company's business is affected by seasonal weather fluctuations, with reduced wet sand processing in winter leading to lower cash operating costs in Q1 and Q4 and higher costs in Q2 and Q3; however, indoor wet processing facilities at Oakdale and Utica help maintain wet sand inventory year-round, mitigating some seasonal impact, while customer budget discipline may slow demand in Q4 - Seasonal weather impacts wet sand processing capacity, leading to lower cash operating costs in Q1 and Q4 and higher costs in Q2 and Q3[379] - Indoor wet processing facilities at Oakdale and Utica help produce wet sand inventory year-round, mitigating seasonal impacts[379] - Adverse weather conditions can reduce drilling activity in oil and gas basins, affecting sales volume[379] - Customer budget discipline may lead to a slowdown in activity and decreased sand demand in Q4[379] Customer Concentration The company exhibits high customer concentration in both revenue and accounts receivable; in 2023, two customers accounted for 42% of total revenue; in 2022, four customers accounted for 60%; and in 2021, three customers accounted for 58% Customer Revenue Concentration | Year | Customer | Percentage of Total Revenue | | :--- | :--- | :--- | | 2023 | Equitable Gas Corporation, Liberty Oilfield Services | 30.2%, 11.4% (Total 41.6%) | | 2022 | Equitable Gas Corporation, Halliburton Energy Services, Encino Energy, Liberty Oilfield Services | 22.3%, 15.4%, 14.4%, 13.7% (Total 65.8%) | | 2021 | Equitable Gas Corporation, Halliburton Energy Services, Liberty Oilfield Services | 24.3%, 18.3%, 14.8% (Total 57.4%) | - As of December 31, 2023, four customers accounted for 70% of the company's total accounts receivable; as of December 31, 2022, four customers accounted for 65% of total accounts receivable[381][540] Critical Accounting Estimates The preparation of the company's financial statements relies on several critical accounting estimates and assumptions, including asset retirement obligations, inventory valuation, long-lived asset impairment, and income taxes, which involve high uncertainty, and actual results may differ materially from these estimates - Asset retirement obligations: Estimates future costs for dismantling, restoring, and reclaiming operating mine sites, recognized as a liability at estimated fair value and amortized over time[384] - Inventory valuation: Sand inventory is measured at the lower of cost or net realizable value, with cost including extraction, processing, overhead, depreciation, and depletion; physical counts and production adjustments are performed periodically, with a $21.7 million inventory impairment in 2021[385][386] - Long-lived asset impairment: Periodically assesses whether the carrying value of long-lived assets is recoverable, recognizing an impairment loss measured at fair value if not recoverable; no impairment charges were recorded in 2023[388][389] - Income taxes: Uses the balance sheet method to recognize deferred tax assets and liabilities and assesses the realizability of deferred tax assets; as of December 31, 2023, $22.4 million in uncertain tax position liabilities and a $0.9 million valuation allowance for deferred tax assets were recorded[390][391][392] ITEM 7A. — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's market risk is primarily associated with commodity price fluctuations, interest rate changes, and customer credit risk; it hedges commodity price risk through fixed-price contracts, most debt carries fixed interest rates, and customer credit risk is assessed, with no speculative trading and minimal perceived impact from inflation on financial condition - Commodity price risk: Frac sand and storage equipment markets are indirectly affected by crude oil and natural gas price fluctuations, impacting customer drilling and completion activities; natural gas, electricity, and diesel price volatility also affect operating costs; the company hedges some commodity price risk through fixed-price contracts[393] - Interest rate risk: Most debt carries fixed interest rates; the ABL credit facility's borrowing rate is based on LIBOR or ABR plus an applicable margin, with $8 million outstanding as of December 31, 2023, not posing a significant interest rate risk[394] - Credit risk: High customer concentration exists, and customers within the industry may be affected by similar economic and regulatory conditions; customer defaults or non-renewal of contracts upon expiration could adversely affect gross profit and cash flow[395] - Foreign currency risk: Primary revenues and expenses are denominated in U.S. dollars, but Canadian SmartSystems manufacturing facilities involve Canadian dollar transactions; Canadian dollar transactions did not materially impact operating results in 2023, 2022, and 2021[396] - Inflation: The company believes inflation has not had a material impact on its financial condition or operating results[397] PART III ITEM 10. — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required for this section is disclosed by reference to the "Election of Directors" and "Executive Officers of the Registrant" sections in the 2024 Proxy Statement - Director and corporate governance information is disclosed by reference to the "Election of Directors" section in the 2024 Proxy Statement[558] - Executive officer information is disclosed in Part I, "Executive Officers of the Registrant," of the Form 10-K report[559] - Section 16(a) beneficial ownership reporting compliance information is disclosed by reference to the "Section 16(a) Beneficial Ownership Reporting Compliance" section in the 2024 Proxy Statement[560] ITEM 11. — EXECUTIVE COMPENSATION The executive compensation information required for this section is disclosed by reference to the "Executive Compensation" section in the 2024 Proxy Statement - Executive compensation information is disclosed by reference to the "Executive Compensation" section in the 2024 Proxy Statement[561] ITEM 12. — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required for this section, including equity compensation plan information and security ownership of certain beneficial owners and management, is disclosed by reference to the relevant sections in the 2024 Proxy Statement - Equity compensation plan information is disclosed by reference to the relevant tables in the 2024 Proxy Statement[562] - Security ownership information of certain beneficial owners and management is disclosed by reference to the "Principal Stockholders" section in the 2023 Proxy Statement[563] ITEM 13. — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required for this section, including certain relationships and related transactions and director independence, is disclosed by reference to the relevant sections in the 2024 Proxy Statement - Information on certain relationships and related transactions, and director independence, is disclosed by reference to the "Certain Relationships and Related Party Transactions" and "Corporate Governance" sections in the 2024 Proxy Statement[564] ITEM 14. — PRINCIPAL ACCOUNTANT FEES AND SERVICES The principal accountant fees and services information required for this section is disclosed by reference to the relevant section in the 2024 Proxy Statement - Principal accountant fees and services information is disclosed by reference to the "Ratification of the Selection of Grant Thornton LLP as the Company’s Independent Registered Public Accounting Firm for the Year Ended December 31, 2023" section in the 2024 Proxy Statement[565] PART IV ITEM 15. — EXHIBITS, FINANCIAL STATEMENT SCHEDULES This section lists the financial statements, financial statement schedules, and all exhibits included in the Form 10-K report, such as equity purchase agreements, company bylaws, credit agreements, product purchase agreements, technical report summaries, subsidiary lists, and various certification documents - Financial statements are included in Item 8 of Part II of the Form 10-K report[567] Schedule II - Valuation and Qualifying Accounts (thousand dollars) | Year | Balance at Beginning of Year | Charged to Costs and Expenses | Additions/Deductions | Balance at End of Year | | :--- | :--- | :--- | :--- | :--- | | December 31, 2022 | $1,574 | $14 | $0 | $1,588 | | December 31, 2023 | $1,588 | $0 | $714 | $874 | - Report exhibits include equity purchase agreements, company bylaws, credit agreements, product purchase agreements, technical report summaries, subsidiary lists, independent registered public accounting firm consent letters, and various certification documents[568][569][570] ITEM 16. — FORM 10-K SUMMARY This report does not contain a Form 10-K summary - This report does not contain a Form 10-K summary[571] SIGNATURES Signatures This report was signed on March 11, 2024, by authorized representatives of the registrant, including the Chief Executive Officer, Chief Financial Officer, Controller and Vice President of Accounting, and members of the Board of Directors - The Form 10-K report was signed on March 11, 2024[573] - Signatories include: Charles E. Young (Chief Executive Officer), Lee E. Beckelman (Chief Financial Officer), Christopher Green (Controller and Vice President of Accounting), Andrew Speaker (Director), Sharon Spurlin (Director), and Timothy J. Pawlenty (Director)[573][574]