Smart Sand(SND) - 2021 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Q3 and 9M 2021 and 2020, including balance sheets, income statements, cash flows, and notes on business operations Condensed Consolidated Balance Sheets As of September 30, 2021, total assets decreased to $383.4 million from $427.7 million, while cash and cash equivalents significantly increased to $36.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 (unaudited) (in thousands) | Dec 31, 2020 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $36,678 | $11,725 | | Accounts receivable | $15,589 | $69,720 | | Total current assets | $82,666 | $112,086 | | Total assets | $383,368 | $427,677 | | Liabilities & Equity | | | | Total current liabilities | $39,989 | $37,263 | | Total liabilities | $131,148 | $138,870 | | Total stockholders' equity | $252,220 | $288,807 | Condensed Consolidated Income Statements The company reported a net loss of $7.3 million for Q3 2021 and $38.4 million for 9M 2021, contrasting with net income in 2020 due to a bargain purchase gain and bad debt expense Income Statement Summary - Three Months Ended Sep 30 (in thousands) | Metric | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Total revenue | $34,479 | $23,409 | | Gross profit (loss) | $(2,047) | $5,182 | | Operating (loss) income | $(8,756) | $(1,249) | | Gain on bargain purchase | $0 | $39,889 | | Net (loss) income | $(7,262) | $36,282 | | Basic EPS | $(0.17) | $0.91 | Income Statement Summary - Nine Months Ended Sep 30 (in thousands) | Metric | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Total revenue | $91,568 | $97,003 | | Gross profit (loss) | $(9,384) | $25,782 | | Bad debt expense | $19,592 | $0 | | Operating (loss) income | $(48,492) | $7,940 | | Gain on bargain purchase | $0 | $39,889 | | Net (loss) income | $(38,441) | $40,839 | | Basic EPS | $(0.92) | $1.02 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $37.5 million for 9M 2021, leading to a $25.0 million net increase in cash and cash equivalents Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $37,544 | $22,224 | | Net cash used in investing activities | $(6,898) | $(7,393) | | Net cash used in financing activities | $(5,692) | $(6,476) | | Net increase in cash | $24,954 | $8,355 | Notes to the Condensed Consolidated Financial Statements Detailed notes cover the company's frac sand business, the $39.6 million bargain purchase gain from the Eagle Proppants acquisition, revenue disaggregation, customer concentration, and a $19.6 million bad debt expense from a litigation settlement - The company operates as a fully integrated frac sand supplier with an annual processing capacity of approximately 7.1 million tons from its Oakdale, WI and Utica, IL facilities[30] - The acquisition of Eagle Proppants Holdings in September 2020 resulted in a bargain purchase gain of $39.6 million, as the estimated fair value of net assets acquired ($41.7 million) exceeded the purchase consideration ($2.1 million)[46][112] Revenue Disaggregation - Nine Months Ended Sep 30 | Revenue Type | 2021 Revenue (in thousands) | 2021 % of Total | 2020 Revenue (in thousands) | 2020 % of Total | | :--- | :--- | :--- | :--- | :--- | | Sand sales revenue | $83,291k | 91% | $50,809k | 52% | | Shortfall revenue | $4,421k | 5% | $22,148k | 23% | | Logistics revenue | $3,856k | 4% | $24,046k | 25% | | Total revenue | $91,568k | 100% | $97,003k | 100% | - For the nine months ended Sep 30, 2021, four customers (EQT, Halliburton, Liberty, Enerplus) accounted for 68% of total revenues[90][203] - The company settled a lawsuit with U.S. Well Services, receiving a $35.0 million cash payment, which resulted in a $19.6 million non-cash bad debt expense, representing the difference from the $54.6 million accounts receivable balance under litigation[100][147] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2021 revenue growth driven by sand tons sold, offset by lower shortfall revenue and depressed prices, leading to gross loss and negative Adjusted EBITDA, while liquidity remains sufficient Results of Operations Q3 2021 revenue increased 47% due to higher sand tons sold, but a gross loss resulted from decreased shortfall and logistics revenue, with a significant bad debt expense impacting nine-month results - Tons of sand sold increased 156% to approximately 790,000 tons in Q3 2021 from 309,000 tons in Q3 2020[125] - The increase in sand sales revenue in Q3 2021 was offset by a $4.2 million decrease in shortfall revenue and a $3.7 million decrease in logistics revenue compared to Q3 2020[124] - For the nine months ended Sep 30, 2021, a $19.6 million non-cash bad debt expense was recorded related to the settlement of litigation with a customer[147] Non-GAAP Financial Measures Key non-GAAP metrics, Contribution Margin and Adjusted EBITDA, showed significant declines for Q3 and 9M 2021, while free cash flow increased due to a litigation settlement cash receipt Contribution Margin Reconciliation (in thousands) | Period | Gross Profit (Loss) (in thousands) | Contribution Margin (in thousands) | Total Tons Sold (k) | Contribution Margin per Ton | | :--- | :--- | :--- | :--- | :--- | | Q3 2021 | $(2,047) | $4,098 | 790 | $5.19 | | Q3 2020 | $5,182 | $10,359 | 309 | $33.52 | | 9M 2021 | $(9,384) | $8,625 | 2,317 | $3.72 | | 9M 2020 | $25,782 | $41,133 | 1,273 | $32.31 | Adjusted EBITDA Reconciliation (in thousands) | Period | Net (Loss) Income (in thousands) | EBITDA (in thousands) | Adjusted EBITDA (in thousands) | | :--- | :--- | :--- | :--- | | Q3 2021 | $(7,262) | $(740) | $(1,009) | | Q3 2020 | $36,282 | $44,321 | $6,148 | | 9M 2021 | $(38,441) | $(23,830) | $(25,999) | | 9M 2020 | $40,839 | $64,698 | $28,123 | Free Cash Flow Reconciliation (in thousands) | Period | Net Cash from Ops (in thousands) | Purchases of PP&E (in thousands) | Free Cash Flow (in thousands) | | :--- | :--- | :--- | :--- | | 9M 2021 | $37,544 | $(6,976) | $30,568 | | 9M 2020 | $22,224 | $(7,393) | $14,831 | Liquidity and Capital Resources As of September 30, 2021, the company had $36.7 million in cash and $16.5 million available on its ABL facility, with working capital decreasing due to a receivable write-off - As of Sep 30, 2021, primary liquidity sources were $36.7 million in cash and $16.5 million in undrawn availability on the ABL Credit Facility[178] - Working capital decreased to $42.7 million at Sep 30, 2021 from $74.8 million at Dec 31, 2020, primarily due to the removal of $19.6 million of accounts receivable to bad debt expense and reduced inventory levels[181][185] - Full year 2021 capital expenditures are expected to be between $14 million and $16 million, primarily for SmartSystems growth and the new Waynesburg terminal[197] Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to the company's market risk exposure since the 2020 Annual Report on Form 10-K - There have been no material changes to the company's exposure to market risks from those described in the 2020 Annual Report on Form 10-K[211] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[212] - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls[213] PART II OTHER INFORMATION Legal Proceedings Information on legal proceedings, including the $35.0 million settlement with U.S. Well Services, is incorporated by reference from Note 15 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 15 of the condensed consolidated financial statements[215] Risk Factors No material changes to the company's risk factors have occurred since the disclosure in the 2020 Annual Report on Form 10-K - There have been no material changes to the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2020[216] Mine Safety Disclosures The company's mining operations are subject to MSHA and OSHA regulations, including unannounced inspections and potential future rules on respirable silica - The company's sand mining operations are subject to regulation by the U.S. Mining Safety and Health Administration (MSHA), which performs at least two unannounced inspections annually for each above-ground facility[219] - The company is also subject to OSHA regulations and is monitoring potential MSHA rulemaking on respirable silica, which could require capital expenditures for equipment to reduce exposure if limits are lowered significantly[220] Other Information On November 9, 2021, the company entered an ATM offering agreement with Jefferies LLC to sell up to $25 million of common stock, with no proceeds from a major selling stockholder's shares - On November 9, 2021, the Company entered into an Open Market Sale Agreement (an "at-the-market" offering) with Jefferies LLC[223] - The agreement allows the Company to sell up to $25 million of its common stock and a Selling Stockholder to sell up to 10,920,445 shares[223] - The Company will not receive any proceeds from the sale of shares by the Selling Stockholder[223]