Smart Sand(SND) - 2021 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section details the company's financial performance, condition, cash flows, and related disclosures for the period Financial Statements The financial statements show increased cash from a litigation settlement, but a net loss due to a bad debt expense, lower sand prices, and reduced shortfall revenue Condensed Consolidated Balance Sheets Total assets and stockholders' equity decreased as of June 30, 2021, primarily due to reduced accounts receivable, despite an increase in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $39,278 | $11,725 | | Accounts receivable | $10,371 | $69,720 | | Total current assets | $81,666 | $112,086 | | Total assets | $387,458 | $427,677 | | Liabilities & Equity | | | | Total current liabilities | $34,585 | $37,263 | | Total liabilities | $128,646 | $138,870 | | Total stockholders' equity | $258,812 | $288,807 | Condensed Consolidated Income Statements The company reported a net loss for both the quarter and six-month period ended June 30, 2021, primarily due to a significant bad debt expense and the absence of shortfall revenue Income Statement Summary (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $29,639 | $26,106 | $57,089 | $73,594 | | Sand Sales Revenue | $28,801 | $7,375 | $51,948 | $38,362 | | Shortfall Revenue | $0 | $14,000 | $1,741 | $15,307 | | Gross Profit (Loss) | $(2,360) | $14,200 | $(7,337) | $20,599 | | Bad Debt Expense | $19,592 | $0 | $19,592 | $0 | | Net (Loss) Income | $(27,267) | $4,640 | $(31,179) | $4,556 | | Diluted EPS | $(0.65) | $0.12 | $(0.75) | $0.11 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities increased significantly due to strong collections including a litigation settlement, leading to a substantial rise in cash and cash equivalents Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $36,480 | $25,842 | | Net cash used in investing activities | $(5,041) | $(6,423) | | Net cash used in financing activities | $(3,886) | $(5,415) | | Net increase in cash and cash equivalents | $27,553 | $14,004 | | Cash and cash equivalents at end of period | $39,278 | $16,643 | Notes to the Condensed Consolidated Financial Statements These notes detail the company's business, accounting policies, debt structure, revenue disaggregation, and a significant litigation settlement impacting financial results - The company is a fully integrated frac sand supply and services company with an annual processing capacity of approximately 7.1 million tons from its Oakdale, Wisconsin and Utica, Illinois facilities[32] - The company qualified for and recorded $3.4 million in employee retention credits during the first six months of 2021, which are recognized in other income[43][132] - As of June 30, 2021, the company had no outstanding balance on its $20.0 million ABL Credit Facility, with $12.9 million available to be drawn[63][177] - On June 28, 2021, the company settled its lawsuit with U.S. Well Services, receiving a $35.0 million cash payment, resulting in a $19.6 million non-cash bad debt expense representing the difference between cash received and the $54.6 million accounts receivable balance under litigation[102][131] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the rebound in sand sales volume, but notes profitability was impacted by depressed prices, a bad debt expense, and reduced shortfall revenue, while liquidity remains strong due to a litigation settlement - The company sold approximately 767,000 tons of sand in Q2 2021, a 269% increase from 208,000 tons in Q2 2020, indicating a rebound in activity[127] - The company expects full-year 2021 capital expenditures to be between $10 million and $12 million, primarily for SmartSystems growth and facility maintenance[196] - Despite increased sales volume, the company believes frac sand prices continue to be depressed due to oversupply in the market[117][127] Results of Operations Total revenue increased in Q2 2021 due to higher sand sales, but gross profit turned to a loss, primarily driven by a bad debt expense and reduced shortfall revenue Q2 2021 vs Q2 2020 (in thousands) | Metric | Q2 2021 | Q2 2020 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $29,639 | $26,106 | $3,533 | 14% | | Shortfall Revenue | $0 | $14,000 | $(14,000) | (100)% | | Gross Profit (Loss) | $(2,360) | $14,200 | $(16,560) | (117)% | | Bad Debt Expense | $19,592 | $0 | $19,592 | N/A | | Net (Loss) Income | $(27,267) | $4,640 | $(31,907) | (688)% | YTD 2021 vs YTD 2020 (in thousands) | Metric | YTD 2021 | YTD 2020 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $57,089 | $73,594 | $(16,505) | (22)% | | Shortfall Revenue | $1,741 | $15,307 | $(13,566) | (89)% | | Gross Profit (Loss) | $(7,337) | $20,599 | $(27,936) | (136)% | | Net (Loss) Income | $(31,179) | $4,556 | $(35,735) | (784)% | Non-GAAP Financial Measures Non-GAAP metrics show a decline in Contribution Margin and Adjusted EBITDA due to a bad debt expense, but Free Cash Flow significantly increased, boosted by a litigation settlement Reconciliation of Net (Loss) Income to Adjusted EBITDA (in thousands) | Metric | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(27,267) | $4,640 | $(31,179) | $4,556 | | EBITDA | $(18,786) | $14,273 | $(23,089) | $20,377 | | Adjusted EBITDA | $(21,511) | $15,610 | $(24,990) | $21,975 | Reconciliation of Net Cash from Operations to Free Cash Flow (in thousands) | Metric | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $32,566 | $13,781 | $36,480 | $25,842 | | Purchases of property, plant and equipment | $(2,830) | $(2,238) | $(5,043) | $(6,423) | | Free cash flow | $29,736 | $11,543 | $31,437 | $19,419 | Liquidity and Capital Resources The company maintains sufficient liquidity through cash and available credit, despite a decrease in working capital primarily due to a non-cash bad debt expense from a litigation settlement - Primary sources of liquidity as of June 30, 2021, include $39.3 million in cash, $12.9 million in undrawn ABL availability, and $5.0 million in undrawn availability on the Acquisition Liquidity Support Facility[177] - Working capital decreased from $74.8 million to $47.1 million, primarily due to the non-cash bad debt expense of $19.6 million related to the U.S. Well litigation settlement[182] Quantitative and Qualitative Disclosures about Market Risk The company states that there have been no material changes to its exposure to market risks from those described in its Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material changes in the company's exposure to market risks during the six months ended June 30, 2021[208] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2021 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[209] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[210] PART II OTHER INFORMATION This section provides disclosures on legal proceedings, risk factors, mine safety, and a comprehensive list of exhibits Legal Proceedings The company references its litigation disclosures in the financial statement notes, specifically regarding the settlement of the lawsuit against U.S. Well Services, LLC - The company's legal proceedings disclosure is incorporated by reference from Note 15 of the financial statements, which details the settlement with U.S. Well Services, LLC[212][102] Risk Factors The company reports that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material changes to the risk factors described in the company's 2020 Form 10-K[213] Mine Safety Disclosures The company is subject to regulation by the U.S. Mining Safety and Health Administration (MSHA) and the Occupational Safety and Health Administration (OSHA), emphasizing its commitment to safety and compliance - The company's sand mining operations are subject to safety regulations by MSHA, which performs at least two unannounced inspections annually per above-ground facility[216] - The company is also subject to OSHA regulations regarding workplace exposure to respirable silica and adheres to a respiratory protection program[217] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, the U.S. Well Services settlement, CEO/CFO certifications, and XBRL data