Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
FORM 8-K
________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 6, 2019
SMART SAND, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
 
 
Delaware
 
001-37936
 
45-2809926
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
1725 Hughes Landing Blvd, Suite 800
The Woodlands, Texas 77380
(Address of principal executive offices and zip code)
 
Registrant’s telephone number, including area code: (281) 231-2660
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.001 per share
 
SND
 
Nasdaq Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x



Item 2.02 Results of Operations and Financial Condition.
On November 6, 2019, Smart Sand, Inc. issued a press release providing information regarding earnings for the third quarter ended September 30, 2019. A copy of the press release is attached hereto as Exhibit 99.1.
The information, including Exhibit 99.1, in this Form 8-K is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Form 8-K shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, except as shall otherwise be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d)    Exhibits. The following exhibit is furnished herewith:

Exhibit Number
 
Description
 
 
 
99.1
 










SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SMART SAND, INC.
 
 
 
 
 
Dated:
November 6, 2019
 
 
 
By:
 
/s/ Lee E. Beckelman
 
 
 
 
 
 
 
Lee E. Beckelman
 
 
 
 
 
 
 
Chief Financial Officer
 


Exhibit

Smart Sand, Inc. Announces Third Quarter 2019 Results
3Q 2019 revenue of $65.7 million
3Q 2019 total tons sold of approximately 611,000
3Q 2019 net income of $10.9 million
3Q 2019 Adjusted EBITDA of $28.8 million
3Q 2019 Contribution Margin of $33.7 million
3Q 2019 Contribution Margin per ton of $55.13

THE WOODLANDS, Texas, November 6, 2019 – Smart Sand, Inc. (NASDAQ: SND) (the “Company” or “Smart Sand”), a fully integrated frac sand supply and services company that is a low-cost producer of high quality Northern White frac sand and provider of proppant logistics solutions through both its in-basin transloading terminal and SmartSystemsTM wellsite proppant storage solutions, today announced results for the third quarter 2019.
Charles Young, Smart Sand’s Chief Executive Officer, stated “The third quarter produced both good financial results and continued progress on our long-term plans and objectives. We settled our lawsuit with Schlumberger and we were able to maintain our long-term relationship with them. We also executed contracts with two new SmartDepot customers, which brings us to four fleets currently in the field. We remained disciplined on maintaining low debt levels as we paid down approximately $16 million in debt during the quarter.”

Third Quarter 2019 Highlights
Revenues were $65.7 million in the third quarter of 2019, a decrease of 3% compared to second quarter of 2019 revenues of $67.9 million and an increase of 4% compared to third quarter of 2018 revenues of $63.1 million. Included in revenues were $15.6 million and $16.3 million of shortfall revenues for the third quarter of 2019 and the second quarter of 2019, respectively. Of these shortfall revenue amounts, $14.0 million and $14.5 million, respectively, was related to customers currently subject to litigation. The decrease in revenue over the second quarter of 2019 was primarily attributable to lower total volumes of sand sales. The increase over the third quarter 2018 was primarily attributable to higher shortfall revenue and increased in-basin sales.
Overall tons sold were approximately 611,000 in the third quarter of 2019, compared with approximately 741,000 tons in the second quarter of 2019 and 823,000 tons in the third quarter of 2018.
Net income was $10.9 million, or $0.27 per basic and diluted share, for the third quarter of 2019, compared with net income of $14.3 million, or $0.36 per basic and diluted share, for the second quarter of 2019 and net income of $12.1 million, or $0.30 per basic and diluted share, for the third quarter of 2018. The positive results in the third quarter of 2019 are primarily attributable to high shortfall revenues and strong in-basin sales along with lower operating costs despite the non-cash intangible asset impairment charge related to our existing transload system that was acquired as part of the Quickthree acquisition in June 2018.
Adjusted EBITDA was $28.8 million for the third quarter of 2019, compared with $26.2 million for the second quarter 2019 and $22.1 million during the same period last year, increases of 10% and 30%, respectively. The sequential increase in Adjusted EBITDA was primarily due to lower cost of goods sold driven by seasonal cost savings generated by the winter inventory build-up we experience in the third quarter of each year. The increase in Adjusted EBITDA year-over-year is primarily attributable to additional shortfall revenue and tons sold in 2019 at higher average selling prices.
Contribution margin was $33.7 million, or $55.13 per ton sold, for the third quarter of 2019 compared to $31.0 million or $41.80 per ton sold for the second quarter of 2019 and $27.1 million, or $32.95 per ton sold for the third quarter of 2018. The high contribution margin and contribution margin per ton sold for third quarter of 2019 was primarily due to high shortfall revenue on lower overall volumes and seasonal cost savings realized as we built up our winter stockpile.

Capital Expenditures





Smart Sand’s capital expenditures totaled $5.6 million for the third quarter ended September 30, 2019 and $19.5 million for the nine months ended September 30, 2019, primarily for the manufacturing of our SmartSystems wellsite storage solutions and maintenance and efficiency upgrades at our Oakdale facility and Van Hook transload terminal. The Company estimates full year 2019 capital expenditures will be approximately $25 million to $30 million, excluding any additional acquisitions. This range of investment gives consideration to investment in the build-up of additional SmartSystems equipment. The Company’s primary sources of liquidity are cash flow generated from its operations, its revolving credit facility (“Credit Facility”) and other equipment financing arrangements. At September 30, 2019, the Company had approximately $2.1 million of cash on hand and $30.0 million available under its Credit Facility.
Conference Call
Smart Sand will host a conference call and live webcast for analysts and investors this morning, November 6, 2019 at 10:00 a.m. Eastern Time to discuss the Company’s third quarter 2019 financial results. Investors are invited to listen to a live audio webcast of the conference call, which will be accessible on the “Investors” section of the Company’s website at www.smartsand.com. To access the live webcast, please log in 15 minutes prior to the start of the call to download and install any necessary audio software. An archived replay of the call will also be available on the website following the call. The call can also be accessed live by dialing (888) 799-5165 or, for international callers, (478) 219-0056. The passcode for the call is 8993469. A replay will be available shortly after the call and can be accessed by dialing (855) 859-2056 or, for international callers, (404) 537-3406. The conference ID for the replay is 8993469.
Forward-looking Statements
All statements in this news release other than statements of historical facts are forward-looking statements that contain our current expectations about our future results.  The Company has attempted to identify any forward-looking statements by using words such as “expect,” “will,” “estimate,” “believe” and other similar expressions.  Although the Company believes that the expectations reflected and the assumptions or bases underlying its forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.  Such statements are not guarantees of future performance or events and are subject to known and unknown risks and uncertainties that could cause the Company’s actual results, events or financial positions to differ materially from those included within or implied by such forward-looking statements.
Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include, but are not limited to, fluctuations in product demand, regulatory changes, adverse weather conditions, increased fuel prices, higher transportation costs, access to capital, increased competition, changes in economic or political conditions, and such other factors discussed or referenced in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) on March 14, 2019, and the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed by the Company with the SEC on November 6, 2019.
You should not place undue reliance on our forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, unless required by law.

About Smart Sand
Smart Sand is a fully integrated frac sand supply and services company, offering complete mine to wellsite solutions for its customers. The Company produces low-cost, high quality Northern White frac sand and provides its customers with proppant logistics solutions from the mine to the wellsite. Northern White frac sand is a premium proppant used to enhance hydrocarbon recovery rates in the hydraulic fracturing of oil and natural gas wells. Smart Sand also offers logistics solutions to its customers through its Van Hook transloading terminal in the Bakken and SmartSystem wellsite storage capabilities. The Company owns and operates a frac sand mine and related processing facility near Oakdale, Wisconsin, at which it has approximately 317 million tons of proven recoverable sand reserves as of December 31, 2018. Smart Sand began operations with 1.1 million tons of annual nameplate processing capacity in July 2012. After several expansions, its current annual nameplate processing capacity at the Oakdale facility is approximately 5.5 million tons of frac sand per year. For more information, please visit www.smartsand.com.





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended
 
September 30, 2019
 
June 30, 2019
 
September 30, 2018
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
(in thousands, except per share amounts)
Revenues
$
65,690

 
$
67,941

 
$
63,146

Cost of goods sold
38,555

 
43,068

 
40,595

Gross profit
27,135

 
24,873

 
22,551

Operating expenses:
 
 
 
 
 
Salaries, benefits and payroll taxes
2,958

 
2,798

 
3,232

Depreciation and amortization
623

 
655

 
501

Selling, general and administrative
2,693

 
2,790

 
3,512

Change in the estimated fair value of contingent consideration
(1,215
)
 
(575
)
 
(2,100
)
Impairment of intangible asset
7,628

 

 

Total operating expenses
12,687

 
5,668

 
5,145

Operating income
14,448

 
19,205

 
17,406

Other income (expenses):
 
 
 
 
 
Interest expense, net
(968
)
 
(994
)
 
(758
)
Other income
15

 
37

 
90

Total other income (expenses), net
(953
)
 
(957
)
 
(668
)
Income before income tax expense
13,495

 
18,248

 
16,738

Income tax expense
2,569

 
3,972

 
4,613

Net income
$
10,926

 
$
14,276

 
$
12,125

Net income per common share:
 
 
 
 
 
Basic
$
0.27

 
$
0.36

 
$
0.30

Diluted
$
0.27

 
$
0.36

 
$
0.30

Weighted-average number of common shares:
 
 
 
 
 
Basic
40,233

 
40,074

 
40,541

Diluted
40,240

 
40,173

 
40,551

 
 
 
 
 
 





CONDENSED CONSOLIDATED BALANCE SHEETS
 
September 30, 2019
 
December 31, 2018
 
(unaudited)
 
 
(in thousands)
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
2,098

 
$
1,466

Accounts receivable, net
58,749

 
18,989

Unbilled receivables
1,189

 
7,823

Inventories
15,926

 
18,575

Prepaid expenses and other current assets
1,092

 
3,243

Total current assets
79,054

 
50,096

Property, plant and equipment, net
250,486

 
248,396

Operating lease right-of-use assets
29,702

 

Intangible assets, net
9,244

 
18,068

Other assets
3,537

 
3,732

Total assets
$
372,023

 
$
320,292

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
10,039

 
$
11,336

Accrued and other expenses
10,234

 
8,392

Deferred revenue
5,545

 
4,095

Current portion of long-term debt
23,940

 
829

Operating lease liabilities, current portion
11,799

 

Total current liabilities
61,557

 
24,652

Deferred revenue, net of current portion
2,946

 

Long-term debt, net of current portion
6,791

 
47,893

Operating lease liabilities, long-term, net of current portion
17,397

 

Long-term deferred tax liabilities, net
24,685

 
17,898

Asset retirement obligation
14,897

 
13,322

Contingent consideration
2,800

 
7,167

Total liabilities
131,073

 
110,932

Commitments and contingencies
 
 
 
Stockholders’ equity
 
 
 
Common stock
40

 
40

Treasury stock
(2,978
)
 
(2,839
)
Additional paid-in capital
164,499

 
162,195

Retained earnings
79,512

 
50,277

Accumulated other comprehensive loss
(123
)
 
(313
)
Total stockholders’ equity
240,950

 
209,360

Total liabilities and stockholders’ equity
$
372,023

 
$
320,292






Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
We define EBITDA as net income, plus: (i) depreciation, depletion and amortization expense; (ii) income tax expense; (iii) interest expense; and (iv) franchise taxes. We define Adjusted EBITDA as EBITDA, plus: (i) gain or loss on sale of fixed assets or discontinued operations; (ii) integration and transition costs associated with specified transactions; (iii) equity compensation; (iv) acquisition and development costs; (v) non-recurring cash charges related to restructuring, retention and other similar actions; (vi) earn-out, contingent consideration obligations and other acquisition and development costs; and (vii) non-cash charges and unusual or non-recurring charges. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and commercial banks, to assess:
the financial performance of our assets without regard to the impact of financing methods, capital structure or historical cost basis of our assets;
the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities;
our ability to incur and service debt and fund capital expenditures;
our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods or capital structure; and
our debt covenant compliance, as Adjusted EBITDA is a key component of critical covenants to the Credit Facility.
We believe that our presentation of EBITDA and Adjusted EBITDA will provide useful information to investors in assessing our financial condition and results of operations. Net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA should not be considered alternatives to net income presented in accordance with GAAP. Because EBITDA and Adjusted EBITDA may be defined differently by other companies in our industry, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. The following table presents a reconciliation of EBITDA and Adjusted EBITDA to net income for each of the periods indicated.
The following table presents a reconciliation of EBITDA and Adjusted EBITDA to net income for each of the periods indicated:
 
Three Months Ended
 
September 30, 2019
 
June 30, 2019
 
September 30, 2018
 
(in thousands)
Net income
$
10,926

 
$
14,276

 
$
12,125

Depreciation, depletion and amortization
6,992

 
6,590

 
4,929

Income tax expense
2,569

 
3,973

 
4,612

Interest expense
969

 
997

 
760

Franchise taxes
56

 
93

 
54

EBITDA
$
21,512

 
$
25,929

 
$
22,480

(Gain) on sale of fixed assets
(15
)
 
(1
)
 
253

Equity compensation (1)
663

 
685

 
791

Acquisition and development costs (2)
(1,208
)
 
(577
)
 
(1,723
)
Non-cash impairment of intangible asset
7,628

 

 

Cash charges related to restructuring and retention

 
41

 
198

Accretion of asset retirement obligations
178

 
166

 
139

Adjusted EBITDA
$
28,758

 
$
26,243

 
$
22,138

(1)
Represents the non-cash expenses for stock-based awards issued to our employees and employee stock purchase plan compensation expense.
(2)
Includes $1,215, $575, and $2,100 adjustments to the fair value adjustment of contingent consideration for the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, respectively.
_________________________





Contribution Margin

We also use contribution margin, which we define as total revenues less costs of goods sold excluding depreciation, depletion and accretion of asset retirement obligations, to measure our financial and operating performance. Contribution margin excludes other operating expenses and income, including costs not directly associated with the operations of our business such as accounting, human resources, information technology, legal, sales and other administrative activities. 
We believe that reporting contribution margin and contribution margin per ton sold provides useful performance metrics to management and external users of our financial statements, such as investors and commercial banks, because these metrics provide an operating and financial measure of our ability, as a combined business, to generate margin in excess of our operating cost base.
Gross profit is the GAAP measure most directly comparable to contribution margin. Contribution margin should not be considered an alternative to gross profit presented in accordance with GAAP. Because contribution margin may be defined differently by other companies in our industry, our definition of contribution margin may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. The following table presents a reconciliation of contribution margin to gross profit.
 
Three Months Ended
 
September 30, 2019
 
June 30, 2019
 
September 30, 2018
 
(in thousands)
Revenue
$
65,690

 
$
67,941

 
$
63,146

Cost of goods sold
$
38,555

 
43,068

 
$
40,595

      Gross profit
27,135

 
24,873

 
22,551

Depreciation, depletion, and accretion of asset retirement obligations included in cost of goods sold
6,547

 
6,101

 
4,567

      Contribution margin
$
33,682

 
$
30,974

 
$
27,118

      Contribution margin per ton
$
55.13

 
$
41.80

 
$
32.95

Total tons sold
611

 
741

 
823


Investor Contacts
Josh Jayne
Finance Manager
(281) 231-2660
jjayne@smartsand.com

Lee Beckelman
CFO
(281) 231-2660
lbeckelman@smartsand.com