First Quarter 2019 Highlights
Revenues were
Overall tons sold were approximately 648,000 in the first quarter of 2019, compared with approximately 610,000 tons in the fourth quarter 2018 and 723,000 tons for the first quarter of 2018.
Net income was
Adjusted EBITDA was
Capital Expenditures
Smart Sand’s capital expenditures totaled
Conference Call
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. We have attempted to identify any forward-looking statements by using words such as “expect,” “will,” “estimate,” “believe” and other similar expressions. Although we believe that the expectations reflected and the assumptions or bases underlying our forward-looking statements are reasonable, we 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 Form 10-K for the year ended December 31, 2018, filed by the Company with the U.S. Securities and Exchange Commission on March 14, 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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | |||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||
(unaudited) | (unaudited) | (unaudited) | |||||||||
(in thousands, except per share amounts) | |||||||||||
Revenues | $ | 51,775 | $ | 52,248 | $ | 42,628 | |||||
Cost of goods sold | 40,605 | 34,217 | 35,413 | ||||||||
Gross profit | 11,170 | 18,031 | 7,215 | ||||||||
Operating expenses: | |||||||||||
Salaries, benefits and payroll taxes | 2,710 | 2,448 | 2,573 | ||||||||
Depreciation and amortization | 676 | 678 | 188 | ||||||||
Selling, general and administrative | 2,800 | 2,617 | 3,101 | ||||||||
Change in the estimated fair value of contingent consideration | (967 | ) | 242 | — | |||||||
Impairment of goodwill and indefinite-lived intangible asset | — | 17,835 | — | ||||||||
Total operating expenses | 5,219 | 23,820 | 5,862 | ||||||||
Operating income (loss) | 5,951 | (5,789 | ) | 1,353 | |||||||
Other income (expenses): | |||||||||||
Interest expense, net | (981 | ) | (828 | ) | (180 | ) | |||||
Other income | 37 | 48 | 34 | ||||||||
Total other income (expense), net | (944 | ) | (780 | ) | (146 | ) | |||||
Income before income tax expense (benefit) | 5,007 | (6,569 | ) | 1,207 | |||||||
Income tax expense (benefit) | 974 | (2,136 | ) | 232 | |||||||
Net income (loss) | $ | 4,033 | $ | (4,433 | ) | $ | 975 | ||||
Net income (loss) per common share: | |||||||||||
Basic | $ | 0.10 | $ | (0.11 | ) | $ | 0.02 | ||||
Diluted | $ | 0.10 | $ | (0.11 | ) | $ | 0.02 | ||||
Weighted-average number of common shares: | |||||||||||
Basic | 39,997 | 40,262 | 40,412 | ||||||||
Diluted | 39,997 | 40,262 | 40,441 | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2019 | December 31, 2018 | ||||||
(unaudited) | |||||||
(in thousands) | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 2,369 | $ | 1,466 | |||
Accounts receivable, net | 31,434 | 18,989 | |||||
Unbilled receivables | 8,081 | 7,823 | |||||
Inventories | 13,571 | 18,575 | |||||
Prepaid expenses and other current assets | 2,170 | 3,243 | |||||
Total current assets | 57,625 | 50,096 | |||||
Property, plant and equipment, net | 249,133 | 248,396 | |||||
Operating right-of use assets | 34,329 | — | |||||
Intangible assets, net | 17,640 | 18,068 | |||||
Other assets | 3,613 | 3,732 | |||||
Total assets | $ | 362,340 | $ | 320,292 | |||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 8,488 | $ | 11,336 | |||
Accrued and other expenses | 11,003 | 8,392 | |||||
Deferred revenue | 5,005 | 4,095 | |||||
Current portion of long-term debt | 1,332 | 829 | |||||
Current portion of operating lease liabilities | 13,354 | — | |||||
Total current liabilities | 39,182 | 24,652 | |||||
Long-term debt, net of current portion | 51,296 | 47,893 | |||||
Long-term operating lease liabilities, net of current portion | 21,539 | — | |||||
Deferred tax liabilities, long-term, net | 18,216 | 17,898 | |||||
Asset retirement obligation | 12,253 | 13,322 | |||||
Contingent consideration | 5,500 | 7,167 | |||||
Total liabilities | 147,986 | 110,932 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity | |||||||
Common stock | 40 | 40 | |||||
Treasury stock | (2,862 | ) | (2,839 | ) | |||
Additional paid-in capital | 163,034 | 162,195 | |||||
Retained earnings | 54,310 | 50,277 | |||||
Accumulated other comprehensive loss | (168 | ) | (313 | ) | |||
Total stockholders’ equity | 214,354 | 209,360 | |||||
Total liabilities and stockholders’ equity | $ | 362,340 | $ | 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 (benefit); (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 | |||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||
(in thousands) | |||||||||||
Net income (loss) | $ | 4,033 | $ | (4,433 | ) | $ | 975 | ||||
Depreciation, depletion and amortization | 6,303 | 5,780 | 3,160 | ||||||||
Income tax expense (benefit) | 974 | (2,135 | ) | 232 | |||||||
Interest expense | 981 | 832 | 219 | ||||||||
Franchise taxes | 85 | 59 | 220 | ||||||||
EBITDA | $ | 12,376 | $ | 103 | $ | 4,806 | |||||
(Gain) loss on sale of fixed assets | (25 | ) | 68 | — | |||||||
Equity compensation (1) | 699 | 721 | 490 | ||||||||
Acquisition and development costs (2) | (947 | ) | 263 | 328 | |||||||
Non-cash impairment of goodwill and other intangible asset (3) | — | 17,835 | — | ||||||||
Cash charges related to restructuring and retention | 41 | 112 | 94 | ||||||||
Accretion of asset retirement obligations | 279 | (356 | ) | 134 | |||||||
Adjusted EBITDA | $ | 12,423 | $ | 18,746 | $ | 5,852 |
- Represents the non-cash expenses for stock-based awards issued to our employees and employee stock purchase plan compensation expense.
- Includes
$967 fair value adjustment of contingent consideration in 2019 and costs incurred related to the business combinations and current development project activities in 2019 and 2018. - An impairment charge of
$17,835 related to goodwill and an indefinite-lived intangible asset was recorded in the fourth quarter of 2018. The impairment charge relates primarily to the decline in our stock price in 2018 and the relationship between the resulting market capitalization and the equity recorded on our balance sheet.
_________________________
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.
Historically, we have reported production costs and production cost per ton as non-GAAP financial measures. As we expand our logistics activities and continue to sell sand closer to the wellhead, our sand production costs will only be a portion of our overall cost structure.
We believe that a transition to reporting contribution margin and contribution margin per ton sold will provide a better performance metric 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. As such, we believe that it is no longer relevant to report production costs or production costs per ton on a standalone basis.
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 | |||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||
(in thousands) | |||||||||||
Revenue | $ | 51,775 | $ | 52,248 | $ | 42,628 | |||||
Cost of goods sold | 40,605 | 34,217 | 35,413 | ||||||||
Gross profit | 11,170 | 18,031 | 7,215 | ||||||||
Depreciation, depletion, and accretion of asset retirement obligations included in cost of goods sold | 5,906 | 4,746 | 3,106 | ||||||||
Contribution margin | $ | 17,076 | $ | 22,777 | $ | 10,321 | |||||
Contribution margin per ton | $ | 26.35 | $ | 37.34 | $ | 14.28 | |||||
Total tons sold | 648 | 610 | 723 |
Investor Contacts
Finance Manager
(281) 231-2660
jjayne@smartsand.com
CFO
(281) 231-2660
lbeckelman@smartsand.com
Source: Smart Sand, Inc.