“We continue to stay focused on enhancing our mine to wellsite solutions capabilities to provide sustainable and efficient sand supply and logistics services to our customers. The acquisition of Eagle Materials’ proppant business is a great example of our strategy to acquire strategically complementary assets at attractive valuations to enhance our capabilities to be a premier, long-term provider of northern white sand in the market place.”
Business Combination
On
We believe this acquisition broadens our mine to wellsite capabilities by adding high quality sand mining and processing assets coupled with enhanced logistics options which provide direct access to an additional Class I rail line. We believe these additional mining and logistics resources help secure our ability to be the preferred provider of
Third Quarter 2020 Results
Revenues were
Tons sold were approximately 309,000 in the third quarter of 2020, compared with approximately 208,000 tons in the second quarter of 2020 and 611,000 tons in the third quarter of 2019. Total volumes sold improved sequentially, though they continue to be negatively impacted by depressed oil prices driven by
Net income was
Adjusted EBITDA was
Contribution margin was
Capital Expenditures
Our primary sources of liquidity are cash on hand, cash flow generated from operations and available borrowings under the ABL Credit Facility and the Acquisition Liquidity Support Facility. As of
Market Update
We generally expect the price of frac sand to correlate with the level of drilling and completions activity for oil and natural gas and we generally expect the level of drilling and completions activity to correlate with long-term trends in commodity prices. Earlier in 2020, oil prices declined to all-time lows as a result of decreased demand for oil from the COVID-19 coronavirus pandemic, as well as an increase in global oil supply driven by disagreements with respect to oil pricing between
In response to these market conditions, we implemented several cost cutting measures ealier in 2020, including reducing our capital expenditure budget, primarily as a reduction to our SmartSystems manufacturing plans. Additionally, we put in place several cost-cutting measures, including headcount reductions at our
Conference Call
Smart Sand will host a conference call and live webcast for analysts and investors on
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, the severity and duration of the COVID-19 coronavirus pandemic, operational challenges relating to the COVID-19 coronavirus pandemic and efforts to mitigate the spread of the virus, the current significant surplus in the supply of oil, 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
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
We are a fully integrated frac sand supply and services company, offering complete mine to wellsite proppant logistics, storage and management solutions to our customers. We produce low-cost, high quality Northern White frac sand and offer proppant logistics, storage and management solutions to our customers through our in-basin transloading terminal and our SmartSystems™ wellsite proppant storage capabilities. We provide our products and services primarily to oil and natural gas exploration and production companies and oilfield service companies. We own and operate premium frac sand mines and related processing facilities in
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | |||||||||||
September 30, 2020 | June 30, 2020 | September 30, 2019 | |||||||||
(unaudited) | (unaudited) | (unaudited) | |||||||||
(in thousands, except per share amounts) | |||||||||||
Revenues | $ | 23,409 | $ | 26,106 | $ | 65,690 | |||||
Cost of goods sold | 18,227 | 11,906 | 38,555 | ||||||||
Gross profit | 5,182 | 14,200 | 27,135 | ||||||||
Operating expenses: | |||||||||||
Salaries, benefits and payroll taxes | 2,058 | 2,155 | 2,958 | ||||||||
Depreciation and amortization | 440 | 461 | 623 | ||||||||
Selling, general and administrative | 3,933 | 2,930 | 2,693 | ||||||||
Change in the estimated fair value of contingent consideration | — | — | (1,215 | ) | |||||||
Impairment loss | — | — | 7,628 | ||||||||
Total operating expenses | 6,431 | 5,546 | 12,687 | ||||||||
Operating (loss) income | (1,249 | ) | 8,654 | 14,448 | |||||||
Other income (expenses): | |||||||||||
Gain on bargain purchase | 39,889 | — | — | ||||||||
Interest expense, net | (497 | ) | (607 | ) | (968 | ) | |||||
Other income | 80 | 63 | 15 | ||||||||
Total other income (expenses), net | 39,472 | (544 | ) | (953 | ) | ||||||
Income before income tax expense | 38,223 | 8,110 | 13,495 | ||||||||
Income tax expense | 1,941 | 3,470 | 2,569 | ||||||||
Net income | $ | 36,282 | $ | 4,640 | $ | 10,926 | |||||
Net income per common share: | |||||||||||
Basic | $ | 0.91 | $ | 0.12 | $ | 0.27 | |||||
Diluted | $ | 0.91 | $ | 0.12 | $ | 0.27 | |||||
Weighted-average number of common shares: | |||||||||||
Basic | 39,973 | 39,644 | 40,233 | ||||||||
Diluted | 39,973 | 39,644 | 40,240 | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2020 | December 31, 2019 | ||||||
(unaudited) | |||||||
(in thousands) | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 10,994 | $ | 2,639 | |||
Accounts receivable, net | 66,029 | 58,925 | |||||
Unbilled receivables | 9,256 | 4,765 | |||||
Inventories | 23,568 | 21,415 | |||||
Prepaid expenses and other current assets | 1,534 | 4,433 | |||||
Total current assets | 111,381 | 92,177 | |||||
Property, plant and equipment, net | 281,142 | 230,461 | |||||
Operating lease right-of-use assets | 32,198 | 28,178 | |||||
Intangible assets, net | 8,451 | 9,046 | |||||
Other assets | 3,417 | 3,541 | |||||
Total assets | $ | 436,589 | $ | 363,403 | |||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 3,338 | $ | 3,961 | |||
Accrued expenses and other liabilities | 7,735 | 8,578 | |||||
Deferred revenue, current | 8,192 | 7,654 | |||||
Income taxes payable | 6,510 | 542 | |||||
Long-term debt, net, current | 6,423 | 6,175 | |||||
Operating lease liabilities, current | 8,783 | 13,108 | |||||
Total current liabilities | 40,981 | 40,018 | |||||
Deferred revenue, net | 4,789 | 1,670 | |||||
Long-term debt, net | 23,899 | 28,240 | |||||
Operating lease liabilities, long-term | 24,536 | 15,469 | |||||
Deferred tax liabilities, long-term, net | 35,523 | 24,408 | |||||
Asset retirement obligation | 14,805 | 6,142 | |||||
Contingent consideration | 570 | 1,900 | |||||
Other non-current liabilities | 759 | — | |||||
Total liabilities | 145,862 | 117,847 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity | |||||||
Common stock | 42 | 40 | |||||
(4,025 | ) | (2,979 | ) | ||||
Additional paid-in capital | 170,282 | 165,223 | |||||
Retained earnings | 124,152 | 83,313 | |||||
Accumulated other comprehensive income (loss) | 276 | (41 | ) | ||||
Total stockholders’ equity | 290,727 | 245,556 | |||||
Total liabilities and stockholders’ equity | $ | 436,589 | $ | 363,403 |
Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
We define EBITDA as net income (loss), 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; and
- our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods or capital structure;
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 (loss) is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA should not be considered alternatives to net income (loss) 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, 2020 | June 30, 2020 | September 30, 2019 | |||||||||
(in thousands) | |||||||||||
Net income | $ | 36,282 | $ | 4,640 | $ | 10,926 | |||||
Depreciation, depletion and amortization | 5,529 | 5,450 | 6,992 | ||||||||
Income tax expense | 1,941 | 3,470 | 2,569 | ||||||||
Interest expense | 506 | 619 | 969 | ||||||||
Franchise taxes | 63 | 94 | 56 | ||||||||
EBITDA | $ | 44,321 | $ | 14,273 | $ | 21,512 | |||||
(Gain) loss on sale of fixed assets | (27 | ) | 275 | (15 | ) | ||||||
Equity compensation (1) | 832 | 842 | 663 | ||||||||
Acquisition and development costs (2) | 823 | 144 | (1,208 | ) | |||||||
Non-cash impairment loss | — | — | 7,628 | ||||||||
Gain on bargain purchase | (39,889 | ) | — | — | |||||||
Accretion of asset retirement obligations | 88 | 76 | 178 | ||||||||
Adjusted EBITDA | $ | 6,148 | $ | 15,610 | $ | 28,758 | |||||
(1) | Represents the non-cash expenses for stock-based awards issued to our employees and employee stock purchase plan compensation expense. | |
(2) | Includes acquisition cost of |
_________________________
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, 2020 | June 30, 2020 | September 30, 2019 | |||||||||
(in thousands) | |||||||||||
Revenue | $ | 23,409 | $ | 26,106 | $ | 65,690 | |||||
Cost of goods sold | $ | 18,227 | 11,906 | $ | 38,555 | ||||||
Gross profit | 5,182 | 14,200 | 27,135 | ||||||||
Depreciation, depletion, and accretion of asset retirement obligations included in cost of goods sold | 5,177 | 5,065 | 6,547 | ||||||||
Contribution margin | $ | 10,359 | $ | 19,265 | $ | 33,682 | |||||
Contribution margin per ton | $ | 33.52 | $ | 92.62 | $ | 55.13 | |||||
Total tons sold | 309 | 208 | 611 |
Investor Contacts
Finance Manager
(281) 231-2660
jjayne@smartsand.com
CFO
(281) 231-2660
lbeckelman@smartsand.com
Source: Smart Sand, Inc.