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| 8-K - 8-K - Smart Sand, Inc. | snd-20200226.htm |
Smart Sand, Inc. Announces Fourth Quarter and Full Year 2019 Results
•4Q and full year 2019 revenue of $47.7 million and $233.1 million, respectively.
•4Q and full year 2019 total tons sold of approximately 462,000 and 2,462,000, respectively.
•4Q and full year 2019 net income of $2.4 million and $31.6 million, respectively.
•4Q and full year 2019 Adjusted EBITDA of $19.6 million and $87.1 million, respectively.
THE WOODLANDS, Texas, February 26, 2020 – Smart Sand, Inc. (NASDAQ: SND) (the “Company” or “Smart Sand”), a fully integrated frac sand supply and services company, is a low-cost producer of high quality Northern White raw frac sand and provider of proppant logistics solutions through both our in-basin transloading terminal and wellsite storage solutions, today announced results for the fourth quarter and full year ended December 31, 2019.
Charles Young, Smart Sand’s Chief Executive Officer, stated “In spite of challenging market conditions, Smart Sand delivered another solid quarter to finish out an impressive year. During 2019, we demonstrated the value of our mine to wellsite solutions strategy by increasing activity through our Van Hook terminal and beginning the buildup of our SmartSystemsTM equipment. As of today, we have nine SmartSystems fleets leased to customers. Additionally, we refinanced our former credit facility with a five-year bank financing and a five-year equipment lease arrangement that provide Smart Sand with long-term capital to support our ongoing operations. We believe that we have established the foundation to support our long-term strategy to provide sustainable sand supply and logistics solutions to our customers for 2020 and beyond."
Full Year 2019 Highlights
Revenues of $233.1 million for the full year 2019 were the highest in the history of the Company, representing a 10% increase over full year 2018 revenues of $212.5 million. The increase in revenues was primarily due to higher shortfall revenue from customers that did not take their contractual minimum volumes of sand and higher logistics revenue due to higher in-basin sales and rentals of our SmartSystems equipment.
Overall tons sold were approximately 2,462,000 in the full year 2019, compared to full year 2018 volume of 2,995,000 tons. Tons sold decreased by 18% due to decreased exploration and production activity among some of our customers and in the oil and natural gas industry in general.
Net income was $31.6 million, or $0.79 per basic share and $0.78 per diluted share for the full year 2019, compared with net income of $18.7 million, or $0.46 per basic and diluted share, for the full year 2018, an increase of 69% year over year. The increase in net income was primarily due to higher shortfall revenue from customers that did not take their contractual minimum volumes of sand, increased volumes shipped through our Van Hook terminal and leased SmartSystems equipment. Impairment losses negatively impacted net income in 2019 and 2018 by $15.5 million and $17.8 million, respectively.
Adjusted EBITDA was $87.1 million for the full year 2019 compared to Adjusted EBITDA of $66.0 million for the full year 2018, an increase of 32% year over year. The increase in Adjusted EBITDA for the year ended December 31, 2019, as compared to the prior year, was primarily due to higher shortfall and logistics revenue, partially offset by increased transportation charges and lower overall volumes of sand sold.
Fourth Quarter 2019 Highlights
Revenues were $47.7 million in the fourth quarter of 2019, a 27% decrease compared to third quarter 2019 revenues of $65.7 million. Fourth quarter 2019 revenues decreased by 9% compared to fourth quarter 2018
revenues of $52.2 million. The decrease in revenues over the previous quarter was primarily attributable to a decline in total sales volumes. The decrease in revenue over the fourth quarter of 2018 was primarily due to a decline in total sales volumes, partially offset by high shortfall revenue in 2019.
Overall tons sold were approximately 462,000 in the fourth quarter of 2019, compared to approximately 611,000 tons for the third quarter of 2019 and approximately 610,000 tons in the fourth quarter 2018, decreases of 24% for each comparable period. The decline in volumes aligns with the overall decline in completion activity and frac sand use in the industry for the fourth quarter 2019.
Net income was $2.4 million, or $0.06 per basic share and $0.05 per diluted share, for the fourth quarter of 2019, compared with net income of $10.9 million, or $0.27 per basic and diluted share for the third quarter of 2019, and net loss of $4.4 million, or $(0.11) per basic and diluted share, for the fourth quarter 2018. Net income in the fourth quarter of 2019 was negatively impacted by an impairment charge of $7.9 million on our Hixton site, partially offset by gross profit on sand sales, logistics and shortfall revenue. Net income was also impacted by lower total volumes sold in the fourth quarter 2019 compared to the previous quarter and the same period in the prior year. Net income in the third quarter of 2019 and net loss in the fourth quarter of 2018 were primarily attributable to non-cash impairment charges of $7.6 million and $17.8 million, respectively. The impairment charges were partially offset by strong in-basin sales generated from our Van Hook terminal in each of the periods, respectively.
Adjusted EBITDA was $19.6 million for the fourth quarter of 2019, a decrease of 32% compared to third quarter 2019 Adjusted EBITDA of $28.8 million and an increase of 5% from $18.7 million during the same period last year. The decrease in Adjusted EBITDA compared to the third quarter of 2019 was primarily due to lower sales volumes which was partially offset by lower costs of sales and continued high shortfall revenue recognized in the quarter. The increase in Adjusted EBITDA compared to the fourth quarter 2018 was primarily due to higher shortfall revenue.
Conference Call
Smart Sand will host a conference call and live webcast for analysts and investors this morning, February 26, 2020 at 10:00 a.m. Eastern Time to discuss the Company’s fourth quarter and full year 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 4665968. 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 4665968.
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, 2019, filed by the Company with the U.S. Securities and Exchange Commission on February 26, 2020.
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 to our customers. We produce low-cost, high quality Northern White frac sand and provide our customers with proppant logistics solutions from the mine to the wellsite. Northern White raw frac sand is a premium proppant used to enhance hydrocarbon recovery rates in the hydraulic fracturing of oil and natural gas wells. We also offer logistics solutions to our customers through our Van Hook transloading terminal in the Bakken and SmartSystems wellsite proppant storage capabilities. We own and operate a frac sand mine and related processing facility near Oakdale, Wisconsin, which is capable of processing 5.5 million tons annually and has proven recoverable reserves of approximately 316 million tons.
Availability of Information on Smart Sand’s Website
Smart Sand routinely announces material information using U.S. Securities and Exchange Commission filings, press releases, public conference calls and webcasts and the Smart Sand investor relations website. While not all of the information that the Company posts to the Smart Sand investor relations website is of a material nature, some information could be deemed to be material. Accordingly, the Company encourages investors, the media, and others interested in Smart Sand to review the information that it shares at the “Investors” link located at the top of the page on www.smartsand.com.
SMART SAND, INC.
CONSOLIDATED INCOME STATEMENTS
| Three Months Ended | |||||||||||||||||
| December 31, 2019 | September 30, 2019 | December 31, 2018 | |||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | |||||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||||
| Revenues | $ | 47,667 | $ | 65,690 | $ | 52,248 | |||||||||||
| Cost of goods sold | 29,793 | 38,555 | 34,217 | ||||||||||||||
Gross profit | 17,874 | 27,135 | 18,031 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
Salaries, benefits and payroll taxes | 3,094 | 2,958 | 2,448 | ||||||||||||||
Depreciation and amortization | 457 | 623 | 678 | ||||||||||||||
Selling, general and administrative | 3,045 | 2,693 | 2,617 | ||||||||||||||
Change in the estimated fair value of contingent consideration | (515) | (1,215) | 242 | ||||||||||||||
Impairment loss | 7,914 | 7,628 | 17,835 | ||||||||||||||
Total operating expenses | 13,995 | 12,687 | 23,820 | ||||||||||||||
| Operating income | 3,879 | 14,448 | (5,789) | ||||||||||||||
Other income (expenses): | |||||||||||||||||
Interest expense, net | (678) | (968) | (828) | ||||||||||||||
| Loss on extinguishment of debt | (561) | — | — | ||||||||||||||
Other income | 42 | 15 | 48 | ||||||||||||||
Total other income (expenses), net | (1,197) | (953) | (780) | ||||||||||||||
| Income before income tax expense (benefit) | 2,682 | 13,495 | (6,569) | ||||||||||||||
Income tax expense (benefit) | 294 | 2,569 | (2,136) | ||||||||||||||
| Net income | $ | 2,388 | $ | 10,926 | $ | (4,433) | |||||||||||
| Net income per common share: | |||||||||||||||||
Basic | $ | 0.06 | $ | 0.27 | $ | (0.11) | |||||||||||
Diluted | $ | 0.06 | $ | 0.27 | $ | (0.11) | |||||||||||
| Weighted-average number of common shares: | |||||||||||||||||
Basic | 40,234 | 40,233 | 40,262 | ||||||||||||||
Diluted | 40,238 | 40,240 | 40,262 | ||||||||||||||
SMART SAND, INC.
CONSOLIDATED INCOME STATEMENTS
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | ||||||||||
| (audited) | (audited) | ||||||||||
| (in thousands, except per share amounts) | |||||||||||
| Revenues | $ | 233,073 | $ | 212,470 | |||||||
| Cost of goods sold | 152,021 | 144,903 | |||||||||
| Gross profit | 81,052 | 67,567 | |||||||||
| Operating expenses: | |||||||||||
| Salaries, benefits and payroll taxes | 11,560 | 11,043 | |||||||||
| Depreciation and amortization | 2,411 | 1,843 | |||||||||
| Selling, general and administrative | 11,328 | 12,825 | |||||||||
| Change in the estimated fair value of contingent consideration | (3,272) | (1,858) | |||||||||
| Impairment loss | 15,542 | 17,835 | |||||||||
| Total operating expenses | 37,569 | 41,688 | |||||||||
| Operating income | 43,483 | 25,879 | |||||||||
| Other income (expenses): | |||||||||||
| Interest expense, net | (3,621) | (2,266) | |||||||||
| Loss on extinguishment of debt | (561) | — | |||||||||
| Other income | 131 | 197 | |||||||||
| Total other income (expenses), net | (4,051) | (2,069) | |||||||||
| Income before income tax expense | 39,432 | 23,810 | |||||||||
| Income tax expense | 7,809 | 5,122 | |||||||||
| Net income | $ | 31,623 | $ | 18,688 | |||||||
| Net income per common share: | |||||||||||
| Basic | $ | 0.79 | $ | 0.46 | |||||||
| Diluted | $ | 0.78 | $ | 0.46 | |||||||
| Weighted-average number of common shares: | |||||||||||
| Basic | 40,135 | 40,427 | |||||||||
| Diluted | 40,337 | 40,449 | |||||||||
SMART SAND, INC.
CONSOLIDATED BALANCE SHEETS
| December 31, | |||||||||||
| 2019 | 2018 | ||||||||||
| (in thousands, except share amounts) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 2,639 | $ | 1,466 | |||||||
| Accounts receivable, net | 60,052 | 18,989 | |||||||||
| Unbilled receivables | 4,765 | 7,823 | |||||||||
| Inventories | 21,415 | 18,575 | |||||||||
| Prepaid expenses and other current assets | 1,506 | 3,243 | |||||||||
| Total current assets | 90,377 | 50,096 | |||||||||
| Property, plant and equipment, net | 230,461 | 248,396 | |||||||||
| Operating lease right-of-use assets | 28,178 | — | |||||||||
| Intangible assets, net | 9,046 | 18,068 | |||||||||
| Other assets | 3,541 | 3,732 | |||||||||
| Total assets | $ | 361,603 | $ | 320,292 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 3,961 | $ | 11,336 | |||||||
| Accrued and other expenses | 8,578 | 8,392 | |||||||||
| Deferred revenue, current | 7,654 | 4,095 | |||||||||
| Income taxes payable | 542 | — | |||||||||
| Long-term debt, net, current | 6,175 | 829 | |||||||||
| Operating lease liabilities, current | 13,108 | — | |||||||||
| Total current liabilities | 40,018 | 24,652 | |||||||||
| Deferred revenue, net | 1,670 | — | |||||||||
| Long-term debt, net | 28,240 | 47,893 | |||||||||
| Operating lease liabilities, long-term | 15,469 | — | |||||||||
| Deferred tax liabilities, long-term, net | 24,021 | 17,898 | |||||||||
| Asset retirement obligation | 6,142 | 13,322 | |||||||||
| Contingent consideration | 1,900 | 7,167 | |||||||||
| Total liabilities | 117,460 | 110,932 | |||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ equity | |||||||||||
Common Stock | 40 | 40 | |||||||||
Treasury stock, at cost | (2,979) | (2,839) | |||||||||
| Additional paid-in capital | 165,223 | 162,195 | |||||||||
| Retained earnings | 81,900 | 50,277 | |||||||||
| Accumulated other comprehensive loss | (41) | (313) | |||||||||
| Total stockholders’ equity | 244,143 | 209,360 | |||||||||
| Total liabilities and stockholders’ equity | $ | 361,603 | $ | 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 (benefit) 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 ABL 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 tables present a reconciliation of EBITDA and Adjusted EBITDA to net income for each of the periods indicated:
| Three Months Ended | |||||||||||||||||
| December 31, 2019 | September 30, 2019 | December 31, 2018 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Net (loss) income | $ | 2,388 | $ | 10,926 | $ | (4,433) | |||||||||||
| Depreciation, depletion and amortization | 7,250 | 6,992 | 5,780 | ||||||||||||||
| Income tax (benefit) expense | 294 | 2,569 | (2,135) | ||||||||||||||
| Interest expense | 679 | 969 | 832 | ||||||||||||||
| Franchise taxes | 51 | 56 | 59 | ||||||||||||||
EBITDA | $ | 10,662 | $ | 21,512 | $ | 103 | |||||||||||
| (Gain) loss on sale of fixed assets | (1) | (15) | 68 | ||||||||||||||
Equity compensation (1) | 708 | 663 | 721 | ||||||||||||||
Acquisition and development costs (2) | (315) | (1,208) | 263 | ||||||||||||||
| Non-cash impairment loss | 7,914 | 7,628 | 17,835 | ||||||||||||||
| Cash charges related to restructuring and retention | 55 | — | 112 | ||||||||||||||
| Accretion of asset retirement obligations | 64 | 178 | (356) | ||||||||||||||
| Loss on extinguishment of debt | 561 | — | — | ||||||||||||||
| Adjusted EBITDA | $ | 19,648 | $ | 28,758 | $ | 18,746 | |||||||||||
(1) Represents the non-cash expenses for stock-based awards issued to our employees and employee stock purchase plan compensation expense.
(2) Represents costs incurred related to the business combinations and current development project activities. The three months ended December 31, 2019 includes $515 fair value adjustment partially offset by $200 related to development project activities. The three months ended September 30, 2019 includes $1,215 fair value adjustment of contingent consideration.
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | ||||||||||
| (in thousands) | |||||||||||
| Net income | $ | 31,623 | $ | 18,688 | |||||||
| Depreciation, depletion and amortization | 27,135 | 18,165 | |||||||||
| Income tax (benefit) expense | 7,809 | 5,122 | |||||||||
| Interest expense | 3,626 | 2,320 | |||||||||
| Franchise taxes | 285 | 442 | |||||||||
| EBITDA | $ | 70,478 | $ | 44,737 | |||||||
| (Gain) loss on sale of fixed assets | (42) | 321 | |||||||||
Equity compensation (1) | 2,755 | 2,670 | |||||||||
Acquisition and development costs (2) | (3,047) | (218) | |||||||||
| Non-cash impairment loss | 15,542 | 17,835 | |||||||||
| Cash charges related to retention and employee relocation | 137 | 674 | |||||||||
| Accretion of asset retirement obligations | 687 | (26) | |||||||||
| Loss on extinguishment of debt | 561 | — | |||||||||
| Adjusted EBITDA | $ | 87,071 | $ | 65,993 | |||||||
(1) Represents the non-cash expenses for stock-based awards issued to our employees and employee stock purchase plan compensation expense.
(2) Represents costs incurred related to the business combinations and current development project activities. The year ended December 31, 2019 includes $3,272 decrease in the estimated fair value of our contingent consideration related to the acquisition of Quickthree and $225 related to development project activities. The year ended December 31, 2018 includes $1,858 decrease in the estimated fair value of our contingent consideration related to the acquisition of Quickthree, partially offset by $1,146 of costs related to the acquisition of Quickthree and $494 related to development project activities.
_________________________
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.
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 | |||||||||||||||||
| December 31, 2019 | September 30, 2019 | December 31, 2018 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Revenue | $ | 47,667 | $ | 65,690 | $ | 52,248 | |||||||||||
| Cost of goods sold | 29,793 | 38,555 | 34,217 | ||||||||||||||
| Gross profit | 17,874 | 27,135 | 18,031 | ||||||||||||||
Depreciation, depletion, and accretion of asset retirement obligations included in cost of goods sold | 6,858 | 6,547 | 4,746 | ||||||||||||||
| Contribution margin | $ | 24,732 | $ | 33,682 | $ | 22,777 | |||||||||||
| Contribution margin per ton | $ | 53.53 | $ | 55.13 | $ | 37.34 | |||||||||||
| Total tons sold | 462 | 611 | 610 | ||||||||||||||
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | ||||||||||
| (in thousands) | |||||||||||
| Revenue | $ | 233,073 | $ | 212,470 | |||||||
| Cost of goods sold | 152,021 | 144,903 | |||||||||
| Gross profit | 81,052 | 67,567 | |||||||||
Depreciation, depletion, and accretion of asset retirement obligations included in cost of goods sold | 25,412 | 16,297 | |||||||||
| Contribution margin | $ | 106,464 | $ | 83,864 | |||||||
| Contribution margin per ton | $ | 43.24 | $ | 28.00 | |||||||
| Total tons sold | 2,462 | 2,995 | |||||||||
Investor Contacts:
Josh Jayne Lee Beckelman
Finance Manager CFO
(281) 231-2660 (281) 231-2660
jjayne@smartsand.com lbeckelman@smartsand.com