Smart Sand, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Amounts are in millions of U.S. dollars unless otherwise noted. Smart Sand supplies frac and industrial sand and related logistics and wellsite storage services.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $83.1 | $82.4 |
| Gross profit / margin | $11.8 / 14.2% | $11.6 / 14.1% |
| Operating income (loss) | $0.8 | $(1.6) |
| Net loss | $(0.2) | $(3.6) |
| Adjusted EBITDA (non-GAAP) | $9.3 | $8.3 |
| Operating cash flow | $(3.9) | $5.1 |
| Capital expenditures | $1.6 | $4.0 |
| Free cash flow (non-GAAP) | $(5.5) | $1.1 |
- Sand revenue was $79.7 million, down slightly from $80.0 million; SmartSystems revenue increased 43% to $3.3 million. Sand volumes rose approximately 12% to 1.336 million tons, but average sand prices were lower. Prior-year contractual shortfall revenue also contributed to the comparison.
- Cost of goods sold increased 1% to $71.2 million, primarily reflecting higher freight and transloading costs on increased volumes. SG&A declined 4% to $10.4 million; Q1 2023 included a $1.9 million fixed-asset disposal loss.
- Net loss narrowed year over year, while the effective tax rate was unusually high at approximately 155.2%. The filing attributes tax-rate differences to items including tax credits, depletion deductions, carrybacks and state apportionment, and reports a partial valuation allowance on deferred tax assets.
Balance sheet, debt and liquidity
- At March 31, cash was $4.6 million, current assets were $71.2 million and current liabilities were $59.3 million. Working capital was approximately $11.9 million.
- Total debt was approximately $24.5 million, including $14.0 million drawn on the ABL facility. The company reported $6.0 million of remaining ABL availability. The facility matures December 13, 2024, and management said it is pursuing a refinancing.
- Operating lease liabilities were $21.6 million. Asset retirement obligations were $20.2 million; performance bonds totaled $19.7 million.
- Cash declined $1.5 million during the quarter. Operating cash flow was negative, mainly amid working-capital investment, including increased accounts receivable and lower accounts payable. Management stated it believes liquidity and available capital resources are sufficient for the next 12 months.
Changes, outlook and risks
- Management described Northern White sand supply and demand as relatively balanced; activity improved in Q1 2024 and pricing stabilized after moderating in the second half of 2023. It cautioned that future product pricing and demand remain uncertain, and noted some customers favor spot purchases or short-term agreements over long-term contracts.
- Full-year 2024 capital expenditures are expected to be $15–$20 million, principally for mine-site efficiency projects, mining equipment upgrades and construction of Ohio terminals. The Minerva and Dennison terminals are expected to begin operating in Q2 2024.
- Contract customer performance obligations totaled $184.2 million at quarter-end; the company expects to recognize $99.0 million in the remainder of 2024 and $85.2 million in 2025.
- Three customers generated 60% of Q1 revenue; Equitable Gas alone accounted for 37.4%. Four customers represented 63% of accounts receivable at quarter-end.
- Risks discussed include oil and gas market and pricing volatility, inflation, customer and geographic concentration, weather seasonality, environmental and mine-safety regulation, and potential effects of geopolitical events. The company reported no material changes to the risk factors in its 2023 Form 10-K.
- Two Wisconsin lawsuits concerning alleged noise, light and dust at the Blair facility remain in discovery; damages sought are unspecified and the company cannot assess the likely outcome. The company noted an acquisition-related indemnity for certain pre-acquisition matters.
Important facts for investors to verify
- Progress, terms and timing of the ABL refinancing before its December 2024 maturity, and borrowing availability under the facility.
- Whether higher sales volumes translate into improved per-ton economics, given lower average sand prices and contribution margin per ton of $13.85 versus $14.89 a year earlier.
- Working-capital trends and cash conversion, particularly receivables, as volume grows.
- Customer concentration, contract mix and realization of the disclosed performance obligations.
- Execution and funding of the $15–$20 million capital program, including Ohio terminal start-up, and developments in the Blair litigation and reclamation obligations.