Smart Sand, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; comparative periods ended September 30, 2022. Amounts are in millions of dollars unless stated otherwise. Smart Sand supplies frac and industrial sand and related logistics and wellsite services.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $76.9 | $71.6 | $234.0 | $181.9 |
| Gross profit | $14.4 | $11.4 | $38.7 | $18.4 |
| Gross margin | 18.7% | 16.0% | 16.5% | 10.1% |
| Operating income (loss) | $4.9 | $3.8 | $6.4 | $(4.8) |
| Net income (loss) | $6.7 | $2.7 | $9.4 | $(3.3) |
| Adjusted EBITDA (non-GAAP) | $13.3 | $11.3 | $33.1 | $18.6 |
| Operating cash flow | $12.5 | $10.8 | $33.7 | $(0.2) |
| Free cash flow (non-GAAP) | $5.6 | $6.4 | $17.5 | $(16.3) |
Q3 sand sales rose 9% to $72.5 million; tons sold increased to approximately 1.219 million from 1.110 million. For the nine months, revenue increased 29%, with sand sales up 30%; tons sold increased about 11% to 3.498 million. Management attributed growth to higher volumes and, year to date, improved average sand prices, as well as increased SmartSystems utilization and industrial product sales. Q3 logistics revenue declined 10% to $2.0 million due to lower fleet utilization and the timing of customer completions.
Year-to-date operating results turned profitable compared with a prior-year loss. Higher sales volume and prices lifted gross profit and contribution margin; operating expenses also increased 39%, including staffing and Blair-related costs. The company recorded a $1.8 million net loss on fixed-asset disposals in Q1 while reconfiguring a wet plant and upgrading equipment.
Cash, debt and liquidity
- At September 30, cash was $9.3 million, current assets were $60.2 million and current liabilities were $44.7 million; working capital was approximately $15.4 million.
- Total balance-sheet debt, including current and long-term portions, was approximately $12.6 million. No ABL borrowings were outstanding; $19.0 million was available after $1.0 million of letters of credit. The company reported compliance with its financial covenants.
- Operating lease liabilities were $26.1 million. Asset retirement obligations were $19.6 million; outstanding performance bonds totaled $18.9 million.
- Nine-month capital expenditures were $16.1 million. Cash increased $3.8 million from year-end 2022 to $9.3 million. Management said available liquidity should meet cash needs for the next 12 months.
Outlook, risks and notable items
- Management expected full-year 2023 capital expenditures of $20–$23 million, primarily for process improvements at Oakdale and Utica, the Waynesburg terminal expansion, and Blair operations. Waynesburg expansion and Utica industrial-sand processing upgrades were expected to be completed or operational in Q4 2023.
- Management described completion activity as moderating with seasonal Q4 slowdowns, supply and demand for Northern White sand as relatively balanced, and average sand prices as flattening. It said future pricing trends were uncertain. Inflation, slower economic growth, geopolitical conflicts, oil and gas demand, and industry volatility could affect results; winter weather also affects some production and customer activity.
- Customer and geographic concentration are relevant: two customers generated 40% of Q3 revenue and 41% of nine-month revenue; six customers represented 79% of accounts receivable at quarter-end. Operations and mining are concentrated in Wisconsin and Illinois, and one supplier represented 21% of Q3 cost of goods sold.
- Net income benefited from income tax benefits of $1.9 million in Q3 and $3.6 million year to date; reported effective tax rates were unusually negative. The filing cites tax credits, depletion deductions and other adjustments, as well as a partial valuation allowance and uncertain tax positions. The year-to-date earnings improvement should therefore be assessed alongside operating performance and tax effects.
- Two Wisconsin lawsuits concerning alleged noise, light and dust at the Blair facility were in discovery; the company said it could not assess the likely outcome. HCR agreed to indemnify the company for specified pre-acquisition matters. Management reported no material changes to previously disclosed risk factors.
- The company repurchased approximately 5.18 million shares from Clearlake in February 2023 for $8.85 million; part was financed with a 10% unsecured note, which was paid in full by September 30. Total treasury-stock purchases during the first nine months were approximately $9.1 million.
Important facts for investors to verify
- Whether Q3 volume growth and year-to-date pricing gains persist as activity moderates and prices flatten.
- Whether the Blair facility and planned terminal and processing expansions deliver expected utilization and returns, and whether capital spending stays within guidance.
- The sustainability of cash generation after capital expenditures, lease payments and other contractual commitments.
- The effect of concentrated customers, suppliers and operating geography on revenue, receivable collection and costs.
- Potential outcomes of the Blair-related litigation, tax positions and environmental, reclamation and mine-safety obligations.
- Reconcile the reported net income improvement with the significant income tax benefits and the fixed-asset disposal loss.