Smart Sand, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited. Unless noted, financial figures below are in millions of dollars. Smart Sand supplies frac and industrial sand, logistics and wellsite storage solutions.
Financial performance
| Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
| Revenue | $68.7 | $29.6 | $110.3 | $57.1 |
| Gross profit (loss) | $9.0 | $(2.4) | $7.0 | $(7.3) |
| Operating income (loss) | $1.4 | $(28.7) | $(8.6) | $(39.7) |
| Net income (loss) | $(0.1) | $(27.3) | $(6.0) | $(31.2) |
| Adjusted EBITDA (non-GAAP) | $9.2 | $(21.5) | $7.3 | $(25.0) |
| Cash from operations | $(2.3) | $32.6 | $(10.9) | $36.5 |
- Revenue increased 132% in Q2 and 93% in H1 year over year. Sand sales rose to $67.1 million in Q2 and $105.4 million in H1, reflecting greater volumes and higher average prices. Sand volume was 1.196 million tons in Q2 and 2.048 million tons in H1.
- Gross margin was approximately 13.1% in Q2 and 6.3% in H1, compared with negative 8.0% and negative 12.9%, respectively, in the prior-year periods. Higher sales prices and volume improved results, while production, freight, labor and utility costs also increased.
- H1 operating cash flow was negative despite improved earnings. The company cited higher accounts receivable and unbilled receivables, lower deferred revenue and a $2.3 million repayment of a prior-period IRS tax refund among the cash-flow pressures. Reported H1 free cash flow was negative $22.6 million, including the $6.5 million Blair acquisition and $5.1 million of property and equipment purchases.
Balance sheet, debt and liquidity
- At June 30, cash was $2.1 million, down from $25.6 million at December 31, 2021. Accounts receivable was $32.2 million and unbilled receivables $4.8 million.
- Total debt was approximately $21.7 million, including $3.0 million drawn on the ABL facility. The $20.0 million facility had $16.0 million available to draw after $1.0 million of letters of credit; the company reported compliance with financial covenants.
- Operating lease liabilities were $33.2 million. The asset retirement obligation was $24.8 million, up from $16.2 million at year-end, largely reflecting obligations associated with Blair.
- Management stated it believed available liquidity and capital resources would meet cash needs for the next 12 months.
Changes, outlook and notable items
- The company acquired the idle Blair, Wisconsin mine and processing facility in March for approximately $6.5 million. Bringing it online could increase annual processing capacity from 7.1 million to approximately 10.0 million tons; no decision to restart it is disclosed here. Waynesburg, Pennsylvania transloading operations began in January 2022.
- Management expected 2022 capital expenditures of $20–25 million, primarily for efficiency projects at Oakdale and Utica and the Waynesburg terminal. Funding was expected from operating cash flow, equipment financing and/or the ABL facility.
- Management described improving sand supply-demand conditions and recovering prices in the first half of 2022, but said it could not predict whether prices would continue to rise, fall or stabilize. It also cited oil and gas price volatility related to the Ukraine conflict and lingering uncertainty from COVID-19 effects.
- Q2 2021 results included a $19.6 million non-cash bad-debt charge related to the U.S. Well settlement and $3.4 million of employee retention credits; neither item recurred in Q2 2022. These comparisons materially affect the year-over-year improvement.
- Three customers generated 72% of Q2 revenue; three customers held 69% of receivables at quarter-end. The company also cited seasonal operating patterns, geographic and transportation exposure, environmental and reclamation obligations, and potential silica-safety regulation costs. It recorded a partial valuation allowance against deferred tax assets and maintained a liability for uncertain tax positions.
Investor verification points
- Whether higher sand prices and volumes continue to outpace rising production, freight, labor and utility costs.
- How quickly receivables and unbilled receivables convert to cash, given negative H1 operating cash flow and low cash on hand.
- Whether planned capital spending can be funded without materially increasing borrowings, and whether Blair will be restarted.
- Customer concentration, the $24.8 million reclamation obligation, and the $17.7 million of outstanding performance bonds.
- The assumptions behind management’s 12-month liquidity assessment and the effects of tax-position and deferred-tax estimates.