Smart Sand, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Smart Sand supplies frac sand, logistics and wellsite storage solutions, and is developing an industrial products business. Unless stated otherwise, amounts below are in U.S. dollars.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $41.6 million | $27.5 million | Up 52% |
| Sand sales revenue | $38.3 million | $23.1 million | Up 65% |
| Sand volume sold | 852,000 tons | 760,000 tons | Up approximately 12% |
| Gross profit (loss) | $(2.0) million | $(5.0) million | Loss narrowed |
| Operating loss | $(9.9) million | $(11.1) million | Loss narrowed |
| Net loss | $(5.9) million | $(3.9) million | Loss increased |
| Net loss per diluted share | $(0.14) | $(0.09) | — |
| Adjusted EBITDA (non-GAAP) | $(1.9) million | $(3.5) million | Loss narrowed |
Revenue growth reflected higher sales volume and average sand prices. Gross loss improved with better pricing, higher volume and production efficiencies, but remained negative; higher freight costs partly offset those gains. Logistics revenue fell 45% to $1.4 million as sales shifted from mine-gate to in-basin deliveries. Operating expenses rose 31% to $8.0 million, including higher payroll costs, travel, royalties and Waynesburg terminal development costs. Net loss increased mainly because the income tax benefit was lower than in the prior-year quarter.
Cash flow and liquidity: Operating activities used $8.7 million, compared with $3.9 million provided in Q1 2021. Capital expenditures were $3.8 million; the company’s non-GAAP free cash flow, which also deducts the $6.5 million Blair acquisition, was negative $19.0 million versus positive $1.7 million. Cash fell from $25.6 million at year-end to $4.7 million. Management attributed the cash-flow decline in part to the acquisition, increased receivables, a $2.3 million repayment of a prior-period IRS tax refund, and higher capital spending. ABL availability was $16.9 million, with no borrowings outstanding; the company reported covenant compliance and believes liquidity is sufficient for the next 12 months.
Balance sheet at March 31: Current assets were $56.1 million and current liabilities $48.2 million. Recorded long-term debt, net of current portion, was $13.3 million; current debt was $7.2 million, or $20.4 million combined. Operating lease liabilities were $32.0 million. The asset retirement obligation rose to $24.6 million from $16.2 million, primarily due to an $8.3 million addition associated with Blair.
Material developments and outlook
- On March 4, Smart Sand acquired the idle Blair, Wisconsin mine and processing facility for $6.5 million plus adjustments, recording total consideration of $6.547 million. Once operational, it is expected to have approximately 2.9 million tons of annual processing capacity and includes a unit-train rail terminal.
- The Waynesburg, Pennsylvania transloading terminal began operations in January 2022. The company also created its Industrial Products Solutions business in late 2021 to diversify sales beyond oil and gas.
- Management expects 2022 capital expenditures of $25 million to $30 million, primarily for efficiency projects, Waynesburg, and Blair acquisition and startup costs. The filing provides no specific revenue or earnings guidance.
- Management said frac-sand supply and demand fundamentals improved and prices began recovering from historic lows during the quarter, but it could not predict whether the trend would continue. It expects industrial-market diversification to grow, while noting the business is at an early stage.
Risks, contingencies and notable items
- Customer concentration remains material: three customers generated 52% of Q1 revenue; four customers accounted for 66% of receivables at quarter-end. One customer contributed 24.4% of revenue.
- Management cited uncertainty around COVID-19 effects, oil-and-gas activity and sand pricing, regional sand competition, weather seasonality, and environmental and reclamation costs. Mining operations are concentrated in Wisconsin and Illinois.
- Performance bonds totaled $17.3 million, up from $8.6 million at year-end, mainly reflecting Blair-related obligations. The company also has approximately $2.5 million of annual minimum land-use payments for the next 15 years.
- Management said routine legal matters are not expected to have a material adverse effect. The company recorded a liability related to uncertain tax positions and a partial valuation allowance on deferred tax assets; it said neither changed materially during the quarter.
- The company reported no material change in risk factors from its 2021 Form 10-K and stated that disclosure controls were effective.
Investor facts to verify
- Whether improving sand prices and sales volumes continue to offset freight, operating and seasonal costs.
- Progress, required spending and expected timing to bring Blair online, and the associated reclamation obligations.
- Cash conversion and working-capital trends, given the quarterly operating cash outflow and lower cash balance.
- Execution of the $25–$30 million capital program, Waynesburg operations, and funding needs against available liquidity.
- Customer concentration, tax-position exposure, and potential environmental, safety and reclamation requirements.