Business context and reporting period
Smart Sand, Inc. filed this Form 10-K for the fiscal year ended December 31, 2021; it is an annual report, not a standalone fourth-quarter filing. The company supplies Northern White frac sand and related transportation, transloading, and wellsite storage services, and began offering industrial products late in 2021. Its primary operating mines were Oakdale, Wisconsin, and Utica, Illinois.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $126.6 million | $122.3 million |
| Sand tons sold | 3.189 million | 1.886 million |
| GAAP gross profit (loss) | $(15.9) million | $18.1 million |
| Operating income (loss) | $(63.5) million | $(13.0) million |
| Net income (loss) | $(50.7) million; $(1.21) per diluted share | $38.0 million; $0.94 per diluted share |
| Adjusted EBITDA (non-GAAP) | $(30.5) million | $20.5 million |
| Cash provided by operations | $32.4 million | $25.5 million |
| Capital expenditures | $11.2 million | $8.6 million |
| Free cash flow (non-GAAP) | $21.2 million | $16.9 million |
GAAP gross margin was approximately negative 12.6% in 2021, versus positive 14.8% in 2020. At year-end, cash was $25.6 million and total current assets and liabilities were $73.9 million and $48.6 million, respectively. The company reported $14.9 million of undrawn ABL availability and $40.5 million of total cash and available borrowing liquidity; there were no ABL borrowings. Debt was approximately $22.5 million, excluding operating lease liabilities of $32.7 million. Management said liquidity was sufficient for expected needs over the next twelve months.
Material changes versus the prior comparable period
- Revenue increased 4%, while sand volume sold rose 69%; management attributed the slower revenue growth to lower average selling prices.
- Sand sales revenue increased to $117.4 million from $70.9 million, but contractual shortfall revenue fell to $4.4 million from $23.3 million and logistics revenue fell to $4.8 million from $28.2 million.
- Cost of goods sold increased 35% to $140.4 million, reflecting higher volumes and freight costs. The company reported a $2.2 million inventory impairment.
- Net results were also affected by a $19.6 million non-cash bad-debt charge related to the U.S. Well Services settlement. The company received $35.0 million cash against a disputed receivable balance of $54.6 million.
- 2020 results included a $39.6 million non-taxable bargain-purchase gain from the Eagle Proppants Holdings acquisition, making the year-over-year earnings comparison especially significant.
Outlook, commentary, risks, and unusual items
Management expected stronger frac-sand demand and potential price improvement in 2022, but said timing and pricing recovery were uncertain. Industry estimates cited in the filing—not company guidance—projected North American proppant demand of about 90 million tons in 2022, up approximately 23% from 2021. The company planned $25–30 million of 2022 capital expenditures, funded through cash, operating cash flow, the ABL, or other financing.
Waynesburg, Pennsylvania began operating in January 2022. On March 4, 2022, after year-end, the company acquired the idle Blair, Wisconsin facility for approximately $6.5 million, subject to purchase-price adjustments. Blair adds stated annual processing capacity of 2.8 million tons and access to Canadian National Railway. The company also began developing Industrial Product Solutions; related sales were immaterial in 2021.
Key risks include depressed frac-sand pricing and excess supply, customer and receivable concentration, dependence on oil-and-gas activity, rail and logistics constraints, energy and labor costs, operational and weather disruptions, permitting and environmental requirements, and silica-related health and safety exposure. Three customers generated 57.4% of 2021 revenue; two customers represented 59% of year-end receivables. The U.S. Well Services settlement included a two-year right-of-first-refusal agreement covering purchases from January 2022 through December 2023. Clearlake-affiliated entities had interests in both Smart Sand and the seller of Blair, and Clearlake representatives serve on both companies’ boards.
Other notable items include $5.0 million of employee-retention credits recorded in 2021, a $2.2 million liability for uncertain tax positions related to the depletion deduction methodology, and $8.6 million of outstanding performance bonds for reclamation and other obligations. The auditor issued an unqualified opinion on the financial statements; management reported effective disclosure controls and internal control over financial reporting.
Most important facts for investors to verify
- Whether sand pricing and per-ton economics recover enough to offset production and freight costs; volume growth alone did not prevent negative gross profit in 2021.
- The collectability and timing of customer receivables, particularly given concentration and the large U.S. Well Services settlement shortfall.
- Whether liquidity can support the planned $25–30 million capital program, scheduled debt payments, lease obligations, and restarting Blair without additional financing.
- Whether Waynesburg and Blair achieve expected utilization and returns, and whether the related-party aspects of the Blair transaction were appropriately addressed.
- How customer concentration, take-or-pay contract changes, and the shift toward spot sales affect future revenue, margins, and cash flow.