Smart Sand, Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the provided text does not give a clear standalone fourth-quarter income statement. Smart Sand (Nasdaq: SND) supplies frac and industrial sand, transportation and logistics services, and wellsite storage equipment.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $255.7 million | $126.6 million |
| Sand sold | 4.333 million tons | 3.189 million tons |
| Gross profit (loss) | $29.6 million | $(15.9) million |
| Gross margin | 11.6% | (12.6)% |
| Operating loss | $(3.1) million | $(63.5) million |
| Net loss | $(0.7) million; $(0.02) per share | $(50.7) million; $(1.21) per share |
| Adjusted EBITDA (non-GAAP) | $29.3 million | $(30.5) million |
| Cash from operations | $5.4 million | $32.4 million |
| Capital expenditures | $12.7 million | $11.2 million |
| Free cash flow (non-GAAP, as reported) | $(13.9) million | $21.2 million |
Revenue more than doubled as sand volumes rose 36% and selling prices improved with recovering market demand. Sand sales revenue was $243.2 million; shortfall revenue was $5.0 million and logistics revenue was $7.6 million. Costs of goods sold rose 61% to $226.1 million, reflecting greater volume and higher production, freight, labor, maintenance and utility costs. The improvement in net results also reflects the absence of FY2021’s $19.6 million non-cash bad-debt charge related to a customer litigation settlement. FY2021 also included a $5.0 million employee retention credit in other income.
The company generated $24.6 million of EBITDA and $29.3 million of Adjusted EBITDA in 2022, both non-GAAP measures. Operating cash flow fell year over year, in part because higher sales required more working capital; receivables increased to $35.7 million from $17.5 million. The filing’s free-cash-flow reconciliation subtracts the $6.5 million Blair acquisition as well as $12.7 million of capital spending.
Balance sheet and liquidity
- Cash was $5.5 million at year-end, down from $25.6 million a year earlier.
- Total debt was approximately $16.0 million, comprising $11.8 million under Oakdale equipment financing and $3.4 million of notes payable and finance leases; there were no ABL borrowings. The $20 million ABL facility had $19.0 million available after letters of credit and matures in December 2024.
- Operating lease liabilities were $28.6 million. Scheduled 2023 cash payments include $12.2 million for operating leases and $6.5 million for debt and finance leases. Minimum payments for extractive land rights are about $2.6 million in 2023.
- Management stated that available liquidity was sufficient for the next 12 months. The company was in compliance with ABL financial covenants at year-end.
Material changes and developments
- Market recovery improved volumes and prices: management cited industry data estimating North American proppant demand rose 25% in 2022. Four customers accounted for 65% of revenue, versus 57% for the three largest in 2021; Equitable Gas, Halliburton, Encino Energy and Liberty Oilfield Services accounted for 22.3%, 15.4%, 14.4% and 13.7%, respectively.
- Smart Sand acquired the idled Blair, Wisconsin mine and processing facility for approximately $6.5 million in March 2022. The site adds 2.9 million tons of annual capacity and Canadian National rail access. Management expected it to restart in the second quarter of 2023; current operating capacity was 7.1 million tons, with potential capacity of about 10.0 million tons after Blair is brought online.
- The Waynesburg, Pennsylvania transload terminal began operations in January 2022. The company reported direct access to four Class I rail lines after Blair’s restart.
- The Industrial Products Solutions business, launched in late 2021, remained a small part of 2022 sales. The company aims to diversify sales into industrial markets.
- On November 14, 2022, the company issued 300,000 shares to Blair royalty holders as part of a royalty-rate renegotiation.
Outlook, risks and unusual items
- Management forecast 2023 capital expenditures of $20 million to $25 million, primarily for efficiency projects, IPS investments and Blair start-up costs. Funding was expected from cash, operations, the ABL facility or other financing.
- Management expected healthy 2023 frac-sand demand and relatively stable prices with some potential for improvement. Industry estimates cited in the filing projected North American proppant demand of 154 million tons in 2023, up about 21%; these are third-party estimates, not company guidance.
- Key exposures include oil and gas activity and commodity prices, regional sand competition, customer concentration and credit risk, rail and transportation disruptions, energy and labor costs, weather, mine permitting and reclamation requirements, and environmental, silica and hydraulic-fracturing regulation. Long-term contracts may also limit the company’s ability to benefit from higher spot prices.
- 2022 had no inventory or long-lived-asset impairment charge. FY2021 included a $2.2 million inventory impairment and a $19.6 million non-cash bad-debt expense following a settlement in which the company collected $35.0 million against $54.6 million of receivables. FY2020 included a $39.6 million bargain-purchase gain, making the three-year earnings comparison less comparable.
- After year-end, on February 27, 2023, the company repurchased 5.176 million shares from Clearlake, approximately 11.3% of pre-transaction shares, for $8.85 million. It paid $4.425 million in cash and issued an unsecured 10% promissory note for the balance, due December 15, 2023. Clearlake was a related party with board representation.
- The auditor issued an unqualified opinion on the financial statements and reported no critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control opinion.
Important facts for investors to verify
- Whether Blair restarted on schedule, reached planned utilization and generated returns sufficient to justify start-up spending.
- Whether improved sand pricing and volumes persisted, and how spot-market exposure and regional competition affected realized margins.
- Whether customer concentration, receivable collections and working-capital needs remained manageable as sales grew.
- How the $20 million to $25 million 2023 capital program was funded and whether liquidity remained adequate alongside debt, lease and land-right obligations.
- The final cash, share-count and governance effects of the Clearlake repurchase and related-party promissory note.
- Whether IPS sales diversified revenue meaningfully and whether regulatory, reclamation, silica-safety or rail risks led to material costs or interruptions.