Smart Sand, Inc. Announces Second Quarter 2018 Results
2Q 2018 revenue of $54.4 million
2Q 2018 total tons sold of 839,000, the highest in Company history and an increase of 16% sequentially
2Q 2018 net income of $10.0 million
2Q 2018 Adjusted EBITDA of $19.3 million, an increase of 229% sequentially
Acquisition of Quickthree Solutions, Inc. closed on June 1, 2018

THE WOODLANDS, Texas, August 9, 2018 – Smart Sand, Inc. (NASDAQ: SND) (the “Company” or “Smart Sand”), a pure-play, low-cost producer of high quality Northern White raw frac sand, today announced results for the second quarter ended June 30, 2018.
“I’m pleased to report that Smart Sand has posted strong quarterly results with significant sequential improvements in sales volumes, net income and Adjusted EBITDA. We also continued to execute on our long-range plan to become an integrated, full service provider of frac sand and logistics support to deliver mine to wellsite proppant solutions for our customers,” stated Charles Young, Chief Executive Officer. He added, “During the second quarter we completed our nameplate capacity expansion at our Oakdale facility and expanded our logistics capabilities through the acquisition of Quickthree Solutions, Inc., a maker of portable frac sand storage solutions, while achieving the highest quarterly sales volumes in Company history. We continue to see new customer interest for our high quality Northern White sand from E&P companies that see benefits in well performance from using Northern White Sand over regional sand. Additionally, in the quarter, we benefited from incremental in-basin sales to customers purchasing sand through our Van Hook, North Dakota terminal.”
Second Quarter 2018 Highlights
Revenues were $54.4 million in the second quarter of 2018, a 28% increase compared to first quarter 2018 revenues of $42.6 million. Second quarter 2018 revenues increased by 83% compared to second quarter 2017 revenues of $29.8 million. The increase in revenues year over year was primarily due to higher sales volumes and a higher average selling price per ton sold, partially offset by lower freight revenue.
Overall tons sold were approximately 839,000 in the second quarter of 2018, the highest in Company history, compared to approximately 723,000 tons sold in the first quarter of 2018 and 531,000 tons sold in the second quarter of 2017, increases of 16% and 58%, respectively.
Net income was $10.0 million, or $0.25 per basic and diluted share, for the second quarter of 2018, compared with net income of $1.0 million, or $0.02 per basic and diluted share, for the first quarter of 2018 and net income of $2.6 million, or $0.07 per basic and $0.06 per diluted share, for the second quarter of 2017.





Adjusted EBITDA was $19.3 million for the second quarter of 2018 compared to $6.3 million during the same period last year, an increase of 204% on a year-over-year basis and an increase of 229% compared to first quarter 2018 Adjusted EBITDA of $5.9 million. The increase in Adjusted EBITDA compared to the second quarter of 2017 was primarily due to higher sales volumes and a higher average selling price per ton sold offset by increased cost of goods sold due to the higher sales volumes. The increase in Adjusted EBITDA compared to the first quarter of 2018 was primarily due to higher sales volumes and a higher selling price per ton. Additionally, we had higher fixed cost leverage in the second quarter of 2018 as we ramped up production and we capitalized more costs into inventory as we began wet plant operations during the quarter which resulted in lower cost of goods sold sequentially. In the second quarter of 2018, we also had one-time costs of $0.8 million, or $0.20 per share, included in selling, general and administrative expenses related to the acquisition of Quickthree Solutions, Inc.
Capital Expenditures
Smart Sand’s capital expenditures totaled $49.9 million for the second quarter ended June 30, 2018, of which $29.9 million related to the acquisition of Quickthree Solutions, Inc. The remainder was largely associated with the nameplate capacity expansion at our Oakdale sand processing facility, investment in various enhancement and cost improvement projects and our terminal investment in the Bakken. The Company estimates that full year 2018 capital expenditures will be approximately $125 to $135 million, excluding any additional acquisitions. This range of investment gives consideration to the acquisition of Quickthree and also includes approximately $7 to $10 million in capital to manufacture initial last mile systems for deployment to our customers. At June 30, 2018, the Company had approximately $1.7 million of cash on hand. On April 6, 2018, the Company amended its credit facility to increase the amount available by $15 million to $60 million, of which $15 million is currently available to support liquidity needs in 2018.
Conference Call
Smart Sand will host a conference call and live webcast for analysts and investors this morning, August 9th, at 10:00 a.m. Eastern Time to discuss the Company’s second quarter 2018 financial results. Investors are invited to listen to a live audio webcast of the conference call, which will be accessible on the “Investors” section of the Company’s website at www.smartsand.com. To access the live webcast, please log in 15 minutes prior to the start of the call to download and install any necessary audio software. An archived replay of the call will also be available on the website following the call. The call can also be accessed live by dialing (888) 799-5165 or, for international callers, (478) 219-0056. The passcode for the call is 1375109. A replay will be available shortly after the call and can be accessed by dialing (855) 859-2056 or, for international callers, (404) 537-3406. The conference ID for the replay is 1375109.





Forward-looking Statements
All statements in this news release other than statements of historical facts are forward-looking statements that contain our current expectations about our future results.  We have attempted to identify any forward-looking statements by using words such as “expect," “will," “estimate," “believe” and other similar expressions.  Although we believe that the expectations reflected and the assumptions or bases underlying our forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct.  Such statements are not guarantees of future performance or events and are subject to known and unknown risks and uncertainties that could cause the Company's actual results, events or financial positions to differ materially from those included within or implied by such forward-looking statements.
Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include, but are not limited to, fluctuations in product demand, regulatory changes, adverse weather conditions, increased fuel prices, higher transportation costs, access to capital, increased competition, changes in economic or political conditions, and such other factors discussed or referenced in the “Risk Factors” section of the Company’s Form 10-K for the year ended December 31, 2017, filed by the Company with the U.S. Securities and Exchange Commission on March 15, 2018.
You should not place undue reliance on our forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, unless required by law.
About Smart Sand
Smart Sand is a pure-play, low-cost producer of high-quality Northern White raw frac sand. We sell our products primarily to oil and natural gas exploration and production companies and oilfield service companies. We own and operate a raw frac sand mine and processing facility near Oakdale, Wisconsin, at which we currently have approximately 321 million tons of proven recoverable reserves. We currently have 5.5 million tons of annual nameplate processing capacity. For more information, please visit www.smartsand.com.

















CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Three Months Ended
 
 
June 30, 2018
 
March 31, 2018
 
June 30, 2017
 
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
(in thousands, except per share amounts)
Revenues
 
$
54,448

 
$
42,628

 
$
29,787

Cost of goods sold
 
34,678

 
35,413

 
21,407

Gross profit
 
19,770

 
7,215

 
8,380

Operating expenses:
 
 
 
 
 
 
Salaries, benefits and payroll taxes
 
2,790

 
2,573

 
2,167

Depreciation and amortization
 
476

 
188

 
120

Selling, general and administrative
 
3,595

 
3,101

 
2,283

Total operating expenses
 
6,861

 
5,862

 
4,570

Operating income
 
12,909

 
1,353

 
3,810

Other income (expenses):
 
 
 
 
 
 
Interest expense, net
 
(500
)
 
(180
)
 
(115
)
Other income
 
25

 
34

 
83

Total other income (expenses), net
 
(475
)
 
(146
)
 
(32
)
Income before income tax expense
 
12,434

 
1,207

 
3,778

Income tax expense
 
2,413

 
232

 
1,154

Net income
 
$
10,021

 
$
975

 
$
2,624

 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
Basic
 
0.25

 
$
0.02

 
$
0.07

Diluted
 
0.25

 
$
0.02

 
$
0.06

Weighted-average number of common shares:
 
 
 
 
 
 
Basic
 
40,499

 
40,412

 
40,347

Diluted
 
40,550

 
40,441

 
40,453

 
 
 
 
 
 
 















CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
June 30, 2018
 
December 31, 2017
 
 
(unaudited)
 
(audited)
 
 
(in thousands)
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
1,745

 
$
34,740

Restricted cash
 

 
487

Accounts receivable
 
24,086

 
23,377

Unbilled receivables
 
4,907

 
1,192

Inventories
 
11,546

 
9,532

Prepaid expenses and other current assets
 
4,829

 
3,849

Total current assets
 
47,113

 
73,177

Property, plant and equipment, net
 
223,993

 
171,762

Intangible assets, net
 
19,686

 

Goodwill
 
16,892

 

Deferred financing costs, net
 
438

 
892

Other assets
 
3,360

 
971

Total assets
 
$
311,482

 
$
246,802

 
 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
13,367

 
$
26,123

Accrued and other expenses
 
11,372

 
7,576

Deferred revenue
 
4,805

 

Current portion of equipment financing obligations
 
432

 
572

Current portion of notes payable
 

 
288

Total current liabilities
 
29,976

 
34,559

Revolving credit facility, net
 
44,654

 

Deferred tax liabilities, long-term, net
 
15,886

 
13,239

Asset retirement obligation
 
9,476

 
8,982

Contingent consideration
 
9,200

 

Total liabilities
 
109,192

 
56,780

 
 
 
 
 
Stockholders’ equity
 
 
 
 
Common stock
 
40

 
40

Treasury stock, at cost
 
(839
)
 
(666
)
Additional paid-in capital
 
160,428

 
159,059

Retained earnings
 
42,585

 
31,589

Accumulated other comprehensive income
 
76

 

Total stockholders’ equity
 
202,290

 
190,022

Total liabilities and stockholders’ equity
 
$
311,482

 
$
246,802







Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
We define EBITDA as our net income, plus (i) depreciation, depletion and amortization expense, (ii) income tax expense (benefit), (iii) interest expense and (iv) franchise taxes. We define Adjusted EBITDA as EBITDA, plus (i) gain or loss on sale of fixed assets or discontinued operations, (ii) integration and transition costs associated with specified transactions, including our initial public offering, (iii) equity compensation; (iv) acquisition and development costs; (v) non-recurring cash charges related to restructuring, retention and other similar actions, (vi) earn-out and contingent consideration obligations and (vii) non-cash charges and unusual or non-recurring charges. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and commercial banks, to assess:
the financial performance of our assets without regard to the impact of financing methods, capital structure or historical cost basis of our assets;
the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities;
our ability to incur and service debt and fund capital expenditures;
our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods and capital structure; and
our debt covenant compliance as Adjusted EBITDA is a key component of critical covenants in our credit agreement.
We believe that our presentation of EBITDA and Adjusted EBITDA will provide useful information to investors in assessing our financial condition and results of operations. Net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA should not be considered alternatives to net income presented in accordance with GAAP. Because EBITDA and Adjusted EBITDA may be defined differently by other companies in our industry, our definition of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.





The following table presents a reconciliation of EBITDA and Adjusted EBITDA to net income for each of the periods indicated:
 
 
Three Months Ended
 
 
June 30, 2018
 
March 31, 2018
 
June 30, 2017
 
 
(in thousands)
Net income
 
$
10,021

 
$
975

 
$
2,624

Depreciation, depletion and amortization
 
4,296

 
3,160

 
1,693

Income tax expense
 
2,413

 
232

 
1,154

Interest expense
 
509

 
219

 
182

Franchise taxes
 
109

 
220

 
10

EBITDA
 
$
17,348

 
$
4,806

 
$
5,663

(Gain) loss on sale of fixed assets (1)
 

 

 
194

Equity compensation (2)
 
668

 
490

 
464

Acquisition and development costs (3)
 
914

 
328

 

Cash charges related to restructuring and retention (4)
 
270

 
94

 

Non-cash charges (5)
 
57

 
134

 
20

Adjusted EBITDA
 
$
19,257

 
$
5,852

 
$
6,341


1.
Includes gains related to the sale and disposal of certain assets in property, plant and equipment.
2.
Represents the non-cash expenses for stock-based awards issued to our employees and employee stock purchase plan compensation expense.
3.
Represents costs incurred related to the business combinations and current development project activities. The three and six months ended June 30, 2018 includes $0.8 million and $1.2 million, respectively, of costs related to the acquisition of Quickthree Solutions, Inc.
4.
Represents costs associated with the retention and relocation of employees.
5.
Represents accretion of asset retirement obligations.






Contribution Margin

We also use contribution margin, which we define as total revenues less costs of goods sold excluding depreciation, depletion and accretion of asset retirement obligations, to measure our financial and operating performance. Contribution margin excludes other operating expenses and income, including costs not directly associated with the operations of our business such as accounting, human resources, information technology, legal, sales and other administrative activities. 

Historically, we have reported production costs and production cost per ton as non-GAAP measures. As we expand our logistics activities and continue to sell sand closer to the wellhead, our sand production costs will only be a portion of our overall cost structure. As such, we believe that it is no longer relevant to report production costs or production cost per ton on a standalone basis.

We believe that a transition to reporting contribution margin and contribution margin per ton sold will provide a better performance metric to management and external users of our financial statements, such as investors and commercial banks, because these metrics provide an operating and financial measure of our ability, as a combined business, to generate margin in excess of our operating cost base.

Gross profit is the GAAP measure most directly comparable to contribution margin. Contribution margin should not be considered an alternative to gross profit presented in accordance with GAAP. Because contribution margin may be defined differently by other companies in our industry, our definition of contribution margin may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. The following table presents a reconciliation of contribution margin to gross profit.
 
 
 
Three Months Ended
 
 
June 30, 2018
 
March 31, 2018
 
June 30, 2017
 
 
(in thousands)
Revenue
 
$
54,448

 
$
42,628

 
$
29,787

Cost of goods sold
 
34,678

 
35,413

 
21,407

      Gross profit
 
$
19,770

 
$
7,215

 
$
8,380

Depreciation, depletion, and accretion of asset retirement obligations
 
3,878

 
3,106

 
1,588

      Contribution margin
 
$
23,648

 
$
10,321

 
$
9,968

      Contribution margin per ton
 
$
28.19

 
$
14.28

 
$
18.77

Total tons sold
 
839

 
723

 
531







Investor Contacts
Lee Beckelman
CFO
(281) 231-2660
LBeckelman@smartsand.com

Phil Cerniglia
Investor Relations and Budgeting Manager
(281) 231-2660
PCerniglia@smartsand.com




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