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Smart Sand Fourth Quarter, Full Year 2020 Results

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   |    Friday,March 05,2021

Smart Sand, Inc. reported its Q4 and full year 2020 results.

Charles Young, Smart Sand's Chief Executive Officer, stated "Despite volatile market conditions throughout 2020, Smart Sand continued to demonstrate its ability to manage through the cycles in our industry, and I want to thank all of our employees for their continued diligence and efforts to support the company through challenging times."

"Although the market was challenging last year, we were able to generate positive free cash flow and reduce our debt levels. Additionally, we were able to acquire the Eagle Materials proppants business at a very attractive price. This acquisition provides us incremental capacity to serve the market as it recovers and increased logistics capabilities through the access to another Class I railroad. We believe the acquisition combined with existing low cost operations and our low leverage levels will allow us to continue to compete effectively in the market to provide sustainable sand supply and logistics solutions to our customers in 2021 and beyond."

Full Year 2020 Highlights

Revenues were $122.3 million for the full year 2020, compared to $233.1 million for the full year of 2019, an overall decrease of 48%. Revenue in 2020 was negatively impacted by depressed energy prices driven by the continued oversupply relative to the decreased demand for oil and natural gas due to the COVID-19 coronavirus pandemic which led to reduced drilling and completions activity for new oil and gas wells in the United States.

Overall tons sold were 1,886,000 for the full year 2020, compared to full year 2019 volume of 2,462,000 tons, a decrease of 23%. Due to the decreased demand from the COVID-19 coronavirus pandemic, sales volumes dropped dramatically in the second and third quarters of 2020 before rebounding in the fourth quarter. The increased activity in the fourth quarter was not enough to overcome the reduced demand earlier in the year leading to sales volume dropping in 2020, compared to 2019 levels.

Income tax benefit was $13.0 million for the full year 2020, compared with income tax expense of $7.8 million for the full year 2019. The 2020 income tax benefit included the effects of the non-taxable gain on bargain purchase related to the acquisition of Eagle Proppants Holdings, as well as $9.7 million related to the anticipated benefit to be received from the carryback of net operating losses, including those related to depletion deduction, to tax years with a 35% corporate tax rate.

Net income was $38.0 million, or $0.94 per basic and diluted share for the full year 2020, compared with net income of $31.6 million, or $0.79 per basic and $0.78 per diluted share, for the full year 2019, an increase of 20% year over year. The increase in net income was primarily due to the gain on bargain purchase related to our acquisition of Eagle Proppants Holdings, current year income tax benefit and impairment of intangible assets in the prior year, offset by the lower shortfall revenue and the lower volumes sold during the COVID-19 coronavirus pandemic.

Net cash provided by operating activities was $25.5 million for the year ended December 31, 2020, which included income of $38.0 million, partially offset by non-cash items of $10.8 million and $1.6 million in changes in operating assets and liabilities.

Adjusted EBITDA was $20.5 million for the full year 2020 compared to Adjusted EBITDA of $87.1 million for the full year 2019, a decrease of 77% year over year. The decrease in Adjusted EBITDA for the year ended December 31, 2020, as compared to the prior year, was primarily attributable to both lower shortfall revenue and lower total volumes sold due to depressed oil prices and decreased demand.

Contribution margin was $39.1 million, or $20.75 per ton sold, for the full year 2020 compared to $106.5 million, or $43.24 per ton sold, for the full year 2019. The decrease in contribution margin was primarily due to lower total volumes sold and pricing pressure in the current period due to depressed oil prices and decreased demand and lower shortfall revenue.

Fourth Quarter 2020 Highlights

Revenues were $25.3 million in the fourth quarter of 2020, compared to third quarter 2020 revenues of $23.4 million. Fourth quarter 2020 revenues decreased by 47% compared to fourth quarter 2019 revenues of $47.7 million. Sand sales revenue were up in the fourth quarter, compared to the third quarter, due to higher sales volumes but this was mitigated by lower shortfall revenues leading to overall revenues being relatively flat with third quarter results. The decrease in revenue compared to the fourth quarter of 2019 was primarily due to higher shortfall and logistics revenues in 2019.

Overall tons sold were 612,000 for the fourth quarter of 2020, compared to 309,000 tons for the third quarter of 2020 and 462,000 tons in the fourth quarter 2019, increases of 98% and of 32%, respectively. Sales volumes improved substantially in the fourth quarter 2020, compared to the third quarter 2020, due to improved oil prices from increased demand as the economy began to show some improvement from the depressed levels caused by the start of the pandemic earlier in 2020. Due to this increase in activity later in the year, sales volume for the fourth quarter 2020 were higher than the same period a year ago which had lower volumes due to normal year end spending reductions to drill and complete new wells.

Income tax benefit was $18.6 million for the fourth quarter of 2020, compared with income tax expense of $0.3 million for the full year 2019. The fourth quarter 2020 income tax benefit resulted from the loss in the current quarter as well as $7.8 million related to the anticipated benefit to be received from the carryback of net operating losses, including those related to depletion deduction, to tax years with a 35% corporate tax rate.

For the fourth quarter of 2020, the Company had a net loss of $2.9 million, or $(0.07) per basic and diluted share, compared to net income of $36.3 million, or $0.91 per basic and diluted share for the third quarter of 2020, and net income of $2.4 million, or $0.06 per basic share and diluted share, for the fourth quarter 2019. Net income was lower sequentially due to the gain on the bargain purchase related to our acquisition of Eagle Proppants Holdings recognized in the third quarter. In the fourth quarter 2020, the Company took an impairment charge of $5.1 million on our Permian basin long-lived assets and incurred a $1.3 million sales tax audit settlement charge. Due to the increased sales volumes and seasonality of our operations in the fourth quarter, compared to the third quarter, we had more cost recognized as inventory was depleted from the winter stockpile and higher freight expense. Net income in the fourth quarter of 2019 was higher than the fourth quarter 2020 results due primarily to higher shortfall and logistics revenue partially offset by an impairment charge of $7.9 million on our Hixton site.

Adjusted EBITDA was $(7.7) million for the fourth quarter of 2020, compared to $6.1 million for the third quarter 2020 and $19.6 million for the fourth quarter of 2019. The decrease in Adjusted EBITDA compared to the third quarter of 2020 and the fourth quarter of 2019 was primarily due to lower shortfall and logistics revenue and more costs recognized as inventory was depleted from the winter stockpile and higher freight expense.

Capital and Liquidity

For the full year 2020, we generated $16.9 million in free cash flow, generating $25.5 million in cash flow from operations while spending $8.6 million on capital expenditures. For the fourth quarter of 2020, we generated $2.1 million in free cash flow, generating $3.3 million in cash flow from operations while spending $1.2 million on capital expenditures. The majority of the capital spent during the year was for investment in SmartPath transloaders for our SmartSystems last mile logistics fleets. As of December 31, 2020, we had cash on hand of $11.7 million, $9.5 million in undrawn availability on our ABL Credit Facility and $5.0 million in undrawn availability on the Acquisition Liquidity Support Facility.

Business Combination

On September 18, 2020, we acquired the Oil and Gas Proppants Segment of Eagle Materials Inc, which includes frac sand mines and related processing facilities in Utica, Illinois and New Auburn, Wisconsin, with approximately 3.5 million tons of total annual processing capacity, 1.6 million tons of which has access to the BNSF Class I rail line through the Peru, Illinois transload facility. The transaction is considered a bargain purchase whereby we purchased total net assets with a fair value of $41.7 million for total consideration of $2.1 million, resulting in a bargain purchase gain of $39.6 million, included in net income for the year ended December 31, 2020. In connection with the acquisition, we entered into a Liquidity Support Loan Agreement, whereby we may draw loans in an aggregate amount up to $5.0 million during the twelve month period ending September 18, 2021 and repay those amounts over the subsequent three years. As of December 31, 2020, there was no amounts outstanding under this facility.

We believe that this acquisition broadens our mine to wellsite capabilities by adding high quality sand mining and processing assets coupled with enhanced logistics options which provide direct access to an additional Class I rail line. We believe that these additional mining and logistics resources help secure its ability to be the preferred provider of Northern White Sand in the proppants market. With this acquisition, we believe we will be able to expand our footprint into new basins, gain access to new and enhanced logistics options, broaden our customer base and complement our mine to wellsite supply and logistics capabilities.


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