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Smart Sand Inc. First Quarter 2020 Results

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   |    Tuesday,May 05,2020

Smart Sand, Inc. reported its Q1 2020 results.

Charles Young, Smart Sand’s Chief Executive Officer, stated, “Although we had strong first quarter results, we recognize that the current market is changing rapidly due to the impact on demand from the COVID-19 coronavirus pandemic and the current oversupply of oil. We are in difficult times right now, but Smart Sand was built to last with strategic assets at the core of our business made to weather the storms that we are facing in the market today. We’ve made the tough decisions to reduce our workforce and cut costs as part of executing on our long-term strategy so that we can continue to operate the business we built. We have demonstrated in the past that we can manage through market downturns and we plan to do what it takes to manage through this one as well.”

“While our primary focus is currently on cost management and maintaining a strong balance sheet, we are still planning for the future. We continue to work with our customers and respond to their needs. While we have significantly pulled back on our capital expenditures for new SmartSystems, we are shifting our focus to perfecting our new SmartPath transloader. Our new SmartPath technology enables users to combine all of the benefits of bottom dump trailers with the safety, low dust and small footprint  of silos on a wellsite. Our SmartPath's patent-pending features include a fixed-in-place drive-over sand drop area, complete dust control system, and the throughput capacity to keep ahead of the frac job.”

First Quarter 2020 Highlights

Revenues were $47.5 million in the first quarter of 2020, flat compared to fourth quarter of 2019 revenues of $47.7 million and a decrease of 8% compared to first quarter of 2019 revenues of $51.8 million. Included in revenues were $1.3 million and $11.6 million of shortfall revenues for the first quarter of 2020 and the fourth quarter of 2019, respectively. Solid revenues in the first quarter 2020 were due to higher sales volumes partially offset by lower shortfall revenue compared to the prior periods, respectively.

Overall tons sold were approximately 757,000 in the first quarter of 2020, compared with approximately 462,000 tons in the fourth quarter of 2019 and 648,000 tons in the first quarter of 2019. Activity remained strong through our terminal in Van Hook, North Dakota during the quarter.

Net loss was $84 thousand, or $0.00 per basic and diluted share, for the first quarter of 2020, compared with net income of $2.4 million, or $0.06 per basic share and diluted share, for the fourth quarter of 2019 and net income of $4.0 million, or $0.10 per basic and diluted share, for the first quarter of 2019. Net loss in the current period was impacted by seasonal inventory costs as we depleted our winter inventory. Higher shortfall revenue in both of the prior periods attributed to the higher net income in each respective period.

Adjusted EBITDA was $6.4 million for the first quarter of 2020, compared with $19.6 million for the fourth quarter 2019 and $12.4 million during the same period last year, decreases of 68% and 49%, respectively. The decrease in Adjusted EBITDA compared to the fourth quarter of 2019 was primarily due to lower shortfall revenue and higher cost of goods sold as we recognized seasonal inventory costs that had been capitalized into inventory in previous periods. The decrease in Adjusted EBITDA compared to the first quarter 2019 was due to lower shortfall revenue and lower average price per ton for sand in the current period.

Contribution margin was $11.5 million, or $15.20 per ton sold, for the first quarter of 2020 compared to $24.7 million, or $53.53 per ton sold, for the fourth quarter of 2019 and $17.1 million, or $26.35 per ton sold for the first quarter of 2019. Higher contribution margin and contribution margin per ton sold in the comparable periods was primarily due to higher shortfall revenue on lower overall volumes. First quarter 2020 contribution margin and contribution margin per ton were negatively impacted as we recognized previously capitalized costs in our winter stockpile.

Capital Expenditures

Our primary sources of liquidity are cash on hand, cash flow generated from operations and available borrowings under our ABL Credit Facility. As of March 31, 2020, cash on hand was $11.5 million and we had $14.0 million in undrawn availability on our ABL Credit Facility. For the three months ended March 31, 2020, we spent approximately $4.2 million on capital expenditures. The recent decline in oil prices resulting from a combination of oversupply and reduced demand related to the COVID-19 coronavirus pandemic has led many exploration and production companies and oilfield service companies to announce plans to slow or stop well completions activity.  In response, we have reduced our total capital expenditure budget by up to $20 million, including a significant reduction in our SmartSystems™ manufacturing plans.  We now estimate that full year 2020 capital expenditures will be approximately $5.0 million to $10.0 million. 

Market Update

We generally expect the price of frac sand to correlate with the level of drilling and completions activity for oil and natural gas and we generally expect the level of drilling and completions activity to correlate with long-term trends in commodity prices. Recently, oil prices have declined to all-time lows as a result of decreased demand for oil from the COVID-19 coronavirus pandemic, as well as an increase in global oil supply driven by disagreements with respect to oil pricing between Russia and members of the Organization of the Petroleum Exporting Countries (“OPEC”), particularly Saudi Arabia. The COVID-19 coronavirus pandemic has caused a global decrease in all means of travel, the closure of borders between countries and a general slowing of economic activity worldwide which has decreased the demand for oil. In early March, discussions between Russia and Saudi Arabia deteriorated and the countries ended a three-year supply level agreement, which resulted in each country increasing its oil production. In April 2020, Russia and OPEC agreed to certain production cuts to mitigate the decline in the price of oil; however, such cuts may not be sufficient to stabilize the oil market if the decline in demand due to the COVID-19 coronavirus pandemic continues. Oil and natural gas prices are expected to continue to be volatile as a result of the increase of near-term supply and the decrease in overall demand caused by these events, and the Company cannot predict when prices will improve or stabilize.

In response, we have reduced our total capital expenditure budget, primarily as a reduction to our SmartSystems manufacturing plans. We have also put in place several cost-cutting measures, including headcount reductions at our Oakdale and Saskatoon, Canada operating facilities, salary reductions and suspension of our variable cash compensation programs for all employees. We drew $6.0 million on the ABL Credit Facility to provide additional immediate liquidity should the need arise. We have put in place multiple initiatives to protect the health and well-being of our workforce, including work-from-home arrangements for all employees that are able to do so and implementing social distancing requirements as prescribed by the federal, state and local government authorities.