10-Q: Smart Sand Inc. Reports Third Quarter 2024 Results Amidst Market Volatility

Smart Sand Inc. experienced a decrease in revenue and profitability in the third quarter of 2024, primarily due to lower sand prices and reduced sales volumes.

Summary

• Smart Sand Inc. reported a net loss of $0.1 million for the third quarter of 2024, a significant decrease compared to a net income of $6.7 million in the same period of 2023.
• Total revenue for the quarter was $63.2 million, down from $76.9 million in the prior year, with sand revenue decreasing by 17% to $62.2 million and SmartSystems revenue declining by 54% to $0.9 million.
• The company sold approximately 1,189,000 tons of sand in the third quarter of 2024, compared to 1,219,000 tons in the same period of 2023.
• Gross profit decreased to $6.5 million from $14.4 million year-over-year, primarily due to lower sales volumes and reduced average selling prices.
• Operating expenses increased to $11.4 million, up from $9.5 million in the prior year, due to higher banking and legal fees related to refinancing the ABL facility and a loss on disposal of fixed assets from the closure of the Saskatoon facility.
• For the nine months ended September 30, 2024, the company reported a net loss of $0.7 million, compared to a net income of $9.4 million in the same period of 2023.
• Total revenue for the nine-month period was $220.0 million, down from $234.0 million in the prior year, with sand revenue decreasing by 6% to $213.0 million and SmartSystems revenue increasing by 5% to $7.0 million.
• The company sold approximately 3,799,000 tons of sand in the first nine months of 2024, compared to 3,498,000 tons in the same period of 2023.
• Gross profit for the nine-month period was $31.4 million, down from $38.7 million year-over-year, primarily due to lower average sales prices.
• The company refinanced its ABL facility, securing a new $30 million credit facility with First-Citizens Bank & Trust Company, replacing the previous $20 million facility with Jefferies Finance LLC.

Sentiment

Score: 3

Explanation: The document indicates a significant downturn in financial performance, with decreased revenue, profitability, and net income. While the company has taken steps to refinance debt and manage costs, the overall tone is negative due to the poor financial results.

Positives

• The company successfully refinanced its ABL facility, securing a new $30 million credit facility with First-Citizens Bank & Trust Company.
• The company's total sand volumes sold increased by approximately 9% for the nine months ended September 30, 2024 compared to the same period in 2023.
• SmartSystems revenue increased slightly for the nine months ended September 30, 2024 compared to the same period in 2023.
• The company has implemented cost reduction measures throughout the company.

Negatives

• The company experienced a significant decrease in net income for both the third quarter and the first nine months of 2024 compared to the same periods in 2023.
• Sand revenue decreased by 17% in Q3 2024 and 6% for the nine months ended September 30, 2024.
• SmartSystems revenue decreased by 54% in Q3 2024.
• Gross profit decreased significantly in both the third quarter and the first nine months of 2024.
• Operating expenses increased in Q3 2024 due to higher banking and legal fees and a loss on disposal of fixed assets.
• Average sand prices were lower in 2024 compared to 2023.

Risks

• The company is exposed to market volatility in the oil and gas industry, which can impact demand and pricing for its products.
• The company's business is affected by seasonal fluctuations in weather, which can impact production levels.
• The company has a high customer concentration, with four customers accounting for 71% of total accounts receivable as of September 30, 2024.
• The company's primary product is Northern White sand, and its mining operations are limited to Wisconsin and Illinois, creating a risk of loss if there are significant environmental, legal or economic changes to these areas.
• The company is subject to various federal, state and local laws and regulations governing environmental matters, which could result in future expenditures.

Future Outlook

The company expects full year 2024 capital expenditures to be between $8.0 million and $10.0 million, primarily for process improvement and efficiency projects at its mine sites, upgrading mining equipment and the build out of its new Ohio terminals. The company believes it has sufficient liquidity and other available capital resources to meet its cash needs for the next twelve months.

Management Comments

• Management believes that the company has sufficient liquidity and other available capital resources to meet its cash needs for the next twelve months.
• Management is focused on reducing operating expenses and capital expenditures.

Industry Context

The company operates in the frac sand industry, which is influenced by oil and gas prices and drilling activity. The market has seen a shift towards more balanced supply and demand, leading to lower sand prices. The company is also expanding its Industrial Products Solutions (IPS) business to diversify its customer base and mitigate price volatility in the oil and gas industry.

Comparison to Industry Standards

• The company's performance reflects the broader trend of lower sand prices in the frac sand industry due to a more balanced supply and demand.
• Competitors in the Northern White frac sand market have shuttered or idled operations at certain facilities due to the higher demand for finer sands and due to lower cost regional sand sources.
• The company's expansion into the IPS business is a strategy to diversify and mitigate the volatility of the oil and gas industry, which is a common approach in the industry.
• The company's focus on cost reduction and efficiency improvements is consistent with industry trends in response to lower prices.

Legal Proceedings

• The company is involved in ongoing litigation related to noise, light, and dust at its Blair, Wisconsin facility, but expects to finalize a settlement in the fourth quarter of 2024.

Stakeholder Impact

• Shareholders will be impacted by the decreased profitability and net loss.
• Employees may be impacted by cost reduction measures.
• Customers may be impacted by changes in pricing and service offerings.
• Suppliers may be impacted by changes in the company's purchasing patterns.
• Creditors may be impacted by the company's financial performance and debt levels.

Next Steps

• The company will continue to focus on process improvement and efficiency projects at its mine sites.
• The company will continue to upgrade mining equipment.
• The company will continue to build out its new Ohio terminals.
• The company will continue to monitor market conditions and adjust its operations accordingly.
• The company will continue to execute its share repurchase program.

Key Dates

Keywords

frac sand, proppant, SmartSystems, Northern White sand, oil and gas, logistics, mining, transloading, industrial sand, revenue, profitability, EBITDA, debt, capital expenditures