snd-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________

FORM 10-Q

_____________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ___ to ___

Commission file number 001-37936

SMART SAND, INC.

(Exact name of registrant as specified in its charter)


Delaware			45-2809926
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

1000 Floral Vale Boulevard, Suite 225
Yardley, Pennsylvania 19067			(215) 795-7900
(Address of principal executive offices)			(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

SND

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated Filer ☒

Smaller reporting company

☒

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Number of shares of common stock outstanding, par value $0.001 per share, as of May 6, 2024: 42,574,948

TABLE OF CONTENTS


		PAGE
PART I	FINANCIAL INFORMATION

ITEM 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	7
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	27
ITEM 4.	Controls and Procedures	27

PART II	OTHER INFORMATION	28

ITEM 1.	Legal Proceedings	28
ITEM 1A.	Risk Factors	28
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
ITEM 3.	Defaults upon Senior Securities	28
ITEM 4.	Mine Safety Disclosures	28
ITEM 5.	Other Information	29
ITEM 6.	Exhibits	30

SIGNATURES		31

Certain Definitions

The following definitions apply throughout this quarterly report unless the context requires otherwise:


“We”, “Us”, “Company”, “Smart Sand” or “Our”						Smart Sand, Inc., a company organized under the laws of Delaware, and its subsidiaries.

“shares”, “stock”						The common stock of Smart Sand, Inc., nominal value $0.001 per share.

“ABL Credit Facility”, “ABL Credit Agreement”, “ABL Security Agreement”						The five-year senior secured asset-based lending credit facility (the “ABL Credit Facility”) pursuant to: (i) an ABL Credit Agreement, dated December 13, 2019, between the Company and Jefferies Finance LLC, as amended from time to time (as amended, the “ABL Credit Agreement”); and (ii) a Guarantee and Collateral Agreement, dated December 13, 2019, between the Company and Jefferies Finance LLC, as agent, as amended from time to time (as amended, the “Security Agreement”).

“Oakdale Equipment Financing”, “MLA”						The five-year Master Lease Agreement, dated December 13, 2019, between Nexseer Capital (“Nexseer”) and related lease schedules in connection therewith (collectively, the “MLA”). The MLA is structured as a sale-leaseback of substantially all of the equipment at the Company’s mining and processing facility located near Oakdale, Wisconsin. The Oakdale Equipment Financing is considered a lease under article 2A of the Uniform Commercial Code but is considered a financing arrangement (and not a lease) for accounting or financial reporting purposes.


“Exchange Act”						The Securities Exchange Act of 1934, as amended.

“Securities Act”						The Securities Act of 1933, as amended.



“FASB”, “ASU”, “ASC”, “GAAP”						Financial Accounting Standards Board, Accounting Standards Update, Accounting Standards Codification, Accounting Principles Generally Accepted in the United States, respectively.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SMART SAND, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31, 2024		December 31, 2023
	(unaudited)
	(in thousands, except share amounts)
Assets
Current assets:
Cash and cash equivalents	$	4,598	$	6,072
Accounts receivable	37,698		23,231
Unbilled receivables	79		2,561
Inventory	25,584		26,823
Prepaid expenses and other current assets	3,210		3,217
Total current assets	71,169		61,904
Property, plant and equipment, net	251,384		255,092
Operating lease right-of-use assets	20,472		23,265
Intangible assets, net	5,678		5,876
Other assets	558		163
Total assets	$	349,261	$	346,300
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	9,935	$	16,041
Accrued expenses and other liabilities	15,402		11,024
Deferred revenue	2,375		1,154

Current portion of long-term debt	22,045		15,711
Current portion of operating lease liabilities	9,554		10,536
Total current liabilities	59,311		54,466

Long-term debt	2,445		3,449
Long-term operating lease liabilities	12,070		14,056
Deferred tax liabilities, net	12,697		12,101
Asset retirement obligations	20,172		19,923

Other non-current liabilities	38		38
Total liabilities	106,733		104,033
Commitments and contingencies (Note 12)
Stockholders’ equity
Common stock, $0.001 par value, 350,000,000 shares authorized; 46,164,730 issued and 38,706,008 outstanding at March 31, 2024; 45,858,022 issued and 38,486,762 outstanding at December 31, 2023	39		39
Treasury stock, at cost, 7,458,722 and 7,371,260 shares at March 31, 2024 and December 31, 2023, respectively	(14,419)		(14,249)
Additional paid-in capital	182,646		181,973
Retained earnings	74,323		74,539
Accumulated other comprehensive loss	(61)		(35)
Total stockholders’ equity	242,528		242,267
Total liabilities and stockholders’ equity	$	349,261	$	346,300

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SMART SAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended March 31,
		2024		2023
		(in thousands, except per share amounts)
Revenues:
Sand revenue		$	79,719	$	80,019
SmartSystems revenue		3,333		2,331
Total revenue		83,052		82,350
Cost of goods sold:
Sand cost of goods sold		68,967		68,738
SmartSystems cost of goods sold		2,274		1,975
Total cost of goods sold		71,241		70,713
Gross profit		11,811		11,637
Operating expenses:
Selling, general and administrative		10,350		10,764
Depreciation and amortization		674		592
Loss (gain) on disposal of fixed assets, net		3		1,889


Total operating expenses		11,027		13,245
Operating income (loss)		784		(1,608)
Other income (expenses):

Interest expense, net		(489)		(441)

Other income		96		48
Total other expenses, net		(393)		(393)
Income (loss) before income tax expense		391		(2,001)
Income tax expense		607		1,598
Net loss		$	(216)	$	(3,599)
Net loss per common share:
Basic		$	(0.01)	$	(0.09)
Diluted		$	(0.01)	$	(0.09)
Weighted-average number of common shares:
Basic		38,555		41,272
Diluted		38,555		41,272

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SMART SAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


	Three Months Ended March 31,
		2024		2023
		(in thousands)
Net loss		$	(216)	$	(3,599)
Other comprehensive loss:
Foreign currency translation adjustment		(26)		(66)
Comprehensive loss		$	(242)	$	(3,665)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SMART SAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

Three Months Ended March 31, 2024


	Common Stock			Treasury Stock			Additional Paid-in Capital				Accumulated Other Comprehensive (Loss) Income		Total Stockholders’ Equity
	Outstanding Shares	Par Value		Shares	Amount				Retained Earnings
	(in thousands, except share amounts)
Balance at December 31, 2023	38,486,762	$	39	7,371,260	$	(14,249)	$	181,973	$	74,539	$	(35)	$	242,267
Foreign currency translation adjustment	—	—		—	—		—		—		(26)		(26)
Vesting of restricted stock	288,817	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		642		—		—		642
Employee stock purchase plan compensation	—	—		—	—		6		—		—		6
Employee stock purchase plan issuance	17,891	—		—	—		25		—		—		25

Restricted stock buy back	(87,462)	—		87,462	(170)		—		—		—		(170)
Net loss	—	—		—	—		—		(216)		—		(216)
Balance at March 31, 2024	38,706,008	$	39	7,458,722	$	(14,419)	$	182,646	$	74,323	$	(61)	$	242,528

Three Months Ended March 31, 2023


	Common Stock			Treasury Stock			Additional Paid-in Capital				Accumulated Other Comprehensive (Loss) Income		Total Stockholders’ Equity
	Outstanding Shares	Par Value		Shares	Amount				Retained Earnings
	(in thousands, except share amounts)
Balance at December 31, 2022	43,088,106	$	43	2,010,961	$	(5,075)	$	178,386	$	69,890	$	227	$	243,471
Foreign currency translation adjustment	—	—		—	—		—		—		(66)		(66)

Vesting of restricted stock	4,750	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		779		—		—		779
Employee stock purchase plan compensation	—	—		—	—		7		—		—		7
Employee stock purchase plan issuance	21,810	—		—	—		33		—		—		33
Purchase of treasury stock	(5,175,688)	(5)		5,175,688	(8,845)		—		—		—		(8,850)
Restricted stock buy back	(1,618)	—		1,618	(3)		—		—		—		(3)
Net loss	—	—		—	—		—		(3,599)		—		(3,599)
Balance at March 31, 2023	37,937,360	$	38	7,188,267	$	(13,923)	$	179,205	$	66,291	$	161	231,772

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SMART SAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended March 31,
	2024		2023
	(in thousands)
Operating activities:
Net loss	$	(216)	$	(3,599)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation, depletion and accretion of asset retirement obligations	7,241		6,553
Amortization of intangible assets	199		199
Net loss on disposal of fixed assets	3		1,889

Amortization of deferred financing cost	26		26
Accretion of debt discount	47		47
Deferred income taxes	596		1,669
Stock-based compensation, net	642		779
Employee stock purchase plan compensation	6		7


Changes in assets and liabilities:
Accounts receivable	(9,344)		(74)
Unbilled receivables	(2,640)		(1,363)
Inventory	1,240		101
Prepaid expenses and other assets	(240)		(676)
Deferred revenue	1,220		(1,058)
Accounts payable	(6,730)		1,165
Accrued and other expenses	4,087		(560)
Net cash (used in) provided by operating activities	(3,863)		5,105
Investing activities:

Purchases of property, plant and equipment	(1,646)		(4,018)
Proceeds from disposal of assets	1		1
Net cash used in investing activities	(1,645)		(4,017)
Financing activities:
Repayments of notes payable	(1,340)		(1,513)
Payments under finance leases	(56)		(86)
Payment of deferred financing and debt issuance costs	(425)		—
Proceeds from revolving credit facility	6,000		14,000
Repayment of revolving credit facility	—		(7,000)
Employee stock purchase plan issuance	25		33
Purchase of treasury stock	(170)		(4,428)
Net cash provided by financing activities	4,034		1,006
Net (decrease) increase in cash and cash equivalents	(1,474)		2,094
Cash and cash equivalents at beginning of year	6,072		5,510
Cash and cash equivalents at end of period	$	4,598	$	7,604
Supplemental disclosure of cash flow information
Purchases of property, plant and equipment in accounts payable and accrued expenses	$	1,544	$	1,975
Treasury stock purchased with debt	$	—	$	4,425

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

NOTE 1 — Organization and Nature of Business

The Company was incorporated in July 2011 and is headquartered in Yardley, Pennsylvania. The Company primarily operates as a fully integrated frac and industrial sand supply and services company. The Company offers complete mine to wellsite proppant supply and logistics solutions to our frac sand customers in the oil and natural gas industry. These operations include the excavation, processing and sale of sand, or proppant, for hydraulic fracturing operations as well as proppant logistics and wellsite storage solutions through its SmartSystemsTM products and services. The Company also provides sand to customers for industrial uses through its Industrial Product Solutions (“IPS”), such as glass, foundry, building products, filtration, geothermal, renewables, ceramics, turf & landscape, retail, and recreation.

Sand Mines and Processing Facilities

The Company’s integrated Oakdale facility, with on-site rail infrastructure and wet and dry sand processing facilities, has access to two Class I rail lines which enable the Company to process and cost effectively deliver products to its customers. The Company commenced operations at its mine and processing facility near Oakdale, Wisconsin in July 2012, and subsequently expanded its operations in 2014, 2015 and 2018. Currently, the annual processing capacity at the Oakdale facility is approximately 5.5 million tons.

In September 2020, the Company acquired two frac sand mines and related processing facilities in Utica, Illinois and New Auburn, Wisconsin. The Utica facility annual processing capacity is approximately 1.6 million tons and it has access to the Burlington Northern Santa Fe Class I rail line through the Peru, Illinois transload facility. The Company began operating the Utica, Illinois mine and Peru, Illinois transload facility in October 2020. The Company currently has no plans to operate the New Auburn facility for the foreseeable future.

In March 2022, the Company acquired a frac sand mine and processing facility in Blair, Wisconsin. The Blair facility has approximately 2.9 million tons of total annual processing capacity and contains an onsite, unit train capable rail terminal with access to the Class 1 Canadian National Railway. The Company commenced operations at the Blair facility in April 2023.

Transload & Logistics Solutions

The Company also offers proppant logistics solutions to its customers through, among other things, its network of in-basin transloading terminals and its SmartSystemsTM wellsite proppant storage and management capabilities. The Company has direct access to four Class I rail lines and the ability to access all Class 1 rail lines within the United States and Canada.

The Company has several in-basin rail terminals. The Company acquired rights in March 2018 to operate a unit train capable transloading terminal in Van Hook, North Dakota to service the Bakken Formation in the Williston Basin. In 2020, the Company, as part of its acquisition of the Utica, Illinois facility, obtained rights to use a rail terminal located in El Reno, Oklahoma. In September 2021, the Company acquired the rights to construct and operate a transloading terminal in Waynesburg, Pennsylvania to service the Appalachian Basin, including the Marcellus and Utica Formations, which became operational in January 2022 and then further expanded in the fourth quarter of 2023. In December 2023 and January 2024, the Company acquired rights to use transloading terminals in Minerva, Ohio and Dennison, Ohio, respectively. These terminals will service the Appalachian Basin and are expected to commence operations in the second quarter of 2024.

The Company’s SmartSystems offer proppant storage solutions that create efficiencies, flexibility, enhanced safety and reliability for customers by providing the capability to unload, store and deliver proppant at the wellsite, as well as having the ability to rapidly set up, takedown and transport the entire system. The SmartDepotTM silo includes passive and active dust suppression technology, along with the capability of gravity-fed operation. The self-contained SmartPath® transloader is a mobile sand transloading system designed to work with bottom dump trailers and features a drive over conveyor, surge bin, and dust collection system. The Company has developed the SmartbeltTM a belt system to pair with its SmartPath, which allows for feeding sand directly into the hopper at the wellsite. Rapid deployment trailers are designed for quick setup, takedown and transportation of the entire SmartSystem, and they detach from the wellsite equipment, which allows for removal from the wellsite during operation. A proprietary software program, the SmartSystem TrackerTM, allows customers to monitor silo-specific information, including location, proppant type and proppant inventory.

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

NOTE 2 — Summary of Significant Accounting Policies

The information presented below supplements the complete description of our significant accounting policies disclosed in our 2023 Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 11, 2024.

Revision of Previously Issued Financial Statements

The Company has reclassified some prior year line items on its condensed consolidated statements of operations to conform to the current financial statement presentation. These reclassifications have no effect on previously reported total revenue or net income. The Company changed the names and types of revenue that are reported on each line item under revenues. Sand revenue now includes sand sales, shortfall, railcar rental, and transportation. SmartSystems revenue is primarily from the rental of our patented SmartSystems equipment and related services provided to customers. There has been no change in the manner in which we recognize revenue.

Basis of Presentation and Consolidation

The accompanying unaudited quarterly condensed consolidated financial statements (“interim statements”) of the Company are presented in accordance with the rules and regulations of the SEC for quarterly reports on Form 10-Q and therefore do not include all the information and notes required by GAAP. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. All adjustments are of a normal recurring nature. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. The consolidated balance sheet as of December 31, 2023 was derived from the audited consolidated financial statements as of and for the year ended December 31, 2023. These interim statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2023.

Use of Estimates

The preparation of interim statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates used in the preparation of these financial statements include, but are not limited to: impairment considerations of assets, including intangible assets, fixed assets, and inventory; estimated cost of future asset retirement obligations; fair value of acquired assets and assume liabilities; recoverability of deferred tax assets; inventory reserve; the collectability of receivables; and certain liabilities.

Actual results could differ from management’s best estimates as additional information or actual results become available in the future, and those differences could be material. Additionally, global events such as the ongoing conflict in Ukraine and the recent conflict in the Middle East may affect oil and natural gas prices and significant volatility in the oilfield service sector. The Company is currently unable to estimate the effect of current or future events on its future financial position and results of operations. Therefore, the Company can give no assurances that these events will not have a material adverse effect on its financial position or results of operations.

Employee Retention Credit

The Company qualified for federal government assistance through employee retention credit provisions of the Consolidated Appropriations Act of 2021. As of March 31, 2024 and December 31, 2023, the Company included $522 in prepaid expenses and other current assets on its consolidated balance sheets related to receivables for the employee retention credits. The calculation of the credit was based on employees continued employment and represents a portion of the wages paid to them. For income tax purposes, the credit will result in decreased expense related to the wages it offsets in the period received.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting, which updates various reportable disclosure requirements, primarily through incremental disclosures of segment expenses in both annual and interim reporting. The Update is effective for the Company as of the annual reporting period beginning January 1, 2024 and interim periods beginning January

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

1, 2025. While the Company is still in the process of evaluating the effects of ASU 2023-07 and its related updates on the consolidated financial statements, at the time of adoption, it believes the primary effect will be updated note disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes, which updates various disclosures including enhancing the income tax rate reconciliation and income taxes paid disclosures by requiring greater disaggregation of information. The other amendments in this Update are intended to improve the effectiveness and comparability of disclosures. The Update is effective for the Company for the annual reporting period beginning January 1, 2025 and for interim periods beginning January 1, 2026. While the Company is still in the process of evaluating the effects of ASU 2023-07 and its related updates on the consolidated financial statements, at the time of adoption, it believes the primary effect will be updated note disclosures.

NOTE 3 — Inventory

Inventory consisted of the following:


	March 31, 2024		December 31, 2023
Raw material	$	1,509	$	467
Work in progress	6,076		9,391
Finished goods	9,237		8,244
Spare parts	8,762		8,721
Total inventory	$	25,584	$	26,823

NOTE 4 — Property, Plant and Equipment, net

Net property, plant and equipment consisted of:


	March 31, 2024		December 31, 2023
Machinery, equipment and tooling	$	41,748	$	40,632
SmartSystems	31,127		30,651
Vehicles	4,240		4,082
Furniture and fixtures	1,466		1,466
Plant and building	215,098		213,756
Real estate properties	7,209		7,209
Railroad and sidings	35,719		35,491
Land and land improvements	40,528		40,519
Asset retirement obligations	22,910		22,910
Mineral properties	7,442		7,442
Deferred mining costs	4,207		3,802
Construction in progress	5,742		6,270
	417,436		414,230
Less: accumulated depreciation and depletion	166,052		159,138
Total property, plant and equipment, net	$	251,384	$	255,092

Depreciation expense was $6,981 and $6,342 for the three months ended March 31, 2024 and 2023, respectively.

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

NOTE 5 — Accrued and Other Expenses

Accrued and other expenses were comprised of the following:


	March 31, 2024		December 31, 2023
Employee related expenses	$	2,128	$	1,767

Accrued equipment expense	155		524
Accrued professional fees	471		461
Accrued royalties	3,124		3,149
Accrued freight and delivery charges	3,226		2,066
Accrued real estate tax	1,703		1,044
Accrued utilities	1,217		604
Sales tax liability	403		486
Income tax payable	935		865
Other accrued liabilities	2,040		58
Total accrued liabilities	$	15,402	$	11,024

NOTE 6 — Debt

The current portion of long-term debt consists of the following:


	March 31, 2024		December 31, 2023

ABL Credit Facility	$	14,000	$	8,000
Oakdale Equipment Financing	6,854		6,462
Notes payable	983		1,011
Finance leases	208		238
Current portion of long-term debt	$	22,045	$	15,711

Long-term debt, net of current portion consists of the following:


	March 31, 2024		December 31, 2023
Oakdale Equipment Financing	$	—	$	1,388

Notes payable	1,972		1,519
Finance leases	473		542
Long-term debt	$	2,445	$	3,449

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

The follow summarizes the maturity of our debt:


	ABL Credit Facility		Oakdale Equipment Financing		Notes Payable		Finance Leases		Total
Remainder of 2024	$	14,000	$	5,695	$	936	$	198	$	20,829
2025	—		1,724		708		265		2,697
2026	—		—		826		254		1,080
2027	—		—		567		62		629
2028	—		—		217		7		224
2029 and thereafter	—		—		53		—		53
Total minimum payments	14,000		7,419		3,307		786		25,512
Amount representing interest	—		(437)		(352)		(105)		(894)
Amount representing unamortized lender fees	—		(128)		—		—		(128)
Present value of payments							681
Less: current portion	(14,000)		(6,854)		(983)		(208)		(22,045)
Total long-term debt	$	—	$	—	$	1,972	$	473	$	2,445

ABL Credit Facility

On December 13, 2019, the Company entered into a $20,000 five-year senior secured asset-based credit facility with Jefferies Finance LLC. The available borrowing amount under the ABL Credit Facility as of March 31, 2024 was $20,000 and is based on the Company’s eligible accounts receivable and inventory. The Company had $14,000 outstanding and $6,000 available to be drawn under this facility as of March 31, 2024. The weighted average interest rate on our ABL credit facility for the three months ended March 31, 2024 was 8.25%.

Oakdale Equipment Financing

On December 13, 2019, the Company received net proceeds of $23,000 in an equipment financing arrangement with Nexseer. Substantially all of the Company’s mining and processing equipment at its Oakdale facility are pledged as collateral under the Oakdale Equipment Financing. The Oakdale Equipment Financing bears interest at a fixed rate of 5.79%.

Notes Payable

The Company has entered into various financing arrangements, primarily to finance heavy equipment purchases as well as its manufactured wellsite proppant storage solutions equipment. Upon completion of the equipment manufacturing, title to certain equipment may pass to the financial institutions as collateral. As of March 31, 2024, these notes payable bear interest at rates between 3.99% and 7.49%.

On February 28, 2023, the Company purchased 5,176 shares of the Company’s common stock from Clearlake Capital Partners II (Master), L.P., an affiliate of Clearlake Capital Group (“Clearlake”), for $8,850, of which $4,425 was paid in cash and the remainder was financed through an unsecured promissory note, bearing interest of 10.00%, issued to Clearlake. This purchase represented all of the common stock previously owned by Clearlake and approximately 11.3% outstanding shares of the Company’s common stock as of immediately prior to the purchase. At the time of purchase, Clearlake was a related party to the Company, and José Feliciano, the Co-Founder and Managing Partner of Clearlake, was on our board of directors. José Feliciano resigned from our board of directors as of December 31, 2023 and the promissory note was repaid in May 2023.

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

NOTE 7 — Leases

Lessee

The operating and financing components of the Company’s right-of-use assets and lease liabilities on the consolidated balance sheets were as follows:


	Balance Sheet Location	March 31, 2024		December 31, 2023
Right-of-use assets
Operating	Operating right-of-use assets	$	20,472	$	23,265
Financing	Property, plant and equipment, net	673		908
Total right-of use assets		$	21,145	$	24,173

Lease liabilities
Operating	Operating lease liabilities, current and long-term portions	$	21,624	$	24,592
Financing	Long-term debt, current and long-term portions	681		780
Total lease liabilities		$	22,305	$	25,372

Operating lease costs are recorded as a single expense on the statement of operations and allocated to the right-of-use assets and the related lease liabilities as depreciation expense and interest expense, respectively. Lease cost recognized in the consolidated statement of operations for the three months ended March 31, 2024 and 2023 was as follows:


	Three Months Ended March 31,
		2024		2023
Finance lease cost
Amortization of right-of-use assets		$	57	$	94
Interest on lease liabilities		18		16
Operating lease cost		3,387		3,195
Short-term lease cost		9		9


Total lease cost		$	3,471	$	3,314

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

Other information related to the Company’s leasing activity for the three months ended March 31, 2024 and 2023 is as follows:


	Three Months Ended March 31,
	2024			2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for finance leases	$	18		$	16
Operating cash flows used for operating leases	$	3,553		$	3,316
Financing cash flows used for finance leases	$	56		$	86


Right-of-use assets obtained in exchange for new operating lease liabilities	$	244		$	1,413


Weighted average remaining lease term - finance leases	3.0 years			3.0 years
Weighted average discount rate - finance leases	9.62		%	8.98		%
Weighted average remaining lease term - operating leases	2.7 years			2.9 years
Weighted average discount rate - operating leases	6.53		%	5.83		%

Maturities of the Company’s lease liabilities as of March 31, 2024 are as follows:


	Operating Leases		Finance Leases		Total
Remainder of 2024	$	8,257	$	198	$	8,455
2025	7,836		265		8,101
2026	4,387		254		4,641
2027	2,127		62		2,189
2028	975		7		982
Thereafter	25		—		25
Total cash lease payments	23,607		786		24,393
Less: amounts representing interest	(1,983)		(105)		(2,088)
Total lease liabilities	$	21,624	$	681	$	22,305

NOTE 8 — Asset Retirement Obligations

The Company had a post-closure reclamation and site restoration obligation of $20,172 as of March 31, 2024. The following is a reconciliation of the total reclamation liability for asset retirement obligations.


Balance at December 31, 2023	$	19,923

Accretion expense	249

Balance at March 31, 2024	$	20,172

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

NOTE 9 — Revenue

Disaggregation of Revenue

The following table presents the Company’s revenues disaggregated by type and percentage of total revenues for the periods indicated.


	Three Months Ended March 31,
		2024	2023
			Revenue		Percentage of Total Revenue		Revenue		Percentage of Total Revenue
Sand revenue			$	79,719	96	%	$	80,019	97	%
SmartSystems revenue			3,333		4	%	2,331		3	%
Total revenue			$	83,052	100	%	$	82,350	100	%

The Company recorded $1,154 of deferred revenue on the consolidated balance sheet as of December 31, 2023, all of which has been recognized in the three months ended March 31, 2024. As of March 31, 2024, the Company had $184,180 in unsatisfied performance obligations related to contracts with customers. The Company expects to perform these obligations and recognize revenue of $98,950 and $85,230 in the remainder of 2024 and 2025, respectively.

NOTE 10 — Income Taxes

The Company calculates its interim income tax provision by estimating the annual expected effective tax rate and applying that rate to its ordinary year-to-date earnings or loss. In addition, the effect of changes in enacted tax laws, rates or tax status is recognized in the interim period in which the change occurs.

For the three months ended March 31, 2024 and 2023, the effective tax rate was approximately 155.2% and (79.9)%, respectively, based on the annual effective tax rate net of discrete federal and state taxes. For the three months ended March 31, 2024 and 2023, the statutory tax rate was 21.0%. The computation of the effective tax rate includes modifications from the statutory rate such as income tax credits, tax depletion deduction, carrybacks, and state apportionment changes, among other items.

The Company has recorded a liability for uncertain tax positions included in its consolidated balance sheet of $2,240 as of December 31, 2023. There was no material change for the three months ended March 31, 2024.

The Company determined that it is more likely than not that it will not be able to fully realize the benefits of certain existing deductible temporary differences and has recorded a partial valuation allowance against the gross deferred tax assets, which is included in the long-term deferred tax liabilities, net on its consolidated balance sheets. At December 31, 2023, the Company recorded a partial valuation allowance against the gross deferred tax assets on its consolidated balance sheet in the amount of $874. There was no material change for the three months ended March 31, 2024.

The Company’s federal income tax returns subsequent to 2017 remain open to audit by taxing authorities. The Company has not been informed that its tax returns are the subject of any audit or investigation by taxing authorities.

NOTE 11 — Concentrations

As of March 31, 2024, four customers accounted for 63% of the Company’s total accounts receivable. As of December 31, 2023, four customers accounted for 70% of the Company’s total accounts receivable.

During the three months ended March 31, 2024, 60% of the Company’s revenues were earned from three customers. During the three months ended March 31, 2023, 57% of the Company’s revenues were earned from three customers.

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share data)

(UNAUDITED)

As of March 31, 2024, two vendors accounted for 29% of the Company’s accounts payable. As of December 31, 2023, one vendor accounted for 11% of the Company’s accounts payable.

During the three months ended March 31, 2024, two vendors accounted for 35% of the Company’s cost of goods sold. During the three months ended March 31, 2023, two vendors accounted for 35% of the Company’s cost of goods sold.

The Company’s primary product is Northern White sand and its mining operations are limited to Wisconsin and Illinois. There is a risk of loss if there are significant environmental, legal or economic changes to the geographic areas of our mines, the oil and natural gas producing basins they serve, or the transportation routes between them.

NOTE 12 — Commitments and Contingencies

Litigation

In addition to the matters described below, the Company may be subject to various legal proceedings, claims and governmental inspections, audits or investigations arising out of our operations in the normal course of business, which cover matters such as general commercial, governmental and trade regulations, product liability, environmental, intellectual property, employment and other actions. Although the outcomes of these routine claims cannot be predicted with certainty, in the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on our financial statements.

Cory Berg, et al. v. Hi-Crush Blair LLC, LLC et al., Case No. 2019-cv-65, Trempealeau County, Wisconsin

Leland Drangstveit, et al. v. Hi-Crush Blair, LLC, et al., Case No. 2019-cv-66, Trempealeau County, Wisconsin

On April 22, 2019 and September 29, 2021, Cory Berg, et al. and Leland Drangstveit, et al., respectively (collectively, the “Plaintiffs”), filed complaints and an amended complaint in separate actions against Blair, certain of its subcontractors and its and their respective insurance companies in the Circuit Court of the State of Wisconsin in and for Trempealeau County (Case Nos. 19-CV-65 and 19-CV-66, respectively). The Plaintiffs allege that Blair and its subcontractors were negligent and created a nuisance by, among other things, generating excessive noise, light and dust. The Plaintiffs are seeking unspecified monetary damages and other relief. The insurance companies included as defendants have asserted counterclaims seeking declarations as to their rights and liabilities under their respective applicable commercial general liability insurance policies. HCR has agreed under the Purchase Agreement to indemnify the Company for any actions or omissions of HCR or its affiliates (including Blair) that occurred prior to the closing of the Company’s acquisition of Blair. The cases are currently in the discovery phase and at this time, the Company is unable to express an opinion as to the likely outcome in the matter.

Bonds

The Company has performance bonds with various public and private entities regarding reclamation, permitting and maintenance of public roadways. Total aggregate principal amount of performance bonds outstanding as of March 31, 2024 was $19,727.

SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(UNAUDITED)

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of the Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related information contained herein and our audited financial statements as of December 31, 2023 contained in our Annual Report on Form 10-K. We use contribution margin, EBITDA, Adjusted EBITDA and free cash flow herein as non-GAAP measures of our financial performance. For further discussion of contribution margin, EBITDA, Adjusted EBITDA and free cash flow, see the section entitled “Non-GAAP Financial Measures.” We define various terms to simplify the presentation of information in this Quarterly Report on Form 10-Q (this “Report”). All share amounts are presented in thousands.

Forward-Looking Statements

This discussion contains forward-looking state

SEC Form 10-Q filed by Smart Sand Inc.