SND - Earnings call transcript Q3 2019

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Smart Sand’s Third Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Josh Jayne, Finance Manager. you. Thank sir. ahead, go Please

Josh Jayne

morning and Sand’s us Smart for thank Quarter XXXX you Third joining Earnings for Good Call.

John Chief On the Chief Officer; Beckelman, and Young, Chuck Operating and Financial call today, Executive we Officer; have Young, Officer. Chief Founder Lee

to and would comments will cause events results uncertainties statements, that begin, forward-looking participants subject are to today all from or like could we that remind materially those Before to include which I our made certain anticipated. differ risks actual

uncertainties, and file risks refer such of discussion complete and on a company’s the documents release with please press For to SEC. our the

disclaims to events financial because any intention otherwise. Sand Smart statements, new of any or or update or whether forward-looking or obligation revise future information, projections

live This X, contains conference and is call information today, the broadcast XXXX. time-sensitive of accurate November as only

refer and the EBITDA understand to with measures, when better measures of may margin this GAAP we with our our us combination business. financial to results, call. adjusted during non-GAAP provide investors used These contribution and information Additionally, useful in

refer and Please of net recent to our or gross EBITDA adjusted our release income filings press for margin public reconciliations to profit. our contribution to most

I our CEO, like over call to would Young. to now Chuck turn the

Charles Young

report good third objectives. progress that happy produced both remains quarter on some Sand Smart Thanks, I’m our long-term Josh. financial to continued and and results the on plans the move.

$XX.X slowdown, some Let’s of of net sales and posted we industry of of In volumes start tons, $XX.X protected numbers. EBITDA million with a million. income XXX,XXX adjusted spite

take in flows In rest you his numbers addition, from key will through the operations. we the generated Lee report. of cash $XX.X million in

what again. we’ve to like I’d time off said and time long-term. reiterating by look let’s Now, start

to want with long we’re looking We’re always in supply long-term for us customers efficient, and to that haul, sustainable, sand frac business chains. the the partner create for

to thereof, success beneficial any customers both mutually We’re supply, will last-mile and or that our long-term and find sand ours. combination services logistics working ensure with committed to their

positive several saw developments. quarter This

to ability on able customers. shown long-term new terms, that We with relationships our ourselves with our long-term terms this continue settled maintain lawsuit we find one, allowed again our mutually us to Schlumberger. agreement Schlumberger. we’ve were long-term once pride with the For our We And with to beneficial relationship.

also brings to new with quarter, X the X fleets in executed us contracts field. customers. That we currently SmartDepot this In

We continue both to new existing from last-mile see for solutions. and growing our interest customers

We’re the field quickly as able have operating customers to our need. deploy silos our them and as

In in addition, on We’ll transloading developing busy we’ve been share wellsite. for new more the use this the to technology future. on have

third balance of approximately Another maintaining our our demonstration a paying to quarter $XX by highlight was million, debt commitment another strong down sheet.

As a logistics place our into the fully the provide customers sand integrated sustainable in blender; company, at all all supply-and-services have the the wellsite, to and infrastructure to demand. importantly, frac way rates ultimately, we and, the

while the maintain that any railroads, desired, with providing partnering safety reasons. for our levels By sustainability believe attractive commodities rail costs we thanks fast we size shipment turnarounds at and little offering dual-service with very capabilities. can on And and railroad belong bulk to demerge

and light, that itself from including and of lowest the key SmartSystems, one last-mile continues utilization our the debt-levels; time producers committed and efficient supporting low maintaining SmartDepots. industry; supply wellsite; are the the sustainable being sand; to here companies technology and ramping to things delivering high-quality the being cost spot-market customers; proppant complement the our mine to; Northern of up of lowest contracted logistics leverage In strategy of long-term time to one our prove in remain winner, again. we extending Our White business; a some new chain existing, our

we’re our that success. over able of are our us to back know the key of success. deliver sand quality coming and the safety We and our service customers quality to sand two again. Our what of that over keeps pillars are our our commitments consistently to more and the quality The is to high-quality

the the industry intrinsic product sand, among we safest SmartSystems silica technology, the safest which in paired properties, is OSHA available sand With through with Our we market with is its our standards. believe our in today. the frac offer absolutely new sand the critical

summary, recorded we’re positive of quarter been already an for slowing in sand environment. delivering In We the lawsuit a it’s solid Smart a numbers and settled we’re financial We gain Sand. some resulting for face E&Ps be ability reliable to in market pumpers. the to the began pressure We and with our and a traction last-mile agreement. last-mile demonstrating partner under SmartSystems, our important

new debt technology in about the long-term. And $XX sheet of debt balance we levels commitment the a strong the low to beyond. and support the by excited XXXX potential paying to continued wellsite down and company demonstrated quarter, remain for and in remained in to our We million our

us couldn’t by We close Smart in tirelessly the believe without achieve you. who we that continue to and I’ll our – today employees saying who to help do you work so all do. thank all dedicated Sand work this to mission

now, Beckelman. And turn over to the our I’ll Lee CFO, call

Lee Beckelman

Thanks, to Chuck. will XXXX my the second quarter be Today, the primarily results, XXXX and financial quarter focused results. over I’ll be on third comments going comparing them

we the Sales were overall and well slowdown to delays by a sales sold weather impacted As quarter. a Chuck volume. busy sales a had in in spot Bakken related quarter. third highlighted, third due We in in approximately quarter volumes XXX,XXX with in shipping quarter. in tons drop completions activity very the negatively Starting the the the

quarter. total $XX.X revenues were In to regards third million the in revenues,

usage million Logistics below revenue certain railcar with $XX.X quarter, from sales was consistent Sand $XX.X rentals, which our Just $XX.X second gate which sand revenue, was second reservation million, $XX.X the logistics million. includes was including modestly logistics SmartSystem quarter. sales, approximately third million. freight of revenues second in the charges our revenue, and $XX.X in services, quarter the quarter for down mine including of million

quarter. quarter, to $XX.X second shortfall recognized the third of we the revenue in in compared million million In shortfall $XX.X revenue

mentioned stable in source help our related a of with shortfall to Smart quarterly revenue the second the industry third company annual payments to quarter, were a through and $XX million currently the manage in have million and of take-or-pay cycles. minimum and $XX.X revenue provide with litigation. volumes the contracts respectively, Sand we contract operating and before As required

the Our $XX.X in sales was winter the for to and our production cost the of quarter. cost is of stockpile. million to decrease overall efficiencies begin volumes, previous cost in The at compared management seasonal as lower due we our million quarter we $XX.X Oakdale facility sales primarily buildup of experienced disciplined

revenue, third total the volumes The as high primarily seasonal efficiencies increase our I’ve For with sequentially, ton last was XXXX, just quarter. per margin a coupled per cost ton lower the and compared was of the quarter shortfall $XX.XX contribution to $XX.XX highlighted. result

quarter. was The was quarter the the million $XX.X profit also the savings in third Gross cost million due experienced $XX.X to the to increase in in winter buildup. compared primarily stockpile second

$X.X assets acquisition for a Our to non-cash expense transload of our this in as million intangible related June acquired quarter included system existing the for was of XXXX. Quickthree that operating expenses part

developing assets to Chuck new our existing decided transload we we As intangible are required been that have we had impair since technology. not the transload technology. allocated are to And that a stated, technology, to manufacture

consistent operating including salaries, expenses, quarter-over-quarter. All expenses, depreciation relatively of other were SG&A our and

million For the to the $X.X million quarter. quarter, $X expense compared second had we in tax of income

We third our EBITDA adjusted $XX.X had the million net strong XX% effective to of to be The and million We income results expect in continue rate quarter. in approximately of $XX.X the winter are range. shortfall our cost sand take the coupled did of from their primarily inventory. buildup from revenue customers with contracts, required seasonal attributed of our to contractual savings that volumes take-or-pay low not under the

used We debt, expenditures. In and during for $XX.X from the pay cash which capital million our to by third we quarter, cash operations. down this reduced $XX.X generated million to flow flow was third quarter pay of the existing

million. cash been transload was terminal. we $XX.X manufacturing our the These Year-to-date, our and expenditures million Van third the had silos from Oakdale Hook at capital efficiency on flow been year-to-date capital operations expenditures Our primarily are our and of upgrades In our facility million. for $X.X SmartDepot expenditures. spent quarter, $XX.X

year $XX equipment. up the as currently projects and for expenditures and $XX in XXXX We total additional SmartSystems wrap to we build-up be capital at million range for maintenance and Hook anticipate the of to million Van full continued the Oakdale efficiency

in other XXXX operation, support credit XXXX, all had our in As anticipated Consistent flows currently activities. for our undrawn capital full balance expect our of from availability credit total XXXX. of goals, sufficient facility under sources under we the flow borrowings, September that of sheet to our our and available million With expenditures liquidity exceed for we we facility. have will cash $XX approximately year and cash million cash $X.X and we current expected ongoing with XX, operations our our availability long-term believe of our from

period The Board shares approximately shares. fourth the million in program of recently repurchases Our Directors They of Board have There we the in Under purchase third the year, the shares currently million this extend authority, XXXX. program XXX,XXX this initiated X.X remaining no a share and authorized X quarter. for a under X repurchased we repurchase were stock a year. of of quarter period voted share of to repurchase authority. X for

from currently is difficult, in be currently, expect market, the see sector, volume quarter. potentially volumes we give third we levels. a activity North current expect to It to In line in guidance. service to XX% with quarter specific volatility overall XX% to the American slowdown do sales oilfield in with down fourth the the But sales

However, budgets. part in their back year we XXXX next the do ramp currently as to based up pick of year, E&Ps up in of the activity quarter first activity expect the on first

million We XXXX. and quarter currently $XX expect EBITDA quarter. range to in in This fourth expect recognize adjusted in termination million adjusted shortfall fourth includes range we to payments the to the $XX contract be EBITDA the of

will call we and open comments, questions. the prepared our concludes This now for

Operator

from first Simmons [Operator Our Energy. John question comes with Watson Instructions]

now open. line Your is

John Watson

you. Thank morning. Good

Charles Young

John. Good morning,

Lee Beckelman

Good morning.

John Watson

wondering Lee, exceeding on XXXX provide updated XXXX could you CapEx fall. if could color flow cash where I you was mentioned CapEx. some operating

Lee Beckelman

XXXX. not we comments can flexibility we’re then demonstrated we And specific give in for our think going through and expenditures. CapEx guidance in year-to-date we’ve I as John, capital our to how that XXXX have manage Well, on

and So, depending on have our we’re contract to kind our our to growing, up is to to ability to is. below flow capital we cash CapEx expand cash sure be of making how our committed be activities spent that able will or what that. the flow going And match

John Watson

specific provide But payment cash you this you into Could appreciate color might a I a have also in either. dip XXXX, And on QX? termination can’t these that you cash Understood. like? if of you recent from look contract a received lawsuit provide they a that And cadence any if what and payment. payments the Okay. will

Lee Beckelman

XXXX. quarter amount the be can’t payments. of in that early were payments the specifics of QX, generate the I terms will on Well, cash actual in in give first actually recognized likely number, But they

John Watson

White And gave wondering okay, you held lastly there’s baked with see headed? QX, and I if hearing guidance. pricing that pricing is you other from as Northern activity to up expected which Okay, then, for we into Has where fits in guidance understood. I started helpful, we’re me, think it completions for well or the was any given what have is deteriorate, players. weakness

William John Young

Yeah, from White, this doesn’t here. deterioration still quarter. now, John, seen of the low- still have appears huge to which in Pricing a But Northern Young John right in the is spot a mid-XXs we so, in kind of deterioration. We’ve represent – last business, is we’re were in little strength. the where bit to some

John Watson

Okay, understood.

William John Young

the strong XX/XX kind finer continues sand, of to demand remain And of for and XXX-mesh. the grades

John Watson

on Congrats turn cash back. the Okay. John. flow. Thanks, strong it I’ll

William John Young

John. Thanks,

Charles Young

Thank you.

Operator

Thank you.

Holt. Our George next from Pickering, with comes Tudor, O’Leary question

now Your is open. lien

George O’Leary

Good morning, guys.

Charles Young

Good morning.

William John Young

morning. Good

George O’Leary

that’s about But I John’s frame CapEx on where most deployment can us growth slightly it throttle how you as can asking differently. as depending of intriguing up realize you the for on, throttle the remind you buckets view growth question, maintenance just piggybacking down of we business? might to Maybe this opportunities what what you just then, And you but at been is. think CapEx CapEx kind spend on you point? activity for initial – the or Can

Lee Beckelman

our lower projects. But Well, more dependent the of in range, efficiency million of kind magnitude, projects, on again, and will maintenance it the million to CapEx, a-year of in order at $X maintenance CapEx on $XX is probably pure of it’s that end terms than maintenance. probably including no be

market. our In to up system, today most deploying those of primarily, in the growth – prospects and be and capital building our the terms capital, of supporting storage SmartSystems, continues last-mile growth into

in in utilization vast fleets, the implication that growth so capital would plan And build-out majority of a greater of an XXXX now be with would intention right of continuing the marketplace. the and the seeing those we

George O’Leary

on X, the standpoint just plan customer outlook And dialogue from I on front, just Great. it the then is realize SmartDepot about you if That’s – helpful. or murky, for that customer X the but next that customers going? what’s XXXX happy a you the either think over framed appetite fairly to display How’s systems out that probably systems not months with? new dialogue test from they’re

William John Young

Yeah.

here John again. So

on would low-depth the I be comment already that we’ve deployed our to, they the So OSHA in design. what seem All levels due is there in XXXX. the I inherent are silos with are to our general, with very come happy standards that that to exceed the silos in in, think, customers

focus reducing number loads. the reducing of We’re obviously, the on our number – is, trucks, of

the in of to as deploy bottom-dump technology new use throughput. focused increase it’ll so continue we space, which on And this trailers, increasing be

working That new technology a lines. So is Chuck had those to kind of we’re along alluded on.

XX I question your – about months. think next excited we’re was the on So

We’re the next excited And months this the about months. next frankly, about in excited really XX XX space. we’re quite

Charles Young

would the think up new that thing I out a of in OSHA this to share. a work there we’re position won’t standards, think And with market perfect add other and there’s we that, solutions is with pick lot that we

George O’Leary

Great. it I’ll Thanks back guys. the over. color, turn for

Charles Young

Thanks.

Operator

Gengaro from next Stifel. Stephen comes with Our question

Your now line open. is

Stephen Gengaro

Thank good gentlemen. you, morning, and

Lee Beckelman

Good morning.

Charles Young

Good morning.

Stephen Gengaro

give I’m trying color out Can us curious willing was if a be you bit, – a I around little parse to help to of this. you’d bit little this and

help just there and I’m around – any at starting or I us sure trying versus, about we to on of I’m contracted how So the color of could strip you’d gross XXXX. kind XXXX. margin sand is can we should sort when of levels into think, of you benefit, sold goods to volumes, color with if understand a revenue? I kind margins be sales can cost status of volume to not current the seasonal look get there out – you you on guidance if on shortfall year-over-year I as I look add is contracted think – any kind into maybe And of picture the a color as willing look some maybe just

Lee Beckelman

you at Well, give we see think margins with what kind but be what XXXX. specific gross we I again, guidance can contribution profit, at consistent we’re right from and now, think or don’t of would in we year-to-date take will that on look where that

and revenues, with consistent of I it So can look how we right in now, at terms you’re of say looking this capabilities. think you or be without feel that at margin shortfall could relatively in terms

I under as contracts In terms XX%, we of they believe, contracts, work XXXX. XXXX. for new we got right of throughout to in continue and our XXXX see new playing but contracts capacity opportunities, contract now, to those on we’ve And about have continue out

Charles Young

that than of debt, we the the competitors I that think big coming of picture is most total pay will in sand a future and frac year. of right think become interest of a more part now have in that, this big part our we

on cash of problems the So start we little and we’re to need to severe in paying our free for debt, there’s bit either a some position. many best going competitors, flow or their back people think

Stephen Gengaro

Okay. That’s helpful.

As as I point – a of…

Charles Young

a kind showstopper, It’s right? of

Stephen Gengaro

No, I well. Yeah. to and is cash the positive, things be flow mean, going seem

can I differentiation. just months at about So that’s there’s I it [ph] revenue maybe you. I] largely X the When it point, that shortfall it a drop of XXXX, to clearly I the when benchmark is first sort sort so – it’s look bit, with think the which [oping just little would you straight – basically, of… agree of

Lee Beckelman

revenues we specifically past, and give throughout through – asked anything and specifically specific the you’ve talk under they the before talk how And to in question don’t drop about don’t litigation. the Stephen, don’t we the we as financials. shortfall this that’s about

that. So nothing else we’re really there’s going about say to

Stephen Gengaro

you. Got Okay. you. Thank

Operator

Thank you.

next Pipes Our Riley Lucas comes with from question FBR. B.

Your is now open. line

Lucas Pipes

morning, Hey, good everybody.

Charles Young

Good morning.

Lucas Pipes

I there with or wondered, to also Northern you – pricing discrepancy? in, see I contracts wanted WTI. get current White prices adjusts prices to a the under is may And contract your that is sense the for position. we that follow-up spot-prices could on be are are comparable current My

Lee Beckelman

Well, it depends.

at relatively structure it’s Specifically, works, by contract. and how – we’re prices. there the to in we’re where relative contract But line with generally WTI contract spot our

Lucas Pipes

very Got then, us helpful. And that. of you I contract? tenure of appreciate your That’s remind it. can the

Lee Beckelman

life a Currently, about our basis contract on weighted is average just around months. XX

Lucas Pipes

again I degree next appreciate referenced levels. appreciate XXXX thoughts subjective you reset Thank you. to demand potential the picture early you. on higher year? That’s and color your demand prepared in your for demand coming your helpful. budgets And higher bigger side, What’s Thank of back of kind remarks that. then, question as confidence on in Would in this. the get

Lee Beckelman

sure. Yeah,

So, fourth get ignore some and seasonality obviously, It of in now experience we and quarter, you things that of of vacations budget what kind the we got takes the a years. into exhaustion. happened good be kind Thanksgiving, seasonality amount in on like call as can’t over, I’ll of past seems

with our the kind that get degrees January a any But right, The customers started that of quickly we to we’ve January, X? period seen picks the having hard hangover year. been And kind to how strong predict. do we conversations Christmas next we’re on real hit up we of in to having half remains indicate years, from that be of have or so of the we’ve that do going it’s first mind over varying question once our relatively is

the demand, sand. see I And, to if for continue trajectory, the to I and $XXs to it’s continues kind of White on regard think – robust much very side. think tied into Northern a to oil demand kind a its With overall march on of oil kind we’ll volume price up of $XXs, commodity

Lucas Pipes

Got it.

luck. of and Okay, well, I it appreciate best

Lee Beckelman

Thanks, Lucas.

Charles Young

Thank you.

Operator

[George comes Instructions] Roth Capital, with next The from Umass question you. [Operator LLC] [ph]. Thank

is open. line Your now

Unidentified Analyst

Good morning, guys.

Charles Young

morning. Good

William John Young

morning, Good George.

Unidentified Analyst

if Can number into me, refresh last us? that Bakken. answered that mentioned of But were XX% you you your this for Pardon year-to-date you earlier. quarter, the volumes

William John Young

Yeah, And XX%. United different well, year-to-date, which Bakken, we’ve markets; actually been regions. other it’s Colorado about includes the the about Western States, our volumes talking into and

Unidentified Analyst

Okay, thank you.

Operator

remarks. Thank to any you. I’m like to Young at this not over showing would further Chuck I call now further turn for the any questions time.

Charles Young

Thank the you to look in again Sand’s third Smart XXXX for call. joining forward earnings We us reporting you to Year. quarter New for

Operator

conference. and gentlemen, Ladies concludes participating. for Thank today’s this you

disconnect. now may You

Smart Sand (SND) 6 Nov 192019 Q3 Earnings call transcript