SND - Earnings call transcript Q1 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Smart Sand, Inc.

First Quarter 2020 Earnings Conference Call. [Operator Instructions].

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

Josh Jayne

you Earnings us Call. thank First Smart and XXXX Quarter morning, for for joining Sand's Good

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

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

any such risks company's or broadcast of future is intention uncertainties, please our XXXX. information For revise on the of discussion a and forward-looking to otherwise. the today, because any as contains whether and new events the of refer to Sand May time-sensitive projections press accurate documents update complete information, or obligation disclaims and X, live financial release SEC. This file or statements, with or conference Smart call

useful to contribution with our of provide refer combination measures with and the GAAP financial this will when in measures, investors our during we These us margin Additionally, used non-GAAP and results, EBITDA adjusted call. release information income filings to our profit. understand to our refer to for or EBITDA of reconciliations adjusted public and most recent contribution business. to net Please our better margin press gross our

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

Chuck Young

our we a is at in XX% quarter say to a But Sales the in increased That's strong all they meet was line Thanks, dealt service. are market combination quarter and outline steps our greater Hook. of strong to tons. we've results. these industry Activity in to working. growing product sudden XXX,XXX Sand blow moment. Oakdale where our our utilization which times up that economy. logistics demonstrating I'll Smart what look our results. the great responded pleased fourth industry, SmartSystems that faces our quickly, XXXX developments. were done first, footprint the brisk Josh. terminal volume Recent and into let's our operations first and times, in this over Van with through fleet, global aware I'm has stand We have devastating to low-cost Clearly, We're unprecedented of saw strong. country in the challenges. interest developments these and

of The mine this But is a rapidly. advantage results COVID-XX market drilling some is of are of an oil market demonstrate the does business our revamp. Sand. the reasons: impact pandemic market take quarter and demand the will have wellsite market be provides needs. the That completions well return, sustainable our and on These in want to our behind worldwide the talk in first oversupply the positioned efficient global strategy. fundamentals wisdom changing of U.S. to And being impact I There the crude on mind, the when merits to downturn. that expect the producer the of Smart low-cost oil. we dynamics With to during of solutions the about X long-term

to assets We've built very operations, today. and the we've our little low-cost did in strategic and assets the that our company managed expansions a made acquired of company with way. beginning, the core our debt. From assets that efficient last, assets company, We're business, and meaningful and in market are we built a the it a weather a purpose-built facing we're to with storms are at

mine, or better respond the to anywhere States production railroads. can single a to deliver changing we market. to to manage have we allows that down Class X site means ramp Having United us the access That or We Canada. up in with sand rapidly a mine can site the I quickly single

use. in virtually no has unless it's transload Van Our terminal associated it, Hook cost with

idle we as periods Bakken quickly our it. facility low in customers bring as online So the in soon need demand, of it market can back but this

is SmartSystems its quickly. able back Our facility to manufacturing scale manufacturing capabilities

transloader We've SmartPath. reduced primarily our activity to focus new perfecting needs, which on to current is our

transloader sand provide to needs. of at services more supplemental It customers' offloading range last allows meet products us will wellsite. technology SmartPath the broader of to our efficient provide Our and mile a

Our unload on That dust users means a the low quick benefits more goal but available SmartPath bottom next to footprint dump levels. high can of all a trailers of silos when is wellsite. for normal and in and turnarounds combine new times, returns faster safety. with the activity few have deployment technology, our the with months load and capacity, small the SmartPath market With to

patent-pending throughput capacity Our control the fixed-in-place the of sand earlier, and drop a include dust to drive-over system SmartPath job. complete features ahead frac keep a

We'll sum, job. current SmartPath. a reliable And and uses in for between last-mile available deployment this SmartPath bridges quarter. game on So we'll to trailers chassis changer SmartPath in the for have second the keep been because is demand technology and new one has focusing design, safely since gap up it a built any dump manufacturing bottom using our units frac silos. strong, SmartPath the single simple with keep

activity remainder in for now. our times down between XX% unprecedented. is with of and right from levels. XXXX This discussions difficult had Based impact all expected quarter our customers, expected activity on services. in And and E&P the We're is for XX% to could drop products and announcements public we've first the be demand

eventually We're the way, our that. That to costs be and standing our this business, passes. ensure with our responding storm we're sales. rightsizing we'll can aligning weather and that we when we're storm So left

the of reducing significantly for capital will be by year. plants. $XX the perfecting manufacturing Here we'll be spending XXXX budget primarily SmartPath. we've estimate mainly is million SmartSystems We XX% CapEx as The are now to $XX $XX a as be reduction million from investment our to of levels. in This will CapEx the $X much million range limited for million reduced taken. We've some steps

place measures. also put cost-cutting We've in several

XX% from reductions reductions at headcount personnel sales XX%, of executive facility XX% our for some to to in our approximately Here other Oakdale suspension all by expected million variable the cost-cutting cash the measures levels. or with all our These will and compensation programs from approximately reduce are company for XXXX the workforce employees. them. XX% Salary of for for all $XX align volume, management reductions compensation expense cash reductions of salary

working cash vendors We're to cash to trying payments key up our receipts. with our all with our payments. We're manage our line

our Our should need our the goal during did our cash In immediate expected to flows balances guide that we on this to Credit within Facility. March, liquidity from our is operations We million arise. cash for current drew ABL provide $X and operations. downturn

in borrowing $XX draws to made ongoing in Credit $XX on have we Our have is availability. base million, now ABL current activity. We've our $XX million our million We fund no cash Facility. additional

continue tough strategy We've executing to can so to we our business our build. key operate the made that workforce reduce and decisions That's we long-term costs the can. cut we to everywhere

Our principal operating philosophies haven't changed.

Now within our more we while operate live to market ever, flow continue we'll than balance environment, difficult in cash strive maintaining to this can sheet. strong so a

we offering strategy any while leverage. believe, quality we We the we service our quality this at highest in and have, products market. the highest as will core, maintaining that With always low remain committed prevail ultimately to

the planning reflection of time future. for and a is Now

to to for management. our also for fully returns. storage, their not customers when their their perfecting work sand, needs needs satisfy with offering We're requirements our continue and to logistics and respond those the needs. We but only demand to We're listening

strategic, During it. challenging cost-conscious when this Then we'll meet be ready to returns, prudent. demand time, and we'll be

CFO, Lee to that, our I'll over the Beckelman. call turn with And

Lee Beckelman

Thanks, the Chuck. Though we today solid started a reality first are of that dynamics the market XXXX are than much first we different quarter, the with the with faced quarter.

year his there in as not market less lot is will first the through currently, of the XXXX So in highlighted the comments, results, about I the month, second XXXX. go clarity or but quarter next a much quarter full Chuck

in from XXX,XXX Starting over quarter, quarter XXX,XXX tons XXXX with sold approximately quarter activity in increase the over quarter volumes volumes first a XXXX the strong saw XXXX volumes. first XX% of sales a And a XX% pickup increase fourth tons. in fourth was XXX,XXX. quarter of which levels. We We

quarter-over-quarter Sand increased the Total revenues revenues to XXXX to higher quarter the due logistics relatively million. revenues were shortfall first to there also $XX million period. $XX.X less to in Revenue consistent fourth from volumes. as the in primarily increased was increases for current sales sales of $XX.X million, million compared $XX.X were quarter revenues $XX of overall million sequentially while XXXX. The was

least In million $XX XXXX, contract not the to revenue additional We a anticipate second at second contract, currently terms under XXXX. related of quarter the as litigation. shortfall revenues after to this from quarter which we revenue recognize is do shortfall of for recognizing expect

was was increase stockpile. million, of previous more an as sold million. costs the from the sales The volumes due $XX.X for Our $XX.X quarter the increase depleted to winter were recognized inventory cost and of from higher quarter

million per $XX.XX For the first ton. quarter XXXX, contribution was $XX.X or margin

We of current The the had cost higher previous adjusted in goods $X.X the lower $XX.X primarily quarter. in million EBITDA adjusted revenue period. due and quarter in was current lower compared EBITDA of million approximately shortfall to sold the to

quarter costs winter wet the recognize year depleting other is as the quarters our quarters. costs quarter in first The we during from during typically as usually buildup sand our capitalized that our were our inventory weakest previous are stockpile than higher of

spent first was capital we primarily new quarter, generated on we operating units. $X.X $XX.X on which flows, in the SmartSystems and million For cash expenditures, million

are we our build-out available our SmartPath later silos plan reducing which shifted have in the focus to of highlighted, SmartDepot year. market we transload have perfecting As to deployment technology, Chuck new our and this for

spend million to our planned to on We significantly during cut expenditures, have $X expenditures and currently $XX between we expect million capital XXXX. capital

in XX, million $XX.X on Facility. million the $XX availability March we Credit XXXX, ABL of and had As remaining cash

hand $XX ABL and Credit same cash have Facility. the million We million currently on on $XX availability in remaining the

through taking highlighted, our measures reduce we downturn. Chuck to are As to manage cash this proactively allow to us expenses

to we have we expense giving our available our and we Due the have support are market the and liquidity not capital of activity, quarter. on specific the sufficient the With to liquidity, volatility our operations. cuts second lack customer believe implemented of we for clarity current guidance and

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

Operator

[Operator Instructions].

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

Lucas Pipes

the it can to trying of little just be outcomes potential oil maximum was that a kind I you to ask there be first how mentioning range -- a agreement the we seems to attachment Q. given currently. expand Can looking at? Liberty. about low is There a is prices get to wanted that? on are bit you could maybe an Liberty that there, But last a to prices. Is tied a expand to of filed with credit of night Just oil

Chuck Young

on John All touch right. I'll that. let

William Young

Yes.

that. market. to don't that competitive was with business. -- we our filing on was amounts competitiveness the where substantial But know of in Lucas, in pricing them So recall some credit credit to I some maintain what material was it is that current at were to basically a the with the that concessions I referring don't, my their to of do gave yes, that exactly dollar probably time, the on one a was what something agreement Liberty you're had as question. previous It wasn't recollection it pretty

Lee Beckelman

under Yes. do had to dollar credit with the contract. the really Lucas, volumes previous amounts from

or so or And to really volumes change credit taking. a them on those volumes this that affect planning with on a allow year under for based negotiated some we depending for that forward, give price minimum they the volumes to did the Liberty volume activity but were their their the going break get current Didn't year. contract contract their under on into they're them go-forward basis,

Lucas Pipes

from through Got differently flow be will credits accounting the would financials? revenue? captured it. those kind this an would Or perspective, of And in

Lee Beckelman

basically forward. a It ultimately goes revenue. per cells ton Liberty going we price for realized -- have lower our through Basically

Lucas Pipes

make Got with question associated it. accounts and of I But That's the write my what Kind is that. have then regards -- collect very, And maybe it sense in appreciate to the that. money be customer hope to very Obviously, how will is later to to could the then maybe can share and place? where in at to investors' litigation some And pieces hope expect helpful. fall as and some it just collected. second this that that, receivable of -- stands you is time. today? perspective off a it

Chuck Young

to litigation. still matter we've Lucas, we're don't make we -- work we we that, in comments litigation calls, specific confident process. defend in process, our our still Well, on don't continue the that this and since as previous to will than any is Other through out. work it contract stated And

Lucas Pipes

on bit the from the very some given or Are Are over of here bit increased E&Ps, Marcellus sneaking to quite just of that I And too weeks. days? shift you little crossed that Henry kind range a still maybe into one. Hub That's helpful. we a they've gas got seeing then increase last of early few you last seeing the the When a the look couple maybe is that region? the equities that of at $X last here

Chuck Young

I'll John, let take you that.

William Young

that. Correct. answer Yes, I'll Yes. so

So these a about had that's Lucas, used plays, get interesting relatively the low one to a gas commodity long is the to thing have guys price. gas right, time

been bringing they've operation first in so the say, And into XXXX time since collapse, efficiency XXXX, their that frame.

that pressure are we're seeing redeploying not to development business to up amount the a lot are fair anecdotally hearing of area Marcellus. that chase continuing there. particularly surprising available. activity it's in into pursue guys to gas So that is of is and aggressively crews that the We're us those up a pumpers What try of the wells,

look of are side as as negative gas. on on kind the recently focused prices folks understandable commodity that last And you it's nat week when more at oil

always has we do to gas of view So where We is things well oil well. while Marcellus. got And play Our today, play been we it's future. into is the one think try bright nat both, a depressed right? the and

the Our require footprint footprint last-mile well silos relatively can wellsites area and logistics kind boxes. of small area in versus work where of there, small, be up the small mountainous very rugged

compete well the markets be the in continue effectively when do prepared We'll to also. really recovers, that Northeast. we're those And compete So to we'll we into have ready oil as in past. to

Operator

Our comes Stephen next with question Gengaro Stifel. from

Stephen Gengaro

are lines, When the I a a versus like in west of mean, sense a lot the So those the I following seems think south. give about still and better. you directionally you along first little east up questions. bit up your are gas And holding them prior on volumes think -- can quarter, markets us for it going

should know your at the right about look I line -- now. in the we is market without So being outperforming and volumes maybe count -- rig But you to difficult extremely think we're oil of pure seeing some overall on going rig Or the aids what how gas to think in you relative what's with that count? do your going basins? on with business of the kind more

Chuck Young

Well, very now to Stephen, levels. it's terms in right of stated, as we activity hard predict

well X a a may not months isn't expecting market nothing are which that to dropping We that gas next rapidly seeing the basins tell we do Marcellus, compete that over as in the drop and oil on is we're as us. basins. dramatic in, still have the But there's

when which our western is consistent Bakken we see Colorado, So markets, oil-driven. -- and we'll but going our -- that volumes least pullback be are more in expect short I say at the probably that to in and east current a term the are to the more think which we into

Stephen Gengaro

-- inventory and get the about the the winter of Should build. volumes Okay. goods normal And by quarter price about sort lower the think because balance progression market? of change, in as a then sold absorption we but should changes? and first the contribution Or of cost margin, just just the between that think Like impacted too the see price we obviously, of of still we early? sequential so overhead build is more lot but muted it sort

Chuck Young

business, contribution our goes the question, up a but go should there's pricing fixed bit over cost, of though have different our understand as and say overall, Stephen, certain that. than an first contribution think going fixed per go tons down, But portion volumes. that still to quarter cost not I lower so because you're I Even a again, done to impact be margins materially going as spreading just little from ton on other good margin I cost volumes a back cost we've to are -- you're in higher down. our forward your would have a lower our per that pulling at job than to going volumes, going we're margin to

that say And activity also strong second actually we allows third to an the most and quarter, second, as leads a and which inventory, a expecting this to of initially, and not lower to us when ramp will have higher strongly, the quarter market typically, planning we're have we mining year, now, the how aggressive up lot third we're in contribution be out. years. and our absorption that in costs see we're I for that, into of margin pretty we our activity in right of going because mining, least at Well, activity, until plays

And so the not be inventory normally our building quarters you we're we third do our and going being normally. than cost sold in as that's of lead going up because goods see higher probably second to to to

Stephen Gengaro

helpful color very and... That's

Chuck Young

you bit that. might to a talk want site about advantages John, that, the And our single add to and of little mine

William Young

Yes.

at particularly kind look we've have our tons a And then into the when good up times sand massive sand, that a get mine challenging conditions, right, that other capacity, of X.X competitors think efficiently. always to we ability ramp out I site when have real frac can the you there more million market we these capacity. fact of efficiently. when with selling we single ramp we site trumpeted And down capacity are --

manage, managers to difficult nation either environmental the and we without multiple one one furloughing than plan and workers have plants managing effectively have these very facility we plan rather group whatnot. those have manage, have across it we regions we shuttering to We of sites safety down that have ramp where and across all having to entire becomes permanently, one

a we're if We the have or tons selling business we're tons to rightsize a to not selling million the X whether or continue year. ability million year X

at just in business. the may we'd be manage to them to as low the to with that what have still as some lowest that not rather absorb variable our workforce than the will We of have cost. to They that fixed be be and costs compete we regard efficiently ability like cost

So same that's be time, on this, we're prepared ramp for -- our turnaround tucking to sharp horns significant to we to the is we're also we at downturn. we'll back in going a see the that, think we're and through too, get well a think optimistic that to positioned. up. going what We're for future But be

Stephen Gengaro

balance you're Great. a if could or as think things a have power clearly you who say, good add looks of the could How of market, I term? Do better especially competitive around? about the as you just in -- XXXX think you how more. then let's XXXX? your staying just shape, Great think XXXX the Do some what you color. is you about And have -- not from in guys one mean position obviously -- normalize, ultimately you're very do may competitively there, tell. sheet because do that the market peers think I out I you in in-basin be some longer

Chuck Young

We that for Lee going these a lot let in absolutely his -- -- I'll to balance There's two of going think survive. people cents there's of be difficult just are to difficult some sheets our competitors think but time don't there. we because people to consolidation for be sustainable, the other put

Lee Beckelman

could we capacity survive significant in in of to couple could of industry. and there's I some an Lower fairly turn think sand period in production all it's if that the don't that difficult be agree recapture we're market leverage potentially, of of should months think, reduction the as No. to with then kind position consolidation, of end this. leads And to to the the market the closures at producers is pricings seeing that to And be that could well. dramatic and/or comes of going can expected us going anticipate in in see the next -- peers if to over does the be X When levels. day, I reduced longer turndown, does XX you there'll less year. John improve, at that in But when activity to what trying for And very overall pretty you a be activity back. loss, then their kind in support be a consolidation. we this the months and to them the good we advantage there of think that or well we're of our take production for a X And X chime ramp-up for supply But U.S.

Operator

Glosser next with question Energy. Our from Dylan Simmons comes

Dylan Glosser

QX. Just shortfall material in this coming for you revenues past the revenue, And pick regards you from your over up decrease over what quarters? to again? the headed you few that next guys obviously where with do is saw the might months, shortfall -- has expectation market a in just And do expect QX

Lee Beckelman

other of currently litigation. we again, our around prepared to not do specific quarter, giving second guidance expect is gave contract in guidance we're Well, that's under than shortfall and we that $XX revenue related the that's our comments in the million

basis. As plays to just a and terms it we're it relates how our going other I volumes, see wait contracts, quarter-by-quarter to et on cetera, have of out to think in

Dylan Glosser

Okay. Yes.

Sorry, I the many I have I getting missed this but in And call. be do well, expect might active how were few you moving late missed where next little to this as was think quarters? I a SmartSystems might lever through QX? that. the

Chuck Young

don't why that? you take John,

William Young

Yes.

in -- single in had down into SmartSystems, second had active. quarter, digits systems we silo X the quarter. come first the number the we So has low That

new Chuck kind of technology our perfecting mentioned prepared remarks, his smart on nail are we down. in SmartPath As our had deployment -- the focused of getting and

trailers So well we've robust manner. SmartPath once should understanding system bottom the be given it in deployment. silo our relatively true use works is dump And an efficient quick and systems got comes gives silo on this that back, a with way that that to our market demand a with

silos We but foreseeable building on we're focused systems future, mile we going And will probably be be prepared business building manufacturing last on we're ready XX won't SmartPath. any little to the while. be SmartPaths the to go the systems, with to additional chase opportunistic over continue So our for we'll with next and today.

Lee Beckelman

about fleets And I'll had that. fourth to four X. ramped we we up add In quarter, and just rented, to the Dylan,

was it market good product the and demonstrating was starting making accept that So there. our progress really to really

So pullback, good good comes that been market ramp a that product back, we have to our the up back think up -- that back when gives you're chance with by that confidence the this pretty and seeing I but drop accepted has us the activity quickly. market,

Operator

am remarks. any this at would Chuck turn further back like over not closing the Young I showing time. for questions now I to to call

Chuck Young

you joining First Thank We'll Quarter talk Sand's us Smart for for XXXX Earnings Call. soon. Stay safe.

Operator

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

You disconnect. may now

Smart Sand (SND) 6 May 202020 Q1 Earnings call transcript