0001529628-21-000133.txt : 20210504 0001529628-21-000133.hdr.sgml : 20210504 20210504160145 ACCESSION NUMBER: 0001529628-21-000133 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 78 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210504 DATE AS OF CHANGE: 20210504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Smart Sand, Inc. CENTRAL INDEX KEY: 0001529628 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 452809926 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37936 FILM NUMBER: 21888290 BUSINESS ADDRESS: STREET 1: 1725 HUGHES LANDING BOULEVARD STREET 2: SUITE 800 CITY: THE WOODLANDS STATE: TX ZIP: 77380 BUSINESS PHONE: (281) 231-2660 MAIL ADDRESS: STREET 1: 1725 HUGHES LANDING BOULEVARD STREET 2: SUITE 800 CITY: THE WOODLANDS STATE: TX ZIP: 77380 10-Q 1 snd-20210331.htm 10-Q snd-20210331
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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, 2021
OR
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
snd-20210331_g1.jpg
SMART SAND, INC.
(Exact name of registrant as specified in its charter) 
Delaware45-2809926
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
1725 Hughes Landing Blvd, Suite 800
The Woodlands, Texas 77380
(281) 231-2660
(Address of principal executive offices)(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareSNDNasdaq 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 ý 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 ý 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  ý
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 ý
Number of shares of common stock outstanding, par value $0.001 per share, as of April 27, 2021: 43,334,442




TABLE OF CONTENTS
  PAGE
 
   
 
 
 
 
 
  
  
  
  
 

1


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 (the “ABL Credit Agreement”); and (ii) a Guarantee and Collateral Agreement, dated December 13, 2019, between the Company and Jefferies Finance LLC, as agent (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.
“Former Credit Agreement”, “Former Credit
Facility”
The $45 million 3-year senior secured revolving credit facility (the “Former Credit Facility”) under a revolving credit agreement, dated December 8, 2016, with Jefferies Finance LLC, as administrative and collateral agent (as amended, the “Former Credit Agreement”). The Former Credit Facility was paid in full and terminated with proceeds from the Oakdale Equipment Financing.
“Loan Agreement”, “Acquisition Liquidity Support Facility”
In connection with the Company’s acquisition of Eagle Oil and Gas Proppants Holdings LLC from Eagle Materials Inc., which acquisition was completed on September 18, 2020, the Company, as borrower, entered into a Loan and Security Agreement, dated September 18, 2020 (the “Loan Agreement”), with Eagle Materials Inc., as lender, secured by certain property rights and assets of the acquired business, whereby the Company may draw loans in an aggregate amount up to $5.0 million during the twelve-month period ending September 19, 2021 (the “Acquisition Liquidity Support Facility”).
“Exchange Act”The Securities Exchange Act of 1934, as amended.
“Securities Act”The Securities Act of 1933, as amended.
“FCA”, “DAT”, “DAP”Free Carrier, Delivered at Terminal, Delivered at Place, respectively, Incoterms 2010.
“FASB”, “ASU”, “ASC”, “GAAP”Financial Accounting Standards Board, Accounting Standards Update, Accounting Standards Codification, Accounting Principles Generally Accepted in the United States, respectively.

2


PART I – FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
SMART SAND, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2021December 31, 2020
(unaudited)
 (in thousands, except share amounts)
Assets  
Current assets:  
Cash and cash equivalents$11,417 $11,725 
Accounts receivable66,658 69,720 
Unbilled receivables215 127 
Inventories17,546 19,136 
Prepaid expenses and other current assets10,960 11,378 
Total current assets106,796 112,086 
Property, plant and equipment, net272,197 274,676 
Operating lease right-of-use assets29,697 32,099 
Intangible assets, net8,055 8,253 
Other assets548 563 
Total assets$417,293 $427,677 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$4,816 $3,268 
Accrued expenses and other liabilities12,326 13,142 
Deferred revenue, current5,563 6,875 
Long-term debt, net, current7,073 6,901 
Operating lease liabilities, current7,480 7,077 
Total current liabilities37,258 37,263 
Deferred revenue, net6,984 3,482 
Long-term debt, net20,651 22,445 
Operating lease liabilities, long-term25,080 27,020 
Deferred tax liabilities, long-term, net25,290 32,981 
Asset retirement obligation15,925 14,996 
Contingent consideration 180 
Other non-current liabilities503 503 
Total liabilities131,691 138,870 
Commitments and contingencies (Note 16)
Stockholders’ equity
Common stock, $0.001 par value, 350,000,000 shares authorized; 43,385,671 issued and 41,719,329 outstanding at March 31, 2021; 43,193,394 issued and 41,575,129 outstanding at December 31, 202042 42 
Treasury stock, at cost, 1,666,342 and 1,618,265 shares at March 31, 2021 and December 31, 2020, respectively(4,274)(4,134)
Additional paid-in capital171,931 171,209 
Retained earnings117,355 121,267 
Accumulated other comprehensive income548 423 
Total stockholders’ equity285,602 288,807 
Total liabilities and stockholders’ equity$417,293 $427,677 

 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3


SMART SAND, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED) 
 Three Months Ended March 31,
 20212020
 (in thousands, except per share amounts)
Revenues:
Sand sales revenue$23,147 $30,008 
Shortfall revenue1,741 1,307 
Logistics revenue2,562 16,173 
Total revenue27,450 47,488 
Cost of goods sold32,427 41,089 
Gross profit(4,977)6,399 
Operating expenses:
Salaries, benefits and payroll taxes2,375 2,902 
Depreciation and amortization561 453 
Selling, general and administrative3,154 3,530 
Change in the estimated fair value of contingent consideration (1,020)
Total operating expenses6,090 5,865 
Operating (loss) income(11,067)534 
Other income (expenses):
Interest expense, net(547)(472)
Other income198 19 
Total other income (expenses), net(349)(453)
(Loss) income before income tax (benefit) expense(11,416)81 
Income tax (benefit) expense(7,504)165 
Net loss$(3,912)$(84)
Net loss per common share:
Basic$(0.09)$ 
Diluted$(0.09)$ 
Weighted-average number of common shares:
Basic41,629 40,091 
Diluted41,629 40,091 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


SMART SAND, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended March 31,
20212020
(in thousands)
Net loss$(3,912)$(84)
Other comprehensive loss:
Foreign currency translation adjustment125 (163)
Comprehensive loss$(3,787)$(247)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


SMART SAND, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED) 
Three months ended March 31, 2021
 Common StockTreasury StockAdditional Paid-in Capital Accumulated Other Comprehensive IncomeTotal Stockholders’ Equity
 Outstanding
Shares
Par ValueSharesAmountRetained
Earnings
 (in thousands, except share amounts)
Balance at December 31, 202041,575,129 $42 1,618,265 $(4,134)$171,209 $121,267 $423 $288,807 
Foreign currency translation adjustment— — — — — — 125 125 
Acquisition stock issuance14,430 — — — 20 — — 20 
Vesting of restricted stock158,364 — — — — — — — 
Stock-based compensation— — — — 678 — — 678 
Employee stock purchase plan compensation— — — — 7 — — 7 
Employee stock purchase plan issuance19,483 — — — 17 — — 17 
Restricted stock buy back(48,077)— 48,077 (140)— — — (140)
Shares repurchased —   — — —  
Net loss— — — — — (3,912)— (3,912)
Balance at March 31, 202141,719,329 $42 1,666,342 $(4,274)$171,931 $117,355 $548 $285,602 

6


SMART SAND, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)
(UNAUDITED) 
Three months ended March 31, 2020
 Common StockTreasury StockAdditional Paid-in Capital Accumulated Other Comprehensive LossTotal Stockholders’ Equity
 Outstanding
Shares
Par ValueSharesAmountRetained
Earnings
 (in thousands, except share amounts)
Balance at December 31, 201940,234,451 $40 740,957 $(2,979)$165,223 $83,313 $(41)$245,556 
Foreign currency translation adjustment— — — — — — (163)(163)
Vesting of restricted stock139,947 — — — — — — — 
Stock-based compensation— — — — 1,025 — — 1,025 
Employee stock purchase plan compensation— — — — 14 — — 14 
Employee stock purchase plan issuance21,486 — — — 46 — — 46 
Restricted stock buy back(10,468)— 10,468 (14)— — — (14)
Shares repurchased(778,300)— 778,300 (1,000)— — — (1,000)
Net loss— — — — — (84)— (84)
Balance at March 31, 202039,607,116 $40 1,529,725 $(3,993)$166,308 $83,229 $(204)245,380 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7


SMART SAND, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
 20212020
 (in thousands)
Operating activities:  
Net loss$(3,912)$(84)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, depletion and accretion of asset retirement obligation6,375 5,363 
Amortization of intangible assets198 199 
Loss on disposal of assets2  
Amortization of deferred financing cost26 26 
Accretion of debt discount47 45 
Deferred income taxes (7,691)1,264 
Stock-based compensation, net678 1,025 
Employee stock purchase plan compensation7 13 
Change in contingent consideration fair value (1,020)
Changes in assets and liabilities:
Accounts receivable3,062 1,095 
Unbilled receivables(88)4,536 
Inventories1,590 3,642 
Prepaid expenses and other assets1,140 (1,933)
Deferred revenue2,191 (2,575)
Accounts payable1,332 2,048 
Accrued and other expenses(1,043)(1,471)
Income taxes payable (112)
Net cash provided by operating activities3,914 12,061 
Investing activities:
Purchases of property, plant and equipment(2,213)(4,185)
Proceeds from disposal of assets(2) 
Net cash used in investing activities(2,215)(4,185)
Financing activities:
Repayments of notes payable(1,672)(1,192)
Payments under equipment financing obligations(31)(32)
Payment of deferred financing and debt issuance costs (20)
Proceeds from revolving credit facility 6,000 
Repayment of revolving credit facility (2,500)
Payment of contingent consideration(180)(280)
Proceeds from equity issuance17 46 
Purchase of treasury stock(141)(1,014)
Net cash (used in) provided by financing activities(2,007)1,008 
Net increase in cash and cash equivalents(308)8,884 
Cash and cash equivalents at beginning of year11,725 2,639 
Cash and cash equivalents at end of period$11,417 $11,523 
Supplemental disclosure of cash flow information
Non-cash investing activities:
Asset retirement obligation$737 $ 
Non-cash financing activities:
Capitalized expenditures in accounts payable and accrued expenses$1,097 $1,269 
Issuance of acquisition common stock$20 $ 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8


SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

NOTE 1 — Organization and Nature of Business & Market Update
Organization and Nature of Business
The Company was incorporated in July 2011 and is headquartered in The Woodlands, Texas. The Company is a fully integrated frac sand supply and services company, offering complete mine to wellsite proppant logistics and storage solutions. The Company is engaged in the excavation, processing and sale of sand, or proppant, for use in hydraulic fracturing operations for the oil and natural gas industry and offers proppant logistics and wellsite storage solutions through its SmartSystemsTM products and services.
The Company completed construction of the first phase of its frac sand mine and related processing facility in Oakdale, Wisconsin and commenced operations in July 2012. Through multiple expansions at Oakdale and the recent acquisition in September 2020 of the Utica, Illinois mine and processing facilities, the Company has current annual processing capacity of approximately 7.1 million tons.
The Company provides complete logistics solutions through its frac sand facilities with access to three Class I rail lines and its in-basin unit train capable transloading terminal in Van Hook, North Dakota to service the Bakken Formation in the Williston Basin. These logistics solutions enable the Company to cost-effectively deliver products to its customers anywhere in the United States.
The Company provides proppant storage and management solutions through its SmartSystems products and services under which it offers various 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 the ability to rapidly set up, takedown and transport the entire system. The SmartDepotTM silo system includes passive and active dust suppression technology, along with the capability of a gravity-fed operation. The Company has developed a new transload technology, the self-contained SmartPath transloader, to complement its existing solutions. The SmartPath 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. 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.

NOTE 2 — Summary of Significant Accounting Policies
The information presented below supplements the complete description of our significant accounting policies disclosed in our 2020 Form 10-K, filed with the SEC on March 3, 2021.
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 Securities and Exchange Commission 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, 2020 was derived from the audited consolidated financial statements as of and for the year ended December 31, 2020. These interim statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2020. 
Use of Estimates
The preparation of financial statements in accordance with GAAP 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; the sand reserves and their impact on calculating the depletion expense under the units-of-production method; the depreciation and amortization associated with property, plant and equipment and definite-lived intangible assets, impairment considerations of assets (including impairment of identified intangible assets, goodwill and other long-lived assets); estimated cost of future asset retirement obligations; fair
9


SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
value of acquired assets and assume liabilities; stock-based compensation; recoverability of deferred tax assets; inventory reserve; 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. The decreased demand related to the coronavirus (“COVID-19”) pandemic has caused a dramatic decline in oil prices within the last twelve months and significant volatility in the oilfield service sector. The Company is currently unable to estimate the impact of these 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.
Recent Accounting Pronouncements
In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. The Company adopted ASU 2020-10 as of the reporting period beginning January 1, 2021. The adoption of this update did not have a material effect on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which intends to simplify     the guidance by removing certain exceptions to the general principles and clarifying or amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of this update did not have a material effect on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which modifies how companies recognize expected credit losses on financial instruments and other commitments to extend credit held by an entity at each reporting date. Existing GAAP requires an “incurred loss” methodology whereby companies are prohibited from recording an expected loss until it is probable that the loss has been incurred. ASU 2016-13 requires companies to use a methodology that reflects current expected credit losses (“CECL”) and requires consideration of a broad range of reasonable and supportable information to record and report credit loss estimates, even when the CECL is remote. Companies will be required to record the allowance for credit losses and deduct that amount from the basis of the asset and a related expense will be recognized in selling, general and administrative expenses on the income statement, similar to bad debt expense under existing GAAP. There is much latitude given to entities in determining the methodology for calculating the CECL. The guidance is effective for the Company for financial statement periods beginning after December 15, 2022, although early adoption is permitted. While the Company is still in the process of evaluating the effects of ASU 2016-13 and its related updates on the consolidated financial statements, at the time of adoption, it believes the primary effect will be any applicable allowance recorded against its accounts and unbilled receivables on its balance sheet and related expense on its income statement at that time. The Company cannot determine the financial impact on its consolidated financial statements upon adoption as its accounts and unbilled receivables balances are affected by ongoing transactions with customers.
10


SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

NOTE 3 — Business Combination
Eagle Proppants Holdings
On September 18, 2020, the Company entered into an Equity Purchase and Sale Agreement (the “Purchase Agreement”) with Eagle Materials Inc., a Delaware corporation (“Eagle”), pursuant to which the Company acquired all of the issued and outstanding interests in Eagle Oil and Gas Proppants Holdings LLC, a Delaware limited liability company and wholly-owned subsidiary of Eagle (“Eagle Proppants Holdings”), from Eagle for aggregate non-cash consideration of approximately $2,080. In satisfaction of the purchase price, the Company issued to Eagle 1,504 shares of its common stock; the Company issued an additional 14 shares of its common stock in January 2021 as settlement of the net working capital adjustment. The number of shares issued was determined by the weighted average trading price of the Company’s common stock over the twenty days preceding the date of the Purchase Agreement.
In connection with the acquisition of Eagle Proppants Holdings, the Company, as borrower, also entered into a Loan Agreement with Eagle, as lender. See Note 7 - Debt, for additional information.
The primary assets of Eagle Proppants Holdings and its subsidiaries include frac sand mine and related processing and transloading facilities in Utica and Peru, Illinois. The Utica facility has approximately 1.6 million tons of annual processing capacity which has access to the BNSF rail line through the Peru, Illinois transload facility.
The table below presents the calculation of the total purchase consideration:

Base price consideration$2,000 
20-day volume weighted average price of Smart Sand stock$1.33 
Shares issued1,504 
Closing share price on September 18, 2020$1.37 
Total equity issued$2,060 
Net working capital adjustment$20 
Total purchase consideration$2,080 

11


SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
The Company’s allocation of the purchase price in connection with the acquisition was calculated as follows:
Fair Value
Assets Acquired
Cash$309 
Accounts receivable75 
Inventory2,459 
Prepaid expenses and other current assets124 
Property, plant and equipment60,310 
Right-of-use assets9,603 
Total assets acquired72,880 
Liabilities Assumed
Accounts payable16 
Accrued expenses and other liabilities2,008 
Asset retirement obligations8,424 
Operating lease liabilities9,603 
Deferred income taxes11,149 
Total liabilities assumed31,200 
Estimated fair value of net assets acquired$41,680 

The estimated aggregate fair value of the net assets acquired was $41,680, which exceeded the total consideration and results in a bargain purchase gain of $39,600 on the acquisition date, which is included in net income for the year ended December 31, 2020. The Company believes that the seller wanted to exit the business relatively quickly and that there were a limited number of potential buyers due to the downturn in the market, which resulted in the bargain purchase gain.
The Company determined the fair values of the acquired assets and assumed liabilities based on the highest and best use of such assets as required by GAAP. Cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other liabilities were based on underlying assets and liabilities whose carrying value approximates fair value. The Company acquired $2,050 of contractual receivables; however, it does not expect to collect on $1,975 of such contractual receivables as these customers are in bankruptcy proceedings. The fair value of inventory was determined using market prices the Company expected to receive for the inventory when it is sold. Operating leases were considered to be at market rates and the fair values of the associated operating lease liabilities and right-of-use assets were determined using the Company’s lease accounting policies. The fair value of the asset retirement obligations was calculated consistently with the Company’s other asset retirement obligations and includes assumptions about inflation and discount rates over time to represent the estimated future cost of dismantling, restoring and reclaiming the plant and mines in accordance with legal obligations. Deferred income taxes represent the temporary differences between future expenses for GAAP purposes and income tax purposes at the Company’s applicable enacted tax rate. The Company determined the fair values of the property, plant and equipment with the assistance of external valuation specialists. The fair value was based on the highest and best use, as required by GAAP, which was determined to be the orderly liquidation value rather than the value imputed by other valuation methods. Total acquisition costs incurred in the year ended December 31, 2020 were $891. Company’s allocation of the purchase price was complete as of December 31, 2020.
12


SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

NOTE 4 — Inventory
Inventory consisted of the following:
 March 31, 2021December 31, 2020
Raw material$463 $428 
Work in progress7,549 10,465 
Finished goods5,703 4,400 
Spare parts3,831 3,843 
Total sand inventory$17,546 $19,136 


NOTE 5 — Property, Plant and Equipment, net
Net property, plant and equipment consisted of:
March 31, 2021December 31, 2020
Machinery, equipment and tooling$29,089 $29,002 
SmartSystems
24,067 22,352 
Vehicles2,899 2,893 
Furniture and fixtures1,325 1,302 
Plant and building199,923 199,867 
Real estate properties6,462 6,458 
Railroad and sidings27,703 27,703 
Land and land improvements33,155 33,040 
Asset retirement obligation20,730 19,993 
Mineral properties7,442 7,442 
Deferred mining costs2,425 2,123 
Construction in progress8,301 7,489 
363,521 359,664 
Less: accumulated depreciation and depletion91,324 84,988 
Total property, plant and equipment, net$272,197 $274,676 

Depreciation expense was $6,177 and $5,276 for the three months ended March 31, 2021 and 2020, respectively.
13


SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

NOTE 6 — Accrued and Other Expenses
Accrued and other expenses were comprised of the following:
 March 31, 2021December 31, 2020
Employee related expenses$1,203 $1,048 
Accrued equipment
 55 
Accrued professional fees698 1,129 
Accrued royalties2,564 2,624 
Accrued freight and delivery charges2,249 2,901 
Accrued real estate tax1,808 1,637 
Accrued utilities835 748 
Sales tax liability1,027 1,386 
Other accrued liabilities1,942 1,614 
Total accrued liabilities$12,326 $13,142 


NOTE 7 — Debt
The current portion of long-term debt consists of the following:
 March 31, 2021December 31, 2020
Oakdale Equipment Financing$3,653 $3,600 
Finance leases126 123 
Notes Payable3,294 3,178 
Long-term debt, net, current$7,073 $6,901 

Long-term debt, net of current portion consists of the following:
 March 31, 2021December 31, 2020
ABL Credit Facility$ $ 
Oakdale Equipment Financing, net14,350 15,236 
Finance Leases319 351 
Notes Payable5,982 6,858 
Long-term debt, net$20,651 $22,445 
14


SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

The follow summarizes the maturity of our debt:
ABL Credit FacilityOakdale Equipment FinancingNotes PayableFinance LeasesTotal
Remainder of 2021$ $3,479 $2,788 $114 $6,381 
2022 4,638 3,599 138 8,375 
2023 4,638 2,396 245 7,279 
2024 6,888 807  7,695 
2025 1,724 187  1,911 
2026 and thereafter  355  355 
Total minimum payments 21,367 10,132 497 31,996 
Amount representing interest (2,678)(856)(52)(3,586)
Amount representing unamortized lender fees (686)  (686)
Present value of payments445 
Less: current portion (3,653)(3,294)(126)(7,073)
Total long-term debt, net$ $14,350 $5,982 $319 $20,651 

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, 2021 was $11,573 and is based on the Company’s eligible accounts receivable and inventory, as described in the ABL Credit Agreement. As of March 31, 2021, there were no amounts outstanding under the ABL Credit Facility, $1,232 letters of credit and $10,341 was available to be drawn. We use this facility primarily as a source for working capital needs. Borrowings under the ABL Credit Facility bear interest at a rate per annum equal to an applicable margin, plus, at our option, either a LIBOR rate or an alternate base rate (“ABR”) as well as unused commitment fees. The applicable margin is 2.00% for LIBOR loans and 1.00% for ABR loans. Substantially all of the U.S. assets of the Company are pledged as collateral under the ABL Credit Facility. The ABL Credit Facility contains various reporting requirements, negative covenants and restrictive provisions and requires maintenance of financial covenants, under certain conditions, including a fixed charge coverage ratio, as defined in the ABL Credit Agreement. There were no borrowings during the three months ended March 31, 2021. As of March 31, 2021 and December 31, 2020, the Company was in compliance with all financial covenants.
Oakdale Equipment Financing
On December 13, 2019, the Company received net proceeds of $23,000 in an equipment financing arrangement with Nexseer. The Oakdale Equipment Financing is legally comprised of an MLA and five lease schedules. The Oakdale Equipment Financing is considered a lease under article 2A of the Uniform Commercial Code but is considered a financing arrangement for accounting and financial reporting purposes. 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%. The Company used the net proceeds to repay in full and terminate the Former Credit Facility, pay transaction costs, and the remainder was used for working capital purposes. The Oakdale Equipment Financing matures on December 13, 2024. As a result of financial relief obtained during the COVID-19 pandemic in 2020, a portion of the Oakdale Equipment Financing matures on March 31, 2025. The Company has the right to prepay the financing and reacquire the underlying equipment on a lease schedule-by-lease schedule basis during the period commencing on the seventh month of the term and continuing until the 54th month of the term at a percentage of the purchase price of the relevant equipment, and at the end of the term at the fair market value of the equipment. The Oakdale Equipment Financing contains affirmative and restrictive covenants customary for transactions of this type.
Notes Payable
15


SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
The Company has entered into various financing arrangements, primarily to finance its manufactured wellsite proppant storage solutions equipment. Upon completion of the equipment manufacturing, title to the subject equipment passes to the financial institutions as collateral. In June 2020, the Company executed a note payable to defer certain near-term minimum royalty payments. All notes payable bear interest at rates between 4.00% and 7.49%.
Acquisition Liquidity Support Facility
In connection with the Company’s acquisition of Eagle Proppants Holdings, the Company, as borrower, also entered into a Loan Agreement with Eagle, as lender, secured by certain property rights and assets of the acquired business, whereby the Company may draw loans in an aggregate amount up to $5,000 during the twelve month period ending September 18, 2021. Beginning with the calendar quarter ending December 31, 2021, any amounts borrowed will amortize over the following three years. The facility bears interest at a fixed rate of 6.00% until September 18, 2021 and will bear interest at a fixed rate of 8.00% thereafter until all outstanding borrowings have been paid in full. There were no borrowings outstanding under this facility as of March 31, 2021.

NOTE 8 — Leases
Lessee
The operating and financing components of the Company’s right-of-use assets and lease liabilities on the consolidated balance sheet were as follows:
Balance Sheet LocationMarch 31, 2021December 31, 2020
Right-of-use assets
   OperatingOperating right-of-use assets$29,697 $32,099 
   FinancingProperty, plant and equipment, net333 373 
Total right-of use assets$30,030 $32,472 
Lease liabilities
   OperatingOperating lease liabilities, current and long-term portions$32,560 $34,097 
   FinancingLong-term debt, current and long-term portions445 474 
Total lease liabilities$33,005 $34,571 

Operating lease costs are recorded as a single expense on the income statement 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 income statement for the three months ended March 31, 2021 and 2020 was as follows:
Three Months Ended March 31,
20212020
Finance lease cost
   Amortization of right-of-use assets$35 $34 
   Interest on lease liabilities8 10 
Operating lease cost2,887 3,990 
Short-term lease cost 170 
Total lease cost$2,930 $4,204 
16


SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Other information related to the Company’s leasing activity for the three months ended March 31, 2021 and 2020 is as follows:
Three months ended March 31,
20212020
Cash paid for amounts included in the measurement of lease liabilities
   Operating cash flows used for finance leases$8 $10 
   Operating cash flows used for operating leases$2,078 $4,086 
   Financing cash flows used for finance leases$30 $28 
Right-of-use assets obtained in exchange for new finance lease liabilities$ $ 
Right-of-use assets obtained in exchange for new operating lease liabilities$ $614 
Weighted average remaining lease term - finance leases2.4 years3.4 years
Weighted average discount rate - finance leases6.60 %6.60 %
Weighted average remaining lease term - operating leases3.7 years2.4 years
Weighted average discount rate - operating leases5.78 %5.51 %

Maturities of the Company’s lease liabilities as of March 31, 2021 are as follows:
Operating LeasesFinance LeasesTotal
Remainder of 2021$6,816 $114 $6,930 
20228,753 138 8,891 
20237,858 245 8,103 
20246,499  6,499 
20253,173  3,173 
Thereafter4,000  4,000 
Total cash lease payments37,099 497 37,596 
Less: amounts representing interest(4,539)(52)(4,591)
Total lease liabilities$32,560 $445 $33,005 


NOTE 9 — Asset Retirement Obligation
The Company had a post-closure reclamation and site restoration obligation of $15,925 as of March 31, 2021. The following is a reconciliation of the total reclamation liability for asset retirement obligations.
Balance at December 31, 2020$14,996 
Additions737 
Accretion expense192 
Balance at March 31, 2021$15,925 

17


SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

NOTE 10 — Contingent Consideration 
The Company recorded contingent consideration of $9,200 at June 1, 2018, related to its acquisition of its SmartSystems business. The Company has no intentions to produce silos or related equipment for the remainder of the earnout period, which ends in June 2021. All contingent consideration amounts due are fully paid.

NOTE 11 — 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,
20212020
RevenuePercentage of Total RevenueRevenuePercentage of Total Revenue
Sand sales revenue$23,147 84 %$30,008 63 %
Shortfall revenue1,741 6 %1,307 3 %
Logistics revenue2,562 9 %16,173 34 %
Total revenues$27,450 100 %$47,488 100 %

The Company recorded $10,357 of deferred revenue on the balance sheet on December 31, 2020, of which $4,187 has been recognized in the three months ended March 31, 2021. Of the remaining amount, the Company expects to recognize $2,688 through December 31, 2021 and the remainder through 2023.

NOTE 12 — Earnings Per Share
Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, excluding the dilutive effects of restricted stock. Diluted net loss per share of common stock is computed by dividing the net loss attributable to common stockholders by the sum of the weighted-average number of shares of common stock outstanding during the period plus the potential dilutive effects of restricted stock outstanding during the period calculated in accordance with the treasury stock method, although restricted stock is excluded if their effect is anti-dilutive. Because the impact of these items is anti-dilutive during periods of net loss, there was no difference between basic and diluted net loss per share of common stock for the three months ended March 31, 2021 and 2020.

NOTE 13 Stock-Based Compensation
Equity Incentive Plan
In November 2016, in connection with its initial public offering, the Company adopted the 2016 Omnibus Incentive Plan (“2016 Plan”) which provides for the issuance of Awards (as defined in the 2016 Plan) of up to a maximum of 3,911 shares of the Company’s common stock to employees, non-employee members of the Board and consultants of the Company. On April 3, 2020, the Company’s board of directors adopted an amendment to the 2016 Plan to increase the available shares of common stock authorized for issuance by an additional 2,088 shares. The awards can be issued in the form of incentive stock options, non-qualified stock options or restricted stock.
During the three months ended March 31, 2021 and 2020, 14 and 0 shares of restricted stock were issued under the Plans, respectively. The grant date fair value per share of all the outstanding restricted stock was $2.44 - $8.91. The shares vest
18


SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
over one to four years from their respective grant dates. For equity awards issued under the 2016 Plan, the grant date fair value was either the actual market price of the Company’s shares or an adjusted price using a Monte Carlo simulation for awards subject to the Company’s performance as compared to a defined peer group. The Company recognized, in operating expenses and cost of goods sold on the condensed consolidated income statements, $678 and $1,025 of compensation expense for the restricted stock during the three months ended March 31, 2021 and 2020, respectively. There is no impact to the cash flows of the Company related to stock-based compensation expense. At March 31, 2021, the Company had unrecognized compensation expense of $3,039 related to granted but unvested stock awards, which is to be recognized as follows:
Remainder of 2021$1,640 
2022868 
2023518 
202411 
20252 
 Total$3,039 
 
The following table summarizes restricted stock activity under the Plans from December 31, 2020 through March 31, 2021:
 Number of
Shares
Weighted
Average
Unvested, December 31, 20201,886 $5.14 
Granted14 $3.07 
Vested(158)$9.73 
Forfeited(112)$6.58 
Unvested, March 31, 20211,630 $3.73 

Employee Stock Purchase Plan
Shares of the Company’s common stock may be purchased by eligible employees under the Company’s 2016 Employee Stock Purchase Plan in six-month intervals at a purchase price equal to at least 85% of the lesser of the fair market value of the Company’s common stock on either the first day or the last day of each six-month offering period. Employee purchases may not exceed 20% of their gross compensation during an offering period.

NOTE 14 — 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, 2021 and 2020, the effective tax rate was approximately 65.7% and 203.7%, respectively, based on the annual effective tax rate net of discrete federal and state taxes. For the three months ended March 31, 2021 and 2020, 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.

NOTE 15 — Concentrations
As of March 31, 2021 and December 31, 2020, 82% and 78%, respectively, of the Company’s total accounts receivable balance was subject to litigation.
19


SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
During the three months ended March 31, 2021, 74% of the Company’s revenues were earned from three customers. During the three months ended March 31, 2020, 79% of the Company’s revenues were earned from four customers.
As of March 31, 2021, one vendor accounted for 27% of the Company’s accounts payable.  As of December 31, 2020, three vendors accounted for 42% of the Company’s accounts payable.
During the three months ended March 31, 2021, two suppliers accounted for 49% of the Company’s cost of goods sold. During the three months ended March 31, 2020, two suppliers accounted for 64% of the Company’s cost of goods sold.
The Company’s primary product is Northern White frac 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 this geographic area.

NOTE 16 — Commitments and Contingencies
Future Minimum Commitments
The Company is obligated under certain contracts for minimum payments for the right to use land for extractive activities, which is not within the scope of leases under ASC 842. Future minimum annual commitments under such contracts at March 31, 2021 are as follows:
Remainder of 2021$1,746 
20222,467 
20232,573 
20242,469 
20252,462 
Thereafter26,886 
Total$38,603 

Litigation
In addition to the matters described below, we 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.
U.S. Well Services, LLC
On January 14, 2019, Smart Sand, Inc. (plaintiff) filed suit against U.S. Well Services, LLC (defendant) in the Superior Court of the State of Delaware in and for New Castle County (C.A. No. N19C-01-144-PRW [CCLD]). In the suit, plaintiff alleges that defendant is in breach of contract for failure to pay amounts due and payable under a long-term take-or-pay Master Product Purchase Agreement and coterminous Railcar Usage Agreement and is seeking unspecified monetary damages and other appropriate relief. Defendant filed an Answer, Affirmative Defenses and Amended Counterclaim but is no longer pursuing any counterclaims. Discovery was completed in the fall of 2020 and the trial took place in December 2020. The post-trial briefing has been completed and the parties are awaiting the Court’s decision. At this time, the Company is unable to express an opinion as to the likely outcome of the matter.
The Company recorded $0 and $2,378 of revenue for the three months ended March 31, 2021 and 2020, respectively, related to U.S. Well. As of March 31, 2021 and December 31, 2020, $54,592 of accounts receivables is attributable to U.S. Well. Amounts recorded as accounts receivable do not represent the full amounts sought in this lawsuit.
20


SMART SAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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, 2021 was $9,478.
21


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, 2020 contained in our Annual Report on Form 10-K. We use EBITDA, Adjusted EBITDA, contribution margin and free cash flow herein as non-GAAP measures of our financial performance. For further discussion of EBITDA, Adjusted EBITDA, contribution margin and free cash flow, see the section entitled “Non-GAAP Financial Measures.” We define various terms to simplify the presentation of information in this Report. All share amounts are presented in thousands.

Forward-Looking Statements
This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed herein and in the section entitled “Risk Factors” in our Form 10-K for the year ended December 31, 2020. Our estimates and forward-looking statements are primarily based on our current expectations and estimates of future events and trends, which affect or may affect our business and operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. Important factors, in addition to the factors described in this quarterly report, may adversely affect our results as indicated in forward-looking statements. You should read this quarterly report and the documents that we have filed as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. The words “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “might,” “would,” “continue” or the negative of these terms or other comparable terminology and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and, except to the extent required by law, we undertake no obligation to update, to revise or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. As a result of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this quarterly report might not occur and our future results, level of activity, performance or achievements may differ materially from those expressed in these forward-looking statements due to, including, but not limited to, the factors mentioned above, and the differences may be material and adverse. Because of these uncertainties, you should not place undue reliance on these forward-looking statements.

Overview 

The Company
We are a fully integrated frac sand supply and services company, offering complete mine to wellsite proppant supply and logistics solutions to our customers. We produce low-cost, high quality Northern White frac sand, which is a premium proppant used to enhance hydrocarbon recovery rates in the hydraulic fracturing of oil and natural gas wells. We also offer proppant logistics solutions to our customers through our in-basin transloading terminal and our SmartSystemsTM wellsite proppant storage capabilities. We market our products and services, as one operating segment, primarily to oil and natural gas exploration and production companies and oilfield service companies. We sell our sand under a combination of contract and spot sales in the open market, and provide wellsite proppant storage solutions services and equipment under flexible contract terms custom tailored to meet the needs of our customers. We believe that, among other things, the size and favorable geologic characteristics of our sand reserves, the strategic location and logistical advantages of our facilities, our proprietary SmartDepotTM portable wellsite proppant storage silos, SmartPathTM transloader, and the industry experience of our senior management team make us as a highly attractive provider of frac sand and proppant logistics services from the mine to the wellsite.
We incorporated in Delaware in July 2011 and began operations with 1.1 million tons of annual nameplate processing capacity in July 2012. After several expansions and an acquisition, our current operational annual processing capacity is approximately 7.1 million tons of frac sand. Our mine and related processing facility near Oakdale, Wisconsin, at which we
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SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
have approximately 315 million tons of proven recoverable sand reserves as of December 31, 2020, has approximately 5.5 million tons of annual processing capacity. This integrated facility, with on-site rail infrastructure and wet and dry sand processing facilities, has onsite access to the Canadian Pacific Class I rail line and access to the Union Pacific Class I rail line through the Byron, Wisconsin transload facility located nearby. Our mine and processing facility in Utica, Illinois, which was recently acquired in our acquisition of Eagle Oil and Gas Proppants Holdings LLC (“Eagle Proppants Holdings”), has approximately 130 million tons of proven and probable sand reserves as of December 31, 2020, and has approximately 1.6 million tons of annual processing capacity. This facility has access to the BNSF Class I rail line through the Peru, Illinois transload facility located nearby. We began operating the Utica, Illinois mine and Peru, Illinois transload facility in October 2020.
We operate a unit train capable transloading terminal in Van Hook, North Dakota to service the Bakken Formation in the Williston Basin. We operate this terminal under a long-term agreement with Canadian Pacific Railway to service the Van Hook terminal directly along with the other key oil and natural gas exploration and production basins of North America. We provide Northern White sand in-basin at this terminal, which allows us to offer more efficient delivery options to customers operating in the Bakken Formation in the Williston Basin.
We also offer to our customers portable wellsite proppant storage and management solutions through our SmartSystems products and services. Our SmartSystems provide our customers with the capability to unload, store and deliver proppant at the wellsite, as well as the ability to rapidly set up, takedown and transport the entire system. This capability creates efficiencies, flexibility, enhanced safety and reliability for customers. Through our SmartSystems wellsite proppant storage solutions, we offer the SmartDepot and SmartDepotXL™ silo systems, SmartPath transloader, and our rapid deployment trailers. Our SmartDepot silos include passive and active dust suppression technology, along with the capability of a gravity-fed operation. Our 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, and we believe the system has the ability to keep up with any hydraulic fracturing operation. Our rapid deployment trailers are designed for quick setup, takedown and transportation of the entire SmartSystem, and detach from the wellsite equipment, which allows for removal from the wellsite during operation. We have also developed a proprietary software program, the SmartSystem Tracker™, which allows our SmartSystems customers to monitor silo-specific information, including location, proppant type and proppant inventory.

Business Combination

On September 18, 2020, we acquired from Eagle Materials Inc., a Delaware corporation (“Eagle”), all of the issued and outstanding interests in Eagle Oil and Gas Proppants Holdings LLC, a Delaware limited liability company and wholly-owned subsidiary of Eagle (“Eagle Proppants Holdings”), for aggregate consideration of approximately $2.1 million.The estimated aggregate fair value of the net assets acquired was $41.7 million, which exceeded the total consideration and resulted in a bargain purchase gain of $39.6 million on the acquisition date.
The Utica, Illinois mining and processing assets were idle at the date of acquisition; we started mining and selling sand out of this location in the fourth quarter of 2020.

Market Trends
Our historical results of operations and cash flows are not indicative of results of operations and cash flows to be expected in the future.
We generally expect the price of frac sand to correlate with the level of drilling and completions activity for oil and natural gas. In recent years, the increasing supply of sand, particularly in-basin sand, relative to demand, has led to a continued depression of frac sand prices. The willingness of exploration and production companies to engage in drilling and completing new wells is determined by a number of factors, the most important of which are the prevailing and projected prices of oil and natural gas, the cost to drill, complete and operate a well, the availability and cost of capital and environmental and government regulations, as well as their ability to acquire the sand at the wellsite. We generally expect the level of drilling to correlate with long-term trends in commodity prices. Similarly, oil and natural gas production levels nationally and regionally tend to correlate with drilling activity.
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SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

During most of 2020, demand for frac sand declined significantly as a result of decreased demand for oil as a result of the ongoing effects of the coronavirus (“COVID-19”) pandemic, which caused a global decrease in all means of travel, the closure of borders between countries and a general slowing of economic activity worldwide. Activity in the oil and gas industry began to rebound in the fourth quarter of 2020 and the first quarter of 2021 as the global distribution of the COVID-19 vaccine ramped up and travel restrictions lessened. Until there is a full reopening of the global economy, oil and natural gas prices could continue to be volatile, and we cannot predict when prices will stabilize.
Our customers have trended toward purchasing their frac sand supply in the spot market at market prices rather than through long-term contracts as a result of the increased supply of sand and their continued focus on maintaining positive free cash flow.
Northern White frac sand, which is found predominantly in Wisconsin and limited portions of Minnesota, Illinois, and Missouri, is considered a premium proppant due to its favorable physical characteristics. While we anticipate that regional sand will continue to affect the demand for Northern White sand in some of the oil and natural gas producing basins in which we operate, we believe there will continue to be demand for our high-quality Northern White frac sand. In particular, we believe that Northern White frac sand has logistical advantages in the Marcellus, Bakken, and western basins of Colorado and Wyoming. We expect demand for our frac sand to continue to be supported by customers who are focused on long-term well performance and ultimate recovery of reserves from the oil and natural gas wells they are completing as well as those inter