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 September 30, 2022

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

SMART SAND, INC.

(Exact name of registrant as specified in its charter) 

Delaware	45-2809926
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	SND	Nasdaq Global Select Market

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

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

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

Large accelerated filer  ☐ Accelerated filer ☐ Non-accelerated Filer  ☒ Smaller reporting company ☒ Emerging Growth Company ☐

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

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

Number of shares of common stock outstanding, par value $0.001 per share, as of November 1, 2022: 45,276,607

TABLE OF CONTENTS

		PAGE
PART I	FINANCIAL INFORMATION
ITEM 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) Income for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2022 and 2021 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (Unaudited)	8
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	32
ITEM 4.	Controls and Procedures	32
PART II	OTHER INFORMATION	33
ITEM 1.	Legal Proceedings	33
ITEM 1A.	Risk Factors	33
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
ITEM 3.	Defaults upon Senior Securities	33
ITEM 4.	Mine Safety Disclosures	33
ITEM 5.	Other Information	33
ITEM 6.	Exhibits	34
SIGNATURES		35

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, as amended from time to time (as amended, the “ABL Credit Agreement”); and (ii) a Guarantee and Collateral Agreement, dated December 13, 2019, between the Company and Jefferies Finance LLC, as agent, as amended from time to time (as amended, the “Security Agreement”).
“Oakdale Equipment Financing”, “MLA”	The five-year Master Lease Agreement, dated December 13, 2019, between Nexseer Capital (“Nexseer”) and related lease schedules in connection therewith (collectively, the “MLA”). The MLA is structured as a sale-leaseback of substantially all of the equipment at the Company’s mining and processing facility located near Oakdale, Wisconsin. The Oakdale Equipment Financing is considered a lease under article 2A of the Uniform Commercial Code but is considered a financing arrangement (and not a lease) for accounting or financial reporting purposes.
“Exchange Act”	The Securities Exchange Act of 1934, as amended.
“Securities Act”	The Securities Act of 1933, as amended.
“FASB”, “ASU”, “ASC”, “GAAP”	Financial Accounting Standards Board, Accounting Standards Update, Accounting Standards Codification, Accounting Principles Generally Accepted in the United States, respectively.

2

PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

SMART SAND, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2022		December 31, 2021
	(unaudited)
	(in thousands, except share amounts)
Assets
Current assets:
Cash and cash equivalents	$	10,371	$	25,588
Accounts receivable	32,902		17,481
Unbilled receivables	1,292		1,884
Inventory	20,618		15,024
Prepaid expenses and other current assets	7,405		13,886
Total current assets	72,588		73,863
Property, plant and equipment, net	267,210		262,465
Operating lease right-of-use assets	28,418		29,828
Intangible assets, net	6,867		7,461
Other assets	315		402
Total assets	$	375,398	$	374,019
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	11,634	$	8,479
Accrued expenses and other liabilities	16,267		14,073
Current portion of deferred revenue	9,905		9,842
Current portion of long-term debt	6,495		7,127
Current portion of operating lease liabilities	10,560		9,029
Total current liabilities	54,861		48,550
Long-term deferred revenue	—		6,428
Long-term debt	16,289		15,353
Long-term operating lease liabilities	19,989		23,690
Deferred tax liabilities, long-term, net	19,650		22,434
Asset retirement obligation	25,006		16,155
Other non-current liabilities	42		249
Total liabilities	135,837		132,859
Commitments and contingencies (Note 15)
Stockholders’ equity
Common stock, $0.001 par value, 350,000,000 shares authorized; 44,607,002 issued and 42,647,334 outstanding at September 30, 2022; 43,789,814 issued and 42,012,813 outstanding at December 31, 2021	42		42
Treasury stock, at cost, 1,959,668 and 1,777,001 shares at September 30, 2022 and December 31, 2021, respectively	(4,986)		(4,535)
Additional paid-in capital	176,992		174,486
Retained earnings	67,263		70,593
Accumulated other comprehensive income	250		574
Total stockholders’ equity	239,561		241,160
Total liabilities and stockholders’ equity	$	375,398	$	374,019

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

3

SMART SAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED) 

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands, except per share amounts)
Revenues:
Sand sales revenue	$	66,663	$	31,343	$	172,063	$	83,291
Shortfall revenue	2,681		2,680		4,596		4,421
Logistics revenue	2,248		456		5,252		3,856
Total revenue	71,592		34,479		181,911		91,568
Cost of goods sold	60,163		36,526		163,492		100,952
Gross profit	11,429		(2,047)		18,419		(9,384)
Operating expenses:
Salaries, benefits and payroll taxes	3,554		2,490		10,171		7,150
Depreciation and amortization	556		352		1,646		1,490
Selling, general and administrative	3,542		3,867		11,385		10,876
Bad debt expense	—		—		1		19,592
Total operating expenses	7,652		6,709		23,203		39,108
Operating income (loss)	3,777		(8,756)		(4,784)		(48,492)
Other income (expenses):
Interest expense, net	(411)		(467)		(1,244)		(1,527)
Other income	148		1,792		416		5,457
Total other income (expenses), net	(263)		1,325		(828)		3,930
Income (loss) before income tax expense (benefit)	3,514		(7,431)		(5,612)		(44,562)
Income tax expense (benefit)	831		(169)		(2,282)		(6,121)
Net income (loss)	$	2,683	$	(7,262)	$	(3,330)	$	(38,441)
Net income (loss) per common share:
Basic	$	0.06	$	(0.17)	$	(0.08)	$	(0.92)
Diluted	$	0.06	$	(0.17)	$	(0.08)	$	(0.92)
Weighted-average number of common shares:
Basic	42,522		41,850		42,265		41,743
Diluted	42,524		41,850		42,265		41,743

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

4

SMART SAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands)
Net income (loss)	$	2,683	$	(7,262)	$	(3,330)	$	(38,441)
Other comprehensive income (loss):
Foreign currency translation adjustment	(266)		(239)		(324)		(70)
Comprehensive income (loss)	$	2,417	$	(7,501)	$	(3,654)	$	(38,511)

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) 

Nine Months Ended September 30, 2022

	Common Stock			Treasury Stock			Additional Paid-in Capital				Accumulated Other Comprehensive (Loss) Income		Total Stockholders’ Equity
	Outstanding Shares	Par Value		Shares	Amount				Retained Earnings
	(in thousands, except share amounts)
Balance at December 31, 2021	42,012,813	$	42	1,777,001	$	(4,535)	$	174,486	$	70,593	$	574	$	241,160
Foreign currency translation adjustment	—	—		—	—		—		—		16		16
Vesting of restricted stock	179,630	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		826		—		—		826
Employee stock purchase plan compensation	—	—		—	—		5		—		—		5
Employee stock purchase plan issuance	16,285	—		—	—		25		—		—		25
Purchase of treasury stock	(56,400)	—		56,400	(127)		—		—		—		(127)
Net loss	—	—		—	—		—		(5,923)		—		(5,923)
Balance at March 31, 2022	42,152,328	$	42	1,833,401	$	(4,662)	$	175,342	$	64,670	$	590	$	235,982
Foreign currency translation adjustment	—	—		—	—		—		—		(74)		(74)
Vesting of restricted stock	130,003	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		802		—		—		802
Employee stock purchase plan compensation	—	—		—	—		6		—		—		6
Purchase of treasury stock	(39,479)	—		39,479	(114)		—		—		—		(114)
Net loss	—	—		—	—		—		(90)		—		(90)
Balance at June 30, 2022	42,242,852	$	42	1,872,880	$	(4,776)	$	176,150	$	64,580	$	516	$	236,512
Foreign currency translation adjustment	—	—		—	—		—		—		(266)		(266)
Vesting of restricted stock	473,032	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		808		—		—		808
Employee stock purchase plan compensation	—	—		—	—		7		—		—		7
Employee stock purchase plan issuance	18,238	—		—	—		27		—		—		27
Purchase of treasury stock	(86,788)	—		86,788	(210)		—		—		—		(210)
Net income	—	—		—	—		—		2,683		—		2,683
Balance at September 30, 2022	42,647,334	$	42	1,959,668	$	(4,986)	$	176,992	$	67,263	$	250	$	239,561

6

SMART SAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)

(UNAUDITED) 

Nine Months Ended September 30, 2021

	Common Stock			Treasury Stock			Additional Paid-in Capital				Accumulated Other Comprehensive (Loss) Income		Total Stockholders’ Equity
	Outstanding Shares	Par Value		Shares	Amount				Retained Earnings
	(in thousands, except share amounts)
Balance at December 31, 2020	41,575,129	$	42	1,618,265	$	(4,134)	$	171,209	$	121,267	$	423	$	288,807
Foreign currency translation adjustment	—	—		—	—		—		—		125		125
Acquisition stock issuance	14,430	—		—	—		20		—		—		20
Vesting of restricted stock	158,364	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		678		—		—		678
Employee stock purchase plan compensation	—	—		—	—		7		—		—		7
Employee stock purchase plan issuance	19,483	—		—	—		17		—		—		17
Purchase of treasury stock	(48,077)	—		48,077	(140)		—		—		—		(140)
Net loss	—	—		—	—		—		(3,912)		—		(3,912)
Balance at March 31, 2021	41,719,329	$	42	1,666,342	$	(4,274)	$	171,931	$	117,355	$	548	285,602
Foreign currency translation adjustment	—	—		—	—		—		—		44		44
Vesting of restricted stock	162,253	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		574		—		—		574
Employee stock purchase plan compensation	—	—		—	—		7		—		—		7
Purchase of treasury stock	(48,793)	—		48,793	(148)		—		—		—		(148)
Net loss	—	—		—	—		—		(27,267)		—		(27,267)
Balance at June 30, 2021	41,832,789	$	42	1,715,135	$	(4,422)	$	172,512	$	90,088	$	592	$	258,812
Foreign currency translation adjustment	—	—		—	—		—		—		(239)		(239)
Vesting of restricted stock	4,875	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		879		—		—		879
Employee stock purchase plan compensation	—	—		—	—		10		—		—		10
Employee stock purchase plan issuance	14,944	—		—	—		25		—		—		25
Restricted stock buy back	(1,670)	—		1,670	(5)		—		—		—		(5)
Net loss	—	—		—	—		—		(7,262)		—		(7,262)
Balance at September 30, 2021	41,850,938	$	42	1,716,805	$	(4,427)	$	173,426	$	82,826	$	353	$	252,220

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)

	Nine Months Ended September 30,
	2022		2021
	(in thousands)
Operating activities:
Net loss	$	(3,330)	$	(38,441)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, depletion and accretion of asset retirement obligation	19,904		18,937
Amortization of intangible assets	596		596
(Gain) loss on disposal of assets	(482)		223
Provision for bad debt	1		19,592
Amortization of deferred financing cost	79		79
Accretion of debt discount	140		140
Deferred income taxes	(2,784)		(7,543)
Stock-based compensation, net	2,436		2,131
Employee stock purchase plan compensation	18		24
Changes in assets and liabilities:
Accounts receivable	(14,238)		34,791
Unbilled receivables	(593)		(1,113)
Inventory	(5,594)		3,755
Prepaid expenses and other assets	3,072		(1,886)
Deferred revenue	(6,365)		6,092
Accounts payable	2,784		1,564
Accrued and other expenses	4,187		(1,397)
Net cash (used in) provided by operating activities	(169)		37,544
Investing activities:
Acquisition of Blair facility	(6,547)		—
Purchases of property, plant and equipment	(9,535)		(6,976)
Proceeds from disposal of assets	995		78
Net cash used in investing activities	(15,087)		(6,898)
Financing activities:
Repayments of notes payable	(5,474)		(5,168)
Payments under finance leases	(88)		(92)
Proceeds from revolving credit facility	6,000		—
Payment of contingent consideration	—		(180)
Employee stock purchase plan issuance	52		42
Purchase of treasury stock	(451)		(294)
Net cash provided by (used in) financing activities	39		(5,692)
Net decrease in cash and cash equivalents	(15,217)		24,954
Cash and cash equivalents at beginning of year	25,588		11,725
Cash and cash equivalents at end of period	$	10,371	$	36,679
Supplemental disclosure of cash flow information
Purchases of property, plant and equipment in accounts payable and accrued expenses	$	685	$	267
Issuance of acquisition common stock	$	—	$	—
Additions to asset retirement obligations	$	8,281	$	737

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 primarily operates as a fully integrated frac and industrial sand supply and services company. The Company offers complete mine to wellsite proppant supply and logistics solutions to our frac sand customers. These operations include the excavation, processing and sale of sand, or proppant, for use in hydraulic fracturing operations for the oil and natural gas industry. The Company also offers proppant logistics and wellsite storage solutions through its SmartSystemsTM products and services. In late 2021, the Company created its Industrial Products Solutions (“IPS”) business in order to diversify its customer base and markets it serves by offering sand to customers for industrial uses, such as glass, foundry, building products, filtration, geothermal, renewables, ceramics, turf & landscape, retail, and recreation.

The Company commenced mining operations at its Oakdale, Wisconsin facility in July 2012. Through multiple expansions at Oakdale and the acquisition of the Utica, Illinois facility in September 2020, the Company has current annual processing capacity of approximately 7.1 million tons. With the acquisition of the Blair, Wisconsin mine and processing facility in March 2022, which is currently idled, we have the ability to expand to approximately 10.0 million tons should the Company decide to bring the Blair facility online.

The Company also has several in-basin rail terminals. The Company acquired rights in 2018 to operate a unit train capable transloading terminal in Van Hook, North Dakota to service the Bakken Formation in the Williston Basin. In 2020, the Company, as part of its acquisition of the Utica, Illinois facility, obtained rights to use a rail terminal located in El Reno, Oklahoma. In September 2021, the Company acquired the rights to construct and operate another transloading terminal in Waynesburg, Pennsylvania to service the Appalachian Basin, including the Marcellus and Utica Formations, which became operational in January 2022.

The Company provides complete logistics solutions through its mine sites and transload facilities with direct access to four Class I rail lines, and has the ability to access all Class I rail lines within the United States and Canada.

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 self-contained SmartPathTM 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. Rapid deployment trailers are designed for quick setup, takedown and transportation of the entire SmartSystem, and they detach from the wellsite equipment, which allows for removal from the wellsite during operation. A proprietary software program, the SmartSystem TrackerTM allows customers to monitor silo-specific information, including location, proppant type and proppant inventory. We believe that our SmartSystems reduce trucking and related fuel consumption for our customers, helping them meet their goals to reduce their carbon footprint in their daily operations.

NOTE 2 — Summary of Significant Accounting Policies

The information presented below supplements the complete description of our significant accounting policies disclosed in our 2021 Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 8, 2022.

Basis of Presentation and Consolidation

The accompanying unaudited quarterly condensed consolidated financial statements (“interim statements”) of the Company are presented in accordance with the rules and regulations of the SEC for quarterly reports on Form 10-Q and therefore do not include all the information and notes required by GAAP. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. All adjustments are of a normal recurring nature. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. The consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated

9

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

financial statements as of and for the year ended December 31, 2021. These interim statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2021.

Use of Estimates

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

Actual results could differ materially from management’s best estimates as additional information or actual results become available in the future, and those differences could be material. The decreases in demand related to the coronavirus (“COVID-19”) pandemic in 2020 and 2021 and the ongoing conflict in Ukraine have caused dramatic swings in oil and natural gas prices and significant volatility in the oilfield service sector. Additionally, future economic performance is uncertain due to current high inflation and other economic concerns. 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.

Employee Retention Credit

The Company qualified for federal government assistance through employee retention credit provisions of the Consolidated Appropriations Act of 2021. As of September 30, 2022 and December 31, 2021, the Company included $2,710 and, $4,676 respectively, in prepaid expenses and other current assets on its consolidated balance sheets related to receivables for the employee retention credits. The calculation of the credit was based on employees continued employment and represents a portion of the wages paid to them. For income tax purposes, the credit will result in decreased expense related to the wages it offsets in the period received.

Recent Accounting Pronouncements

There are no recent accounting pronouncements that materially affect the financial statements of the Company.

NOTE 3 — Acquisition

Asset Acquisition Blair Facility

On March 4, 2022, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Hi-Crush Inc., a Delaware corporation (“HCR”), and Hi-Crush Blair LLC, a Delaware limited liability company and wholly-owned subsidiary of HCR (“Blair”), pursuant to which the Company acquired all of the issued and outstanding limited liability company interest of Blair from HCR for aggregate cash consideration of $6,450, subject to customary purchase price adjustments as set forth in the Purchase Agreement (the “Transaction”).

The primary assets of Blair consist of an idle frac sand mine and related processing facility located in Blair, Wisconsin. The Blair facility, once operational, will have approximately 2.9 million tons of total annual processing capacity and contains an onsite, unit train capable rail terminal with access to the Class 1 Canadian National Railway.

The Company accounted for this transaction as an asset acquisition based on an evaluation of the guidance in ASC 805. The Company determined that there was not a substantive process in place that generates outputs that can be sold to a customer, and therefore the acquisition did not meet the definition of a business. The Company recognized identifiable assets acquired on a relative fair value basis. All assets acquired are allocated to property, plant and equipment, net on the balance sheet as of

10

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

March 31, 2022. The Company also recorded an increase to its asset retirement obligations and a corresponding increase in purchases of property plant and equipment in the amount of $8,281 for the nine months ended September 30, 2022.

The table below presents the calculation of the total purchase consideration:

Base price consideration	$	6,450
Net working capital adjustments and capitalized costs	97
Total purchase consideration	$	6,547

NOTE 4 — Inventory

Inventory consisted of the following:

	September 30, 2022		December 31, 2021
Raw material	$	728	$	293
Work in progress	5,871		3,082
Finished goods	8,815		7,269
Spare parts	5,204		4,380
Total inventory	$	20,618	$	15,024

NOTE 5 — Property, Plant and Equipment, net

Net property, plant and equipment consisted of:

	September 30, 2022		December 31, 2021
Machinery, equipment and tooling	$	34,411	$	30,813
SmartSystems	27,654		27,343
Vehicles	3,234		3,066
Furniture and fixtures	1,345		1,325
Plant and building	200,373		199,958
Real estate properties	6,523		6,496
Railroad and sidings	33,622		27,703
Land and land improvements	40,455		35,652
Asset retirement obligation	28,818		20,536
Mineral properties	7,442		7,442
Deferred mining costs	2,455		2,455
Construction in progress	9,708		9,574
	396,040		372,363
Less: accumulated depreciation and depletion	128,830		109,898
Total property, plant and equipment, net	$	267,210	$	262,465

Depreciation expense was $6,498 and $6,111 for the three months ended September 30, 2022 and 2021, respectively, and $19,309 and $18,325 for the nine months ended September 30, 2022 and 2021, respectively.

11

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:

	September 30, 2022		December 31, 2021
Employee related expenses	$	2,493	$	806
Accrued equipment expense	5		58
Accrued professional fees	522		691
Accrued royalties	2,726		2,701
Accrued freight and delivery charges	4,393		2,164
Accrued real estate tax	1,745		1,010
Accrued utilities	1,709		1,264
Sales tax liability	1,118		665
Income tax payable	—		2,332
Other accrued liabilities	1,556		2,382
Total accrued liabilities	$	16,267	$	14,073

NOTE 7 — Debt

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

	September 30, 2022		December 31, 2021
Oakdale Equipment Financing	3,983		3,814
Finance leases	230		117
Notes payable	2,282		3,196
Current portion of long-term debt	$	6,495	$	7,127

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

	September 30, 2022		December 31, 2021
ABL Credit Facility	$	6,000	$	—
Oakdale Equipment Financing, net	8,738		11,608
Finance leases	33		234
Notes payable	1,518		3,511
Long-term debt	$	16,289	$	15,353

12

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 Facility		Oakdale Equipment Financing		Notes Payable		Finance Leases		Total
Remainder of 2022	$	—	$	1,160	$	666	$	33	$	1,859
2023	—		4,637		2,009		245		6,891
2024	6,000		6,888		807		—		13,695
2025	—		1,724		187		—		1,911
2026	—		—		181		—		181
2027 and thereafter	—		—		174		—		174
Total minimum payments	6,000		14,409		4,024		278		24,711
Amount representing interest	—		(1,281)		(224)		(15)		(1,520)
Amount representing unamortized lender fees	—		(407)		—		—		(407)
Present value of payments							263
Less: current portion	—		(3,983)		(2,282)		(230)		(6,495)
Total long-term debt	$	6,000	$	8,738	$	1,518	$	33	$	16,289

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 September 30, 2022 was $20,000 and is based on the Company’s eligible accounts receivable and inventory, as described in the ABL Credit Agreement. As of September 30, 2022, there was $6,000 outstanding under the ABL Credit Facility, $1,000 letters of credit and $13,000 was available to be drawn. As of September 30, 2022 and December 31, 2021, 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. Substantially all of the Company’s mining and processing equipment at its Oakdale facility are pledged as collateral under the Oakdale Equipment Financing. The Oakdale Equipment Financing bears interest at a fixed rate of 5.79%.

Notes Payable

The Company has entered into various financing arrangements, primarily to finance 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. All notes payable bear interest at rates between 4.00% and 7.49%.

NOTE 8 — Leases

Lessee

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

13

SMART SAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

	Balance Sheet Location	September 30, 2022		December 31, 2021
Right-of-use assets
Operating	Operating right-of-use assets	$	28,418	$	29,828
Financing	Property, plant and equipment, net	161		262
Total right-of use assets		$	28,579	$	30,090
Lease liabilities
Operating	Operating lease liabilities, current and long-term portions	$	30,549	$	32,719
Financing	Long-term debt, current and long-term portions	263		351
Total lease liabilities		$	30,812	$	33,070

Operating lease costs are recorded as a single expense on the statement of operations and allocated to the right-of-use assets and the related lease liabilities as depreciation expense and interest expense, respectively. Lease cost recognized in the consolidated statement of operations for the three and nine months ended September 30, 2022 and 2021 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Finance lease cost
Amortization of right-of-use assets	$	30	$	35	$	96	$	105
Interest on lease liabilities	5		7		16		22
Operating lease cost	3,174		2,610		9,054		8,375
Short-term lease cost	101		86		547		120
Total lease cost	$	3,310	$	2,738	$	9,713	$	8,622

14

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 nine months ended September 30, 2022 and 2021 is as follows:

	Nine Months Ended September 30,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for finance leases	$	16	$	22
Operating cash flows used for operating leases	$	9,810	$	7,680
Financing cash flows used for finance leases	$	88	$	92