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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Hi-Crush Inc.    HCRSQ

HI-CRUSH INC.

(HCRSQ)
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HI CRUSH : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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08/06/2020 | 04:22pm EDT
You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited condensed consolidated
financial statements and the related notes in Item 1. "Financial Statements"
contained herein and our audited consolidated financial statements as of
December 31, 2019, included in our Annual Report on Form 10-K for the year ended
December 31, 2019 (our "Annual Report"), as filed with the Securities and
Exchange Commission (the "SEC") on February 20, 2020. The information provided
below supplements, but does not form part of, our unaudited condensed
consolidated financial statements. This discussion contains forward-looking
statements that are based on the views and beliefs of our management, as well as
assumptions and estimates made by our management. Actual results could differ
materially from such forward-looking statements as a result of various risk
factors, including those that may not be in the control of management. Factors
that could cause or contribute to these differences include those discussed
under "Forward-Looking Statements" in this Quarterly Report on Form 10-Q and in
our Annual Report.
All amounts are presented in thousands except acreage, tonnage and per share and
per ton data, or where otherwise noted.
Overview
Hi-Crush Inc. (together with its subsidiaries, the "Company," "we," "us" or
"our") are a fully-integrated provider of proppant and logistics services for
hydraulic fracturing operations, offering frac sand production, advanced
wellsite storage systems, flexible last mile services, and innovative software
for real-time visibility and management across the entire supply chain. Our
strategic suite of solutions provides operators and service companies in all
major U.S. oil and gas basins with the ability to build safety, reliability and
efficiency into every completion.
On May 31, 2019, the Company completed its conversion (the "Conversion") from a
Delaware limited partnership named Hi-Crush Partners LP to a Delaware
corporation named Hi-Crush Inc. As a result of and at the effective date of the
Conversion, each common unit representing limited partnership interests in
Hi-Crush Partners LP ("common units") issued and outstanding immediately prior
to the Conversion was automatically converted into one share of common stock,
par value $0.01 per share, of Hi-Crush Inc. ("common stock"). As a result of the
Conversion, the Company converted from an entity treated as a partnership for
U.S. federal income tax purposes to an entity treated as a corporation for U.S.
federal income tax purposes. As of the open of business on June 3, 2019, the
common stock commenced trading on the New York Stock Exchange ("NYSE") under the
ticker symbol "HCR."
The Company was formed in 2012 with the contribution of the Wyeville facility
from our former sponsor, Hi-Crush Proppants LLC (the "sponsor"). In separate
transactions between 2013 and 2017, we acquired all of the equity interests in
the Augusta, Blair and Whitehall facilities previously owned by the sponsor. In
March 2017, we acquired a 1,226-acre frac sand reserve, located near Kermit,
Texas, upon which we developed our Kermit facilities.
In June 2013, we acquired D&I Silica, LLC, which transformed us into an
integrated Northern White frac sand producer, transporter, marketer and
distributor. To continue growth in logistics services, in August 2018, the
Company completed the acquisition of FB Industries Inc. ("FB Industries"), a
company engaged in the engineering, design and marketing of silo-based frac sand
management systems, and, in January 2019, the Company acquired BulkTracer
Holdings LLC, the owner of a logistics software system, PropDispatch.
Additionally, in May 2019, we completed the acquisition of Proppant Logistics
LLC ("Proppant Logistics"), which owns Pronghorn Logistics, LLC ("Pronghorn"), a
provider of end-to-end proppant logistics services.
In October 2018, the Company entered into a contribution agreement with the
sponsor pursuant to which the Company acquired all of the then outstanding
membership interests in the sponsor and the non-economic general partner
interest of Hi-Crush GP LLC in the Company.
Recent Developments
In March 2020, the United States declared the novel coronavirus 2019
("COVID-19") pandemic a national emergency. Due to COVID-19 pandemic related
pressures on the global supply-demand balance for crude oil and related
products, commodity prices significantly declined in the first quarter of 2020,
and oil and gas operators, including our customers, have reduced development
budgets and activity. In the midst of the ongoing COVID-19 pandemic, the
Organization of Petroleum Exporting Countries and other oil producing nations
("OPEC+") struggled to reach an agreement on oil production quotas. The
combination of these events created the unprecedented dual impact of a global
oil demand decline coupled with the risk of a substantial increase in supply.
Although some market stabilization occurred in the second quarter of 2020,
activity levels for the remainder of 2020 are expected to remain low and the
long-term outlook is uncertain. See "Part I, Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Market Conditions."
The impacts of the decline in commodity prices and the COVID-19 pandemic have
adversely affected our business, operations, financial condition and liquidity
and, if sustained, could continue to adversely affect our business, operations,
financial position and liquidity.

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In response to the continued effects on our business and operations caused by
the COVID-19 pandemic and decrease in the price of crude oil during the first
half of 2020, we have taken a number of steps to reduce our costs of operations.
We have lowered our capital expenditures spending for 2020, reduced the size of
our workforce and idled facilities, as appropriate.
Voluntary Reorganization Under Chapter 11
On July 12, 2020, the Company entered into a Restructuring Support Agreement
(the "RSA") with certain holders (the "Noteholders") of the Company's
outstanding 9.50% senior unsecured notes due 2026 (the "Senior Notes"). To
implement the terms of the RSA, the Company filed voluntary petitions for a
prearranged bankruptcy filing under Chapter 11 (the "Chapter 11 Cases") of Title
11 of the United States Code (the "U.S. Bankruptcy Code") in the United States
Bankruptcy Court for the Southern District of Texas, Houston Division (the
"Bankruptcy Court"). Refer to Note 18 - Subsequent Events of the Notes to
Unaudited Condensed Consolidated Financial Statements included under Part I,
Item 1. "Financial Statements" of this Quarterly Report on Form 10-Q for
additional discussion.
COVID-19 Response Plan
The Company has implemented a COVID-19 Response Plan (the "Response Plan") to
help ensure the health and safety of our workforce and our communities and the
continuity of our business operations. As a supplier of essential materials and
services for United States oil and gas production, our business is included in
those deemed as essential businesses within the Guidance provided by the
Department of Homeland Security'sCybersecurity and Infrastructure Agency and
the stay at home orders issued by states and local governments where we operate.
We have taken proactive steps outlined in the Response Plan, including the
following:
• formation of a COVID-19 Response Team;


• performed a companywide risk assessment;

• restricted unnecessary travel;

• initiated a flexible work schedule including work from home where feasible;

• conducted employee education and communications;

• launched a COVID-19 prevention campaign;

• contracted a third party medical service to assist with managing incidents of

employees who test positive for COVID-19, employees who have possibly been

exposed to COVID-19 or employees who have symptoms consistent with COVID-19;

• educated employees and vendors on hygiene guidelines and requirements; and

• updated our illness reporting procedures.



The Company will continue to work with our customers and suppliers to ensure the
protection of our collective workforces when and where they interact. In
addition, we will continually update the Response Plan to conform to updated
guidance from the Center for Disease Control, Occupational Safety and Health
Administration, and the World Health Organization.
Our Assets and Operations
Production Facilities
We own six production facilities located in Wisconsin and Texas. Our four
Wisconsin production facilities are equipped with on-site transportation
infrastructure capable of accommodating unit trains connected to the Union
Pacific Railroad mainline or the Canadian National Railway mainline. Our two
Texas production facilities have on-site silo storage capacity and
infrastructure capable of direct loading into trucks.
The following table provides a summary of our production facilities as of
June 30, 2020 and our proven reserves as of December 31, 2019:
                                                                                          Proven Reserves
 Mine/Plant                           In-Service                       

Annual Capacity (in thousands

    Name        Mine/Plant Location      Date       Area (in acres)       (in tons)          of tons)
  Wyeville
  facility         Wyeville, WI        June 2011          973               2,700,000            70,025
   Augusta
facility (a)        Augusta, WI        June 2012         1,187              2,860,000            42,135
  Whitehall                            September
facility (b)       Whitehall, WI         2014            1,626              2,860,000            84,628
    Blair
facility (c)         Blair, WI        March 2016         1,285              2,860,000           109,853
   Kermit                             July 2017 /
 facilities                            December
     (c)            Kermit, TX           2018            1,226              6,000,000           104,947



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(a) The Augusta facility was idled in January 2019.

(b) In August 2019, the Company reduced the hours of operations at the Whitehall

facility and in April 2020 it was idled.

(c) The Blair facility and one of the Kermit facilities were idled in April 2020.



According to John T. Boyd Company ("John T. Boyd"), our proven reserves at our
facilities consist of frac sand exceeding American Petroleum Institute ("API")
specifications. Analysis of sand at our facilities by independent third-party
testing companies indicates that they demonstrate characteristics exceeding API
specifications with regard to crush strength, turbidity and roundness and
sphericity. Based on third-party reserve reports by John T. Boyd, as of
December 31, 2019, we have an implied average reserve life of 24 years, assuming
production at the current rated capacity of 17,280,000 tons of frac sand per
year.
Terminal Facilities
As of June 30, 2020, we own or operate 11 terminal locations throughout
Pennsylvania, Ohio, Texas, Colorado and New York, of which nine are idled and
seven are capable of accommodating unit trains. Our terminals include
approximately 135,000 tons of rail storage capacity and approximately 140,000
tons of silo storage capacity.
Our terminals are strategically located to provide access to Class I railroads,
which enables us to cost effectively ship product from our production facilities
in Wisconsin. As of June 30, 2020, we leased or owned 4,427 railcars used to
transport sand from origin to destination and managed a fleet of 285 additional
railcars dedicated to our facilities by our customers or the Class I railroads.
Logistics and Wellsite Operations
Our logistics and wellsite operations, named Pronghorn Energy Services, utilize
silo systems and/or containers, and maintain strict proppant quality control
from the mine to the blender. We handle the full spectrum of logistics
management with our fully-integrated solution, from railcar fleet management,
truck dispatching and dedicated wellsite operations, which structurally reduces
costs for customers by eliminating inefficiencies throughout the proppant
delivery process.
As of June 30, 2020, we owned or leased 46 PropBeast conveyors, leased 2,966
containers from Proppant Express Investments, LLC ("PropX"), owned 15 Atlas
topfill conveyors and owned 34 silo systems, which consists of a 6-pack of
silos, a conveyor for transporting sand from the silos to the blender hopper and
trailers used to transport the silos.
During the first quarter of 2020, we announced our new OnCore Processing mobile
frac sand production units ("OnCore units"), which represent the first
completely mobile frac sand processing and production units in our industry.
This mobile unit concept was designed and engineered by the Company, based on
patented equipment that is manufactured by third parties with whom we have
exclusivity agreements.  The specialized, chassis-mounted equipment allows for
mobile-based washing, drying and sorting of frac sand from significantly smaller
sand reserves than are typically economically viable for a fixed position
production plant. Mining and processing of reserves in closer proximity to our
customers' well completion activities, results in lower logistics costs and thus
lower total delivered costs for frac sand.  The manufacturing of our first
OnCore unit has been completed, was recently production tested at our Kermit
reserves and is ready for customer deployment.
How We Generate Revenue
We generate revenue by excavating, processing and delivering frac sand and
providing related services. A substantial portion of our frac sand is sold to
customers with whom we have long-term contracts. As of July 1, 2020, the average
remaining contract term of our long-term contracts was 1.7 years with remaining
terms ranging from 6 to 54 months. Each contract defines the minimum volume of
frac sand that the customer is required to purchase, the volume that we are
required to make available, the technical specifications of the product and the
price per ton. Our contracts for sand are periodically negotiated to generally
be reflective of market conditions and prices within certain parameters. We also
sell our frac sand on the spot market at prices and other terms determined by
the existing market conditions as well as the specific requirements of the
customer. Delivery of sand to our customers may occur at the production
facility, rail origin, terminal or wellsite.
We generate other revenues through the performance of our logistics and wellsite
operations and services, which includes transportation, equipment rental and
labor services, and through activities performed at our in-basin terminals,
including transloading sand for counterparties, lease of storage space and other
services performed on behalf of our customers.
A substantial portion of our logistics services are provided to customers with
whom we have long-term agreements as defined in master services agreements
("MSA") and related work orders.  The MSA typically outlines the general terms
and conditions for work performed by us relating to invoicing, insurance,
indemnity, taxes and similar terms.  The work orders typically define the
commercial terms including the type of equipment and services to be provided,
with pricing that is generally determined on a job-by-job basis due to the
variability in the specific requirements of each wellsite.
We generate other revenues from the sale of silo systems and related equipment
to third parties at negotiated prices for the specific equipment.

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Costs of Conducting Our Business
Production Costs
The principal expenses involved in production of raw frac sand are excavation
costs, plant operating costs, labor, utilities, maintenance and royalties. We
have a contract with a third party to excavate raw frac sand, deliver the raw
frac sand to our wet processing facilities and move the sand from our washed
sand stockpiles to our dry plants. We pay a fixed price per ton excavated and
delivered without regard to the amount of sand excavated that meets API
specifications. Accordingly, we incur excavation costs with respect to the
excavation of sand and other materials from which we ultimately do not derive
revenue (rejected materials), and for sand which is still to be processed
through the dry plant and not yet sold. However, the ratio of rejected materials
to total amounts excavated has been, and we believe will continue to be, in line
with our expectations, given the extensive core sampling and other testing we
undertook at our facilities.
Labor costs associated with employees at our processing facilities represent the
most significant cost of converting raw frac sand to finished product. We incur
utility costs in connection with the operation of our processing facilities,
primarily electricity and natural gas, which are both susceptible to price
fluctuations. Our facilities require periodic scheduled maintenance to ensure
efficient operation and to minimize downtime. Excavation, labor, utilities and
other costs of production are capitalized as a component of inventory and are
reflected in cost of goods sold when inventory is sold.
We pay royalties to third parties at our Wisconsin facilities at various rates,
as defined in the individual royalty agreements. We currently pay an aggregate
rate up to $5.15 per ton of sand excavated, processed and sold from our
Wisconsin facilities, delivered to and paid for by our customers. No royalties
are due on the sand extracted, processed and sold from our Kermit facilities.
We may, from time to time, purchase sand and other proppant through a long-term
supply agreement with a third party at a specified price per ton and also
through the spot market.
Logistics Costs
The principal expenses involved in distribution of processed sand are rail
freight and fuel surcharges, railcar lease expense, and trucking charges. These
logistics costs are capitalized as a component of finished goods inventory until
the sand is sold, at which point they are reflected in cost of goods sold. Other
logistics cost components, including transload fees, storage fees and terminal
operational costs, such as labor and facility rent, are charged to costs of
goods sold in the period in which they are incurred. We utilize multiple
railroads to transport our sand and such transportation costs are typically
negotiated through long-term working relationships.
The principal expenses involved in delivering sand to the wellsite are costs
associated with third party trucking vendors, container rent, labor and other
operating expenses associated with handling the product at the wellsite. These
logistics costs are charged to costs of goods sold in the period in which they
are incurred.
Other Costs of Sales
The principal expenses associated with the sale of silo systems and related
equipment is the cost of the equipment generally manufactured by third parties,
as well as testing and delivery charges to the location specified by the
customer. These expenses are capitalized into equipment inventory and charged to
cost of goods sold when delivery is completed to the customer.
General and Administrative Costs
We incur general and administrative costs related to our corporate operations,
which includes our corporate office and facilities rent, administrative
personnel payroll related expenses, professional fees, insurance, stock-based
compensation and depreciation and amortization expenses.
How We Evaluate Our Operations
We utilize various financial and operational measures to evaluate our
operations. Management measures the performance of the Company through
performance indicators, including gross profit, sales volumes, sales price per
ton, earnings before interest, taxes, depreciation and amortization ("EBITDA"),
Adjusted EBITDA and free cash flow.
Gross Profit
We use gross profit, which we define as revenues less costs of goods sold and
depreciation, depletion and amortization, to measure our financial performance.
We believe gross profit is a meaningful measure because it provides a measure of
profitability and operating performance based on the historical cost basis of
our assets and it is a key metric used by management to evaluate our results of
operations.

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EBITDA and Adjusted EBITDA
We view EBITDA and Adjusted EBITDA as important indicators of performance. We
define EBITDA as net income, plus; (i) depreciation, depletion and amortization;
(ii) interest expense, net of interest income; and (iii) income tax expense
(benefit). We define Adjusted EBITDA as EBITDA, plus; (i) non-cash impairments
of goodwill and other assets; (ii) change in estimated fair value of contingent
consideration; (iii) earnings (loss) from equity method investments; (iv) gain
on remeasurement of equity method investments; (v) loss on extinguishment of
debt; and (vi) non-recurring business development costs and other items. EBITDA
and Adjusted EBITDA are supplemental measures utilized by our management and
other users of our financial statements, such as investors, commercial banks and
research analysts, to assess the financial performance of our assets without
regard to financing methods, capital structure or historical cost basis.
Free Cash Flow
We define free cash flow as net cash provided by operating activities less
maintenance and growth capital expenditures. Free cash flow is a supplemental
measure utilized by our management and other users of our financial statements,
such as investors, commercial banks and research analysts, to assess our ability
to generate cash from operations for mandatory obligations, including debt
repayment, and discretionary investment opportunities.
Note Regarding Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA and free cash flow are not financial measures presented
in accordance with generally accepted accounting principles in the United States
("GAAP"). We believe that the presentation of these non-GAAP financial measures
will provide useful information to investors in assessing our financial
condition and results of operations. Our non-GAAP financial measures should not
be considered as alternatives to the most directly comparable GAAP financial
measure. Each of these non-GAAP financial measures has important limitations as
analytical tools because they exclude some but not all items that affect the
most directly comparable GAAP financial measures. You should not consider
EBITDA, Adjusted EBITDA or free cash flow in isolation or as substitutes for
analysis of our results as reported under GAAP. Because EBITDA, Adjusted EBITDA
and free cash flow may be defined differently by other companies in our
industry, our definitions of these non-GAAP financial measures may not be
comparable to similarly titled measures of other companies, thereby diminishing
their utility.
The following table presents a reconciliation of EBITDA and Adjusted EBITDA to
the most directly comparable GAAP financial measure, as applicable, for each of
the periods indicated:
                                           Three Months Ended             Six Months Ended
                                                June 30,                      June 30,
(in thousands)                             2020           2019           2020           2019
Reconciliation of Adjusted EBITDA to
net loss:
Net loss                               $  (26,014 )$ (117,484 )$ (172,936 )$ (123,691 )
Depreciation, depletion and
amortization expense                        8,928         15,759         22,061         28,707
Interest expense                           11,735         11,806         23,496         22,396
Income tax expense (benefit)               (3,230 )      116,407        (19,367 )      116,407
EBITDA                                     (8,581 )       26,488       (146,746 )       43,819
Asset impairments                               -              -        145,718              -
Change in estimated fair value of
contingent consideration                        -           (672 )         (400 )         (672 )
Earnings from equity method
investments                                  (697 )       (1,284 )       (1,848 )       (2,400 )
Gain on remeasurement of equity method
investment                                      -         (3,612 )            -         (3,612 )
Non-recurring business development
costs and
other items (a)                            (2,302 )        3,781            756          5,140
Adjusted EBITDA                        $  (11,580 )$   24,701$   (2,520 )$   42,275

(a) Non-recurring business development costs and other items for the three and

six months ended June 30, 2020, are primarily associated with the advisor and

legal costs of the Chapter 11 Cases and separation costs associated with

workforce reductions, offset by a gain on a lease contract termination and a

gain on the settlement agreement with the sellers of FB Industries (the "FB

Settlement"). Non-recurring business development costs and other items for

the three and six months ended June 30, 2019, are primarily associated with

the Conversion, business development costs and separation costs associated

    with workforce reductions.



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The following table presents a reconciliation of free cash flow to the most
directly comparable GAAP financial measure, as applicable, for each of the
periods indicated:
                                            Three Months Ended             Six Months Ended
                                                 June 30,                      June 30,
(in thousands)                             2020            2019           2020           2019
Net cash provided by (used in)
operating activities                   $    10,450$   17,582$   (1,499 )$    8,975
Less: Maintenance capital expenditures         (78 )       (3,717 )         (574 )       (7,723 )
Less: Growth capital expenditures (a)      (11,653 )       (8,089 )      (19,570 )      (19,167 )
Free cash flow                         $    (1,281 )$    5,776$  (21,643 )$  (17,915 )

(a) We have excluded growth capital expenditures of $5,840 and $31,045 spent

during the three and six months ended June 30, 2019, respectively, related to

construction projects associated with completion of our second Kermit

facility and expansion at our Wyeville facility, both of which were

fully-funded in 2018. All other growth capital expenditures related to

investments in our logistics and wellsite operations are included in the

    above.


Basis of Presentation
The following discussion of our historical performance and financial condition
is derived from the historical financial statements.
Factors Impacting Comparability of Our Financial Results
Our historical results of operations and cash flows may not be comparable
between periods for the following reasons:
•     We have idled production and terminal facilities as a result of market

conditions. In August 2019, the Company reduced the hours of operations at

the Whitehall facility and in April 2020 it was idled. Additionally, the

Blair facility, one of the Kermit facilities and three terminals were also

idled in April 2020.

• We realized asset impairments during the six months ended June 30, 2020.

During the six months ended June 30, 2020, we completed impairment

assessments of long-lived assets, including property, plant and equipment,

right-of-use assets and intangible assets based on current market

conditions and the current and expected utilization of the assets. Asset

impairments for the six months ended June 30, 2020 totaled $145,718.



Market Conditions
Challenges facing demand for frac sand and related logistics services increased
during the latter part of the first quarter of 2020, throughout the second
quarter of 2020 and into the third quarter of 2020, despite initial positive
market signs and activity at the beginning of the year. Ongoing challenges are
due to significant reductions in planned well completion activity by exploration
and production companies ("E&Ps"), which were spurred by events impacting oil
supply and demand early in 2020. The effects of supply increases following the
collapse of OPEC+ negotiations to balance global oil markets were exacerbated by
the significant and ongoing reduction in demand for oil and oil products due to
the COVID-19 pandemic. The resulting fall in the price of oil led to immediate
responses by E&Ps at the end of the first quarter of 2020 and throughout the
second quarter of 2020, including significant capital budget reductions and
lower projected activity for the remainder of the year. Although some market
stabilization occurred in the second quarter of 2020, activity levels for the
remainder of 2020 are expected to remain low and the long-term outlook is
uncertain.
These factors have resulted in significant negative pressure on the demand for
logistics and wellsite management services, as the fall in overall completions
activity limits the need for delivery of frac sand to the wellsite, and the need
for large scale storage of frac sand onsite. This has resulted in a reduction of
active last mile crews and equipment deployments during the first half of 2020.
Despite the ongoing negative pressures, last mile delivery and wellsite storage
remain critical components of the overall frac sand supply chain, and we believe
they will continue to be utilized, at reduced levels, despite an overall
reduction in activity.
Industry experts currently estimate frac sand demand in 2020 will total
approximately 59 million tons, reflecting a decrease of more than 49 percent as
compared to 2019 levels. Uncertainty surrounding completions activity for the
remainder of 2020 has continued, primarily driven by the ongoing impacts of
global oversupply of crude oil and ongoing demand impacts associated with the
COVID-19 pandemic.

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Rationalization of frac sand production capacity increased throughout 2019, and,
thus far in 2020, has been accelerating across all basins, through reduced hours
of facility operations as well as idling or permanent shutdown of both in-basin
and Northern White frac sand production facilities. Despite this reduction of
supply, nameplate and available frac sand capacity remains in excess of
near-term demand, primarily due to the aforementioned developments in 2020. Over
the intermediate and long-term, we believe frac sand facilities producing
Northern White or in-basin sand at a higher relative cost will remain idled or
permanently shut down due to unprofitable production economics, with these
situations exacerbated and accelerated by challenging market conditions facing
the industry. At this time it is not possible to determine whether additional
facilities will be idled or shut down, whether hours of operation at additional
facilities will be reduced, or the exact timeframe in which such actions would
be taken. We do not believe that any significant new-build or expansion capacity
is currently being contemplated by the industry. The oversupply of frac sand has
resulted in a significant reduction in pricing for Northern White and in-basin
sand.
The following table presents sales, volume and pricing comparisons for the
second quarter of 2020, as compared to the first quarter of 2020:
                               Three Months Ended
                             June 30,      March 31,                      Percentage
                               2020           2020           Change         Change
Frac sand sales revenues   $    35,145$    85,718$    (50,573 )      (59 )%
Other revenues             $    18,860$    60,695$    (41,835 )      (69 )%
Tons sold                      978,575      2,524,232      (1,545,657 )      (61 )%
Average price per ton sold $        36$        34    $          2          6  %


Revenues generated from the sale of frac sand decreased by 59% from the first
quarter of 2020, with volumes down 61% sequentially, due to the unprecedented
collapse in crude oil prices and the immediate and dramatic slow-down in U.S.
completions activity. Other revenues are related to logistics and wellsite
operations and equipment sales which decreased 69% over the first quarter of
2020 as frac operations across the country were idled as a result of the
slow-down in completions activity precipitated by the collapse in crude oil
prices.
Results of Operations
The following table presents consolidated revenues and expenses for the periods
indicated:
                                           Three Months Ended             Six Months Ended
                                                June 30,                      June 30,
                                           2020           2019           2020           2019
Revenues                               $   54,005$  178,001$  200,418$  337,911
Costs of goods sold:
Production costs                           11,991         29,938         39,809         61,356
Logistics costs                            42,547        110,260        139,460        204,664
Other costs of sales                          285          1,074            569          5,774
Depreciation, depletion and
amortization                                7,525         14,062         19,265         25,334
Gross profit (loss)                        (8,343 )       22,667          1,315         40,783
Operating costs and expenses                9,863         16,834        171,970         31,683
Income (loss) from operations             (18,206 )        5,833       (170,655 )        9,100
Other income (expense):
Earnings from equity method
investments                                   697          1,284          1,848          2,400
Gain on remeasurement of equity method
investment                                      -          3,612              -          3,612
Interest expense                          (11,735 )      (11,806 )      (23,496 )      (22,396 )
Loss before income tax                    (29,244 )       (1,077 )     (192,303 )       (7,284 )
Income tax expense (benefit)               (3,230 )      116,407        (19,367 )      116,407
Net loss                               $  (26,014 )$ (117,484 )$ (172,936 )$ (123,691 )



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Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30,
2019
Revenues
The following table presents sales, volume and pricing comparisons for the three
months ended June 30, 2020, as compared to the three months ended June 30, 2019:
                              Three Months Ended
                                   June 30,                             Percentage
                              2020          2019           Change         Change
Frac sand sales revenues   $   35,145$  125,884$    (90,739 )      (72 )%
Other revenues             $   18,860$   52,117$    (33,257 )      (64 )%
Tons sold                     978,575     2,662,086      (1,683,511 )      (63 )%
Average price per ton sold $       36$       47$        (11 )      (23 )%


Revenues generated from the sale of frac sand were $35,145 and $125,884 for the
three months ended June 30, 2020 and 2019, respectively, during which we sold
978,575 and 2,662,086 tons of frac sand, respectively. The 63% volume decrease
is due to the unprecedented collapse in crude oil prices and the immediate and
dramatic slow-down in U.S. completions activity experienced throughout the
second quarter of 2020 resulting from the effects of the COVID-19 pandemic.
Average sales price per ton was $36 and $47 for the three months ended June 30,
2020 and 2019, respectively, the 23% decline is attributable to pricing pressure
on both Northern White and in-basin sand due to oversupply and the weakening
market conditions of 2020.
Other revenues related principally to our integrated logistics and wellsite
operations were $18,860 and $51,133 for the three months ended June 30, 2020 and
2019, respectively. The Company did not have any sales of silos and related
logistics equipment during the three months ended June 30, 2020. Other revenues
generated from the sales of silos and related logistics equipment were $984 for
the three months ended June 30, 2019. The decrease in total other revenues is
attributable to fewer frac operations across the country during the second
quarter of 2020, resulting from the slow-down in U.S. completions activity due
to the collapse in crude oil prices.
Costs of Goods Sold - Production Costs
We incurred production costs of $11,991 and $29,938 for the three months ended
June 30, 2020 and 2019, respectively. The 60% decrease in overall production
costs is due to a 63% reduction in production volumes in the comparable periods,
with a reduction in plant utilization resulting in lower levels of fixed cost
absorption. For the three months ended June 30, 2020, we did not purchase sand
or other proppants from third party suppliers. For the three months ended
June 30, 2019, we purchased $437 of sand and other proppants from third party
suppliers.
Costs of Goods Sold - Logistics Costs
We incurred logistics costs of $42,547 and $110,260 for the three months ended
June 30, 2020 and 2019, respectively. The primary components of logistics costs
are transportation-related, and the decrease in the comparable periods is
attributable to a drop in Northern White volumes sold in-basin and a reduction
in last mile services, both of which were impacted by the idling of frac
operations across the country which occurred during the second quarter of 2020,
resulting from the slow-down in U.S. completions activity due to the collapse in
crude oil prices.
Costs of Goods Sold - Other Costs of Sales
We incurred $285 and $1,074 of other costs of sales in the three months ended
June 30, 2020 and 2019, respectively. Other costs of sales is primarily related
to the costs of manufacturing, assembling and delivery of silo systems,
conveyors and other equipment sold to our customers. During the three months
ended June 30, 2020, the Company did not sell any silos and related logistics
equipment.
Costs of Goods Sold - Depreciation, Depletion and Amortization
For the three months ended June 30, 2020 and 2019, we incurred $7,525 and
$14,062, respectively, of depreciation, depletion and amortization expense,
generally using the units-of-production method of depreciation. The decrease was
primarily attributable to a significant decrease in the mining activity in the
second quarter of 2020 as compared to the same period in 2019.
Gross Profit (Loss)
Gross loss was $8,343 for the three months ended June 30, 2020, compared to
gross profit of $22,667 for the three months ended June 30, 2019. Gross profit
(loss) percentage decreased to (15)% in the second quarter of 2020 from 13% in
the second quarter of 2019. The decline is attributable to decreased sand
pricing as a result of the decline in the price of crude oil eroded demand in
the frac sand market which was already oversupplied, as well as a reduction in
fixed cost absorption as an increasing amount of assets were idled beginning
late in the first quarter of 2020 after E&P's drastically reduced spending.

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Operating Costs and Expenses
General and administrative expenses were $21,221 and $15,210 for the three
months ended June 30, 2020 and 2019, respectively. For the three months ended
June 30, 2020, the Company had $12,006 of non-recurring business development and
legal costs primarily associated with the advisor and legal costs of the Chapter
11 Cases. For the three months ended June 30, 2019, the Company had $3,135 of
non-recurring business development and legal costs primarily associated with the
Conversion and business acquisitions. Absent the non-recurring costs, the
general and administrative expenses for the three months ended June 30, 2020
decreased compared to the same period in 2019 due to increased focus on cost
reductions, as well as workforce reductions and related compensation expense.
Depreciation and amortization was $1,403 and $1,697 for the three months ended
June 30, 2020 and 2019, respectively, with the slight decrease primarily
attributable to the intangible asset impairments recorded.
During the three months ended June 30, 2019, the Company recorded a decrease to
the fair value of contingent consideration associated with the FB Industries
acquisition resulting in a gain in the amount of $672. In May 2020, the Company
reached the FB Settlement which included the termination of the contingent
consideration.
During the three months ended June 30, 2020, the Company recognized $12,895 of
other operating income primarily associated with a gain on lease contract
terminations and a gain on the FB Settlement, offset by separation costs related
to workforce reductions. During the three months ended June 30, 2019, the
Company incurred $469 of other operating expenses primarily associated with
workforce reductions offset by a gain on the disposal of fixed assets.
Earnings from Equity Method Investments
During the three months ended June 30, 2020 and 2019, the Company recognized
earnings of $697 and $1,284, respectively, from its equity method investments,
comprised primarily of our investment in PropX.
Gain on Remeasurement of Equity Method Investment
During the three months ended June 30, 2019, the Company recognized a gain
of $3,612 on the remeasurement of our equity method investment in connection
with acquiring the remaining 34% ownership interest in Proppant Logistics on May
7, 2019.
Interest Expense
Interest expense was $11,735 and $11,806 for the three months ended June 30,
2020 and 2019, respectively, principally associated with the interest on our
Senior Notes.
Income Tax
During the three months ended June 30, 2020, the Company recognized an income
tax benefit of $3,230. During the three months ended June 30, 2019, the Company
recognized an income tax expense of $116,407, primarily associated with the
initial deferred tax liability of $115,488 recorded on May 31, 2019 as a result
of the Conversion.
Net Income (Loss)
Net loss was $26,014 and $117,484 for the three months ended June 30, 2020 and
2019.
Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019
Revenues
The following table presents sales, volume and pricing comparisons for the six
months ended June 30, 2020, as compared to the six months ended June 30, 2019:
                               Six Months Ended
                                   June 30,                            Percentage
                              2020          2019          Change         Change
Frac sand sales revenues   $  120,863$  240,975$  (120,112 )      (50 )%
Other revenues             $   79,555$   96,936$   (17,381 )      (18 )%
Tons sold                   3,502,807     5,073,348     (1,570,541 )     
(31 )%
Average price per ton sold $       35$       47$       (12 )      (26 )%



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Revenues generated from the sale of frac sand were $120,863 and $240,975 for the
six months ended June 30, 2020 and 2019, respectively, during which we sold
3,502,807 and 5,073,348 tons of frac sand, respectively. The 31% volume decrease
is primarily due to a significant drop in demand for frac sand during the latter
part of the first quarter of 2020 and throughout the second quarter of 2020,
caused by the unprecedented collapse in crude oil prices which prompted E&P's to
drastically reduce spending. Average sales price per ton was $35 and $47 for the
six months ended June 30, 2020 and 2019, respectively. The 26% decline between
the comparable periods is attributable to both sales mix, with an increased
percentage of total volumes coming from our in-basin Kermit facilities, as well
as overall pricing declines primarily resulting from an oversaturated frac sand
market and plummeting demand for frac sand which began late in the first quarter
of 2020.
Other revenues related principally to our integrated logistics and wellsite
operations were $79,555 and $89,359 for the six months ended June 30, 2020 and
2019, respectively. The Company did not have any sales of silos and related
logistics equipment during the six months ended June 30, 2020. Other revenues
generated from the sales of silos and related logistics equipment were $7,577
for the six months ended June 30, 2019. The decrease in total other revenues is
attributable to reduced demand for last mile logistics and wellsite services due
to reduced crude oil prices, partially offset by the acquisition of Proppant
Logistics in May 2019.
Costs of Goods Sold - Production Costs
We incurred production costs of $39,809 and $61,356 for the six months ended
June 30, 2020 and 2019, respectively. Overall production costs decreased 35% on
a 31% decrease in production volumes as we continued to maximize production from
our most cost-efficient Northern White and in-basin facilities. For the six
months ended June 30, 2020 and 2019, we purchased $217 and $2,301, respectively,
of sand or other proppants from third-party suppliers.
Costs of Goods Sold - Logistics Costs
We incurred logistics costs of $139,460 and $204,664 for the six months ended
June 30, 2020 and 2019, respectively. The primary components of logistics costs
are transportation-related, and the decrease in the comparable periods was
attributable to a drop in Northern White volumes sold in-basin and a reduction
in last mile services, both of which were impacted by the idling of frac
operations across the country which occurred during the second quarter of 2020,
resulting from the slow-down in U.S. completions activity due to the collapse in
crude oil prices.
Costs of Goods Sold - Other Costs of Sales
We incurred $569 and $5,774 of other costs of sales in the six months ended
June 30, 2020 and 2019, respectively. Other costs of sales is primarily related
to the costs of manufacturing, assembling and delivery of silo systems,
conveyors and other equipment sold to our customers. During the six months ended
June 30, 2020, the Company did not sell any silos and related logistics
equipment.
Costs of Goods Sold - Depreciation, Depletion and Amortization
For the six months ended June 30, 2020 and 2019, we incurred $19,265 and
$25,334, respectively, of depreciation, depletion and amortization expense,
generally using the units-of-production method of depreciation. The decrease was
primarily attributable to a significant decrease in the mining activity in the
first half of 2020 as compared to the same period in 2019.
Gross Profit
Gross profit was $1,315 for the six months ended June 30, 2020, compared to
gross profit of $40,783 for the six months ended June 30, 2019. Gross profit
percentage decreased to 0.7% in the first half of 2020 compared to 12% in the
first half of 2019. The decline is attributable to decreased sand pricing as a
result of the decline in the price of crude oil eroded demand in the frac sand
market which was already oversupplied, as well as a reduction in fixed cost
absorption as an increasing amount of assets were idled beginning in late first
quarter of 2020 after E&P's drastically reduced spending.
Operating Costs and Expenses
General and administrative expenses were $34,142 and $27,823 for the six months
ended June 30, 2020 and 2019, respectively. For the six months ended June 30,
2020, the Company had $12,653 of non-recurring business development and legal
costs primarily associated with the advisor and legal costs of the Chapter 11
Cases. For the six months ended June 30, 2019, the Company had $4,144 of
non-recurring business development and legal costs primarily associated with the
Conversion and business acquisitions.
Depreciation and amortization was $2,796 and $3,373 for the six months ended
June 30, 2020 and 2019, respectively, with the decrease primarily attributable
to the intangible asset impairments recorded.
During the six months ended June 30, 2020, the Company recorded asset
impairments of $116,576 and $29,142 on the write-down of the Blair facility and
certain idled terminal facilities, respectively, to their estimated fair value.
During the six months ended June 30, 2020 and 2019, the Company recorded a
decrease to the fair value of contingent consideration associated with the FB
Industries acquisition resulting in gains in the amount of $400 and $672,
respectively. In May 2020, the Company reached the FB Settlement which included
the termination of the contingent consideration.

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During the six months ended June 30, 2020, the Company recognized $10,553 of
other operating income primarily associated with a gain on lease contract
terminations and a gain on the FB Settlement, offset by separation costs related
to workforce reductions. During the six months ended June 30, 2019, the Company
incurred $900 of other operating expenses, primarily associated with workforce
reductions.
Earnings from Equity Method Investments
During the six months ended June 30, 2020 and 2019, the Company recognized
earnings of $1,848 and $2,400, respectively, from its equity method investments,
comprised primarily of our investment in PropX.
Gain on Remeasurement of Equity Method Investment
During the six months ended June 30, 2019, the Company recognized a gain
of $3,612 on the remeasurement of our equity method investment in connection
with acquiring the remaining 34% ownership interest in Proppant Logistics on May
7, 2019.
Interest Expense
Interest expense was $23,496 and $22,396 for the six months ended June 30, 2020
and 2019, respectively, principally associated with the interest on our Senior
Notes.
Income Tax
During the six months ended June 30, 2020, the Company recognized an income tax
benefit of $19,367, primarily associated with the tax benefit on the loss before
income taxes resulting principally from the asset impairments. During the six
months ended June 30, 2019, the Company recognized an income tax expense of
$116,407, primarily associated with the initial deferred tax liability of
$115,488 recorded on May 31, 2019 as a result of the Conversion. Prior to the
Conversion, the Company was not subject to income tax on an entity level.
Net Income (Loss)
Net loss was $172,936 and $123,691 for the six months ended June 30, 2020 and
2019, respectively.
Liquidity and Capital Resources
Overview
We expect our principal sources of liquidity will be available cash, the
available borrowing capacity under the DIP Facilities and cash generated by our
operations. We expect that our future principal uses of cash will be for capital
expenditures, funding debt service obligations and working capital.
As of August 3, 2020, our sources of liquidity consisted of $23,110 of available
cash, $20,000 of borrowing availability under the DIP Term Loan and no borrowing
availability under the DIP ABL Facility.
Default under the ABL Credit Facility and Forbearance Agreement
Beginning in late March 2020 and during the second quarter of 2020, we saw
dramatic changes in the business climate due to the drastic decrease in the
price for crude oil driven by oversupply as OPEC+ struggled to reach an
agreement on oil production quotas and demand destruction resulting from the
COVID-19 pandemic.  The foregoing recent developments in market conditions
negatively impacted the Company's financial position, which has resulted in a
decrease in the Company's borrowing base under its senior secured revolving
credit facility (the "ABL Credit Facility"). On June 22, 2020, with the
submission of its May 31, 2020 borrowing base certificate under the ABL Credit
Facility, the Company was in default under the ABL Credit Facility due to its
failure to be in compliance with the springing fixed charge coverage ratio
financial covenant under the ABL Credit Facility (the "Specified Default"),
which is triggered when the Company's borrowing base decreases below a level
specified in the ABL Credit Facility. The Specified Default constituted an
immediate event of default under the ABL Credit Facility that rendered the
Company unable to borrow any amounts under the ABL Credit Facility.
On June 22, 2020, the Company and certain of its subsidiaries entered into a
forbearance agreement and amendment to the ABL Credit Facility (the "Forbearance
Agreement") with the lenders under the ABL Credit Facility (the "ABL Lenders"),
pursuant to which the ABL Lenders agreed to forbear from exercising
default-related rights and remedies with respect to the Specified Default until
July 5, 2020. On July 3, 2020, the Forbearance Agreement was amended to extend
the forbearance period until July 12, 2020.
Voluntary Reorganization Under Chapter 11
On July 12, 2020, as a result of the Specified Default and the drastic decrease
in the price for crude oil driven by oversupply and demand destruction resulting
from the COVID-19 pandemic, among other things, we commenced the Chapter 11
Cases described in Note 18 - Subsequent Events of the Notes to Unaudited
Condensed Consolidated Financial Statements included under Part I, Item 1.
"Financial Statements" of this Quarterly Report on Form 10-Q.

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The unaudited interim Condensed Consolidated Financial Statements (the
"financial statements") in this report have been prepared on a going concern
basis of accounting, which contemplates continuity of operations, realization of
assets and satisfaction of liabilities and commitments in the normal course of
business. Recent developments discussed above have negatively impacted the
Company's financial condition, and the Company's current forecast gives doubt to
the Company's available liquidity to repay its outstanding debt balances and
meet its obligations, such as its Senior Notes semiannual interest payments and
operating lease obligations over the next twelve months. Although we anticipate
that the Chapter 11 Cases will help address our liquidity concerns, there are a
number of risks and uncertainties surrounding the Chapter 11 Cases, including
the uncertainty remaining over the Bankruptcy Court's approval of a plan of
reorganization, that is not within our control. These conditions and events
indicate that there is substantial doubt about the Company's ability to continue
as a going concern within one year from the issuance date of the financial
statements. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might result from the outcome of this
uncertainty. Such adjustments could be material. Our long-term liquidity
requirements, the adequacy of capital resources and our ability to continue as a
going concern are difficult to predict at this time and ultimately cannot be
determined until the transactions contemplated by the Chapter 11 Cases have been
confirmed, if at all, by the Bankruptcy Court. If our future sources of
liquidity are insufficient, we could face substantial liquidity constraints and
be unable to continue as a going concern and will likely be required to
significantly reduce, delay or eliminate capital expenditures, implement further
cost reductions, or seek other financing alternatives.
Senior Notes and ABL Credit Facility
The commencement of the Chapter 11 Cases constituted an event of default that
accelerated the obligations under the ABL Credit Facility and the indenture,
dated as of August 1, 2018 (the "Indenture"), by and among the Company, the
guarantors named therein (the "Guarantors"), and U.S. Bank National Association,
as trustee, which governs the Senior Notes. However, any efforts to enforce such
payment obligations under the ABL Credit Facility or with respect to the Senior
Notes are automatically stayed as a result of the filing of the Chapter 11 Cases
and the creditors' rights of enforcement in respect of the ABL Credit Facility
and the Senior Notes are subject to the applicable provisions of the U.S.
Bankruptcy Code.
In connection with the entry into the $25,000 superpriority secured asset-based
revolving loan financing facility (the "DIP ABL Facility"), the DIP ABL Facility
refinanced and satisfied in full the Company's obligations under the ABL Credit
Facility and the letters of credit outstanding under the ABL Credit Facility
were deemed outstanding under the DIP ABL Facility.
For additional information regarding the Senior Notes and ABL Credit Facility,
see Note 8 - Long-Term Debt of the Notes to Unaudited Condensed Consolidated
Financial Statements included under Part I, Item 1. "Financial Statements" of
this Quarterly Report on Form 10-Q.
DIP Facilities
On July 14, 2020, the Company entered into two debtor-in-possession financing
facilities, consisting of (i) a $25,000 DIP ABL Facility among the Company,
certain of the lenders under the existing credit agreements dated as of August
1, 2018, and the other parties thereto and (ii) a $40,000 superpriority secured
delayed-draw term loan financing facility (the "DIP Term Loan Facility" and,
together with the DIP ABL Facility, the "DIP Facilities") among the Company,
certain holders of the Senior Notes, and the other parties thereto.
The Company expects that the ABL DIP Facility will be used primarily for letters
of credit outstanding under the ABL Credit Facility. The Proceeds of the DIP
Term Loan Facility will be used for payment of fees and expenses related to the
DIP Term Loan Facility, working capital and other general corporate purposes
and, if necessary, cash collateralization of certain letters of credit. The
Company expects that the DIP ABL Facility and the DIP Term Loan Facility will be
refinanced or repaid in full with proceeds of a new credit agreement providing
for a new senior secured asset-based revolving loan facility in the aggregate
principal commitment amount of not less than $25,000 and a not less than $25,000
letter of credit sub-limit and the $43,300 rights offering (the "Rights
Offering") to eligible holders of allowed claims arising under and in connection
with the Senior Notes and eligible holders of allowed general unsecured claims
that will be conducted by the Company under the Plan, pursuant to which such
holders will be granted rights to purchase new secured convertible notes,
respectively.
As of August 3, 2020, the Company had $20,000 of indebtedness outstanding under
the DIP Term Loan Facility and had no borrowings outstanding under the DIP ABL
Credit Facility. As of August 3, 2020, the Company also had no borrowing
availability under the DIP ABL Facility due to $22,288 letter of credit
commitments.
For additional information regarding the DIP Facilities, see Note 18 -
Subsequent Events of the Notes to Unaudited Condensed Consolidated Financial
Statements included under Part I, Item 1. "Financial Statements" of this
Quarterly Report on Form 10-Q.

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Off-Balance Sheet Arrangements
As of June 30, 2020, there were $8,785 in surety bonds outstanding related to
various performance obligations. These were issued in the ordinary course of our
business and are in place to support various performance obligations as required
by (i) statutes within the regulatory jurisdictions where we operate and (ii)
counterparty support. Obligations under these surety bonds are not normally
called, as we typically comply with the underlying performance requirement, and
our management believes these surety bonds will expire without being funded.
Stock Repurchase Program
On June 8, 2019, the Company's board of directors approved a stock repurchase
program of up to $25,000, effective immediately and authorized through June 30,
2020. As of June 30, 2020, the Company has repurchased a total of 1,526,384
common shares for a total cost of $3,400.
Capital Requirements
Capital expenditures totaled $20,144 during the six months ended June 30, 2020.
Maintenance capex was $574 for the six months ended June 30, 2020. Growth capex
for the six months ended June 30, 2020 was $19,570, primarily related to the
development of our OnCore units and enhancements to our NexStage silo sets.
Working Capital
Working capital is the amount by which current assets, excluding cash, exceed
current liabilities and is a measure of our ability to pay our liabilities as
they become due. At the end of any given period, accounts receivable and payable
tied to sales and purchases are relatively balanced to the volume of tons sold
during the period. The factors that typically cause variability in the Company's
working capital are (1) changes in receivables due to fluctuations in volumes
sold, pricing and timing of collection, (2) inventory levels, which the Company
closely manages, or (3) major structural changes in the Company's asset base or
business operations, such as any acquisition, divestitures or organic capital
expenditures. As of June 30, 2020, we had a working capital deficit balance of
$15,769 as compared to a positive working capital balance of $27,608 at
December 31, 2019.
The following table summarizes our working capital as of the dates indicated:
                                           June 30, 2020      December 31, 2019
Current assets:
Accounts receivable, net                  $       22,827     $            71,824
Inventories                                       28,111                  39,974
Prepaid expenses and other current assets          8,748                   9,818
Total current assets                              59,686                 121,616
Current liabilities:
Accounts payable                                  19,445                  40,592
Accrued and other current liabilities             49,163                  

42,818

Current portion of deferred revenues               6,847                  10,598
Total current liabilities                         75,455                  94,008
Working capital (deficit)                 $      (15,769 )   $            27,608


Accounts receivable decreased $48,997 during the six months ended June 30, 2020,
primarily driven by a 54% decrease in volumes sold during the second quarter of
2020 compared to the fourth quarter of 2019.
Our inventory consists primarily of sand that has been excavated and processed
through the wet plant, and finished goods sand located at our terminals or at
the wellsite. The decrease in our inventory of $11,863 was primarily driven by
wintertime depletion of the washed sand stockpiles at our Wisconsin production
facilities and decreased in-basin finished goods inventory at June 30, 2020 as
compared to December 31, 2019.
Accounts payable and accrued liabilities decreased by $14,802 on a combined
basis, resulting primarily from a decrease in accounts payable due to the
decrease in cost of goods sold with a significant reduction in sales volumes at
June 30, 2020.
Current portion of deferred revenues represent prepayments from customers for
future deliveries of frac sand estimated to be made within the next twelve
months.

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The following table provides a summary of our cash flows for the periods indicated:

                                   Six Months Ended
                                       June 30,
                                   2020         2019
Net cash provided by (used in):
Operating activities            $ (1,499 )$  8,975
Investing activities             (17,791 )    (61,039 )
Financing activities              (4,520 )     (9,350 )


Cash Flows - Six Months Ended June 30, 2020 and 2019
Operating Activities
Net cash used in operating activities was $1,499 for the six months ended
June 30, 2020, compared to net cash provided by operating activity of $8,975 for
the six months ended June 30, 2019. Operating cash flows include net loss of
$172,936 and $123,691 during the six months ended June 30, 2020 and 2019,
respectively, adjusted for non-cash operating expenses and changes in working
capital described above. The decrease in cash flows from operations was
primarily attributable to decreases in both sales volumes and average sales
pricing per ton which reduced gross profit margins. This was partially offset by
a greater reduction in working capital in the six months ended June 30, 2020 as
compared to the same period of 2019.
Investing Activities
Net cash used in investing activities was $17,791 for the six months ended
June 30, 2020, and was comprised of $20,144 of capital expenditures primarily
related to the development of our OnCore units and enhancements to our NexStage
silo sets, offset by $2,353 of proceeds from the sale of property, plant and
equipment.
Net cash used in investing activities was $61,039 for the six months ended
June 30, 2019, and was comprised of $57,935 of capital expenditures, $4,229 of
net cash paid for business acquisitions, offset by $1,620 of proceeds from the
sale of property, plant and equipment.
Capital expenditures for the six months ended June 30, 2019 consisted of $7,723
of maintenance capex, $19,167 of growth capex primarily related to spending on
logistics assets and $31,045 of 2018 carryover growth capex associated with
construction projects associated with completion of our second Kermit facility
and expansion at our Wyeville facility. These expansion initiatives were
fully-funded in 2018.
Financing Activities
Net cash used in financing activities was $4,520 for the six months ended
June 30, 2020, and was comprised primarily of $2,450 of other notes payable
repayments and $1,555 repayment of premium financing notes.
Net cash used in financing activities was $9,350 for the six months ended
June 30, 2019, and was comprised primarily of $3,151 of repurchases of common
stock under the stock repurchase program, $3,237 for the repayment of an
acquired credit facility, $1,385 of repayments on long-term debt and $1,469
repayment of premium financing notes.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
is based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally acceptable in the United States
of America. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported revenues and expenses during the
reporting periods. We evaluate these estimates and assumptions on an ongoing
basis and base our estimates on historical experience, current conditions and
various other assumptions that we believe to be reasonable under the
circumstances. The results of these estimates form the basis for making
judgments about the carrying values of assets and liabilities as well as
identifying and assessing the accounting treatment with respect to commitments
and contingencies. Our actual results may materially differ from these
estimates.

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Our significant accounting policies are included in Note 2 - Significant
Accounting Policies of the Notes to Unaudited Condensed Consolidated Financial
Statements included under Part I, Item 1. "Financial Statements" of this
Quarterly Report on Form 10-Q, and in Note 2 - Significant Accounting Policies
of the Notes to the Consolidated Financial Statements included under Part IV,
Item 15. "Exhibits, Financial Statement Schedules" of our Annual Report.
Significant estimates include, but are not limited to, purchase accounting
allocations and valuations, estimates and assumptions for our mineral reserves
and their impact on calculating our depreciation and depletion expense under the
units-of production depreciation method, estimates of fair value for reporting
units and asset impairments (including impairments of goodwill and other
long-lived assets), estimating potential loss contingencies, inventory
valuation, valuation of stock-based compensation, valuation of right-of-use
assets (including potential impairments) and lease liabilities, estimated fair
value of contingent consideration in the future, the determination of income tax
provisions and the estimated cost of future asset retirement obligations.
Forward-Looking Statements
Some of the information in this Quarterly Report on Form 10-Q may contain
forward-looking statements. Forward-looking statements give our current
expectations, contain projections of results of operations or of financial
condition, or forecasts of future events. Words such as "may," "should,"
"assume," "forecast," "position," "predict," "strategy," "expect," "intend,"
"hope," "plan," "estimate," "anticipate," "could," "believe," "project,"
"budget," "potential," "likely," or "continue," and similar expressions are used
to identify forward-looking statements. They can be affected by assumptions used
or by known or unknown risks or uncertainties. Consequently, no forward-looking
statements can be guaranteed. When considering these forward-looking statements,
you should keep in mind the risk factors and other cautionary statements in this
Quarterly Report on Form 10-Q and in our Annual Report. Actual results may vary
materially. You are cautioned not to place undue reliance on any forward-looking
statements. You should also understand that it is not possible to predict or
identify all such risk factors and as such should not consider the following to
be a complete list of all potential risks and uncertainties. Factors that could
cause our actual results to differ materially from the results contemplated by
such forward-looking statements include:
• our ability to continue as a going concern;


• our ability to generate sufficient cash flow from operations, borrowings or

other sources to enable us to fund our operations or satisfy our obligations;

• our ability to obtain Bankruptcy Court approval with respect to motions or

other requests made to the Bankruptcy Court in the Chapter 11 Cases, including

the Plan, maintaining strategic control as debtors-in-possession, and the

outcomes of Bankruptcy Court rulings and the Chapter 11 Cases in general;

• our ability to consummate the Plan that restructures our debt obligations to

address our liquidity issues and allows emergence from the Chapter 11 Cases;

• risks that our assumptions and analyses in the Plan are incorrect;

• our ability to fund our liquidity requirements during the Chapter 11 Cases;

• our ability to comply with the covenants under the DIP Facilities;

• the effects of the Chapter 11 Cases on our relationships with employees,

governmental authorities, customers, suppliers, banks, insurance companies and

other third parties, and agreements;

• the effects of the Chapter 11 Cases on the Company and its subsidiaries and on

the interests of various constituents, including holders of our common stock

and debt instruments;

• the length of time that we will operate under the protection of Chapter 11 of

the U.S. Bankruptcy Code ("Chapter 11"), including the risk of delays in the

Chapter 11 Cases, and the continued availability of operating capital during

the pendency of the proceedings;

• risks associated with third-party motions in the Chapter 11 Cases, which may

interfere with our ability to confirm and consummate the Plan and

restructuring generally;

• increased advisory costs to execute a plan of reorganization and increased

administrative and legal costs related to the Chapter 11 Cases and other

litigation and the inherent risks involved in a bankruptcy process;

• our ability to access adequate debtor-in-possession financing, if needed, or

use cash collateral;

• the potential adverse effects of the Chapter 11 Cases on our business,

operations, financial position and liquidity;

• the impact of the delisting of our common stock by the NYSE on the liquidity

and market price of our common stock;

• developments in the global economy as well as the public health crisis related

   to COVID-19 and resulting demand and supply for oil and natural gas;



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• uncertainty regarding the length of time it will take for the United States

and the rest of the world to slow the spread of the COVID-19 virus to the

point where applicable authorities are comfortable easing current restrictions

on various commercial and economic activities;

• other risks related to the outbreak of COVID-19 and its impact on our

business, suppliers, customers, employees and supply chains;

• uncertainty regarding the future actions of foreign oil producers such as

Saudi Arabia and Russia and the risk that they take actions that will prolong

or exacerbate the current reduction in demand for crude oil and the

corresponding reduction in demand for our frac sand and services;

• uncertainty regarding the timing, pace and extent of an economic recovery in

the United States and elsewhere, which in turn will likely affect demand for

crude oil and therefore the demand for the frac sand and services we provide

and the commercial opportunities available to us;

• the pace of adoption of our integrated logistics solutions;

• demand and pricing for our integrated logistics solutions;

• the volume of frac sand we are able to buy and sell;

• the price at which we are able to buy and sell frac sand;

• the amount of frac sand we are able to timely deliver at the wellsite, which

could be adversely affected by, among other things, logistics constraints,

weather, or other delays at the wellsite or transloading facility;

• changes in prevailing economic conditions, including the extent of changes in

crude oil, natural gas and other commodity prices;

• the amount of frac sand we are able to excavate and process, which could be

adversely affected by, among other things, operating difficulties, cave-ins,

pit wall failures, rock falls and unusual or unfavorable geologic conditions;

• changes in the price and availability of natural gas or electricity;

• inability to obtain necessary equipment or replacement parts;

• changes in railroad infrastructure, price, capacity and availability,

including the potential for rail line disruptions;

• changes in road infrastructure, including the potential for trucking and other

transportation disruptions;

• changes in the price and availability of transportation;

• extensive regulation of trucking services;

• changes in, and volatility of, fuel prices;

• availability of or failure of our contractors, partners and service providers

to provide services at the agreed-upon levels or times;

• failure to maintain safe work sites at our facilities or by third parties at

their work sites;

• inclement or hazardous weather conditions, including flooding, and the

physical impacts of climate change;

• environmental hazards, such as leaks and spills as well as unauthorized

discharges of fluids or other pollutants into the surface and subsurface

environment;

• industrial and transportation related accidents;

• fires, explosions or other accidents;

• difficulty collecting receivables;

• inability of our customers to take delivery;

• changes in the product specifications requested by customers and the regional

destinations for such product;

• difficulty or inability in obtaining, maintaining and renewing permits,

including environmental permits or other licenses and approvals such as mining

or water rights;

• facility shutdowns or restrictions in operations in response to environmental

regulatory actions including but not limited to actions related to endangered

species;

• systemic design or engineering flaws in the equipment we use to produce

product and provide logistics services;

• changes in laws and regulations (or the interpretation or enforcement thereof)

   related to the mining and hydraulic fracturing industries, silica dust
   exposure or the environment;



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• the outcome of litigation, claims or assessments, including unasserted claims;

• challenges to or infringement upon our intellectual property rights;

• labor disputes and disputes with our third-party contractors;

• inability to attract and retain key personnel;

• cyber security breaches of our systems and information technology;

• our ability to borrow funds and access capital markets;

• changes in the foreign currency exchange rates in the countries that we

conduct business;

• changes in income tax rates, changes in income tax laws or unfavorable

resolution of tax matters; and

• changes in the political environment of the geographical areas in which we and

our customers operate.

All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.

© Edgar Online, source Glimpses


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