SMART SAND, INC. (UNAUDITED)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of the Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related information contained herein and our audited financial statements as ofDecember 31, 2021 contained in our Annual Report on Form 10-K. We use contribution margin, EBITDA, Adjusted EBITDA and free cash flow herein as non-GAAP measures of our financial performance. For further discussion of contribution margin, EBITDA, Adjusted EBITDA and free cash flow, see the section entitled "Non-GAAP Financial Measures." We define various terms to simplify the presentation of information in this Quarterly Report on Form 10-Q (this "Report"). All share amounts are presented in thousands. Forward-Looking Statements This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed herein and in the section entitled "Risk Factors" in our Form 10-K for the year endedDecember 31, 2021 . Our estimates and forward-looking statements are primarily based on our current expectations and estimates of future events and trends, which affect or may affect our business and operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. Important factors, in addition to the factors described in this Report, may adversely affect our results as indicated in forward-looking statements. You should read this Report and the documents that we have filed as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. The words "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "intend," "potential," "might," "would," "continue" or the negative of these terms or other comparable terminology and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and, except to the extent required by law, we undertake no obligation to update, to revise or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. As a result of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this Report might not occur and our future results, level of activity, performance or achievements may differ materially from those expressed in these forward-looking statements due to, including, but not limited to, the factors mentioned above, and the differences may be material and adverse. Because of these uncertainties, you should not place undue reliance on these forward-looking statements. Overview The Company We are a fully integrated frac sand supply and services company, offering complete mine to wellsite proppant supply and logistics solutions to our customers. We produce low-cost, high quality Northern White sand, which is a premium sand used as proppant used to enhance hydrocarbon recovery rates in the hydraulic fracturing of oil and natural gas wells and for a variety of industrial applications. We also offer proppant logistics solutions to our customers through our in-basin transloading terminals and our SmartSystemsTM wellsite storage capabilities. In late 2021, we created our Industrial Products Solutions ("IPS") business in order to diversify our customer base and markets we serve by offering sand for industrial uses. We market our products and services to oil and natural gas exploration and production companies, oilfield service companies, and industrial manufacturers. We sell our sand through long-term contracts or spot sales in the open market. We provide wellsite proppant storage solutions services and equipment under flexible contract terms custom tailored to meet the needs of our customers. We believe that, among other things, the size and favorable geologic characteristics of our sand reserves, the strategic location and logistical advantages of our facilities, our proprietary SmartDepotTM portable wellsite storage silos, SmartPathTM transloader, 18 --------------------------------------------------------------------------------
SMART SAND, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)
and the industry experience of our senior management team make us as a highly attractive provider of sand and logistics services.
We incorporated inDelaware inJuly 2011 and began operations with 1.1 million tons of annual processing capacity inJuly 2012 . After several expansions and acquisitions, we currently have 7.1 million tons of capacity with the ability to expand annual processing capacity to approximately 10.0 million tons of sand. Additionally, we believe the quality of our sand, the geographic locations of our mining and processing assets, and our logistics access to all Class 1 rail lines provides us with the opportunity to maximize our customer bases and sales opportunities. We operate a unit train capable transloading terminal in Van Hook,North Dakota to service the Bakken Formation in theWilliston Basin . We operate this terminal under a long-term agreement with Canadian Pacific Railway to service the Van Hook terminal directly along with the other key oil and natural gas exploration and production basins ofNorth America . InJanuary 2022 , we began operations at an additional unit train capable transloading terminal inWaynesburg, Pennsylvania to service theAppalachian Basin , including the Marcellus andUtica Formations. These terminals allow us to offer more efficient and sustainable delivery options to our customers. We also offer to our customers portable wellsite storage and management solutions through our SmartSystems products and services. Our SmartSystems provide our customers with the capability to unload, store and deliver proppant at the wellsite, as well as the ability to rapidly set up, takedown and transport the entire system. This capability creates efficiencies, flexibility, enhanced safety and reliability for customers. Through our SmartSystems wellsite proppant storage solutions, we offer the SmartDepot and SmartDepotXL™ silo systems, SmartPath transloader, and our rapid deployment trailers. Our SmartDepot silos include passive and active dust suppression technology, along with the capability of a gravity-fed operation. Our self-contained SmartPath transloader is a mobile sand transloading system designed to work with bottom dump trailers and features a drive over conveyor, surge bin, and dust collection system, and we believe the system has the ability to keep up with any hydraulic fracturing operation. Our rapid deployment trailers are designed for quick setup, takedown and transportation of the entire SmartSystem, and detach from the wellsite equipment, which allows for removal from the wellsite during operation. We have also developed a proprietary software program, the SmartSystem Tracker™, which allows our SmartSystems customers to monitor silo-specific information, including location, proppant type and proppant inventory. We believe that our SmartSystems reduce tracking and related fuel consumption for our customers, helping them meet their goals to reduce their carbon footprint in their daily operations. We recently started our IPS business whereby we offer our sand to customers for various industrial purposes, such as glass, foundry, building products, filtration, geothermal, renewables, ceramics, turf & landscape, retail, and recreation. While we are still in the early stages of this business, we believe that as it grows, it will provide us with the ability to diversify our sales and insulate us from some of the effects of price swings in the oil and gas industry. Recent Acquisitions OnMarch 4, 2022 , we entered into a Membership Interest Purchase Agreement (the "Purchase Agreement") withHi-Crush Inc. , aDelaware corporation ("HCR"), andHi-Crush Blair LLC , aDelaware limited liability company and wholly-owned subsidiary of HCR ("Blair") pursuant to which we acquired all of the issued and outstanding limited liability company interest ofBlair from HCR for aggregate cash consideration of$6.5 million , subject to customary working capital adjustments. Market Trends
Our historical results of operations and cash flows are not indicative of results of operations and cash flows to be expected in the future.
During most of 2020, demand for frac sand declined significantly as a result of
decreased demand for oil and natural gas as a result of the ongoing effects of
the coronavirus ("COVID-19") pandemic, which caused a global decrease in all
means of travel, the closure of borders between countries and a general slowing
of economic activity worldwide. Activity in the oil and gas industry began to
rebound in the fourth quarter of 2020 and through 2021 as the global
distribution of COVID-19 vaccines ramped up and travel restrictions lessened. We
have seen an increase in the volume of sand sold since the global economy began
reopening, however the prices of frac sand remained depressed during 2021 as
supply remained out of balance with demand even though market activity was
improving. As we enter 2022, supply and demand fundamentals have continued to
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--------------------------------------------------------------------------------SMART SAND, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) improve and during the quarter, frac sand prices began recovering from historic lows. However, we cannot predict if this trend will continue or if sand prices will increase, decrease or stabilize. Northern White sand, which is found predominantly inWisconsin and limited portions ofMinnesota ,Illinois , andMissouri , is considered a premium proppant due to its favorable physical characteristics. While we anticipate that regional sand will continue to affect the demand for Northern White sand in some of the oil and natural gas producing basins in which we operate, we believe there will continue to be demand for our high-quality Northern White sand. In particular, we believe that Northern White sand has logistical advantages in the Appalachian, Bakken, and western basins ofColorado andWyoming . We expect demand for our frac sand to continue to be supported by customers who are focused on long-term well performance and ultimate recovery of reserves from the oil and natural gas wells they are completing as well as those interested in the efficiency of their logistics supply chain and delivery of sand to the wellsite. Additionally, we believe market trends continue to support increased proppant usage per well drilled due to operator focus on well efficiencies through increasing lengths of drilling laterals, use of simul-fracking techniques and other well enhancement strategies. As the amount of sand per well continues to increase, we believe the delivery of sand to the operating basins by rail in bulk shipments to terminals in close proximity to drilling activity provides more sustainable and efficient delivery of sand to meet a customer's long term proppant needs. Finally, we believe that the adoption of our SmartSystems in the marketplace, which has a smaller footprint on customer sites than other solutions, will allow us to sell more sand when packaged with our last mile solutions. We believe the combination of our high quality Northern White sand delivered in bulk to in basin terminals and ultimately delivered to the wellsite through our SmartSystems wellsite proppant storage solutions provides our customers efficient and sustainable sand supply to the wellsite will reduce trucking and related fuel consumption for our customers, helping them to meet their goals to reduce their carbon footprint in their daily operations. Demand in the IPS business is relatively stable as customers are spread over a wide range of industries including glass, foundry, building products, filtration, geothermal, renewables, ceramics, turf & landscape, retail, recreation and more. The IPS business is primarily influenced by macroeconomic drivers such as consumer demand and population growth. We began our diversification into the IPS business in late 2021 and we expect to see continued growth throughoutNorth America . 20 --------------------------------------------------------------------------------
SMART SAND, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) GAAP Results of Operations
Three Months Ended
The following table summarizes our revenue and expenses for the periods
indicated.
Three Months Ended March 31, Change
2022 2021 Dollars Percentage
(in thousands)
Revenues:
Sand sales revenue $ 38,289 $ 23,147 15,142 65 %
Shortfall revenue 1,915 1,741 174 10 %
Logistics revenue 1,401 2,562 (1,161) (45) %
Total revenue 41,605 27,450 14,155 52 %
Cost of goods sold 43,586 32,427 11,159 34 %
Gross profit (1,981) (4,977) 2,996 (60) %
Operating expenses:
Salaries, benefits and payroll taxes 3,392 2,375 1,017 43 %
Depreciation and amortization 527 561 (34) (6) %
Selling, general and administrative 4,048 3,154 894 28 %
Total operating expenses 7,967 6,090 1,877 31 %
Operating loss (9,948) (11,067) 1,119 (10) %
Other income (expenses):
Interest expense, net (427) (547) 120 (22) %
Other income 212 198 14 7 %
Total other expenses, net (215) (349) 134 (38) %
Loss before income tax benefit (10,163) (11,416) 1,253 (11) %
Income tax benefit (4,240) (7,504) 3,264 (43) %
Net loss $ (5,923) $ (3,912) $ (2,011) 51 %
Revenues
Revenues were $41.6 million for the three months ended March 31, 2022 , during
which time we sold approximately 852,000 tons of sand. Revenues for the three
months ended March 31, 2021 were $27.5 million , during which time we sold
approximately 760,000 tons of sand. The key factors contributing to the increase
in revenues for the three months ended March 31, 2022 as compared to the three
months ended March 31, 2021 were as follows:
•Sand sales revenue increased from $23.1 million for the three months ended
March 31, 2021 to $38.3 million for the three months ended March 31, 2022 as a
result of an increase in total volumes sold of approximately 12%. In addition to
an increase in our volume, the 65% increase in our revenue is also attributable
to higher average sales price of our sand.
•We had $1.9 million contractual shortfall revenue for the three months ended
March 31, 2022 compared to $1.7 million of contractual shortfall revenue for the
three months ended March 31, 2021 . Our customer contracts dictate whether
shortfall is earned quarterly or at the end of their respective contract year.
We recognize revenue to the extent of the unfulfilled minimum contracted
quantity at the shortfall price per ton as stated in the contract.
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--------------------------------------------------------------------------------SMART SAND, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) •Logistics revenue, which includes freight for certain mine gate sand sales, railcar usage, logistics services, and SmartSystems rentals, was approximately$1.4 million for the three months endedMarch 31, 2022 compared to$2.6 million for the three months endedMarch 31, 2021 . The decrease in logistics revenue was due to the shift from mine gate sales to in-basin sales, which include transportation and any other handling services.
Cost of Goods Sold
Cost of goods sold was
Gross Profit
Gross profit was$(2.0) million and$(5.0) million for the three months endedMarch 31, 2022 andMarch 31, 2021 , respectively. The decrease in the loss for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 was primarily due to higher sales volumes, higher average sales price of our sand relative to the cost to produce and deliver products to our customers and increased efficiencies that come with producing higher volumes of sand. Operating Expenses Operating expenses were$8.0 million and$6.1 million for the three months endedMarch 31, 2022 andMarch 31, 2021 , respectively. Salaries, benefits and payroll taxes increased to$3.4 million for the three months endedMarch 31, 2022 as compared to$2.4 million for the three months endedMarch 31, 2021 , due primarily to accrued bonuses as management has reinstated a formal employee bonus plan based on company performance for 2022. Depreciation and amortization decreased slightly from$0.6 million for the three months endedMarch 31, 2021 to$0.5 million for the three months endedMarch 31, 2022 . Selling, general and administrative expenses were$4.0 million for the three months endedMarch 31, 2022 compared to$3.2 million for the three months endedMarch 31, 2021 . The increase in 2022 was primarily driven by higher travel costs post-COVID-19, increased royalty expense due to higher total volumes sold and development costs related to ourWaynesburg terminal.
Interest Expense
We incurred$0.4 million and$0.5 million of net interest expense for the three months endedMarch 31, 2022 andMarch 31, 2021 , respectively. We continue to reduce debt levels and decrease interest expense through scheduled amortizing payments. Income Tax (Benefit) For the three months endedMarch 31, 2022 andMarch 31, 2021 , our effective tax rate was approximately 41.7% and 65.7%, respectively, based on the annual effective tax rate net of discrete federal and state taxes. The computation of the effective tax rate includes modifications from the statutory rate such as income tax credits, tax depletion deduction, carrybacks, and state apportionment changes, among other items. As ofMarch 31, 2022 , we have recorded a liability for uncertain tax positions included on our balance sheet, related to our depletion deduction methodology. As ofMarch 31, 2022 , we determined it is more likely than not that we will not be able to fully realize the benefits of certain existing deductible temporary differences and have recorded a partial valuation allowance against the gross deferred tax assets, which is included in liabilities, long-term, net on our balance sheet, and a corresponding increase to the income tax expense on our condensed consolidated statement of operations.
Net Loss
Net loss was$(5.9) million for the three months endedMarch 31, 2022 as compared to the net loss of$(3.9) million for the three months endedMarch 31, 2021 . Gross profit improved however, operating expenses increased in the current period relative to the prior year period. Discrete income tax items created a lower tax benefit in the current period relative to the prior period. 22 --------------------------------------------------------------------------------
SMART SAND, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) Non-GAAP Financial Measures Contribution margin, EBITDA, Adjusted EBITDA and free cash flow are not financial measures presented in accordance with 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. Gross profit is the GAAP measure most directly comparable to contribution margin, net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA and net cash provided by operating activities is the GAAP measure most directly comparable to free cash flow. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measures. 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 contribution margin, EBITDA, Adjusted EBITDA or free cash flow in isolation or as substitutes for an analysis of our results as reported under GAAP. Because contribution margin, 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. Contribution Margin We use contribution margin, which we define as total revenues less cost of goods sold excluding depreciation, depletion and accretion of asset retirement obligations, to measure our financial and operating performance. Contribution margin excludes other operating expenses and income, including costs not directly associated with the operations of our business such as accounting, human resources, information technology, legal, sales and other administrative activities. We believe that reporting contribution margin and contribution margin per ton sold provides useful performance metrics to management and external users of our financial statements, such as investors and commercial banks, because these metrics provide an operating and financial measure of our ability, as a combined business, to generate margin in excess of our operating cost base. Gross profit is the GAAP measure most directly comparable to contribution margin. Contribution margin should not be considered an alternative to gross profit presented in accordance with GAAP. Since contribution margin may be defined differently by other companies in our industry, our definition of contribution margin may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. The following table presents a reconciliation of contribution margin to gross profit. Three Months EndedMarch 31, 2022 2021 (in thousands, except per ton amounts)
Revenue$ 41,605 $ 27,450 Cost of goods sold 43,586 32,427 Gross profit (1,981) (4,977)
Depreciation, depletion, and accretion of asset retirement obligations
6,231 6,013
Contribution margin $ 4,250 $ 1,036
Contribution margin per ton $ 4.99 $ 1.36
Total tons sold 852 760
Contribution margin was $4.3 million and $1.0 million , or $4.99 and $1.36 per
ton sold, for the three months ended March 31, 2022 and 2021, respectively. The
increase in overall contribution margin and contribution margin per ton was due
primarily higher sales volumes, higher average sales prices and cost
efficiencies realized from higher production volumes.
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--------------------------------------------------------------------------------SMART SAND, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) EBITDA and Adjusted EBITDA We define EBITDA as net income, plus: (i) depreciation, depletion and amortization expense; (ii) income tax expense (benefit); (iii) interest expense; and (iv) franchise taxes. We define Adjusted EBITDA as EBITDA, plus: (i) gain or loss on sale of fixed assets or discontinued operations; (ii) integration and transition costs associated with specified transactions; (iii) equity compensation; (iv) acquisition and development costs; (v) non-recurring cash charges related to restructuring, retention and other similar actions; (vi) earn-out, contingent consideration obligations and other acquisition and development costs; and (vii) non-cash charges and unusual or non-recurring charges. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and commercial banks, to assess:
•the financial performance of our assets without regard to the impact of financing methods, capital structure or historical cost basis of our assets;
•the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities;
•our ability to incur and service debt and fund capital expenditures;
•our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods or capital structure; and
•our debt covenant compliance, as Adjusted EBITDA is a key component of critical covenants to the ABL Credit Facility.
We believe that our presentation of EBITDA and Adjusted EBITDA will provide
useful information to investors in assessing our financial condition and results
of operations. Net income is the GAAP measure most directly comparable to EBITDA
and Adjusted EBITDA. EBITDA and Adjusted EBITDA should not be considered
alternatives to net income presented in accordance with GAAP. Because EBITDA and
Adjusted EBITDA may be defined differently by other companies in our industry,
our definitions of EBITDA and Adjusted EBITDA 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 net
income for each of the periods indicated.
Three Months Ended March 31,
2022 2021
(in thousands)
Net loss $ (5,923) $ (3,912)
Depreciation, depletion and amortization 6,568 6,460
Income tax benefit (4,240) (7,504)
Interest expense 434 555
Franchise taxes 60 98
EBITDA $ (3,101) $ (4,303)
Loss on sale of fixed assets - 2
Equity compensation (1) 674 685
Acquisition and development costs 337 23
Accretion of asset retirement obligations 190 114
Adjusted EBITDA $ (1,900) $ (3,479) (1)Represents the non-cash expenses for stock-based awards issued to our employees and employee stock purchase plan compensation expense.
Adjusted EBITDA was$(1.9) million for the three months endedMarch 31, 2022 compared to$(3.5) million for the three months endedMarch 31, 2021 . The increase in Adjusted EBITDA was primarily due to higher sales volumes, higher average 24 --------------------------------------------------------------------------------
SMART SAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
sales price of our sand relative to the cost to produce and deliver products to
our customers, as well as increased efficiencies that come with producing higher
volumes of sand.
Free Cash Flow
Free cash flow, which we define as net cash provided by operating activities
less purchases of property, plant and equipment, is used as a supplemental
financial measure by our management and by external users of our financial
statements, such as investors and commercial banks, to measure the liquidity of
our business.
Net cash provided by operating activities is the GAAP measure most directly
comparable to free cash flows. Free cash flows should not be considered an
alternative to net cash provided by operating activities presented in accordance
with GAAP. Because free cash flows may be defined differently by other companies
in our industry, our definition of free cash flows may not be comparable to
similarly titled measures of other companies, thereby diminishing its utility.
The following table presents a reconciliation of free cash flows to net cash
provided by operating activities.
Three Months Ended
March 31,
2022 2021
(in thousands, except per ton
amounts)
Net cash (used in) provided by operating activities $ (8,662) $ 3,914
Acquisition of Blair facility (6,547) -
Purchases of property, plant and equipment (3,768) (2,213)
Free cash flow $ (18,977) $ 1,701
Free cash flow was $(19.0) million for the three months ended March 31, 2022
compared to $1.7 million for the three months ended March 31, 2021 . The decrease
in free cash flow was primarily attributable to purchase of Blair for $6.5
million , increase in accounts receivable, repayment of tax refund IRS mistakenly
provided in prior period of $2.3 million , and increase in capital expenditures
in the three months ended March 31, 2022 compared to the three months ended
March 31, 2021 . We expect the investments made in the current period will be
cash-generating assets in the future.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flow generated from operations and availability under our ABL Credit Facility and other equipment financing sources. As ofMarch 31, 2022 , cash on hand was$4.7 million and we had$16.9 million in undrawn availability on our ABL Credit Facility. Based on our balance sheet, cash flows, current market conditions, and information available to us at this time, we believe that we have sufficient liquidity and other available capital resources, to meet our cash needs for the next twelve months, including continued investment in our SmartSystems wellsite proppant storage solutions, completion of our newWaynesburg terminal to service the Marcellus and other capital projects. Material Cash Requirements Capital Requirements We expect full year 2022 capital expenditures to be between$25.0 million and$30.0 million , which we anticipate will primarily support efficiency projects atOakdale andUtica , capital related to theWaynesburg terminal and acquisition and incremental capital to purchase theBlair mine and processing facility, acquired onMarch 4, 2022 , and to bring it online over the course of the year. We expect to fund these capital expenditures with cash from operations, equipment financing options available to us or borrowings under the ABL Credit Facility or other financing sources, such as equipment finance providers. For the three months endedMarch 31, 2022 , we spent approximately$3.8 million on capital expenditures. 25 --------------------------------------------------------------------------------
SMART SAND, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) Indebtedness We have several debt facilities, including the Oakdale Equipment Financing, various notes payable and our ABL Credit Facility. Our Oakdale Equipment Financing is secured by substantially all of the assets at ourOakdale facility. The balance on this facility as ofMarch 31, 2022 was$14.5 million . Minimum cash payments on this facility for the remainder of 2022 are anticipated to be$3.5 million . Our various notes payable are primarily secured by our manufactured SmartSystems equipment. Total debt under these notes payable as ofMarch 31, 2022 was$5.6 million . Minimum cash payments on these notes payable for the remainder of 2022 are anticipated to be$2.5 million . There were no borrowings outstanding on our ABL Credit Facility as ofMarch 31, 2022 .
Operating Leases
We use leases primarily to procure certain office space, railcars and heavy equipment as part of its operations. The majority of our lease payments are fixed and determinable. Our operating lease liabilities as ofMarch 31, 2022 were$32.0 million . Minimum cash payments on operating leases for the remainder of 2022 are anticipated to be$7.8 million .
Mineral Rights Property
The Company is obligated under certain contracts for minimum payments for the right to use land for extractive activities. The annual minimum payments under these contracts are approximately$2.5 million per year in the aggregate for the next 15 years.
Off-Balance Sheet Arrangements
We had outstanding performance bonds of$17.3 million and$8.6 million atMarch 31, 2022 andDecember 31, 2021 , respectively. the increase in performance bonds is due primarily to the acquisition of theBlair facility and the assumption of performance bonds related to its potential future reclamation obligations.
Contractual Obligations
As of
Environmental Matters
We are subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, air and water emissions, environmental contamination and reclamation and the protection of the environment and natural resources. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures.
Seasonality
Our business is affected to some extent by seasonal fluctuations in weather that
impact the production levels for a portion of our wet sand processing capacity.
While our dry plants are able to process finished product volumes evenly
throughout the year, our excavation and our wet sand processing activities have
historically been limited to primarily non-winter months. As a consequence, we
have experienced lower cash operating costs in the first and fourth quarter of
each calendar year, and higher cash operating costs in the second and third
quarter of each calendar year when we overproduced to meet demand in the winter
months. These higher cash operating costs were capitalized into inventory and
expensed when these tons are sold, which can lead to us having higher overall
cost of production in the first and fourth quarters of each calendar year as we
expense inventory costs that were previously capitalized. We have indoor wet
processing facilities at each of our plant locations, which allow us to produce
wet sand inventory year-round to support a portion of our dry sand processing
capacity, which may reduce certain of the effects of this seasonality. We may
also sell frac sand for use in oil and natural gas producing basins where severe
weather
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--------------------------------------------------------------------------------SMART SAND, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)
conditions may curtail drilling activities and, as a result, our sales volumes to those areas may be reduced during such severe weather periods.
Customer Concentration
For the three months endedMarch 31, 2022 , revenue from Rice Energy (a subsidiary of EQT Corporation), Halliburton, and Olympus accounted for 24.4%, 17.2%, and 10.0%, respectively, of total revenue. For the three months endedMarch 31, 2021 , revenue from Rice Energy (a subsidiary of EQT Corporation), Halliburton, and Calfrac accounted for 35.1%, 25.5%, and 13.7%, respectively, of total revenue.
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and
procedures during the three months ended
Use of Estimates
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities 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 values of acquired assets and assumed liabilities;
recoverability of deferred tax assets; inventory reserve; and the collectability
of receivables; and certain liabilities.
Actual results could differ from management's best estimates as additional
information or actual results become available in the future, and those
differences could be material. The COVID-19 pandemic caused a significant amount
of volatility in the oilfield services sector during 2020 and frac sand prices
in particular have remained depressed, despite recent increases in oil prices.
We continue to actively monitor the global impact of current events, but we are
currently unable to estimate the impact of these events on our future financial
position and results of operations.
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