Q2 2021 Smart Sand Inc Earnings Call
[music].
Good day.
Thank you for standing by and welcome to the Smart Sand, Inc. Second quarter 2021, earning conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Please be advised that today's conference is being recorded to ask a question. During the session you will need to press star 1 on your telecom.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to Josh Jayne Director of Finance and assistant Treasurer. Please go ahead.
Good morning, and thank you for joining us for Smart Sand's second quarter 2021 earnings call on the call today, we have Chuck young founder and Chief Executive Officer.
Beckman, Chief Financial Officer, and John Young Chief operating Officer.
Before we begin I would like to remind all participants that our comments made today will include forward looking statements, which are subject to certain risks and uncertainties that could cause actual results or events to materially differ from those anticipated for.
For a complete discussion of such risks and uncertainties. Please refer to the company's press release and our documents on file with the SEC.
Smart sand disclaims any intention or obligation to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
This conference call contains time sensitive information and is accurate only as of the live broadcast today August 4th 2021. Additionally.
Additionally, we may refer to the non-GAAP financial measures of contribution margin EBITDA, adjusted EBITDA and free cash flow during this call.
We believe that these measures when used in combination with our GAAP results provide us and our investors with useful information to better understand our business plays.
Please refer to our most recent press release or our public filings for our reconciliations of contribution margin to gross profit EBITDA and adjusted EBITDA to net income and free cash flow to cash flow provided by operating activities I would now like to turn the call over to our CEO Chuck Young.
Thanks, Josh and good morning.
We enjoyed another good quarter for volume with similar tonnage through the first quarter second quarter volumes of 767000 tons are up 269% from the second quarter 2020 levels when the pandemic began to negatively impact our business.
Additionally, sand sales volumes in the first half of 2020 were approximately 10% higher than the first 6 months of 2019.
So while our activity was flat quarter to quarter. Our overall activity is trending higher this year than before the pandemic severely impacted our activity.
This up cycle, so far is different than previous up cycles in the oil and gas industry.
While market activity is much stronger today than it was a year ago E&ps continue to focus on spending within their cash flow.
This spending discipline has led to a slower recovery for sand demand in our core markets.
We are committed to living within our cash flow, while still pursuing opportunities to expand our business.
We are managing our operating costs in line with current activity levels, but have the incremental capacity to sell more sand with minimal additional investment.
So we can quickly respond should market activity begin to increase.
We are actively pursuing opportunities to expand our customer base and logistics capabilities in key long term markets.
This week, we announced the new 3 year agreement to supply sand to EQT.
Including at our new Trans loading terminals that we intend to have operational by the end of this year.
This new contract demonstrates our continued commitment to provide long term sustainable sand supply and logistics solutions to our customers.
The Appalachian Basin is a key market for smart sand and as we move towards adding a new terminal there we expect to offer even greater efficiency to our customers. While also providing ESG benefit by reducing trucking mileage and associated carbon emissions related to sand delivery.
With our diversified asset base and very strong balance sheet, we remain uniquely positioned to keep pursuing our long term strategy to be the premium supplier of northern white Frac sand from the mine to the well site.
We are pleased that we reached a settlement with U S well services during the second quarter to $35 million cash payment. We received in June further strengthened our balance sheet and increased our liquidity. In addition to the cash U S. Well services has entered into a 2 year writer first refusal agreement with smart sand covering all purchases.
As of northern White, Frac sand by U S well services and its affiliates in the Continental United States from January 1.2022 through December 31.2023.
We look forward to having you as well as a customer again soon.
Today, we have $37 million in cash on our balance sheet and approximately $55 million in liquidity.
Even though we have a strong balance sheet, we will remain disciplined with respect to capital spending and focused on maximizing cash flow.
We remain committed to the last mile market with our smart systems, including our smart path translator, which we believe is unlike anything in the industry smart.
Smart path was successfully deployed for the first time during the first quarter and continued to work through the second quarter, we anticipate additional deployments in the back half of the year using.
Using our smart systems, we estimate that the number of trucks needed to deliver sand to the well site will be reduced by more than 30% versus our competitors' offerings by taking trucks off the road accidents or reduced carbon emissions are reduced and noises reduced smart systems are also uniquely designed to reduce dust.
By reducing accidents carbon emissions noise and dust, we're keeping people safer and striving to meet the ESG goals of smart sand and our customers, while providing a reliable efficient last mile solution for the industry.
We're excited about our future for a number of reasons.
We have more cash on the balance sheet today than at any other point over the last 3 years.
Sales volumes are up they remain far above 2020 levels and are trending higher than 2019 volumes.
<unk> commodity prices should yield higher spending in 2022 and beyond we are well positioned to take advantage of any increased market activity with our available capacity ample liquidity and strong balance sheet.
Having operated smart pass successfully for 2 quarters, we look forward to expanding our last mile market share.
As always we will continue to keep our eye on the future and we'll always keep our employees and shareholders interest in mind in everything we do.
And with that I'll turn the call over to our CFO Lee <unk>.
Thanks, Chuck while we are encouraged by the pickup in activity, we have seen thus far in 2021 E&ps have stayed disciplined with respect to spending within their cash flow as Chuck indicated second quarter 2021 volumes for slightly higher than first quarter 2021 volumes.
We continue to expand our customer base during the second quarter and believe a more diverse customer base will strengthen our business going forward, we remain committed to low leverage levels, a prudent capital structure generating positive free cash flow for the year and maintaining adequate liquidity levels.
Now I will go through some of the highlights for the second quarter compared to our first quarter 2021 results.
Starting with sales volumes.
We sold 767000 tons in the second quarter 2021, a slight increase over the first quarter 2021 volume of 760000 tons.
Total revenues for the second quarter, 2021, or $29.6 million.
Compared to $27.5 million in the first quarter 2021.
The revenue increase was driven by higher in basin sales in the second quarter compared to the first quarter.
Sand revenues were higher by $5.7 million.
Which more than offset the decline in logistics revenue of $1.7 million.
Our cost of sales for the quarter were $32 million compared to $32.4 million last quarter.
Despite a slight increase in revenues in ton sold we actually saw a decline in our cash production cost quarter over quarter by approximately 5%.
Total operating expenses were $26.3 million compared to $6.1 million last quarter.
The increase from the first quarter is primarily driven by $19.6 million recorded as noncash bad debt expense in the current period, which is the difference between the $54.6 million accounts receivable balance that was subject to the company's litigation, but the U S well services.
And the $35 million cash received in the settlement of such litigation.
While the company wrote down a portion of the receivables that had previously recorded related to the dispute a contract with U S. Well it increased its cash position by $35 million as a result of the proceeds received in the settlement.
Second quarter 2021 contribution margin was $3.5 million and we had negative adjusted EBITDA of $21.5 million compared to first quarter contribution margin of $1 million and negative adjusted EBITDA of $3.5 million.
Although we generated higher contribution margin from improved average selling prices and lower cash production cost.
Adjusted EBITDA declined in the second quarter of 2021 compared to the first quarter of 2021, primarily as a result of the $19.6 million bad debt expense recorded in the second quarter.
2021 related to the settlement of litigation with you as well.
For the second quarter of 2021, we had $29.7 million of free cash flow generating $32.6 million in operating cash flows while spending $2.8 million on capital investments.
Year to date, we had 31 point for.
$4 million in free cash flow generating $36.5 million of operating cash flows while spending $5 million capital investments.
The majority of capital investments year to date have been on new smart systems units.
During the quarter, we didn't use our revolver and still have no outstanding borrowings other than $1.2 million in letters of credit.
Our current unused availability under the revolver is 13 million.
Additionally, we have $5 million in unused availability from the acquisition liquidity support facility, we put in place with the Eagle proppant business acquisition.
We paid $1.7 million against our notes payable and equipment financing in the quarter net pay down approximately $3.4 million year to date.
We expect to pay down a similar amount in the second half of the year, and therefore will reduce our debt by approximately $6.9 million this year.
We ended the second quarter with approximately $39 million in cash our current cash balance is approximately $37 million.
Between cash and our availability on our facilities. We currently have approximately $55 million and available liquidity.
We do not expect to have any borrowings on our ABL revolver for the remainder of the year other than letters of credit.
In terms of guidance for the third quarter, we expect sales volumes to decline.
10% to 15% from second quarter levels. The anticipated drop in sales volumes is due primarily to timing of well programs from our current customers, particularly in the Bakken.
We're seeing some white space and activity in this region between wells completed in a SEC.
Doing pretty well up there as opposed to where we were when we only had a single railroad. So we feel pretty good about it.
Great.
Thanks, and then 1 more.
Touch on a little bit but.
Have you guys seen any logistics challenges with with all of these channel Fracs that are happening.
Is this going to create problems down the road with the with the amount of sand well fracs that we're kind of seeing in the market.
Well I think what you're touching on there is kind of trucking right and certainly.
We've heard anecdotal evidence that trucks are a problem.
Our view on trucking is that you've got.
Your supply chain is only as strong as your weakest link and trucking traditionally has been difficult last mile is always difficult in that respect and so our view on that is what <unk> got to do is you got to make truckers more efficient <unk> got to make.
Their load times shorter so when we build trans loads out there we're focused on keeping those load times as short as possible keeping the time that a trucker wait in line to be loaded as short as possible, we want our trans loads to be strategically located so the truck distance is a shorter and then and then when we get to the well site we want to.
<unk> those trucks as quick as possible and so.
When we think about trucking, we look to other bulk commodity businesses for what they've done in trucking and 1 of the things that's obvious to US is the use of bottom dump hopper trucks right. They operate.
Load very quickly they unload very quickly and what they also do is they have a heck of a lot more throughput than a traditional pneumatic truck or a box system because they don't weigh as much so youre able to get.
Debt.
That advantage translates into more throughput. So our focus is really helping those truckers out making them more efficient.
Thinking about in the long term, how we encourage trucking truckers to come into this business.
And kind of alleviate some of that supply chain and we think with kind of our smart systems that are capable of doing bottom dump trucks.
We've got a leg up on the competition there.
Okay.
And my.
My last 1 I know you touched again real briefly at the end.
Any of the budget shortfall that you guys are seeing from from the operators. How do you guys think about that in terms of Q for.
Potential seasonality in terms of what you guys are seeing out there I know you briefly hit it but like anything more on on how you guys are seeing that in the fourth quarter or is it too early to tell.
Yes, I think it's little too early to tell I mean.
We're seeing a little slowdown in the Bakken on a timing issues and I think that could pick back up and we do expect some pickup in activity in the northeast in the fourth quarter, but it will really be dependent on how our volumes go quarter to quarter on really that western United States activity and is it pick back up at the end of the year and weather and also are the e&ps.
Going to continue their budget spending into the fourth quarter or basically look to move some of that into the first half of next year. So it's a little hard to say, but I do think we do expect pick up in the northeast, but it's a little early to see how the planning is going for fourth quarter in the Bakken and some of the other western basins, we're now competing in.
Yes, the only thing I would add to that bill is as we kind of look at commodity pricing out there.
Both on net oil and natural gas and with the New terminal we're building up in the northeast. We think we could blunt some of that seasonality that we've seen in past years with the ability to get throughput if the weather is difficult for.
Or we'd see kind of any of the seasonality associated with flooding or whatever in the northeast.
Okay.
Okay.
I appreciate it guys and thanks, I'll turn it back over.
And thank you and our next question comes from Stephen <unk> from Stifel. Your line is now open.
Hi, Thanks, good morning, gentlemen.
Good morning.
A couple of things for me if you don't mind and 1 is I think following up on the prior question you mentioned in your prepared comments about smart systems and sort of the 30% drop you see in trucks to the well site.
Is that any silo versus container benefit or is that something within your systems.
Relative to the market.
Yes Stephen.
Specifically, referring to there is the amount of throughput you get through a truck so for to give you. An example up in North Dakota.
See throughput as high as 35 tonnes per truck right North Dakota has not to get too technical but North Dakota has 106000 pound growth weight trucks up there and so when you have a 35 ton throughput, which is brought about as a result of them using what is effectively a relatively light grain trailer.
Grain type trailer versus a box right a box you've got.
Steel that makes up the box that cuts down on the throughput of that so 30 percentage is an estimate of the difference between how much throughput you can get on a box or a traditional pneumatic trailer versus some of these grain trailers that are out. There now that are you were able to bring this huge amount of throughput.
So if you're increasing your throughput by call. It 10 tons per load Thats, where you kind of get to that 30%.
Got it thank you.
The.
And I think I think we touched on this a bit in the prepared comments as well, but the.
Average revenue per ton in the quarter. It was up sequentially and I think it was related to the in basin sales side and I was just curious is there any price there and what are you seeing kind of on the on the pricing backdrop.
I think right now, we're seeing pricing being kind of stable to having some improvement and overall opportunities for improvement in margin by delivering in basin and managing our logistics costs. There. So I think it's been relatively stable.
And when we see some opportunity for a little improvement, but right now we don't see.
I think we're basically viewing it as a relatively stable market for pricing right now.
And then can you tie that in at all.
As we think about contribution margin per ton in the current environment. We tend to think about it is probably around mid single digits kind of where where you came in in the quarter is that is that reasonable. If you I guess it blends depending on sort of cost of goods sold because of the seasonality, but is that a reasonable sort of starting point.
Yes, I think at our current kind of volumes.
And what we're looking at that we would be in that mid single digit level and be consistent.
<unk>.
And the range of what we ended up did in the second quarter.
Great. Thanks, and then if you don't mind 1 final 1 on my end.
You got this use for all services.
Issue behind you you have a lot of cash for the balance sheet is in great shape I know you have some capex.
How do you think.
Yes.
Use of cash or evolves over time, and so just thinking about how much cash you'd like to have on the balance sheet to run the business and maybe using it at some ways to return to shareholders over time.
Well.
I'll start and maybe Chuck can chime in as well, but I think it's a little early I mean, we definitely like our liquidity position and we like having that cash and it is a strategic asset to us that we can look to debt.
Utilize in terms of how we see incremental growth opportunities to help increase our utilization of our existing assets I think that's a key focus can we use some investment to whether it be a terminals are improving the utilization of smart systems, how do we get more.
Utilization and throughput through our existing asset base.
And then I think once we have kind of see where the business is stabilized and where our cash is we can consider.
Other uses of cash on our balance sheet, albeit from some type of return to shareholders.
1 other thing I would add is the 14% shareholder of smart sand.
Like debt and.
We're going to try to abide by that.
Okay.
Great. Thank you gentlemen.
Day in Q.
And our next question comes from Samantha Hoh from Evercore ISI. Your line is now open.
Hey, guys.
Just real quick Ron any.
I think I heard that Capex guidance was reduced on the upper end.
And from $15 million to $12 million.
And while you're building out this new transplant facility.
And can you kind of walk me to the movement there in terms of your Capex guidance.
Yes, the Capex guidance is really separate from anything for the trans load and we have some other.
Sources to help kind of pay for that transfer to the Capex guide is separate of that and we're still finalizing what that number is but from the guidance. We gave from the 10% to 15 under our normal business and the discretionary capital your reasonable for smart systems, we are pulling that back.
To a tighter range of $10 million to $12 million based on that spending.
So are you still thinking you'll have Ken smart system deployed by year end or is that right.
Well right now.
Well, we've never said, we'd have 10 deployed what we said when you have 10, it could be available and we'll probably be in the 8% to potentially 10 range.
Okay.
The opportunity of maybe expanding our customer base using this new insurance in Appalachia, there are discussions going on with protection customers now.
Yes, it's meant that there are and the trans load, where it's going to be is in a really really good spot 1 of the interesting things about Appalachian 1 of the reasons. We're so excited about this new trans load is it's relatively mountainous terrain around there and finding a spot that has a.
The ability to build a large enough rail yard to be significant and provide logistics advantages that we provide out of our van Hook North Dakota terminal is difficult and we've managed to find a spot that is.
I would suggest is unique and in a fantastic location kind of in the heart of where multiple operators are.
Currently fracking. So yes, we're really excited we're having conversations actively right now with others.
In addition to EQT. So we're really really excited about this new terminal.
Okay, great and if I could just sneak 1 more.
I was curious about the trend in logistics with just shift to in basin.
Is that something that you think is going to be a trend for you.
For the second half for I mean can you maybe speak a little bit in terms of what's going on from the operating your perspective there.
Are you referring to in basin sales, yeah, Im just kind of curious about the mix.
Being more ambition this last quarter.
Yeah.
No I think in general and John and Chuck and just chime in but in general we have seen a pickup in more of our movements going into in basin pricing and delivery.
Versus spot spot, what I'd call Fob mine pricing.
Yes, I would agree with that and certainly as we as we look to get this new trans load up and running.
We'll probably see a bit more movement to pricing in basin versus Fob. The mine, although we still do sell Fob the mine and we've got a number of customers that take take there, but ultimately if you can prove out the logistics on the at least the rail for the <unk>.
Rail side or the logistics.
Customers want to take advantage of that they don't necessarily have entire group spun up anymore to handle that kind of logistics management.
Okay, great. Thanks, guys.
And thank you and we have a follow up from Stephens, Inc. <unk> from Stifel. Your line is now open.
Thanks, Thanks for taking the follow up so 2 quick ones that are I think are related.
I'm a long term agreement you announced yesterday with EQT is that a is it a kind of index to a spot price is that how sort of the pricing dynamic works on that contract.
Yes, we don't we don't get specifically into contract pricing with customers. Steven So we're not going to comment on that okay.
Okay. Okay.
In general terms.
<unk>.
The trans load terminal that Youre that Youre building in Pennsylvania.
Well that tend to help.
I believe it tends to help pricing and contribution margin per ton overtime is that an accurate statement.
In general, Yes, that's an accurate that's particularly as we look to.
With the terminal will have more opportunity to not only work with EQT, but others that have in basin pricing and provide that for value and hopefully capture margin through that it also helps us drive efficiency with the railroad so we're able to.
It demonstrates that the railroads that we can move large trains.
Smoothly effectively we have on both sides ability to take the.
Larger sized trains in and out which drives the efficiency railroads, which should help in pricing and then the last thing I would add to that is it provides a good firm base for us to continue marketing our last mile products into that market. So with the new terminal. We've got a we've got a homebase for for smart systems and.
Tying all those things together in a unified supply chain for our customers.
Great I appreciate the color. Thank you.
Thank you.
Thank you and I am showing no further questions I would now like to turn the call back over to CEO, Chuck Young for closing remarks.
Thank you for joining us on smart sand second quarter's earnings call. We look forward to talking to you again in November.
Sure.
Okay.
Thank you. This concludes today's conference call. Thank you for participating you may now.
Okay.
[music].
Sure.
[music].
[music].
Good day, and thank you for standing by and welcome to the Smart Sand, Inc. Second quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session. Please be advised that today's conference is being recorded to ask a question.
During the session you will need to press star 1 on your telephone if you require any further assistance. Please press star Zero I would now like to hand, the conference over to Josh Jayne Director of Finance and assistant Treasurer. Please go ahead.
Good morning, and thank you for joining us for smart sand second quarter 2021 earnings call on the call today, we have Chuck Young founder and Chief Executive Officer, Lee Beckman Chief Financial Officer.
John Young Chief operating officer.
Before we begin I would like to remind all participants that our comments made today will include forward looking statements, which are subject to certain risks and uncertainties that could cause actual results or events to materially differ from those anticipated.
For a complete discussion of such risks and uncertainties. Please refer to the company's press release and our documents on file with the SEC.
Smart sand disclaims any intention or obligation to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
This conference call contains time sensitive information and is accurate only as of the live broadcast today August 4th 2021. Additionally.
Additionally, we may refer to the non-GAAP financial measures of contribution margin EBITDA, adjusted EBITDA and free cash flow during this call.
We believe that these measures when used in combination with our GAAP results provide us and our investors with useful information to better understand our business. Please refer to our most recent press release or our public filings for our reconciliations of contribution margin to gross profit EBITDA and adjusted EBITDA to net income and free.
Cash flow to cash flow provided by operating activities I would now like to turn the call over to our CEO Chuck Young.
Thanks, Josh and good morning.
We enjoyed another good quarter for volume with similar tonnage through the first quarter second quarter volumes of 767000 tons are up 269% from the second quarter 2020 levels when the pandemic began to negatively impact our business.
Actually sand sales volumes in the first half of 2020 for approximately 10% higher than the first 6 months of 2019.
So while our activity was flat quarter to quarter. Our overall activity is trending higher this year than before the pandemic severely impacted our activity.
This up cycle, so far is different than previous up cycles in the oil and gas industry.
While market activity is much stronger today than it was a year ago E&ps continue to focus on spending within their cash flow.
This spending discipline has led to a slower recovery for sand demand in our core markets.
We are committed to living within our cash flow, while still pursuing opportunities to expand our business.
We are managing our operating costs in line with current activity levels, but have the incremental capacity.
To sell more sand with minimal additional investment.
So we can quickly respond should market activity begin to increase.
We are actively pursuing opportunities to expand our customer base and logistics capabilities in key long term markets.
This week, we announced the new 3 year agreement to supply sand to EQT, Inc.
Including at a new trans loading terminals that we intend to have operational by the end of this year.
This new contract demonstrates our continued commitment to provide long term sustainable sand supply and logistics solutions to our customers.
The Appalachian Basin is a key market for smart sand and as we move towards adding a new terminal there we expect to offer even greater efficiency to our customers. While also providing ESG benefit by reducing trucking mileage and associated carbon emissions related to sand delivery.
With our diversified asset base and very strong balance sheet, we remain uniquely positioned to keep pursuing our long term strategy to be the premium supplier of northern white Frac sand from the mine to the well site.
We are pleased that we reached a settlement with U S well services during the second quarter to $35 million cash payment. We received in June further strengthened our balance sheet and increased our liquidity. In addition to the cash U S. Well services has entered into a 2 year writer first refusal agreement with smart sand covering all purchases.
As of northern White, Frac sand by U S well services and its affiliates in the Continental United States from January 1.2022 through December 31.2023.
We look forward to having you as well as the customer again soon.
Today, we have $37 million in cash on our balance sheet and approximately $55 million in liquidity.
Even though we have a strong balance sheet, we will remain disciplined with respect to capital spending and focused on maximizing cash flow.
We remain committed to the last mile market with our smart systems, including our smart path translator, which we believe is unlike anything in the industry smart.
Smart pass was successfully deployed for the first time during the first quarter and continued to work through the second quarter, we anticipate additional deployments in the back half of the year using.
Using our smart systems, we estimate that the number of trucks needed to deliver sand for the well site will be reduced by more than 30% versus our competitors' offerings by taking trucks off the road accidents or reduced carbon emissions are reduced and noises reduced smart systems are also uniquely designed to reduce dust.
By reducing accidents carbon emissions noise and dust, we're keeping people safer and striving to meet the ESG goals of smart sand and our customers, while providing a reliable efficient last mile solution for the industry.
We're excited about our future for a number of reasons.
We have more cash on the balance sheet today than at any other point over the last 3 years.
Sales volumes are up they remain far above 2020 levels and are trending higher than 2019 volumes.
Strong commodity prices should yield higher spending in 2022 and beyond we are well positioned to take advantage of any increased market activity with our available capacity ample liquidity and strong balance sheet.
Having operated smart passed successfully for 2 quarters, we look forward to expanding our last mile market share.
As always we will continue to keep our eye on the future and we will always keep our employees and shareholders interest in mind in everything we do.
And with that I'll turn the call over to our CFO Lee <unk>.
Thanks, Chuck while we are encouraged by the pickup in activity, we have seen thus far in 2021 E&ps have stayed disciplined with respect to spending within their cash flow.
As Chuck indicated second quarter 2021 volumes for slightly higher than first quarter 2021 volumes.
We continue to expand our customer base during the second quarter and believe a more diverse customer base will strengthen our business going forward, we remain committed to low leverage level, a prudent capital structure generating positive free cash flow for the year and maintaining adequate liquidity levels.
Now I will go through some of the highlights for the second quarter compared to our first quarter 2021 results.
Starting with sales volumes.
We sold 767000 tons in the second quarter 2021, a slight increase over the first quarter 2021 volumes up 760000 tons.
Total revenues for the second quarter 2021 were $29.6 million.
Compared to $27.5 million in the first quarter 2021.
The revenue increase was driven by higher in basin sales in the second quarter compared to the first quarter.
<unk> revenues were higher by $5.7 million.
Which more than offset the decline in logistics revenue of $1.7 million.
Our cost of sales for the quarter were $32 million compared to $32.4 million last quarter.
Despite a slight increase in revenues in ton sold we actually saw a decline in our cash production cost quarter over quarter by approximately 5%.
Total operating expenses were $26.3 million compared to $6.1 million last quarter.
The increase from the first quarter is primarily driven by $19.6 million recorded as noncash bad debt expense in the current period, which is the difference between the $54.6 million accounts receivable balance that was subject to the company's litigation, but the U S well services.
And the $35 million cash received in the settlement of litigation.
While the company wrote down a portion of the receivables that had previously recorded related to the disputed contract with U S. Well it increased its cash position by $35 million as a result of the proceeds received in the settlement.
Second quarter 2021 contribution margin was $3.5 million and we had negative adjusted EBITDA of $21.5 million compared to first quarter contribution margin of $1 million and negative adjusted EBITDA of $3.5 million.
Although we generated higher contribution margin from improved average selling prices and lower cash production cost adjusted EBITDA declined in the second quarter of 2021 compared to the first quarter of 2021, primarily as a result of the $19.6 million bad debt expense recorded in the second quarter.
2021 related to the settlement of litigation with you as well.
For the second quarter of 2021, we had $29.7 million of free cash flow generating $32.6 million in operating cash flows while spending $2.8 million on capital investments.
Year to date, we had 31 points for.
$4 million in free cash flow generating $36.5 million in operating cash flows while spending 5 million non capital investments.
The majority of capital investments year to date have been on new smart systems units.
During the quarter, we didn't use our revolver and still have no outstanding borrowings other than $1.2 million in letters of credit.
Our current unused availability under the revolver is 13 million.
Additionally, we have $5 million in unused availability from the acquisition liquidity support facility, we put in place with the Eagle proppant business acquisition.
We paid $1.7 million against our notes payable and equipment financing in the quarter net pay down approximately $3.4 million year to date.
We expect to pay down a similar amount in the second half of the year, and therefore will reduce our debt by approximately $6.9 million this year.
We ended the second quarter with approximately $39 million in cash our current cash balance is approximately $37 million.
Between cash and our availability on our facilities. We currently have approximately $55 million in available liquidity.
We do not expect to have any borrowings on our ABL revolver for the remainder of the year other than letters of credit.
In terms of guidance for the third quarter, we expect sales volumes to decline.
10% to 15% from second quarter levels anticipated drop in sales volumes is due primarily to timing of well programs from our current customers, particularly in the Bakken.
We're seeing some white space and activity in this region between wells completed in the second quarter and startup of new.
Well pads.
Capital expenditures for 2021 to be in the $10 million to $12 million range and expect to be free cash flow positive for the full year.
This concludes our prepared comments and we will now open the call for questions.
Okay.
As a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the balance sheet. Please standby will be compile the Q&A roster.
And our first question comes from Bill Austin from Daniel LNG Partners.
Your line is now open.
Hey, guys.
Hey, Bill and Bill.
Hey.
Just wanted to start with a little items.
If you wouldn't mind, just characterizing the competitive landscape that you're seeing in the northern white market today.
Yes, sure Bill so.
What we're seeing out there as we've got.
The traditional providers of northern white up in.
Servicing kind of Midwest and northeast.
And then a little bit down south into some opportunities in Oklahoma.
Yes, the northern market is the northern white sand market is relatively healthy.
We are seeing as we mentioned in his comments with our deliveries into North Dakota, we're seeing a little bit of white space as our.
Customers out there retool for pushed towards the end of the year.
With regard to who our main competitors are up there, it's primarily U S silica and Covia Theres a couple of smaller operators that provide sand there, but with our assets.
Diversity on rail both UPC P and there'll be an origination we're competing pretty well up there as opposed to where we were when we only had a single railroad. So we feel pretty good about it.
Great.
Thanks, and then 1 more.
Touch on a little bit but.
Have you guys seen any logistics challenges with our with all of these final fracs that are happening.
Is this going to create problems down the road with the amount of sand well fracs that we're kind of seeing in the market.
Well I think what youre touching on there is kind of trucking right and certainly.
We've heard anecdotal evidence that youre trucks our problem.
Our view on trucking is that you've got.
The supply chain is only as strong as your weakest link and trucking traditionally has been difficult last mile is always difficult in that respect and so our view on that is what you've got to do is you got to make truckers more efficient <unk> got it.
Make their load times shorter so when we build trans loads out there we're focused on keeping those load times as short as possible keeping the time that a trucker waits in line to be loaded as short as possible, we want our trans loads to be strategically located so the truck distance is a shorter and then and then when we get to the well side we want to.
Offload those trucks as quick as possible and so.
When we think about trucking, we look to other bulk commodity businesses for what they've done in trucking and 1 of the things that's obvious to US is the use of bottom dump hopper trucks right. They off load very quickly they unload very quickly and what they also do is they have a heck of a lot more throughput than a traditional.
Pneumatic truck or a box system, because they don't weigh as much so youre able to get.
Debt.
That advantage translates into more throughput. So our focus is really helping those truckers out making them more efficient and.
And thinking about in the long term, how we encourage trucking truckers to come into this business.
And kind of alleviate some of that supply chain and we think with kind of our smart systems that are capable of doing bottom dump trucks.
We've got a we've got a leg up on the competition there.
Okay. Thanks.
Yes.
Last 1 I know you touched again real briefly at the end.
Any of the budget shortfall that you guys are seeing from from the operators. How do you guys think about that in terms of Q4.
Potential seasonality in terms of what you guys are seeing out there I know you briefly hit it but like anything more on how you guys are seeing that in the fourth quarter are the.
Too early to tell.
Yes, I think it's been less volatility to tell I mean, we are seeing a little slowdown in the Bakken on a timing issue and I think that could pick back up and we do expect some pickup in activity in the northeast in the fourth quarter, but it will really be the tenant how are volumes go quarter to quarter on really that western United States activity and is it pick back up at the end of the year.
And whether and also are the e&ps are going to continue their budget spending into the fourth quarter are basically look to move some of that into the first half of next year. So it's a little hard to say, but I do think we do expect pick up in the northeast, but it's a little early to see how the planning is going for fourth quarter in the Bakken and some of the other western basins, we're now competing in.
Yes.
Yes, the only thing I would add to that bill is as we kind of look at commodity pricing out there.
Both on net oil and natural gas and with the New terminal we're building up in the northeast. We think we could blunt some of that seasonality that we've seen in past years with the ability to get throughput if the weather is difficult or.
Or we'd see kind of any of the seasonality associated with flooding or whatever in the northeast.
Okay.
Okay well.
I appreciate it guys. Thanks, I'll turn it back over.
And thank you and our next question comes from Stephen <unk> from D. Stifel. Your line is now open.
Hi, Thanks, good morning, gentlemen.
Good morning, Steve.
A couple of things for me if you don't mind and 1 is I think following up on the prior question you mentioned in your prepared comments about smart systems and sort of a 30% drop you see in trucks to the wall site.
I'm just curious is that any silo versus container benefit or is that something within your systems.
Relative to the market.
Yes, Steve.
Specifically, referring to there is the amount of throughput you get through a truck. So for you to give you. An example up in North Dakota, we see throughput as high as 35 tonnes per truck right North Dakota has not to get too technical but North Dakota has 106000 pound growth weight trucks up there and so when you have.
35 ton throughput, which is brought about as a result of them using what is effectively a relatively light grain trailer grain type trailer versus a box right box you have got.
Deal that makes up the box that cuts down on the throughput of that so 30% is as an estimate of the difference between how much throughput you can get on a box or a traditional pneumatic trailer versus some of these grain trailers that are out there now that are you able to bring this huge amount of throughput.
If you are increasing your throughput by call it 10 tons per load.
Where do you kind of get to that 30%.
Got it thank you.
Yes.
We touched on this a bit in the <unk>.
Prepared comments as well, but the average revenue per ton in the quarter.
Was up sequentially and I think it was relating to the in basin sales side and I was just curious is there any price there and what are you seeing kind of on the on the pricing backdrop.
I think right now, we're seeing pricing being kind of stable to having some improvement in.
And overall opportunities for improvement in margin by delivering in basin and managing our logistics cost. There. So I think it's been relatively stable and when we see some opportunity for a little improvement, but right now we don't see.
I think we're basically viewing it as a relatively stable market for pricing right now.
And then can you tie that in at all.
The touch.
As we think about contribution margin per ton in the current environment. I mean, we tend to think about it is probably around mid single digits kind of where where you came in in the quarter.
Is that reasonable if you I guess it blends depending on total cost of goods sold because of the seasonality, but is that a reasonable sort of starting point.
Yes, I think at our current kind of volumes.
And what we're looking at that we would be in that mid single digit level and be consistent.
<unk>.
And the range of what we ended up did in the second quarter.
Great. Thanks, and then if you don't mind 1 final 1 on my end.
You got this U S where all services.
Issue behind you you have a lot of cash for the balance sheets in great shape I know you have some capex.
How do you think.
Yes.
Use of cash evolves over time, and so I'm sorry, I was just thinking about how much cash you'd like to have on the balance sheet to run the business and maybe using it at some ways to return to shareholders over time.
Well.
I'll start maybe Chuck can chime in as well, but I think it's a little early I mean, we definitely like our liquidity position, we like having that cash and it is a strategic asset to us that we can look to.
Utilize in terms of how we see incremental growth opportunities to help increase our utilization of our existing assets I think that's a key focus can we use some investment to.
Whether it be a terminals are improving the utilization of smart systems, how do we get more.
Utilization and throughput through our existing asset base.
And then I think once we have kind of see where the business is stabilized and where our cash is we can consider.
Other uses of cash on our balance sheet, albeit from some type of return to shareholders.
1 other thing I would add is a 14% shareholder of smart sand.
Like debt and.
We're going to try to abide by that.
Okay, great. Thank you gentlemen.
Day in Q.
And our next question comes from Samantha Hoh from Evercore ISI. Your line is now open.
Hey, guys.
Just real quick Ron any I think I heard that capex guidance with reduced on GAAP.
Brian.
$15 million to $12 million.
Meanwhile, Youre moving out this new transplant facility and can you kind of walk me through the movement. There in terms of your Capex guidance.
Yes, the Capex guide and that's really separate from anything for that trans load and we have some other.
Sources to help kind of pay for that trans load for the Capex guide is separate of that and we're still finalizing what that number is but from the guidance. We gave from the 10% to 15 under our normal business and the discretionary capital your reasonable for smart systems, we are pulling that back.
To a tighter range of $10 million to $12 million based on that spending.
So are you still thinking you'll have Ken smart system deployed by year end or is that.
Well right now.
Well, we've never said, we'd have 10 deployed what we said when you have 10 that could be available and we'll probably be in the 8% to potentially 10 range.
Okay.
And what's the opportunity of expanding our customer base using this new insurance in Appalachia, there are discussions going on with potential new customers.
Yes, there are and the trends with where it's going to be is in a really really good spot 1 of the interesting things about Appalachian 1 of the reasons. We're so excited about this new trans load is it's relatively mountainous terrain around there and finding a spot that has a.
The ability to build a large enough rail yard to be significant and provide the logistics advantages that we provide out of our van Hook North Dakota terminal is difficult and we've managed to find a spot that is.
I would suggest is unique.
And then a fantastic location kind of in the heart of where multiple operators are.
Currently fracking. So yes, we're really excited we're having conversations actively right now with others.
In addition to EQT. So we're really really excited about this new terminal.
Okay, great and if I could just sneak 1 more.
I was curious about the trend in logistics with just shift to in basin.
Is that something that you think is going to be a trend.
The second half for I mean can you maybe speak a little bit in terms of what's going on from the operating your perspective there.
Are you referring to in basin sales, yeah, Im just kind of curious about the mix.
Being more on in basin this last quarter.
<unk>.
No I think in general and John and Chuck and just chime in but in general we have seen a pickup in more of our movements going into in basin pricing and delivery.
Versus spot spot, what I'd call Fob mine pricing.
Yes, I would agree with that and certainly as we as we look to get this new trans load up and running.
We'll probably see a bit more movement to pricing in basin versus Fob. The mine, although we still do sell off will be the mine and we've got a number of customers that take take there, but ultimately if you can prove out the logistics on the at least the rail for.
For the rail side of the logistics customers want to take advantage of that.
I don't necessarily have entire group spun up anymore to handle that kind of logistics management.
Okay, great. Thanks, guys.
Thank you.
We have a follow up from Stephens, Inc. <unk> from Stifel. Your line is now open.
Hi, Thanks.
Thanks for taking the follow up so 2 quick ones that are I think are related.
On the long term agreement you announced yesterday with EQT is that.
Is it a kind of index to a spot price is that how sort of the pricing dynamic works on that contract.
Yes, we don't we don't get specifically into contract pricing with customers. Steven So we're not going to comment on that.
Okay. Okay.
In general terms.
<unk>.
The translator terminal that Youre that Youre building in Pennsylvania.
Well that tend to help.
I believe it tends to help pricing and contribution margin per ton overtime is that an accurate statement.
In general, Yes, that's an accurate that's particularly as we look to.
With the terminal will have more opportunity to not only work with EQT, but others that have in basin pricing and provide that for value and hopefully capture margin through that it also helps us drive efficiency with the railroad so we're able to.
It demonstrates that our railroad so we can move large trains.
Smoothly effectively we have on both sides ability to take.
The larger sized trains in and out which drives the efficiencies railroads, which should help in pricing and then the last thing I would add to that is it provides a good firm base for us to continue marketing our last mile products into that market. So with the new terminal. We've got we've got a home base for for smart systems and kind of tie.
All those things together in a unified supply chain for our customers.
Great I appreciate the color. Thank you.
Thank you.
Thank you.
Im showing no further questions I would now like to turn the call back over to CEO, Chuck Young for closing remarks.
Thank you for joining us on smart sand second quarter's earnings call. We look forward to talking to you again in November.
Yes.
Okay.
Thank you. This concludes today's conference call.