HI-CRUSH INC. 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 ofDecember 31, 2019 , included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 (our "Annual Report"), as filed with theSecurities and Exchange Commission (the "SEC") onFebruary 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. OverviewHi-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 majorU.S. oil and gas basins with the ability to build safety, reliability and efficiency into every completion. OnMay 31, 2019 , the Company completed its conversion (the "Conversion") from aDelaware limited partnership namedHi-Crush Partners LP to aDelaware corporation namedHi-Crush Inc. As a result of and at the effective date of the Conversion, each common unit representing limited partnership interests inHi-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, ofHi-Crush Inc. ("common stock"). As a result of the Conversion, the Company converted from an entity treated as a partnership forU.S. federal income tax purposes to an entity treated as a corporation forU.S. federal income tax purposes. As of the open of business onJune 3, 2019 , the common stock commenced trading on theNew York Stock Exchange ("NYSE") under the ticker symbol "HCR." The Company was formed in 2012 with the contribution of theWyeville 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 theAugusta ,Blair andWhitehall facilities previously owned by the sponsor. InMarch 2017 , we acquired a 1,226-acre frac sand reserve, located nearKermit, Texas , upon which we developed ourKermit facilities. InJune 2013 , we acquiredD&I Silica, LLC , which transformed us into an integrated Northern White frac sand producer, transporter, marketer and distributor. To continue growth in logistics services, inAugust 2018 , the Company completed the acquisition ofFB Industries Inc. ("FB Industries "), a company engaged in the engineering, design and marketing of silo-based frac sand management systems, and, inJanuary 2019 , the Company acquiredBulkTracer Holdings LLC , the owner of a logistics software system, PropDispatch. Additionally, inMay 2019 , we completed the acquisition ofProppant Logistics LLC ("Proppant Logistics"), which ownsPronghorn Logistics, LLC ("Pronghorn"), a provider of end-to-end proppant logistics services. InOctober 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 ofHi-Crush GP LLC in the Company. Recent Developments InMarch 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, theOrganization 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. 30
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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 OnJuly 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 theUnited 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 forUnited States oil and gas production, our business is included in those deemed as essential businesses within the Guidance provided by theDepartment of Homeland Security's Cybersecurity 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 aCOVID-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
exposed to COVID-19 or employees
• 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 theCenter for Disease Control ,Occupational Safety and Health Administration , and theWorld Health Organization . Our Assets and Operations Production Facilities We own six production facilities located inWisconsin andTexas . Our fourWisconsin production facilities are equipped with on-site transportation infrastructure capable of accommodating unit trains connected to theUnion Pacific Railroad mainline or the Canadian National Railway mainline. Our twoTexas 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 ofJune 30, 2020 and our proven reserves as ofDecember 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
(b) In
facility and in
(c) The Blair facility and one of the
According toJohn T. Boyd Company ("John T. Boyd"), our proven reserves at our facilities consist of frac sand exceedingAmerican 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 ofDecember 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 ofJune 30, 2020 , we own or operate 11 terminal locations throughoutPennsylvania ,Ohio ,Texas ,Colorado andNew 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 inWisconsin . As ofJune 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 ofJune 30, 2020 , we owned or leased 46 PropBeast conveyors, leased 2,966 containers fromProppant 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 ourKermit 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 ofJuly 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. 32
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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 ourWisconsin 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 ourWisconsin facilities, delivered to and paid for by our customers. No royalties are due on the sand extracted, processed and sold from ourKermit 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. 33
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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 inthe 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
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
Settlement"). Non-recurring business development costs and other items for
the three and six months ended
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
during the three and six months ended
construction projects associated with completion of our second
facility and expansion at our
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
the
idled in
• We realized asset impairments during the six months ended
During the six months ended
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
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 EndedJune 30, 2020 Compared to the Three Months EndedJune 30, 2019 Revenues The following table presents sales, volume and pricing comparisons for the three months endedJune 30, 2020 , as compared to the three months endedJune 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 endedJune 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 inU.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 endedJune 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 endedJune 30, 2020 and 2019, respectively. The Company did not have any sales of silos and related logistics equipment during the three months endedJune 30, 2020 . Other revenues generated from the sales of silos and related logistics equipment were$984 for the three months endedJune 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 inU.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 endedJune 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 endedJune 30, 2020 , we did not purchase sand or other proppants from third party suppliers. For the three months endedJune 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 endedJune 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 inU.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 endedJune 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 endedJune 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 endedJune 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 endedJune 30, 2020 , compared to gross profit of$22,667 for the three months endedJune 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. 37
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Operating Costs and Expenses General and administrative expenses were$21,221 and$15,210 for the three months endedJune 30, 2020 and 2019, respectively. For the three months endedJune 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 endedJune 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 endedJune 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 endedJune 30, 2020 and 2019, respectively, with the slight decrease primarily attributable to the intangible asset impairments recorded. During the three months endedJune 30, 2019 , the Company recorded a decrease to the fair value of contingent consideration associated with theFB Industries acquisition resulting in a gain in the amount of$672 . InMay 2020 , the Company reached the FB Settlement which included the termination of the contingent consideration. During the three months endedJune 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 endedJune 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 endedJune 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 ofEquity Method Investment During the three months endedJune 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 onMay 7, 2019 . Interest Expense Interest expense was$11,735 and$11,806 for the three months endedJune 30, 2020 and 2019, respectively, principally associated with the interest on our Senior Notes. Income Tax During the three months endedJune 30, 2020 , the Company recognized an income tax benefit of$3,230 . During the three months endedJune 30, 2019 , the Company recognized an income tax expense of$116,407 , primarily associated with the initial deferred tax liability of$115,488 recorded onMay 31, 2019 as a result of the Conversion. Net Income (Loss) Net loss was$26,014 and$117,484 for the three months endedJune 30, 2020 and 2019. Six Months EndedJune 30, 2020 Compared to the Six Months EndedJune 30, 2019 Revenues The following table presents sales, volume and pricing comparisons for the six months endedJune 30, 2020 , as compared to the six months endedJune 30, 2019 : Six Months Ended June 30, Percentage 2020 2019 Change Change Frac sand sales revenues$ 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 )% 38
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Revenues generated from the sale of frac sand were$120,863 and$240,975 for the six months endedJune 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 endedJune 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-basinKermit 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 endedJune 30, 2020 and 2019, respectively. The Company did not have any sales of silos and related logistics equipment during the six months endedJune 30, 2020 . Other revenues generated from the sales of silos and related logistics equipment were$7,577 for the six months endedJune 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 inMay 2019 . Costs of Goods Sold - Production Costs We incurred production costs of$39,809 and$61,356 for the six months endedJune 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 endedJune 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 endedJune 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 inU.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 endedJune 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 endedJune 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 endedJune 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 endedJune 30, 2020 , compared to gross profit of$40,783 for the six months endedJune 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 endedJune 30, 2020 and 2019, respectively. For the six months endedJune 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 endedJune 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 endedJune 30, 2020 and 2019, respectively, with the decrease primarily attributable to the intangible asset impairments recorded. During the six months endedJune 30, 2020 , the Company recorded asset impairments of$116,576 and$29,142 on the write-down of theBlair facility and certain idled terminal facilities, respectively, to their estimated fair value. During the six months endedJune 30, 2020 and 2019, the Company recorded a decrease to the fair value of contingent consideration associated with theFB Industries acquisition resulting in gains in the amount of$400 and$672 , respectively. InMay 2020 , the Company reached the FB Settlement which included the termination of the contingent consideration. 39
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During the six months endedJune 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 endedJune 30, 2019 , the Company incurred$900 of other operating expenses, primarily associated with workforce reductions. Earnings from Equity Method Investments During the six months endedJune 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 ofEquity Method Investment During the six months endedJune 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 onMay 7, 2019 . Interest Expense Interest expense was$23,496 and$22,396 for the six months endedJune 30, 2020 and 2019, respectively, principally associated with the interest on our Senior Notes. Income Tax During the six months endedJune 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 endedJune 30, 2019 , the Company recognized an income tax expense of$116,407 , primarily associated with the initial deferred tax liability of$115,488 recorded onMay 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 endedJune 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 ofAugust 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 lateMarch 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"). OnJune 22, 2020 , with the submission of itsMay 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. OnJune 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 untilJuly 5, 2020 . OnJuly 3, 2020 , the Forbearance Agreement was amended to extend the forbearance period untilJuly 12, 2020 . Voluntary Reorganization Under Chapter 11 OnJuly 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. 40
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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 theBankruptcy 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 theBankruptcy 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 ofAugust 1, 2018 (the "Indenture"), by and among the Company, the guarantors named therein (the "Guarantors"), andU.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 theU.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 OnJuly 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 ofAugust 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 ofAugust 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 ofAugust 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. 41
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Off-Balance Sheet Arrangements As ofJune 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 OnJune 8, 2019 , the Company's board of directors approved a stock repurchase program of up to$25,000 , effective immediately and authorized throughJune 30, 2020 . As ofJune 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 endedJune 30, 2020 . Maintenance capex was$574 for the six months endedJune 30, 2020 . Growth capex for the six months endedJune 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 ofJune 30, 2020 , we had a working capital deficit balance of$15,769 as compared to a positive working capital balance of$27,608 atDecember 31, 2019 . The following table summarizes our working capital as of the dates indicated: June 30, 2020 December 31, 2019 Current assets: Accounts receivable, net$ 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 endedJune 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 ourWisconsin production facilities and decreased in-basin finished goods inventory atJune 30, 2020 as compared toDecember 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 atJune 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. 42
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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
other requests made to the
the Plan, maintaining strategic control as debtors-in-possession, and the
outcomes of
• 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
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
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
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
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.
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