Smart Sand Inc

NOTE 1 —Organization and Nature of Business

The Company was incorporated in July 2011 and is headquartered in Spring, Texas. The Company primarily operates as a fully integrated frac and industrial sand supply and services company. The Company offers complete mine to wellsite proppant supply and logistics solutions to our frac sand customers. These operations include the excavation, processing and sale of sand, or proppant, for use in hydraulic fracturing operations as well as proppant logistics and wellsite storage solutions through its SmartSystems TMproducts and services. In late 2021, the Company created its Industrial Products Solutions (“IPS”) business to diversify its customer base and markets it serves by offering sand to customers for industrial uses, such as glass, foundry, building products, filtration, geothermal, renewables, ceramics, turf & landscape, retail, and recreation.

Sand Mines and Processing Facilities

The Company’s integrated Oakdale facility, with on-site rail infrastructure and wet and dry sand processing facilities, has access to two Class I rail lines which enable the Company to process and cost effectively deliver products to its customers. The Company completed construction of the first phase of its mine and processing facility near Oakdale, Wisconsin and commenced operations in July 2012, and subsequently expanded its operations in 2014, 2015 and 2018. Currently, the annual processing capacity at the Company’s Oakdale facility is approximately 5.5 million tons.

In September 2020, the Company acquired two frac sand mines and related processing facilities in Utica, Illinois and New Auburn, Wisconsin. The Utica facility has an annual processing capacity of 1.6 million tons and access to the Burlington Northern Santa Fe (“BNSF”) Class I rail line through the Peru, Illinois transload facility. The Company began operating the Utica, Illinois mine and Peru, Illinois transload facility in October 2020. The Company has no plans to operate the New Auburn Facility for the foreseeable future.

In March 2022, the Company acquired its Blair, Wisconsin, whose primary assets of Blair consisted of an idle frac sand mine and related processing facility located in Blair, Wisconsin. The Blair facility has approximately 2.9 million tons of total annual processing capacity and contains an onsite, unit train capable rail terminal with access to the Class 1 Canadian National Railway. The Company began operations at Blair in the second quarter of 2023.

With the Blair acquisition, the Company has direct access to four Class I rail lines and the ability to access all Class 1 rail lines within the United States and Canada.

The Company also offers proppant logistics solutions to its customers through, among other things, its in-basin transloading terminals and its SmartSystems TMwellsite proppant storage and management capabilities.

Transload & Logistics Solutions

In March 2018, the Company acquired the rights to operate a unit train capable transloading terminal in Van Hook, North Dakota to service the Bakken Formation in the Williston Basin and began providing Northern White Sand in-basin in April 2018.

In September 2020, the Company acquired the rights to use a rail terminal located in El Reno, Oklahoma.

In September 2021, the Company acquired the rights to construct and operate a transloading terminal in Waynesburg, Pennsylvania to service the Appalachian Basin, including the Marcellus and Utica Formations. The Company began providing sand to customers through this terminal in January 2022 and recently expanded the facility’s capacity in late 2023.

In December 2023 and January 2024, the Company acquired rights to use transloading terminals in Minerva, Ohio and Dennison, Ohio, respectively. These terminals will service the Appalachian Basin and are expected to commence operations in the second quarter of 2024.

In June 2018, the Company acquired substantially all of the assets of Quickthree Solutions, Inc., (“Quickthree”), a manufacturer of portable vertical proppant storage solution systems. Quickthree formed the basis for the Company’s SmartSystems under which it offers various proppant storage solutions that create efficiencies, flexibility, enhanced safety and reliability for customers by providing the capability to unload, store and deliver proppant at the wellsite, as well as the ability to rapidly set up, takedown and transport the entire system. The SmartDepot TM silo includes passive and active dust suppression technology, along with the capability of gravity-fed operation. The self-contained SmartPath TM transloader is a mobile sand transloading system designed to work with bottom dump trailers and features a drive over conveyor, surge bin, and dust collection system. The SmartBelt TM conveyor works in conjunction with the SmartPath to provide sand directly into the blender on the wellsite. The Company has developed a belt system to pair with its SmartPath, which allows for feeding sand directly into the hopper at the wellsite. Rapid deployment trailers are designed for quick setup, takedown and transportation of the entire SmartSystem, and they detach from the wellsite equipment, which allows for removal from the wellsite during operation. A proprietary software program, the SmartSystem Tracker TM, allows customers to monitor silo-specific information, including location, proppant type and proppant inventory.

NOTE 2 —Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying consolidated financial statements (“financial statements”) of the Company have been prepared in accordance with GAAP and pursuant to the rules and regulations of the SEC. The accompanying financial statements include those of our controlled subsidiaries. The intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included.

Revision of Previously Issued Financial Statements for Immaterial Misstatements

During the quarter ended March 31, 2023, the Company identified a misclassification in the operating expenses section of the statement of operations in the audited financial statements for the year ended December 31, 2022. The misclassification was an overstatement of salaries, benefits and payroll taxes and an understatement of selling, general and administrative in the amount of $1,462. For the three and twelve months ended December 31, 2022, the Company has decreased salaries, benefits and payroll taxes and increased selling, general and administrative line items by $1,462. There was no effect to the amounts reported in the first, second or third quarter financial statements of 2022. Pursuant to the guidance of Staff Accounting Bulletin (“SAB”) No. 99, “Materiality”, the Company evaluated the materiality of this misclassification quantitatively and qualitatively and concluded that it was not material to any of its prior annual or quarterly financial statements or trends of financial results. The Company has reclassified the prior year financial statement presentation to conform to the current financial statement presentation. These reclassifications have no effect on previously reported net income.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates used in the preparation of these financial statements include, but are not limited to: the sand reserves and their impact on calculating the depletion expense under the units-of-production method; the depreciation and amortization associated with property, plant and equipment and definite-lived intangible assets; impairment considerations of intangible assets; estimated cost of future asset retirement obligations; fair value of acquired assets and assumed liabilities; stock-based compensation; recoverability of deferred tax assets; inventory reserve; collectability of receivables; and certain liabilities.

Actual results could differ from management’s best estimates as additional information or actual results become available in the future, and those differences could be material. The Company is currently unable to estimate the impact of current or future events on its future financial position and results of operations. Therefore, the Company can give no assurances that current or future events will not have a material adverse effect on its financial position or results of operations.

Revenue Recognition

Revenues are generally recognized when control of the promised goods or services is transferred to our customers, the amount of which reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

Sand Sales Revenue

The Company derives its sand sales revenue by mining and processing sand. Its revenues are primarily a function of the price per ton realized and the volumes sold. The singular performance obligation for sand sold is determined by each individual purchase order and the respective products ordered, with revenue being recognized at a point-in-time when the obligation under the terms of the agreement is satisfied and the product control is transferred to our customer. For sand delivered at one of the Company’s facilities, title passes as the product is loaded into railcars hired by the customer or provided by the Company and revenue is recognized when title transfers at the Company’s facility. For sand delivered in-basin, the Company recognizes revenue when title passes to the customer at the transload facility or in the customer’s truck, depending on the level of logistics services provided to the customer. The amount invoiced reflects product, transportation and any other additional handling services, such as storage or transloading the product from railcar to truck.

Prices under the Company’s long-term agreements with customers are generally fixed but may contain provisions allowing for adjustments including: (i) annual percentage price increases; and/or (ii) market factor adjustments, including a natural gas surcharge/reduction, propane surcharge/reduction, or rail surcharge which are applied if prices moved beyond benchmarks established in the contract.

The Company requires certain customers to pay a monthly reservation charge based on a minimum contractual volume over the remaining life of their contract, which may be applied as a per ton credit to the sales price up to a certain contractually specified monthly volume or credited against any applicable shortfall payments. Standard collection terms are net 30 days, although extended terms are offered in competitive situations. The Company recognizes revenue when the customer no longer has the right to use the reservation charge towards sand sales or shortfall payments.

Shortfall Revenue

The Company’s shortfall revenues are related to minimum commitments under take-or-pay contracts and based on negotiated contract terms and are recognized when rights of use are expired. The Company recognizes revenue to the extent of the unfulfilled minimum contracted quantity at the shortfall price per ton as stated in the contract.

Logistics Revenue

Logistics revenue is primarily from SmartSystems revenue, railcar usage and transportation revenue.

SmartSystems revenues are primarily from the rental of our patented SmartSystems equipment and related services provided to customers, which is typically earned under fixed monthly rental fees for equipment and services for the delivery, proppant management and maintenance on the equipment. The singular performance obligation of SmartSystems revenue is providing the equipment and related to services to customers. Revenues are recognized as the performance obligations are satisfied under the terms of the customer contract.

Railcar usage revenue consists of revenue derived from the usage of the Company’s railcars by customers under long-term contracts or on an as-used basis. The singular performance obligation for railcar usage revenue is making the railcars available for customer use. Based on the customer contract, the Company either recognizes revenue on the usage of railcars based on when the terms of the agreement state that the railcar is available to the customer for use, or based on a specified price per ton shipped.

Transportation revenue consists primarily of railway transportation and transload services that occur after the control over a product has transferred to a customer. The singular performance obligation for transportation revenue is providing the railway and transportation services. Revenue is recognized when this performance obligation is fulfilled. The Company’s transportation revenue fluctuates based on many factors, including the volume of product it transports and the distance between its plant and customers.

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, deferred revenue, and contract assets, included in other assets, on the consolidated balance sheet. Generally, billing occurs subsequent to revenue recognition, though certain billing occurs in advance, resulting in unbilled receivables and deferred revenue, respectively. In addition, the Company sometimes receives shortfall payments from or offers pricing concessions to its customers, which results in deferred revenue until the Company recognizes such revenue when performance obligations are met in accordance with the contract.

Deferred Revenues

The Company receives advance payments from certain customers in order to secure and procure a reliable provision and delivery of product. The Company classifies such advances as current or noncurrent liabilities depending upon the anticipated timing of delivery of the supplied product. Deferred revenue is recognized as revenue when performance obligations are met in accordance with the contract.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in accordance with ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. The Company’s contracts may include a single performance obligation in a single contract whereby the allocation of transaction price is not necessary. The Company’s contracts may also contain multiple elements in a single contract or multiple contracts. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product or service is transferred to the customer, in satisfaction of the corresponding performance obligations. As of December 31, 2023, the Company had $235,704 in estimated unsatisfied performance obligations related to contracts with customers. The Company expects to perform these obligations and recognize revenue of approximately $150,475 and $85,229 in the years ending December 31, 2024 and 2025, respectively. These estimates include all open contracts as of December 31, 2023. Actual amounts earned may vary from these estimates as our contract prices include provisions for pricing changes discussed above.

Taxes Collected from Customers and Remitted to Governmental Authorities

We exclude from our measurement of transaction prices all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers.

Significant Judgments

Accounting for long-term contracts involves the use of various techniques to estimate total contract revenue, costs and satisfaction of performance obligations. The Company satisfies its performance obligation and subsequently recognizes revenue, at a point in time, upon shipment of the products as the customer obtains control over the goods once the sand is loaded into the railcars or sand is delivered to the customer’s destination.

Cash and Cash Equivalents

The Company considers all short-term, highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash is maintained at financial institutions and, at times, balances may exceed federally insured limits.

Accounts and Unbilled Receivables

Accounts receivable represents customer transactions that have been invoiced as of the balance sheet date; unbilled receivables represent customer transactions that have not yet been invoiced as of the balance sheet date. Accounts receivable are due in accordance with terms agreed upon with customers, and are stated at amounts due from customers net of any allowance for doubtful accounts. The Company considers accounts outstanding longer than the payment terms past due.

In January 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which modifies how companies recognize expected credit losses on financial instruments and other commitments to extend credit held by an entity at each reporting date. Effective with this amendment, the Company records an allowance for credit losses and deducts that amount from its accounts receivable balance and a related expense will be recognized in selling, general and administrative expenses on the income statement. The Company has not recorded any allowance for bad debt under this new methodology for the year ended December 31, 2023.

Prior to 2023, GAAP required incurred loss methodology whereby companies are prohibited from recording an expected loss until it is probable that the loss has been incurred. Accounts receivable are written off when they are deemed uncollectible, and payments subsequently received on such receivables are credited to bad debt expense. The Company has not recorded any allowance for bad debt under this previous methodology for the year ended December 31, 2022.

Under both methodologies, the Company determines the allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, a customer’s current ability to pay its obligation, and the condition of the general economy and the industry as a whole. As of December 31, 2023 and 2022, there were no unbilled receivables included in deferred revenue. The Company recorded $0, $1, and $19,592 for the years ended December 31, 2023, 2022, and 2021, respectively as non-cash bad debt expense. The $19,592 in non-cash debt expense in 2021 is the difference between the $54,592 accounts receivable balance that was previously under litigation and the $35,000 cash received under a settlement agreement.

Transportation

Transportation costs are classified as cost of goods sold. Transportation costs consist of railway transportation and transload costs to deliver products to customers. Cost of sales generated from shipping was $139,568, $118,616 and $57,770 for the years ended December 31, 2023, 2022 and 2021, respectively.

Inventories

The Company’s sand inventory consists of raw material (sand that has been excavated but not processed), work-in-progress (sand that has undergone some but not all processing) and finished goods (sand that has been completely processed and is ready for sale). Costs applied to sand inventory include direct excavation costs, processing costs, overhead allocation, depreciation and depletion, transportation and additional service costs, as applicable. Stockpile tonnages are calculated by measuring the number of tons added and removed from the stockpile. Costs are calculated on a per ton basis and are applied to the stockpiles based on the number of tons in the stockpile. The Company performs periodic surveys to verify the quantity of sand inventory on hand. Due to variation in sand density and moisture content and production processes utilized to manufacture the Company’s products, physical inventories will not necessarily detect all variances. To mitigate this risk, the Company recognizes a yield adjustment on its inventories. Sand inventory is stated at the lower of cost or net realizable value using the average cost method. There was no write-down of inventory value based on the lower of cost or net realizable value calculation for the years ended December 31, 2023, 2022 and 2021. The Company also performs an analysis on its existing inventory and estimates the expected production yield based on waste sand produced to determine if it has obsolete inventory. An inventory impairment was recorded in the amount of $2,170 for the year ended December 31, 2021. There wasno inventory impairment due to obsolescence for the years ended December 31, 2023 and 2022.

The spare parts inventory consists of critical spare parts. Spare parts inventory is accounted for on a first-in, first-out basis at the lower of cost or net realizable value.

Certain acquired inventory is stated at fair market value, as determined by its anticipated sales price less costs of disposal and reasonable profit allowance for selling efforts, which may be higher than its cost.

Deferred Financing Charges

Direct costs incurred in connection with the Company's debt are capitalized amortized using the straight-line method, which approximates the effective interest method, over the term of the debt. Amortization expense of the deferred financing and debt discount charges of $291, $291, and $291 are included in interest expense as of December 31, 2023, 2022 and 2021, respectively. Costs related to the Oakdale Equipment Financing are presented net of the related debt and costs related to the ABL Credit Facility are presented in other assets on the balance sheet.

Financial Instruments

The carrying value of the Company’s financial instruments, consisting of cash, accounts receivable, accounts payable, accrued expenses, and debt approximates their fair value due to the short maturity of such instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Deferred stripping costs are amortized over the estimated life of the mining area to which they apply. Construction in progress is primarily comprised of machinery and equipment which has not been placed in service and is not depreciated until the related assets or improvements are ready to be placed in service. Depreciation is calculated using the straight-line method over the estimated useful lives of the property, plant and equipment, which are:

Expenditures for maintenance and repairs are charged against income as incurred; betterments that increase the value or materially extend the life of the related assets are capitalized. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is recognized in the consolidated statements of operations.

Acquisitions

The Company determines whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition method. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, contingent considerations and any non-controlling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase. The Company capitalizes acquisition-related costs and fees associated with asset acquisitions and expenses acquisition-related costs and fees associated with business combinations in the period in which they are incurred.

Long-Lived Assets, Including Definite-Lived Intangible Assets

Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. Definite-lived intangible assets primarily consist of developed technology. For long-lived assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.

Acquired finite-lived intangible assets are amortized on a straight-line basis over the following periods:

There wereno impairments of long-lived assets or definite-lived intangible assets during the years ended December 31, 2023, 2022 and 2021.

Leases

Lessee

The Company uses leases primarily to procure certain office space, railcars and heavy equipment as part of its operations. The majority of its lease payments are fixed and determinable with certain of its lease payments containing immaterial variable payments based on the number of hours the equipment is used. Certain of its leases have options that allow for renewal at market rates, purchase at fair market value or termination of the lease. The Company must determine that it is reasonably certain that a lease option will be exercised for such an option to be included in the right-of-use asset or lease liability. The Company is not reasonably certain that any of its lease options will be exercised and, as such, has not included those options in its right-of-use assets or lease liabilities. Certain of its equipment leases contain residual value guarantees which guarantee various parts of heavy equipment will have a remaining life when the equipment is returned to the lessor. It is possible that the Company could owe additional amounts to the lessor upon return of equipment. There are no restrictions or covenants imposed by any of the Company’s leases.

The Company evaluates contracts during the negotiation process and when they are executed to determine the existence of leases. A contract contains a lease when it conveys the right to use property, plant or equipment for a stated period of time in exchange for consideration. Leases with an initial term of twelve months or less are not recorded on the balance sheet. The Company recognizes lease expense on a straight-line basis over the term of the lease. The Company evaluates the classification of its leases at the commencement date and includes both lease and non-lease components in its calculation of consideration in the contract for all classes of operating leases.

The Company applies a discount rate to operating leases by class of asset, which is its incremental borrowing rate. The Company determines its incremental borrowing rate based on an average of collateralized borrowing rates offered by various lenders. The Company considers the nature of the assets and the life of the leases and determines the incremental borrowing rate among its classes of assets. See Note 10 — Leases for additional disclosures regarding the Company’s leasing activity.

The Company is obligated under certain contracts for minimum payments for the right to use land for extractive activities, which is not within the scope of leases under ASC 842. See Note 17 — Commitments and Contingencies for additional disclosures regarding these obligations.

Lessor

The Company manufactures SmartSystems and offers the equipment for lease. The Company negotiates the terms of its leases on a case-by-case basis. There are no significant options that are reasonably certain to be exercised, residual value guarantees, restrictions or covenants in its lease contracts and have, therefore, not been included in its accounting for the leases. All of the Company’s SmartSystems are accounted for as operating leases.

Fair Value Measurements

The Company has categorized its assets and liabilities that are measured at fair value on a recurring and non-recurring basis into a three-level fair value hierarchy, of which the first two are considered observable and the last unobservable, which are as follows:

•Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;

•Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs corroborated by observable market data for substantially the full term of the assets or liabilities; and

•Level 3—Unobservable inputs that reflect the Company’s assumptions that market participants would use in pricing assets or liabilities based on the best information available.

The Company had no financial instruments carried at fair value as of December 31, 2023 and 2022.

Asset Retirement Obligation

The Company estimates the future cost of dismantling, restoring and reclaiming operating excavation sites and related facilities in accordance with federal, state and local regulatory requirements and recognizes reclamation obligations when disturbance occurs and records them as liabilities at estimated fair value. In addition, a corresponding increase in the carrying amount of the related asset is recorded and depreciated over such asset’s useful life or the estimated number of years of extraction. The reclamation liability is accreted to expense over the estimated productive life of the related asset and is subject to adjustments to reflect changes in value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. If the asset retirement obligation is settled for more or less than the carrying amount of the liability, a loss or gain will be recognized, respectively.

Stock-Based Compensation

The Company issues restricted stock to certain employees and members of the board of directors of the Company (the “Board”) for their services on the Board. The Company estimates the grant date fair value of each share of restricted stock at issuance. For awards subject to service-based vesting conditions, the Company recognizes, in the consolidated statements of operations, stock-based compensation expense equal to the grant date fair value of the award on a straight-line basis over the requisite service period, which is generally the vesting term. For awards subject to both performance and service-based vesting conditions, the Company recognizes stock-based compensation expense on a straight-line basis unless it is probable that the performance condition will not be achieved. Forfeitures are accounted for when they occur. The Company uses the market price of its shares as the grant date fair value for restricted stock awards.

Income Taxes

The Company applies the provisions of ASC 740, “Income Taxes” (“ASC 740”), which principally utilizes a balance sheet approach to provide for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of net operating loss carryforwards and temporary differences between the carrying amounts and the tax bases of assets and liabilities.

ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The impact of an uncertain income tax position on the income tax returns must be recognized at the largest amount that is more-likely-than-not to be required to be recognized upon audit by the relevant taxing authority. This standard also provides guidance on derecognition, measurement, classification, interest and penalties, accounting for interim periods, disclosure and transition issues with respect to tax positions. The Company includes interest and penalties as a component of income tax expense in the consolidated statements of operations. For the periods presented, immaterial interest and penalties were recorded.

Environmental Matters

The Company is subject to various federal, state and local laws and regulations relating to the protection of the environment. Management has established procedures for the ongoing evaluation of the Company’s operations, to identify potential environmental exposures and to comply with regulatory policies and procedures. Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and do not contribute to current or future revenue generation are expensed as incurred. Liabilities are recorded when environmental costs are probable, and the costs can be reasonably estimated. The Company maintains insurance which may cover, in whole or in part, certain environmental expenditures. As of December 31, 2023 and 2022, there wereno material probable environmental matters.

Segment Information

Reportable operating segments are identified as components of an enterprise about which separate discrete financial information is available and utilized by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company and the Chief Executive Officer view the Company’s operations and manage its business asone reportable operating segment.

Basic and Diluted Net Income Per Share of Common Stock

Basic net income per share of common stock is computed by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, excluding the dilutive effects of restricted stock. Diluted net income per share of common stock is computed by dividing the net income attributable to common stockholders by the sum of the weighted-average number of shares of common stock outstanding during the period plus the potential dilutive effects of restricted stock outstanding during the period calculated in accordance with the treasury stock method, although these shares and restricted stock are excluded if their effect is anti-dilutive. The number of shares underlying equity-based awards that were excluded from the calculation of diluted earnings per share for the years ended December 31, 2023, 2022, 2021 was 1,719,2,317 and 3,011, respectively as their effect would be anti-dilutive. The following table reconciles the weighted-average common shares outstanding used in the calculation of basic net income per share to the weighted average common shares outstanding used in the calculation of diluted net income per share:

Employee Retention Credit

The Company qualified for federal government assistance through employee retention credit provisions of the Consolidated Appropriations Act of 2021. During the year ended December 31, 2021, the Company recorded $5,026 of employee retention credits in other income on its consolidated statements of operations, of which $522 remained included in prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2023. The calculation of the credit is based on employees continued employment and represents a portion of the wages paid to them. For income tax purposes, the credit will result in decreased expense related to the wages it offsets in the period received.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting, which updates various reportable disclosure requirements, primarily through incremental disclosures of segment expenses in both annual and interim reporting. The Update is effective for the Company as of the annual reporting period beginning January 1, 2024 and interim periods beginning January 1, 2025. While the Company is still in the process of evaluating the effects of ASU 2023-07 and its related updates on the consolidated financial statements, at the time of adoption, it believes the primary effect will be updated note disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes, which updates various disclosures including enhancing the income tax rate reconciliation and income taxes paid disclosures by requiring greater disaggregation of information. The other amendments in this Update are intended to improve the effectiveness and comparability of disclosures. The Update is effective for the Company for the annual reporting period beginning January 1, 2025 and for interim periods beginning January 1, 2026. While the Company is still in the process of evaluating the effects of ASU 2023-07 and its related updates on the consolidated financial statements, at the time of adoption, it believes the primary effect will be updated note disclosures.

NOTE 3 —Inventories

Inventories consisted of the following:

NOTE 4 —Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

NOTE 5 —Property, Plant and Equipment, net

Net property, plant and equipment consists of:

Depreciation expense was $26,533, $25,693 and $24,667 for the years ended December 31, 2023, 2022 and 2021, respectively. Depletion expense was $35, $36 and $36 for the years ended December 31, 2023, 2022 and 2021, respectively.

The Company capitalizedno interest expense associated with the construction of new property, plant and equipment for the years ended December 31, 2023, 2022 and 2021.

NOTE 6 —Intangible Assets, net

The following table reflects the changes in the net carrying amounts of the Company’s intangible assets for the year ended December 31, 2023.

The following table reflects the changes in the net carrying amounts of the Company’s finite-lived intangible assets for the year ended December 31, 2022.

The following table reflects the carrying amounts of the Company's finite-lived intangible assets at December 31, 2023 and 2022.

The Company uses the straight-line method to determine the amortization expense for its definite-lived intangible assets. The weighted-average remaining useful life for the intangible assets is 7.4 years. Amortization expense related to the purchased intangible assets was $793, $792 and $792 for the year ended December 31, 2023, 2022, and 2021, respectively.

The table below reflects the future estimated amortization expense for amortizable intangible assets as of December 31, 2023.

NOTE 7 —Accrued and Other Expense

Accrued and other expense consists of the following:

NOTE 8 —Debt

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

Long-term debt consists of the following:

ABL Credit Facility

On December 13, 2019, the Company entered into a $20,000 five-year senior secured asset-based credit facility with Jefferies Finance LLC, which matures on December 13, 2024. The available borrowing amount under the ABL Credit Facility as of December 31, 2023 was $20,000 and is based on the Company’s eligible accounts receivable and inventory, as described in the ABL Credit Agreement. As of December 31, 2023, there was $8,000 outstanding under the ABL Credit Facility, and $12,000 was available to be drawn. We use this facility primarily as a source for working capital needs. Borrowings under the ABL Credit Facility bear interest at a rate per annum equal to an applicable margin, plus, at our option, either a LIBOR rate or an alternate base rate (“ABR”) as well as unused commitment fees. The applicable margin is 2.00% for LIBOR loans and 1.00% for ABR loans. Substantially all of the U.S. assets of the Company are pledged as collateral under the ABL Credit Facility. The ABL Credit Facility contains various reporting requirements, negative covenants and restrictive provisions and requires maintenance of financial covenants, under certain conditions, including a fixed charge coverage ratio, as defined in the ABL Credit Agreement. As of December 31, 2023, the Company was in compliance with all financial covenants. The weighted average interest rate on our ABL credit facility for the years ended December 31, 2023 and 2022 was 8.20% and 4.81%, respectively.

Oakdale Equipment Financing

On December 13, 2019, the Company received net proceeds of $23,000 in an equipment financing arrangement with Nexseer. The Oakdale Equipment Financing is legally comprised of an MLA and five lease schedules. The Oakdale Equipment Financing is considered a lease under article 2A of the Uniform Commercial Code but is considered a financing arrangement for accounting or financial reporting purposes and not a lease. Substantially all of the Company’s mining and processing equipment at its Oakdale facility is pledged as collateral under the Oakdale Equipment Financing. The Oakdale Equipment Financing bears interest at a fixed rate of 5.79%. The Company used the net proceeds to repay in full and terminate the previous credit facility, pay transaction costs, and the remainder was used for working capital purposes. The Oakdale Equipment Financing was originally set to mature on December 13, 2024. As a result of financial relief during the COVID-19 coronavirus pandemic in 2020, a portion of the Oakdale Equipment Financing maturity was extended to March 31, 2025. The Company has the right to prepay the financing and reacquire the underlying equipment on a lease schedule-by-lease schedule basis during the period commencing on the seventh month of the term and continuing until the 54th month of the term at a percentage of the purchase price of the relevant equipment, and at the end of the term at the fair market value of the equipment. The Oakdale Equipment Financing contains affirmative and restrictive covenants customary for transactions of this type.

Notes Payable

Notes payable primarily include various financing arrangements to finance the Company’s manufactured wellsite proppant storage solutions equipment and heavy equipment. In June 2020, the Company executed a note payable to defer certain near-term minimum royalty payments. All notes payable bear interest at fixed rates between 3.99% and 7.49%.

On February 28, 2023, the Company purchased 5,176 shares of the Company’s common stock from Clearlake Capital Partners II (Master), L.P., an affiliate of Clearlake Capital Group (“Clearlake”), for $8,850, of which $4,425 was paid in cash and the remainder was financed through an unsecured promissory note, bearing interest of 10%, issued to Clearlake. This purchase represented substantially all of the common stock previously owned by Clearlake and approximately 11.3% of the number of outstanding shares of the Company’s common stock as of immediately prior to the purchase. At the time of purchase, Clearlake was a related party to the Company, and José Feliciano, the Co-Founder and Managing Partner of Clearlake, was on our board of directors. As of December 31, 2023, the entire balance of the unsecured promissory note has been paid in full.

Finance Leases

See Note 9 - Leases for additional information about the Company’s finance leases.

Future minimum payments as of December 31, 2023 are as follows:

NOTE 9 —Leases

Lessee

At December 31, 2023 and 2022, the operating and financing components of the Company’s right-of-use assets and lease liabilities on the consolidated balance sheet are as follows:

Operating lease costs are recorded in a single expense on the statements of operations and allocated to the right-of-use assets and the related lease liabilities as depreciation expense and interest expense, respectively. Lease cost recognized in the consolidated statements of operations for the years ended December 31, 2023 and 2022 is as follows:

Other information related to the Company’s leasing activity for year ended December 31, 2023 and 2022 is as follows:

Maturities of the Company’s lease liabilities as of December 31, 2023 are as follows:

NOTE 10 —Asset Retirement Obligation

The Company had a post-closure reclamation and site restoration obligation of $19,923 as of December 31, 2023. The following is a reconciliation of the total reclamation liability for asset retirement obligations.

NOTE 11 —Revenue

Disaggregation of Revenue

The following table presents the Company’s revenues disaggregated by type and percentage of total revenues for the periods indicated.

Deferred revenue recognition is as follows:

NOTE 12 —Stock-Based Compensation

Equity Incentive Plan

In November 2016, in connection with its initial public offering, the Company adopted the 2016 Omnibus Incentive Plan (“2016 Plan”) which provides for the issuance of Awards (as defined in the 2016 Plan) of up to a maximum of 3,911 shares of the Company’s common stock to employees, non-employee members of the Board and consultants of the Company. On April 3, 2020, the Company’s Board adopted an amendment to the 2016 Plan to increase the available shares of common stock authorized for issuance by an additional 2,088 shares. On April 22, 2022, the Company’s board of directors adopted an amendment to the 2016 Plan to increase the available shares of common stock authorized for issuance by an additional 3,900 shares. The awards can be issued in the form of incentive stock options, non-qualified stock options or restricted stock.

During 2023, there were 810 shares of restricted stock issued under 2016 Plan. During 2022 and 2021,1,172 and 2,013 shares of restricted stock were issued under the 2016 Plan, respectively. The grant date fair value of all restricted stock outstanding during the year ended December 31, 2023 was between $1.65 and $4.57 per share. The shares issued in 2023, vest overone tofour years from their respective grant dates and their grant date fair value was the actual market price of the Company’s shares. The total number of shares and their respective values that vested during the years ended December 31, 2023, 2022 and 2021 were 721 at $1,282,975 at $2,275 and 675 at $1,358, respectively.

The Company recognized $3,507, $3,184 and $3,161 of compensation expense for the restricted stock during 2023, 2022 and 2021, respectively, in cost of goods sold and operating expenses on the consolidated statements of operations. At December 31, 2023, the Company had unrecognized compensation expense of $3,835 related to granted but unvested stock awards. That expense is expected to be recognized as follows:

The following table summarizes restricted stock activity under the 2016 Plan from January 1, 2022 through December 31, 2023:

Employee Stock Purchase Plan

Shares of the Company’s common stock may be purchased by eligible employees under the Company’s 2016 Employee Stock Purchase Plan in six-month intervals at a purchase price equal to 85% of the lesser of the fair market value of the Company’s common stock on either the first day or the last day of eachsix-month offering period. Employee purchases may not exceed 20% of their gross compensation during an offering period.

NOTE 13 —Income Taxes

On August 16, 2022, the President signed into law the Inflation Reduction Act of 2022 (the “IRA”). Tax provisions under the IRA include, but are not limited to, (a) a 15% corporate alternative minimum tax for certain large corporations that have at least $1.0 billion adjusted financial statement income over a three-year period effective for tax years beginning after December 31, 2022, and (b) a 1% excise tax on corporate stock repurchases after January 1, 2023. Although the Company is currently evaluating the impact of the IRA, it does not expect it to have a material impact on its consolidated financial statements for the year ended December 31, 2023.

The provision for income taxes consists of the following:

Income tax expense differs from the amounts computed by applying the statutory income tax rates to pretax income. The statutory income tax rates were 21% for the years ended December 31, 2023, 2022 and 2021. The reconciliations from the applicable statutory income tax rates to income tax (benefit) expense are as follows:

Deferred income taxes reflect the net tax effects of loss and credit carry-forwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets for federal and state income taxes are as follows:

In assessing the realizability of deferred tax assets, the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. A valuation allowance should be recorded if, based on the weight of all positive and negative evidence, it is more likely than not that some portion or all of a deferred tax asset will not be related. At December 31, 2023 and December 31, 2022, the Company determined it was more likely than not that it will not be able to fully realize the benefits of certain existing deductible temporary differences and has recorded a partial valuation allowance against the gross deferred tax assets on its consolidated balance sheet in the amount of $874 and $1,588, respectively.

The Company has recorded a liability of $2,240 for unrecognized tax benefits for uncertain tax positions included on its consolidated balance sheet as of December 31, 2023 and 2022. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

The Company’s federal income tax returns subsequent to 2019 remain open to audit by taxing authorities. The Company has not been informed that its tax returns are the subject of any audit or investigation by taxing authorities.

NOTE 14 —Retirement Benefits

U.S. Defined Contribution Plan

The Company is the sponsor of a defined contribution plan, subject to the provisions of the Employee Retirement Income Security Act of 1974, that covers substantially all U.S. employees over the age of 21 that have been employed for at least 90 days. The plan allows participants to make pre-tax and Roth after-tax contributions and the Company provides 100% matching on the first 3% and 50% matching on the next 2% of employee’s eligible deferred compensation. Employees are immediately vested in both their contributions and the Company’s matching contributions. In accordance with the provisions of the plan, the Company may make additional discretionary contributions to the accounts of its participants. There were no additional discretionary contributions during the years ended December 31, 2023, 2022 and 2021. During the years ended December 31, 2023, 2022 and 2021, the Company made matching contributions of $677, $572 and $513, respectively to its U.S. Defined Contribution Plan.

Canada Group Savings Plan and Deferred Profit Sharing Plan

The Company is the sponsor of a defined contribution plan that covers substantially all Canada employees that have been employed for at least 90 days. The plan allows participants to make contributions to the Group Savings Plan and after six months of employment the Company provides 100% matching contributions on between 3% -5% of the employee’s salary, depending on their length of service to the Deferred Profit Sharing Plan. Employees are immediately vested in their contributions to the Group Savings Plan and vest in the Company’s contributions to the Deferred Profit Sharing Plan after two years of service. All accounts opened prior to May 31, 2018 are fully vested. During the year ended December 31, 2023, 2022 and 2021, the Company made matching contributions of $24 and $18 and $30, respectively, to its Deferred Profit Sharing Plan.

NOTE 15 —Concentrations

As of December 31, 2023, four customers accounted for 70% of the Company’s total accounts receivable. As of December 31, 2022, four customers accounted for 65% of the Company’s total accounts receivable.

During the year ended December 31, 2023,42% of the Company’s revenues were earned from two customers. During the years ended December 31, 2022 and 2021,60% and 58% of the Company’s revenues were earned from four and three customers, respectively.

As of December 31, 2023, one vendor accounted for 11% of the Company’s accounts payable. As of December 31, 2022, one vendor accounted for 17% of the Company’s accounts payable.

During the year ended December 31, 2023, two vendors accounted for 32%, of the Company’s cost of goods sold. During the year ended December 31, 2022 and 2021, two and one vendors accounted for 34% and 22%, respectively, of the Company’s cost of goods sold.

The Company’s primary product is Northern White frac sand and its mining operations are limited to Wisconsin and Illinois. There is a risk of loss if there are significant environmental, legal or economic changes to this geographic area.

As of December 31, 2023, the Company employed 378 people, of which 42 were employed under collective bargaining agreements. The current collective bargaining agreements expire April 30, 2024.

NOTE 16 —Commitments and Contingencies

Future Minimum Commitments

The Company is obligated under certain contracts for minimum payments for the right to use land for extractive activities, which is not within the scope of leases under ASC 842. Future minimum annual commitments under such contracts at December 31, 2023 are as follows:

Litigation

We may be subject to various legal proceedings, claims and governmental inspections, audits or investigations arising out of our operations in the normal course of business, which cover matters such as general commercial, governmental and trade regulations, product liability, environmental, intellectual property, employment and other actions. Although the outcomes of these routine claims cannot be predicted with certainty, in the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on our financial statements.

Bonds

The Company has performance bonds with various public and private entities regarding reclamation, permitting and maintenance of public roadways. Total performance bonds as of December 31, 2023 was $18,868.

NOTE 17 —Supplemental Disclosures of Cash Flow information

Supplemental disclosures regarding cash flow information and non-cash investing and financing activities are as follows: