Smart Sand Inc

NOTE 1 —Organization and Nature of Business

The Company was incorporated in July 2011 and is headquartered in Yardley, Pennsylvania. 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 Ottawa, Illinois and New Auburn, Wisconsin. The Ottawa 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 Ottawa, 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 facility, whose primary assets consisted of an idle frac sand mine and related processing facility. 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.

Through its three operating facilities, 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 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 and commenced operations servicing the Appalachian Basin in 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 wellsite proppant management system is a mobile sand transloading system designed to work with bottom dump trailers and features a drive over conveyor, surge bin, silo storage and integrated dust collection system. In 2024, we developed new dual bucket elevators to enhance our vertical material handling capabilities. We also increased our silo storage capacity and streamlined proppant delivery directly to the blender. This addition provides greater flexibility for customers with varying wellsite configurations while maintaining the efficiency, safety, and reliability that define our SmartSystems solutions. The SmartBelt TM conveyor works in conjunction with the SmartPath wellsite proppant management system to provide sand directly into the blender on 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.

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: 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 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 or trucks 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 volume pricing adjustments, 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.

SmartSystems 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 or daily rates 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.

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, and deferred revenue on the consolidated balance sheet. Occasionally, 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 may result 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.

Deferred revenue recognition is as follows:

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, 2024, the Company had $120,089 in estimated unsatisfied performance obligations related to contracts with customers. The Company expects to perform these obligations and recognize this revenue of approximately $120,089 during the year ended December 31, 2025. These estimates include all open contracts as of December 31, 2024. 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 in accordance with our typical monthly close procedures; unbilled receivables represent receivables recorded after our typical monthly close procedures. 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 credit losses. 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.

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.

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, 2024 and 2023, there were no unbilled receivables included in deferred revenue. As of December 31, 2024 and 2023, there was no allowance for credit losses. The Company recorded $163, $0, and $1 for the years ended December 31, 2024, 2023, and 2022, respectively as non-cash bad debt expense.

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 $144,108, $118,616 and $57,770 for the years ended December 31, 2024, 2023 and 2022, 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, 2024, 2023 and 2022. 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. There wasno inventory impairment due to obsolescence for the years ended December 31, 2024, 2023 or 2022.

The spare parts inventory consists of critical spare parts. Spare parts inventory is accounted for on a first-in, first-out basis.

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 $237, $291, and $291 are included in interest expense as of December 31, 2024, 2023 and 2022, respectively. Costs related to the FCB ABL Credit Facility are presented in other assets on the balance sheet rather than an offset to the debt balance for consistent reporting when there is no balance on the FCB ABL Credit Facility.

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 were no impairments of long-lived assets or definite-lived intangible assets during the years ended December 31, 2024, 2023 and 2022.

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 9 — 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 16 — 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.

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, 2024 and 2023.

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, 2024 and 2023, there wereno material probable environmental matters.

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, 2024, 2023, 2022 was 1,158,1,719 and 2,317, 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, 2024. 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

Adopted

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 Company has adopted this ASU in the current financial statements and added the additional required disclosures in Note 11 of these financial statements.

Not yet adopted

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.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures, which updates various disclosures including enhancing the disclosure of certain costs and expenses in the notes to the financial statements. The Update is effective for the Company for its annual financial statements for 2027 and interim periods thereafter. Early adoption is permitted. While the Company is still in the process of evaluating the effects of ASU 2024-03, at the time of adoption, it believes the primary effect will be disaggregation of the cost of goods sold and selling, general and administrative line items on the face of the financial statements or within the notes to the financial statements.

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 $27,903, $26,533 and $25,693 for the years ended December 31, 2024, 2023 and 2022, respectively. Depletion expense was $37, $35 and $36 for the years ended December 31, 2024, 2023 and 2022, respectively.

The Company capitalizedno interest expense associated with the construction of new property, plant and equipment for the years ended December 31, 2024, 2023 and 2022.

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, 2024.

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, 2023.

The following table reflects the carrying amounts of the Company's finite-lived intangible assets at December 31, 2024 and 2023.

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 6.4 years. Amortization expense related to the purchased intangible assets was $792, $793 and $792 for the year ended December 31, 2024, 2023, and 2022, respectively.

The table below reflects the future estimated amortization expense for amortizable intangible assets as of December 31, 2024.

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:

FCB ABL Credit Facility

On September 3, 2024, the Company entered into a $30,000 five-year senior secured asset-based credit facility with First-Citizens Bank & Trust Company. The FCB ABL Credit Facility provides for non-amortizing revolving loans in an aggregate principal amount of up to $30,000, subject to a borrowing base comprised of eligible inventory and accounts receivable. Additionally, obligations under the FCB ABL Credit Facility are guaranteed by certain of our wholly-owned domestic subsidiaries and secured by a first-priority security interest in certain non-real estate assets. Borrowings under the FCB ABL Credit Facility bear interest at a rate equal to the secured overnight financing rate (“SOFR”) plus a margin of 2.75%.

The ABL Credit Facility contains a number of covenants that, among other things, restrict our ability to incur liens or other indebtedness, make certain restricted payments, merge or consolidate and dispose of assets. In addition, the FCB ABL Credit Facility requires us in certain limited circumstances to maintain a minimum fixed charge coverage ratio of 1.1 to 1.0. The FCB ABL Credit Facility also contains certain affirmative covenants and events of default customary for facilities of this type. The Company was compliant with all requirements of this facility.

The available borrowing amount under the FCB ABL Credit Facility as of December 31, 2024 was $30,000 and is based on the Company’s eligible accounts receivable and inventory. The Company had no borrowings outstanding and $30,000 available to be drawn under this facility as of December 31, 2024. As of December 31, 2024, the Company was in compliance with all financial covenants. The weighted average interest rate on our variable rate debt under the Former ABL Facility and this FCB ABL credit facility for the years ended December 31, 2024 and 2023 was 8.20% and 4.81%, respectively.

Former 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. This facility was terminated on September 3, 2024.

VFI Equipment Financing

On June 28, 2024, the Company entered into an equipment financing arrangement with VFI with a principal amount of $10,000. The VFI Equipment Financing is legally comprised of a Master Lease Agreement and one lease schedule. The VFI Equipment Financing is considered a lease under article 2A of the Uniform Commercial Code but is considered a financing arrangement for accounting and financial reporting purposes, and not a lease. The collateral under the VFI Equipment Financing includes the majority of the Company’s SmartSystems equipment. The VFI Equipment Financing bears interest at a fixed rate of 8.56%. The Company used the net proceeds to repay in full and terminate the Oakdale Equipment Financing, and the remainder was added to working capital. The VFI Equipment Financing amortizes to one dollar and will be paid in full on on May 8, 2028. The Company has the right to reacquire the underlying equipment on the lease schedule upon maturity for one dollar.

Oakdale Equipment Financing

On December 13, 2019, the Company received net proceeds of $23,000 in an equipment financing arrangement with Nexseer. Substantially all of the Company’s mining and processing equipment at its Oakdale facility was pledged as collateral under the Oakdale Equipment Financing. The Oakdale Equipment Financing bore interest at a fixed rate of 5.79%. This facility was paid in full and terminated on June 28, 2024.

Notes Payable

Notes payable primarily include various financing arrangements to finance the Company’s purchased heavy equipment. All notes payable bear interest at fixed rates between 3.99% and 7.49%.

Finance Leases

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

Future minimum payments as of December 31, 2024 are as follows:

NOTE 9 —Leases

Lessee

At December 31, 2024 and 2023, 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, 2024 and 2023 is as follows:

Other information related to the Company’s leasing activity for year ended December 31, 2024 and 2023 is as follows:

Maturities of the Company’s lease liabilities as of December 31, 2024 are as follows:

NOTE 10 —Asset Retirement Obligation

The Company had a post-closure reclamation and site restoration obligation of $21,292 as of December 31, 2024. The following is a reconciliation of the total reclamation liability for asset retirement obligations.

NOTE 11 —Segment Reporting

The Company hastwo reportable segments, Sand and SmartSystems as of December 31, 2024. The Company evaluates its segment reporting on an ongoing basis and has changed its reporting in the current period and applied that reporting retrospectively to the prior periods presented. The accounting policies for the segments are not different from the accounting policies for the Company. The Company does not currently provide asset information by reportable segment as it does not routinely evaluate the total asset position by segment. The Company’s operations in foreign countries are immaterial. The chief operating decision maker (“CODM”) is Charles Young, the Company’s chief executive officer. The CODM regularly reviews the Company’s GAAP financial statements, as well as the non-GAAP reporting measures when considering the profit and loss of the company and uses this information in deciding how to allocate resources.

The Sand segment includes both frac sand sales and IPS sales. The sand production process begins the same way for each of these revenue streams. Frac Sand consists of four primary sizes of sand, called grades. IPS begins with these same frac sand grades and may contain additional sizes or custom blends of a variety of grades.

The SmartSystems segment revenue is primarily from the rental of our patented SmartSystems equipment and related services provided to customers. This segment offers customers portable wellsite storage and management solutions that enable customers to unload, store, and deliver proppant at the wellsite.

During the year ended December 31, 2024, three of the Company’s customer had revenues of more than 10%. Of these three customers, one had revenues in both Sand and SmartSystems segments and two had revenues in the Sand Segment.

The following tables present additional segment information for the year ended December 31, 2024 and a reconciliation to amounts on the Consolidated Statement of Operations.

The following tables present additional segment information for the year ended December 31, 2023 and a reconciliation to amounts on the Consolidated Statement of Operations.

The following tables present additional segment information for the year ended December 31, 2022 and a reconciliation to amounts on the Consolidated Statement of Operations.

NOTE 12 —Concentrations

As of December 31, 2024, four customers accounted for 84% of the Company’s total accounts and unbilled receivables. As of December 31, 2023, four customers accounted for 70% of the Company’s total accounts and unbilled receivables.

During the year ended December 31, 2024,56% of the Company’s revenues were earned from three customers. During the years ended December 31, 2023 and 2022,42% and 60% of the Company’s revenues were earned from two and four customers, respectively.

As of December 31, 2024, one vendor accounted for 17% of the Company’s accounts payable. As of December 31, 2023, one vendor accounted for 11% of the Company’s accounts payable.

During the year ended December 31, 2024, two vendors accounted for 35%, of the Company’s cost of goods sold. During the year ended December 31, 2023 and 2022, two and two vendors accounted for 32% and 34%, 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, 2024, the Company employed 285 people, of which 25 were employed under collective bargaining agreements. The current collective bargaining agreements expire April 30, 2025.

NOTE 13 —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 2024, there were 2,396 shares of restricted stock issued under 2016 Plan. During 2023 and 2022,810 and 1,172 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, 2024 was between $1.65 and $4.57 per share. The shares issued in 2024, 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, 2024, 2023 and 2022 were 753 at $1,542,721 at $1,282 and 975 at $2,275, respectively.

The Company recognized $3,216, $3,507 and $3,184 of compensation expense for the restricted stock during 2024, 2023 and 2022, respectively, in cost of goods sold and operating expenses on the consolidated statements of operations. At December 31, 2024, the Company had unrecognized compensation expense of $5,284 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, 2023 through December 31, 2024:

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 14 —Income Taxes

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, 2024, 2023 and 2022. 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, 2024 and December 31, 2023, 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 $2,156 and $874, respectively. As of December 31, 2024, the Company’s U.S. federal net operating loss carryforwards may be carried forward indefinitely and the majority or its state net operating loss carryforwards and federal tax credits will expire at various dates from December 31, 2032 through December 31, 2044 with the remaining being carried forward indirectly.

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, 2024 and 2023. The liability for unrecognized tax benefits would change the effective tax rate if recognized. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

The Company’s federal income tax returns subsequent to 2020 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 15 —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, 2024, 2023 and 2022. During the years ended December 31, 2024, 2023 and 2022, the Company made matching contributions of $952, $677 and $572, respectively to its U.S. Defined Contribution Plan.

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, 2024 are as follows:

Litigation

In addition to the matters described below, the Company 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.

Cory Berg, et al. v. Hi-Crush Blair LLC, LLC et al., Case No. 2019-cv-65, Trempealeau County, Wisconsin

Leland Drangstveit, et al. v. Hi-Crush Blair, LLC, et al., Case No. 2019-cv-66, Trempealeau County, Wisconsin

On April 22, 2019 and September 29, 2021, Cory Berg, et al. and Leland Drangstveit, et al., respectively (collectively, the “Plaintiffs”), filed complaints and an amended complaint in separate actions against Blair, certain of its subcontractors and its and their respective insurance companies in the Circuit Court of the State of Wisconsin in and for Trempealeau County (Case Nos. 19-CV-65 and 19-CV-66, respectively). The Plaintiffs allege that Blair and its subcontractors were negligent and created a nuisance by, among other things, generating excessive noise, light and dust. The Plaintiffs are seeking unspecified monetary damages and other relief. The insurance companies included as defendants have asserted counterclaims seeking declarations as to their rights and liabilities under their respective applicable commercial general liability insurance policies. HCR has agreed under the Purchase Agreement to indemnify the Company for any actions or omissions of HCR or its affiliates (including Blair) that occurred prior to the closing of the Company’s acquisition of Blair. In late August, several of the defendants, including Blair, agreed to settlement terms with the Plaintiffs, and the parties expect to finalize settlement paperwork in the first quarter of 2025, which will result in a dismissal with prejudice of all claims against Blair.

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, 2024 was $19,727.

NOTE 17 —Supplemental Disclosures of Cash Flow information

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