Hi-Crush Inc. (Form: 10-Q, Received: 11/05/2019 16:24:11)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-35630

Hi-Crush Inc.

(Exact name of registrant as specified in its charter)



Delaware	90-0840530
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1330 Post Oak Blvd, Suite 600

Houston, Texas 77056

(Address of Principal Executive Offices and Zip Code)

(713) 980-6200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, par value $0.01 per share	HCR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

As of October 31, 2019, there were 100,945,978 shares of common stock, par value $0.01 per share, of the registrant outstanding.

Table of Contents

HI-CRUSH INC.

INDEX TO FORM 10-Q



	Page
PART I
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Comprehensive Income	5
Condensed Consolidated Statements of Cash Flows	6
Condensed Consolidated Statements of Changes in Equity	8
Notes to Condensed Consolidated Financial Statements	10
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	51
ITEM 4. CONTROLS AND PROCEDURES	52
PART II
ITEM 1. LEGAL PROCEEDINGS	53
ITEM 1A. RISK FACTORS	53
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	54
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	54
ITEM 4. MINE SAFETY DISCLOSURES	54
ITEM 5. OTHER INFORMATION	55
ITEM 6. EXHIBITS	55
EXHIBIT INDEX	56
SIGNATURES	57

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS.

HI-CRUSH INC.

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

(Unaudited)



	September 30, 2019			December 31, 2018
Assets
Current assets:
Cash	$	48,352		$	114,256
Accounts receivable, net (Note 2)	95,122			101,029
Inventories (Note 4)	45,168			57,089
Prepaid expenses and other current assets	13,396			13,239
Total current assets	202,038			285,613
Property, plant and equipment, net (Note 5)	825,320			1,031,188
Operating lease right-of-use assets (Note 6)	49,577			—
Goodwill and intangible assets, net (Note 7)	39,227			71,575
Equity method investments (Note 8)	35,440			37,354
Other assets	1,756			8,108
Total assets	$	1,153,358		$	1,433,838
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	47,370		$	71,039
Accrued and other current liabilities	36,596			61,337
Current portion of deferred revenues (Note 14)	11,711			19,940
Current portion of long-term debt (Note 9)	3,964			2,194
Current portion of operating lease liabilities (Note 6)	38,155			—
Total current liabilities	137,796			154,510
Deferred revenues (Note 14)	18,684			9,845
Long-term debt (Note 9)	445,211			443,283
Operating lease liabilities (Note 6)	81,283			—
Asset retirement obligations	10,836			10,677
Deferred tax liabilities (Note 2)	33,508			—
Other liabilities	3,840			8,276
Total liabilities	731,158			626,591
Commitments and contingencies (Note 10)
Stockholders' equity
Limited partners interest, 100,874,988 units issued and outstanding at December 31, 2018	—			811,477
Preferred stock, $0.01 par value, 100,000,000 shares authorized; zero issued and outstanding at September 30, 2019	—			—
Common stock, $0.01 par value, 500,000,000 shares authorized; 100,909,799 issued and outstanding at September 30, 2019	1,009			—
Additional paid-in capital	804,180			—
Retained deficit	(382,030		)	—
Accumulated other comprehensive loss	(959		)	(4,230		)
Total stockholders' equity	422,200			807,247
Total liabilities and stockholders' equity	$	1,153,358		$	1,433,838

See Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

HI-CRUSH INC.

Condensed Consolidated Statements of Operations

(In thousands, except shares and per share amounts)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018 (a)			2019			2018 (a)
Revenues (Note 14)	$	172,972		$	213,972		$	510,883		$	680,605
Cost of goods sold (excluding depreciation, depletion and amortization)	143,460			147,583			415,254			444,097
Depreciation, depletion and amortization	14,320			10,241			39,654			28,522
Gross profit	15,192			56,148			55,975			207,986
Operating costs and expenses:
General and administrative expenses	12,020			14,164			39,843			38,050
Depreciation and amortization	1,773			1,347			5,146			2,408
Accretion of asset retirement obligations	107			124			366			373
Asset impairments (Note 16)	346,384			—			346,384			—
Change in estimated fair value of contingent consideration	(5,181		)	—			(5,853		)	—
Other operating expenses, net	658			754			1,558			2,124
Income (loss) from operations	(340,569		)	39,759			(331,469		)	165,031
Other income (expense):
Earnings from equity method investments (Note 8)	1,880			1,624			4,280			3,934
Gain on remeasurement of equity method investment	—			—			3,612			—
Interest expense	(11,790		)	(8,012		)	(34,186		)	(15,207		)
Loss on extinguishment of debt	—			(6,233		)	—			(6,233		)
Income (loss) before income tax	(350,479		)	27,138			(357,763		)	147,525
Income tax expense (benefit):
Current tax expense	1,087			—			1,346			—
Deferred tax benefit	(83,069		)	—			(82,409		)	—
Deferred tax resulting from conversion to a corporation	—			—			115,488			—
Income tax expense (benefit)	(81,982		)	—			34,425			—
Net income (loss)	$	(268,497	)	$	27,138		$	(392,188	)	$	147,525
Earnings (loss) per common share:
Basic	$	(2.67	)	$	0.30		$	(3.88	)	$	1.67
Diluted	$	(2.67	)	$	0.29		$	(3.88	)	$	1.64
Weighted average common stock outstanding:
Basic	100,711,426			89,277,833			101,012,753			88,848,290
Diluted	100,711,426			90,814,714			101,012,753			90,385,171


(a)	Financial information has been recast to include the results attributable to the sponsor and general partner. See Note 3.

See Notes to Unaudited Condensed Consolidated Financial Statements.

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HI-CRUSH INC.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019			2018 (a)		2019			2018 (a)
Net income (loss)	$	(268,497	)	$	27,138	$	(392,188	)	$	147,525
Foreign currency translation adjustment	900			—		3,271			—
Comprehensive income (loss)	$	(267,597	)	$	27,138	$	(388,917	)	$	147,525


(a)	Financial information has been recast to include the results attributable to the sponsor and general partner. See Note 3.

See Notes to Unaudited Condensed Consolidated Financial Statements.

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HI-CRUSH INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



	Nine Months Ended
	September 30,
	2019			2018 (a)
Operating activities:
Net income (loss)	$	(392,188	)	$	147,525
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	44,800			30,930
Deferred income taxes	33,079			—
Stock-based compensation to directors and employees	4,181			5,508
Amortization of loan origination costs into interest expense	1,224			762
Accretion of asset retirement obligations	366			373
Asset impairments	346,384			—
(Gain) loss on disposal of property, plant and equipment	(95		)	273
Amortization of right-of-use assets	5,753			—
Change in estimated fair value of contingent consideration	(5,853		)	—
Earnings from equity method investments	(4,280		)	(3,934		)
Gain on remeasurement of equity method investment	(3,612		)	—
Loss on extinguishment of debt	—			6,233
Other	—			(21		)
Changes in operating assets and liabilities:
Accounts receivable	12,604			20,316
Inventories	6,598			(13,502		)
Prepaid expenses and other current assets	(1,289		)	(5,442		)
Accounts payable and accrued liabilities	(32,506		)	9,863
Other noncurrent assets and liabilities	(3,068		)	(3,552		)
Net cash provided by operating activities	12,098			195,332
Investing activities:
Capital expenditures for property, plant and equipment	(66,330		)	(69,310		)
Proceeds from sale of property, plant and equipment	1,669			3,154
Business acquisitions, net of cash acquired	(4,229		)	(34,932		)
Equity method investments	(495		)	(8,095		)
Net cash used in investing activities	(69,385		)	(109,183		)
Financing activities:
Proceeds from issuance of long-term debt	—			450,000
Repayment of long-term debt	(2,958		)	(202,588		)
Repayment of acquired credit facility	(3,237		)	—
Proceeds from insurance premium notes	4,277			4,038
Repayment of premium financing notes	(3,143		)	(2,699		)
Refund (payment) of loan origination costs	146			(11,425		)
Contributions from unit purchase program participants	—			212
Repurchase of common stock	(3,151		)	(9,426		)
Common stock tendered for tax withholding obligations	(12		)	(70		)
Payment of accrued distribution equivalent rights	(545		)	(398		)
Distributions paid to members of Hi-Crush Proppants LLC	—			(35,561		)
Distributions paid to limited partner unitholders	—			(104,951		)
Net cash provided by (used in) financing activities	(8,623		)	87,132
Effects of exchange rate on cash	6			—
Net increase (decrease) in cash	(65,904		)	173,281
Cash at beginning of period	114,256			7,724
Cash at end of period	$	48,352		$	181,005

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HI-CRUSH INC.

Condensed Consolidated Statements of Cash Flows (continued)

(In thousands)

(Unaudited)



	Nine Months Ended
	September 30,
	2019			2018 (a)
Non-cash investing and financing activities:
Increase (decrease) in accounts payable and accrued liabilities for additions to property, plant and equipment	$	(24,476	)	$	12,810
Decrease in property, plant and equipment for asset retirement obligations	$	(207	)	$	—
Debt financed capital expenditures	$	4,595		$	3,676
Change in original fair value of contingent consideration	$	276		$	8,446
Issuance of common units for acquisitions	$	2,504		$	19,190
Increase (decrease) in accrued distribution equivalent rights	$	(287	)	$	1,595
Cash paid for interest, net of capitalized interest	$	43,887		$	14,445


(a)	Financial information has been recast to include the results attributable to the sponsor and general partner. See Note 3.

See Notes to Unaudited Condensed Consolidated Financial Statements.

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HI-CRUSH INC.

Condensed Consolidated Statements of Changes in Equity

(In thousands, except share amounts)

(Unaudited)



	Three Months Ended September 30, 2019
	Common Stock				Additional Paid-In Capital			Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Total Equity
	Shares		Par Value		Additional Paid-In Capital			Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance at June 30, 2019	100,633,257		$	1,006	$	803,371		$	(113,533	)	$	(1,859	)	$	688,985
Stock-based compensation expense	—		—		634			—			—			634
Shares vested under stock-based compensation plan	282,342		3		—			—			—			3
Shares tendered for tax withholding obligations	(5,800	)	—		(12		)	—			—			(12		)
Forfeiture of distribution equivalent rights	—		—		187			—			—			187
Other comprehensive income	—		—		—			—			900			900
Net loss	—		—		—			(268,497		)	—			(268,497		)
Balance at September 30, 2019	100,909,799		$	1,009	$	804,180		$	(382,030	)	$	(959	)	$	422,200



	Nine Months Ended September 30, 2019
	Common Stock					Additional Paid-In Capital			Limited Partner Capital			Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Total Equity
	Shares		Par Value			Additional Paid-In Capital			Limited Partner Capital			Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance at December 31, 2018	—		$	—		$	—		$	811,477		$	—		$	(4,230	)	$	807,247
Issuance of common units for business acquisition	—		—			—			2,504			—			—			2,504
Issuance of common units to directors	—		—			—			246			—			—			246
Repurchase of common stock	(1,177,731	)	(12		)	(3,139		)	—			—			—			(3,151		)
Stock-based compensation expense	—		—			1,252			2,741			—			—			3,993
Shares vested under stock-based compensation plan	291,958		3			—			—			—			—			3
Shares tendered for tax withholding obligations	(5,800	)	—			(12		)	—			—			—			(12		)
Forfeiture of distribution equivalent rights	—		—			193			94			—			—			287
Reclassifications resulting from conversion to a corporation	101,801,372		1,018			805,886			(806,904		)	—			—			—
Other comprehensive income	—		—			—			—			—			3,271			3,271
Net loss	—		—			—			(10,158		)	(382,030		)	—			(392,188		)
Balance at September 30, 2019	100,909,799		$	1,009		$	804,180		$	—		$	(382,030	)	$	(959	)	$	422,200

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HI-CRUSH INC.

Condensed Consolidated Statements of Changes in Equity (continued)

(In thousands, except share amounts)

(Unaudited)



	Three Months Ended September 30, 2018
	General Partner Capital		Limited Partner Capital			Non-Controlling Interest			Total Equity and Partners' Capital
Balance at June 30, 2018 (a)	$	—	$	1,315,833		$	(439,012	)	$	876,821
Issuance of common units for business acquisition	—		19,190			—			19,190
Common units tendered for tax withholding obligations	—		(70		)	—			(70		)
Unit-based compensation expense	—		1,778			—			1,778
Distributions to members of Hi-Crush Proppants LLC (a)	—		—			(10,061		)	(10,061		)
Distributions, including distribution equivalent rights ($0.75 per unit)	—		(68,288		)	—			(68,288		)
Net income (a)	—		27,138			—			27,138
Balance at September 30, 2018 (a)	$	—	$	1,295,581		$	(449,073	)	$	846,508



	Nine Months Ended September 30, 2018
	General Partner Capital		Limited Partner Capital			Non-Controlling Interest			Total Equity and Partners' Capital
Balance at December 31, 2017 (a)	$	—	$	1,239,282		$	(413,512	)	$	825,770
Issuance of common units for business acquisition	—		19,190			—			19,190
Issuance of common units to directors	—		474			—			474
Repurchase of common units	—		(9,426		)	—			(9,426		)
Common units tendered for tax withholding obligations	—		(70		)	—			(70		)
Unit-based compensation expense	—		5,152			—			5,152
Distributions to members of Hi-Crush Proppants LLC (a)	—		—			(35,561		)	(35,561		)
Distributions, including distribution equivalent rights ($1.175 per unit)	—		(106,546		)	—			(106,546		)
Net income (a)	—		147,525			—			147,525
Balance at September 30, 2018 (a)	$	—	$	1,295,581		$	(449,073	)	$	846,508


(a)	Financial information has been recast to include the results attributable to the sponsor and general partner. See Note 3.

See Notes to Unaudited Condensed Consolidated Financial Statements.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

1. Business and Organization

Description of Business and Organization

Hi-Crush Inc. (together with its subsidiaries, the "Company," "we," "us" or "our") is a fully-integrated provider of proppant and logistics services for hydraulic fracturing operations, offering frac sand production, advanced wellsite storage systems, flexible last mile services, and innovative software for real-time visibility and management across the entire supply chain. Our strategic suite of solutions provides operators and service companies in all major U.S. oil and gas basins with the ability to build safety, reliability and efficiency into every completion. The Company and the chief operating decision maker view the Company’s operations and manage its business as one operating segment. The segment of the Company is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

Because the conversion became effective on May 31, 2019, the prior period amounts in the accompanying Condensed Consolidated Financial Statements as of December 31, 2018 and for the three and nine months ended September 30, 2018, reflect Hi-Crush as a limited partnership, not a corporation through May 31, 2019. In this report, references to "Hi-Crush," the "Company," "we," "us" or "our" refer to (i) Hi-Crush Inc. and its subsidiaries for periods following the Conversion and (ii) Hi-Crush Partners LP and its subsidiaries for periods prior to the Conversion, in each case, except where the context otherwise requires. References to common units for periods prior to the Conversion, and references to common units for periods following the Conversion means shares of common stock. As a result of the Conversion, the financial impact to the Condensed Consolidated Financial Statements contained herein consisted of (i) reclassification of partnership equity accounts to equity accounts reflective of a corporation and (ii) income tax effects. Refer to Note 2 - Significant Accounting Policies for the income tax effects of the Conversion and refer to Note 11 - Equity for the impact of the Conversion on Hi-Crush's equity.

On May 7, 2019, the Company completed the acquisition of Proppant Logistics LLC ("Proppant Logistics"), which owns Pronghorn Logistics, LLC ("Pronghorn"), a provider of end-to-end proppant logistics services.

On January 18, 2019, the Company completed the acquisition of BulkTracer Holdings LLC ("BulkTracer"), the owner of a logistics software system, PropDispatch.

On October 21, 2018, the Company acquired all of the then outstanding membership interests in our former sponsor, Hi-Crush Proppants LLC (the "sponsor") and the non-economic general partner interest of Hi-Crush GP LLC (the "general partner") in the Company (the "Sponsor Contribution"). In connection with the acquisition, all of the outstanding incentive distribution rights representing limited partnership interests in the Company were canceled and extinguished and the sponsor waived any and all rights to receive contingent consideration payments from the Company or our subsidiaries pursuant to certain previously entered into contribution agreements to which it was a party.

On August 1, 2018, the Company completed the acquisition of FB Industries Inc. ("FB Industries"), a company engaged in the engineering, design and marketing of silo-based frac sand management systems.

Refer to Note 3 - Acquisitions for additional disclosure regarding recent acquisitions.

Basis of Presentation

The accompanying unaudited interim Condensed Consolidated Financial Statements ("interim financial statements") of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all normal and recurring adjustments and disclosures necessary for a fair statement are reflected in the interim periods presented. The results reported in these interim financial statements are not necessarily indicative of the results that may be reported for the entire year. These interim financial statements should be read in conjunction with the Company’s Consolidated Financial Statements for the year ended December 31, 2018, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on February 20, 2019. The year-end balance sheet data was derived from the audited financial statements.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements as it relates to the reclassification of depreciation and amortization separately from general and administrative expenses on the Condensed Consolidated Statements of Operations. These reclassifications had no effect on the previously reported results of operations.

The Sponsor Contribution was accounted for as a transaction between entities under common control whereby the net assets of the sponsor and general partner were recorded at their historical cost. Therefore, the Company's historical financial information has been recast to combine the sponsor and general partner with the Company as if the combination had been in effect since inception of the common control.

These financial statements have been prepared assuming the Company will continue to operate as a going concern. On a quarterly basis, the Company assesses whether conditions have emerged which may cast substantial doubt about the Company's ability to continue as a going concern for the next twelve months following the issuance of the interim financial statements.

2. Significant Accounting Policies

In addition to the significant accounting policies listed below, a comprehensive discussion of our critical accounting policies and estimates is included in our Annual Report on Form 10-K filed with the SEC on February 20, 2019.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Accounts Receivable

Trade receivables, which relate to sales of frac sand, related services and the sale of logistics equipment for which credit is extended based on the customer’s credit history, are recorded at the invoiced amount and do not bear interest. The Company regularly reviews the collectability of accounts receivable. When it is probable that all or part of an outstanding balance will not be collected, the Company establishes or adjusts an allowance as necessary, generally using the specific identification method. Account balances are charged against the allowance after all means of collection have been exhausted and potential recovery is considered remote. As of each of September 30, 2019 and December 31, 2018, the Company maintained an allowance for doubtful accounts of $1,060.

Impairment of Long-lived Assets

Recoverability of investments in property, plant and equipment, and other long-lived assets is evaluated if events or circumstances indicate the impairment of an asset may exist, based on reporting units, which management has defined as the mine and terminal operations and the logistics and wellsite operations. Estimated future undiscounted net cash flows are calculated using estimates, including but not limited to estimates of proven and probable sand reserves, estimated future sales prices (considering historical and current prices, price trends and related factors), operating costs and anticipated capital expenditures. Reductions in the carrying value of our investment are only recorded if the undiscounted cash flows are less than our book basis in the applicable assets.

Impairment losses are recognized based on the extent that the remaining investment exceeds the fair value, which is determined based upon the estimated future discounted net cash flows to be generated by the property, plant and equipment and other long-lived assets.

Management’s estimates of future sales prices, recoverable proven and probable reserves, asset utilization and operating and capital costs, among other estimates, are subject to certain risks and uncertainties which may affect the recoverability of our investments in property, plant and equipment and other long-lived assets. Although management has made its best estimate of these factors based on current conditions, it is reasonably possible that changes could occur in the near term, which could adversely affect management’s estimate of the net cash flows expected to be generated from its operating assets.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

During the nine months ended September 30, 2019, we saw a significant decrease in the price of our common stock resulting in an overall reduction in our market capitalization, and our recorded net book value exceeded our market capitalization as of September 30, 2019. We therefore updated our internal business outlook for the Company to consider the current economic environment that affects our operations. We allocated the enterprise fair value to the reporting units and determined that the fair value of our net assets in the logistics and wellsite operations reporting unit exceeded its carrying value and therefore there was no impairment of long-lived assets in the logistics and wellsite operations reporting unit as of September 30, 2019. Utilizing the allocation of the enterprise fair value to the mine and terminal operations reporting unit, we assessed qualitative factors and determined that we could not conclude that it was more likely than not that the fair value of our net assets exceeded its carrying value. In turn, we prepared a quantitative analysis of the fair value of the mine and terminal operations assets as of September 30, 2019, and determined there was not sufficient undiscounted cash flows to recover the value of the long-lived assets. Upon completion of the valuation exercise, it was determined that there was impairments of certain long-lived assets as of September 30, 2019. Refer to Note 5 - Property, Plant and Equipment and Note 16 - Asset Impairments for additional disclosure regarding long-lived asset impairments.

Leases

On January 1, 2019, we adopted Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) using the modified retrospective transition method, utilizing the simplified transition option available, which allows entities to continue to apply the legacy guidance in Topic 840, Leases, including its disclosure requirements, in the comparative periods presented in the year of adoption. We have elected to apply certain practical expedients, whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. Upon adoption of the new leasing standard on January 1, 2019, we recognized $135,480 of operating lease right-of-use assets, including any lease prepayments made, initial direct costs incurred and excludes lease incentives received, and $127,018 of related operating lease liabilities on the Consolidated Balance Sheet. The impact of adoption of the new leasing standard had no impact to the opening balance of retained earnings on the Consolidated Balance Sheet or to the Consolidated Statements of Operations.

At inception of a contract, the Company determines if it includes a lease. The Company evaluates the lease against the lease classification criteria within Topic 842. If the direct financing or sales-type classification criteria are met, then the lease is accounted for as a finance lease. All other leases are accounted for as operating leases. When a lease is identified, a right-of-use asset and the corresponding lease liability are recorded on the Condensed Consolidated Balance Sheet. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. In the event a lease does not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease right-of-use assets also include any lease prepayments made, initial direct costs incurred and excludes lease incentives received. The operating lease liabilities also include any deferred rent accrued. We generally do not include renewal or termination options in our assessment of the leases unless extension or termination for certain assets is deemed to be reasonably certain. For all leases with a term of 12 months or less, we elected the practical expedient to not recognize lease assets and liabilities. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Right-of-use assets are assessed periodically for impairment if events or circumstances occur that indicate the carrying amount of the asset may not be recovered. We monitor events and modifications of existing lease agreements that would require reassessment of the lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding right-of-use asset.

As a result of the allocation of the enterprise fair value to the mine and terminal operations reporting unit, we assessed qualitative factors and determined that we could not conclude that it was more likely than not that the fair value of our net assets exceeded its carrying value. In turn, we prepared a quantitative analysis of the fair value of the right-of-use assets as of September 30, 2019, and determined there was not sufficient undiscounted cash flows to recover the value of certain right-of-use assets. Upon completion of the valuation exercise, it was determined that there was impairments of certain right-of-use assets as of September 30, 2019. Refer to Note 6 - Leases and Note 16 - Asset Impairments for additional disclosure regarding leases and right-of-use asset impairments.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

Goodwill

Goodwill represents the excess of purchase price over the fair value of net assets acquired. The Company performs an assessment of the recoverability of goodwill during the third quarter of each fiscal year, or more often if events or circumstances indicate the impairment of an asset may exist. Our assessment of goodwill is based on qualitative factors to determine whether the fair value of the reporting unit is more likely than not less than the carrying value. An additional quantitative impairment analysis is completed if the qualitative analysis indicates that the fair value is not substantially in excess of the carrying value. The quantitative analysis determines the fair value of the reporting unit based on the discounted cash flow method and relative market-based approaches. Our annual assessment of goodwill performed during the third quarter of 2019 was prepared in accordance with ASU 2017-14, Simplifying the Test for Goodwill Impairment, which eliminates step two from the goodwill impairment test. Refer to Note 16 - Asset Impairments for additional disclosure regarding our goodwill impairment assessment.

Fair Value Measurements

The amounts reported in the balance sheet as current assets or liabilities, including cash, accounts receivable, accounts payable, accrued and other current liabilities approximate fair value due to the short-term maturities of these instruments. The Company's financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy, which are as follows:


•	Level 1 - observable inputs such as quoted prices in active markets;


•	Level 2 - inputs other than quoted prices in active markets that we can directly or indirectly observe to the extent that the markets are liquid for the relevant settlement periods; and


•	Level 3 - unobservable inputs in which little or no market data exists, therefore inputs reflect the Company's assumptions.

The fair value of the 9.50% senior unsecured notes due 2026 (the "Senior Notes") approximated $261,000 as of September 30, 2019, based on the market price quoted from external sources, compared with a carrying value of $450,000. If the Senior Notes were measured at fair value in the financial statements, it would be classified as Level 2 in the fair value hierarchy.

We measure the contingent consideration liability recognized in connection with the acquisition of FB Industries at fair value on a recurring basis using unobservable inputs and it would be classified as Level 3 in the fair value hierarchy. Refer to Note 10 - Commitments and Contingencies for additional disclosure regarding contingent consideration.

Goodwill, other intangible assets and long-lived assets, including right-of-use assets, are subject to nonrecurring fair value measurement for the assessment of impairment or as part of the purchase price allocation process for business acquisitions. During the third quarter of 2019, the long-lived assets, including right-of-use assets, goodwill and other intangible assets were measured at fair value on a nonrecurring basis using unobservable inputs, which are categorized as Level 3 in the fair value hierarchy. Refer to Note 16 - Asset Impairments for additional disclosure regarding asset impairments.

Income Taxes

As a result of the Conversion completed on May 31, 2019, the Company converted from an entity treated as a partnership for U.S. federal income tax purposes to an entity treated as a corporation for U.S. federal income tax purposes and is therefore subject to U.S. federal, foreign and state and local corporate income tax. The Conversion resulted in the Company obtaining a partial step-down in the tax basis of certain assets. On the date of the Conversion, we recorded an estimated net tax expense and estimated net deferred tax liability of $115,488 relating to the Conversion as well as this partial step-down in tax basis. Our overall tax provision is based on, among other things, an estimate of the amount of such partial step-down in tax basis that is derived from an analysis of the basis of our unitholders in their ownership of Hi-Crush common units at December 31, 2018 and estimated asset values at the time of the Conversion. While this information does not completely reflect the actual basis of our unitholders at May 31, 2019, our estimate is based on our best estimate of the individual asset valuations and the most recent unitholder basis information available to us. The amount of partial step-down in tax basis cannot be finally determined until complete trading information with respect to common units of the Company for the five months ended May 31, 2019 becomes available. The Company does not currently expect such information to become available until the first quarter of 2020 and the timing and the availability of this information is not within the Company’s control. Since the unitholder basis information currently available to us does not completely reflect the actual basis of our unitholders at May 31, 2019, the amount of partial step-down in tax basis as finally determined is expected to differ, possibly materially, from the current estimate, which in turn is expected to cause the Company’s income tax provision and effective tax rate under GAAP to differ, possibly to a material extent, from the current estimate described herein. If the amount of the partial step-down in tax basis as finally determined is lower than the current estimate, the Company would record a lower net tax expense and an incrementally lower deferred tax liability, which would have the effect of decreasing the amount of taxes payable by the Company in the future. If the amount of partial step-down in tax basis as finally determined is higher than the current estimate, the Company would record a higher net tax expense and an incrementally higher deferred tax liability, which would have the effect of increasing the amount of taxes payable by the Company in the future.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

Excluding day one deferred taxes related to the Conversion and the Company's pre-tax loss for the five months ended May 31, 2019 prior to the Conversion, the Canadian operations income for the five months ended May 31, 2019 and the consolidated income for the months of June 2019 through September 2019 were subject to corporate tax at an estimated effective tax rate of approximately 23.5%. As such, the effective tax rate differs from the statutory rate primarily due to the following: (i) the tax expense recognized as a result of the partial step-down in tax basis of certain assets as a result of the Conversion as described above, (ii) the tax expense recognized that relates to the post-conversion book income, (iii) state income taxes, (iv) the impact of current year acquisitions, (v) certain compensation charges attributable to the Company that are not deductible for tax purposes, and (vi) certain book expenses that are not deductible for tax purposes.

Prior to the Conversion, the Company was a pass-through entity and was not considered a taxable entity for federal tax purposes. Therefore, there is not a provision for income taxes for U.S. federal or certain other state jurisdictions in the accompanying Condensed Consolidated Financial Statements prior to May 31, 2019.

Deferred Income Taxes

Income taxes are accounted for using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis, using tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred assets and liabilities of a change in tax rates is recognized in the Condensed Consolidated Statements of Operations in the period when the change is enacted.

Deferred tax assets are reduced by a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. When evaluating the realizability of the deferred tax assets, all evidence, both positive and negative, is considered. Items considered when evaluating the need for a valuation allowance include the ability to carry back losses, future reversals of existing temporary differences, tax planning strategies, and expectations of future earnings.

For a particular tax‑paying component of an entity and within a particular tax jurisdiction, deferred tax assets and liabilities are offset and presented as a single amount, as applicable, in the accompanying statements of financial condition.

Foreign Currency Translation

The Company records foreign currency translation adjustments from the process of translating the functional currency of the financial statements of its foreign subsidiary into the U.S. dollar reporting currency. The Canadian dollar is the functional currency of the Company's foreign subsidiary as it is the primary currency within the economic environment in which the subsidiary operates. Assets and liabilities of the subsidiary's operations are translated into U.S. dollars at the rate of exchange in effect on the balance sheet date and income and expenses are translated at the average exchange rate in effect during the reporting period. Adjustments resulting from the translation of the subsidiary's financial statements are reported in other comprehensive income.

3. Acquisitions

Acquisition of Proppant Logistics LLC

On May 7, 2019, the Company acquired the remaining 34% ownership interest in Proppant Logistics, which owns Pronghorn, a provider of end-to-end proppant logistics services, for $2,951 in cash and 695,606 newly issued common units. The Company previously held a 66% ownership interest in Proppant Logistics, which was accounted for using the equity method. We remeasured our previously held equity interest in Proppant Logistics at fair value as of the date we obtained control in accordance with the accounting guidance for acquisitions achieved in stages in ASC 805, Business Combinations. As a result, we recognized a gain of $3,612 on the remeasurement of our equity method investment during the second quarter of 2019.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

The final purchase price of $16,045 was allocated to the net assets acquired as follows:



Net assets of Proppant Logistics as of May 7, 2019:
Cash	$	1,841
Accounts receivable	7,951
Prepaid expenses and other current assets	782
Property, plant and equipment	205
Other assets	247
Goodwill and intangible assets	15,662
Accounts payable	(7,047		)
Accrued and other current liabilities	(359		)
Credit facility	(3,237		)
Fair value of net assets acquired	$	16,045

The excess of the purchase consideration over the fair value of net assets acquired was recorded as goodwill. The recognition of goodwill is attributable to strategic benefits and expected synergies of our combined operations. Through the completion of acquiring 100% of the ownership interests in Proppant Logistics, the Company began to consolidate the operations of Proppant Logistics prospectively from May 7, 2019. In connection with this acquisition, the Company incurred $311 of acquisition related costs during the nine months ended September 30, 2019, included in general and administrative expenses. Pro forma results of operations for Proppant Logistics have not been presented because the acquisition was not material to the consolidated results of operations.

Acquisition of BulkTracer Holdings LLC

On January 18, 2019, the Company completed the acquisition of BulkTracer, the owner of a logistics software system, PropDispatch, for $3,134 in cash. The acquisition was accounted for under the acquisition method of accounting whereby management assessed the net assets acquired and recognized amounts for the identified assets acquired and liabilities assumed.

The final purchase price of $3,134 was allocated to the net assets acquired as follows:



Net assets of BulkTracer as of January 18, 2019:
Cash	$	15
Accounts receivable	53
Property, plant and equipment	3,129
Equity method investment in Proppant Express Investments, LLC	289
Accounts payable	(86		)
Accrued and other current liabilities	(166		)
Deferred revenues	(100		)
Fair value of net assets acquired	$	3,134

The operations of BulkTracer have been included in the statements prospectively from January 18, 2019. In connection with this acquisition, the Company incurred $100 of acquisition related costs during the nine months ended September 30, 2019, included in general and administrative expenses. Pro forma results of operations for BulkTracer have not been presented because the acquisition was not material to the consolidated results of operations.

Acquisition of Hi-Crush Proppants LLC and Hi-Crush GP LLC

On October 21, 2018, the Company entered into a contribution agreement with the sponsor pursuant to which the Company acquired all of the then outstanding membership interests in the sponsor and the non-economic general partner interest in the Company, in exchange for 11,000,000 newly issued common units. In connection with the acquisition, all of the outstanding incentive distribution rights representing limited partnership interests in the Company were canceled and extinguished and the sponsor waived any and all rights to receive contingent consideration payments from the Company or our subsidiaries pursuant to certain previously entered into contribution agreements to which it was a party.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

In connection with this acquisition, the Company incurred $3,810 of acquisition related costs during the year ended December 31, 2018, included in general and administrative expenses.

As a result of this transaction, the Company's historical financial information has been recast to combine the Consolidated Statements of Operations and the Consolidated Balance Sheets of the Company with those of our sponsor and general partner as if the combination had been in effect since inception of common control on October 28, 2010. All transactions between the Company, the sponsor and general partner have been eliminated. Except for the combination of the Consolidated Statements of Operations and the respective allocation of recast net income (loss), distributions paid by the sponsor to its members prior to October 21, 2018 have not been allocated on a recast basis to the Company’s unitholders. Such transactions were presented within the non-controlling interest column in the Consolidated Statement of Partners' Capital as the Company and its unitholders would not have participated in these transactions.

The following table summarizes the carrying value of the sponsor's and general partner's net assets as of October 21, 2018, and the allocation of the purchase price:



Net assets of the sponsor and general partner as of October 21, 2018:
Cash	$	1,314
Accounts receivable	29
Due from Hi-Crush Partners LP	1,446
Prepaid expenses and other current assets	3,132
Property, plant and equipment	2,087
Accounts payable	(2,236		)
Accrued and other current liabilities	(2,562		)
Current portion of long-term debt	(2,259		)
Other liabilities	(86		)
Total carrying value of sponsor and general partner net assets	$	865

Allocation of purchase price
Carrying value of sponsor's non-controlling interest prior to Sponsor Contribution	$	(453,028	)
Excess purchase price over the acquired interest	453,028
Common control cost of sponsor and general partner acquisition	$	—

The following tables present, on a supplemental basis, our recast revenues, net income, net income attributable to Hi-Crush and net income per limited partner unit giving effect to the Sponsor Contribution, as reconciled to the revenues, net income, net income attributable to Hi-Crush and net income per limited partner unit of the Company.



	Three Months Ended September 30, 2018
	Company Historical		Sponsor and General Partner		Eliminations		Company Recast (Supplemental)
Revenues	$	213,972	$	—	$	—	$	213,972
Net income	$	26,545	$	593	$	—	$	27,138
Net income attributable to Hi-Crush	$	26,545	$	593	$	—	$	27,138
Net income per limited partner unit - basic	$	0.30					$	0.30



	Nine Months Ended September 30, 2018
	Company Historical		Sponsor and General Partner			Eliminations		Company Recast (Supplemental)
Revenues	$	680,605	$	—		$	—	$	680,605
Net income (loss)	$	148,502	$	(977	)	$	—	$	147,525
Net income (loss) attributable to Hi-Crush	$	148,502	$	(977	)	$	—	$	147,525
Net income per limited partner unit - basic	$	1.67						$	1.66

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

Acquisition of FB Industries Inc.

On August 1, 2018, the Company acquired FB Industries, a company engaged in the engineering, design and marketing of silo-based frac sand management systems for $45,000 in cash and 1,279,328 of newly issued common units valued at $19,190. The final purchase price is $74,292 and is comprised of cash consideration of $55,102, which includes valuation of cash acquired, a working capital adjustment of $10,102 and the value of common units issued. The terms also include the potential for additional future consideration payments based on the achievement of established performance benchmarks through 2021. The acquisition was accounted for under the acquisition method of accounting whereby management assessed the net assets acquired and recognized amounts for the identified assets acquired and liabilities assumed. Refer to Note 10 - Commitments and Contingencies for additional disclosure regarding contingent consideration.

The final purchase price of $74,292 was allocated to the net assets acquired as follows:



Net assets of FB Industries as of August 1, 2018:
Cash	$	20,015
Accounts receivable	2,540
Inventories	13,416
Goodwill and intangible assets	71,723
Prepaid expenses and other current assets	2,202
Property, plant and equipment	1,868
Accounts payable	(1,628		)
Deferred revenues	(13,004		)
Accrued and other current liabilities	(13,988		)
Deferred tax liabilities	(429		)
Contingent consideration	(8,423		)
Fair value of net assets acquired	$	74,292

The excess of the purchase consideration over the fair value of net assets acquired was recorded as goodwill. The recognition of goodwill is attributable to the future growth opportunities and synergies of our combined operations. The operations of FB Industries have been included in the statements prospectively from August 1, 2018. In connection with this acquisition, the Company incurred $639 of acquisition related costs during the year ended December 31, 2018, included in general and administrative expenses. Pro forma results of operations for FB Industries have not been presented because the acquisition was not material to the consolidated results of operations.

4. Inventories

Inventories consisted of the following:



	September 30, 2019		December 31, 2018
Raw material	$	705	$	512
Work-in-process	22,784		29,180
Finished goods	18,335		24,872
Spare parts	3,344		2,525
Inventories	$	45,168	$	57,089

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

5. Property, Plant and Equipment

Property, plant and equipment consisted of the following:



	September 30, 2019			December 31, 2018
Buildings	$	28,145		$	32,751
Mining property and mine development	352,639			390,296
Plant and equipment	322,550			472,892
Rail and rail equipment	35,514			55,913
Transload facilities and equipment	111,795			118,982
Last mile equipment (a)	81,658			66,083
Construction-in-progress	15,841			21,796
Property, plant and equipment	948,142			1,158,713
Less: Accumulated depreciation and depletion	(122,822		)	(127,525		)
Property, plant and equipment, net	$	825,320		$	1,031,188


(a)	Includes finance lease right-of-use assets.

Depreciation and depletion expense was $14,493 and $10,373 during the three months ended September 30, 2019 and 2018, respectively, and $40,230 and $28,874 during the nine months ended September 30, 2019 and 2018, respectively.

The Company recognized a loss of $16 and a gain of $95 on the disposal of fixed assets during the three and nine months ended September 30, 2019, respectively, and losses of $110 and $273 on the disposal of fixed assets during the three and nine months ended September 30, 2018, respectively, which is included in other operating expenses, net on our Condensed Consolidated Statements of Operations.

As a result of the current demand for frac sand and related logistics services and continued pricing pressure for both Northern White and in-basin sand, the Augusta facility was idled in January 2019. The Company temporarily idled dry plant operations at the Whitehall facility in September 2018 and resumed production in January 2019. Beginning in August 2019, the Company reduced the hours of operations at the Whitehall facility. During the third quarter of 2019, we completed an impairment assessment of the Augusta and Whitehall facilities based on current market conditions and the current and expected utilization of the facilities. The fair value was determined utilizing the income approach and utilizing inputs that are primarily based upon internally developed cash flow models discounted at an appropriate weighted average cost of capital. As a result, the Company recognized impairments of $109,747 and $105,727 related to the write-down of the Augusta facility, including work-in-process inventory, and the Whitehall facility, respectively, to their estimated fair value. These expenses are included in asset impairments on the Condensed Consolidated Statement of Operations.

During the three months ended September 30, 2019, we evaluated our terminal facilities for impairment and as a result we recognized an impairment of $5,972 related to the remaining book value of certain assets associated with idled terminal facilities. These expenses are included in asset impairments on the Condensed Consolidated Statement of Operations.

Refer to Note 16 - Asset Impairments for additional disclosure regarding long-lived asset impairments.

6. Leases

As described in Note 2, on January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842). Prior periods presented have not been adjusted and continue to be reported in accordance with the legacy guidance in Topic 840.

Lessee

The Company has long-term operating and finance leases, comprised primarily of railcars and container lease arrangements, equipment, office space and terminals. Our operating leases have remaining lease terms of 0.6 years to 8.8 years, and our finance leases have remaining lease terms of 5.0 years, some of which include automatic renewal options, options to extend the leases and options to terminate the leases.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

During the third quarter of 2019, we completed an impairment assessment of the right-of-use assets based on current market conditions and the current and expected utilization of the assets. The fair value was determined utilizing the income approach and utilizing inputs that are primarily based upon internally developed cash flow models and quoted market prices, discounted at an appropriate weighted average cost of capital. As a result, the Company recognized impairments of $76,308 related to the write-down of value of certain operating lease right-of-use assets, the railcars, to their estimated fair value. Refer to Note 16 - Asset Impairments for additional disclosure regarding asset impairments.

As of September 30, 2019, the balance sheet information related to leases are as follows:



	Classification	September 30, 2019
Right-of-use assets
Operating leases	Operating lease right-of-use assets	$	49,577
Finance leases	Property, plant and equipment, net	2,121
Total right-of-use assets		$	51,698
Lease liabilities
Current
Operating leases	Current portion of operating lease liabilities	$	38,155
Finance leases	Accrued and other current liabilities	555
Non-current
Operating leases	Operating lease liabilities	81,283
Finance leases	Other liabilities	1,566
Total lease liabilities		$	121,559

Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the lease liability and the present value of lease payments, we used our incremental borrowing rate based on the information available at the lease commencement date. The weighted average remaining lease term and discount rate as of September 30, 2019 related to leases are as follows:



	Operating leases		Finance leases
Weighted average remaining lease term	4.8 years		5.0 years
Weighted average discount rate	9.50	%	7.75	%

The lease cost components on our Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2019 are as follows:



		Three Months Ended		Nine Months Ended
	Classification	September 30, 2019		September 30, 2019
Operating leases
Operating lease cost	Cost of goods sold	$	10,013	$	30,139
Short-term lease cost	Cost of goods sold	2,283		5,097
Operating lease cost	General and administrative expenses	64		193
Short-term lease cost	General and administrative expenses	177		455
Right-of-use asset impairment	Asset impairments	76,308		76,308
Total lease costs		$	88,845	$	112,192

During the three and nine months ended September 30, 2019, the Company did not recognize any lease costs associated with finance leases.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

Supplemental cash flow information related to our leases for the nine months ended September 30, 2019 is as follows:



	Nine Months Ended
	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases	$	37,579
Right-of-use assets obtained in exchange for operating lease liabilities (a)	$	149,492
Right-of-use assets obtained in exchange for finance lease liabilities	$	2,121


(a)	Excludes the $76,308 of impairments on railcar operating right-of-use assets incurred during the third quarter of 2019.

As of September 30, 2019, the maturities of lease liabilities are as follows:



Fiscal Year	Operating Leases			Finance Leases			Total
2019 (remaining months)	$	10,203		$	368		$	10,571
2020	40,095			472			40,567
2021	34,539			472			35,011
2022	25,308			472			25,780
2023	12,113			472			12,585
Thereafter	25,911			354			26,265
Total lease payments	148,169			2,610			150,779
Less: interest	(28,731		)	(489		)	(29,220		)
Total lease liabilities	$	119,438		$	2,121		$	121,559

As of December 31, 2018, future minimum operating lease payments are as follows:



Fiscal Year	Operating Leases
2019	$	36,019
2020	36,282
2021	29,272
2022	20,890
2023	10,280
Thereafter	31,066
	$	163,809

Lessor

The Company has operating lease arrangements as the lessor associated for the use of logistics and wellsite operations equipment. These leases are classified as operating leases and result in the recognition of lease income on a straight-line basis, while the underlying leased asset remains on our balance sheet and continues to depreciate. Lease income associated with these leases is not material.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

7. Goodwill and Intangible Assets

Changes in goodwill and intangible assets consisted of the following:



	Goodwill			Intangible Assets
Balance at December 31, 2018	$	21,881		$	49,694
FB Industries acquisition measurement period adjustment	2,080			—
Proppant Logistics acquisition additions	10,701			4,961
Asset impairments	(35,657		)	(12,973		)
Impact of foreign currency translation	995			2,115
Amortization expense	—			(4,570		)
Balance at September 30, 2019	$	—		$	39,227

Goodwill

During the third quarter of 2019, the Company performed its annual assessment of goodwill and as a result recognized an impairment of $35,657 included in asset impairments on the Condensed Consolidated Statement of Operations. Goodwill represented the excess purchase over the fair value of net assets acquired in the acquisitions of FB Industries and Proppant Logistics and is allocated to the logistics and wellsite operations reporting unit. Refer to Note 16 - Asset Impairments for additional disclosure regarding our goodwill impairment assessment.

Intangible Assets

An impairment assessment is performed if events or circumstances occur and may result in the change of the useful lives of the intangible assets. During the third quarter of 2019, we completed an impairment assessment of the intangible assets associated with the customer relationships, the trade name and trademarks acquired with the FB Industries acquisition. As of September 30, 2019, we determined that the fair value of the intangibles was less than their carrying value, resulting in an impairment of $12,973, included in asset impairments on the Condensed Consolidated Statement of Operations. Refer to Note 16 - Asset Impairments for additional disclosure regarding intangible asset impairments.

8. Equity Method Investments

The following table provides our net investments and the proportionate share of our equity method investments operating results:



	Investment				Earnings from Equity Method Investments
					Three Months Ended				Nine Months Ended
	September 30, 2019		December 31, 2018		September 30,				September 30,
	September 30, 2019		December 31, 2018		2019		2018		2019			2018
Proppant Express Investments, LLC	$	35,440	$	30,870	$	1,880	$	1,624	$	4,281		$	3,934
Proppant Logistics LLC (through May 6, 2019)	—		6,484		—		—		(1		)	—
Total	$	35,440	$	37,354	$	1,880	$	1,624	$	4,280		$	3,934

Investment in Proppant Express Investments, LLC

On September 8, 2016, the Company entered into an agreement to become a member of Proppant Express Investments, LLC ("PropX"), which was established to develop last mile logistics equipment for the proppant industry. PropX is responsible for manufacturing containers and conveyor systems that allow for transportation of frac sand from in-basin terminals to the wellsite. The Company made no capital contributions to PropX during the three months ended September 30, 2019 and 2018 and nine months ended September 30, 2019, and made capital contributions of $8,095 to PropX during the nine months ended September 30, 2018. During the nine months ended September 30, 2019, the Company acquired additional ownership interests in PropX through the BulkTracer acquisition valued at $289.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

Investment in Proppant Logistics LLC

On October 31, 2018, the Company invested $6,600 for an equity interest in Proppant Logistics, which owns Pronghorn, a logistics company which provides frac sand services in North America. During the nine months ended September 30, 2019, the Company made capital contributions of $495 to Proppant Logistics. The Company acquired the remaining 34% ownership interest in Proppant Logistics and therefore began to consolidate the operations of Proppant Logistics prospectively from May 7, 2019. Refer to Note 3 - Acquisitions for additional disclosure.

9. Long-Term Debt

Long-term debt consisted of the following:



	September 30, 2019			December 31, 2018
Senior Notes due 2026	$	450,000		$	450,000
ABL Credit Facility	—			—
Other notes payable	7,622			4,852
Less: Unamortized debt issuance costs	(8,447		)	(9,375		)
Total debt	449,175			445,477
Less: Current portion of long-term debt	(3,964		)	(2,194		)
Long-term debt	$	445,211		$	443,283

Senior Notes due 2026

On August 1, 2018, the Company completed the private placement of $450,000 aggregate principal amount of its 9.50% senior unsecured notes due 2026 (the "Senior Notes"). The Senior Notes were issued under and are governed by an indenture, dated as of August 1, 2018 (the "Indenture"), by and among the Company, the guarantors named therein (the "Guarantors"), and U.S. Bank National Association, as trustee. The Senior Notes are fully and unconditionally guaranteed (the "Guarantees"), jointly and severally, on a senior unsecured basis by the Guarantors. The Indenture contains customary terms, events of default and covenants relating to, among other things, the incurrence of debt, the payment of dividends or similar restricted payments, undertaking transactions with the Company's unrestricted affiliates, and limitations on asset sales. The Senior Notes bear interest at an annual rate of 9.50% payable semi-annually.

As of September 30, 2019, we had $441,553 of indebtedness ($450,000, net of $8,447 of debt issuance costs) under our Senior Notes.

ABL Credit Facility

On August 1, 2018, the Company entered into a senior secured revolving credit facility (the "ABL Credit Facility"), which matures on August 1, 2023, among the Company, as borrower, the lenders party thereto from time to time, and JP Morgan Chase Bank, N.A., as administrative agent and an issuing lender, and each other issuing lender party thereto. The ABL Credit Facility permits aggregate borrowings of up to $200,000, including a $50,000 sublimit for letters of credit, with the ability to increase the amount of permitted aggregate borrowings up to $300,000 subject to certain conditions.

As of September 30, 2019, we had $47,531 of available borrowing capacity ($68,545, net of $21,014 letter of credit commitments) and no indebtedness under our ABL Credit Facility. As of September 30, 2019, the Company was in compliance with all covenants in the ABL Credit Facility.

Other Notes Payable

In 2014, the Company entered into a purchase and sales agreement to acquire land and underlying frac sand deposits. In connection with this agreement, during the years ended December 31, 2018 and 2016, the Company issued three-year promissory notes each in the amount of $3,676 due in August 2021 and December 2019, respectively, with interest rates of 2.42% and 0.74%, respectively. During the third quarter of 2019, the Company issued a three-year promissory note in the amount of $4,595 due in August 2022 with an interest rate of 1.91%. The promissory notes accrue interest at rates equal to the applicable short-term federal rates. All principal and accrued interest is due and payable at the end of the respective three-year promissory note terms. However, the promissory notes are prepaid on a quarterly basis during the three-year terms as sand is extracted, delivered, sold and paid for from the properties.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

The Company made prepayments of $1,573 and $663 during the three months ended September 30, 2019 and 2018, respectively, and $2,958 and $2,588 during the nine months ended September 30, 2019 and 2018, respectively, based on the accumulated volume of sand extracted, delivered, sold and paid for. During the fourth quarter of 2019, the Company will make a prepayment of $1,330 based on the volume of sand extracted, delivered, sold and paid for through the third quarter of 2019. As of September 30, 2019, the Company had repaid in full the promissory note due in December 2019 and had $4,988 outstanding on its remaining promissory notes due in August 2021 and August 2022.

Other notes payable also includes short-term obligations, arising from insurance premium financing programs bearing interest ranging from approximately 5.54% to 6.29%, with outstanding balances of $2,634 as of September 30, 2019.

Debt Extinguishment

Upon closing on the Senior Notes and ABL Credit Facility on August 1, 2018, the Company terminated its second amended and restated credit agreement ("Revolving Credit Agreement") and senior secured term loan credit facility ("Term Loan Credit Facility"). In connection with the terminations in 2018, the Company recognized a $6,233 loss on extinguishment of debt, which represents the write-off of all remaining unamortized debt issuance costs and unamortized original issuance discount.

10. Commitments and Contingencies

Customer Contracts

The Company enters into sales contracts with customers. These contracts establish minimum annual sand volumes that the Company is required to make available to such customers under initial terms ranging from one to seven years. Through September 30, 2019, no payments for non-delivery of minimum annual sand volumes have been made by the Company to customers under these contracts.

Royalty Agreements

The Company has entered into royalty agreements under which it is committed to pay royalties on sand sold from its production facilities for which the Company has received payment by the customer. Royalty expense is recorded as the sand is sold and is included in costs of goods sold. Royalty expense was $2,045 and $4,243 for the three months ended September 30, 2019 and 2018, respectively, and $5,755 and $12,861 for the nine months ended September 30, 2019 and 2018, respectively.

Certain acreage is subject to a minimum annual royalty payment. If not paid within 30 days after the annual period, the original landowner has the right to purchase the property for one dollar, subject to certain terms. If we have not made the minimum required royalty payments, we may satisfy our obligation by making a lump-sum cash make-whole payment. Accordingly, we believe there is no material risk that we will be required to sell back the subject property pursuant to this agreement.

Property Value Guarantees

The Company entered into mining agreements and land use agreements with the Wisconsin municipalities of Bridge Creek, Lincoln, Springfield and Preston that contain property value guarantees ("PVG") for certain property owners in proximity to each mine. The respective PVGs establish a process whereby we guaranty fair market value to the owners of residential property specifically identified within the body of the PVG document. According to the terms of the PVGs, the property owner must notify us in the event they wish to sell the subject residence and additional acreage in certain instances. Upon such notice, the PVGs establish a process by which an appraisal is conducted and the subject property is appraised to establish fair market value and is listed with a real estate broker. In the event the property is sold within 180 days of listing, we agree to pay the owner any shortfall between the sales price and the established fair market value. In the event the property is not sold within the 180 days' time frame, we are obligated to purchase the property for fair market value.

As of September 30, 2019, we have not accrued a liability related to the PVGs because it is not possible to estimate how many of the owners will elect to avail themselves of the provisions of the PVGs and it cannot be determined if shortfalls will exist in the event of a sale nor can the value of the subject property be ascertained until appraised. As of September 30, 2019, the Company has paid $3,085 under these guarantees since inception.

Purchase Commitments

We have entered into service agreements with certain transload service providers which requires us to purchase minimum amounts of services over specific periods of time at specific locations. Our failure to purchase the minimum level of services require us to pay shortfall fees.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

As of September 30, 2019, future minimum purchase commitments are as follows:



Fiscal Year
2019 (remaining months)	$	1,086
2020	2,377
2021	2,344
2022	2,344
2023	2,182
Thereafter	677
	$	11,010

Contingent Consideration

In connection with the acquisition of FB Industries, the agreement contained certain contingent consideration arrangements from the date of closing to December 31, 2021, dependent upon leases or sales of certain silo equipment to be paid quarterly.

As of September 30, 2019, the total estimated fair value of the contingent consideration is $2,574 and is recorded in accrued and other current liabilities and other liabilities on the Condensed Consolidated Balance Sheet. The current portion of the contingent consideration is $300. Changes in fair value of the contingent consideration, for facts and circumstances that existed at the time of the acquisition, prior to finalizing the purchase price allocation were accounted for as an adjustment to goodwill. Subsequent changes in fair value of the contingent consideration after the measurement period are recognized in earnings in the period identified.

The estimated fair value assumes primarily leases are entered into during this period with minimal sales of silo equipment. A 10% increase or decrease in the assumed quantity of leases would result in an increase to $3,345 or a decrease to $1,874, respectively, in the fair value of the contingent consideration. Conversely, a 50% shift in the assumed quantity of leases to sales of silo systems and conveyors would reduce the contingent consideration to $1,759.

The following table provides a summary of changes in the fair value of the contingent consideration:



Balance at December 31, 2018	$	8,147
Changes in estimated fair value of contingent consideration liability	(5,573		)
Balance at September 30, 2019	$	2,574

Litigation

From time to time the Company may be subject to various claims and legal proceedings which arise in the normal course of business, including claims involving various governmental agencies, including but not limited to the Texas Commission on Environmental Quality, Wisconsin Department of Natural Resources and U.S. Environmental Protection Agency, among others. Management is not aware of any legal matters that are likely to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

11. Equity

On May 31, 2019, at the effective time of the Conversion, the outstanding common units were each exchanged for one issued and outstanding share of common stock. Holders of common units immediately prior to the Conversion collectively received, in exchange for their common units, 100% of the shares of common stock issued and outstanding immediately following the Conversion. As of the open of business on June 3, 2019, the common stock commenced trading on the NYSE under the ticker symbol "HCR." Under the certificate of incorporation of the Company that was entered into at the effective time of Conversion, the Company has authority to issue a total of 600,000,000 shares, of which 500,000,000 are designated as common stock, par value $0.01 per share and 100,000,000 are designated as preferred stock, par value $0.01 per share.

Equity Issuances

On May 7, 2019, the Company issued 695,606 common units as additional consideration for the Proppant Logistics acquisition.

On August 1, 2018, the Company issued 1,279,328 of common units as additional consideration for the FB Industries acquisition.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

Stock Repurchase Program

On June 8, 2019, the Company's board of directors approved a new stock repurchase program of up to $25,000, effective immediately and authorized through June 30, 2020. The new stock repurchase program superseded our previous unit buyback program, which was terminated upon the Conversion on May 31, 2019. The stock repurchase program does not obligate the Company to repurchase any specific dollar amount or number of shares and may be suspended, modified or discontinued by the board of directors at any time, in its sole discretion and without notice.

The following table presents information with respect to repurchases of common shares made by the Company during the periods presented, which were retired upon repurchase:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Number of shares purchased	—		—		1,177,731		753,090
Average price paid per share including commission	$	—	$	—	$	2.67	$	12.52
Total cost	$	—	$	—	$	3,151	$	9,426

As of September 30, 2019, the Company has repurchased a total of 1,177,731 common shares under the new stock repurchase program for a total cost of $3,151, with $21,849 remaining under its approved stock repurchase program.

Allocations of Net Income

Prior to the Sponsor Contribution, the partnership agreement that governed Hi-Crush prior to the Conversion (the "partnership agreement") contained provisions for the allocation of net income and loss to the unitholders and the general partner. For purposes of maintaining partner capital accounts, the partnership agreement specified that items of income and loss shall be allocated among the partners in accordance with their respective percentage ownership interest. Normal allocations according to percentage interests were made after giving effect, if any, to priority income allocations in an amount equal to incentive cash distributions allocated 100% to the sponsor for the periods applicable prior to the Sponsor Contribution. Upon the Conversion on May 31, 2019, the partnership agreement was terminated.

During the three and nine months ended September 30, 2018, prior to the Sponsor Contribution, $7,664 of income was allocated to the holder of our incentive distribution rights.

Distributions, Incentive Distribution Rights and Dividends

Prior to the Conversion, the partnership agreement set forth the calculation to be used to determine the amount of cash distributions that our limited partner unitholders and the holder of our incentive distribution rights received prior to the Sponsor Contribution. The incentive distribution rights were held by the sponsor and were canceled and extinguished on October 21, 2018 in connection with the Sponsor Contribution. Upon the Conversion on May 31, 2019, the partnership agreement was terminated.

On January 7, 2019, we announced the decision of the board of directors to suspend the quarterly distribution to common unitholders.

The Company has not adopted a policy regarding payment of dividends. Dividends may be declared from time to time by the board of directors out of funds legally available for dividend payments. Any dividend policy adopted may be amended, revoked or suspended at any time, and while any dividend policy is in place, the actual amount of dividends on the common stock will depend on many factors, including the Company’s financial condition and results of operations, liquidity requirements, market opportunities, capital requirements, legal, regulatory and contractual constraints, tax laws and other factors.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

Our most recent distributions, prior to the Conversion, were as follows:



Declaration Date	Amount Declared Per Unit		Record Date	Payment Date	Payment to Limited Partner Units		Payment to the Holder of Incentive Distribution Rights
January 17, 2018	$	0.2000	February 1, 2018	February 13, 2018	$	17,809	$	—
April 18, 2018	$	0.2250	May 1, 2018	May 15, 2018	$	19,888	$	—
July 20, 2018	$	0.7500	August 3, 2018	August 14, 2018	$	67,253	$	7,664
October 21, 2018	$	0.2250	November 1, 2018	November 14, 2018	$	22,695	$	—

Recast Equity Transactions

During the three and nine months ended September 30, 2018, the sponsor paid cash distributions of $10,061 and $35,561 to its members. Such transactions are reflected within the non-controlling interest section of the Consolidated Statement of Partners' Capital.

12. Earnings Per Share

Basic earnings per share of common stock is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock is computed by dividing the net income or loss by the sum of the weighted average number of shares of common stock outstanding during the period, plus the potential dilutive effects of stock awards outstanding during the period calculated in accordance with the treasury stock method.

Diluted earnings per share excludes any dilutive stock awards granted (see Note 13 - Stock-Based Compensation) if their effect is anti-dilutive. During the three and nine months ended September 30, 2019, the Company incurred a net loss and, as a result, all 2,025,198 stock awards granted and outstanding were excluded from the diluted earnings per share calculation. Diluted earnings per unit for the three and nine months ended September 30, 2018 includes the dilutive effect of all 1,536,881 stock awards granted and outstanding at the assumed number of shares which would have vested if the performance period had ended on September 30, 2018.

The following table provides a reconciliation of net loss and the basic and diluted, weighted average common shares outstanding for purposes of computing loss per share for the three and nine months ended September 30, 2019:



	Three Months Ended			Nine Months Ended
	September 30, 2019			September 30, 2019
Net loss	$	(268,497	)	$	(392,188	)

Basic weighted average common shares outstanding	100,711,426			101,012,753
Potentially dilutive common shares	—			—
Diluted weighted average common shares outstanding	100,711,426			101,012,753

Loss per share - basic	$	(2.67	)	$	(3.88	)
Loss per share - diluted	$	(2.67	)	$	(3.88	)

Prior to the Sponsor Contribution, for purposes of calculating the Company’s earnings per unit under the two-class method, common units were treated as participating preferred units and the incentive distribution rights were treated as participating securities.

Each period, the Company determined the amount of cash available for distributions in accordance with the partnership agreement. The amount to be distributed to limited partner unitholders and incentive distribution rights holder was subject to the distribution waterfall in the partnership agreement for the periods applicable prior to the Sponsor Contribution. Net earnings or loss for the period were allocated to each class of partnership interest based on the distributions to be made.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

As described in Note 1, the Company's historical financial information has been recast to combine the sponsor and general partner for all periods presented. The amounts of incremental losses recast to periods prior to the Sponsor Contribution were excluded from the calculation of earnings per limited partner unit.

The following tables provide a reconciliation of net income, the assumed allocation of net income and the basic and diluted, weighted average limited partner units outstanding under the two-class method for purposes of computing earnings per limited partner unit for the three and nine months ended September 30, 2018:



	Three Months Ended September 30, 2018
	General Partner and IDRs		Limited Partner Units			Total
Declared distribution	$	—	$	22,695		$	22,695
Assumed allocation of earnings in excess of distributions	—		4,443			4,443
Add back recast income attributable to the sponsor and general partner	—		(593		)	(593		)
Assumed allocation of net income	$	—	$	26,545		$	26,545

Basic weighted average common units outstanding			89,277,833
Potentially dilutive common units			1,536,881
Diluted weighted average common units outstanding			90,814,714

Earnings per limited partner unit - basic			$	0.30
Earnings per limited partner unit - diluted			$	0.29



	Nine Months Ended September 30, 2018
	General Partner and IDRs			Limited Partner Units		Total
Declared distribution	$	7,664		$	109,836	$	117,500
Assumed allocation of earnings in excess of distributions	(7,228		)	37,253		30,025
Add back recast losses attributable to the sponsor and general partner	—			977		977
Assumed allocation of net income	$	436		$	148,066	$	148,502

Basic weighted average common units outstanding				88,848,290
Potentially dilutive common units				1,536,881
Diluted weighted average common units outstanding				90,385,171

Earnings per limited partner unit - basic				$	1.67
Earnings per limited partner unit - diluted				$	1.64

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

13. Stock-Based Compensation

Hi-Crush Inc. Long Term Incentive Plan

On May 31, 2019, in connection with the Conversion, the board of directors approved the Hi-Crush Inc. Long Term Incentive Plan (the "Plan") for the benefit of employees, directors and other service providers of the Company and its affiliates. The Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents, other stock-based awards, cash awards and substitute awards. The Plan has 8,731,053 shares of common stock reserved for issuance pursuant to awards under the Plan, which includes shares allocable to the phantom unit awards that were outstanding under the Hi-Crush Partners LP First Amended and Restated Long-Term Incentive Plan (the "HCLP Plan") and were converted into awards of Performance Share Units ("PSUs") and Restricted Stock Units ("RSUs"), as applicable, under the Plan, effective at the time of the Conversion. The Plan is administered by the board of directors or a committee thereof.

The HCLP Plan was terminated effective at the time of the Conversion, and all units previously registered by the Company with respect to that plan have been deregistered with the SEC.

Performance Share Units

Pursuant to the Plan, the Company awards PSUs to certain employees. The number of PSUs that will vest will range from 0% to 200% of the number of initially granted PSUs and is dependent on the Company's total shareholder return over a three-year performance period compared to the total shareholder return of a designated peer group. Each PSU represents the right to receive, upon vesting, one share of common stock in the Company. The PSUs are also entitled to forfeitable dividend equivalent rights ("DERs"), which accumulate during the performance period and are paid in cash on the date of settlement. The fair value of each PSU is estimated using a fair value approach and is amortized into compensation expense, reduced for an estimate of expected forfeitures, over the period of service corresponding with the vesting period. Expected volatility is based on the historical market performance of our peer group.

The following table presents information relative to our PSUs:



	Units		Grant Date Weighted-Average Fair Value per Unit
Outstanding at December 31, 2018	747,920		$	5.93
Vested	(97,865	)	$	16.63
Forfeited	(82,801	)	$	4.97
Outstanding at September 30, 2019	567,254		$	4.56

As of September 30, 2019, total compensation expense not yet recognized related to unvested PSUs was $1,264, with a weighted average remaining service period of 1.7 years.

Restricted Stock Units

Pursuant to the Plan, the Company awards RSUs to certain employees which automatically vest if the employee remains employed at the end of the vesting period. Vesting generally occurs over a three-year period subject to either cliff or graded vesting. Each RSU represents the right to receive, upon vesting, one share of common stock in the Company. The RSUs are also entitled to forfeitable DERs, which accumulate during the vesting period and are paid in cash on the date of settlement. The fair value of each RSU is calculated based on the grant-date stock price and is amortized into compensation expense, reduced for an estimate of expected forfeitures, over the period of service corresponding with the vesting period.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

The following table presents information relative to our RSUs:



	Units		Grant Date Weighted-Average Fair Value per Unit
Outstanding at December 31, 2018	1,642,218		$	8.07
Vested	(362,687	)	$	11.40
Granted	538,968		$	3.63
Forfeited	(360,555	)	$	6.17
Outstanding at September 30, 2019	1,457,944		$	6.92

As of September 30, 2019, total compensation expense not yet recognized related to unvested RSUs was $4,880, with a weighted average remaining service period of 1.9 years.

Director Stock Grants

The Company issued 62,184 and 36,109 shares of common stock to certain of its directors during the nine months ended September 30, 2019 and 2018, respectively.

Unit Purchase Program

The Company maintained the Second 2017 Unit Purchase Program (the "Second 2017 UPP"), which provided participating employees and members of our general partner's board of directors the opportunity to purchase common units of the Company at a discount.

On September 14, 2017, the offering period under the Second 2017 UPP commenced, with a 15% discount of the fair value of our common units on the applicable election date and a purchase date of November 15, 2018. On September 14, 2017, the Company calculated the fair value of the discount, which was recognized as unit compensation expense on a straight-line basis during the offering period. The offering period under the Second 2017 UPP ended on November 15, 2018, at which time the purchase date price was less than the Election Price. As a result, all contributions were returned to the participants and no common units were purchased under the Second 2017 UPP.

Compensation Expense

The following table presents total stock-based compensation expense:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Performance Share Units	$	211	$	343	$	747	$	1,028
Restricted Stock Units	426		1,335		3,249		3,824
Director stock grants	62		119		185		356
Unit Purchase Program	—		100		—		300
Total compensation expense	$	699	$	1,897	$	4,181	$	5,508

14. Revenues

The Company recognizes revenue at the point in time control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. 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. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

The majority of our contracts are frac sand contracts that have a single performance obligation as the promise to transfer individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. For the portion of our contracts that contain multiple performance obligations, such as work orders containing a combination of product, transportation, equipment rentals, and labor services, we allocate the transaction price to each performance obligation identified in the contract based on relative stand-alone 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.

Disaggregation of Revenues

The following table presents our revenues disaggregated by contractual relationships:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Sales to contract customers	$	81,090	$	157,819	$	248,380	$	508,832
Spot sales	33,070		19,766		106,755		72,940
Frac sand sales revenues	114,160		177,585		355,135		581,772
Other revenues	58,812		36,387		155,748		98,833
Total revenues	$	172,972	$	213,972	$	510,883	$	680,605

Practical Expedients and Exemptions

We have elected to use the practical expedients, pursuant to which we have excluded disclosures of transaction prices allocated to remaining performance obligations and when we expect to recognize such revenue. We have various long-term contracts with minimum purchase and supply requirements with terms expiring between 2019 and 2024. The remaining performance obligations are primarily comprised of unfulfilled product, transportation service, and labor service orders, some of which hold a remaining duration of less than one year. Our transaction price for volumes and services under these contracts is based on timing of customer orders, points of sale, mix of products sold, impact of market conditions and potential contract negotiations, which have not yet been determined and therefore the price is variable in nature. The long-term portion of deferred revenue represents customer prepayments for which related current performance obligations do not yet exist, but are expected to arise, before the expiration of the term.

Deferred Revenues

As of September 30, 2019, the Company has recorded a total liability of $30,395 for prepayments of future deliveries of frac sand and silo equipment. Some prepayments are refundable in the event that the Company is unable to meet the minimum requirements under certain contracts. We expect to recognize these revenues over the next 3.3 years.

The following table reflects the changes in our contract liabilities, which we classify as deferred revenues:



Balance at December 31, 2018	$	29,785
Collection of prepayments	8,750
Revenues recognized	(8,284		)
Customer prepayments acquired in business acquisitions	90
Impact of foreign currency translation	54
Balance at September 30, 2019	$	30,395

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

15. Related Party Transactions

The following table summarizes our related party transactions from our equity method investment (see Note 8 - Equity Method Investments) for the periods indicated:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenues - related parties	$	66	$	—	$	171	$	—
Cost of goods sold - related parties (a)	$	2,492	$	1,620	$	6,517	$	3,709
Equipment purchases - related parties (b)	$	—	$	1,628	$	1,389	$	3,245


(a)	The Company incurs lease expense for the use of PropX equipment.


(b)	The Company purchases equipment from PropX, which is reflected in property, plant and equipment on our Condensed Consolidated Balance Sheet.

The following table summarizes our related party balance sheet components from our equity method investments as of the dates indicated:



	September 30, 2019		December 31, 2018
Accounts receivable - related parties	$	28	$	—
Accounts payable - related parties	$	257	$	1,070

Current portion of operating lease liabilities - related parties (a)	$	9,570	$	—
Operating lease liabilities - related parties (a)	11,979		—
	$	21,549	$	—


(a)	During the first quarter of 2019, the Company made a lease prepayment of $3,739 for the use of PropX equipment during the first half of 2019.

During the three and nine months ended September 30, 2018, the Company engaged in multiple construction projects and purchased equipment, machinery and component parts from various vendors that were represented by Alston Environmental Company, Inc. or Alston Equipment Company (collectively, the "Alston Companies"), which regularly represent vendors in such transactions. The vendors in question paid a commission to the Alston Companies in an amount that is unknown to the Company. The sister of Mr. Alston, who was a director of the general partner until October 21, 2018, has an ownership interest in the Alston Companies. The Company has not paid any sum directly to the Alston Companies and Mr. Alston has represented to the Company that he received no compensation from the Alston Companies related to these transactions.

16. Asset Impairments

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HI-CRUSH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except shares and per share amounts, or where otherwise noted)

Asset impairments for the three and nine months ended September 30, 2019 totaled $346,384 and was comprised of the following assets:



Augusta facility, including work-in-process inventory	$	109,747
Whitehall facility	105,727
Terminal facilities	5,972
Railcar operating lease right-of-use assets	76,308
Goodwill	35,657
Intangible assets associated with FB Industries acquisition	12,973
Asset impairments	$	346,384

Long-lived Assets

During the third quarter of 2019, we completed an impairment assessment of the Augusta and Whitehall facilities based on current market conditions and the current and expected utilization of the facilities. The fair value was determined utilizing the income approach and utilizing inputs that are primarily based upon internally developed cash flow models discounted at an appropriate weighted average cost of capital. As a result, the Company recognized impairments of $109,747 and $105,727 related to the write-down of the Augusta facility, including work-in-process inventory, and the Whitehall facility, respectively, to their estimated fair value.

Leases

Goodwill

During the third quarter of 2019, we performed our annual assessment of the recoverability of goodwill. As part of the Company's annual assessment of goodwill, we updated our internal business outlook for the Company, including the logistics and wellsite operations reporting unit, to consider the current economic environment that affects our operations. As part of the first step of goodwill impairment testing, we prepared a quantitative analysis of the fair value of the goodwill as of September 30, 2019, based on the weighted average valuation of the reporting unit across several income valuation approaches. The underlying results of the valuation were driven by our actual results since the acquisition dates, and the pricing, cost structures and market conditions existing as of September 30, 2019. Other key estimates, assumptions and inputs used in the valuation included long-term growth rates, discount rates, terminal values, valuation multiples and relative valuations when comparing the reporting unit to similar businesses or asset bases. Specific uncertainties affecting our estimated fair value include the impact of competition, pricing for logistics and wellsite operations, future overall activity levels and demand for frac sand and related logistics services, activity levels of our significant customers and other factors affecting the rate of our future growth. As a result, we determined that the carrying value of goodwill exceeded its fair value and therefore we recognized an impairment of $35,657 associated with the goodwill that was allocated in the acquisitions of FB Industries and Proppant Logistics.

Intangible Assets

During the third quarter of 2019, we completed an impairment assessment of the intangible assets associated with the customer relationships, the trade name and trademarks acquired with the FB Industries acquisition. As of September 30, 2019, we determined that the fair value of the intangibles was less than their carrying value, resulting in an impairment of $12,973.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our historical performance, financial condition and future prospects in conjunction with our unaudited condensed financial statements and related notes in Item 1. "Financial Statements" contained herein and our audited financial statements as of December 31, 2018, included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission ("SEC") on February 20, 2019. The information provided below supplements, but does not form part of, our unaudited condensed financial statements. This discussion contains forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. See "Forward-Looking Statements" in this Quarterly Report on Form 10-Q. All amounts are presented in thousands except acreage, tonnage and per share data, or where otherwise noted.

Overview

We are a fully-integrated provider of proppant and logistics services for hydraulic fracturing operations, offering frac sand production, advanced wellsite storage systems, flexible last mile services, and innovative software for real-time visibility and management across the entire supply chain. Our strategic suite of solutions provides operators and service companies in all major U.S. oil and gas basins with the ability to build safety, reliability and efficiency into every completion.

On May 31, 2019, the Company completed its conversion (the "Conversion") from a Delaware limited partnership named Hi-Crush Partners LP to a Delaware corporation named Hi-Crush Inc. As a result of and at the effective date of the Conversion, each common unit representing limited partnership interests in Hi-Crush Partners LP ("common units") issued and outstanding immediately prior to the Conversion was automatically converted into one share of common stock, par value $0.01 per share, of Hi-Crush Inc. ("common stock"). As a result of the Conversion, the Company converted from an entity treated as a partnership for U.S. federal income tax purposes to an entity treated as a corporation for U.S. federal income tax purposes. As of the open of business on June 3, 2019, the common stock commenced trading on the NYSE under the ticker symbol "HCR."

The Company was formed in 2012 with the contribution of the Wyeville facility from our former sponsor, Hi-Crush Proppants LLC (the "sponsor"). In separate transactions between 2013 and 2017, we acquired all of the equity interests in the Augusta, Blair and Whitehall facilities previously owned by the sponsor. In March 2017, we acquired a 1,226-acre frac sand reserve, located near Kermit, Texas, upon which we developed our Kermit facilities.

In June 2013, we acquired D&I Silica, LLC, which transformed us into an integrated Northern White frac sand producer, transporter, marketer and distributor. To continue growth in logistics services, in August 2018, the Company completed the acquisition of FB Industries Inc. ("FB Industries"), a company engaged in the engineering, design and marketing of silo-based frac sand management systems, and, in January 2019, the Company acquired BulkTracer Holdings LLC, the owner of a logistics software system, PropDispatch. Additionally, in May 2019, we completed the acquisition of Proppant Logistics LLC ("Proppant Logistics"), which owns Pronghorn Logistics, LLC ("Pronghorn"), a provider of end-to-end proppant logistics services.

In October 2018, the Company entered into a contribution agreement with the sponsor pursuant to which the Company acquired all of the then outstanding membership interests in the sponsor and the non-economic general partner interest of Hi-Crush GP LLC in the Company.

Our Assets and Operations

Production Facilities

We own and operate six production facilities located in Wisconsin and Texas. Our Wisconsin production facilities are equipped with on-site transportation infrastructure capable of accommodating unit trains connected to the Union Pacific Railroad mainline or the Canadian National Railway mainline. As of December 31, 2018, our Texas production facilities had 36,000 tons of on-site silo storage capacity and have infrastructure capable of direct loading into trucks.

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The following table provides a summary of our production facilities as of September 30, 2019 and our proven reserves as of December 31, 2018:



Mine/Plant Name	Mine/Plant Location	In-Service Date	Area (in acres)	Annual Capacity (in tons)	Proven Reserves (in thousands of tons)
Wyeville facility (a)	Wyeville, WI	June 2011	971	2,700,000	72,094
Augusta facility (b)	Augusta, WI	June 2012	1,187	2,860,000	42,135
Whitehall facility (c)	Whitehall, WI	September 2014	1,626	2,860,000	85,205
Blair facility	Blair, WI	March 2016	1,285	2,860,000	112,169
Kermit facilities	Kermit, TX	July 2017 / December 2018	1,226	6,000,000	100,044


(a)	In March 2019, the Company completed its 850,000 tons per year expansion of Wyeville, increasing the annual processing capacity to 2,700,000 tons of frac sand.


(b)	The Augusta facility was idled in January 2019.


(c)	In September 2018, the Company temporarily idled dry plant operations at the Whitehall facility and resumed production in January 2019. Beginning in August 2019, the Company reduced the hours of operations at the Whitehall facility.

According to John T. Boyd Company ("John T. Boyd"), our proven reserves at our facilities consist of frac sand exceeding American Petroleum Institute ("API") specifications. Analysis of sand at our facilities by independent third-party testing companies indicates that they demonstrate characteristics exceeding API specifications with regard to crush strength, turbidity and roundness and sphericity. Based on third-party reserve reports by John T. Boyd, as of December 31, 2018, we have an implied average reserve life of 24 years, assuming production at the current rated capacity of 17,280,000 tons of frac sand per year.

Terminal Facilities

As of September 30, 2019, we own or operate 11 terminal locations throughout Pennsylvania, Ohio, Texas, Colorado and New York, of which four are idled and seven are capable of accommodating unit trains. Our terminals include approximately 135,000 tons of rail storage capacity and approximately 140,000 tons of silo storage capacity.

Our terminals are strategically located to provide access to Class I railroads, which enables us to cost effectively ship product from our production facilities in Wisconsin. As of September 30, 2019, we leased or owned 4,800 railcars used to transport sand from origin to destination and managed a fleet of 827 additional railcars dedicated to our production facilities by our customers or the Class I railroads.

Logistics and Wellsite Operations

Our logistics and wellsite operations, named Pronghorn Energy Services, utilize silo systems and/or containers, and maintain strict proppant quality control from the mine to the blender. We handle the full spectrum of logistics management with our fully-integrated solution, from railcar fleet management, truck dispatching and dedicated wellsite operations, which structurally reduces costs for customers by eliminating inefficiencies throughout the proppant delivery process.

As of September 30, 2019, we owned or leased 46 PropBeast conveyors, leased 2,978 containers from PropX, owned 13 Atlas topfill conveyors and owned 35 silo systems, which consists of a 6-pack of silos, a conveyor for transporting sand from the silos to the blender hopper and trailers used to transport the silos.

How We Generate Revenue

We generate revenue by excavating, processing and delivering frac sand and providing related services. A substantial portion of our frac sand is sold to customers with whom we have long-term contracts. As of October 1, 2019, the average remaining contract term of our long-term contracts was 1.8 years with remaining terms ranging from 3 to 63 months. Each contract defines the minimum volume of frac sand that the customer is required to purchase, the volume that we are required to make available, the technical specifications of the product and the price per ton. Our contracts for sand sourced from our Wisconsin facilities are periodically negotiated to generally be reflective of market conditions and prices within certain parameters. Our contracts for sand sourced from our Kermit facilities are generally fixed price for the life of the contract. We also sell our frac sand on the spot market at prices and other terms determined by the existing market conditions as well as the specific requirements of the customer. Delivery of sand to our customers may occur at the production facility, rail origin, terminal or wellsite.

We generate other revenues through the performance of our logistics and wellsite operations and services, which includes transportation, equipment rental, and labor services, and through activities performed at our in-basin terminals, including transloading sand for counterparties, lease of storage space and other services performed on behalf of our customers.

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A substantial portion of our logistics services are provided to customers with whom we have long-term agreements as defined in master services agreements ("MSA") and related work orders. The MSA typically outlines the general terms and conditions for work performed by us relating to invoicing, insurance, indemnity, taxes and similar terms. The work orders typically define the commercial terms including the type of equipment and services to be provided, with pricing that is generally determined on a job-by-job basis due to the variability in the specific requirements of each wellsite. The MSA and related work orders are typically separate from any sand supply contract we may have with the same customer.

We generate other revenues from the sale of silo systems and related equipment to third parties at negotiated prices for the specific equipment.

Costs of Conducting Our Business

Production Costs

The principal expenses involved in production of raw frac sand are excavation costs, plant operating costs, labor, utilities, maintenance and royalties. We have a contract with a third party to excavate raw frac sand, deliver the raw frac sand to our wet processing facilities and move the sand from our washed sand stockpiles to our dry plants. We pay a fixed price per ton excavated and delivered without regard to the amount of sand excavated that meets API specifications. Accordingly, we incur excavation costs with respect to the excavation of sand and other materials from which we ultimately do not derive revenue (rejected materials), and for sand which is still to be processed through the dry plant and not yet sold. However, the ratio of rejected materials to total amounts excavated has been, and we believe will continue to be, in line with our expectations, given the extensive core sampling and other testing we undertook at our facilities.

Labor costs associated with employees at our processing facilities represent the most significant cost of converting raw frac sand to finished product. We incur utility costs in connection with the operation of our processing facilities, primarily electricity and natural gas, which are both susceptible to price fluctuations. Our facilities require periodic scheduled maintenance to ensure efficient operation and to minimize downtime. Excavation, labor, utilities and other costs of production are capitalized as a component of inventory and are reflected in cost of goods sold when inventory is sold.

We pay royalties to third parties at our Wisconsin facilities at various rates, as defined in the individual royalty agreements. We currently pay an aggregate rate up to $5.15 per ton of sand excavated, processed and sold from our Wisconsin facilities, delivered to and paid for by our customers. No royalties are due on the sand extracted, processed and sold from our Kermit facilities.

We may, from time to time, purchase sand and other proppant through a long-term supply agreement with a third party at a specified price per ton and also through the spot market.

Logistics Costs

The principal expenses involved in distribution of processed sand are rail freight and fuel surcharges, railcar lease expense, and trucking charges. These logistics costs are capitalized as a component of finished goods inventory held in-basin and are reflected in cost of goods sold when the inventory is eventually sold at an in-basin distribution terminal or at the wellsite. Other logistics cost components, including terminal transload fees, storage fees, and terminal operational costs, such as labor and facility rent, are charged to costs of goods sold in the period in which they are incurred. We utilize multiple railroads to transport our sand and such transportation costs are typically negotiated through long-term working relationships.

The principal expenses involved in delivering sand to the wellsite are costs associated with third party trucking vendors, container rent, labor and other operating expenses associated with handling the product at the wellsite. These logistics costs are charged to costs of goods sold in the period in which they are incurred.

Other Cost of Sales

The principal expenses associated with the sale of silo systems and related equipment are the cost of the equipment generally manufactured by third parties, as well as testing and delivery charges to the location specified by the customer. These expenses are capitalized into equipment inventory and charged to cost of goods sold when delivery is completed to the customer.

General and Administrative Costs

We incur general and administrative costs related to our corporate operations, which includes our corporate office and facilities rent, administrative personnel payroll related expenses, professional fees, insurance, stock-based compensation and depreciation and amortization expenses.

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How We Evaluate Our Operations

We utilize various financial and operational measures to evaluate our operations. Management measures the performance of the Company through performance indicators, including gross profit, sales volumes, sales price per ton, earnings before interest, taxes, depreciation and amortization ("EBITDA"), Adjusted EBITDA and free cash flow.

Gross Profit

We use gross profit, which we define as revenues less costs of goods sold and depreciation, depletion and amortization, to measure our financial performance. We believe gross profit is a meaningful measure because it provides a measure of profitability and operating performance based on the historical cost basis of our assets and it is a key metric used by management to evaluate our results of operations.

EBITDA and Adjusted EBITDA

We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income, plus; (i) depreciation, depletion and amortization; (ii) interest expense, net of interest income; and (iii) income tax expense (benefit). We define Adjusted EBITDA as EBITDA, plus; (i) non-cash impairments of goodwill and other assets; (ii) change in estimated fair value of contingent consideration; (iii) earnings (loss) from equity method investments; (iv) gain on remeasurement of equity method investments; (v) loss on extinguishment of debt; and (vi) non-recurring business development costs and other items. EBITDA and Adjusted EBITDA are supplemental measures utilized by our management and other users of our financial statements, such as investors, commercial banks and research analysts, to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis.

Free Cash Flow

We define free cash flow as net cash provided by operating activities less maintenance and growth capital expenditures. Free cash flow is a supplemental measure utilized by our management and other users of our financial statements, such as investors, commercial banks and research analysts, to assess our ability to generate cash from operations for mandatory obligations, including debt repayment, and discretionary investment opportunities.

Note Regarding Non-GAAP Financial Measures

EBITDA, Adjusted EBITDA and free cash flow are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial condition and results of operations. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP financial measures. You should not consider EBITDA, Adjusted EBITDA or free cash flow in isolation or as substitutes for analysis of our results as reported under GAAP. Because EBITDA, Adjusted EBITDA and free cash flow may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

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The following table presents a reconciliation of EBITDA and Adjusted EBITDA to the most directly comparable GAAP financial measure, as applicable, for each of the periods indicated:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Reconciliation of Adjusted EBITDA to net income (loss):
Net income (loss)	$	(268,497	)	$	27,138		$	(392,188	)	$	147,525
Depreciation, depletion and amortization expense	16,093			11,588			44,800			30,930
Interest expense	11,790			8,012			34,186			15,207
Income tax expense (benefit)	(81,982		)	—			34,425			—
EBITDA	(322,596		)	46,738			(278,777		)	193,662
Non-cash impairment of assets	346,384			—			346,384			—
Change in estimated fair value of contingent consideration	(5,181		)	—			(5,853		)	—
Earnings from equity method investments	(1,880		)	(1,624		)	(4,280		)	(3,934		)
Gain on remeasurement of equity method investment	—			—			(3,612		)	—
Loss on extinguishment of debt	—			6,233			—			6,233
Non-recurring business development costs and other items (a)	1,173			701			6,313			1,785
Adjusted EBITDA	$	17,900		$	52,048		$	60,175		$	197,746

(a)

Non-recurring business development costs and other items for the three and nine months ended September 30, 2019, are primarily associated with the Conversion, business acquisitions and severance costs associated with staffing reductions. Non-recurring business development costs and other items for the three and nine months ended September 30, 2018, are primarily associated with lease termination fees and expenses associated with the relocation of our corporate offices, following displacement from Hurricane Harvey, and business development and legal costs.

The following table presents a reconciliation of free cash flow to the most directly comparable GAAP financial measure, as applicable, for each of the periods indicated:



	Three Months Ended			Nine Months Ended
(in thousands)	September 30, 2019			September 30, 2019
Net cash provided by operating activities	$	3,123		$	12,098
Less: Maintenance capital expenditures	(3,328		)	(11,051		)
Less: Growth capital expenditures (a)	(4,893		)	(24,060		)
Free cash flow	$	(5,098	)	$	(23,013	)

(a)

We have excluded growth capital expenditures of $174 and $31,219 spent during the three and nine months ended September 30, 2019, respectively, related to construction projects associated with completion of our second Kermit facility and expansion at our Wyeville facility, both of which were fully-funded in 2018. All other growth capital expenditures related to investments in our logistics and wellsite operations are included in the above.

Basis of Presentation

The following discussion of our historical performance and financial condition is derived from the historical financial statements.

Factors Impacting Comparability of Our Financial Results

Our historical results of operations and cash flows may not be comparable between periods for the following reasons:

•

On May 7, 2019, we completed the acquisition of Proppant Logistics, which owns Pronghorn. On May 7, 2019, the Company completed the acquisition of Proppant Logistics, which owns Pronghorn, a provider of end-to-end proppant logistics services. Accordingly, our financial statements reflect increased operating costs and general and administrative expenses associated with the Pronghorn operations during the three months ended September 30, 2019 as compared to the same period of 2018.

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•

On August 1, 2018, we completed the acquisition of FB Industries Inc. On August 1, 2018, the Company purchased FB Industries, a company engaged in the engineering, design and marketing of silo-based frac sand management systems. Accordingly, our financial statements reflect increased sales of equipment, costs of goods sold, related operating costs and general and administrative expenses associated with the FB Industries operations during the nine months ended September 30, 2019 as compared to the same period of 2018. In connection with the acquisition of FB Industries, the purchase and sale agreement contained certain contingent consideration arrangements from the date of closing to December 31, 2021, dependent upon leases or sales of certain silo equipment. Subsequent changes in fair value of the contingent consideration after the measurement period are recognized in earnings in the period identified. During the three and nine months ended September 30, 2019, the Company recorded an adjustment to the fair value of contingent consideration associated with the FB Industries acquisition in the amount of $5,181 and $5,853, respectively.


•	We commenced operations at our second Kermit production facility in December 2018. The Kermit 2 facility commenced operations and sales of frac sand at the end of 2018, which contributed to an increase in in-basin sand volumes produced and delivered during the nine months ended September 30, 2019 as compared to the same period of 2018.


•	Our Augusta production facility was idled in January 2019. In January 2019, we idled our Augusta facility, which contributed to a decrease in volumes produced and delivered during the nine months ended September 30, 2019 as compared to the same period of 2018.


•	We reduced the hours of operation at our Whitehall production facility beginning in August 2019. The Company temporarily idled dry plant operations at the Whitehall facility in September 2018 and resumed production in January 2019. Beginning in August 2019, the Company reduced the hours of operations at the Whitehall facility.

•

We realized asset impairments during the three and nine months ended September 30, 2019. During the nine months ended September 30, 2019, we saw a significant decrease in the price of our common stock resulting in an overall reduction in our market capitalization, and our recorded net book value exceeded our market capitalization as of September 30, 2019. In addition, as a result of the current demand for frac sand and related logistics services and continued pricing pressure for both Northern White and in-basin sand, during the third quarter of 2019, we completed an impairment assessment of goodwill and long-lived assets, including property, plant and equipment, right-of-use assets, and intangible assets based on current market conditions and the current and expected utilization of the assets. Asset impairments for the three and nine months ended September 30, 2019 totaled $346,384.

•

We terminated our second amended and restated credit agreement and senior secured term loan credit facility on August 1, 2018. On August 1, 2018, the Company completed the private placement of $450,000 aggregate principal amount of its 9.50% Senior Notes and entered into the ABL Credit Facility. Upon closing on the Senior Notes and ABL Credit Facility, the Company terminated its second amended and restated credit agreement ("Revolving Credit Agreement") and senior secured term loan credit facility ("Term Loan Credit Facility"). In connection with the terminations, the Company recognized a $6,233 loss on extinguishment of debt, which represents the write-off of all remaining unamortized debt issuance costs and unamortized original issuance discount.

Market Conditions

Demand for frac sand and related logistics services began to face increasing challenges during the latter part of the third quarter of 2019, driven principally by reduced well completions activity. Demand for the remainder of 2019 remains challenged and uncertain as exploration and production companies ("E&Ps") remain focused on capital discipline and begin to assess their 2020 capital investment budgets in a dynamic commodity price environment, combined with normal seasonality. Market experts forecast that well completion activity will decline significantly during the fourth quarter of 2019, driven by E&P capex budget exhaustion and other seasonal factors, while improving somewhat in the first half of 2020.

Logistics and wellsite management services for frac sand remain a critical component of the overall frac sand supply chain, with demand drivers similar to that of frac sand. New competitors and solutions have entered the market on the supply side of logistics and wellsite management services, principally replacing first generation frac sand delivery and storage mechanisms, along with the less efficient delivery mechanisms represented by pneumatic trucking. While competition for logistics and wellsite management services does exist in the form of equipment suppliers or service providers, pricing for equipment and services has remained relatively stable, as customers remain focused on reliable and cost-efficient delivery systems, wellsite storage solutions, and sand supply.

Industry experts currently estimate total frac sand demand in 2019 to be approximately 115 million tons, flat as compared to total frac sand demand in 2018, and significantly higher than historical levels. Demand for frac sand reduced significantly during the latter part of 2018 as commodity prices and well completion activity declined, followed by a partial recovery in demand throughout the first half of 2019 as commodity prices and well completion activity improved. While some experts currently estimate total frac sand demand in 2020 will exceed 2019 levels, the pace and timing of any potential improvement remains uncertain.

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Due to challenging market conditions for frac sand, production capacity is being rationalized through reduced hours of operations as well as idling or permanent shutdown of both in-basin and Northern White production facilities. Despite this reduction of supply, nameplate and available frac sand capacity remains in excess of near-term demand. Over the intermediate and long-term, we believe frac sand facilities producing Northern White or in-basin sand at a higher cost will remain idled or permanently shut down due to unprofitable production economics. At this time it is not possible to determine if additional facilities will be idled, shut down, or reduce hours of operations, or the exact timeframe in which such actions would be taken. We believe all new capacity added in 2017 and 2018 has been completed and fully ramped to meet customer demand, and we do not believe that any significant new-build or expansion capacity is being contemplated by the industry at this time.

The oversupply of frac sand has resulted in a significant reduction in pricing for Northern White and in-basin sand. A significant decline in demand began in late-2018, resulting in pricing weakness that continued into the first quarter of 2019. Pricing conditions improved somewhat exiting the first quarter of 2019, and remained roughly flat in the second quarter of 2019, as E&Ps reset annual capital budgets and invested in new drilling and completion activity. Weakness began to emerge again during the latter part of the third quarter of 2019. Pricing pressure remains in place, particularly on spot volumes, and is expected to persist.

The following table presents sales, volume and pricing comparisons for the third quarter of 2019, as compared to the second quarter of 2019:



	Three Months Ended
	September 30,		June 30,					Percentage
	2019		2019		Change			Change
Frac sand sales revenues	$	114,160	$	125,884	$	(11,724	)	(9	)%
Other revenues	$	58,812	$	52,117	$	6,695		13	%
Tons sold	2,685,736		2,662,086		23,650			1	%
Average price per ton sold	$	43	$	47	$	(4	)	(9	)%

Revenues generated from the sale of frac sand decreased by 9% from the second quarter of 2019 despite volumes sold remaining flat, as continued pricing pressure was seen for both Northern White and in-basin sand. Average sales price was $43 per ton for the third quarter of 2019 compared to $47 per ton in the second quarter of 2019, with the decrease being attributable to pricing pressures and change in final delivery points.

Other revenues are related to logistics and wellsite operations and equipment sales. The 13% increase in other revenues over the second quarter of 2019 was due primarily to increased demand for logistics services, including through the acquisition of Proppant Logistics in May 2019. Volumes sold through our logistics and wellsite operations increased by 22% from the second quarter of 2019, total truck load volume increased 22% in the same time period, principally as a result of the acquisition of Proppant Logistics in May 2019.

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Results of Operations

The following table presents revenues and expenses for the periods indicated:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues	$	172,972		$	213,972		$	510,883		$	680,605
Costs of goods sold:
Production costs	28,539			39,715			89,895			125,313
Logistics costs	113,202			107,868			317,866			318,784
Other costs of sales	1,719			—			7,493			—
Depreciation, depletion and amortization	14,320			10,241			39,654			28,522
Gross profit	15,192			56,148			55,975			207,986
Operating costs and expenses	355,761			16,389			387,444			42,955
Income (loss) from operations	(340,569		)	39,759			(331,469		)	165,031
Other income (expense):
Earnings from equity method investments	1,880			1,624			4,280			3,934
Gain on remeasurement of equity method investment	—			—			3,612			—
Interest expense	(11,790		)	(8,012		)	(34,186		)	(15,207		)
Loss on extinguishment of debt	—			(6,233		)	—			(6,233		)
Income (loss) before income tax	(350,479		)	27,138			(357,763		)	147,525
Income tax expense (benefit)	(81,982		)	—			34,425			—
Net income (loss)	$	(268,497	)	$	27,138		$	(392,188	)	$	147,525

Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018

Revenues

The following table presents sales, volume and pricing comparisons for the three months ended September 30, 2019, as compared to the three months ended September 30, 2018:



	Three Months Ended
	September 30,							Percentage
	2019		2018		Change			Change
Frac sand sales revenues	$	114,160	$	177,585	$	(63,425	)	(36	)%
Other revenues	$	58,812	$	36,387	$	22,425		62	%
Tons sold	2,685,736		2,775,360		(89,624		)	(3	)%
Average price per ton sold	$	43	$	64	$	(21	)	(33	)%

Revenues generated from the sale of frac sand were $114,160 and $177,585 for the three months ended September 30, 2019 and 2018, respectively, during which we sold 2,685,736 and 2,775,360 tons of frac sand, respectively. The volume decrease is primarily driven by an increase in the available supply of locally produced in-basin sand, particularly in the Permian Basin, which has resulted in reduced levels of demand for Northern White sand, as evidenced by a 26% decrease in Northern White sand volumes during third quarter of 2019 compared to the same period in 2018. Offsetting the decreased Northern White volumes sold was a 46% increase in volumes produced and sold from our in-basin Kermit facilities, as the second Kermit facility began operations in December 2018. Average sales price per ton was $43 and $64 for the three months ended September 30, 2019 and 2018, respectively, with the decrease being attributable to the increased percentage of our total volumes coming from our in-basin Kermit facilities as 44% of volumes sold for the three months ended September 30, 2019 compared to 29% of volumes sold from our Kermit facility for the same period in 2018, as well as the aforementioned pricing pressures coming to bear in the overall market for frac sand during third quarter 2019.

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Other revenues related principally to our integrated logistics and wellsite operations was $57,420 and $36,387 for the three months ended September 30, 2019 and 2018, respectively. Other revenues generated from the sales of silo and related logistics equipment was $1,392 for the three months ended September 30, 2019. The increase in total other revenues is attributable to year-over-year growth of our integrated logistics and wellsite services, including the acquisitions of FB Industries in August 2018 and Proppant Logistics in May 2019.

Costs of Goods Sold – Production Costs

We incurred production costs of $28,539 and $39,715 for the three months ended September 30, 2019 and 2018, respectively. The decrease in production costs between the comparable periods was driven by a change in the mix of where our volumes were produced. In the comparable periods, volumes produced and delivered from our Wisconsin facilities declined 26%, primarily due to the displacement of Northern White sand in the Permian Basin, while quarterly volumes produced at our in-basin production facilities increased 46%, primarily due to the completion of our second Kermit facility in December 2018. The costs of production at our in-basin Kermit facilities are generally lower than the average production costs of our Wisconsin facilities. For the three months ended September 30, 2019 and 2018, we purchased $645 and $2,975, respectively, of sand and other proppants from third party suppliers.

Costs of Goods Sold – Logistics Costs

We incurred logistics costs of $113,202 and $107,868 for the three months ended September 30, 2019 and 2018, respectively. Despite logistics costs remaining relatively flat, the underlying make-up of these costs reflects the change which has taken place in our industry over the past twelve months, as in the comparable periods volumes sold through our in-basin terminal network decreased 16%, resulting in a 22% decrease in associated rail freight costs. The higher percentage decrease in rail freight costs than total in-basin sand sales reflects the continued displacement of Northern White sand from the Permian Basin, which generally has higher freight rates from our Wisconsin production facilities than tariffs to other basins. During the three months ended September 30, 2019, 11% of Northern White sand sold via in-basin terminals occurred in the Permian Basin as compared to 43% for the same period in 2018. This decrease in freight costs was offset by a 36% increase in volumes sold through our logistics and wellsite operations in the comparable periods, which resulted in increased trucking costs, coupled with additional headcount and staffing for those operations, and increased levels of repairs and maintenance on last mile equipment.

Costs of Goods Sold – Other Costs of Sales

We incurred $1,719 of other costs of sales in the three months ended September 30, 2019, primarily related to the costs of manufacturing, assembling and delivery of silo systems, conveyors and other equipment sold to our customers, subsequent to the acquisition of FB Industries in August 2018.

Costs of Goods Sold – Depreciation, Depletion and Amortization

For the three months ended September 30, 2019 and 2018, we incurred $14,320 and $10,241, respectively, of depreciation, depletion and amortization expense, generally using the units-of-production method of depreciation. The increase was primarily attributable to increased mining and depletion of our in-basin reserves upon completion in December 2018 of construction of our second Kermit facility, with production volumes up 49% in the comparable periods. Also contributing to the increase was depreciation on last mile equipment acquired during the second half of 2018, primarily from the acquisition of FB Industries.

Gross Profit

Gross profit was $15,192 and $56,148 for the three months ended September 30, 2019 and 2018, respectively. Gross profit percentage decreased to 9% in the third quarter of 2019 from 26% in the third quarter of 2018. The decline was primarily driven by decreased prices during the 2019 period compared to 2018, as increased sand supply over the past twelve months, rising from the influx of in-basin production, specifically in the Permian Basin, drove down the price of proppant in basins across the U.S.

Operating Costs and Expenses

General and administrative expenses was $12,020 and $14,164 for the three months ended September 30, 2019 and 2018, respectively. For the three months ended September 30, 2019, the Company had $541 of non-recurring business development and legal costs. For the three months ended September 30, 2018, the Company had $701 of non-recurring business development and legal costs. Absent the non-recurring costs, the general and administrative expenses for the three months ended September 30, 2019 decreased compared to the same period in 2018 due to increased focus on cost reductions and decreased headcount and related compensation expense.

Depreciation and amortization was $1,773 and $1,347 for the three months ended September 30, 2019 and 2018, respectively.

During the three months ended September 30, 2019, the Company recorded asset impairments of $346,384 primarily related to $215,474 of impairments on the write-down of the Augusta facility, including the work-in-process inventory, and the Whitehall facility to their estimated fair value, $76,308 of impairments on railcar operating lease right-of-use assets, $35,657 of goodwill impairment and $12,973 of impairments on certain intangible assets.

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During the three months ended September 30, 2019, the Company recorded a decrease to the fair value of contingent consideration associated with the FB Industries acquisition resulting in a gain in the amount of $5,181.

During the three months ended September 30, 2019, the Company incurred $658 of other operating expenses primarily associated with staffing reductions. During the three months ended September 30, 2018, the Company incurred $754 of other operating expenses primarily related to environmental restoration efforts and road repairs in the communities in which we operate.

Earnings from Equity Method Investments

During the three months ended September 30, 2019 and 2018, the Company recognized earnings of $1,880 and $1,624, respectively, from its equity method investments, comprised primarily of our investment in Proppant Express Investments, LLC ("PropX").

Interest Expense

Interest expense was $11,790 and $8,012 for the three months ended September 30, 2019 and 2018, respectively, principally associated with the interest on our Senior Notes in 2019 and our previous Term Loan Credit Facility in 2018. The increase in interest expense during the 2019 period was primarily driven by the issuance of $450,000 of 9.50% Senior Notes in August 2018 compared to the $199,000 outstanding through August 1, 2018 on the Term Loan Credit Facility, which carried an interest rate of 6.10% for the same period in 2018.

Loss on Extinguishment of Debt

During the three months ended September 30, 2018, the Partnership terminated the Revolving Credit Agreement and the Term Loan Credit Facility. In connection with the terminations, the Partnership recognized a $6,233 loss on extinguishment of debt, which represents the write-off of all remaining unamortized debt issuance costs and unamortized original issuance discount.

Income Tax

During the three months ended September 30, 2019, the Company recognized an income tax benefit of $81,982 on the loss before income taxes resulting principally from the asset impairments. Prior to the Conversion, the Company was not subject to income tax.

Net Income (Loss)

Net loss was $268,497 for the three months ended September 30, 2019, compared to net income of $27,138 for the three months ended September 30, 2018.

Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018

Revenues

The following table presents sales, volume and pricing comparisons for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018:



	Nine Months Ended
	September 30,							Percentage
	2019		2018		Change			Change
Frac sand sales revenues	$	355,135	$	581,772	$	(226,637	)	(39	)%
Other revenues	$	155,748	$	98,833	$	56,915		58	%
Tons sold	7,759,084		8,430,491		(671,407		)	(8	)%
Average price per ton sold	$	46	$	69	$	(23	)	(33	)%

Revenues generated from the sale of frac sand were $355,135 and $581,772 for the nine months ended September 30, 2019 and 2018, respectively, during which we sold 7,759,084 and 8,430,491 tons of frac sand, respectively. The volume decrease is primarily driven by an increase in the available supply of locally produced in-basin sand, particularly in the Permian Basin, in the comparable periods, which has resulted in reduced levels of demand for Northern White sand, and led to the idling of the Augusta facility in first quarter of 2019. Offsetting the decreased Northern White volumes sold was a 43% increase in volumes produced and sold from our in-basin Kermit facilities. Average sales price per ton was $46 and $69 for the nine months ended September 30, 2019 and 2018, respectively, with the decrease generally being attributable to the increased percentage of our total volumes coming from our in-basin Kermit facilities as 44% of volumes sold for the nine months ended September 30, 2019 compared to 28% of volumes sold from our Kermit facility for the same period in 2018, as well as the aforementioned pricing pressures coming to bear in the overall market for frac sand during third quarter 2019.

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Other revenues related principally to our integrated logistics and wellsite operations was $146,779 and $98,833 for the nine months ended September 30, 2019 and 2018, respectively. Other revenues generated from the sales of silo and related logistics equipment was $8,969 for the nine months ended September 30, 2019. The increase in total other revenues is attributable to year-over-year growth of our integrated logistics and wellsite services, including the acquisitions of FB Industries in August 2018 and Proppant Logistics in May 2019.

Costs of Goods Sold – Production Costs

We incurred production costs of $89,895 and $125,313 for the nine months ended September 30, 2019 and 2018, respectively. The decrease in production costs between the comparable periods was driven by a change in the mix of where the volumes were produced. In the comparable periods, volumes produced and delivered from our Wisconsin facilities declined 28%, primarily due to the displacement of Northern White sand in the Permian Basin, while volumes produced at our in-basin production facilities increased 43%, primarily due to the completion of our second Kermit facility in December 2018. The costs of production at our in-basin Kermit facilities are generally lower than the average production costs of our Wisconsin facilities. For the nine months ended September 30, 2019 and 2018, we purchased $2,946 and $14,788, respectively, of sand and other proppants from third-party suppliers.

Costs of Goods Sold – Logistics Costs

We incurred logistics costs of $317,866 and $318,784 for the nine months ended September 30, 2019 and 2018, respectively. Despite logistics costs remaining relatively flat, the underlying make-up of these costs reflects the change which has taken place in our industry over the past twelve months, as in the comparable periods volumes sold through our in-basin terminal network decreased 21% during the nine months ended September 30, 2019, resulting in a decrease in rail freight costs. The higher percentage decrease in rail freight costs than total in-basin sand sales reflects the continued displacement of Northern White sand from the Permian Basin, which generally has higher freight rates from our Wisconsin production facilities than tariffs to other basins. This decrease in rail freight costs was offset by increased trucking costs from the growth of our logistics and wellsite operations in the comparable periods, coupled with additional headcount and staffing for those operations, and increased levels of repairs and maintenance on last mile equipment.

Costs of Goods Sold - Other Costs of Sales

We incurred $7,493 of other costs of sales in the nine months ended September 30, 2019, primarily related to the costs of manufacturing, assembling and delivery of silo systems, conveyors and other equipment sold to our customers, subsequent to the acquisition of FB Industries in August 2018.

Costs of Goods Sold – Depreciation, Depletion and Amortization

For the nine months ended September 30, 2019 and 2018, we incurred $39,654 and $28,522, respectively, of depreciation, depletion and amortization expense, generally using the units-of-production method of depreciation. The increase was primarily attributable to increased mining and depletion of our in-basin reserves upon completion of our second Kermit facility in December 2018, with production volumes up 43% in the comparable periods. Also contributing to the increase was depreciation on last mile equipment acquired during the second half of 2018, primarily from the acquisition of FB Industries.

Gross Profit

Gross profit was $55,975 and $207,986 for the nine months ended September 30, 2019 and 2018, respectively. Gross profit percentage decreased to 11% in the first half of 2019 from 31% in the first half of 2018. The decline was primarily driven by decreased prices and volumes during the 2019 period compared to 2018 as increased sand supply from the proliferation of in-basin production, specifically in the Permian Basin, has driven down the price of proppant in basins across the U.S.

Operating Costs and Expenses

General and administrative expenses was $39,843 and $38,050 for the nine months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019, the Company had $4,685 of non-recurring business development and legal costs primarily associated with the Conversion and business acquisitions. For the nine months ended September 30, 2018, the Company had $1,785 of non-recurring business development and legal costs and lease termination costs associated with the relocation of our corporate offices. Absent the non-recurring costs, the general and administrative expenses for the nine months ended September 30, 2019 decreased compared to the same period in 2018 due to increased focus on cost reductions and decreased headcount and related compensation expense.

Depreciation and amortization was $5,146 and $2,408 for the nine months ended September 30, 2019 and 2018, respectively. The increase was primarily attributable to increased amortization expense associated with intangible assets acquired from FB Industries.

During the nine months ended September 30, 2019, the Company recorded asset impairments of $346,384 primarily related to $215,474 of impairments on the write-down of the Augusta facility, including the work-in-process inventory, and the Whitehall facility to their estimated fair value, $76,308 of impairments of railcar operating lease right-of-use assets, $35,657 of goodwill impairment and $12,973 of impairments on certain intangible assets.

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During the nine months ended September 30, 2019, the Company recorded a decrease to the fair value of contingent consideration associated with the FB Industries acquisition resulting in a gain in the amount of $5,853.

During the nine months ended September 30, 2019, the Company incurred $1,558 of other operating expenses primarily associated with staffing reductions. During the nine months ended September 30, 2018, the Company incurred $2,124 of other operating expenses primarily related to the settlement of a contract dispute and environmental restoration efforts and road repairs in the communities in which we operate.

Earnings from Equity Method Investments

During the nine months ended September 30, 2019 and 2018, the Company recognized earnings of $4,280 and $3,934, respectively, from its equity method investments, comprised primarily of our investment in PropX.

Gain on Remeasurement of Equity Method Investment

During the nine months ended September 30, 2019, the Company recognized a gain of $3,612 on the remeasurement of our equity method investment in connection with acquiring the remaining 34% ownership interest in Proppant Logistics on May 7, 2019.

Interest Expense

Interest expense was $34,186 and $15,207 for the nine months ended September 30, 2019 and 2018, respectively, principally associated with the interest on our Senior Notes in 2019 and our previous Term Loan Credit Facility in 2018. The increase in interest expense during the 2019 period was driven by the issuance of $450,000 of 9.50% Senior Notes in August 2018 compared to the $199,000 outstanding through August 1, 2018 on the Term Loan Credit Facility, which carried an interest rate of 6.10% for the same period in 2018.

Loss on Extinguishment of Debt

During the nine months ended September 30, 2018, the Partnership terminated our Revolving Credit Agreement and our Term Loan Credit Facility. In connection with the terminations, the Partnership recognized a $6,233 loss on extinguishment of debt, which represents the write-off of all remaining unamortized debt issuance costs and unamortized original issuance discount.

Income Tax

During the nine months ended September 30, 2019, the Company recognized an income tax expense of $34,425, primarily associated with the initial deferred tax liability of $115,488 recorded on May 31, 2019 as a result of the Conversion, offset by the tax benefit on the loss before income taxes resulting principally from the asset impairments. Prior to the Conversion, the Company was not subject to income tax.

Net Income (Loss)

Net loss was $392,188 for the nine months ended September 30, 2019, compared to net income of $147,525 for the nine months ended September 30, 2018.

Liquidity and Capital Resources

Overview

We expect our principal sources of liquidity will be available cash, cash generated by our operations, and if needed, supplemented by borrowings under our ABL Credit Facility, as available. We believe that cash from these sources will be sufficient to meet our short-term working capital requirements, long-term capital expenditure requirements and debt service obligations, including interest payments. As of October 31, 2019, our sources of liquidity consisted of $52,343 of available cash and $47,531 pursuant to available borrowings under our ABL Credit Facility ($68,545, net of $21,014 letter of credit commitments).

We expect that our future principal uses of cash will be for capital expenditures, funding debt service obligations and working capital, as well as any repurchases of common stock or debt repurchases.

Senior Notes and ABL Credit Facility

As of October 31, 2019, we have $450,000 of 9.50% Senior Notes which mature on August 1, 2026 and had $47,531 of undrawn borrowing capacity ($68,545, net of $21,014 letter of credit commitments) under our ABL Credit Facility. The ABL Credit Facility contains customary representations and warranties and customary affirmative and negative covenants, including limits or restrictions on the Company’s ability to incur liens, incur indebtedness, make certain restricted payments, merge or consolidate, and dispose of assets. As of September 30, 2019, we are in compliance with the covenants contained in the ABL Credit Facility.

Borrowings under our Senior Notes and ABL Credit Facility are secured by substantially all of our assets. In addition, our subsidiaries have guaranteed our obligations under both credit agreements and have granted the lenders security interests in substantially all of their respective assets. For additional information regarding our Senior Notes and ABL Credit Facility, see Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements included under Part I, Item 1. "Financial Statements" of this Quarterly Report on Form 10-Q.

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Credit Ratings

As of October 31, 2019, the credit rating of the Company’s Senior Notes was B3 from Moody’s Investors Service Inc. and B- from Standard and Poor’s.

The credit ratings of the Company’s Senior Notes reflect only the view of a rating agency and should not be interpreted as a recommendation to buy, sell or hold any of our securities. A credit rating can be revised upward or downward or withdrawn at any time by a rating agency, if it determines that circumstances warrant such a change. A credit rating from one rating agency should be evaluated independently of credit ratings from other rating agencies.

Off-Balance Sheet Arrangements

As of September 30, 2019, there were $41,444 in surety bonds outstanding related to various performance obligations. These were issued in the ordinary course of our business and are in place to support various performance obligations as required by (i) statutes within the regulatory jurisdictions where we operate and (ii) counterparty support. Obligations under these surety bonds are not normally called, as we typically comply with the underlying performance requirement, and our management believes these surety bonds will expire without being funded.

Stock Repurchase Program

On June 8, 2019, the Company's board of directors approved a new stock repurchase program of up to $25,000, effective immediately and authorized through June 30, 2020. The stock repurchase program does not obligate the Company to repurchase any specific dollar amount or number of shares and may be suspended, modified or discontinued by the board of directors at any time, in its sole discretion and without notice. As of October 31, 2019, the Company has repurchased a total of 1,177,731 common shares for a total cost of $3,151, with $21,849 remaining under its approved stock repurchase program.

Capital Requirements

Capital expenditures totaled $66,330 during the nine months ended September 30, 2019. Maintenance capex for the nine months ended September 30, 2019 was $11,051. Growth capex for the nine months ended September 30, 2019 was $24,060, primarily related to spending on logistics assets, including new topfill conveyor systems and trailers. Carryover growth capex from 2018 for construction projects associated with completion of our second Kermit facility and expansion at our Wyeville facility totaled $31,219. These expansion initiatives were fully-funded in 2018.

For the remainder of 2019, maintenance and growth capex is expected to range between $7,000 and $10,000.

Working Capital

Working capital is the amount by which current assets, excluding cash, exceed current liabilities and is a measure of our ability to pay our liabilities as they become due. At the end of any given period, accounts receivable and payable tied to sales and purchases are relatively balanced to the volume of tons sold during the period. The factors that typically cause variability in the Company's working capital are (1) changes in receivables due to fluctuations in volumes sold, pricing and timing of collection, (2) inventory levels, which the Company closely manages, or (3) major structural changes in the Company's asset base or business operations, such as any acquisition, divestitures or organic capital expenditures. As of September 30, 2019, we had a positive working capital balance of $58,009 as compared to $19,041 at December 31, 2018.

The following table summarizes our working capital as of the dates indicated:



	September 30, 2019		December 31, 2018
Current assets:
Accounts receivable, net	$	95,122	$	101,029
Inventories	45,168		57,089
Prepaid expenses and other current assets	13,396		13,239
Total current assets	153,686		171,357
Current liabilities:
Accounts payable	47,370		71,039
Accrued and other current liabilities	36,596		61,337
Current portion of deferred revenues	11,711		19,940
Total current liabilities	95,677		152,316
Working capital	$	58,009	$	19,041

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Accounts receivable decreased $5,907 during the nine months ended September 30, 2019, primarily driven by a decrease of $16 in the average sales price per ton sold in the third quarter of 2019 compared to the fourth quarter of 2018, offset by a 36% increase in volumes sold during the third quarter of 2019 compared to the fourth quarter of 2018.

Our inventory consists primarily of sand that has been excavated and processed through the wet plant, and finished goods sand located at our terminals or at the wellsite. The decrease in our inventory of $11,921 was primarily driven by the impairment of work-in-process inventory at our Augusta production facility during the third quarter of 2019 and wintertime depletion of the washed sand stockpiles at our Wisconsin production facilities at September 30, 2019 as compared to December 31, 2018.

Accounts payable and accrued liabilities decreased by $48,410 on a combined basis, resulting primarily from the payment of construction costs related to our second Kermit facility and the expansion of our Wyeville facility.

Current portion of deferred revenues represent prepayments from customers for future deliveries of frac sand to be made within the next twelve months.

The following table provides a summary of our cash flows for the periods indicated:



	Nine Months Ended
	September 30,
	2019			2018
Net cash provided by (used in):
Operating activities	$	12,098		$	195,332
Investing activities	(69,385		)	(109,183		)
Financing activities	(8,623		)	87,132

Cash Flows - Nine Months Ended September 30, 2019 and 2018

Operating Activities

Net cash provided by operating activities was $12,098 and $195,332 for the nine months ended September 30, 2019 and 2018, respectively. Operating cash flows include net loss of $392,188 and net income of $147,525 during the nine months ended September 30, 2019 and 2018, respectively, adjusted for non-cash operating expenses and the changes in operating assets and liabilities described above. The decrease in cash flows from operations was primarily attributable to decreased average sales pricing per ton with decreased sales volumes, which reduced gross profit margins. Also contributing was a greater build in working capital in the nine months ended September 30, 2019 as compared to the same period of 2018.

Investing Activities

Net cash used in investing activities was $69,385 for the nine months ended September 30, 2019, and was comprised primarily of $66,330 of capital expenditures, $4,229 of net cash paid for business acquisitions, offset by $1,669 of proceeds from the sale of property, plant and equipment.

Capital expenditures for the nine months ended September 30, 2019 consisted of $11,051 of maintenance capex, $24,060 of growth capex primarily related to spending on logistics assets, and $31,219 of 2018 carryover growth capex associated with construction projects associated with completion of our second Kermit facility and expansion at our Wyeville facility.

Net cash used in investing activities was $109,183 for the nine months ended September 30, 2018, and was comprised of $69,310 of capital expenditures primarily associated with the development of our Kermit 2 facility, various projects at our production facilities and terminals, and equipment purchases for our logistics and wellsite operations, $34,932 of net cash paid for a business acquisition and $8,095 of equity method investment capital contributions, offset by $3,154 of proceeds from the sale of property, plant and equipment.

Financing Activities

Net cash used in financing activities was $8,623 for the nine months ended September 30, 2019, and was comprised primarily of $3,151 of repurchases of common stock under the stock repurchase program, $3,237 for the repayment of an acquired credit facility and $2,958 of repayments on long-term debt.

Net cash provided by financing activities was $87,132 for the nine months ended September 30, 2018, and was comprised primarily of $9,426 of repurchases of common units under the unit buyback program, $104,951 of distributions paid to our unitholders, $35,561 of distributions paid to members of the sponsor, $11,425 of loan origination costs and $202,588 of repayments on long-term debt, including the balance of our Term Loan Credit Facility. The repayment was financed through the issuance of $450,000 of 9.50% Senior Notes.

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Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally acceptable in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.

A discussion of our significant accounting policies is included in Note 2 - Significant Accounting Policies of the Notes to Unaudited Condensed Consolidated Financial Statements included under Part I, Item 1. "Financial Statements" of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K, as filed with the SEC on February 20, 2019. Significant estimates include, but are not limited to, purchase accounting allocations and valuations, estimates and assumptions for our mineral reserves and its impact on calculating our depreciation and depletion expense under the units-of production depreciation method, estimates of fair value for reporting units and asset impairments (including impairments of goodwill and other long-lived assets), estimating potential loss contingencies, inventory valuation, valuation of stock-based compensation, valuation of right-of-use assets (including potential impairments) and lease liabilities, estimated fair value of contingent consideration in the future, the determination of income tax provisions and the estimated cost of future asset retirement obligations.

Impairment of Long-lived Assets

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Leases

Goodwill

During the third quarter of 2019, we performed our annual assessment of the recoverability of goodwill. As part of the Company's annual assessment of goodwill, we updated our internal business outlook for the Company, including the logistics and wellsite operations reporting unit, to consider the current economic environment that affects our operations. As part of the first step of goodwill impairment testing, we prepared a quantitative analysis of the fair value of the goodwill as of September 30, 2019, based on the weighted average valuation of the reporting unit across several income valuation approaches. The underlying results of the valuation were driven by our actual results since the acquisition dates, and the pricing, cost structures and market conditions existing as of September 30, 2019. Other key estimates, assumptions and inputs used in the valuation included long-term growth rates, discount rates, terminal values, valuation multiples and relative valuations when comparing the reporting unit to similar businesses or asset bases. Specific uncertainties affecting our estimated fair value include the impact of competition, pricing for logistics and wellsite operations, future overall activity levels and demand for frac sand and related logistics services, activity levels of our significant customers and other factors affecting the rate of our future growth. As a result, we determined that the carrying value of goodwill exceeded its fair value and therefore we recognized an impairment of the goodwill that was allocated in the acquisitions of FB Industries and Proppant Logistics.

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Intangible Assets

The Partnership amortizes the cost of other intangible assets on a straight line basis over their estimated useful lives, ranging from 1 to 20 years. An impairment assessment is performed if events or circumstances occur and may result in the change of the useful lives of the intangible assets. During the third quarter of 2019, we completed an impairment assessment of the intangible assets associated with the customer relationships, the trade name and trademarks acquired with the FB Industries acquisition. As of September 30, 2019, we determined that the fair value of the intangibles was less than their carrying value, resulting in an impairment.

For additional information relating to our asset impairments refer to Note 16 - Asset Impairments of the Notes to Unaudited Condensed Consolidated Financial Statements included under Part I, Item 1. "Financial Statements."

Income Taxes

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Forward-Looking Statements

Some of the information in this Quarterly Report on Form 10-Q may contain forward-looking statements. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as "may," "should," "assume," "forecast," "position," "predict," "strategy," "expect," "intend," "hope," "plan," "estimate," "anticipate," "could," "believe," "project," "budget," "potential," "likely," or "continue," and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on February 20, 2019. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such risk factors and as such should not consider the following to be a complete list of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:


•	the volume of frac sand we are able to buy and sell;


•	the price at which we are able to buy and sell frac sand;


•	demand and pricing for our integrated logistics solutions;


•	the pace of adoption of our integrated logistics solutions;


•	the amount of frac sand we are able to timely deliver at the wellsite, which could be adversely affected by, among other things, logistics constraints, weather, or other delays at the wellsite or transloading facility;


•	changes in prevailing economic conditions, including the extent of changes in crude oil, natural gas and other commodity prices;


•	the amount of frac sand we are able to excavate and process, which could be adversely affected by, among other things, operating difficulties, cave-ins, pit wall failures, rock falls and unusual or unfavorable geologic conditions;


•	changes in the price and availability of natural gas or electricity;


•	inability to obtain necessary equipment or replacement parts;


•	changes in the railroad infrastructure, price, capacity and availability, including the potential for rail line disruptions;


•	changes in the road infrastructure, including the potential for trucking and other transportation disruptions;


•	changes in the price and availability of transportation;


•	extensive regulation of trucking services;


•	volatility of fuel prices;


•	availability of or failure of our contractors, partners and service providers to provide services at the agreed-upon levels or times;


•	failure to maintain safe work sites at our facilities or by third parties at their work sites;


•	inclement or hazardous weather conditions, including flooding, and the physical impacts of climate change;


•	environmental hazards, such as leaks and spills as well as unauthorized discharges of fluids or other pollutants into the surface and subsurface environment;


•	industrial and transportation related accidents;


•	fires, explosions or other accidents;


•	difficulty collecting receivables;


•	inability of our customers to take delivery;


•	difficulty or inability in obtaining, maintaining and renewing permits, including environmental permits or other licenses and approvals such as mining or water rights;


•	facility shutdowns or restrictions in operations in response to environmental regulatory actions including but not limited to actions related to endangered species;


•	systemic design or engineering flaws in the equipment we use to provide logistics services;


•	changes in laws and regulations (or the interpretation or enforcement thereof) related to the mining and hydraulic fracturing industries, silica dust exposure or the environment;

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•	the outcome of litigation, claims or assessments, including unasserted claims;


•	challenges to or infringement upon our intellectual property rights;


•	labor disputes and disputes with our third-party contractors;


•	inability to attract and retain key personnel;


•	cyber security breaches of our systems and information technology;


•	our ability to borrow funds and access capital markets;


•	changes in the foreign currency exchange rates in the countries that we conduct business;


•	changes in income tax rates, changes in income tax laws or unfavorable resolution of tax matters; and


•	changes in the political environment of the geographical areas in which we and our customers operate.

All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

(Dollars in thousands)

Quantitative and Qualitative Disclosure of Market Risks

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risk. Market risk is the risk of loss arising from adverse changes in market rates and prices. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures. Historically, our risks have been predominantly related to potential changes in the fair value of our long-term debt due to fluctuations in applicable market interest rates and those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments for trading purposes.

Commodity Price Risk

The market for frac sand is indirectly exposed to fluctuations in the prices of crude oil and natural gas to the extent such fluctuations impact well completion activity levels and thus impact the activity levels of our customers in the pressure pumping industry. We do not intend to hedge our indirect exposure to commodity risk.

Interest Rate Risk

Borrowings under the ABL Credit Facility bear interest at a rate equal to, at the Company’s option, either (1) a base rate plus an applicable margin ranging between 0.75% per annum and 1.50% per annum, based upon the Company’s leverage ratio, or (2) a LIBOR rate plus an applicable margin ranging between 1.75% per annum and 2.50% per annum, based upon the Company’s leverage ratio. As of September 30, 2019, we had no borrowings outstanding under the ABL Credit Facility. To the extent there are any outstanding borrowings under the ABL Credit Facility, changes in applicable interest rates would not affect the ABL Credit Facility’s fair market value, but would impact our future results of operations and cash flows. Changes in interest rates do not impact the amount of interest we pay on our Senior Notes, but can impact the fair market values. As of September 30, 2019, our Senior Notes had a carrying value of $450,000.

Foreign Currency Translation Risk

Our consolidated financial statements are expressed in U.S. dollars, but a portion of our operations is conducted in a currency other than U.S. dollars. The Canadian dollar is the functional currency of the Company's foreign subsidiary as it is the primary currency within the economic environment in which the subsidiary operates. Changes in the exchange rate can affect our revenues, earnings, and the carrying value of our assets and liabilities in our consolidated balance sheet, either positively or negatively. Adjustments resulting from the translation of the subsidiary's financial statements are reported in other comprehensive income (loss). For the three and nine months ended September 30, 2019, the Company recorded foreign currency translation adjustments to net income (loss) of $900 and $3,271, respectively.

Credit Risk – Customer Concentration

During the nine months ended September 30, 2019, approximately 46% of our revenues were earned from our three largest customers, each of which accounted for greater than 10% of our total revenues. Our customers are generally oil and natural gas exploration and production companies and pressure pumping service providers. This concentration of counterparties operating in a single industry may increase our overall exposure to credit risk in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions. If a customer defaults or if any of our contracts expire in accordance with their terms, and we are unable to renew or replace these contracts, our gross profit and cash flows may be adversely affected.

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ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15 and 15d-15 of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS.

Legal Proceedings

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on February 20, 2019. Other than the risk factors included below, there have been no material changes to the risk factors previously disclosed under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018.

Holders of the common stock may not receive any dividends or may not receive the anticipated level of dividends under any dividend policy adopted by the board of directors.

The terms of any dividend policy that the board of directors may adopt are not currently determined, and any dividend policy adopted may be amended, revoked or suspended at any time. Even while any dividend policy is in place, the actual amount of dividends on the common stock will depend on many factors, including our financial condition and results of operations, liquidity requirements, market opportunities, capital requirements, legal, regulatory and contractual constraints, tax laws and other factors.

Over time, our capital and other cash needs may change significantly from our current needs, which could affect whether the board of directors declares any dividends and the amount of any dividends we may pay in the future. Our level of indebtedness may also restrict us from paying cash dividends on the common stock under certain circumstances. A decline in the market price or liquidity, or both, of the common stock could result if the board of directors commits capital or establishes large reserves that reduce the amounts that could be paid as quarterly dividends paid or if the board of directors reduces or eliminates the payment of any dividends. This may in turn result in losses by holders of the common stock ("stockholders"), which could be substantial.

Our certificate of incorporation and bylaws, as well as Delaware law, contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of the common stock.

Certain provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to the stockholders. Among other things, our certificate of incorporation and bylaws:


•	provide advance notice procedures with regard to stockholder nominations of candidates for election as directors or other stockholder proposals to be brought before meetings of stockholders, which may preclude stockholders from bringing certain matters before the stockholders at an annual or special meeting;

•

provide the board of directors the ability to authorize issuance of preferred stock in one or more series, which makes it possible for the board of directors to issue, without stockholder approval, preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us and that may have the effect of deterring hostile takeovers or delaying changes in control or management of us;


•	provide that the authorized number of directors may be changed only by resolution of the board of directors;

•

provide that, subject to the rights of holders of any series of preferred stock to elect directors or fill vacancies in respect of such directors as specified in the related preferred stock designation, all vacancies, including newly created directorships, be filled by the affirmative vote of holders of a majority of directors then in office, even if less than a quorum, or by the sole remaining director, and will not be filled by stockholders;

•

provide that, subject to the rights of the holders of shares of any series of preferred stock, if any, to remove directors elected by such series of preferred stock pursuant to the certificate of incorporation (including any preferred stock designation thereunder), prior to the 2024 annual meeting of stockholders for the election of directors (the "Classified Board Expiration Date"), directors may be removed from office at any time, only for cause and by the holders of a majority of the voting power of all outstanding voting shares entitled to vote generally in the election of directors. Upon the Classified Board Expiration Date and thereafter, any director, or the entire board of directors, may be removed from office at any time, with or without cause, by the affirmative vote of at least a majority of the voting power of the stock outstanding and entitled to vote thereon;

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•	provide that special meetings of stockholders may only be called by the board of directors;


•	provide that the provisions of the certificate of incorporation can only be amended or repealed by (a) the Company in the manner then prescribed by the laws of the State of Delaware or (b) the stockholders upon the affirmative vote of a least a majority of the outstanding stock entitled to vote thereon; and


•	provide that our bylaws can be amended or repealed by (a) the board of directors or (b) the stockholders upon the affirmative vote of at least a majority of the votes cast affirmatively or negatively, present in person or by proxy and entitled to vote thereon, voting together as a single class.

Implementation of new Colorado Senate Bill 19-181 may increase costs and limit oil and natural gas exploration and production operations in the state, which could reduce demand for our products and services and have an adverse effect on our business, financial condition and results of operations.

On April 16, 2019, Senate Bill 19-181 was signed into law in Colorado. The new legislation reforms oversight of oil and natural-gas exploration and production activities in the state. The mission of the Colorado Oil and Gas Conservation Commission ("COGCC") has changed, from fostering energy development in the state to instead regulating the industry in a manner that is protective of public health and safety and the environment. The new legislation also authorizes Colorado cities and counties to take on an increased role in regulating oil and natural-gas operations within their jurisdictions, including in a manner that may be more stringent than state-level rules, and a few local governments have passed a temporary moratorium on new oil and natural-gas projects until the local governments have passed their own rules implementing the new law. The composition of the COGCC commissioners also has been changed under the new law, with the COGCC adding a commissioner with public health expertise. The COGCC is now tasked with undertaking several reviews of existing regulations and new or amended rulemakings, with priority given to implementing the new public health, safety and environmental initiatives of the COGCC, updating flowline rules, and developing requirements for alternative site analysis, assessments of cumulative impacts, and local government assistance and interaction. Moreover, the new law requires the Colorado Department of Public Health and Environment’s Air Division (the "Air Division") to adopt additional air quality rules to minimize emissions from oil and natural-gas activities. The Air Division released an oil and gas health effects study on October 17, 2019, pursuant to which the COGCC proposes to enact stricter precautionary review measures for certain of the regulated industry’s well permit applications. While the COGCC has already rejected calls for a complete moratorium on new oil and natural-gas projects, it has issued a set of "Objective Criteria" in May 2019 upon which the COGCC will determine whether a pending permit will be subject to "additional review" to determine compliance with Senate Bill 19-181 pending completion of certain COGCC rulemakings necessary to implement the new law. Timing for issuance of new or amended rules pursuant to Senate Bill 19-181 is currently unknown, with hearings planned in late 2019 and extending into 2020. Implementation of this new law could result in increased operational costs and limit operations of our customers in the state, including due to delays in issuing new drilling permits, which developments could reduce the demand for our products and services and have an adverse effect on our business, financial condition and results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

We adhere to a strict occupational health program aimed at controlling exposure to silica dust, which includes dust sampling, a respiratory protection program, medical surveillance, training and other components. Our safety program is designed to ensure compliance with the standards of our Occupational Health and Safety Manual and U.S. Federal Mine Safety and Health Administration ("MSHA") regulations. For both health and safety issues, extensive training is provided to employees. We have safety committees at our plants made up of salaried and hourly employees. We perform annual internal health and safety audits and conduct semi-annual crisis management drills to test our abilities to respond to various situations. Health and safety programs are administered by our corporate health and safety department with the assistance of plant environmental, health and safety coordinators.

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All of our production facilities are classified as mines and are subject to regulation by MSHA under the Federal Mine Safety and Health Act of 1977 (the "Mine Act"). MSHA inspects our mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this Quarterly Report on Form 10-Q.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

The exhibits to this report are listed in the Exhibit Index.

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HI-CRUSH INC.

EXHIBIT INDEX



Exhibit Number		Description
3.1		Certificate of Conversion of Hi-Crush Partners LP (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on May 31, 2019; File No. 001-35630).
3.2		Certificate of Incorporation of Hi-Crush Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on May 31, 2019; File No. 001-35630).
3.3		Bylaws of Hi-Crush Inc. (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K, filed with the SEC on May 31, 2019; File No. 001-35630).
4.1		Supplemental Indenture, dated as of July 15, 2019, by and among Hi-Crush Inc., the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on August 9, 2019; File No. 001-35630).
10.1		Form of Hi-Crush Inc. Long Term Incentive Plan Performance Share Unit Grant Notice and Award Agreement, filed herewith.
10.2		Form of Hi-Crush Inc. Long Term Incentive Plan Restricted Stock Unit Grant Notice and Award Agreement, file herewith.
10.3		Amended and Restated Employment Agreement, dated September 19, 2019, by and between Hi-Crush Services LLC, Hi-Crush Inc. and Robert E. Rasmus (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed with the SEC on September 20, 2019; File No. 001-35630).
10.4		Amended and Restated Employment Agreement, dated September 19, 2019, by and between Hi-Crush Services LLC, Hi-Crush Inc. and Laura C. Fulton (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 20, 2019; File No. 001-35630).
10.5		Amended and Restated Employment Agreement, dated September 19, 2019, by and between Hi-Crush Services LLC, Hi-Crush Inc. and Mark C. Skolos (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 20, 2019; File No. 001-35630).
23.1		Consent of John T. Boyd Company (incorporated by reference to Exhibit 23.3 to the Registrant’s Annual Report on Form 10-K, filed with the SEC on February 20, 2019; File No. 001-35630).
31.1		Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by the Principal Executive Officer, filed herewith.
31.2		Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by the Principal Financial Officer, filed herewith.
32.1		Statement required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by Principal Executive Officer, filed herewith. (1)
32.2		Statement required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by Principal Financial Officer, filed herewith. (1)
95.1		Mine Safety Disclosure Exhibit
101		The following financial information from Hi-Crush Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


(1)	This document is being furnished in accordance with SEC Release Nos. 33-8212 and 34-47551.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		Hi-Crush Inc.

Date:	November 5, 2019	/s/ Laura C. Fulton
		Laura C. Fulton
		Chief Financial Officer
		(Principal Financial Officer)

Exhibit 10.1

HI-CRUSH INC.

LONG TERM INCENTIVE PLAN

PERFORMANCE SHARE UNIT GRANT NOTICE

Pursuant to the terms and conditions of the Hi-Crush Inc. Long Term Incentive Plan (the “Plan”), Hi-Crush Inc., a Delaware corporation (the “Company”), hereby grants to the individual listed below (“you” or the “Participant”) the number of performance share units (the “PSUs”) set forth below. This award of PSUs (this “Award”) is subject to the terms and conditions set forth herein and in the Performance Share Unit Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.



Participant:	[ ]
Date of Grant:	[ ]
Award Type and Description:	Other Stock-Based Award granted pursuant to Section 6(h) of the Plan. This Award represents the right to receive shares of Stock in an amount up to [___]% of the Target PSUs (defined below), subject to the terms and conditions set forth herein and in the Agreement. Your right to receive settlement of this Award in an amount ranging from [___]% to [___]% of the Target PSUs shall vest and become earned and nonforfeitable upon [ ]. The portion of the Target PSUs actually earned upon satisfaction of the foregoing requirements is referred to herein as the “Earned PSUs.”
Target Number of PSUs:	[ ] (the “Target PSUs”).
Performance Period:	[ ] (the “Performance Period Commencement Date”) through [ ] (the “Performance Period End Date”).
Service Requirement:	Except as expressly provided in Section 3(b) of the Agreement, you must remain continuously employed by the Company or an Affiliate, as applicable, from the Date of Grant through [ ] to be eligible to receive payment of this Award, which is based on the level of achievement with respect to the Performance Goal (as defined below).
Performance Goal:	[ ]
Settlement:	Settlement of the Earned PSUs shall be made solely in shares of Stock, which shall be delivered to you in accordance with Section 6 of the Agreement.

By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Performance Share Unit Grant Notice (this “Grant Notice”). You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their entirety and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee regarding any questions or determinations that arise under the Agreement, the Plan or this Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable

document format (.pdf) and facsimile counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.

[Signature Page Follows]

IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the Participant has executed this Grant Notice, effective for all purposes as provided above.

HI-CRUSH INC.

By:

Name:

Title:

PARTICIPANT

Name:

SIGNATURE PAGE TO

PERFORMANCE SHARE UNIT GRANT NOTICE

EXHIBIT A

PERFORMANCE SHARE UNIT AGREEMENT

This Performance Share Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is made as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between Hi-Crush, Inc., a Delaware corporation (the “Company”), and _________ (the “Participant”). Capitalized terms used but not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice.

1.Definitions. For purposes of this Agreement, the following terms shall have the meanings specified below.

(a) “Cause” means “cause” (or a term of like import) as defined in the Participant’s employment, consulting and/or severance agreement with the Company or an Affiliate in effect at the time of the Participant’s termination of employment or, in the absence of such an agreement or definition, shall mean (i) the Participant’s material breach of this Agreement or any other written agreement between the Participant and the Company or an Affiliate, including the Participant’s breach of any representation, warranty or covenant made under any such agreement; (ii) the Participant’s material breach of any law applicable to the workplace or employment relationship, or the Participant’s material breach of any policy or code of conduct established by the Company or an Affiliate and applicable to the Participant; (iii) the Participant’s gross negligence, willful misconduct, breach of fiduciary duty, fraud, theft or embezzlement; (iv) the commission by the Participant of, or conviction or indictment of the Participant for, or plea of nolo contendere by the Participant to, any felony (or state law equivalent) or any crime involving moral turpitude; or (v) the Participant’s willful failure or refusal, other than due to disability, to follow any lawful directive from the Company, as determined by the Company; provided, however, that if the Participant’s actions or omissions as set forth in this clause (v) are of such a nature that the Company determines that they are curable by the Participant, such actions or omissions must remain uncured 30 days after the Company first provided the Participant written notice of the obligation to cure such actions or omissions.

(b) “Good Reason” means “good reason” (or a term of like import) as defined in the Participant’s employment, consulting and/or severance agreement with the Company or an Affiliate in effect at the time of the Participant’s termination of employment or, in the absence of such an agreement or definition, shall mean (i) a material diminution in the Participant’s base salary; or (ii) the relocation of the geographic location of the Participant’s principal place of employment by more than 50 miles from the location of the Participant’s principal place of employment as of the Date of Grant. Notwithstanding the foregoing provisions of this Section 1(b) or any other provision of this Agreement to the contrary, any assertion by the Participant of a termination for Good Reason shall not be effective unless all of the following conditions are satisfied: (A) the condition described in the foregoing clauses (i) or (ii) giving rise to the Participant’s termination of employment must have arisen without the Participant’s consent; (B) the Participant must provide written notice to the Company of the existence of such condition(s) within 15 days after the initial occurrence of such condition(s); (C) the condition(s) specified in such notice must remain uncorrected for 30 days following the Company’s receipt of such written notice; and (D) the date

Exhibit A-1

of the Participant’s termination of employment must occur within 75 days after the initial occurrence of the condition(s) specified in such notice.

(c) “Qualifying Termination” means a termination of the Participant’s employment with the Company or an Affiliate (A) by the Company or an Affiliate without Cause or (B) by Participant for Good Reason, in each case on or within 12 months following a Change in Control.

2. Award. In consideration of the Participant’s past and/or continued employment with the Company or its Affiliates and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, effective as of the Date of Grant set forth in the Grant Notice (the “Date of Grant”), the Company hereby grants to the Participant the target number of PSUs set forth in the Grant Notice on the terms and conditions set forth in the Grant Notice, this Agreement and the Plan, which is incorporated herein by reference as a part of this Agreement. In the event of any inconsistency between the Plan and this Agreement (including, for the avoidance of doubt, with respect of the subject matter covered in Section 5), the terms of the Plan shall control. To the extent vested, each PSU represents the right to receive one share of Stock, subject to the terms and conditions set forth in the Grant Notice, this Agreement and the Plan; provided, however, that, depending on the level of performance determined to be attained with respect to the Performance Goal, the number of shares of Stock that may be earned hereunder in respect of this Award may range from [___]% to [___]% of the Target PSUs. Unless and until the PSUs have become vested in the manner set forth in the Grant Notice, the Participant will have no right to receive any Stock or other payments in respect of the PSUs. Prior to settlement of this Award, the PSUs and this Award represent an unsecured obligation of the Company, payable only from the general assets of the Company.

3. Vesting of PSUs.

(a) Except as otherwise set forth in Section 3(b), the PSUs shall vest and become Earned PSUs in accordance with the Participant’s satisfaction of the vesting schedule set forth in the Grant Notice (the “Service Requirement”) based on the extent to which the Company has satisfied the Performance Goal set forth in the Grant Notice, which shall be determined by the Committee in its sole discretion following [ ] (and any PSUs that do not become Earned PSUs shall be automatically forfeited). Unless and until the PSUs have vested and become Earned PSUs as described in the preceding sentence, the Participant will have no right to receive any dividends or other distribution with respect to the PSUs.

(b) [ ]

4. Dividend Equivalents. In the event that the Company declares and pays a dividend in respect of its outstanding shares of Stock and, on the record date for such dividend, the Participant holds PSUs granted pursuant to this Agreement that have not been settled, the Company shall record the amount of such dividend in a bookkeeping account and pay to the Participant an amount in cash equal to the cash dividends the Participant would have received if the Participant was the holder of

A-2

record, as of such record date, of a number of shares of Stock equal to the number of PSUs held by the Participant that have not been settled as of such record date, such payment to be made on the date on which any Earned PSUs are settled in accordance with Section 6. For purposes of clarity, if the PSUs (or any portion thereof) are forfeited by the Participant pursuant to the terms of this Agreement, then the Participant shall also forfeit the Dividend Equivalents, if any, accrued with respect to such forfeited PSUs. No interest will accrue on the Dividend Equivalents between the declaration and payment of the applicable dividends and the settlement of the Dividend Equivalents.

5. Settlement of PSUs. As soon as administratively practicable following the Committee’s certification of the level of attainment of the Performance Goal, but in no event later than March 15 of the calendar year following [ ], the Company shall deliver to the Participant (or the Participant’s permitted transferee, if applicable), a number of shares of Stock equal to the number of Earned PSUs; provided, however, that any fractional PSU that becomes earned hereunder shall be rounded down at the time shares of Stock are issued in settlement of such PSU. No fractional shares of Stock, nor the cash value of any fractional shares of Stock, shall be issuable or payable to the Participant pursuant to this Agreement. All shares of Stock, if any, issued hereunder shall be delivered either by delivering one or more certificates for such shares to the Participant or by entering such shares in book-entry form, as determined by the Committee in its sole discretion. The value of shares of Stock shall not bear any interest owing to the passage of time. Neither this Section 5 nor any action taken pursuant to or in accordance with this Agreement shall be construed to create a trust or a funded or secured obligation of any kind.

6. Tax Withholding. To the extent that the receipt, vesting or settlement of this Award results in compensation income or wages to the Participant for federal, state, local and/or foreign tax purposes, the Participant shall make arrangements satisfactory to the Company for the satisfaction of obligations for the payment of withholding taxes and other tax obligations relating to this Award, which arrangements include the delivery of cash or cash equivalents, Stock (including previously owned Stock, net settlement, a broker-assisted sale, or other cashless withholding or reduction of the amount of shares otherwise issuable or delivered pursuant to this Award), other property, or any other legal consideration the Committee deems appropriate. If such tax obligations are satisfied through net settlement or the surrender of previously owned Stock, the maximum number of shares of Stock that may be so withheld (or surrendered) shall be the number of shares of Stock that have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment for the Company with respect to this Award, as determined by the Committee. The Participant acknowledges that there may be adverse tax consequences upon the receipt, vesting or settlement of this Award or disposition of the underlying shares and that the Participant has been advised, and hereby is advised, to consult a tax advisor. The Participant represents that the Participant is in no manner relying on the Board, the Committee, the Company or an Affiliate or any of their respective managers, directors, officers, employees or authorized representatives (including attorneys, accountants, consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences.

A-3

7. Employment Relationship. For purposes of this Agreement the Participant shall be considered to be employed by the Company or an Affiliate as long as the Participant remains an employee of any of the Company, an Affiliate or a corporation or other entity (or a parent or subsidiary of such corporation or other entity) assuming or substituting a new award for this Award. Without limiting the scope of the preceding sentence, it is expressly provided that the Participant shall be considered to have terminated employment with the Company (a) when the Participant ceases to be an employee of any of the Company, an Affiliate, or a corporation or other entity (or a parent or subsidiary of such corporation or other entity) assuming or substituting a new award for this Award or (b) at the time of the termination of the “Affiliate” status under the Plan of the corporation or other entity that employs the Participant.

8. Non-Transferability. During the lifetime of the Participant, the PSUs may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the shares of Stock underlying the PSUs have been issued, and all restrictions applicable to such shares have lapsed. Neither the PSUs nor any interest or right therein shall be liable for the debts, contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

9. Compliance with Applicable Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of shares of Stock hereunder will be subject to compliance with all applicable requirements of applicable law with respect to such securities and with the requirements of any stock exchange or market system upon which the Stock may then be listed. No shares of Stock will be issued hereunder if such issuance would constitute a violation of any applicable law or regulation or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, shares of Stock will not be issued hereunder unless (a) a registration statement under the Securities Act is in effect at the time of such issuance with respect to the shares to be issued or (b) in the opinion of legal counsel to the Company, the shares to be issued are permitted to be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary for the lawful issuance and sale of any shares of Stock hereunder will relieve the Company of any liability in respect of the failure to issue such shares as to which such requisite authority has not been obtained. As a condition to any issuance of Stock hereunder, the Company may require the Participant to satisfy any requirements that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company.

10. Legends. If a stock certificate is issued with respect to shares of Stock issued hereunder, such certificate shall bear such legend or legends as the Committee deems appropriate in order to reflect the restrictions set forth in this Agreement and to ensure compliance with the terms and provisions of this Agreement, the rules, regulations and other requirements of the SEC,

A-4

any applicable laws or the requirements of any stock exchange on which the Stock is then listed. If the shares of Stock issued hereunder are held in book-entry form, then such entry will reflect that the shares are subject to the restrictions set forth in this Agreement.

11. Rights as a Stockholder. The Participant shall have no rights as a stockholder of the Company with respect to any shares of Stock that may become deliverable hereunder unless and until the Participant has become the holder of record of such shares of Stock, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such shares of Stock, except as otherwise specifically provided for in the Plan or this Agreement.

12. Execution of Receipts and Releases. Any issuance or transfer of shares of Stock or other property to the Participant or the Participant’s legal representative, heir, legatee or distributee, in accordance with this Agreement shall be in full satisfaction of all claims of such Person hereunder. As a condition precedent to such payment or issuance, the Company may require the Participant or the Participant’s legal representative, heir, legatee or distributee to execute (and not revoke within any time provided to do so) a release and receipt therefor in such form as it shall determine appropriate; provided, however, that any review period under such release will not modify the date of settlement with respect to Earned PSUs.

13. No Right to Continued Employment or Awards. Nothing in the adoption of the Plan, nor the award of the PSUs thereunder pursuant to the Grant Notice and this Agreement, shall confer upon the Participant the right to continued employment by the Company or any Affiliate, or any other entity, or affect in any way the right of the Company or any such Affiliate, or any other entity to terminate such employment at any time. The grant of the PSUs is a one-time benefit and does not create any contractual or other right to receive a grant of Awards or benefits in lieu of Awards in the future. Any future Awards will be granted at the sole discretion of the Company.

14. Legal and Equitable Remedies. The Participant acknowledges that a violation or attempted breach of any of the Participant's covenants and agreements in this Agreement will cause such damage as will be irreparable, the exact amount of which would be difficult to ascertain and for which there will be no adequate remedy at law, and accordingly, the parties hereto agree that the Company and its Affiliates shall be entitled as a matter of right to an injunction issued by any court of competent jurisdiction, restraining the Participant or the affiliates, partners or agents of the Participant from such breach or attempted violation of such covenants and agreements, as well as to recover from the Participant any and all costs and expenses sustained or incurred by the Company or any Affiliate in obtaining such an injunction, including reasonable attorneys' fees. The parties to this Agreement agree that no bond or other security shall be required in connection with such injunction. Any exercise by either of the parties to this Agreement of its rights pursuant to this Section 14 shall be cumulative and in addition to any other remedies to which such party may be entitled.

15. Notices. All notices and other communications under this Agreement shall be in writing and shall be delivered to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

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If to the Company, unless otherwise designated by the Company in a written notice to the Participant (or other holder):

Hi-Crush Inc.
Attn: General Counsel

1330 Post Oak Blvd, Suite 600

Houston, Texas 77056

If to the Participant, at the Participant’s last known address on filed with the Company.

Any notice that is delivered personally or by overnight courier or telecopier in the manner provided herein shall be deemed to have been duly given to the Participant when it is mailed by the Company or, if such notice is not mailed to the Participant, upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein provided shall be conclusively presumed to have been given to the party to whom it is addressed at the close of business, local time of the recipient, on the fourth day after the day it is so placed in the mail.

16. Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in paper format, the Participant agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports and all other forms of communications) in connection with this and any other Award made or offered by the Company. Electronic delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Participant has access. The Participant hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature.

17. Agreement to Furnish Information. The Participant agrees to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation.

18. Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the PSUs granted hereby; provided¸ however, that the terms of this Agreement shall not modify and shall be subject to the terms and conditions of any employment, consulting and/or severance agreement between the Company (or an Affiliate or other entity) and the Participant in effect as of the date a determination is to be made under this Agreement. Without limiting the scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect. The Committee may, in its sole discretion, amend this Agreement from time to time in any manner that is not inconsistent with the Plan; provided, however, that except as otherwise provided in the Plan or this Agreement, any such amendment that materially reduces the rights of the Participant shall

A-6

be effective only if it is in writing and signed by both the Participant and an authorized officer of the Company.

19. Severability and Waiver. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of such provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. Waiver by any party of any breach of this Agreement or failure to exercise any right hereunder shall not be deemed to be a waiver of any other breach or right. The failure of any party to take action by reason of such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or condition giving rise to such rights continues.

20. Clawback. Notwithstanding any provision in the Grant Notice, this Agreement or the Plan to the contrary, to the extent required by (a) applicable law, including the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, any SEC rule or any applicable securities exchange listing standards and/or (b) any policy that may be adopted or amended by the Board from time to time, all shares of Stock issued hereunder shall be subject to forfeiture, repurchase, recoupment and/or cancellation to the extent necessary to comply with such law(s) and/or policy.

21. Insider Trading Policy. The terms of the Company’s insider trading policy with respect to shares of Stock are incorporated herein by reference.

22. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN, EXCLUSIVE OF THE CONFLICT OF LAWS PROVISIONS OF DELAWARE LAW.

23. Successors and Assigns. The Company may assign any of its rights under this Agreement without the Participant’s consent. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein and in the Plan, this Agreement will be binding upon the Participant and the Participant's beneficiaries, executors, administrators and the Person(s) to whom the PSUs may be transferred by will or the laws of descent or distribution.

24. Headings; References; Interpretation. Headings are for convenience only and are not deemed to be part of this Agreement. The words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All references herein to Sections shall, unless the context requires a different construction, be deemed to be references to the Sections of this Agreement. The word “or” as used herein is not exclusive and is deemed to have the meaning “and/or.” All references to “including” shall be construed as meaning “including without limitation.” Unless the context requires otherwise, all references herein to a law, agreement, instrument or other document shall be deemed to refer to such law, agreement, instrument or other document as amended, supplemented, modified and restated from time to time to the extent permitted by the provisions thereof. All references to “dollars” or “$” in this Agreement refer to United States dollars. Whenever the context

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may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by each of the parties hereto and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto.

25. Counterparts. The Grant Notice may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Delivery of an executed counterpart of the Grant Notice by facsimile or portable document format (.pdf) attachment to electronic mail shall be effective as delivery of a manually executed counterpart of the Grant Notice.

26. Section 409A. Notwithstanding anything herein or in the Plan to the contrary, the PSUs granted pursuant to this Agreement are intended to be exempt from the applicable requirements of the Nonqualified Deferred Compensation Rules and shall be construed and interpreted in accordance with such intent. Nevertheless, to the extent that the Committee determines that the PSUs may not be exempt from the Nonqualified Deferred Compensation Rules, then, if the Participant is deemed to be a “specified employee” within the meaning of the Nonqualified Deferred Compensation Rules, as determined by the Committee, at a time when the Participant becomes eligible for settlement of the PSUs upon his “separation from service” within the meaning of the Nonqualified Deferred Compensation Rules, then to the extent necessary to prevent any accelerated or additional tax under the Nonqualified Deferred Compensation Rules, such settlement will be delayed until the earlier of: (a) the date that is six months following the Participant’s separation from service and (b) the Participant’s death. Notwithstanding the foregoing, the Company and its Affiliates make no representations that the PSUs provided under this Agreement are exempt from or compliant with the Nonqualified Deferred Compensation Rules and in no event shall the Company or any Affiliate be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-compliance with the Nonqualified Deferred Compensation Rules.

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EXHIBIT B

PERFORMANCE VESTING CRITERIA AND METHODOLOGY

FOR PERFORMANCE SHARE UNITS

[ ]

Exhibit B-1

Exhibit 10.2

HI-CRUSH INC.

LONG TERM INCENTIVE PLAN

RESTRICTED STOCK UNIT GRANT NOTICE

Pursuant to the terms and conditions of the Hi-Crush Inc. Long Term Incentive Plan (the “Plan”), Hi-Crush Inc., a Delaware corporation (the “Company”), hereby grants to the individual listed below (“you” or the “Participant”) the number of Restricted Stock Units (the “RSUs”) set forth below. This award of RSUs (this “Award”) is subject to the terms and conditions set forth herein and in the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.



Participant:	[ ]
Date of Grant:	[ ]
Total Number of Restricted Stock Units:	[ ]
Vesting Schedule:	Subject to Section 2(b) of the Agreement, the Plan and the other terms and conditions set forth herein, the RSUs shall vest and become exercisable according to the following schedule: [ ].

By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Restricted Stock Unit Grant Notice (this “Grant Notice”). You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their entirety and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee regarding any questions or determinations that arise under the Agreement, the Plan or this Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable document format (.pdf) and facsimile counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.

[Signature Page Follows]

HI-CRUSH INC.

By:

Name:

Title:

PARTICIPANT

Name:

SIGNATURE PAGE TO

RESTRICTED STOCK UNIT GRANT NOTICE

EXHIBIT A

RESTRICTED STOCK UNIT AGREEMENT

This Restricted Stock Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is made as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between Hi-Crush Inc., a Delaware corporation (the “Company”), and _________ (the “Participant”). Capitalized terms used but not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice.

1.Award. In consideration of the Participant’s past and/or continued employment with the Company or its Affiliates and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, effective as of the Date of Grant set forth in the Grant Notice (the “Date of Grant”), the Company hereby grants to the Participant the number of RSUs set forth in the Grant Notice on the terms and conditions set forth in the Grant Notice, this Agreement and the Plan, which is incorporated herein by reference as a part of this Agreement. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control. To the extent vested, each RSU represents the right to receive one share of Stock, subject to the terms and conditions set forth in the Grant Notice, this Agreement and the Plan. Unless and until the RSUs have become vested in the manner set forth in the Grant Notice, the Participant will have no right to receive any Stock or other payments in respect of the RSUs. Prior to settlement of this Award, the RSUs and this Award represent an unsecured obligation of the Company, payable only from the general assets of the Company.

2. Vesting of RSUs.

(a) Except as otherwise set forth in Section 2(b), the RSUs shall vest in accordance with the vesting schedule set forth in the Grant Notice. Unless and until the RSUs have vested in accordance with such vesting schedule, the Participant will have no right to receive any dividends or other distribution with respect to the RSUs. Upon a termination of the Participant’s employment with the Company or an Affiliate prior to the vesting of all of the RSUs (but after giving effect to any accelerated vesting pursuant to Section 2(b)), any unvested RSUs (and all rights arising from such RSUs and from being a holder thereof) will terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company.

(b) [ ]

3. Dividend Equivalents. In the event that the Company declares and pays a dividend in respect of its outstanding shares of Stock and, on the record date for such dividend, the Participant holds RSUs granted pursuant to this Agreement that have not been settled, the Company shall record the amount of such dividend in a bookkeeping account and pay to the Participant an amount in cash equal to the cash dividends the Participant would have received if the Participant was the holder of record, as of such record date, of a number of shares of Stock equal to the number of RSUs held by the Participant that have not been settled as of such record date, such payment to be made on or within 60 days following the date on which such RSUs vest in accordance with Section 2. For

Exhibit A-1

purposes of clarity, if the RSUs (or any portion thereof) are forfeited by the Participant pursuant to the terms of this Agreement, then the Participant shall also forfeit the Dividend Equivalents, if any, accrued with respect to such forfeited RSUs. No interest will accrue on the Dividend Equivalents between the declaration and payment of the applicable dividends and the settlement of the Dividend Equivalents.

4. Settlement of RSUs. As soon as administratively practicable following the vesting of RSUs pursuant to Section 2, but in no event later than 30 days after such vesting date, the Company shall deliver to the Participant a number of shares of Stock equal to the number of RSUs subject to this Award. All shares of Stock issued hereunder shall be delivered either by delivering one or more certificates for such shares to the Participant or by entering such shares in book-entry form, as determined by the Committee in its sole discretion. The value of shares of Stock shall not bear any interest owing to the passage of time. Neither this Section 4 nor any action taken pursuant to or in accordance with this Agreement shall be construed to create a trust or a funded or secured obligation of any kind.

5. Tax Withholding. To the extent that the receipt, vesting or settlement of this Award results in compensation income or wages to the Participant for federal, state, local and/or foreign tax purposes, the Participant shall make arrangements satisfactory to the Company for the satisfaction of obligations for the payment of withholding taxes and other tax obligations relating to this Award, which arrangements include the delivery of cash or cash equivalents, Stock (including previously owned Stock, net settlement, a broker-assisted sale, or other cashless withholding or reduction of the amount of shares otherwise issuable or delivered pursuant to this Award), other property, or any other legal consideration the Committee deems appropriate. If such tax obligations are satisfied through net settlement or the surrender of previously owned Stock, the maximum number of shares of Stock that may be so withheld (or surrendered) shall be the number of shares of Stock that have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment for the Company with respect to this Award, as determined by the Committee. The Participant acknowledges that there may be adverse tax consequences upon the receipt, vesting or settlement of this Award or disposition of the underlying shares and that the Participant has been advised, and hereby is advised, to consult a tax advisor. The Participant represents that the Participant is in no manner relying on the Board, the Committee, the Company or an Affiliate or any of their respective managers, directors, officers, employees or authorized representatives (including attorneys, accountants, consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences.

6. Employment Relationship. For purposes of this Agreement the Participant shall be considered to be employed by the Company or an Affiliate as long as the Participant remains an employee of any of the Company, an Affiliate or a corporation or other entity (or a parent or subsidiary of such corporation or other entity) assuming or substituting a new award for this Award. Without limiting the scope of the preceding sentence, it is expressly provided that the Participant shall be considered to have terminated employment with the Company (a) when the Participant ceases to be an employee of any of the Company, an Affiliate, or a corporation or other entity (or a parent or

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subsidiary of such corporation or other entity) assuming or substituting a new award for this Award or (b) at the time of the termination of the “Affiliate” status under the Plan of the corporation or other entity that employs the Participant.

7. Non-Transferability. During the lifetime of the Participant, the RSUs may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the shares of Stock underlying the RSUs have been issued, and all restrictions applicable to such shares have lapsed. Neither the RSUs nor any interest or right therein shall be liable for the debts, contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

8. Compliance with Applicable Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of shares of Stock hereunder will be subject to compliance with all applicable requirements of applicable law with respect to such securities and with the requirements of any stock exchange or market system upon which the Stock may then be listed. No shares of Stock will be issued hereunder if such issuance would constitute a violation of any applicable law or regulation or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, shares of Stock will not be issued hereunder unless (a) a registration statement under the Securities Act is in effect at the time of such issuance with respect to the shares to be issued or (b) in the opinion of legal counsel to the Company, the shares to be issued are permitted to be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary for the lawful issuance and sale of any shares of Stock hereunder will relieve the Company of any liability in respect of the failure to issue such shares as to which such requisite authority has not been obtained. As a condition to any issuance of Stock hereunder, the Company may require the Participant to satisfy any requirements that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company.

9. Legends. If a stock certificate is issued with respect to shares of Stock issued hereunder, such certificate shall bear such legend or legends as the Committee deems appropriate in order to reflect the restrictions set forth in this Agreement and to ensure compliance with the terms and provisions of this Agreement, the rules, regulations and other requirements of the SEC, any applicable laws or the requirements of any stock exchange on which the Stock is then listed. If the shares of Stock issued hereunder are held in book-entry form, then such entry will reflect that the shares are subject to the restrictions set forth in this Agreement.

10. Rights as a Stockholder. The Participant shall have no rights as a stockholder of the Company with respect to any shares of Stock that may become deliverable hereunder unless and until the Participant has become the holder of record of such shares of Stock, and no adjustments

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shall be made for dividends in cash or other property, distributions or other rights in respect of any such shares of Stock, except as otherwise specifically provided for in the Plan or this Agreement.

11. Execution of Receipts and Releases. Any issuance or transfer of shares of Stock or other property to the Participant or the Participant’s legal representative, heir, legatee or distributee, in accordance with this Agreement shall be in full satisfaction of all claims of such Person hereunder. As a condition precedent to such payment or issuance, the Company may require the Participant or the Participant’s legal representative, heir, legatee or distributee to execute (and not revoke within any time provided to do so) a release and receipt therefor in such form as it shall determine appropriate; provided, however, that any review period under such release will not modify the date of settlement with respect to vested RSUs.

12. No Right to Continued Employment or Awards. Nothing in the adoption of the Plan, nor the award of the RSUs thereunder pursuant to the Grant Notice and this Agreement, shall confer upon the Participant the right to continued employment by the Company or any Affiliate, or any other entity, or affect in any way the right of the Company or any such Affiliate, or any other entity to terminate such employment at any time. The grant of the RSUs is a one-time benefit and does not create any contractual or other right to receive a grant of Awards or benefits in lieu of Awards in the future. Any future Awards will be granted at the sole discretion of the Company.

13. Legal and Equitable Remedies. The Participant acknowledges that a violation or attempted breach of any of the Participant's covenants and agreements in this Agreement will cause such damage as will be irreparable, the exact amount of which would be difficult to ascertain and for which there will be no adequate remedy at law, and accordingly, the parties hereto agree that the Company and its Affiliates shall be entitled as a matter of right to an injunction issued by any court of competent jurisdiction, restraining the Participant or the affiliates, partners or agents of the Participant from such breach or attempted violation of such covenants and agreements, as well as to recover from the Participant any and all costs and expenses sustained or incurred by the Company or any Affiliate in obtaining such an injunction, including reasonable attorneys' fees. The parties to this Agreement agree that no bond or other security shall be required in connection with such injunction. Any exercise by either of the parties to this Agreement of its rights pursuant to this Section 13 shall be cumulative and in addition to any other remedies to which such party may be entitled.

14. Notices. All notices and other communications under this Agreement shall be in writing and shall be delivered to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

If to the Company, unless otherwise designated by the Company in a written notice to the Participant (or other holder):

Hi-Crush Inc.
Attn: General Counsel

1330 Post Oak Blvd, Suite 600

Houston, Texas 77056

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If to the Participant, at the Participant’s last known address on file with the Company.

15. Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in paper format, the Participant agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports and all other forms of communications) in connection with this and any other Award made or offered by the Company. Electronic delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Participant has access. The Participant hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature.

16. Agreement to Furnish Information. The Participant agrees to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation.

17. Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the RSUs granted hereby; provided¸ however, that the terms of this Agreement shall not modify and shall be subject to the terms and conditions of any employment, consulting and/or severance agreement between the Company (or an Affiliate or other entity) and the Participant in effect as of the date a determination is to be made under this Agreement. Without limiting the scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect. The Committee may, in its sole discretion, amend this Agreement from time to time in any manner that is not inconsistent with the Plan; provided, however, that except as otherwise provided in the Plan or this Agreement, any such amendment that materially reduces the rights of the Participant shall be effective only if it is in writing and signed by both the Participant and an authorized officer of the Company.

18. Severability and Waiver. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of such provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. Waiver by any party of any breach of this Agreement or failure to exercise any right hereunder shall not be deemed to be a waiver of any other breach or right. The failure of any party to take action by reason of such breach or to exercise

A-5

any such right shall not deprive the party of the right to take action at any time while or after such breach or condition giving rise to such rights continues.

19. Clawback. Notwithstanding any provision in the Grant Notice, this Agreement or the Plan to the contrary, to the extent required by (a) applicable law, including the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, any SEC rule or any applicable securities exchange listing standards and/or (b) any policy that may be adopted or amended by the Board from time to time, all shares of Stock issued hereunder shall be subject to forfeiture, repurchase, recoupment and/or cancellation to the extent necessary to comply with such law(s) and/or policy.

20. Insider Trading Policy. The terms of the Company’s insider trading policy with respect to shares of Stock are incorporated herein by reference.

21. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN, EXCLUSIVE OF THE CONFLICT OF LAWS PROVISIONS OF DELAWARE LAW.

22. Successors and Assigns. The Company may assign any of its rights under this Agreement without the Participant’s consent. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein and in the Plan, this Agreement will be binding upon the Participant and the Participant's beneficiaries, executors, administrators and the Person(s) to whom the RSUs may be transferred by will or the laws of descent or distribution.

23. Headings; References; Interpretation. Headings are for convenience only and are not deemed to be part of this Agreement. The words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All references herein to Sections shall, unless the context requires a different construction, be deemed to be references to the Sections of this Agreement. The word “or” as used herein is not exclusive and is deemed to have the meaning “and/or.” All references to “including” shall be construed as meaning “including without limitation.” Unless the context requires otherwise, all references herein to a law, agreement, instrument or other document shall be deemed to refer to such law, agreement, instrument or other document as amended, supplemented, modified and restated from time to time to the extent permitted by the provisions thereof. All references to “dollars” or “$” in this Agreement refer to United States dollars. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by each of the parties hereto and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto.

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24. Counterparts. The Grant Notice may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Delivery of an executed counterpart of the Grant Notice by facsimile or portable document format (.pdf) attachment to electronic mail shall be effective as delivery of a manually executed counterpart of the Grant Notice.

25. Section 409A. Notwithstanding anything herein or in the Plan to the contrary, the RSUs granted pursuant to this Agreement are intended to be exempt from the applicable requirements of the Nonqualified Deferred Compensation Rules and shall be limited, construed and interpreted in accordance with such intent. Nevertheless, to the extent that the Committee determines that the RSUs may not be exempt from the Nonqualified Deferred Compensation Rules, then, if the Participant is deemed to be a “specified employee” within the meaning of the Nonqualified Deferred Compensation Rules, as determined by the Committee, at a time when the Participant becomes eligible for settlement of the RSUs upon his “separation from service” within the meaning of the Nonqualified Deferred Compensation Rules, then to the extent necessary to prevent any accelerated or additional tax under the Nonqualified Deferred Compensation Rules, such settlement will be delayed until the earlier of: (a) the date that is six months following the Participant’s separation from service and (b) the Participant’s death. Notwithstanding the foregoing, the Company and its Affiliates make no representations that the RSUs provided under this Agreement are exempt from or compliant with the Nonqualified Deferred Compensation Rules and in no event shall the Company or any Affiliate be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-compliance with the Nonqualified Deferred Compensation Rules.

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Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

(Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended)

I, Robert E. Rasmus, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Hi-Crush Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Robert E. Rasmus

Robert E. Rasmus

Chief Executive Officer

November 5, 2019

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

(Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended)

I, Laura C. Fulton, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Hi-Crush Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Laura C. Fulton

Laura C. Fulton

Chief Financial Officer

November 5, 2019

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 of Hi-Crush Inc. (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert E. Rasmus, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert E. Rasmus

Robert E. Rasmus

Chief Executive Officer

November 5, 2019

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 of Hi-Crush Inc. (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Laura C. Fulton, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Laura C. Fulton

Laura C. Fulton

Chief Financial Officer

November 5, 2019

Exhibit 95.1

MINE SAFETY DISCLOSURES

The following disclosures are provided pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") and Item 104 of Regulation S-K, which requires certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate mines regulated under the Federal Mine Safety and Health Act of 1977 (the "Mine Act").

Mine Safety Information

Whenever the Federal Mine Safety and Health Administration ("MSHA") believes a violation of the Mine Act, any health or safety standard or any regulation has occurred, it may issue a citation which describes the alleged violation and fixes a time within which the U.S. mining operator must abate the alleged violation. In some situations, such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order removing miners from the area of the mine affected by the condition until the alleged hazards are corrected. When MSHA issues a citation or order, it generally proposes a civil penalty, or fine, as a result of the alleged violation, that the operator is ordered to pay. Citations and orders can be contested and appealed, and as part of that process, may be reduced in severity and amount, and are sometimes dismissed. The number of citations, orders and proposed assessments vary depending on the size and type (underground or surface) of the mine as well as by the MSHA inspector(s) assigned.

Mine Safety Data

The following provides additional information about references used in the table below to describe the categories of violations, orders or citations issued by MSHA under the Mine Act:


•	Section 104 S&S Citations: Citations received from MSHA under section 104 of the Mine Act for violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard.


•	Section 104(b) Orders: Orders issued by MSHA under section 104(b) of the Mine Act, which represents a failure to abate a citation under section 104(a) within the period of time prescribed by MSHA. This results in an order of immediate withdrawal from the area of the mine affected by the condition until MSHA determines that the violation has been abated.


•	Section 104(d) Citations and Orders: Citations and orders issued by MSHA under section 104(d) of the Mine Act for an unwarrantable failure to comply with mandatory health or safety standards.


•	Section 110(b)(2) Violations: Flagrant violations issued by MSHA under section 110(b)(2) of the Mine Act.


•	Section 107(a) Orders: Orders issued by MSHA under section 107(a) of the Mine Act for situations in which MSHA determined an "imminent danger" (as defined by MSHA) existed.

Pattern or Potential Pattern of Violations

The following provides additional information about references used in the table below to describe elevated pattern of violation enforcement actions taken by MSHA under the Mine Act:


•	Pattern of Violations: A pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of mine health or safety hazards under section 104(e) of the Mine Act.


•	Potential Pattern of Violations: The potential to have a pattern of violations under section 104(e).

Pending Legal Actions

The following provides additional information of the types of proceedings brought before the Federal Mine Safety and Health Review Commission (FMSHRC):


•	Contest Proceedings: A contest proceeding may be filed by an operator to challenge the issuance of a citation or order issued by MSHA.

•

Civil Penalty Proceedings: A civil penalty proceeding may be filed by an operator to challenge a civil penalty MSHA has proposed for a violation contained in a citation or order. The Company does not institute civil penalty proceedings based solely on the assessment amount of proposed penalties. Any initiated adjudications address substantive matters of law and policy instituted on conditions that are alleged to be in violation of mandatory standards of the Mine Act.

•

Discrimination Proceedings: Involves a miner’s allegation that he or she has suffered adverse employment action because he or she engaged in activity protected under the Mine Act, such as making a safety complaint. Also includes temporary reinstatement proceedings involving cases in which a miner has filed a complaint with MSHA stating that he or she has suffered discrimination and the miner has lost his or her position.


•	Compensation Proceedings: A compensation proceeding may be filed by miners entitled to compensation when a mine is closed by certain closure orders issued by MSHA. The purpose of the proceeding is to determine the amount of compensation, if any, due to miners idled by the orders.


•	Temporary Relief: Applications for temporary relief are applications filed under section 105(b)(2) of the Mine Act for temporary relief from any modification or termination of any order.


•	Appeals: An appeal may be filed by an operator to challenge judges’ decisions or orders to the Commission, including petitions for discretionary review and review by the Commission on its own motion.

Three Months Ended September 30, 2019:



Mine (a)	Wyeville, WI	Whitehall, WI	Augusta, WI	Blair, WI	Kermit, TX
Section 104 citations for violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard (#)	—	—	—	—	3
Section 104(b) orders (#)	—	—	—	—	—
Section 104(d) citations and orders (#)	—	—	—	—	—
Section 110(b)(2) violations (#)	—	—	—	—	—
Section 107(a) orders (#)	—	—	—	—	—
Proposed assessments under MSHA (b)	$—	$—	$—	$440	$1,804
Mining-related fatalities (#)	—	—	—	—	—
Section 104(e) notice	No	No	No	No	No
Notice of the potential for a pattern of violations under Section 104(e)	No	No	No	No	No
Legal actions before the Federal Mine Safety and Health Review Commission ("FMSHRC") initiated (#)	—	—	—	—	—
Legal actions before the FMSHRC resolved (#)	—	—	—	—	—
Legal actions pending before the FMSHRC, end of period:
Contests of citations and orders referenced in Subpart B of 29 CFR Part 2700 (#)	—	—	—	—	—
Contests of proposed penalties referenced in Subpart C of 29 CFR Part 2700 (#)	—	—	—	—	—
Complaints for compensation referenced in Subpart D of 29 CFR Part 2700 (#)	—	—	—	—	—
Complaints of discharge, discrimination or interference referenced in Subpart E of 29 CFR Part 2700 (#)	—	—	—	—	—
Applications for temporary relief referenced in Subpart F of 29 CFR Part 2700 (#)	—	—	—	—	—
Appeals of judges’ decisions or orders referenced in Subpart H of 29 CFR Part 2700 (#)	—	—	—	—	—
Total pending legal actions (#)	—	—	—	—	—

(a)

The definition of mine under section 3 of the Mine Act includes the mine, as well as other items used in, or to be used in, or resulting from, the work of extracting minerals, such as land, structures, facilities, equipment, machines, tools and minerals preparation facilities. Unless otherwise indicated, any of these other items associated with a single mine have been aggregated in the totals for that mine. MSHA assigns an identification number to each mine and may or may not assign separate identification numbers to related facilities such as preparation facilities. We are providing the information in the table by mine rather than MSHA identification number because that is how we manage and operate our mining business and we believe this presentation will be more useful to investors than providing information based on MSHA identification numbers.


(b)	Represents the total dollar value of the proposed assessment from MSHA under the Mine Act pursuant to the citations and/or orders preceding such dollar value in the corresponding row.