- Volumes of 3.4 million tons up 5% sequentially, with Proppant Solutions volumes of 2.8 million tons up 9% sequentially
- Revenues of $280.1 million up 20% sequentially, with Proppant Solutions revenue growth of 26% sequentially
- Net income of $34.9 million or $0.15 per diluted share
- Adjusted EBITDA of $72.4 million, excluding $2.4 million of non-cash stock compensation expense, up over $25 million sequentially
- Debt refinanced with new, 5-year term loan and revolving credit facility
CHESTERLAND, Ohio, Nov. 02, 2017 (GLOBE NEWSWIRE) -- Fairmount Santrol (NYSE:FMSA), a leading provider of high-performance sand and sand-based product solutions, today announced results for the third quarter ended September 30, 2017.
Third-Quarter 2017 Results
Third-quarter 2017 revenues were $280.1 million, up 20% from $233.2 million in the second quarter of 2017 and up 108% from $134.8 million in the third quarter of 2016. Total Company volumes sold were 3.4 million tons for the quarter, up 5% from 3.3 million tons sold in the second quarter of 2017 and an increase of 42% from 2.4 million tons in the third quarter of 2016.
For third-quarter 2017, the Company had net income of $34.9 million, or $0.15 per diluted share, compared with net income of $10.5 million, or $0.05 per diluted share, in the second quarter of 2017. Net loss for third-quarter 2016 was $20.6 million, or $(0.11) per diluted share.
Adjusted EBITDA for the third quarter of 2017 was $72.4 million, which excludes non-cash stock compensation expense of $2.4 million. Second-quarter 2017 Adjusted EBITDA was $47.0 million, and excluded non-cash stock compensation expense of $2.8 million and $0.4 million from the write-off of deferred financing fees, but included $1.5 million in costs related to plant start-ups and $3.2 million of freight charges to move railcars into the Company’s active fleet. The Adjusted EBITDA loss for the third quarter of 2016 was $4.9 million, and excluded the impact from non-cash stock compensation expense of $1.8 million, but included $9.8 million in fees related to railcar renegotiations.
“Our team successfully leveraged our strengths to capitalize on improving market conditions in the third quarter, resulting in strong profitability growth,” said Jenniffer Deckard, President and Chief Executive Officer. “We continued to relentlessly implement efficiency initiatives to both maximize the utilization of our asset base and to minimize costs. We remain focused on short-term execution, while also prioritizing key strategic investments such as the building out of our Kermit, Texas, facility and enhancing our logistics network. This dual focus will position us to meet varied and growing demand while further improving our long-term value proposition to both customers and shareholders.”
Business Segments
Proppant Solutions Segment
For the third quarter of 2017, Proppant Solutions volumes were 2.8 million tons, an increase of 9% compared with the second quarter of 2017 and a 61% increase compared with the prior-year period. Raw proppant sand volumes were 2.6 million tons, a 9% sequential increase and a 58% increase compared with the same period a year ago. Coated proppant volumes were 215,000 tons, an 11% increase compared with the second quarter of 2017 and a 118,000 ton increase from the prior-year period.
Proppant Solutions revenues were $249.8 million in third-quarter 2017, a 26% increase compared with $198.8 million in the second quarter of 2017 and an increase of over $146 million compared with $103.1 million in the third quarter of 2016. Proppant Solutions revenues were favorably impacted by higher volumes and pricing, as well as growth in value-added proppant sales. Average raw proppant sand pricing in third-quarter 2017 increased more than $7 per ton compared with average pricing in second-quarter 2017, based on a consistent mix of product, grade and distribution channel sales.
Proppant Solutions gross profit increased to $85.1 million, or over $30 per ton in the third quarter of 2017, compared with $54.4 million, or $21 per ton, in the second quarter of 2017. Second-quarter 2017 Proppant Solutions gross profit includes $1.5 million of costs related to plant start-ups and $3.2 million of freight charges to move stored railcars to the Company’s active fleet. The sequential improvement in Proppant Solutions gross profit is due to higher pricing and greater volumes coupled with an improved cost position, as the newly activated plants were more fully utilized and the Company had significantly lower costs from excess railcar storage and associated one-time freight charges. Gross profit for the segment in the third quarter of 2016 was $6.4 million.
Industrial and Recreational Products Segment
Industrial and Recreational volumes were 615,000 tons in third-quarter 2017, down 8% from the prior-year third quarter, driven by a shift of certain seasonal sales into the second quarter of 2017 and a slight decline in lower-margin raw sand sales over prior-year levels. Year-to-date volumes in the segment through the third quarter of 2017 were 1.9 million tons, roughly flat with year-to-date 2016 levels due to increased growth in higher-margin product sales that offset a decline in volumes.
Revenues for the segment were $30.3 million in third-quarter 2017, a 4% decrease from $31.6 million for third-quarter 2016. The decrease in revenue from third-quarter 2016 was primarily due to lower volumes in sales of raw sand, offset by greater sales of higher-margin products and higher pricing versus the prior-year period. Year-to-date, Industrial and Recreational revenues were $96.3 million, a 5% increase from $91.8 million for the comparable 2016 period.
In the third quarter of 2017, Industrial and Recreational gross profit was $14.4 million, or 47% of sales, compared with $13.5 million, or 43% of sales, in the third quarter of 2016. On a year-to-date basis, gross profit for the Industrial and Recreational Segment was $43.6 million, or 45% of sales, which represents 16% growth over year-to-date 2016 gross profit of $37.6 million. This segment continues to deliver year-over-year improvement in gross margin as a result of higher pricing, reductions in per ton operating costs, and a continued mix shift toward higher-margin products.
Balance Sheet and Other Information
Through the first nine months of 2017, net cash generated by operating activities was $107.5 million, largely due to higher profitability over the period, offset somewhat by an increase in cash used for working capital as a result of increased sales. Net cash used in financing activities in the nine months ended September 30, 2017 was $60.5 million, primarily the result of the second-quarter debt prepayment of $50 million and the recurring scheduled debt service payments. Cash used in investing activities for the nine months ended September 30, 2017 was $53.6 million. In the third quarter, the Company paid the first leasehold interest installment of $20 million that was due for the mineral reserves on the Kermit property. Capital expenditures in the third quarter were $22.2 million, including stripping, maintenance and growth capital, and approximately $8.5 million spent on the new Kermit facility.
As of September 30, 2017, cash and cash equivalents totaled $188.3 million, and total debt was $794.5 million, resulting in net debt of $606.2 million. The Company recently announced a new $700 million Term Loan B maturing in 2022 and a $125 million asset-based revolving credit facility that expires in 2022, which replace its prior term loan and revolving credit facilities. As part of this refinancing, the Company also used existing cash to repay a portion of its long-term debt.
“The recent debt refinancing is another positive step in our measured approach to improve our capital structure and will provide us with additional liquidity and flexibility,” said Michael Biehl, Executive Vice President and Chief Financial Officer. “Reducing total debt levels remains a top priority for Fairmount Santrol, as evidenced by the debt prepayment we made earlier in the year and as part of the recent refinancing.”
Use of Certain GAAP and Non-GAAP Financial Measures
The Company defines EBITDA as net income before interest expense, income tax expense, depreciation, depletion and amortization. Adjusted EBITDA is defined as EBITDA before non-cash stock-based compensation, asset impairments, and certain other income or expenses. The Company believes EBITDA and Adjusted EBITDA are useful because they allow management to more effectively evaluate our operational performance and compare the results of our operations from period to period without regard to our financing costs or capital structure.
Conference Call
Fairmount Santrol will host a conference call and live webcast for analysts and investors today, November 2, 2017, at 10 a.m. Eastern Time to discuss the Company’s 2017 third-quarter financial results. Investors are invited to listen to a live audio webcast of the conference call, which will be accessible on the Investor Relations section of the Company’s website. To access the live webcast, please log in 15 minutes prior to the start of the call to download and install any necessary audio software. An archived replay of the call will also be available on the website following the call. The call can also be accessed live by dialing (833) 287-7902 or, for international callers, (647) 689-4466. The conference ID for the call is 95267930. A replay will be available shortly after the call and can be accessed by dialing (800) 585-8367 or (416) 621-4642. The passcode for the replay is 95267930. The replay of the call will be available through November 9, 2017.
About Fairmount Santrol
Fairmount Santrol is a leading provider of high-performance sand and sand-based product solutions used by oil and gas exploration and production companies to enhance the productivity of their wells. The Company also provides high-quality products, strong technical leadership and applications knowledge to end users in the foundry, building products, water filtration, glass, and sports and recreation markets. Its expansive logistics capabilities include a wide-ranging network of distribution terminals and railcars that allow the Company to effectively serve customers wherever they operate. As one of the nation’s longest continuously operating mining organizations, Fairmount Santrol has developed a strong commitment to all three pillars of sustainable development, People, Planet and Prosperity. Correspondingly, the Company’s motto and action orientation is: “Do Good. Do Well.” For more information, visit FairmountSantrol.com.
Forward-Looking Statements
Certain statements contained in this press release constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent the Company’s expectations or beliefs concerning future events, and it is possible that the results described in this press release will not be achieved. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company’s control that could cause actual results to differ materially from the results discussed in the forward-looking statements. These factors include: changes in prevailing economic conditions, including continuing pressure on and fluctuations in demand for, and pricing of, our products; loss of, or reduction in business from the Company’s largest customers or their failure to pay the Company; possible adverse effects of being leveraged, including interest rate, event of default or refinancing risks, as well as potentially limiting the Company’s ability to invest in certain market opportunities; the level of cash flows generated to provide adequate liquidity; our ability to successfully develop and market new products, including Propel SSP® and related products; our rights and ability to mine our property and our renewal or receipt of the required permits and approvals from government authorities and other third parties; our ability to implement and realize efficiencies from capacity expansion plans, facility reactivation and cost reduction initiatives within our time and budgetary parameters; increasing costs or a lack of dependability or availability of transportation services or infrastructure and geographic shifts in demand; changing legislative and regulatory initiatives relating to our business, including environmental, mining, health and safety, licensing, reclamation and other regulation relating to hydraulic fracturing (and changes in their enforcement and interpretation); silica-related health issues and corresponding litigation; seasonal and severe weather conditions; and other operating risks that are beyond our control.
Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for the Company to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in Fairmount Santrol Holdings Inc.’s filings with the Securities and Exchange Commission (“SEC”). The risk factors and other factors noted in our filings with the SEC could cause our actual results to differ materially from those contained in any forward-looking statement.
| Fairmount Santrol | ||||||||||||||||||
| Condensed Consolidated Statements of Income (Loss) | ||||||||||||||||||
| (unaudited) | ||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||
| (in thousands, except per share amounts) | (in thousands, except per share amounts) | |||||||||||||||||
| Revenues | $ | 280,050 | $ | 134,775 | $ | 685,859 | $ | 394,482 | ||||||||||
| Cost of goods sold (excluding depreciation, depletion, and amortization shown separately) | 180,582 | 114,873 | 475,470 | 347,466 | ||||||||||||||
| Operating expenses | ||||||||||||||||||
| Selling, general and administrative expenses(A) | 31,105 | 17,242 | 79,438 | 60,560 | ||||||||||||||
| Depreciation, depletion and amortization expense | 20,174 | 17,759 | 59,462 | 54,401 | ||||||||||||||
| Asset impairments | - | - | - | 90,654 | ||||||||||||||
| Restructuring charges | - | - | - | 1,155 | ||||||||||||||
| Other operating expense (income) | (1,594 | ) | 9,362 | (2,299 | ) | 9,266 | ||||||||||||
| Income (loss) from operations | 49,783 | (24,461 | ) | 73,788 | (169,020 | ) | ||||||||||||
| Interest expense, net | 12,110 | 16,175 | 37,630 | 50,043 | ||||||||||||||
| Other non-operating income | - | - | - | (5 | ) | |||||||||||||
| Income (loss) before provision (benefit) for income taxes | 37,673 | (40,636 | ) | 36,158 | (219,058 | ) | ||||||||||||
| Provision (benefit) for income taxes | 2,754 | (20,013 | ) | 2,126 | (98,786 | ) | ||||||||||||
| Net income (loss) | 34,919 | (20,623 | ) | 34,032 | (120,272 | ) | ||||||||||||
| Less: Net income (loss) attributable to the non-controlling interest | (25 | ) | 2 | 193 | 15 | |||||||||||||
| Net income (loss) attributable to Fairmount Santrol Holdings Inc. | $ | 34,944 | $ | (20,625 | ) | $ | 33,839 | $ | (120,287 | ) | ||||||||
| Earnings (loss) per share | ||||||||||||||||||
| Basic | $ | 0.16 | $ | (0.11 | ) | $ | 0.15 | $ | (0.71 | ) | ||||||||
| Diluted | $ | 0.15 | $ | (0.11 | ) | $ | 0.15 | $ | (0.71 | ) | ||||||||
| Weighted average number of shares outstanding | ||||||||||||||||||
| Basic | 224,082 | 183,620 | 223,947 | 168,904 | ||||||||||||||
| Diluted | 226,400 | 183,620 | 229,304 | 168,904 | ||||||||||||||
| (A) - Stock compensation expense of $2,402 and $1,799 for the three months ended September 30, 2017 and 2016, respectively, and $7,582 and $7,366 for the nine months ended September 30, 2017 and 2016, respectively, are included within selling, general, and administrative expenses. | ||||||||||||||||||
| Fairmount Santrol | |||||||||
| Condensed Consolidated Statements of Cash Flows | |||||||||
| (unaudited) | |||||||||
| Nine Months Ended September 30, | |||||||||
| 2017 | 2016 | ||||||||
| (in thousands) | |||||||||
| Net income (loss) | $ | 34,032 | $ | (120,272 | ) | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||
| Depreciation and depletion | 53,638 | 50,891 | |||||||
| Amortization | 9,508 | 8,471 | |||||||
| Reserve for doubtful accounts | (421 | ) | 2,645 | ||||||
| Write-off of deferred financing costs | 389 | - | |||||||
| Asset impairments | - | 90,654 | |||||||
| Inventory write-downs and reserves | 1,266 | 10,302 | |||||||
| (Gain) loss on disposal of fixed assets | (404 | ) | 315 | ||||||
| Deferred income taxes and taxes payable | 3,965 | (80,248 | ) | ||||||
| Stock compensation expense | 7,582 | 7,366 | |||||||
| Change in operating assets and liabilities: | |||||||||
| Accounts receivable | (75,707 | ) | (5,035 | ) | |||||
| Inventories | (16,920 | ) | 7,039 | ||||||
| Prepaid expenses and other assets | (2,745 | ) | 1,873 | ||||||
| Refundable income taxes | 20,255 | 5,922 | |||||||
| Accounts payable | 20,659 | 4,723 | |||||||
| Accrued expenses and deferred revenue | 52,373 | 3,875 | |||||||
| Net cash provided by (used in) operating activities | 107,470 | (11,479 | ) | ||||||
| Cash flows from investing activities | |||||||||
| Proceeds from sale of fixed assets | 3,124 | 5,630 | |||||||
| Capital expenditures and stripping costs | (36,470 | ) | (28,712 | ) | |||||
| Leasehold interest payments for sand reserves | (20,000 | ) | - | ||||||
| Earnout payments | (250 | ) | (1,631 | ) | |||||
| Net cash used in investing activities | (53,596 | ) | (24,713 | ) | |||||
| Cash flows from financing activities | |||||||||
| Payments on long-term debt | (6,469 | ) | (8,670 | ) | |||||
| Prepayments on term loans | (50,000 | ) | (69,580 | ) | |||||
| Payments on capital leases and other long-term debt | (3,491 | ) | (5,067 | ) | |||||
| Proceeds from option exercises | 563 | 3,950 | |||||||
| Proceeds from primary stock offering | - | 161,862 | |||||||
| Tax payments for withholdings on share-based awards exercised or distributed | (1,097 | ) | (3,650 | ) | |||||
| Tax effect of stock options exercised, forfeited, or expired | - | (1,051 | ) | ||||||
| Transactions with non-controlling interest | 40 | (551 | ) | ||||||
| Net cash provided by (used in) financing activities | (60,454 | ) | 77,243 | ||||||
| Change in cash and cash equivalents related to assets classified as held-for-sale | - | 1,376 | |||||||
| Foreign currency adjustment | 768 | (479 | ) | ||||||
| Increase (decrease) in cash and cash equivalents | (5,812 | ) | 41,948 | ||||||
| Cash and cash equivalents: | |||||||||
| Beginning of period | 194,069 | 171,486 | |||||||
| End of period | $ | 188,257 | $ | 213,434 | |||||
| Fairmount Santrol | |||||||
| Condensed Consolidated Balance Sheets | |||||||
| (unaudited) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| (in thousands) | |||||||
| Assets | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 188,257 | $ | 194,069 | |||
| Accounts receivable, net | 155,070 | 78,942 | |||||
| Inventories, net | 68,304 | 52,650 | |||||
| Prepaid expenses and other assets | 6,843 | 7,065 | |||||
| Refundable income taxes | 823 | 21,077 | |||||
| Total current assets | 419,297 | 353,803 | |||||
| Property, plant and equipment, net | 767,408 | 727,735 | |||||
| Deferred income taxes | 1,244 | 1,244 | |||||
| Goodwill | 15,301 | 15,301 | |||||
| Intangibles, net | 95,234 | 95,341 | |||||
| Other assets | 7,740 | 9,486 | |||||
| Total assets | $ | 1,306,224 | $ | 1,202,910 | |||
| Liabilities and Equity | |||||||
| Current liabilities | |||||||
| Current portion of long-term debt | $ | 11,772 | $ | 10,707 | |||
| Accounts payable | 69,173 | 37,263 | |||||
| Accrued expenses and deferred revenue | 85,660 | 26,185 | |||||
| Total current liabilities | 166,605 | 74,155 | |||||
| Long-term debt | 782,735 | 832,306 | |||||
| Deferred income taxes | 10,728 | 7,057 | |||||
| Other long-term liabilities | 50,300 | 38,272 | |||||
| Total liabilities | 1,010,368 | 951,790 | |||||
| Equity | |||||||
| Common stock | 2,423 | 2,422 | |||||
| Additional paid-in capital | 300,281 | 297,649 | |||||
| Retained earnings | 298,258 | 264,852 | |||||
| Accumulated other comprehensive loss | (16,750 | ) | (19,002 | ) | |||
| Treasury stock at cost | (288,662 | ) | (294,874 | ) | |||
| Non-controlling interest | 306 | 73 | |||||
| Total equity | 295,856 | 251,120 | |||||
| Total liabilities and equity | $ | 1,306,224 | $ | 1,202,910 | |||
| Fairmount Santrol | ||||||||||||||||
| Segment Reports | ||||||||||||||||
| (unaudited) | Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | ||||||||||||
| (in thousands, except volume amounts) | (in thousands, except volume amounts) | (in thousands, except volume amounts) | ||||||||||||||
| Volume (tons) | ||||||||||||||||
| Proppant Solutions | ||||||||||||||||
| Raw sand | 2,616,649 | 1,657,799 | 6,931,129 | 4,301,124 | 2,393,647 | |||||||||||
| Coated proppant | 214,882 | 96,532 | 569,622 | 269,062 | 193,242 | |||||||||||
| Total Proppant Solutions | 2,831,531 | 1,754,331 | 7,500,751 | 4,570,186 | 2,586,889 | |||||||||||
| Industrial & Recreational Products | 614,738 | 668,333 | 1,896,947 | 1,916,755 | 686,831 | |||||||||||
| Total volumes | 3,446,269 | 2,422,664 | 9,397,698 | 6,486,941 | 3,273,720 | |||||||||||
| Revenues | ||||||||||||||||
| Proppant Solutions | $ | 249,751 | $ | 103,140 | $ | 589,556 | $ | 302,705 | $ | 198,812 | ||||||
| Industrial & Recreational Products | 30,299 | 31,635 | 96,303 | 91,777 | 34,414 | |||||||||||
| Total revenues | 280,050 | 134,775 | 685,859 | 394,482 | 233,226 | |||||||||||
| Segment gross profit | ||||||||||||||||
| Proppant Solutions | 85,101 | 6,356 | 166,820 | 9,419 | 54,373 | |||||||||||
| Industrial & Recreational Products | 14,367 | 13,546 | 43,569 | 37,597 | 15,717 | |||||||||||
| Total segment gross profit | 99,468 | 19,902 | 210,389 | 47,016 | 70,090 | |||||||||||
| Fairmount Santrol | ||||||||||||||||||
| Non-GAAP Financial Measures | Three Months Ended June 30, | |||||||||||||||||
| (unaudited) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | ||||||||||||||
| (in thousands) | (in thousands) | (in thousands) | ||||||||||||||||
| Reconciliation of Adjusted EBITDA | ||||||||||||||||||
| Net income (loss) attributable to Fairmount Santrol Holdings Inc. | $ | 34,944 | $ | (20,625 | ) | $ | 33,839 | $ | (120,287 | ) | $ | 10,483 | ||||||
| Interest expense, net | 12,110 | 16,175 | 37,630 | 50,043 | 12,983 | |||||||||||||
| Provision (benefit) for income taxes | 2,754 | (20,013 | ) | 2,126 | (98,786 | ) | 520 | |||||||||||
| Depreciation, depletion, and amortization expense | 20,174 | 17,759 | 59,462 | 54,401 | 19,846 | |||||||||||||
| EBITDA | 69,982 | (6,704 | ) | 133,057 | (114,629 | ) | 43,832 | |||||||||||
| Non-cash stock compensation expense(1) | 2,402 | 1,799 | 7,582 | 7,366 | 2,763 | |||||||||||||
| Asset impairments(2) | - | - | - | 90,654 | - | |||||||||||||
| Write-off of deferred financing costs(3) | - | - | 389 | - | 389 | |||||||||||||
| Adjusted EBITDA | $ | 72,384 | $ | (4,905 | ) | $ | 141,028 | $ | (16,609 | ) | $ | 46,984 | ||||||
| __________ | ||||||||||||||||||
| (1) Represents the non-cash expense for stock-based awards issued to our employees and outside directors. | ||||||||||||||||||
| (2) Non-cash charges associated with the impairment of mineral reserves and other long-lived assets. | ||||||||||||||||||
| (3) Represents the write-off of deferred financing fees in relation to term loan prepayment. | ||||||||||||||||||
Investor contacts:
Indrani Egleston
440-214-3219
Indrani.Egleston@fairmountsantrol.com
Matthew Schlarb
440-214-3284
Matthew.Schlarb@fairmountsantrol.com