Market Overview

Fairmount Santrol Announces Fourth-Quarter and Full-Year 2016 Results

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FOURTH-QUARTER HIGHLIGHTS

  • Volumes of 2.4 million tons similar to the prior quarter, including Proppant Solutions volumes of 1.8 million tons up 5% sequentially
  • Revenues of $140.5 million up 4% sequentially, including Proppant Solutions revenues of $113.4 million up 10% sequentially
  • Completed primary equity offering in October 2016, generating net proceeds of $278 million
  • Retired $302 million of long-term debt through repurchases and prepayments

CHESTERLAND, Ohio, March 09, 2017 (GLOBE NEWSWIRE) -- Fairmount Santrol (NYSE:FMSA), a leading provider of high-performance sand and sand-based product solutions, today announced results for the fourth quarter and full year ended December 31, 2016.

Fourth-Quarter 2016 Results

Fourth-quarter 2016 revenues were $140.5 million, up 4% from $134.8 million in the third quarter of 2016 and up 4% from $134.9 million in the fourth quarter of 2015. Overall volumes sold were 2.4 million tons for the quarter, similar to the third quarter of 2016 and an increase of 26% from 1.9 million tons in the fourth quarter of 2015.

For fourth-quarter 2016, the Company had a net loss of $19.9 million, or $(0.09) per diluted share, compared with a net loss of $20.6 million, or $(0.11) per diluted share, in the third quarter of 2016. Net loss for fourth-quarter 2015 was $90.8 million, or $(0.56) per diluted share.

Adjusted EBITDA for the fourth quarter of 2016 was $11.7 million, which excludes a gain on the repurchase of debt of $5.1 million (net of professional fees and deferred financing fee write-offs), asset impairments and other charges of $2.7 million, and non-cash stock compensation expense of $1.5 million. Professional fees of $1.2 million related to the fourth-quarter equity offerings have not been excluded from Adjusted EBITDA. In the third quarter of 2016, Adjusted EBITDA was a $4.9 million loss, which excludes $1.8 million of non-cash stock compensation expense, but $10.6 million in fees related to railcar renegotiations and an equity offering have not been excluded. In the fourth-quarter of 2015, Adjusted EBITDA totaled $4.7 million and excluded a $69.5 million non-cash impairment of goodwill and other assets, a $7.3 million loss on the disposal of assets, $0.3 million of other restructuring charges, and $2.7 million of income related to stock compensation forfeitures.

Full-Year 2016 Results

Full-year 2016 revenues were $535.0 million, compared with $828.7 million in 2015. Overall volumes sold in 2016 were 8.9 million tons, compared with 8.5 million tons in 2015. The reduction in revenues was due mainly to lower pricing and a mix shift within Proppant Solutions from coated proppants to raw frac sand.

Net loss for full-year 2016 was $140.2 million, or $(0.78) per diluted share, compared to a net loss of $92.1 million, or $(0.57) per diluted share, in 2015. The 2016 net loss includes $125.7 million in pre-tax expenses related to stock compensation, asset impairments, inventory write-offs, restructuring charges, a gain on the repurchase of debt (net of professional fees and the write-off of deferred financing fees), and other professional expenses. The after-tax impact of these charges is $81.6 million, or $0.50 per diluted share. The 2015 net loss included pre-tax expenses of $103.2 million related to stock compensation, goodwill and asset impairments and restructuring charges, which equate to $67.1 million after-tax, or $0.41 per diluted share.

The full-year Adjusted EBITDA loss for 2016 totaled $4.9 million compared to $138.1 million of Adjusted EBITDA in 2015. Adjusted EBITDA for 2016 does not exclude $10.3 million in inventory write-downs and $18.3 million in professional fees for cost reductions, railcar renegotiations and stock offering expenses.

"Market conditions improved in the fourth quarter, and we were pleased to see volume growth continue in our Proppant Solutions segment. We were particularly encouraged by the increase in demand for our value-added coated products," said Jenniffer Deckard, President and Chief Executive Officer. "Another positive trend was our ability to sustain price increases both in the fourth quarter of 2016 and at the beginning of 2017. Yet we believe proppant pricing remains at unsustainably low levels. As demand increases to more closely align with supply, particularly for finer grades, we expect to continue to raise prices."

Deckard added, "2016 presented challenging market conditions, but the entire Fairmount Santrol team continued to execute, innovate, and take actions throughout the year to enable us to manage through the downturn. We are encouraged by recent improvements in the energy markets we serve, even though some uncertainty still exists. We are very confident that the actions we have taken – to improve our cost structure and balance sheet, to strengthen and broaden our innovative product portfolio, and to enhance our extensive production and logistics network – have positioned the Company to perform well as the market recovers."

Business Segments

Proppant Solutions Segment

For the fourth quarter of 2016, Proppant Solutions volumes were 1.8 million tons, an increase of 5% compared with the third quarter of 2016 and up 35% compared with the prior-year period.  Raw frac sand volumes were 1.7 million tons, a 5% sequential increase and a 39% increase compared with the same period a year ago. Coated proppant volumes were 101,400 tons, a 5% increase compared with the third quarter of 2016 and an 11% decrease from the prior-year period.

Proppant Solutions revenues were $113.4 million in fourth-quarter 2016, a 10% increase compared with $103.1 million in the third quarter of 2016 and a 6% increase compared with $107.5 million in the fourth quarter a year ago. During the fourth quarter, average product price per ton across Proppant Solutions was 5% above third-quarter average product price levels, and was positively impacted by price increases that were initiated during the fourth quarter.

Proppant Solutions gross profit increased to $17.1 million, or 15.1% of sales, in the fourth quarter of 2016 compared to $6.4 million, or 6.2% of sales, in the third quarter of 2016. Gross profit for the segment in the fourth quarter of 2015 was $14.7 million, or 13.7% of sales.

In response to increased customer demand, the Company recently reopened its previously idled facilities in Maiden Rock, Wisconsin, and Brewer, Missouri. The Maiden Rock facility has a stated annual capacity of over 1.2 million tons of Northern White sand and is located adjacent to Class 1 rail lines with unit train capabilities. The Brewer facility has a stated annual capacity of approximately 1.0 million tons of Northern White sand and has nearby access to a transload facility that is also unit train capable. Following the reactivation of these two facilities, the Company's total active stated annual frac sand capacity is approximately 11.9 million tons.

The Company also reopened its coating facility in Cutler, Illinois, during the first quarter of 2017, to meet increased customer demand for resin-coated products. 

Industrial and Recreational Products Segment

Industrial and Recreational volumes were 587,000 tons in fourth-quarter 2016, down 12% from third-quarter 2016 and up 6% from the prior year's fourth quarter. The decrease in sequential demand was impacted by typical seasonal factors including lower sports and recreational volumes and seasonal shutdowns in the foundry business. The increase in volumes over the prior-year period was driven by strong growth in the glass and building products business.

Revenues for the segment were $27.1 million in fourth-quarter 2016, a 14% decrease from $31.6 million in the third quarter and a 1% decrease from $27.5 million for the fourth quarter a year ago. The sequential decline in revenue was due in part to the seasonal slowdown noted above, along with a shift in industrial end markets. The decline from the prior-year period was due to a shift toward raw sand products. 

Gross profit for the segment was $11.2 million, or 41.3% of sales, in fourth-quarter 2016, compared with $13.5 million, or 42.8% of sales, in the third quarter. Gross profit for the segment in the fourth quarter of 2015 was $10.7 million, or 39.0% of sales. 

Balance Sheet and Other Information

For full-year 2016, net cash used by operating activities was $6.6 million, which was caused in large part by a weaker pricing environment and lower sales of high-margin resin products. Net cash provided by financing activities was $54.9 million, with proceeds of $439.6 million from two primary equity offerings partially offset by $216.0 million in debt repurchases at a discount and $166.8 million of debt repayments at par, for a total debt reduction of $382.8 million. Capital expenditures, including stripping costs, were $30.6 million for the year ended December 31, 2016.

As of December 31, 2016, cash and cash equivalents totaled $194.1 million, and total debt was $843.0 million, compared with $213.4 million of cash and cash equivalents and total debt of $1,144.1 million as of September 30, 2016.

Capital expenditures, including stripping costs, are expected to approximate $47 million to $50 million in 2017, which includes regular plant maintenance, terminal and production investments moving back to baseline levels, and in anticipation of future-period growth.

Outlook

Due to the volatility and ongoing uncertainty in the oil and gas markets, the Company will not provide sales and earnings guidance for 2017. However, in the first quarter of 2017 there are signs of continuing improvement in proppant volumes, mix and pricing.  

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, March 9, 2017, at 10 a.m. Eastern Time to discuss the Company's 2016 fourth-quarter and full-year 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 (877) 201-0168 or, for international callers, (647) 788-4901. The passcode for the call is 57952116. 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 57952116. The replay of the call will be available through March 16, 2017.

About Fairmount Santrol

Fairmount Santrol is a leading provider of high-performance sand and sand-based products 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®; 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; expectations regarding results of railcar contract renegotiations; 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 December 31,   Year Ended December 31,
      2016       2015       2016       2015  
    (in thousands, except per share
amounts)
  (in thousands, except per share
amounts)
     
                 
Revenues   $ 140,531     $ 134,946     $ 535,013     $ 828,709  
Cost of goods sold (excluding depreciation, depletion,                
and amortization shown separately)     112,248       109,488       459,714       608,845  
                 
Operating expenses                
Selling, general and administrative expenses(A)     18,580       16,473       79,140       85,191  
Depreciation, depletion and amortization expense     17,875       18,995       72,276       66,754  
Goodwill and other asset impairments     2,494       76,833       93,148       87,476  
Restructuring charges     -       263       1,155       9,221  
Other operating expense (income)     (367 )     1,635       8,899       1,357  
Loss from operations     (10,299 )     (88,741 )     (179,319 )     (30,135 )
                 
Interest expense, net     15,324       16,077       65,367       62,242  
Gain on repurchase of debt, net     (5,110 )     -       (5,110 )     -  
Other non-operating expense (income)     (5 )     -       (10 )     1,492  
Loss before benefit from income taxes     (20,508 )     (104,818 )     (239,566 )     (93,869 )
                 
Benefit from income taxes     (655 )     (13,996 )     (99,441 )     (1,939 )
Net loss       (19,853 )       (90,822 )       (140,125 )       (91,930 )
Less: Net income attributable to the non-controlling interest     52       9       67       205  
Net loss attributable to Fairmount Santrol Holdings Inc.   $   (19,905 )   $   (90,831 )   $   (140,192 )   $   (92,135 )
                 
Loss per share                
Basic   $ (0.09 )   $ (0.56 )   $ (0.78 )   $ (0.57 )
Diluted   $ (0.09 )   $ (0.56 )   $ (0.78 )   $ (0.57 )
                 
Weighted average number of shares outstanding                
Basic     212,609       161,433       179,429       161,297  
Diluted     212,609       161,433       179,429       161,297  
                 
(A) - Stock compensation expense included within selling, general, and administrative expenses.


           
  Fairmount Santrol        
  Condensed Consolidated Statements of Cash Flows        
  (unaudited)        
      Year Ended December 31,
        2016       2015  
           
      (in thousands)
           
  Net loss   $   (140,125 )   $   (91,930 )
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
  Depreciation and depletion       67,614         62,218  
  Amortization       11,641         11,416  
  Reserve for doubtful accounts       1,851         1,968  
  Write-off of deferred financing costs       2,618         864  
  Gain on repurchase of debt, gross       (8,178 )       -  
  Goodwill and other asset impairments       93,148         76,038  
  Non-cash restructuring charges       -         1,162  
  Inventory write-downs and reserves       10,302         1,591  
  Loss on sale of fixed assets       420         8,712  
  Unrealized loss on interest rate swaps       -         49  
  Deferred income taxes and taxes payable       (82,732 )       20,983  
  Refundable income taxes       5,428         (26,506 )
  Stock compensation expense       8,870         4,525  
  Change in operating assets and liabilities:        
  Accounts receivable       (4,385 )       127,718  
  Inventories       7,543         59,527  
  Prepaid expenses and other assets       11,496         23,234  
  Accounts payable       4,196         (38,698 )
  Accrued expenses       3,701         (6,877 )
  Net cash provided by (used in) operating activities       (6,592 )       235,994  
           
  Cash flows from investing activities        
  Proceeds from sale of fixed assets       5,670         -  
  Capital expenditures and stripping costs       (30,597 )       (113,750 )
  Earnout payments       (1,287 )       -  
  Other investing activities       -         (250 )
  Net cash used in investing activities       (26,214 )       (114,000 )
           
  Cash flows from financing activities        
  Payments on long-term debt       (10,840 )       (13,532 )
  Prepayments on term loans       (155,926 )       -  
  Repurchase of term loans       (216,000 )       -  
  Fees for repurchase of term loans       (450 )       -  
  Payments on capital leases and other long-term debt       (5,947 )       (6,975 )
  Proceeds from option exercises       6,438         1,767  
  Proceeds from primary stock offering       439,556         -  
  Tax effect of stock options exercised, forfeited, or expired       (1,100 )       (1,472 )
  Transactions with non-controlling interest       (842 )       (301 )
  Other financing activities       -         (4,578 )
  Net cash provided by (used in) financing activities       54,889         (25,091 )
           
  Change in cash and cash equivalents related to assets classified as held-for-sale       1,376         (1,376 )
  Foreign currency adjustment       (876 )       (964 )
  Increase in cash and cash equivalents       22,583         94,563  
           
  Cash and cash equivalents:        
  Beginning of period       171,486         76,923  
  End of period   $    194,069     $    171,486  
           


         
Fairmount Santrol        
Condensed Consolidated Balance Sheets        
(unaudited)        
    December 31, 2016   December 31, 2015
         
    (in thousands)
Assets        
Current assets        
Cash and cash equivalents   $   194,069     $   171,486  
Accounts receivable, net       78,942         73,566  
Inventories, net       52,650         70,494  
Prepaid expenses and other assets       7,065         13,404  
Refundable income taxes       21,077         26,506  
Current assets classified as held-for-sale (includes cash, accounts receivable,        
inventories, and property, plant, and equipment)       -         4,218  
Total current assets       353,803         359,674  
         
Property, plant and equipment, net       727,735         870,997  
Deferred income taxes       1,244         834  
Goodwill       15,301         15,301  
Intangibles, net       95,341         96,482  
Other assets       9,486         10,961  
Total assets   $    1,202,910     $    1,354,249  
         
Liabilities and Equity        
Current liabilities        
Current portion of long-term debt   $   10,707     $   17,385  
Accounts payable       37,263         40,421  
Accrued expenses       26,185         26,785  
Current liabilities directly related to current assets classified as held-for-sale        
(includes accounts payable and accrued expenses)       -         934  
Total current liabilities       74,155         85,525  
         
Long-term debt       832,306         1,205,721  
Deferred income taxes       7,057         89,569  
Other long-term liabilities       38,272         33,802  
Total liabilities       951,790         1,414,617  
         
Equity        
Common stock       2,422         2,391  
Additional paid-in capital       297,649         776,705  
Retained earnings       264,852         405,044  
Accumulated other comprehensive loss       (19,002 )       (17,693 )
Treasury stock at cost       (294,874 )       (1,227,663 )
Non-controlling interest       73         848  
Total equity (deficit)       251,120         (60,368 )
Total liabilities and equity   $    1,202,910     $    1,354,249  
         


                       
Fairmount Santrol                      
Segment Reports                        
(unaudited)   Three Months Ended December 31,   Year Ended December 31,     Three Months Ended September 30,  
      2016     2015     2016     2015     2016  
                       
    (in thousands, except volume amounts)   (in thousands, except volume amounts)   (in thousands, except volume amounts)  
                         
Volume (tons)                        
Proppant Solutions                        
Raw sand       1,743,318       1,253,257       6,044,442       5,437,302       1,657,799  
Coated proppant       101,429       114,414       370,491       766,456       96,532  
Total Proppant Solutions       1,844,747       1,367,671       6,414,933       6,203,758       1,754,331  
                                 
Industrial & Recreational Products       586,898       555,495       2,503,653       2,300,969       668,333  
                                 
Total volumes       2,431,645       1,923,166       8,918,586       8,504,727       2,422,664  
                                 
Revenues                                
Proppant Solutions   $   113,439   $   107,480   $   416,144   $   710,083   $   103,140  
Industrial & Recreational Products       27,092       27,466       118,869       118,626       31,635  
Total revenues       140,531       134,946       535,013       828,709       134,775  
                                 
Segment gross profit                                
Proppant Solutions       17,082       14,734       26,501       175,226      6,356  
Industrial & Recreational Products       11,201       10,724       48,798       44,638      13,546  
Total segment gross profit       28,283       25,458       75,299       219,864     19,902  
                         


                     
Fairmount Santrol                    
Non-GAAP Financial Measures                 Three Months Ended September 30,  
(unaudited)   Three Months Ended December 31,   Year Ended December 31,    
      2016       2015       2016       2015       2016    
                                           
    (in thousands)   (in thousands)   (in thousands)  
                                   
Reconciliation of Adjusted EBITDA                                  
Net loss attributable to Fairmount Santrol Holdings Inc.   $    (19,905 )   $    (90,831 )   $    (140,192 )   $    (92,135 )   $    (20,625 )  
Interest expense, net       15,324         16,077         65,367         62,242         16,175    
Provision (benefit) for income taxes       (655 )       (13,996 )       (99,441 )       (1,939 )       (20,013 )  
Depreciation, depletion, and amortization expense       17,875         18,995         72,276         66,754         17,759    
EBITDA       12,639         (69,755 )       (101,990 )       34,922         (6,704 )  
                                           
Non-cash stock compensation expense(1)       1,504         (2,655 )       8,870         4,525         1,799    
Goodwill and other asset impairments(2)       2,494         69,545         93,148         80,188         -    
Restructuring charges(3)       -         263         -         9,221         -    
Loss on disposal of fixed assets(4)       -         7,288         -         7,915         -    
Write-off of deferred financing costs(5)       2,618         -         2,618         864         -    
Gain on repurchase of debt(6)       (8,178 )       -         (8,178 )       -         -    
Transaction expenses(7)       450         -         450         -         -    
Other charges(8)       180         -         180         465         -    
Adjusted EBITDA   $    11,707     $    4,686     $    (4,902 )   $    138,100     $    (4,905 )  
__________                                          
                                           
(1) Represents the non-cash expense for stock-based awards issued to our employees and outside directors.              
                     
(2) Non-cash charges in 2016 are associated with the impairment of mineral reserves and other long-lived assets.  The fourth quarter of 2015 included a $69.2 million impairment of goodwill in the Proppant Solutions segment.  
 
                     
(3) Expenses associated with restructuring activities and plant closures, including pension withdrawal, severance payments, and other liabilities.  We no longer reflect cash charges related to restructuring as an adjustment to EBITDA in 2016 results.  
 
                     
(4) Includes losses related to the sale and disposal of certain assets in property, plant, and equipment.                
                     
(5) Represents the write-off of deferred financing fees in relation to term loan repurchases in 2016; and the amendment of our Revolving Credit Facility in 2015.      
                     
(6) Gain related to the discount on term loan repurchases.                    
                     
(7) Expenses associated with term loan repurchases.                    
                     
(8) Loss on the curtailment of a pension plan in 2016 and cash payment associated with an audit of our Employee Stock Bonus Plan in 2015.          
                     


Investor contacts:
Sharon Van Zeeland
440-279-0204
Sharon.VanZeeland@fairmountsantrol.com

Matthew Schlarb
440-214-3284
Matthew.Schlarb@fairmountsantrol.com

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