Market Overview

Fairmount Santrol Announces Third-Quarter 2017 Results

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  • 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

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