Press Release Details

Fairmount Santrol Announces Third-Quarter 2015 Results

  • Total Company volumes down 9% sequentially, Proppant Solutions volumes down 8% sequentially, with frac sand volumes down 6% and coated proppant volumes down 25% sequentially
  • Total revenue of $171.0 million, down 23% sequentially
  • Net loss of $46.2 million, or $(0.29) per diluted share, including adjustments of $38.9 million, which are the after-tax effect of restructuring charges and asset impairments and a non-cash tax expense of $28.1 million due to a change in book tax rate  
  • Total Adjusted EBITDA of $21.8 million, down 40% sequentially
  • Free cash flow in the quarter of $13.3 million, after capital expenditures of $30.3 million, brings cash balance to $179.5 million at September 30, 2015

CHESTERLAND, Ohio, Nov. 12, 2015 (GLOBE NEWSWIRE) -- Fairmount Santrol (NYSE:FMSA) today announced results for the third quarter ended September 30, 2015. 

Third-quarter 2015 revenue totaled $171.0 million, down 54% from $373.5 million for the same period in 2014, and down 23% from $221.3 million in the second quarter of 2015. Overall sales volumes were 2.0 million tons for the quarter, compared with 2.6 million tons in the third quarter of 2014 and 2.2 million tons in the second quarter of 2015.

For the third quarter, the Company had a net loss of $46.2 million, or $(0.29) per diluted share, compared with net income of $54.1 million, or $0.32 per diluted share, for the same period a year ago and net income of $14.1 million, or $0.08 per diluted share, in the second quarter of 2015. The Company had a $28.1 million non-cash tax expense in the third quarter. The adjustment is primarily driven by changes to the current and forecasted business levels, the variability of book income (or loss) between quarters, and a proportionately greater impact on taxable income from the statutory percentage depletion allowance. The Company expects to show a cumulative annual tax benefit for the full year 2015.

Adjusted earnings per diluted share were $(0.05), compared with $0.34 for the third quarter of 2014 and $0.02 in the second quarter of 2015. Adjusted earnings per diluted share exclude the after-tax impact of restructuring charges taken in the third quarter of $0.02 per diluted share and the impact of the non-cash tax charge of $0.22 per diluted share. Adjusted EBITDA of $21.8 million was down 81% from the same period a year ago and down 40% sequentially.

Business Segments

Proppant Solutions

Total Proppant Solutions volumes for the third quarter of 2015 were 1.5 million tons, down 25% compared with the prior-year period and down 8% compared with the second quarter of 2015. Raw frac sand volumes were 1.3 million tons, down 15% compared with volumes for the same period a year ago and down 6% sequentially. Coated proppant volumes were 0.15 million tons, down 61% from the prior-year period and down 25% versus the second quarter of 2015.

During the third quarter, the Company experienced an average decline in selling prices of 8% sequentially across all product lines.

Proppant Solutions revenue totaled $141.6 million in the third quarter, a 58% decrease compared with $340.7 million in the same period a year ago and a 25% decrease compared with $188.2 million in the second quarter of 2015.

Adjusted contribution margin for the Proppant Solutions segment decreased to $22.1 million in the third quarter, from $125.1 million in the third quarter of 2014 and $37.8 million in the second quarter of 2015.

Industrial and Recreational Products

Industrial and Recreational revenue was $29.4 million in the third quarter, down 11% from the $32.8 million for the same period a year ago and down 11% from $33.2 million last quarter. Volumes for this segment were 0.57 million tons in the third quarter, down approximately 11% compared with the third quarter a year ago and down 11% from the second quarter of 2015. The sequential reduction was primarily a result of our plant consolidation efforts and reduced demand for metal castings in the oil and gas, agriculture, and mining segments of the foundry market.

Adjusted contribution margin for the Industrial and Recreational segment was $11.0 million versus $10.0 million in the third quarter of 2014 and $11.2 million in the second quarter of 2015.

Management Comments

“As market demand has deteriorated during 2015, pricing has been under pressure for the entire industry, which continued into the third quarter. During this challenging third-quarter pricing environment, we believe that Fairmount Santrol maintained our market share position, which included share gains achieved during the first half of 2015,” said Jenniffer Deckard, President and Chief Executive Officer.  “We have achieved these gains in 2015 due to our total proppant solutions approach to providing value to our customers.  Our selective matching of market price movements combined with our advantaged logistics and distribution footprint, including a growing unit train capability, are valued by our customers as a way to further reduce their costs and improve their efficiencies.  As we continue to bring down our customers’ total cost and their production cost per BOE, we believe we are well-positioned to continue to benefit from an ongoing consolidation of suppliers.”

Ms. Deckard added, “We are continuing to proactively manage through the challenging market conditions by successfully implementing cost reduction initiatives and driving efficiencies throughout our business. These actions are essential for protecting our flexibility in the near term and maintaining our market leadership position in the long term.”

Progress on Key Initiatives

  • Continued focus on cost effectiveness: In the third quarter and into the fourth quarter, Fairmount Santrol continued to consolidate into a more cost-effective footprint. During the first few days of October, the Company idled its sand processing operations in Hager/Bay City, Wisconsin. The Company also reduced work schedules at other facilities during the third quarter to further increase efficiencies. In total, Fairmount Santrol’s actions have enabled the Company to lower average production cost per ton by 14% across all frac sand grades, and by 35% for Northern White raw frac sand, since the end of 2014, despite lower overall volumes and a shift in product mix.

Similarly, the Company has taken further actions to consolidate its coating capacity footprint. In October, the Company idled its resin-coating facility in Cutler, Illinois. The consolidation of higher-cost production capacity this year, along with lower costs for resin, have enabled the Company to reduce the cost per ton of producing its resin-coated products by more than 25% since the end of 2014.  

Benefits from the Company’s positive production cost per ton reductions for both raw sand and resin-coated products served to partially offset several adverse factors in the third quarter, including price concessions, lower volumes against which to leverage other fixed costs, and $2.5 million in additional book expense associated with the sale of higher-cost beginning inventories.

Fairmount Santrol has continued to refine and optimize its terminal network to the benefit of both the Company and its customers. At the end of the quarter, the Company opened a new unit train terminal in Tenaha, Texas, expanding its unit train-capable destinations to six, all of which are well-positioned to cost-effectively serve customers.  During the quarter, the Company reduced its weighted average terminal operating cost per ton by 6% sequentially, which served to offset a good portion of the $0.9 million of additional rail car costs. In addition, the Company continued to focus on improving its logistics costs and efficiency by shipping more than 50 unit trains, comprising more than 45% of Northern White raw sand volumes shipped in the third quarter.

Fairmount Santrol also continued to reduce SG&A costs in the third quarter by an additional 5% from the previous quarter’s level. Excluding the specific costs associated with restructuring, the Company’s year-to-date SG&A is $61.5 million. The third-quarter annualized adjusted SG&A is $73.3 million, which is a 30% reduction from last year’s total, excluding the costs of its October 2014 initial public offering. The Company expects to implement further cost reduction actions in the fourth quarter.

Through the first nine months of 2015, Fairmount Santrol has recorded restructuring and related charges of $20.2 million in connection with its consolidation and cost reduction efforts. These charges include $6.8 million in future cash obligations for pension and reclamation, $12.4 million associated with asset write-downs and impairments, and $1.0 million in severance costs.  The annualized savings in compensation and benefits associated with these reductions are expected to be approximately $21.8 million.  

  • Investing in optimally located, low-cost Wedron, Illinois facility: The Company is continuing the expansion of its Wedron, Illinois facility. An additional 3 million tons of capacity is expected to be added in the first half of 2016. The facility provides access to high-quality Northern White frac sand reserves and is optimally located along a Class 1 railway system, which offers low-cost routes into key oil and gas basins. In addition, the Wedron facility has unit train capabilities, which are of growing importance to the Company’s larger customers. Capital expenditures associated with Wedron were $19.7 million in the third quarter.
  • Successful trials of Propel SSPTM continue: During the third quarter, trials of Propel SSP continued to show very positive and compelling results, including a six-well field trial in North Dakota’s Williston basin. In this trial, initial 90-day oil production increased 39% compared with the customer’s offset wells in the same location. In addition, Propel SSP was found to have simplified hydraulic fracturing operations by reducing fluid additive consumption by 77% and pump time by 14%. The trial also showed that Propel SSP increased efficiency by not requiring fluid heating at 35° F and above.
  • Managing debt structure and liquidity: In addition to previously extending $161 million of the Company’s B1 term loan from its original maturity date of March 2017 to the revised maturity date of September 2019, Fairmount Santrol worked proactively with its lenders in the third quarter to amend its revolving credit facility, including its leverage covenant, which is the sole financial covenant in its credit facility structure and is only measured if the revolver is drawn in excess of $31 million. The Company executed the changes in order to incorporate additional flexibility as part of its planning initiatives in light of ongoing market uncertainties. As of September 30, 2015, the Company had $28.5 million of unused availability under its revolver, providing total liquidity with cash on-hand of $200.1 million.

Balance Sheet and Other Information

Cash and cash equivalents totaled $179.5 million as of September 30, 2015, and total debt was $1.24 billion compared with $1.25 billion at the end of 2014. 

Through the first nine months of the year, the Company’s capital expenditures totaled $91.5 million, with most of the spending associated with the expansion of the Company’s lower-cost Wedron, Illinois sand processing facility. Capital expenditures during the third quarter were $30.3 million. For the full-year 2015, total capital expenditures are estimated to be $95 million to $100 million.

The Company generated free cash flow after capital expenditures of $13.3 million during the third quarter and $125.6 million during the first nine months of 2015.


Due to ongoing uncertainty in the oil and gas markets, the Company is continuing to suspend earnings guidance.

Definition and Use of Certain GAAP and Non-GAAP Financial Measures

We define EBITDA as net income before interest expense, income tax expense, depreciation, depletion and amortization. We define Adjusted EBITDA as EBITDA before non-cash stock-based compensation, management fees and reimbursement of expenses to sponsor, transaction expenses, impairment of assets, loss on extinguishment of debt, gain or loss on disposal of assets, and certain other non-cash income or expenses. Management believes EBITDA and Adjusted EBITDA are useful because they allow management to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. 

We define segment contribution margin as total revenues less the cost of goods sold to produce and deliver the products of each segment and less selling, general & administrative expenses that are directly attributable to each segment. The definition excludes certain corporate costs not associated with the operations of the segment.

Conference Call

Fairmount Santrol will host a conference call and live webcast for analysts and investors today, November 12, at 10 a.m. Eastern Time to discuss the Company's 2015 third-quarter financial results. Investors are invited to listen to a live audio webcast of the conference call by visiting the Investor Relations section of the Company's website, The webcast will be archived on the website following the call. The call also can be accessed live by dialing (877) 201-0168 or, for international callers, (647) 788-4901. The passcode for the call is 46344149. A replay will be available shortly after the call and can be accessed by dialing (855) 859-2056 or (404) 537-3406. The passcode for the replay is 46344149. The replay of the call will be available through November 19, 2015.

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 global logistics capabilities include a wide-ranging network of distribution terminals and thousands of rail cars 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

Cautionary Statement Concerning 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; 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; 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 capacity expansion plans 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    
 Three Months Ended September 30,
 Nine Months Ended September 30,
  2015   2014   2015   2014 
 (in thousands, except share and per
share amounts)

 (in thousands, except share and per
share amounts)

Revenue$170,950  $373,479  $693,763  $1,002,702 
Cost of sales (excluding depreciation, depletion,    
amortization, and stock compensation expense shown separately) 131,679   228,583   499,357   630,885 
Operating expenses    
Selling, general and administrative expenses 18,314   29,954   61,538   79,122 
Depreciation, depletion and amortization expense 15,260   15,270   47,759   42,792 
Stock compensation expense 2,679   4,361   7,180   8,674 
Restructuring charges 4,453   -   19,601   - 
Other operating expense (income) (878)  940   (278)  612 
Income (loss) from operations (557)  94,371   58,606   240,617 
Interest expense, net 15,963   16,567   46,165   51,045 
Other non-operating expense 1,492   2,206   1,492   2,747 
Income (loss) before provision for income taxes (18,012)  75,598   10,949   186,825 
Provision for income taxes 28,117   21,436   12,057   53,848 
Net income (loss)   (46,129)    54,162      (1,108)    132,977  
Less: Net income attributable to the non-controlling interest 71   85   196   440 
Net income (loss) attributable to Fairmount Santrol Holdings Inc.$   (46,200) $   54,077   $   (1,304) $   132,537  
Earnings per share    
Basic$(0.29) $0.34  $(0.01) $0.84 
Diluted$(0.29) $0.32  $(0.01) $0.80 
Weighted average number of shares outstanding    
Basic 161,413,045   158,049,782   161,240,545   157,072,622 
Diluted 161,413,045   166,911,474   161,240,545   166,035,260 


Fairmount Santrol  
Condensed Consolidated Statements of Cash Flows  
 Nine Months Ended September 30,
  2015   2014 
 (in thousands, except per share amounts)
Net income (loss)$(1,108) $132,977 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and depletion 44,355   38,827 
Amortization 8,586   8,808 
Write-off of deferred financing costs 864   - 
Write-off and impairment of intangibles and long-lived assets 8,129   - 
Inventory reserve adjustment (83)  - 
(Gain) loss on sale of fixed assets 424   (1,067)
Unrealized loss on interest rate swaps 48   197 
Deferred income taxes 4,417   - 
Stock compensation expense 7,180   8,674 
Change in operating assets and liabilities, net of acquired balances:  
Accounts receivable 114,818   (87,247)
Inventories 54,764   (12,181)
Prepaid expenses and other assets 11,741   5,241 
Accounts payable (37,028)  8,937 
Accrued expenses 20   27,522 
Net cash provided by operating activities   217,127      130,688  
Cash flows from investing activities       
Proceeds from sale of fixed assets -   1,328 
Capital expenditures (91,548)  (87,746)
Net cash used in investing activities   (91,548)    (86,418)
Cash flows from financing activities       
Proceeds from issuance of term loans -   41,000 
Payments on term debt (10,595)  (9,384)
Change in other long-term debt and capital leases (5,522)  (3,210)
Proceeds from borrowing on revolving credit facility -   32,267 
Payments on revolving credit facility -   (73,000)
Settlement of contingent consideration -   (9,600)
Proceeds from option exercises 1,767   3,079 
Purchase of treasury stock -   (662)
Tax effect of stock options exercised and dividend equivalents 32   5,017 
Distributions to non-controlling interest (219)  (496)
Financing costs (4,592)  (1,913)
Net cash used in financing activities   (19,129)    (16,902)
Change in cash and cash equivalents related to assets classified as held-for-sale (3,120)  - 
Foreign currency adjustment (773)  (85)
Increase in cash and cash equivalents    102,557      27,283  
Cash and cash equivalents:  
Beginning of period   76,923      17,815  
End of period$   179,480   $   45,098  


Fairmount Santrol  
Condensed Consolidated Balance Sheets  
  September 30, 2015   December 31, 2014 
 (in thousands)
Current assets       
Cash and cash equivalents$179,480  $76,923 
Accounts receivable, net 87,866   206,094 
Inventories 75,146   131,613 
Deferred income taxes 5,158   5,158 
Prepaid expenses and other assets 25,352   40,766 
Current assets classified as held-for-sale (includes cash, accounts receivable,  
deferred income taxes, and property, plant, and equipment) 13,491   - 
Total current assets 386,493   460,554 
Property, plant and equipment, net 871,241   841,274 
Goodwill 84,548   84,677 
Intangibles, net 97,366   100,769 
Other assets 26,362   26,742 
Total assets$   1,466,010   $   1,514,016  
Liabilities and Equity  
Current liabilities  
Current portion of long-term debt$17,197  $17,274 
Accounts payable 44,786   88,542 
Accrued expenses 35,501   36,025 
Current liabilities directly related to current assets classified as held-for-sale  
(includes accounts payable and accrued expenses) 2,056   - 
Total current liabilities 99,540   141,841 
Long-term debt 1,224,311   1,235,365 
Deferred income taxes 77,466   74,351 
Other long-term liabilities 34,308   28,985 
Total liabilities 1,435,625   1,480,542 
Common stock 2,391   2,387 
Additional paid-in capital 780,863   771,888 
Retained earnings 495,875   497,179 
Accumulated other comprehensive income (loss) (22,177)  (12,809)
Treasury stock at cost (1,227,663)  (1,227,663)
Non-controlling interest 1,096   2,492 
Total equity (deficit) 30,385   33,474 
Total liabilities and equity$   1,466,010   $   1,514,016  


Fairmount Santrol    
Non-GAAP Financial Measures    
(unaudited)Three Months Ended September 30,
 Nine Months Ended September 30,
  2015   2014   2015   2014 
  (in thousands, except per share

   (in thousands, except per share

Reconciliation of adjusted EBITDA               
Net income (loss) attributable to Fairmount Santrol Holdings Inc.$   (46,200) $   54,077   $   (1,304) $   132,537  
Interest expense, net 15,963   16,567   46,165   51,045 
Provision for income taxes 28,117   21,436   12,057   53,848 
Depreciation, depletion, and amortization expense 15,260   15,270   47,759   42,792 
EBITDA   13,140      107,350      104,677      280,222  
Non-cash stock compensation expense(1) 2,679   4,361   7,180   8,674 
Management fees & expenses paid to sponsor(2) -   285   -   826 
Loss on disposal of assets(3) 627   1,921   627   1,921 
Transaction expenses(4) -   -   -   638 
Impairment of long-lived assets(5) 2,336   -   2,336   - 
Restructuring charges(6) 2,117   -   17,265   - 
Write-off of deferred financing costs(7) 864   -   864   - 
Other non-recurring charges(8) -   -   465   - 
Initial Public Offering fees & expenses -   3,017   -   4,638 
Adjusted EBITDA$   21,763   $   116,934   $   133,414   $   296,919  
(1) Represents the cost in the period for stock-based awards issued to our employees.   
(2) Includes fees and expenses paid to American Securities for consulting and management services pursuant to a management consulting agreement.  The agreement was terminated upon the Initial Public Offering in October 2014.
(3) Includes losses related to the sale and disposal of certain assets in property, plant, and equipment.  
(4) Expenses associated with evaluation of potential acquisitions of businesses, some of which were completed. 
(5) Expenses associated with the impairment of a foreign production facility.   
(6) Expenses associated with restructuring activities and plant closures, including pension withdrawal and other liabilities, asset impairments and severance payments.
(7) Represents the write-off of deferred financing fees in relation to the amendment of our Revolving Credit Facility. 
(8) Expenses associated with an audit of our Employee Stock Bonus Plan.   
Reconciliation of adjusted earnings    
Net income (loss) attributable to Fairmount Santrol Holdings Inc.$(46,200) $54,077  $(1,304) $132,537 
After-tax effect of adjustments noted above* 3,566   3,134   12,934   4,814 
Year-to-date tax liability due to change in effective tax rate 35,351   -   14,931   - 
Adjusted Net income (loss) attributable to Fairmount Santrol Holdings Inc.$   (7,283) $   57,211   $   26,561   $   137,351  
*Excludes non-cash stock compensation expense and uses a marginal tax rate of 40%    
Earnings per share    
Basic$(0.29) $0.34  $(0.01) $0.84 
Diluted$(0.29) $0.32  $(0.01) $0.80 
Adjusted earnings per share    
Basic$(0.05) $0.36  $0.16  $0.87 
Diluted$(0.05) $0.34  $0.16  $0.83 
Weighted average number of shares outstanding    
Basic 161,413,045   158,049,782   161,240,545   157,072,622 
Diluted 161,413,045   166,911,474   161,240,545   166,035,260 


Fairmount Santrol    
Segment Reports    
(unaudited)Three Months Ended September 30,
 Nine Months Ended September 30,
  2015   2014   2015   2014 
 (in thousands, except volume amounts)
 (in thousands, except volume amounts)
Volume (tons)    
Proppant Solutions    
Raw sand   1,309,428     1,542,665     4,184,045     4,197,775 
Coated proppant   154,902     402,002     652,042     1,099,376 
Total Proppant Solutions   1,464,330     1,944,667     4,836,087     5,297,151 
Industrial & Recreational Products   569,971     638,270     1,745,474     1,831,725 
Total volumes   2,034,301      2,582,937      6,581,561      7,128,876  
Proppant Solutions$  141,584  $  340,667  $  602,603  $  907,852 
Industrial & Recreational Products   29,366     32,812     91,160     94,850 
Total revenue   170,950     373,479     693,763     1,002,702 
Segment contribution margin    
Proppant Solutions   18,939     125,063     138,174     317,991 
Industrial & Recreational Products   9,198     10,049     15,380     26,884 
Total segment contribution margin   28,137     135,112     153,554     344,875 
Adjusted segment contribution margin    
Proppant Solutions    
Segment contribution margin   18,939     125,063     138,174     317,991 
Restructuring charges & other adjustments   3,123     -     5,524     - 
Proppant Solutions adjusted segment contribution margin   22,062     125,063     143,698     317,991 
Industrial & Recreational Products    
Segment contribution margin   9,198     10,049     15,380     26,884 
Restructuring charges & other adjustments   1,832     -     13,917     - 
Industrial & Recreational Products adjusted segment contribution margin   11,030     10,049     29,297     26,884 
Total adjusted segment contribution margin   33,092     135,112     172,995     344,875 
Operating expenses excluded from segment contribution margin    
Selling, general, and administrative expenses   12,047     20,170     40,501     52,180 
Depreciation, depletion, and amortization expense   15,260     15,270     47,759     42,792 
Stock compensation expense   2,679     4,361     7,180     8,674 
Corporate restructuring charges and other operating expense (income)   (790)    940     10     612 
Interest expense, net   15,963     16,567     46,165     51,045 
Other non-operating expense   990     2,206     990     2,747 
Income (loss) before provision for income taxes$   (18,012) $   75,598   $   10,949   $   186,825  
Investor contact:
Sharon Van Zeeland

Media contact:
Kristin Lewis

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Source: Fairmount Santrol

Fairmount santrol

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