Press Release Details

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

03/09/2017

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

Primary Logo

Source: Fairmount Santrol

Fairmount santrol

Investor Inquiries: 440.279.0204 Media Inquiries: 440.279.0245 Oil & Gas - Proppant Solutions:
888.726.8765
Industrial & Recreation Inquiries:
800.255.7263

Career Opportunites

Receive Email Alerts

Email Address *
Mailing Lists *



 
Enter the code shown above.

Follow us