EX-99.1 2 d923608dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO

FOR IMMEDIATE RELEASE

FAIRMOUNT SANTROL ANNOUNCES FIRST-QUARTER 2015 RESULTS

 

    Proppant Solutions volumes up 12% over prior quarter, down 6% sequentially

 

    Total revenue of $301.5 million up 2% over prior quarter, down 15% sequentially

 

    Net income of $30.8 million, or $0.18 per diluted share – down 11% over prior quarter, down 19% sequentially

 

    Free cash flows in the quarter of $41.4 million after capital expenditures and debt repayments

CHESTERLAND, Ohio – May 12, 2015 – Fairmount Santrol (NYSE: FMSA) today announced results for the first quarter ended March 31, 2015.

First-Quarter 2015 Results vs. Prior Year

First-quarter 2015 revenue totaled $301.5 million, up 2% from $294.9 million for the same period in 2014. Overall sales volumes increased to 2.3 million tons for the quarter, an 8% increase compared with 2.1 million tons in the first quarter of 2014. The increase in volumes in the first quarter of 2015 over the prior-year period was primarily due to continued strong demand resulting from increased proppant intensity and improved service levels driven by better weather conditions and improved rail service compared with last year.

For the first quarter, net income was $30.8 million, or $0.18 per diluted share, compared with net income of $34.5 million, or $0.21 per diluted share, for the same period a year ago. Adjusted earnings per diluted share were $0.19, compared with adjusted earnings per diluted share of $0.21 for the first quarter of 2014. Adjusted EBITDA for the first quarter was $75.1 million, down 9% from first-quarter 2014 Adjusted EBITDA of $82.1 million. Adjusted EBITDA was impacted by a decline in contribution margin in our Proppant Solutions Segment and an increase in year-over-year SG&A expenses driven mostly by costs associated with being a public company.

Business Segments

Proppant Solutions

Total Proppant Solutions volumes for the first quarter of 2015 rose to 1.8 million tons, up 12% compared to the prior year period. Raw sand volumes were 1.5 million tons, up 18% from the prior year period. Coated proppant volumes were 0.29 million tons, down 10% from the prior year period driven primarily by a decrease in demand for pre-cured resin-coated proppants.

Proppant Solutions revenue totaled $272.9 million in the first quarter, a 2% increase compared with $266.5 million in the same period a year ago. The year-over-year increase in volumes exceeded the increase in revenue due to the decline in resin-coated volumes and the effect of price decreases in the first quarter, primarily on resin-coated products.

Contribution margin for Proppant Solutions decreased to $83.8 million this quarter from $89.0 million in the first quarter of 2014 due to the decline in volume and selling prices for resin-coated proppants, partially offset by an increase in contribution margin in both our Northern White and Texas Gold product lines. Changes in selling prices for raw sand did not have a significant impact on contribution margin in the first quarter of 2015 compared with the prior year period.

 

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Industrial and Recreational Products

Industrial and Recreational revenue was $28.6 million, compared with $28.4 million in the same period a year ago. This segment shipped 0.53 million tons in the first quarter, down 4% compared with the first quarter a year ago.

Segment contribution margin was $7.1 million versus $6.2 million in the first quarter of 2014 due to increased mix to more profitable products in the foundry, building products and recreational businesses.

Sequential Comparison

Total Proppant Solutions volumes in the first quarter of 2015 were down 6% from the fourth quarter of 2014. Raw sand volumes were down only 2% sequentially while coated proppant volumes were down 23% versus the fourth quarter of 2014.

Proppant Solutions revenue was down 16% sequentially from the fourth quarter of 2014 due to a decline in proppant volumes, and price declines across both our Northern White raw sand and resin-coated proppant product lines.

Also, on a sequential basis, the Company’s net income and Adjusted EBITDA were down 19% and 25%, respectively, resulting from the contraction in oil and gas activity this year.

“Our first-quarter performance under the challenging market conditions is a result of the resilience of our differentiated business model and the focus of everyone at Fairmount Santrol,” said Jenniffer Deckard, President and Chief Executive Officer. “We continued to invest in our long-term relationships with customers while proactively addressing the rapid downturn in the oil and gas market. We acted quickly to help our customers lower their cost per barrel of oil equivalent (BOE) by leveraging our broad operating footprint and logistics network and by providing price reductions to allow them to remain competitive. We also have taken a number of internal actions, including organizational restructuring and facility consolidation, in order to more closely align our own cost structure with the near-term oil and gas market conditions. Despite these near-term challenges, we will continue to invest in our business for the long term, including the continued development of differentiated coated products.”

Progress on Key Initiatives

 

    Propel SSP™ trials continue to draw high customer interest and deliver successful results: The Company continues to see strong interest in its revolutionary Propel SSP proppant transport technology, propelled by compelling field trial results. In the first quarter, the Company increased total well count and stage count for Propel SSP by 29% and 34%, respectively. This leading-edge proppant solution has now been used by more than 10 E&P companies in 12 different U.S. plays such as the Eagle Ford, Marcellus, Permian, Three Forks and Utica, as well as in plays in Canada. When compared to offset wells, hydrocarbon production in most wells pumped with Propel SSP has increased by more than 30% within six months. In several plays, operators have achieved greater than 50% production gains within two months. In addition to production enhancement, several fracturing designs have been optimized to yield lower water, chemical and energy usage.

 

   

Focus on cost effectiveness: In response to rapidly changing market conditions, Fairmount Santrol has taken actions to consolidate volumes into the Company’s most cost-effective footprint. In the first quarter of 2015, the Company closed its higher-cost sand facility in Readfield, Wisconsin, and idled or scaled back operations at coating facilities in Fresno, Texas, and Monterrey, Mexico. The Company

 

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has taken further actions in the second quarter – idling or closing its sand facility in Brewer, Missouri, and its coating facilities in Bridgman, Michigan and Voca, Texas. Additionally, the Company has discontinued activity at five transloading terminals and pushed out deliveries on new rail car orders to better align its logistics network with customer demand and to facilitate enhanced efficiencies and reduced demurrage across the remaining facilities. In combination with additional reductions in SG&A positions, Fairmount Santrol has reduced total Company headcount by approximately 14% since the beginning of the year.

 

    Improving our cash position: In addition to cost reductions, the Company is taking actions to improve its cash position. Fairmount Santrol is closely managing working capital and is successfully reducing inventories based on business trends. Capital expenditures in the quarter were $31.9 million, which were consistent with spending last year and favorable to the Company’s plan. After capital expenditures and debt repayments, the Company generated free cash flow of $41.4 million in the quarter, increasing its cash balance from $76.9 million at the end of 2014 to $118 .4 million at the end of the first quarter 2015. The Company has further increased its cash position to $154.5 million as of April 30, 2015.

Capitalization

As of March 31, 2015, Fairmount Santrol had $118.4 million in cash and cash equivalents and $113.5 million available under its credit facilities. Total debt at the end of the first quarter was $1.25 billion.

Outlook

At this time, the Company is continuing to forgo providing earnings guidance due to the uncertainty in the oil and gas markets. Given the sustained lower level of rig counts and drilling activity, the Company does anticipate that proppant volumes and pricing will face continued pressure, which could result in lower levels of revenues and profitability in the near term.

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 operation 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.

 

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Conference Call

Fairmount Santrol will host a conference call and live webcast for analysts and investors today at 10 a.m. Eastern Time to discuss the Company’s 2015 first-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 at FairmountSantrol.com. 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 28475325. 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 28475325. The replay of the call will be available through May 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 FairmountSantrol.com.

Investor contact:

Sharon Van Zeeland

440-279-0204

Sharon.VanZeeland@fairmountsantrol.com

Media contact:

Kristin Lewis

440-279-0245

Kristin.Lewis@fairmountsantrol.com

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 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; and 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;

 

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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 the prospectus filed with the Securities and Exchange Commission in connection with our initial public offering. The risk factors and other factors noted in our prospectus could cause our actual results to differ materially from those contained in any forward-looking statement.

 

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Fairmount Santrol

Condensed Consolidated Statements of Income

(unaudited)

 

    Three Months Ended March 31,  
    2015     2014  
    (in thousands, except share and per share amounts)  

Revenue

  $ 301,490      $ 294,933   

Cost of sales (excluding depreciation, depletion, amortization, and stock compensation expense shown separately)

    202,548        191,112   

Operating expenses

   

Selling, general and administrative expenses

    24,020        21,778   

Depreciation, depletion and amortization expense

    16,223        12,938   

Stock compensation expense

    1,883        2,094   

Other operating expense (income)

    (313     (65
 

 

 

   

 

 

 

Income from operations

  57,129      67,076   

Interest expense, net

  15,308      17,906   

Other non-operating expense

  324      291   
 

 

 

   

 

 

 

Income before provision for income taxes

  41,497      48,879   

Provision for income taxes

  10,617      14,265   
 

 

 

   

 

 

 

Net income

  30,880      34,614   

Less: Net income attributable to the non-controlling interest

  121      73   
 

 

 

   

 

 

 

Net income attributable to FMSA Holdings Inc.

$ 30,759    $ 34,541   
 

 

 

   

 

 

 

Earnings per share

Basic

$ 0.19    $ 0.22   

Diluted

$ 0.18    $ 0.21   

Weighted average number of shares outstanding

Basic

  160,938,475      156,462,356   

Diluted

  166,338,557      165,082,614   

 

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Fairmount Santrol

Condensed Consolidated Balance Sheets

(unaudited)

 

    March 31, 2015     December 31, 2014  
    (in thousands)  

Assets

   

Current assets

   

Cash and cash equivalents

  $ 118,372      $ 76,923   

Accounts receivable, net

    177,444        206,094   

Inventories

    115,748        131,613   

Deferred income taxes

    5,158        5,158   

Prepaid expenses and other assets

    33,132        40,766   
 

 

 

   

 

 

 

Total current assets

  449,854      460,554   

Property, plant and equipment, net

  859,930      841,274   

Goodwill

  84,649      84,677   

Intangibles, net

  99,466      100,769   

Other assets

  26,389      26,742   
 

 

 

   

 

 

 

Total assets

$ 1,520,288    $ 1,514,016   
 

 

 

   

 

 

 

Liabilities and Equity

Current liabilities

Current portion of long-term debt

$ 17,277    $ 17,274   

Accounts payable

  70,527      88,542   

Accrued expenses

  30,908      36,025   
 

 

 

   

 

 

 

Total current liabilities

  118,712      141,841   

Long-term debt

  1,233,544      1,235,365   

Deferred income taxes

  74,613      74,351   

Other long-term liabilities

  32,439      28,985   
 

 

 

   

 

 

 

Total liabilities

  1,459,308      1,480,542   

Equity

Common stock

  2,388      2,387   

Additional paid-in capital

  774,432      771,888   

Retained earnings

  527,938      497,179   

Accumulated other comprehensive income (loss)

  (18,728   (12,809

Treasury stock at cost

  (1,227,663   (1,227,663

Non-controlling interest

  2,613      2,492   
 

 

 

   

 

 

 

Total equity (deficit)

  60,980      33,474   
 

 

 

   

 

 

 

Total liabilities and equity

$ 1,520,288    $ 1,514,016   
 

 

 

   

 

 

 

 

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Fairmount Santrol

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

    Three Months Ended March 31,  
    2015     2014  
    (in thousands, except per share amounts)  

Net income

  $ 30,880      $ 34,614   

Adjustments to reconcile net income to net cash provided by operating activities:

   

Depreciation and depletion

    14,920        11,602   

Amortization

    2,993        2,950   

Inventory reserve adjustment

    1,241        —     

Unrealized loss (gain) on interest rate swaps

    18        100   

Deferred income taxes

    262        1,353   

Stock compensation expense

    1,883        2,094   

Change in operating assets and liabilities, net of acquired balances:

   

Accounts receivable

    28,650        (51,489

Inventories

    14,624        (1,769

Prepaid expenses and other assets

    3,567        14,308   

Accounts payable

    (17,255     (100

Accrued expenses

    (4,363     8,411   
 

 

 

   

 

 

 

Net cash provided by operating activities

  77,420      22,074   
 

 

 

   

 

 

 

Cash flows from investing activities

Capital expenditures

  (31,855   (29,835
 

 

 

   

 

 

 

Net cash used in investing activities

  (31,855   (29,835
 

 

 

   

 

 

 

Cash flows from financing activities

Proceeds from issuance of term loans

  —        41,000   

Payments on term debt

  (3,128   (3,128

Change in other long-term debt and capital leases

  (1,479   (1,105

Proceeds from borrowing on revolving credit facility

  —        4,000   

Payments on revolving credit facility

  —        (41,000

Proceeds from option exercises

  786      —     

Tax effect of stock options exercised and dividend equivalents

  (124   —     

Financing costs

  —        (1,699
 

 

 

   

 

 

 

Net cash used in financing activities

  (3,945   (1,932
 

 

 

   

 

 

 

Foreign currency adjustment

  (171   (20
 

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

  41,449      (9,713
 

 

 

   

 

 

 

Cash and cash equivalents:

Beginning of period

  76,923      17,815   
 

 

 

   

 

 

 

End of period

$ 118,372    $ 8,102   
 

 

 

   

 

 

 

 

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Fairmount Santrol

Segment Reports

(unaudited)

 

    Three Months Ended March 31,  
    2015     2014  
    (in thousands, except volume amounts)  

Volume (tons)

   

Proppant Solutions

   

Raw sand

    1,487,414        1,261,453   

Coated proppant

    290,568        322,796   
 

 

 

   

 

 

 

Total Proppant Solutions

  1,777,982      1,584,249   

Industrial & Recreational Products

  530,768      552,567   
 

 

 

   

 

 

 

Total volumes

  2,308,750      2,136,816   
 

 

 

   

 

 

 

Revenue

Proppant Solutions

$ 272,869    $ 266,500   

Industrial & Recreational Products

  28,621      28,433   
 

 

 

   

 

 

 

Total revenue

  301,490      294,933   

Segment contribution margin

Proppant Solutions

  83,819      89,028   

Industrial & Recreational Products

  7,076      6,222   
 

 

 

   

 

 

 

Total segment contribution margin

  90,895      95,250   

Operating expenses excluded from segment contribution margin

Selling, general, and administrative expenses

  15,760      13,126   

Depreciation, depletion, and amortization expense

  16,223      12,938   

Stock compensation expense

  1,883      2,094   

Other operating expense

  (99   16   

Interest expense, net

  15,308      17,906   

Other non-operating expense

  324      291   
 

 

 

   

 

 

 

Income before provision for income taxes

$ 41,497    $ 48,879   
 

 

 

   

 

 

 

 

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Fairmount Santrol

Non-GAAP Financial Measures

(unaudited)

 

    Three Months Ended March 31,  
    2015     2014  
    (in thousands, except per share amounts)  

Reconciliation of adjusted EBITDA

   

Net income attributable to FMSA Holdings Inc.

  $ 30,759      $ 34,541   

Interest expense, net

    15,308        17,906   

Provision for income taxes

    10,617        14,265   

Depreciation, depletion, and amortization expense

    16,223        12,938   
 

 

 

   

 

 

 

EBITDA

  72,907      79,650   

Non-cash stock compensation expense(1)

  1,883      2,094   

Management fees & expenses paid to sponsor(2)

  —        291   

Transaction expenses(3)

  —        99   

Severance payments

  324      —     
 

 

 

   

 

 

 

Adjusted EBITDA

$ 75,114    $ 82,134   
 

 

 

   

 

 

 

 

(1)    Represents 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)    Represents expenses associated with evaluation of potential acquisitions of businesses, some of which were completed.

       

        

       

Reconciliation of adjusted earnings

Net income attributable to FMSA Holdings Inc.

$ 30,759    $ 34,541   

After-tax effect of adjustments noted above*

  194      234   
 

 

 

   

 

 

 

Adjusted Net income attributable to FMSA Holdings Inc.

$ 30,953    $ 34,775   
 

 

 

   

 

 

 

*  Excludes non-cash stock compensation expense and uses a marginal tax rate of 40%

     

Earnings per share

Basic

$ 0.19    $ 0.22   

Diluted

$ 0.18    $ 0.21   

Adjusted earnings per share

Basic

$ 0.19    $ 0.22   

Diluted

$ 0.19    $ 0.21   

 

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