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Hi-Crush Inc. Fourth Quarter 2019 Results

Share Print Bookmark    |    Wednesday,February 19,2020

Hi-Crush Inc. reported fourth quarter and full year 2019 results.

Highlights:

• Generated revenues of $125.5 million in 4Q 2019 vs. $173.0 million in 3Q 2019
• Reported Adjusted EBITDA of $7.2 million in 4Q 2019 vs. $17.9 million in 3Q 2019
• Realized loss of $(0.21) per share in 4Q 2019; adjusted loss of $(0.13) per share, excluding non-cash asset impairments
• Extending logistics and equipment service offerings with the development of OnCore Processing™
• Delivered 63,076 total truckloads during 4Q 2019 and 264,492 truckloads for full year 2019
• Reported total sand sales of 2.1 million tons in 4Q 2019 vs. 2.7 million tons in 3Q 2019; total sand sales of 9.9 million tons for full year 2019
• Achieved contribution margin per ton of $9.02 in 4Q 2019 vs. $10.99 in 3Q 2019
• Exited 4Q 2019 with total liquidity of $101.5 million, including $57.6 million of cash and no ABL borrowings

Revenues during the fourth quarter of 2019 totaled $125.5 million compared to $173.0 million during the third quarter of 2019. Revenues associated with logistics services was 38% of the total, compared to 33% in the third quarter of 2019.  Truckloads delivered totaled 63,076 and sand sales volumes were 2,106,622 during the fourth quarter of 2019.

Net loss for the fourth quarter of 2019 was $(21.4) million, including $11.1 million of non-cash asset impairments associated with the write-down of certain terminal facilities, resulting in basic and diluted loss of $(0.21) per share, compared to net loss of $(268.5) million and basic and diluted loss of $(2.67) per share, including $346.4 million of non-cash asset impairments, for the third quarter of 2019. Adjusted net loss for the fourth quarter of 2019 was $(12.7) million or basic and diluted adjusted loss of $(0.13) per share, excluding the non-cash asset impairments. Adjusted EBITDA for the fourth quarter of 2019 was $7.2 million, compared to $17.9 million for the third quarter of 2019.

CEO Robert Rasmus said: "I am pleased with our fully-integrated platform's ability to deliver excellent service quality across all business lines. Our Pronghorn and NexStage logistics and equipment businesses realized continued commercial momentum, with the deployment of additional crews and next generation silo sets to both existing and new customers, despite a challenging environment in the fourth quarter."

"Our ability to differentiate Hi-Crush based on service quality and integrated solutions is more critical than ever," continued Mr. Rasmus. "We remain focused on providing efficient, high-quality, technology-enabled solutions that simplify our customers' supply chains, drive increased drilling and completion efficiency, and lower costs. The successful execution of our strategy is driving deeper relationships with our E&P customers, who accounted for 70% of our total sand sales volumes in the fourth quarter, along with increased adoption of our logistics service offering."

Fourth Quarter 2019 Results

Revenues during the fourth quarter of 2019 totaled $125.5 million, compared to $173.0 million in the third quarter of 2019.  Revenues associated with logistics services were $47.8 million in the fourth quarter of 2019, compared to $57.4 million in the third quarter of 2019.  Revenues from the sale of logistics equipment totaled $0.4 million in the fourth quarter of 2019, compared to $1.4 million in the third quarter of 2019.

Revenues from sales of frac sand totaled $77.3 million in the fourth quarter of 2019, compared to $114.2 million in the third quarter of 2019. Total frac sand volumes sold were 2.1 million tons in the fourth quarter of 2019, compared to 2.7 million tons in the third quarter of 2019. Average sales price was $37 per ton for the fourth quarter of 2019 compared to $43 per ton in the third quarter of 2019, driven by an increase in volumes sold from our in-basin Kermit complex, customer mix and continued pricing pressure for frac sand.

Volumes sold directly to E&Ps during the fourth quarter of 2019 were 70% of the total, compared to 63% in the third quarter of 2019 and 51% in the fourth quarter of 2018. Volumes sold through Pronghorn Energy Services, the Company's logistics business line, represented 39% of total volumes in the fourth quarter of 2019, compared to 34% in the third quarter of 2019.

Contribution margin was $9.02 per ton in the fourth quarter of 2019, compared to $10.99 per ton in the third quarter of 2019. The sequential decrease in contribution margin per ton primarily resulted from lower frac sand pricing and decreased customer completions activity, partially offset by strong operational execution and successful cost management initiatives.

General and administrative expenses totaled $11.6 million in the fourth quarter of 2019, excluding non-recurring expenses of $0.1 million associated with business development activities. General and administrative expenses totaled $11.5 million in the third quarter of 2019, excluding $0.5 million of business development activities and costs associated with the Company's previously completed corporate conversion from an MLP to a C-Corporation (the "Conversion").

"Our fourth quarter results were negatively impacted by seasonally lower activity levels experienced across the industry," said Mr. J. Philip McCormick, Jr., Chief Financial Officer of Hi-Crush Inc. "Our team remains intensely focused on controlling costs across our operations, as evidenced by our resilient contribution margin per ton performance and year-over-year reductions in G&A expenses. At the same time, we have been expanding capabilities, and today, we have positioned our fully-integrated platform to maximize value to customers and investors through a suite of equipment and services that is truly differentiated in the marketplace."

Full Year 2019 Results

Net loss for the full year 2019 was $(413.6) million, including $357.5 million of non-cash asset impairments and a $115.5 million non-cash charge for deferred taxes related to the Conversion from an MLP to a C-Corporation structure, resulting in basic and diluted loss of $(4.10) per share.  Adjusted net loss for the full year 2019 was $(19.8) million or basic and diluted adjusted loss of $(0.20) per share, excluding the non-cash asset impairments and non-cash charge for deferred taxes. Adjusted EBITDA for the full year 2019 was $67.4 million.

Revenues for the full year 2019 totaled $636.4 million, driven by logistics services and 9.9 million tons of frac sand sold. Revenues for the full year 2018 totaled $842.8 million, driven by logistics services and 10.4 million tons of frac sand sold.  Average frac sand sales price per ton was $44 per ton for the full year 2019, compared to $67 per ton for the full year 2018.  Contribution margin averaged $11.62 per ton for the full year 2019.

Operational Update

Truckloads of frac sand delivered during the fourth quarter totaled 63,076, driven by activity across all major basins, the deployment of next generation NexStage silo sets, and the sale of approximately 2.1 million tons of frac sand from operating production facilities. During the fourth quarter of 2019, Hi-Crush operated Blair, and Wyeville in Wisconsin, and the Kermit Complex in West Texas, with sales activity occurring at the minegate, owned and operated in-basin terminals, and the wellsite.

Truckloads delivered by Pronghorn Energy Services decreased 19% in the fourth quarter of 2019 as compared to the third quarter of 2019. Truckloads delivered during the full year 2019 totaled 264,492, approximately 45% of which were associated with trucking hauls of third-party, non-Hi-Crush sand. As of December 31, 2019, the Company operated last mile crews in the Permian, Eagle Ford, Marcellus / Utica, Powder River, Mid-Con and Bakken regions.

During the fourth quarter of 2019, the Company deployed next generation NexStage silos to a major E&P in the Permian basin. The Company has deployed additional silo sets during the first quarter of 2020, and has scheduled further deployments with this E&P customer, which had previously been utilizing a competing silo solution. The Company has also scheduled deployments of next generation NexStage silo sets for additional E&Ps.

The Company continues to expand the range of functionality for its PropDispatch technology. Recent enhancements to the PropDispatch platform include enhanced inventory reporting with improved accuracy, driver-specific load and activity histories, and live GPS updating of trucks traveling to the wellsite. The Company plans for the continued expansion of the PropDispatch software's capabilities and further integration with the Company's broad range of logistics offerings.

"Our logistics and equipment operations delivered excellent service quality and leading safety metrics, while expanding our customer base," said Mr. M. Alan Oehlert, Chief Operating Officer of Hi-Crush Inc. "We are proud of our team’s ability to achieve zero trucking related non-productive time during an industry-wide trucking shortage experienced around year-end. We are also pleased with the rapid adoption and scheduled deployment of next generation NexStage silo sets to E&P customers. Our top priority is to continue listening to our customers to ensure we are providing services and solutions that address and anticipate their needs."

Innovation in the Last Mile: OnCore Processing

The Company previously announced an extension of its logistics and equipment service offering, with the commencement of manufacturing of its first mobile processing unit, branded as OnCore Processing. The OnCore Processing solution is comprised of portable wet and dry plant sand processing equipment mounted on trailer chassis, and is designed to improve logistics efficiencies by moving the production and processing of raw frac sand as close to customers’ wellsites as possible. OnCore Processing will allow Hi-Crush to profitably reduce costs for customers that have reserves on their acreage or adjacent land, and whose operations are otherwise economically disadvantaged from other frac sand supply points.

The patented equipment is being manufactured through partnerships with third party equipment manufacturers with whom Hi-Crush has exclusivity agreements in place. The Company expects delivery of its first OnCore Processing unit during the second quarter of 2020, with deployment of the unit under a long-term, dedicated customer agreement expected shortly after delivery. The Company expects to deploy a second unit later in the second quarter of 2020.

"Our recently announced OnCore Processing solution reflects the next logical step in our chain of innovation," Mr. Rasmus continued. "Given the current levels of frac sand pricing, the only way to further structurally reduce sand costs for operators is to reduce the distance traveled from the mine to the wellsite. OnCore accomplishes this and is an important component in Hi-Crush’s suite of solutions that emphasize maximizing value to customers and simplifying their supply chain, especially when bundled with our Pronghorn and NexStage offerings."

Liquidity

Hi-Crush Inc. had total liquidity of $101.5 million as of December 31, 2019, comprised of $57.6 million of cash and $43.9 million in available borrowing capacity under its senior secured revolving credit facility (the "ABL Facility"). Hi-Crush Inc. currently remains undrawn on its ABL Facility, and anticipates no borrowings on the ABL Facility during 2020.

"We are focused on managing liquidity and maintaining a flexible balance sheet to best position us on a through-cycle basis," continued Mr. McCormick. "Our financial flexibility enables us to further advance our logistics strategy, including pursuing further development of next generation NexStage silos and our innovative OnCore Processing units. We are committed to pursuing our strategic initiatives, advancing technology and innovation within our fully-integrated platform, while maintaining a strong and flexible financial position."

Stock Repurchase Program

Hi-Crush Inc. repurchased 348,653 common shares for a total cost of $0.2 million during the fourth quarter of 2019. As of December 31, 2019, the Company has repurchased a total of 1,526,384 common shares for a total cost of $3.4 million. The Company's stock repurchase program had $21.6 million of remaining authorized capacity as of December 31, 2019. The repurchase program does not obligate the Company to repurchase any specific dollar amount or number of shares, and may be suspended, modified or discontinued by the Board of Directors at any time, in its sole discretion and without notice.

"We repurchased approximately 1.5% of the company’s outstanding shares during 2019, evidencing our commitment to delivering shareholder values in multiple ways," continued Mr. Rasmus. "We will remain opportunistic on potential further forms of capital return."

Capital Expenditures

Capital expenditures for the fourth quarter of 2019 and full year 2019 totaled $5.4 million and $71.7 million, respectively. Capital expenditures for the fourth quarter of 2019 were below the Company’s previously guided range of $7 to $10 million.  Based on customer demand, the Company expects 2020 capital expenditures to increase with the development and deployment of next generation NexStage silo sets and OnCore Processing units. Based on current outlook, the Company has updated its expected capital expenditures for full year 2020 to a range of $45 to $60 million, which includes $10 to $15 million of maintenance capital expenditures.

"Customer reception for our next generation NexStage silo sets has been tremendous," continued Mr. Rasmus. "Additionally, we are extremely excited at the early positive feedback and significant interest level for our OnCore mobile processing unit. Given the response and explicit customer demand, we are prudently investing in the further development of our technology-driven customer solutions. Investments in these innovative and disruptive strategic initiatives will deliver significant value to all stakeholders, and support sustainable free cash flow over the long-term."

Outlook

For the first quarter of 2020, the Company expects to increase truckloads delivered, equipment lease revenue, sand sales, contribution margin per ton, and Adjusted EBITDA as compared to the fourth quarter of 2019. This is due to an increase in logistics activity with new customer work, more silo sets being deployed, and overall customer activity increasing. Based on current demand and ongoing customer conversations, the Company expects to deploy silo sets throughout the remainder of 2020 to existing and new customers. The Company currently expects truckloads delivered to increase by more than 25% during the first quarter of 2020 and frac sand volumes sold to increase by 15% to 25%, to 2.4 to 2.6 million tons.

"Hi-Crush’s ongoing success will be driven by our differentiation in the marketplace as the only fully-integrated provider of technology-enabled logistics solutions and frac sand production," said Mr. Rasmus. "Leveraging these capabilities, and advancing our business model away from being solely focused on commodity sand production will allow Hi-Crush to deliver unmatched customer service, deliver increased profitability, and ultimately to break out of the current period of malaise surrounding oilfield services, which will mean increased value creation for shareholders. We are investing capex today as a means of disrupting an otherwise sclerotic industry. The addition of OnCore Processing into our portfolio of solutions further differentiates Hi-Crush from the competition and will allow us to more profitably address a greater range of customer needs, in more ways, in more places. I am excited about what 2020 has in store for Hi-Crush."