Hi-Crush Partners reported third quarter 2017 results. Revenues for the third quarter of 2017 totaled $167.6 million on sales of 2,456,195 tons of frac sand. This compares to $135.2 million of revenues on sales of 2,112,516 tons of frac sand in the second quarter of 2017.
“The impressive third-quarter performance we announced today is a direct result of our “Mine. Move. Manage.” operating strategy, and is underpinned by ongoing strength in oil and gas completions activity in the United States,” said Robert E. Rasmus, chief executive officer of Hi-Crush. “Over the last several months, we completed several critical projects, including the construction and commencement of operations at our Kermit facility and Pecos terminal in the Permian Basin. These projects enhance and extend our ability to service customers through our growing and integrated production and logistics network. Our sales volumes improved to approximately 2.5 million tons for the third quarter, in-line with guidance, and marking the highest quarterly volumes recorded in Hi-Crush history. We remain relentlessly focused on execution, and our results are the outcome of our team’s efforts and success. Our execution, combined with our capital return strategy to our unitholders, is driving significant value for Hi-Crush and its unitholders.”
Revenues for the third quarter of 2017 increased due to the sequential increase in sales volumes, combined with generally higher pricing. Approximately 61 percent of quarterly volumes were sold in-basin for the third quarter of 2017, compared to 64 percent in the second quarter of 2017 and 47 percent in the third quarter of 2016.
The slight sequential decrease of in-basin sales percentage reflects the start of operations and volumes sold at the mine gate from the Kermit facility, while the increase as compared to the prior year reflects the change in mix of customer demand delivery point.
Average sales price was $68 per ton in the third quarter of 2017, compared to $64 per ton in the second quarter of 2017 and $43 per ton in the third quarter of 2016, as sales prices generally improved due to continued increases in frac sand demand in excess of available supply, particularly for fine mesh sand.
Contribution margin was $19.39 per ton in the third quarter of 2017, compared to $16.73 per ton in the second quarter of 2017. The 16 percent increase in contribution margin per ton was primarily the result of increased pricing, as well as fixed cost absorption from higher sales volumes and increased asset utilization. This increase in contribution margin per ton was partially offset by the impact of a one-time, non-cash charge of $2.3 million, or approximately $0.90 per ton, related to the use of certain coarse material from inventory to augment the reclamation process.
“Thanks to our team’s collective and relentless focus on execution, as well as the continued improvement in demand for frac sand, we realized significant growth across the entirety of our operations, accentuated by a 57 percent sequential increase in Adjusted EBITDA, 16 percent growth in volumes sold, and the generation of attractive distributable cash flow,” said Laura C. Fulton, chief financial officer of Hi-Crush. “This improvement in cash generation, combined with our outlook for continued growth, has allowed us to resume our capital return program. We believe our balanced approach to capital return, comprised of quarterly cash distributions as well as a unit buyback program of up to $100 million, maximizes value and growth to unitholders over the near- and long-term.”
For the fourth quarter of 2017, the partnership expects sales volumes to increase to 2.7 to 2.9 million tons. Pricing is also expected to improve modestly through the end of the year, driven by ongoing tightness in frac sand supply and demand, particularly for fine mesh sand.
“We have successfully ramped utilization at our Kermit facility and expect to run all five production facilities at an average utilization of 85 percent in the fourth quarter,” said Rasmus. “The strong existing customer relationships we have maintained over the years, combined with increasing demand for contracted and spot volumes from newly added customers, has led to strong contracted commitments for Northern White volumes, in-basin sand and sand delivered through PropStream contracted services. Achieving our targeted level of commitments decreases volume risk as we approach 2018, while retaining the flexibility needed to serve our spot customers and our growing PropStream crews. With the addition of our Pecos terminal and continued expansion of our PropStream service across our operating footprint, Hi-Crush is well-positioned to continue strong execution and customer service going into 2018 and beyond.”