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Hi-Crush Provides Preliminary Results; Business Updates

Hi-Crush Inc. announced preliminary results for the fourth quarter of 2019 and provided business updates.

Revenues for the fourth quarter of 2019 are expected to total between $123 million and $127 million, compared to $173 million during the third quarter of 2019. Revenue associated with the company’s logistics and equipment services is expected to account for approximately 38% of the total for the fourth quarter of 2019, with the remaining portion driven by frac sand sales.

Truckloads delivered remained steady through the majority of the fourth quarter of 2019, but slowed during the final weeks of December, resulting in a decrease of 19% in the fourth quarter of 2019 compared to the third quarter of 2019. Frac sand sales volumes totaled 2,106,622 tons in the fourth quarter of 2019, compared to 2,685,736 tons sold in the third quarter of 2019.

Contribution margin is expected to be approximately $9 per ton for the fourth quarter of 2019, compared to $10.99 per ton in the third quarter of 2019. The sequential reduction in truckloads, frac sand sales and contribution margin was attributable to expected weakness in overall market activity, particularly during December 2019.

"I am proud of our team for our financial and operational achievements during the fourth quarter," said Robert E. Rasmus, chairman and chief executive officer of Hi-Crush Inc. "We continued to expand our customer base and platform of services by entering into additional product and service agreements with new customers despite impacts from the expected industry-wide downturn. This is a testament to the quality of our products and services. We remain committed to serving our customers in innovative ways, which will continue to benefit all stakeholders over the near and long-term.

"We also continue to advance on our strategy of partnering closely with operators, growing the percentage of frac sand volumes sold to E&Ps to a company record of 70 percent during the fourth quarter, while also increasing the percentage of revenues from our logistics and equipment services to 38 percent in the fourth quarter of 2019," continued Rasmus. "We remain focused on controlling what we can control, including a relentless commitment to customer service and managing costs across the entirety of our business, while maintaining liquidity in order to successfully execute our strategy.

"We have also experienced a rebound in completions activity and spot pricing to start 2020, driven by the abatement of seasonal factors and an improvement in supply and demand dynamics for certain areas of our business," concluded Rasmus.

Estimated financial and operating results for the fourth quarter of 2019 are not yet final and are subject to change as the company completes its financial statement close process. Hi-Crush is scheduled to report audited results for the fourth quarter and full year 2019 after market close on Feb. 19, 2020, and hold its quarterly conference call on Feb. 20, 2020.

The company recently entered into new logistics and equipment services agreements with four E&Ps, three of whom are new customers, for work beginning in December 2019 and early 2020. The company’s Pronghorn Energy Services business continues to set new standards for customer service excellence, recording zero non-productive time related to truck availability across all operating regions in December 2019, despite a seasonal shortage of truck drivers which impacted the entire industry over that timeframe.

The company also recently deployed next generation NexStage silo sets to an existing customer and leading E&P in the Permian basin, expanding the relationship with this customer to include equipment services. The company expects additional deployments throughout the first quarter of 2020. Combined with PropDispatch software, the company’s integrated logistics offering delivers improved equipment reliability, fill times, and accuracy of sand consumption measurement, while allowing customers to receive real-time, actionable data to help inform operations, as well as providing for more accurate and timely invoicing.

The company also announced an extension of its logistics and equipment service offering, with the commencement of engineering on its first mobile processing unit, to be branded as OnCore Processing. The OnCore Processing solution is comprised of portable wet and dry plant 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 is expected to allow Hi-Crush to profitably reduce costs for customers that have reserves on their acreage or adjacent land, and that are otherwise economically disadvantaged from other frac sand pull points.

The patented equipment is being manufactured through partnerships with third party equipment manufacturers with whom the company 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 customer agreement expected shortly after delivery. The company expects to deploy a second unit later in the second quarter of 2020.

"Our efforts throughout 2019 to continually innovate and improve on existing software, equipment, and service quality is a testament to our ability to proactively address the continuous evolution our industry undergoes," continued Rasmus. "Increasing capabilities in the last mile, deepening relationships with existing customers, adding new customers, and extending our offering through the development of OnCore Processing are all important components of Hi-Crush’s suite of offerings that emphasize providing the greatest value to customers and simplifying their supply chain. We also see opportunities for application of the OnCore Processing solution in markets and basins outside of the United States.

"We believe that the mobile processing equipment we are developing represents the next step in our chain of innovation and the evolution and optimization of frac sand logistics, and that it will continue to differentiate Hi-Crush and our diversified service offering. In certain cases, OnCore Processing is expected to allow customers to move sand supply closer to their development acreage and better maximize truck turn efficiencies. Importantly, and consistent with Hi-Crush’s focus on safety and environmental stewardship, the OnCore Processing solution is designed to reduce the total number of trucks required to haul sand, as well as reduce the truck miles driven on public roads by 1.2 million miles per OnCore Processing facility, per year. This will also result in a reduction in greenhouse gas emissions by more than 2,060 metric tons. We are excited about the economic and environmental implications of this new technology, its place in our fully-integrated offering, and the anticipated benefits it can provide to customers, stakeholders and communities," Rasmus concluded.