Fairmount Santrol announced preliminary financial results for the third quarter ended Sept. 30, 2016. The unaudited preliminary financial results for the third quarter of 2016 represent the most current information available to management.
Third-quarter 2016 revenues are expected to be between $133 million and $135 million, compared with $114.2 million for the second quarter of 2016 and $171.0 million for the third quarter of 2015. Overall volumes sold are expected to be approximately 2.4 million tons for the third quarter, compared with 2.0 million tons in second-quarter 2016 and 2.0 million tons for the third quarter of 2015.
The expected volume increase, as compared with the company’s second-quarter 2016 results, is due to higher demand for both raw frac sand and coated proppants. The company’s Industrial and Recreational segment is expected to continue to show steady results for the third quarter.
The company expects a third-quarter 2016 net loss of between $21 million and $23 million. The company’s estimated net loss range includes estimated stock compensation expense of $2 million and fees for the completion of railcar restructuring during the third quarter that will approximate $10 million. This compares with a net loss of $87.9 million in the second quarter of 2016. Net loss for third-quarter 2015 was $46.2 million.
During the third quarter of 2016, the company reopened its facility in Menomonie, Wis. The mine is expected to add 750,000 tons of annual sand capacity. This additional capacity should enable the company to more effectively service a specific I&R customer base and allows the company’s optimally located, low-cost Wedron, Ill., facility to dedicate more of its finer-grade raw sand products to proppant customers.
Also during the third quarter of 2016, the company renegotiated certain railcar leases and purchase contracts, including the reduction of certain lease rates, the extension of certain expiration dates, and the cancellation and/or deferral into 2020 and 2021 of railcars that were previously scheduled for delivery in 2017 and 2018.
While the approximately $10 million in fees associated with these completed contract renegotiations will impact the company’s third-quarter 2016 results, the restructuring of these leases and purchase contracts serves to decrease cash operating costs by approximately $15 million through Dec. 31, 2017, cancels approximately $50 million, and defers approximately $135 million, of railcar purchase commitments. In addition to these railcar savings, the company continues to expect an approximate $15 million of annualized savings from ongoing cost reduction initiatives, for which no additional fees are expected to be incurred.
Jenniffer Deckard, president and chief executive officer, said, “While oil and gas market conditions remain volatile, we are encouraged by the proppant volume growth during the third quarter and by the institution of needed price increases at the end of the quarter. In addition, working closely with our valued partners, we successfully renegotiated certain railcar leases and purchase contracts, providing us with additional flexibility as we work to better position the company for both near-term and future success.”