Current HCLP Stock Info

Hi-Crush Partners LP (ticker: HCLP) reported a Q1 2018 net income of $53.1 million, or $0.59 per diluted share. Revenues for the quarter totaled $218.1 million on sales of 2,617,627 tons of frac sand. Capital expenditures in Q1 2018 were $11.9 million and the company estimates a full year CapEx of $35-$45 million.

“We were successful in growing our financial results sequentially, despite impacts to our business and the industry resulting from issues experienced by Class-1 railroads that limited our ability to fully meet increasing market demand for sand,” said CEO Robert E. Rasmus.

Demand for Frac Sand is Insatiable: Hi-Crush CEO

HCLP Supply and Demand, May 2018

Higher prices, better margins and in-basin sand

Hi-Crush said average sales prices were $73 per ton in the first quarter of 2018, compared to $71 per ton in the fourth quarter of 2017 and $60 per ton in the first quarter of 2017.

This improvement was due to supportive supply and demand dynamics in frac sand demand in excess of available supply, particularly for fine mesh sand, in addition to a higher percentage of volumes sold in-basin, which represented 86% of sales in the quarter compared to 76% in the fourth quarter of 2017.

Demand for Frac Sand is Insatiable: Hi-Crush CEO

HCLP Volumes Sold, May 2018

Of total sales volumes, 21% were sold at the wellsite through PropStream, compared to 15% in the fourth quarter of 2017. PropStream is Hi-Crush’s fully integrated supply chain – it simplifies proppant procurement and eliminates the need for clients to manage proppant logistics.

Contribution margin was $29.08 per ton in the first quarter of 2018, compared to $23.46 per ton in the fourth quarter of 2017. The 24% growth in contribution margin per ton primarily resulted from higher pricing, as well as increased volumes sold in-basin through Hi-Crush’s terminal network and at the wellsite through PropStream.

Kermit at full utilization

Hi-Crush’s Kermit facility continued operating at full utilization during Q1 2018. The facility has an annualized run-rate production of ~3.0 million tons per year and is contracted at ~90% of its nameplate capacity under long-term, fixed-price arrangements with customers.

At the end of the first quarter of 2018, Hi-Crush had 12 PropStream crews in the Permian Basin and Marcellus/Utica plays – this is up from 10 crews at the end of the fourth quarter of 2017. As of today, Hi-Crush has 13 PropStream crews, and expects more than 20 crews to be deployed by the end of 2018.

In regard to extreme weather conditions and rail issues, CFO Laura C. Fulton said, “We responded creatively to the rail challenges, including the proactive direction of volumes to our most efficient terminals, the strategic trucking of sand to better enable rail shipments, the achievement of full run-rate capacity at our in-basin Kermit facility and increased utilization of our in-basin storage and PropStream service to best align supply and delivery needs.”

For the second quarter of 2018, Hi-Crush expects total sales volumes to increase to a range of 2.9 million to 3.1 million tons.

Demand for Frac Sand is Insatiable: Hi-Crush CEO

HCLP Guidance, May 2018

Conference call Q&A excerpts

Q: As sand got tighter and tighter in the Permian, did you notice any difference in terms of customer adoption of in-basin tons, maybe where they had anticipated taking delivery of Wisconsin product and then in the heat of battle, decided to pump in-basin product?

And then also, any notable difference in terms of the adoption of any of the in-basin 40/70 that you heard, discussed or observed? Or does it still seem more of a purely 100 mesh type market?

CFO Laura C. Fulton: From our view, I think the market in the Permian is still more 100 mesh because, of course, that’s exactly what we’re selling from our Kermit facility. We did not see a lot of switching in the first quarter from Northern White sand over to the Permian sand, primarily because it just wasn’t available.

There were a number of plants that did start their operations, but they were in the early stages of ramping up those operations and I think the majority of that sand was going to customers that they already had contracts with where they were required to deliver the sand.

So we haven’t seen a lot of switching just because they were desperately in need of sand in the first quarter. I think over time, it will evolve where people will continue to use more and more of the sand, but it’s because they just really want to use more and more sand, and the local nature of it certainly helps with their cost structure.

CEO Robert E. Rasmus: The other factor is that the demand for frac sand is insatiable and that in-basin supply is needed to meet – and it doesn’t even meet the growing demand. So even if all of it came on line, which we’re confident it won’t, that there still would be an undersupply of sand for the market.

Q: About the underlying demand in the quarter being 3 million tons to 3.1 million tons, versus the 2.6 million tons plus shift – what was that referenced to?

Fulton: That was referenced to, really, the demand that we had from our customers for the sand. We certainly had many, many more orders for sand than we could fulfill given the rail issues that we experienced.

So just looking at the number of unit trains that we shipped in the fourth quarter compared to the first quarter, if we had been able to have those same number of unit trains leave our facilities, then we would have sold somewhere between 3 million tons and 3.1 million tons. So that was really the reference there.

Q (continued): Okay. So, it really was an inability to fill requests for sand?

Fulton: Exactly.

Q: In terms of the cycle times, what do you think is the advantage versus “dramatic” solutions, for example?

Rasmus: If you look at what we know from experience, because at our transloads, we load all solutions in terms of the containers and we know that we do anywhere from 8% to strong double-digits in terms of percentage increase in tons per truckload.

And that’s meaningful, because just an 8% increase in the amount of sand per truck in a 3 million ton per year plant is over 10,000 truckloads a year.

That’s a lot of money to save, and that’s a lot of trucks and truck drivers you don’t have to hire.

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