Hi-Crush Partners (HCLP) Update - Feb 15

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Hi-Crush Partners (HCLP) Update - Feb 15

Post by dan_s »

Hi-Crush Partners LP Reports Fourth Quarter and Full Year 2018 Results

Revenues of $162.2 million in 4Q 2018 vs. $214.0 million in 3Q 2018 and $216.5 million in 4Q 2017
Net loss of $(9.9) million in 4Q 2018 vs. net income of $27.1 million in 3Q 2018 and $41.9 million in 4Q 2017
Adjusted EBITDA of $10.2 million in 4Q 2018 vs. $51.3 million in 3Q 2018 and $57.9 million in 4Q 2017 < EBITDA is close to my forecast.
Contribution margin per ton of $14.35 in 4Q 2018 vs. $23.92 in 3Q 2018 and $23.46 in 4Q 2017 < This is what killed the quarter, as expected.
Exited 4Q 2018 with $114.3 million of cash, no borrowings on ABL facility and total liquidity of $172.5 million
51% of 4Q 2018 sales volumes sold to E&Ps; executed additional sand supply and last mile service agreements
Completed construction of second Kermit facility; Wyeville expansion remains on target for 1Q 2019

I have updated my forecast/valuation model for HCLP and posted it to the EPG website. My valuation today is $7.30/unit. Read my comments below.

The company has posted a new presentation to their website that includes Q4 results and guidance for 2019.

Hi-Crush is hosting our Houston luncheon at The Hess Club on Friday, March 1st and Laura Fulton, the company's CFO will be presenting their outlook for 2019. Seating is limited, so register early if you plan to attend.
Last edited by dan_s on Fri Feb 15, 2019 2:07 pm, edited 2 times in total.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Hi-Crush Partners (HCLP) Update - Feb 15

Post by dan_s »

Their balance sheet is in good shape with more than enough cash to fund their 2019 capex program. Conversion to a C-Corp in Q2 should generate more interest in the stock.

Liquidity and Capital Expenditures

As of December 31, 2018, the Partnership had $445.5 million of long-term debt outstanding, and was in compliance with the covenants defined in its senior secured revolving credit facility (the "ABL Facility"). As of December 31, 2018, Hi-Crush had $114.3 million of cash and $58.2 million in available borrowing capacity under its ABL Facility, resulting in total liquidity of $172.5 million.

Capital expenditures for the year ended December 31, 2018, totaled $141.5 million, primarily associated with the development of the second Kermit facility, expansion of the Wyeville facility, equipment builds to further expand market penetration of the FB Industries silo solution, equipment purchases for PropStream, and various projects at production facilities and terminals.

Capital expenditures for the full year 2019 will be comprised of three components. Carryover growth capex from 2018 projects associated with completion of the Kermit construction and Wyeville expansions are expected to be in the range of $30 to $35 million to be spent during the first half of 2019. For the full year 2019, maintenance capex is expected to be in the range of $25 to $30 million. Discretionary growth capex related to spending on logistics assets and continued investment in container and silo equipment for PropStream for the full year 2019, up to an additional $45 to $55 million, may be spent as market conditions dictate and as warranted by customer commitments.

"Hi-Crush has always been committed to maintaining a fortress balance sheet," said Ms. Fulton. "Our liquidity and cash position remains strong, as we exited the year with over $114 million in cash, and no drawings on our ABL Facility, positioning us well to continue executing on our growth priorities. Looking ahead to 2019, the remaining capital commitments for completion of the Kermit facility and Wyeville expansions will be met through existing liquidity. The total capex that we project for the year reflects remaining obligations on these strategic projects, as well as typical maintenance capex, and a flexible base of discretionary growth capex for the logistics side of our business."

Corporate Conversion Update

The Partnership filed a preliminary proxy statement with the Securities and Exchange Commission ("SEC") on February 5, 2019. The proxy statement relates to a special meeting of unitholders that is expected to be held in the second quarter of 2019 and at which unitholders will be asked to consider and vote upon proposals relating to the conversion of the Partnership from a Delaware limited partnership to a Delaware corporation (the "Conversion"), which, subject to unitholder approval, will be completed through a series of transactions set forth in a plan of conversion that is attached to and forms a part of the proxy statement.

"The reasons for the Conversion are numerous, and, as we noted in the preliminary proxy statement, the Board believes the Conversion is critical to the future success of Hi-Crush," said Mr. Rasmus. "With increasing challenges for MLPs and the growing focus of our business on logistics, the Board believes that accomplishing our growth plans and executing on our strategy for long-term success are best achieved through a traditional corporate structure. We also believe the transition to a C-Corp will increase our access to, and lower the cost of, capital by increasing trading liquidity and making Hi-Crush more accessible to a broader investor base."

Distribution

On January 7, 2019, the Partnership announced the Board of Directors’ decision to suspend the quarterly distribution. Hi-Crush previously declared a quarterly cash distribution of $0.225 per unit on all common units, for the third quarter of 2018, which was paid in November 2018.

Outlook

For the first quarter of 2019, the Partnership expects total sales volumes to be in a range of 2.4 to 2.6 million tons. The forecasted sequential increase is due to additional volumes sold from the second Kermit facility as well as increasing Northern White volumes related to the new E&P contracts previously announced.

"The first quarter of 2019 will be very active for Hi-Crush, as our second Kermit facility ramps up, new Northern White E&P contracts begin, existing customers ramp up activity, and the outlook for commodity prices stabilizes," said Ms. Fulton. "We expect meaningful sequential growth in our sales volumes primarily due to our second Kermit facility. We expect average sand pricing to remain unchanged, despite our expectation for increased activity levels in the first quarter. We are pleased with the operational and financial results from the deployment of our container and silo systems, and see room for further improvement as we continue to enhance and develop the systems to meet the challenging and dynamic needs of our E&P customers. As we progress through the year, we anticipate the expansion of our PropStream service will move in line with the expansion of our E&P customer base, further reinforcing our position as a company built for long-term, structural success."
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Hi-Crush Partners (HCLP) Update - Feb 15

Post by dan_s »

Two good articles about Hi-Crush

https://seekingalpha.com/article/423986 ... ing?page=2

https://seekingalpha.com/article/424075 ... enue-model

MY TAKE:
> Q4 2018 was the low point for frac sand demand.
> Just the new sales from Kermit 2 should increases sales revenues by $20 million from Q4 to Q1
> The pipeline takeaway capacity issue in the Permian Basin should be fully resolved by Q4 2019
> Upstream companies will go to full "development mode" in the Permian Basin, which will increase frac sand demand
> Hi-Crush's last mile systems give them an edge over other sand companies that are just selling sand at their mines.

It is going to take more and more frac sand each year just to complete the wells necessary to hold U.S. production flat. Demand for frac sand is not going down. Q4 was the "perfect storm" that created a temporary dip in well completions.
Dan Steffens
Energy Prospectus Group
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