Despite Sequential Growth, CARBO Sees Steep Declines in 2016
CARBO Ceramics Inc. recently reported a GAAP net loss of $15.2 million.
CARBO Ceramics Inc. recently reported a generally accepted accounting principle (GAAP) net loss of $15.2 million, or a loss of $0.57 per share, on revenues of $29.1 million for the quarter ending December 31, 2016. The GAAP net loss includes $7.3 million of after-tax costs associated with slowing and idling production and $0.7 million of after-tax charges.
“We are pleased with the 44% sequential revenue growth we experienced in the fourth quarter,” said Gary Kolstad, CEO. “We also continue to be excited about our new technology sales, which increased over the course of the year. As we look forward into 2017, we expect to see strong double-digit growth in our new technology sales. With the improving industry activity outlook, and with continued commodity price support, we are looking forward to improving trends in our business, which we expect will have a positive effect on earnings before interest, taxes, depreciation, and amortization (EBITDA).
“In 2016, we managed through a difficult and challenging market by focusing on what we could control–reducing costs, strengthening the balance sheet, and increasing technology adoption by exploration and production (E&P) operators. Despite a significant decline in industry activity during 2016, we gained new clients using our oilfield technology products, which underscores the value of our technology portfolio. In addition, we are executing on a strategic initiative to increase our future industrial technology sales.
“We were successful in significantly reducing our cost base during 2016. Despite a substantial drop in revenue, we experienced less than 20% negative fall through in adjusted EBITDA. This gives us confidence in the operating leverage we have going forward as the industry recovers. Generating positive cash remains our primary financial goal, and we continue to take steps that will contribute to positive cash flow over the long term. During the fourth quarter, we terminated a railcar lease contract for $1.5 million, which will eliminate a total of $7 million of lease payments over the next five years.
“The current commodity price environment continues to lead E&P operators to generally focus on the lowest upfront completion cost. However, some operators are returning to ceramic proppants and highlighting its performance in contrast to wells completed with sand that have not produced expected results. Reservoir conditions in some basins particularly benefit from the use of a high-quality, high-conductivity ceramic proppant to achieve higher estimated ultimate recovery (EUR), resulting in better well economics.”
Revenues for the fourth quarter of 2016 decreased 49%, or $27.7 million, vs. the same period in 2015. The decrease was primarily attributed to a lower overall industry activity level, a 55% decrease in ceramic proppant sales volumes caused by continued movement to lowest-cost completions, and associated declines in average proppant selling prices. Operating loss for the fourth quarter of 2016 was $29.3 million vs. $76.6 million in the same period in 2015, primarily due to the impairments that occurred in the fourth quarter of 2015 that did not reoccur this quarter and the benefit of cost-cutting measures implemented beginning in early 2015. Net loss for the fourth quarter of 2016 was $15.2 million, vs. $50 million in the same period in 2015.
Revenues for the year ending December 31, 2016, decreased 63%, or $176.5 million, vs. 2015. The decrease was primarily attributed to a lower overall industry activity level, a 56% decrease in ceramic proppant sales volumes caused by continued movement to lowest-cost completions, and associated declines in average proppant selling prices. CARBO’s worldwide ceramic and sand proppant sales volumes totaled 667 million lbs for 2016, a decrease of 59% vs. 2015. Full year reported net loss for 2016 was $80.1 million vs. a net loss of $109.5 million in 2015.
“We are optimistic that the operating environment for CARBO will continue to improve in 2017,” said Kolstad. “We anticipate both oilfield and industrial technologies to see strong double-digit sales growth year-over-year. For base ceramics, we are planning for modest growth in volumes as a focus on low-cost completions likely remains in the near term. We anticipate first quarter of 2017 ceramic sales to be similar to the fourth quarter of 2016 with a strengthening mix toward technology products.
“Adoption of CARBO oilfield technologies continues to take hold across the industry. After nearly one year, the results from our first KRYPTOSPHERE HD job, where SCALEGUARD was also used, continue to exceed the operator’s expectations. The production results and lack of scale buildup seen from these technologies are increasing adoption with other operators.
“Expanding our industrial business is important given the challenges we have seen over the last oilfield downturn and will help mitigate this cyclicality going forward. We have sold into the industrial markets for a long time and are currently pursuing multiple sales strategies for both end customers and distribution channels to grow our industrial technology sales. The initial sales cycle is longer than the oilfield sales cycle; however, the resulting commercial relationship is typically long term in nature.
“We are pleased with the progress we have made on starting up our sand facility. The fourth quarter of 2016 saw a large sequential increase in sand volumes, and we expect our sand sales to continue to increase and contribute towards our goal of generating positive cash. We believe technology sales growth, broader sources of revenue, an improving commodity price environment and a corresponding increase in industry activity will contribute toward our goal of a positive EBITDA exit rate by year end. In addition, we continue to explore certain asset monetization opportunities to further strengthen the balance sheet.”
For more information, visit www.carboceramics.com.