If you were one of the investors that waited for Hi-Crush Partners (HCRS.Q) to turn around, your patience has been rewarded: The company's results have improved markedly over the past few quarters. So much so, in fact, that management has decided to start paying shareholders again, reinstating a generous quarterly distribution and even starting a share repurchase program.
Let's take a look at Hi-Crush's most recent results and why management feels like now is the time to start distributing cash to shareholders again.
Image source: Getty Images.
By the numbers
| Metric | Q3 2017 | Q2 2017 | Q3 2016 |
|---|---|---|---|
| Revenue | $167.5 million | 135.2 million | $46.5 million |
| Earnings before interest, taxes, depreciation, and amortization | $41.8 million | $26.8 million | ($3.4 million) |
| Earnings per share | $0.32 | $0.18 | ($0.21) |
| Distributable cash flow | $37.5 million | $22.8 million | ($6.7 million) |
Data source: Hi-Crush Partners earnings release.
There were some concerns that frack sand growth would start to wane, as the active rig count in the U.S. remained mostly steady in the third quarter. Looking at Hi-Crush's most recent results, that doesn't seem to be the case. The company turned in another quarter of record volume and revenue as it ran its facilities at near-capacity and started operations at its Kermit County, Texas facility. Hi-Crush produced and delivered approximately 2.5 million tons of sand in the third quarter.
It also helped that contribution margin for that sand stayed strong as well. Hi-Crush's per-ton contribution margin -- industry lingo for gross margin -- was $19.39 compared to $4.50 this time last year. A lot of that has to do with increasing demand for every company in this business, but sand sales from its in-basin mine at Kermit and its PropStream logistics service also helped.
The most exciting news wasn't that the company was selling more and getting a better price, though. For investors, it was the news that management was going to start paying a distribution to shareholders and buy back stock. Management said it will begin with a $0.15-per-share distribution for this quarter. At today's stock price, that puts the payout at a yield of 5.7%.
Perhaps the more peculiar announcement was the decision to buy back $100 million in stock over the next few quarters. Master limited partnerships aren't known for share repurchase programs -- quite the opposite, really, as MLPs use equity to help fund developing new assets that will help to increase distributions over time.
The reason that management is likely doing this kind of deal is that it wants to undo some shareholder dilution over the past couple of years. When the market for frack sand soured and Hi-Crush was overly burdened with debt, management used a lot of share issuance to repair its balance sheet.
What management had to say
After struggling through several quarters during the oil price crash, CEO Robert Rasmus got to take a bit of a victory lap in his press release statement, where he touted some of the company's new investments and the outlook for the rest of the year:
The impressive third quarter performance we announced today is a direct result of our Mine. Move. Manage. operating strategy, and is underpinned by ongoing strength in oil and gas completions activity in the U.S. Over the last several months, we completed several critical projects, including the construction and commencement of operations at our Kermit facility and Pecos terminal in the Permian Basin. These projects enhance and extend our ability to service customers through our growing and integrated production and logistics network. Our sales volumes improved to approximately 2.5 million tons for the third quarter, in-line with guidance, and marking the highest quarterly volumes recorded in Hi-Crush history.
What a Fool believes
I'm sure that some will point out that Hi-Crush is buying back stock at a much higher price than what it sold those shares for a few quarters ago. It was an unfortunate move that management had to make at the time, as it was facing cash shortfalls.
Today, though, the company is on more stable footing, and it looks like things could get better from here. Higher sales from its Kermit facility and greater adoption of its logistics services should help boost revenue and margins and allow Hi-Crush to keep rewarding shareholders for some time.
