Carbo Ceramics, Inc. (



Q4 2011 Earnings Call

January 26, 2012 11:00 AM ET


Gary Kolstad – President and CEO

Ernesto Bautista – Chief Financial Officer


James West – Barclays Capital

John Daniel – Simmons & Company

Jeff Tillery – Tudor, Pickering

Roger Read – Morgan Keegan

Brian Uhlmer – Global Hunter

Doug Garber – Dahlman Rose

Blake Hutchinson – Howard Weil

John Keller – Stephens

William Conroy – Pritchard



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Hello. And welcome to today’s CARBO Ceramics Incorporated Fourth Quarter 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s remarks, we will conduct a question-and-answer session and instructions will follow at that time.

Please be advised that this call is being recorded today, January 26, 2012, and your participation implies consent to our recording of this conference. If you do not agree to these terms, we do ask that you please simply disconnect.

I would like to remind all participants that during the course of this conference call, the company will make statements that provide information other than historical information and will include projections concerning the company’s future prospects, revenues, expenses or profits.

These statements are considered forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, and are subject to risks and uncertainties that could cause actual results to differ materially from those projections. These statements reflect the company’s beliefs based on current conditions, but are subject to certain risks and uncertainties that are detailed in the company’s press release and public filings.

Your host for today’s conference call is Mr. Gary Kolstad, President and Chief Executive Officer of CARBO Ceramics Incorporated. Mr. Kolstad, please begin your call.

Gary Kolstad

Good morning. I want to thank you for joining us to discuss CARBO’s fourth quarter and fiscal year 2011 results along with our outlook for 2012. 2011 was a record year for CARBO. For the year ending December 31, 2011, revenues increased 32% compared to 2010. The increase is mainly attributed to an increase in profit and sales volume, an increase in the average profit and selling price, and an increase in the revenues of Falcon Technologies.

CARBO’s worldwide profit and sales volume total 1.6 billion pounds for the full year, an increase of 19% compared to 2010. Sales volume in North America increased 21%, primarily due to increases in both U.S. and Canada. International sales volume increased 12%, primarily due to increase in Russia, Latin America and Asia-Pacific including China.

Full year net income for 2011 increased 65% or $51.4 million compared to 2010. Earnings per share grew from $3.40 to $5.62. We continue to focus on returning cash to our shareholders by increasing the quarterly dividend 20%. This marked the 11th consecutive year the company has increased its dividend.

Overall, 2011 was a successful year and one that could not have been accomplished without the hard work from our dedicated employees. Revenues for the fourth quarter of 2011 increased 32%, $38.5 million when compared to the fourth quarter of 2010.

North American profit and sales volume increased 16%, while international profit and sales volume increased 21% compared to the same period last year. Operating profit for the fourth quarter of 2011 increased 59%, compared to the fourth quarter of 2010.

This increase is primarily due to higher profit and sales volume, and increase in the average profit and selling price and higher contribution from the company’s other business units, partially offset by an increase in freight and logistics cost.

Net income for the fourth quarter of 2011 increased 59%, compared to the fourth quarter of 2010. Notwithstanding the solid performance, the fourth quarter had its challenges beyond typical seasonality. The severe decline in natural gas prices during the quarter led E&P’s to reduce capital spending and natural gas basins and increased capital spending towards liquid rich basins.

The largest impact associated with this shift in capital spending was a reduction of approximately 70% in our Haynesville proppant sales volume from the third quarter of 2011, which was partially offset by growth in the liquid rich plays and international markets.

The growth of activity in the liquid rich plays contributed to logistical issues in the industry. These logistical issues burdened our distribution network. From our perspective the industry’s response to the decline in activity in the Haynesville relocation of proppant supply and demand, and adjusted international gas fundamentals will take some time to work out.

During the fourth quarter of 2011 we accelerated several distribution infrastructure investments to address the logistical challenges we faced. These investments include rail car additions, as well as increasing our storage capacity in the key unconventional plays we serve.

As frac jobs have increased in size and intensity common issues such as weather, equipment delays, etcetera, can result in increased variability in proppant sales volumes. Accordingly, serving our clients on a just in time basis has become more challenging. We believe the investments we are making in our distribution model will aid in managing this variability and capturing more opportunities for us in the future.

I would now like to comment on a couple of other items before moving on to the other businesses. First, proppant demand. The economic success our clients achieved by utilizing our high conductivity proppant in the oil and natural gas wells continues to give us confidence in the long-term demand for our proppant.

On a macro level, demand for all three tiers of proppant has grown significantly this past year and for high conductivity proppant should continue to grow given the increased at horizontal drilling and increased E&P investment in the liquids rich plays in North America.

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