CARBO Ceramics Inc. (



Q2 2011 Earnings Call

July 28, 2011 11:00 AM ET


Gary Kolstad – President and CEO

Ernesto Bautista – VP and CFO


Blake Hutchinson – Howard Weil, Inc.

Jeff Tillery – Tudor Pickering Holt & Co. Securities, Inc.

Brian Uhlmer – Global Hunter Securities LLC

Roger Read – Morgan Keegan

Luke Lemoine – Capital One Southcoast

John Keller – Stephens Incorporated

Doug Garber – Dahlman Ros

Travis Bartlett – Simmons & Company

James Stone – Barron Capital



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Hello and welcome to today’s CARBO Ceramics Second 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 this call is being recorded today July 28th, 2011, and your participation implies consent to our recording of this call. If you do not agree to these terms, you may 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 these 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 call is Mr. Gary Kolstad, President and Chief Executive Officer of CARBO Ceramics. Mr. Kolstad, please begin your call.

Gary Kolstad

Good morning, and thank everybody for joining us to discuss CARBO’s second quarter results along with our outlook for the business as we move into the back half of the year. We had a great quarter and we’re pleased with the financial and operational results for the second quarter.

Demand for our proppant remains robust across the major resource plays in North America, including the Haynesville, Eagle Ford, Colony Wash, Permian and the Bakken. The company’s solid performance demonstrates our marketing strategy, based on highlighting the benefits of economic conductivity, resonates with our clients, and continues to have a positive impact on increased well production and enhanced recovery.

We remain committed to increase in profit capacity to satisfy client demand for high quality high conductivity proppant. Additionally, we are pleased with Falcon Technologies’ second quarter performance. Operators continue to respond well to Falcon’s innovative value-added products and services which reduce environmental risk.

Revenue for the second quarter of 149.7 million increased 34% compared to second quarter of 2010. Operating profit increased 61% compared to the second quarter of 2010. This increase is due to higher sales volume and increase in average proppant selling price, and higher contribution from other company business units, partially offset by an increase in freight, selling, and G&A.

Net income for the second quarter of 2011 increased 60% compared to the second quarter of 2010. Despite the effect of the Canadian break-up and weather conditions in the Bakken, we were able to partially redirect sales volumes in to other regions, which kept sales volumes near the record levels reported in Q – first quarter of 2011.

Global proppant sales volume totaled £387 million for the second quarter, representing year-over-year increase of 23%. North American volumes, excluding Mexico, increased 26%, while international sales proppants sales volume increased 10% compared the same period.

Turning to our environmental risk reduction business, Falcon Technologies continues to see broad acceptance of its products and services within the industry. One example of this is in the Pennsylvania are the Marcellus Shale where Falcon’s Surface Mounted Containment solution fits an environmental need of clients and easily adapts into well manufacturing work streams.

We’re pleased with the growth Falcon has experienced year-to-date which has a positive correlation with the growing trend of enhanced environmental stewardship by E&P operators.

Now, I’d like to take a few moments to discuss our outlook for the business in the current operating environment. We see industry activity remaining at healthy levels for the remainder of the year. For the third quarter, we expect profit sales volumes to coastally match our current productive capacity.

Moving past the near-time outlook, we’re excited about our long-term growth opportunities. With respect to our ceramic proppant capacity, we’re very pleased to announce that construction on Line 4 at Toomsboro is tracking ahead of schedule.

We now expect completion near the beginning of fourth quarter. Once completed Line 4 will add £250 million of ceramic capacity per year increasing our total ceramic proppant capacity to £1.75 billion per year.

We have identified and secured purchase contracts for land that could be used for future ceramic capacity expansion. Pending completion of survey and other customary due diligence, we plan to move forward with the purchase of the property.

While any future expense on the ceramic proppant business would require various approvals including environmental permits. Our preliminary analysis shows this new location to potentially support the plant with initial capacity of up to £500 million annually.

Although we’re still early in the process, we believe production at the new plant could commence before the end of 2013 if the needed permits and approvals are obtained in a timely manner.

Our resin coating capacity expansion Line 2 in New Iberia remains on schedule for completion before the end of this year. Once completed, this facility will be able to produce up to £350 million of resin-coated sand annually.

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