Post on 14-Apr-2018
Jenniffer Deckard, President and Chief Executive Officer
Christopher Nagel, Chief Financial Officer
Sharon Van Zeeland, VP Investor Relations and Business Development
Barclays CEO Energy-Power Conference
September 10, 2015
Forward-Looking Statements and Non-GAAP Financial Measures
This presentation contains forward-looking statements. These statements can be identified by the use of forward-looking terminology including “will,”
“may,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” or other similar words. These statements discuss future expectations including company
growth expectations, demand for our products, capacity expansion plans, market trends, commercial product launches and research and development
plans and may contain projections of financial condition or of results of operations, or state other “forward-looking” information. These forward-looking
statements involve risks and uncertainties. Many of these risks are beyond management’s control. When considering these forward-looking
statements, you should keep in mind the risk factors, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and
other cautionary statements in the company’s SEC filings. Forward-looking statements are not guarantees of future performance or an assurance that
our current assumptions or projections are valid. Our actual results and plans could differ materially from those expressed in any forward-looking
statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information or future events,
except as required by law.
This presentation includes certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA and Adjusted EPS, and Adjusted Diluted EPS.
These non-GAAP financial measures are used as supplemental financial measures by our management to evaluate our operating performance and
compare the results of our operations from period to period without regard to the impact of our financing methods, capital structure or non-operating
income and expenses. Adjusted EBITDA is also used by our lenders to evaluate our compliance with covenants. We believe that these measures are
meaningful to our investors to enhance their understanding of our financial performance. These measures should be considered supplemental to and
not a substitute for financial information prepared in accordance with GAAP and may differ from similarly titled measures used by other companies. For
a reconciliation of such measures to the most directly comparable GAAP term, please see the slides 21- 23 of this presentation.
2
Two Complementary Business Segments
Oil & Gas – Proppant Solutions Product Lines Include:
Northern White Frac Sand
Texas Gold Frac Sand (mined in Voca, TX)
Resin-Coated Frac Sand
Self-Suspending Proppant Technology, Propel SSPTM
Activators
Water-Soluble Ball Sealers (Bioballs)
Industrial & Recreational End Markets Include:
Foundry
Glass
Building Products
Sports and Recreation
Specialty Products
Water
Product Lines Include:
High-Purity Silica Sand
Custom-Blended
Materials
Resin-Coated Sand
Resin
3
Market Update: Proppant Intensity Continues to Increase
Wells per Rig
Lateral Length
Stages per Foot
Proppant per Stage
Proppant
Intensity Proppant Intensity Still Rising with Increased Proppant per Well
Proppant Per Well (000 Tons)
___________________________
Source: Internal estimates and order flow analysis
Eagle Ford: Illustrative of both liquids rich and dry gas portion
Permian: Illustrative of Wolfcamp C & D, and Cline Shale
Marcellus: Illustrative of both dry gas in PA and liquids rich portion in WV
PacWest Consulting Partners The Freedonia Group
2.7
1.7
3.9
10.0
3.6 2.7
4.4 4.2
3.0
4.7
6.5 6.0
5.5
Eagle Ford Permian Marcellus Leading-Edge Experimental
2013 2014 2015 Avg. Leading-Edge Operators
4
Average Number of Land Rigs for Quarter
Declining Rig Counts Partially Offset by Increasing Proppant Intensity
Rig count tracked by Baker Hughes
*As of 8/28/15
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
Proppant Market
@ 1,000 Rig Decline
(~50%)
Proppant Decline (~20% - 25%)
Rig Count Vs. Proppant Demand
Rig Count
5
1,705 1,781 1,828 1,843
1,345
872 843*
0
200
400
600
800
1000
1200
1400
1600
1800
2000
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 8/28/2015
___________________________
Source: Internal estimates and the Freedonia Group
Industry-leading integrated logistics network – with approximately 40 terminals
serving the oil and gas market
Unit train capabilities – 2 sand facilities, 1 resin facility/sand distribution and 4
destination terminals
State-of-the-art R&D facilities
Phenolic resin manufacturing facility
Proprietary product and process technologies
More than 800 million tons of proven mineral reserves
9 active sand processing facilities with 13.4 million tons of annual sand stated processing capacity
8 active coating facilities with 2.1 million tons of annual stated coating capacity
Broad/innovative product suite including Northern White sand, Texas Gold sand and variety of resin-coated sand offerings
Addresses over 95% of proppant market
Fairmount Santrol Positioned to Compete in All Market Cycles – A Leading Solutions Provider Differentiated in Every Area of the Value Chain
OPERATIONAL
SCALE
PRODUCT PORTFOLIO
TECHNOLOGY AND
INNOVATION
COMMITMENT TO
PEOPLE, PLANET &
PROSPERITY
DISTRIBUTION
6
We Are Built on a Foundation of Sustainable Development
7
_____________________
Source: Company website and corporate filings
20,000 hours: 2014 Company
sponsored volunteer time
contributed
Empower U
– 17 new courses since
2012 - from Welding to
Financial Wellness
– > 75% employee
participation in 2014
PEOPLE
25 zero waste facilities
90% reduction of waste sent to
landfills since 2009
2015: Received Wisconsin
Partners for Clean Air Award
2015: Accepted into Wisc
Green Tier program
PLANET
Prosperity for internal and
external stakeholders
– 2014 SD Pays of $5.6M
– $3.9M invested back into
communities in 2014
PROSPERITY
The Industry’s Most Comprehensive Operations and Logistics Footprint – Providing Scale and Distribution Reach
Comprehensive Logistics Platform and Vertically Integrated Operations with Access to Every Major U.S. Oil & Gas Basin
Coating Operations 10 (8 active)
Mining & Processing (11) (9 active)
Research & Development (2)
Resin Manufacturing (1)
Specialty Products (4)
Basin
Play
Oil & Gas Terminals (38)
Unit Train Destination (4)
Manufacturing Footprint
Logistics Network
International Operations
Industrial & Recreational
Terminals (10)
2 Terminals in the same city
Administrative Offices (6)
8
2015 - Consolidating Sand Operations into a More Cost-Efficient Footprint
Idled higher cost sand facilities in Brewer, MO and Shakopee, MN; permanently closed facility
in Readfield, WI and announced closing of Wexford, MI
From December 2014 to June 2015, lowered overall weighted average cost per ton of
Northern White sand by 11%
These consolidation actions are expected to further reduce average cost per ton in Q3 2015
9
Wedron
Wedron
Wedron
-
2.0
4.0
6.0
8.0
10.0
12.0
January 2015 August 2015 1H 2016
Pro
pp
ant
So
luti
on
s E
ffec
tive
San
d C
apac
ity
(M
illio
n T
on
s)
9.8
7.7
10.7
Terminal Placement Closer to Well Sites & Unit Train Capabilities Reduce our Customer’s Total Delivered Cost
FMSA Terminal
Active Drilling Rigs
Rail, Unit Train,
Barge
Optimized Cost In-Basin
14 Origins 42+
Terminals
Lower Cost per BOE Reduced
Last-Mile Trucking
Costs
42+ Terminals
FMSA Mining & Processing
Industry-Leading
Unit Train Capabilities
3 Facilities & 4 Terminals
45 Q2 Unit Train Shipments
~15% increase over Q1
10
1,543
1,998
1,233
1,482 1,387
1,224
861
1,190
0
500
1,000
1,500
2,000
2,500
Fairmount Santrol Peer A Peer B Peer C
Raw
Fra
c S
an
d T
on
s
(000’s)
Q4 2014
Q2 2015
Our Comprehensive Proppant Solutions Have Allowed Us to Take 2015 Frac Sand Share in a Down Market
Versus overall proppant market decline estimate of approximately -30%
11
*Study was performed on vertical wells with single-stage fracs in August 2014
A 23-well study proves proppant flowback reduces cost by
$115,000 per frac stage* in addition to delivering increased production
as compared to raw frac sand
Resin coated sand increases well NPV by:
– Adding strength
– Eliminating flowback (curable)
• Reduces operating costs
• Proppant remains in place = Enhancing both IP and EUR
Focus on Further Reducing Cost per Barrel of Oil Equivalent (BOE) through the Industry’s Broadest Product Portfolio
Continued Product Innovation to Meet Industry’s Evolving Needs
CoolSet®: Our newest curable resin-coated proppant is ideally suited for today’s market
Prevents proppant flowback at reservoir temperature of 100° without activator
Momentum continues to build since 2014 introduction
12
Super LCC
CoolsetC
OptiProp G2C
PowerPropP
HyperpropC
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Closure Pressure (000s psi)
THSP
Super DCC
FAIRMOUNT SANTROL PROPPANTS VS. CLOSURE PRESSURE (1)
_____________________
C = curable product; P = pre-cured
1. Pressure performance data are specific to 20/40 mesh. TLC, THS and PowerProp provide a degree of proppant flowback resistance. SLC, SDC, OptiProp specifically
address proppant flowback prevention.
Recommended range for each product based on optimal crush, conductivity, and price tradeoffs.
API-Spec Northern White Frac Sand
Texas Gold API-Spec Frac Sand
Raw Sand Resin-Coated Sand Resin-Coated Ceramic
ADDED VALUE
Eliminate
Flowback?
Reduce
Fines? Embedment?
Broad Suite of Product Solutions Designed to Address the Wide Range of Complexities Across All Well Environments
13
TLCP
Resin-Coated Proppants Face Greater Pressures in Down Markets
14
Resin coated proppants continued to decline sequentially from Q1 2015 to Q2 2015
– Customers making short-term trade-offs to reduce completion costs
– More shallow well depths in 2015
– Well production is choked back, temporarily reducing hydrocarbon flow rates and flowback pressures
As well economics recover, depths increase and production flows are more fully released, demand for value-added strength and flow back capabilities offered by resin coated proppants is expected to increase
2015 cost focus: consolidating resin-coating operations into a more cost-efficient footprint
– Closed 1 facility, Idled 1 facility, and scaled back operations at 2 facilities
– From December 2014 to June 2015, reduced cost per ton to produce resin coated products by 20%
Further Reducing Cost per BOE with an Innovative Proppant Transport Solution
ENHANCED WELL PERFORMANCE
Reduces proppant settling
Stacks & fills entire fracture – more exposed surface area
No damage to Proppant pack or formation
Increases Production
HANDLING
Flows like sand utilizing existing equipment
Eliminates viscosifiers and friction reducers
OPERATIONAL EFFICIENCIES IN WELL COMPLETION
Fewer Chemical additions
Less Water
Less Horsepower
Eliminates Sweeps
Reduces operational cost of heating water in winter
Propel SSP™: A Self-Suspending Proppant Transport Solution
Northern White Frac Sand
Slickwater
Northern White Frac Sand
Propel SSP
15
Mississippi Lime, our initial and longest-producing well:
continues to outperform the direct offset with 45% increase
in cumulative production at 18 months
Current Bakken Project: Increased 30-day IP by >50%
Greater than 50% improvement in daily production in each of their 6 actively producing wells in the Bakken
Based on these initial results, increased their overall capital spending budget in order to complete eight additional wells in 2015
Estimated to complete 14 wells in the Bakken using Propel SSP by year-end 2015
South Texas, Escondido Formation: 55% Increase in
cumulative production at 60 days
Propel SSP Success Stories
16
Successful Trials Continue & Validate the Value Proposition
Total Propel SSP Wells > 50
Total Stages > 1,200
E&P 15
OFS 13
Plays/Formations 16
YTD Volume ~70k tons
Even at today’s low oil prices, payback is
significant:
• generated quickly through increased IP
• and continually reducing the decline
curve and enhancing long-term EURs
17
Focusing on Improving Liquidity Position
Substantial free cash flows in the first half of 2015
15% reduction in annual SG&A
30% reduction inventory since 12/31/14
Increased cash balance to $175 million as of
June 30, 2015
Capital expenditures expected to be $95 – $100 million
in 2015
Approximately $25 million below plan
Includes expansion of low cost Wedron facility by
3 million tons for Q1 2016
Maintenance Cap Ex range of $10 to $15 million
Extended $161.1 million of Term B-1 Loans to mature
with Term B-2 Loans in September 2019
2014 H1 2015 YTD
Cash Flow From Ops. $205.3 $173.6
Capital Expenditures (143.5) (61.4)
Free Cash Flows $61.8 $112.2
Cash Balance $76.9 $175.5
Term B-1 Loan $319.9 $156.6
Extended Term B-1 Loan 161.1
Term B-2 Loan 911.1 909.9
Other Debt 21.6 22.9
TOTAL DEBT $1,252.6 $1,250.5
Adj. LTM EBITDA $397.3 $329.0
Leverage Ratio 3.15x 3.79x
18
Near-Term Fairmount Santrol Focus
Continue to improve efficiencies and reduce costs
Leverage our differentiated capabilities and collaborative pricing approach to be the
most cost-effective solutions provider and to continue to gain market share
Invest in innovation and fully commercialize new product technologies
– Propel SSPTM
and other new products
Maintain focus on liquidity and balance sheet
– Build cash position and improve liquidity by managing working capital and
capital expenditures while investing prudently to be in a strong position for
recovery
19
Thank You & Questions
20
www. fairmountsantrol.com
Reconciliation of Non-GAAP Financial Measures
21
Fairmount Santrol
Non-GAAP Financial Measures
(unaudited)
2015 2014 2015 2014
Reconciliation of adjusted EBITDA
Net income attributable to Fairmount Santrol Holdings Inc. 14,137$ 43,921$ 44,896$ 78,460$
Interest expense, net 14,894 16,572 30,202 34,478
Provision for income taxes (26,677) 18,146 (16,060) 32,412
Depreciation, depletion, and amortization expense 16,276 14,584 32,499 27,522
EBITDA 18,630 93,223 91,537 172,872
Non-cash stock compensation expense(1)
2,618 2,219 4,501 4,313
Management fees & expenses paid to sponsor(2)
- 250 - 541
Transaction expenses(3)
- 538 - 637
Restructuring charges(4)
14,824 - 15,148 -
Other non-recurring charges(5)
465 - 465 -
Initial Public Offering fees & expenses - 1,621 - 1,621
Adjusted EBITDA 36,537$ 97,851$ 111,651$ 179,984$
__________
(1) Represents stock- based awards issued to our employees.
(3) Represents expenses associated with evaluation of potential acquisitions of businesses, some of which were completed.
(5) Represents expenses associated with an audit of our Employee Stock Bonus Plan.
(2) Includes fees and expenses paid to American Securities for consulting and management services pursuant to a management consulting agreement.
The agreement was terminated upon the Initial Public Offering in October 2014.
(4) Represents expenses associated with severance payments, pension withdrawal liability, land reclamation liability, and impairment of property, plant,
and equipment.
Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except per share
amounts)
(in thousands, except per share
amounts)
Reconciliation of Non-GAAP Financial Measures
22
Fairmount Santrol
Non-GAAP Financial Measures
(unaudited)
2015 2014 2015 2014
Reconciliation of adjusted earnings
Net income attributable to Fairmount Santrol Holdings Inc. 14,137$ 43,921$ 44,896$ 78,460$
After-tax effect of adjustments noted above* 9,173 1,445 9,368 1,679
Non-recurring tax benefit (20,420) - - -
Adjusted Net income attributable to Fairmount Santrol Holdings Inc. 2,890$ 45,366$ 54,264$ 80,139$
Earnings per share
Basic 0.09$ 0.28$ 0.28$ 0.50$
Diluted 0.08$ 0.27$ 0.27$ 0.47$
Adjusted earnings per share
Basic 0.02$ 0.29$ 0.34$ 0.51$
Diluted 0.02$ 0.27$ 0.33$ 0.48$
Weighted average number of shares outstanding
Basic 161,368,468 156,684,036 161,160,994 156,573,196
Diluted 166,866,817 165,642,288 166,631,841 165,585,168
(in thousands, except per share
amounts)
*Excludes non-cash stock compensation expense and uses a
marginal tax rate of 40%
Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except per share
amounts)
Reconciliation of Non-GAAP Financial Measures
23
Quarter 4
2014 2014 2013
Reconciliation of adjusted EBITDA
Net income attributable to FMSA Holdings Inc. 37,913$ 170,450$ 103,961$
Interest expense, net 9,797 60,842 61,926
Provision for income taxes 23,565 77,413 45,219
Depreciation, depletion, and amortization expense 16,587 59,379 37,771
EBITDA 87,862 368,084 248,877
Non-cash stock compensation expense(1)
7,897 16,571 10,133
Management fees & expenses paid to sponsor(2)
38 864 2,928
Loss on extinguishment of debt(3)
- - 11,760
Loss on disposal of assets(4)
- 1,921 6,424
Transaction expenses(5)
- 638 12,462
Initial Public Offering fees & expenses 4,575 9,213 -
Adjusted EBITDA 100,372$ 397,291$ 292,584$
__________
(5) Expenses associated with evaluation of potential acquisitions of businesses, some of which were completed.
(4) Includes the loss related to the sale and disposal of certain assets, including property, plant and equipment,
discontinued inventory and an investment in foreign operations.
(in thousands, except
per share amounts)
(in thousands, except per share
amounts)
Year Ended December 31,
(3) Represents write-off of a portion of the remaining unamortized deferred financing fees upon entering into a new
credit facility.
(1) Represents stock-based awards issued to our employees, including one-time adjustment in Q3 2014 for
modification to certain outstanding options.
(2) Includes fees and expenses paid to American Securities for consulting and management services pursuant to a
management consulting agreement. The agreement was terminated upon the Initial Public Offering in October 2014.
(unaudited)
Fairmount Santrol
Non – GAAP Financial Measures