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TRANSCRIPT
Christopher Nagel, Chief Financial Officer
Barclays High Yield Bond and Syndicated
Loan Conference
June 11, 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 24, 25, 26 and 27 of this presentation.
1
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
2
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
Industry-leading integrated logistics network – with 42 terminals serving the oil and gas market
Unit train capabilities – 3 origins, 3 destinations
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
11 sand processing facilities (10 active) with 12.4 million tons of annual sand processing capacity
10 coating facilities (8 active) with 2.2 million tons of annual 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
Leading Solutions Provider - Differentiated in Every Area of the Value Chain
OPERATIONAL
SCALE
PRODUCT PORTFOLIO
TECHNOLOGY AND
INNOVATION
COMMITMENT TO
PEOPLE, PLANET &
PROSPERITY
DISTRIBUTION
3
We Are Built on a Foundation of Sustainable Development
4
_____________________
Source: Company website and corporate filings
4th enterprise-wide
Appreciative Inquiry Summit
with > 500 participants
Contributed ~ 20,000 hours
of volunteer time in 2014
EmpowerU: 700 participants
PEOPLE
19 Zero Waste Facilities
Reduced 90% of waste
sent to landfills since 2009
Received award from
Wisconsin Partners for
Clean Air in May 2015
PLANET
Prosperity for external
stakeholders
SD Pays of $5.3M
$3.9M invested back
into communities in
2014
PROSPERITY
The Industry’s Largest Operations and Distribution Footprint
5
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) (10 active)
Research & Development (2)
Resin Manufacturing (1)
Specialty Products (4)
Basin
Play
Oil & Gas Terminals (42)
Unit Train Destination (3)
Manufacturing Footprint
Logistics Network
International Operations
Industrial & Recreational
Terminals (10)
2 Terminals in the same city
Leading Capacity Positions in the Largest Proppant Categories
6
#2 POSITION IN RAW FRAC SAND CAPACITY
___________________________
Source: Peers – PropTester 2014 Proppant Market Report published February 23, 2015; FMSA – internal company data
2014 CAPACITY (MM TONS) 2014 CAPACITY (MM TONS)
#1 POSITION IN RESIN-COATED SAND CAPACITY
Peers
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?
Suite of Product Solutions for Well Environment Complexity
7
TLCP
PATENTED
TECHNOLOGIES
Pioneered development of resin coating in 1976
Proprietary new products involve patented IP, especially at
high end of the market
History of innovation
Unique Position in Coated Products with Barriers to Entry
8
TECHNICAL
RELATIONSHIPS
CAPTIVE RESIN
SUPPLY AND
NEW
DEVELOPMENT
RAW FRAC
SAND SUPPLY
Process to gain customer acceptance is lengthy and
technical, but critical
Market to E&Ps to pull through demand
Resin manufacturing allows FMSA to create and protect
unique formulations
Fully integrated captive sand source
– Secures supply
– Reduces cost
Resin-Coating
Capacity (1)
___________________________
1. Competitor capacity (in million tons) based on PropTester 2014 Proppant Market Report published February 23, 2015
Captive
Sand Source
Captive Resin
Manufacturing
INTEGRATED
DISTRIBUTION
NETWORK
Pee
rs
98% of resin-coated product is sold through in-basin
terminals
2.2
Continued Innovation and Launch of Game-Changing Technologies
We develop solutions that reduce customers’ cost per Barrel of Oil Equivalent (BOE)
9
CoolSet®
Commercially Launched in
Q3 2014
Curable resin-coated proppant
Prevents proppant flowback at reservoir
temperature of 100° without activator
Momentum continues to build with increased
sales, particularly in the Permian basin, for the
past seven consecutive months. In April alone,
for example, we sold 12,000 tons.
Increases surface area of and fully fills the fracture
More than 600 stages pumped in 30 successful field
trials in 12 plays with 12 operators
Operators have achieved production gains in a trial well
that exceed 50% within two months, as compared to
direct off-set wells with conventional fluid systems using
raw sand.
Will present a paper at the Unconventional Resources
Technology Conference (URTeC) in July (San Antonio,
Texas) in collaboration with Stim-Lab, documenting
performance results
Propel SSPTM
(Self-Suspending Proppant) Continued Successful Field Trials
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
Rig Count
Proppant Market
Market Conditions: Rig Count Declines and Potential Proppant Demand
10 10
ACTIVE LAND RIGS – Average number of land rigs per quarter
1Q15 1Q14 4Q14 2Q14 TPH 3Q14 5/29/15 Spears Morgan
Stanley RBC
2015 forecasts for average rigs
1,039
@ 1,000-Rig
Decline
(~50%)
Proppant Decline
(~20% - 25%) Rig count tracked by
Baker Hughes
RIG VS. PROPPANT DECLINE
Acceleration of Horizontal Proppant Demand Continues and Is Expected to
Offset Some of the Impact of Rig Declines
Wells per Rig
Lateral Length
Stages per Foot
Proppant per Stage
Proppant
Demand
11
Robust Proppant Demand Driven by Multiplier Effect
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 (wells drilled and proppant per well) The Freedonia Group (total proppant demand)
Implications for Current Proppant Market
Proppant demand down 20% to 25% from 2014 to 2015 at current rig counts
Market demand now lower than market supply for high-quality proppant, exerting
downward pressure on pricing
– Planned capacity expansions being placed on hold in this environment – including
our Wedron facility expansion
Downward pricing pressure started early in Q1 on FOB plant volumes, which reflects:
– Share gains by large Oil Field Service companies with their own logistics network
– Highly competitive market for proppant suppliers that do not have their own delivery
infrastructure
Operators are focused on near-term costs
– May see near-term trade away from higher-cost ceramics and resin-coated sand
toward raw sand 12
Current Market Environment: Reducing Customer Costs per BOE
13
FMSA Well-Positioned to
Reduce Customer Costs
per Barrel of Oil Equivalent (BOE)
and Gain Share
Premium API Spec Sand
Technology Portfolio
Operating Scale to Enable
Vendor Consolidation
Expansive Operations & Logistics Network
Strong Customer
Partnerships
100% of FMSA Sand Meets API and Customer Specifications
14
CAPACITY BY TIER (1)
Per
cent
of C
apac
ity
Source: Peers – PropTester 2014 Proppant Market Report published February 23, 2015
(1) The PropTester 2014 Proppant Market Report published February 23, 2015 combined Tier 2 and 3 capacity. FMSA applied its own factor to segregate Tiers 2 and 3
based on its industry expertise and anecdotal evidence.
KEY FRAC SAND - API REQUIREMENTS
Tier 1 and Tier 2 sand fall within API and
customer specifications for:
Crush
Roundness
Sphericity
Acid Solubility
Purity
Size Distribution
Turbidity
Expansive Distribution Network Lowers Proppant Cost for our Customers
15
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
Curable Resin-Coated Sand Increases Total Recovery
Increases NPV by
– Reducing operating costs of flowback
– Adding strength = enhanced EUR
Total recovery greater
16
*Study was performed on vertical wells with single-stage fracs
A 23-well study proves proppant flowback prevention increases value by $115,000
per frac stage* in addition to delivering increased production from higher conductivity
compared to raw frac sand.
Propel SSPTM Lowers Production Cost per Barrel of Oil Equivalent (BOE)
17
Lower Cost per BOE
Increased Contact Area
and Conductivity
Higher IP & EUR
Long and Sustained Partnership with Our Customers
18
STRONG, DIVERSE AND BALANCED CUSTOMER BASE LONG-TERM CUSTOMER PARTNERSHIPS
Serving the major Oil Field Service companies since the
late 1970s through multiple industry cycles
Differentiated ability to partner with our customers as their needs change over time
– Ability to fulfill “just-in-time” requirements
– Adjust to shifting products and geographies
Long-term collaboration with both OFSs and E&Ps on their
total proppant-related needs, including product
development
Selected Direct Customers
Selected Shared Ultimate Customers
Collaborative approach to working with our customers:
Contract structures designed to foster partnerships and withstand market cyclicality
Market based contract pricing allowed us to move quickly in response to our customer’s needs
Our approach to contract pricing and volumes reflects our view that our customers must remain competitive
Proactively Reducing Costs in a Challenging Market
Consolidating operations into the most cost-efficient footprint :
• Sand facilities: closed our higher-cost sand facility in Readfield, WI, and idled our sand
facility in Brewer, MO
• Coating facilities: closed our coating facility in Bridgman, MI, idled our facility in Voca, TX,
and scaled back operations at our coating facilities in Fresno, TX and Monterey, Mexico
• Logistics: discontinued activity at five transloading terminals to better align our logistics
network with customer demand and deferred new rail car deliveries
Reduced overall headcount by 14%
• Expected ongoing annual savings of ~$15 million
Planning to reduce 2015 SG&A by approximately 10% compared to plan
Working with long-term vendors to secure relief on costs
Continuing to evaluate additional cost reductions as market conditions dictate
19
Proactively Managing Cash Flows in a Challenging Market
Reducing capital expenditures
• Suspended 3.0 million ton capacity expansion at Wedron until we
obtain increased visibility on additional volumes
• Capital expenditures now expected to be $90-$115 million in 2015
Managing working capital
• Reducing inventory to align with anticipated demand
– Reduced inventory by $15.9 million in Q1 2015
• DSO on accounts receivable remains stable
20
Strong Financial Performance
21
IN THOUSANDS, EXCEPT PER SHARE DATA 1Q15 4Q14
Proppant Volume (tons) 1,777 1,891
Raw Sand 1,486 1,515
Coated Proppant 291 376
Industrial & Rec Volume (tons) 531 594
Total Volumes 2,308 2,485
Revenue $301.5 $353.8
EBITDA $72.9 $87.9
Adj. EBITDA $75.1 $100.4
Diluted EPS $0.18 $0.23
Adj. Diluted EPS $0.19 $0.24
Capital Expenditure $31.9 $55.7
FINANCIAL RESULTS
FY2013
5,117
4,088
1,029
2,461
7,578
$988.4
$248.9
$292.6
$0.63
$0.75
$111.5
FY2014
7,188
5,716
1,475
2,426
9,614
$1,356.5
$368.1
$397.3
$1.02
$1.07
$143.5
Strong Cash Flow Supports Current Capital Structure
22
Committed to a strong and stable
capitalization profile – Cash flow generation exceeds capital
expenditures and debt service
– Maintenance Cap Ex $25MM to
$30MM per year
– As of mid-May 2015, our cash balance
was $155MM and our revolver remains
undrawn
– Successfully extended $161.5MM of the
B-1 term loan to coincide with B-2 term
loan maturity
Pro forma 1Q15 FY2014
Cash and Cash Equivalents $118.4 $118.4 $76.9
Debt (net of original issue discount)
Revolving Credit Facility $1.1 $1.1 $1.1
Term Loan B-1 (due March 2017) $157.7 $319.2 319.9
Extended Term Loan B-1 (due Sept 2019) $161.5
Term Loan B-2 (due Sept 2019) $908.8 $908.8 $910.9
Other Debt, Including Capital Leases $21.7 $21.7 $20.7
Total Long-Term Debt, Including Current Portions $1,250.8 $1,250.8 $1,252.6
Net Debt $1,132.4 $1,132.4 $1,175.7
LTM Adjusted EBITDA $390.3 $397.3
Debt / LTM Adjusted EBITDA 3.20x 3.15x
Net Debt / LTM Adjusted EBITDA 2.90x 2.96x
Liquidity
Cash $118.4 $76.9
Revolver Capacity $113.5 $113.5
Total Liquidity $231.9 $190.4
$ M M , U N L E S S O T H E R W I S E N O T E D
Near-Term Fairmount Santrol Strategic Initiatives
Reduce costs and maximize our efficiencies and effectiveness in our raw and value-
added coated products supply chain
Continue to invest in customer relationships and be the most cost-effective solutions
provider
Remain committed to innovation and fully commercialize new product technologies
– Propel SSPTM, CoolSet® and other new products in 2015 as appropriate
Maintain focus on liquidity and balance sheet
– Reduce net debt position and improve liquidity position by managing working capital and capital
expenditures while investing prudently to be in a strong position for recovery
We remain very confident in the long-term fundamentals of our markets and our business
model, and we believe we are in a strong position to prosper as the market strengthens
23
Reconciliation of Non-GAAP Financial Measures
24
(unaudited) Three Months Ended March 31
2015 2014
(in thousands)
Reconciliation of adjusted EBITDA
Net income attributable to FMSA Holdings Inc. $ 30,759 $ 34,541
Interest expense, net 15,308 17,906
Provision for income taxes 10,617 14,265
Depreciation, depletion, and amortization expense 16,223 12,938
EBITDA 72,907 79,650
Non-cash stock compensation expense(1) 1,883 2,094
Management fees & expenses paid to sponsor(2) -- 291
Transaction expenses(3) -- 99
Severance payments 324 --
Adjusted EBITDA $ 75,114 $ 82,134
__________
(1) Represents stock-based awards issued to our employees.
(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.
(3) Represents expenses associated with evaluation of potential acquisitions of businesses, some of which were completed.
Reconciliation of Non-GAAP Financial Measures
25
Reconciliation of adjusted earnings
Net income attributable to FMSA Holdings Inc. $ 30,759 $ 34,541
After-tax effect of adjustments noted above* 194 234
Adjusted Net income attributable to FMSA Holdings Inc. $ 30,953 $ 34,775
*Excludes non-cash stock compensation expense and uses a marginal tax rate of 40%
Earnings per share
Basic $ 0.19 $ 0.22
Diluted $ 0.18 $ 0.21
Adjusted earnings per share
Basic $ 0.19 $ 0.22
Diluted $ 0.19 $ 0.21
(unaudited) Three Months Ended March 31
2015 2014
(in thousands, except per share amounts)
Reconciliation of Non-GAAP Financial Measures
26
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)
Reconciliation of Non-GAAP Financial Measures
27
(unaudited)
Reconciliation of adjusted earnings
Net income attributable to FMSA Holdings Inc. $ 37,913 $ 170,450 $ 103,961
After-tax effect of adjustments noted above* $ 2,768 $ 7,582 $ 20,144
Net income attributable to FMSA Holdings Inc. $ 40,681 $ 178,032 $ 124,105
*Excludes non-cash stock compensation expense
and uses a marginal tax rate of 40%
Earnings per share
Basic $ 0.24 $ 1.08 $ 0.67
Diluted $ 0.23 $ 1.03 $ 0.63
Adjusted earnings per share
Basic $ 0.25 $ 1.13 $ 0.80
Diluted $ 0.24 $ 1.07 $ 0.75
Quarter 4
2014 2014 2013
(in thousands, except
per share amounts)
(in thousands, except per share
amounts)
Year Ended December 31,