Cowen and Company 5 th Annual Ultimate Energy Conference Jenniffer - - PowerPoint PPT Presentation

Jenniffer Deckard, President and Chief Executive Officer Mark Barrus, Interim Chief Financial Officer Sharon VanZeeland, Vice President, Investor Relations & Business Development

Cowen and Company 5th Annual Ultimate Energy Conference

December 2, 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

• ther cautionary statements in the company’s SEC filings. Forward-looking statements are not guarantees of future performance or an assurance that
• ur 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.

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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

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• Industry-leading integrated logistics network with 40 terminals serving the oil and

gas market

• Unit train capabilities: 6 destinations and 2 sand origin facilities
• State-of-the-art R&D facilities
• Phenolic resin manufacturing facility
• Proprietary product and process technologies, including Propel SSPTM
• 800 million tons of proven mineral reserves
• 11 (7 active) sand facilities with 12.3 million tons of annual stated capacity
• 10 (6 active) coating facilities with 2.3 million tons of annual stated coating capacity
• Broad innovative product suite including Northern White, Texas Gold and

value-added coated products

• 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

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Industry’s Most Comprehensive Operations and Logistics Footprint

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Comprehensive Logistics Platform and Vertically Integrated Operations with Access to Every Major U.S. Oil & Gas Basin

Coating Operations (10) (6 active) Mining & Processing (11) (7 active) Research & Development (2) Resin Manufacturing (1) Specialty Products (4) Basin Play Oil & Gas Terminals (40) Unit Train Destination (6) Manufacturing Footprint Logistics Network Industrial & Recreational Terminals (9) Unit Train Origin (2) Administrative Offices (6) International Operations

Super LC Coolset OptiProp G2 PowerProp Hyperprop

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Closure Pressure (000s psi)

THS Super DC

SOLUTIONS FOR ALL CLOSURE PRESSURES (1)

_____________________

1. Pressure performance data are specific to 20/40 mesh. Recommended range for each product based on optimal crush, conductivity, and price tradeoffs.

Northern White API Frac Sand Texas Gold API Frac Sand Raw Sand Resin-Coated Sand Resin-Coated Ceramic ADDITIONAL SOLUTIONS

Eliminate Flowback Reduce Fines Prevent Embedment

Broad Suite of Product Solutions Designed to Address Wide Range of Complexities Across All Well Environments

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TLC

2015-2016: Proppant Intensity Continues to Increase

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___________________________ Sources Include public E&P presentations, internal estimates and order flow analysis PacWest Consulting Partners The Freedonia Group

Stages Per Foot ~+10% Proppant Per Stage ~+10% Lateral Length Wells per Rig Proppant Intensity +20-25% Rig Efficiencies Drilling Hours/Rig

Proppant Driver Expectations:

• Lower rig counts
• Greater rig efficiencies offset by

fewer hours per rig = Flat wells per rig… but when market rebounds, expect increasing well count and proppant per rig as rig utilization increases

• Flat lateral length
• Increased stages/foot (up ~10%)
• Increased proppant/stage (up ~10%)

= Proppant intensity up 20 to 25%

2,300 2,700 3,400 4,300

Average Proppant Tons / US Horizontal Well

1Q 2014 4Q 2014 4Q 2015 4Q 2016

+26% additional

anticipated increase

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1,886 1,059 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 Average US Land Rig Count Q2 - Q4 2014 Q1 - Q3 2015 36.7 27.4 10 20 30 40 5,604 4,836 1,000 2,000 3,000 4,000 5,000 6,000 FMSA Frac Sand

Proppant Intensity Continues to Offset Rig Decline While FMSA Frac Sand Volumes Throughout 2015 Compare Favorably to Estimated Overall Frac Sand Market

Frac Sand Market Volumes in Millions of Tons

___________________________ Sources TPH PacWest Consulting Partners The Freedonia Group 8

Volumes in Thousand of Tons

*Study was performed on vertical wells with single-stage fracs in August 2014

Resin coated proppant: Market and FMSA volumes down proportionately more than frac sand

During the Downcycle, E&Ps Making Tradeoffs Between Short-Term Costs and Mid-Term EURs and Well NPVs

Recent Signals Indicate Returning Focus on EURs and Well NPVs – As mega fracs enter second stage of flow production, E&Ps observing higher IPs but steep decline curves – Resin-coated sand both increases IP and improves long term production (higher overall EUR) by keeping the proppant in place and reduces maintenance cost associated with proppant flowback – Customers designing well completions with tail-in of resin coated proppant

1,089 576

200 400 600 800 1,000 1,200 FMSA Resin Coated Proppant Volumes

Q2 - Q4 2014 Q1 - Q3 2015

23-well study proves proppant flowback prevention increases value by $115,000 per frac stage* in addition to delivering increased production as compared to raw frac sand

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Near-Term Fairmount Santrol Focus: Actions to Manage Through the Market Challenges

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1. Consolidating our operations into a more cost-effective footprint 2. Refining and optimizing our logistics network to the benefit of both Fairmount Santrol and our customers

• 3. Reducing spending across all cost categories
• 4. Investing in key areas of the business
• Wedron, IL facility expansion
• Successful trials of Propel SSPTM

5. Working with lenders to provide flexibility and managing working capital and capital expenditures

Enhance Efficiency Reduce Spending Invest in the Future Manage Liquidity

• 1. Consolidating Our Operations into a More Cost-Effective Footprint
• Idled higher-cost sand facilities and optimizing use of lower-cost facilities
• Since December 2014, average production cost per ton reduced by: 14% across all

frac sand grades, 35% for Northern White sand, and 25% for resin-coated products

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Wedron Wedron Wedron

• 2.0

4.0 6.0 8.0 10.0 12.0 January 2015 October 2015 1H 2016

Millions of Tons

9.8 7.1 10.1

Proppant Solutions’ Effective Sand Capacity

FMSA Terminal FMSA Active Proppant Solutions Mining & Processing Unit Train Destination Unit Train Origin 2 Unit Train API Sand Origins and 1 In-Basin API Sand Origin 40 Destinations in Heart of Completions Activity Lower Cost to Basin and Well Site for FMSA and Customers

• 2. Leveraging Our Terminal Network & Unit Train Capabilities to the

Benefit of Both FMSA and Customers

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51 unit trains shipped in Q3 26 unit trains shipped in October

• 2. Progress in Managing the Cost and Delivery of Rail Cars
• Cost related to excess rail cars is between $4 and $5 per ton on third-quarter

Proppant Solutions volumes

• Through negotiations with our suppliers:

– Accelerated the delivery of 600 cars into the third and fourth quarters of 2015 in exchange for zero car deliveries in 2016 and pushing 2,300 car deliveries out to 2017 and 2018 – 1,600 leases to expire in 2016 and 2,600 leases due to expire in 2017 & 2018

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Managing Rail Car Deliveries

2015 Q3 Q4 2016 2017 2018 Entering Fleet 200* 150* 1,500 800 Expiring Leases 1,600 1,400 1,200

* Net of lease expirations

• 3. Reducing Spending Across All Cost Categories
• SG&A was $18.3 million in the third quarter of 2015, down 5% from the second quarter,

and down 40% from the fourth quarter of 2014

• The Company’s year-to-date adjusted SG&A* is $61.5 million, down 17% from the

same period a year ago

• Focused on identifying opportunities for further cost reductions and efficiency

improvements throughout the organization

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$30.5

$24.0 $19.2

$18.3 $0 $10 $20 $30 $40 4Q14 1Q15 2Q15 3Q15

SG&A by Quarter (4Q14 – 3Q15)*

Dollars in Millions * Excluding IPO costs and restructuring charges

• 4. Investing in Key Areas of the Business:

Lower-Cost, Optimally Located Wedron, IL Facility Expansion

Expansion on track:

• 1.5 million tons by Q1 2016 and

1.5 million tons in Q2 2016 Why Wedron?

• Access to high-quality Northern White frac

sand reserves

• Optimally located along Class 1 railway system
• Unit train capable
• Lower-cost delivery into key oil and gas basins

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ENHANCED WELL PERFORMANCE

• Maximum propped

surface area

• 100% conductivity

regain

• No formation damage
• Enhances production

curve

• Increase both IP & EUR

OPERATIONAL EFFICIENCIES IN WELL COMPLETION

• Less water
• Less chemicals
• Less pump time
• Prevents screenouts
• No specialized

equipment

• No water heating
• 4. Investing in Key Areas of the Business: Propel SSPTM

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Propel SSP™: A Self-Suspending Proppant Transport Solution

Northern White Frac Sand & Water Northern White Frac Sand Propel SSP & Water

Customer Adoption

• Multiple customers plan to continue use of Propel SSP™ through 2016

Backed by Results of Recent Six-Well Field Trial in North Dakota’s Williston Basin

• Increased 90-day cumulative oil production 39% compared with the geologic
• ffset wells
• Specifically, in areas with lower porosity and permeability, production improved

more than 80%

• Improved efficiency by not requiring fluid heating at 35° F and above
• 4. Increased Production and Operational Efficiency Drive

Customer Adoption of Propel SSP™

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• 5. Managing Our Liquidity

Increased cash balance to $179.5 million at end of Q3 and maintained similar balance through late November

• 30% reduction in inventory since 12/31/14
• 2015 capital expenditures reduced by $25 million to

expected levels of $95 - $100 million – 2016 Estimate of $10 - $15 million for base capital expenditures and $8 million for completion of Wedron expansion Proactively worked with lenders to increase flexibility:

• Extended $161.1 million of Term B-1 loans Q1 2017

maturity to Q3 2019 maturity

• Amended leverage ratio covenant to provide greater

revolver flexibility, most notably: – 2016: Replaced leverage ratio covenant with minimum EBITDA covenants – 2017: Increased leverage ratio covenant for first three quarters

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2014 30-Sep-15

• Adj. LTM EBITDA

$397.3 $233.8 Cash Balance $76.9 $179.5 Term B-1 Loan $319.9 $156.3 Extended Term B-1 Loan 160.3 Term B-2 Loan 911.1 904.5 Other Debt 21.6 20.4 TOTAL DEBT $1,252.6 $1,241.5 Gross Leverage 3.15X 5.31X Net Leverage 2.96X 4.54X Revolver Availability $28.5 Total Liquidity $208.0

• Scalability and flexibility of

sand and valued added coated product offerings to match market needs

• Advantaged distribution

network with key unit train

• rigins and destinations

Fairmount Santrol Positioned to Compete in All Market Cycles –

A Leading Solutions Provider Differentiated in Every Area of the Value Chain

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OPERATIONAL SCALE PRODUCT PORTFOLIO TECHNOLOGY AND INNOVATION COMMITMENT TO PEOPLE, PLANET & PROSPERITY DISTRIBUTION

• Tightly managing costs

and efficiencies in the near-term

• Selectively investing in

key areas that will best position us today and for the eventual recovery

• Proactively managing
• ur liquidity and debt

structure

Enhance Efficiency Reduce Spending Invest in the Future Manage Liquidity

Short to Mid-term Focus in Downcycle Customers Value our Differentiated Business Model

Thank You & Questions

www.FairmountSantrol.com

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Appendix: Reconciliation of Non-GAAP Financial Measures

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Appendix: Reconciliation of Non-GAAP Financial Measures

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Appendix: Reconciliation of Non-GAAP Financial Measures

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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