Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - Hi-Crush Inc. | exhibit991-earningsrelease.htm |
| 8-K - 8-K - Hi-Crush Inc. | q216-earningsrelease8xk.htm |
INVESTOR PRESENTATION
AUGUST 2016
Forward Looking Statements
Some of the information included herein may contain forward-looking statements within the meaning of the federal securities laws. Forward-
looking statements give our current expectations and may contain projections of results of operations or of financial condition, or forecasts of
future events. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,”
“could,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements. They
can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no expected results of operations or
financial condition or other forward-looking statements can be guaranteed. When considering these forward-looking statements, you should
keep in mind the risk factors and other cautionary statements in Hi-Crush Partners LP’s (“Hi-Crush”) reports filed with the Securities and
Exchange Commission (“SEC”), including those described under Item 1A, “Risk Factors” of Hi-Crush’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2015 and any subsequently filed Quarterly Report on Form 10-Q. Actual results may vary materially. You are
cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or
identify all such factors and should not consider the risk factors in our reports filed with the SEC or the following list to be a complete
statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated
by such forward-looking statements include: the volume of frac sand we are able to sell; the price at which we are able to sell frac sand; the
outcome of any pending litigation; changes in the price and availability of natural gas or electricity; changes in prevailing economic conditions;
and difficulty collecting receivables. All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary
statements. Hi-Crush’s forward-looking statements speak only as of the date made and Hi-Crush undertakes no obligation to update or revise
its forward-looking statements, whether as a result of new information, future events or otherwise.
2
Taking Steps to Create Value During a Recovery
3
Focusing
on Cost
Reductions
• Optimizing origin / destination pairings to minimize freight costs and efficiently
manage our railcar fleet
• Temporarily idled Augusta to maximize production from our lowest cost plants;
elected to run sponsor’s Blair facility and temporarily idle sponsor’s Whitehall facility
• Actions taken to ensure a lean cost structure across our entire business
Partnering
with Long-
Term
Customers
• Continue to sell a majority of our sand through our long-term customer relationships
• Working with customers to reduce costs along the entire sand supply chain
• Strategically partnering with market-leading customers to best position for an
eventual recovery
Enhancing
Liquidity &
Capital
Flexibility
• Completed two primary common unit offerings, raising $100mm+ of gross proceeds
and significantly strengthening our capital position; executed third amendment to
revolver to improve flexibility
• 2016 capex budget of $15-$20mm for highly strategic investments; remains flexible
based on market conditions
Improved Liquidity & Flexibility to Create Opportunity
4
• In April 2016, completed a
primary offering of 6.9
million common units
• Raised ~$50 million in
gross proceeds
• Underwritten offering
• In April 2016, completed
third amendment to
revolver facility
• Eliminates 2016 EBITDA
minimum requirements
• Reduces 1Q17 EBITDA
minimum; allows for equity
cures
• In June 2016, completed a
second primary offering of
~5.2 million common units
• Raised ~$53 million in
gross proceeds
• Proceeds fully repaid
revolver borrowings
First Primary Common
Unit Offering
Credit Facility
Amendment
Second Primary
Common Unit Offering
Liquidity Liquidity Liquidity
Flexibility Flexibility
Opportunity
- Added liquidity
- Enhanced flexibility
- Created opportunity
Credit Facility Amendment Adds Flexibility
5
1) Calculated as: (Fixed assets book value + eligible accounts receivable and inventory) / total funded debt
2) Effective Period through June 29, 2017
3) Leverage and interest coverage ratios for 2Q17-4Q17 based on annualized figures
n/a n/a n/a
-5.0
5.0x 4.5x 4.0x 3.5x
-4.0x
1.0x
6.0x
-10.0
0.0
10.0
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18+
$mm
Trailing 6 Month EBITDA Minimum Leverage Ratio Maximum3
Amendment eliminates EBITDA
minimums through end of 2016
• Pre-2017 Covenants: Eliminates EBITDA minimums through YE16, lowers 1Q17 covenant
• Equity Cure: Equity cure provision available to cover any covenant shortfalls
• Capacity: Adjusts total revolver capacity to $75 million (from $100 million)
• Post-2017 Covenants: Same leverage ratio max & interest coverage minimum beginning
6/30/17, but with new equity cure provision
• Capex: Maximum allowed capex of $28 million for FY 2016 (guidance of $15-$20 million)
• Asset Coverage1: Minimum of 1.0x to draw funds during Effective Period2
• Permitted Distributions: Limited to 50% of DCF less scheduled amortization payments
during Effective Period2
Amendment
Changes
Unchanged
Terms
Executed third amendment to revolving credit facility in April 2016
New equity cure provision available to address any
potential EBITDA covenant shortfalls
Leveraging Our Competitive Advantages
6
1) 20/100 mesh capacity, including Sponsor’s Whitehall facility and Blair facility (completed in March 2016). Includes 5.72 mm tons of
annual 20/100 mesh capacity at Augusta and Whitehall facilities, which are temporarily idled due to market conditions.
Factor Our Position The Hi-Crush Advantage
Size & Scale
Four facilities, two Class-
1 rail origins, 10.4 mm1
tons of annual capacity
Top-tier supplier with operational
flexibility and ability to meet increasingly
dynamic customer needs
Low Cost
Market leading cost
structure
Meaningful competitive financial and
operational advantage in the current
price and volume downturn
Distribution
Network
Strategic and expanding
distribution terminal
network
Improved frac sand supply chain with
lower total delivered costs, from mine to
well site
Customer
Relationships
Strong, long-term
relationships
Gaining market share through close
partnerships with key customers,
vendor consolidation, and supply
attrition
Balance
Sheet
Ample liquidity and
significant capital
flexibility
Provides resources needed for
recovery, offering optionality for
potential market opportunities
Focused
Strategy
A clear strategy to
manage near-term and
win long-term
Positioned to profitably capture long-
term market share during the recovery
Frac Sand Volumes in the Downturn
7
Source: Company filings, Bloomberg.
8
4
9
T
B
D
T
B
D
T
B
D
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
HCLP FMSA EMES SLCA
000s tons 2Q15 3Q15 4Q15 1Q16 2Q16
1,190
859 849
421
0
200
400
600
800
1,000
1,200
1,400
HCLP
(000s Tons Sold)
U.S. Rig Count
(Total)
2Q15 2Q16
-29%
-51%
Frac Sand Volumes by Quarter Frac Sand Volumes vs. Rigs
Market share consolidation trend continues despite pressure on industry volumes
Raw Frac Sand Market Share
8
Frac Sand >92% of Proppant Consumption <25% of Frac Sand Capacity = Brown Sand
Source: PropTester
• Frac sand accounted for 92% of proppant
consumption in 2015
• Frac sand market share up from 71% in
2009 due to growth in demand relative to
other proppant types
Frac Sand Capacity by Grade / Type Proppant Consumption by Type
• Brown and “river sand” accounts for <20%
of 20-70 mesh capacity
• Region-specific – mostly in Texas
• Not appropriate for many applications due
to lower crush strength
Frac
Sand,
92.3%
Ceramic, 4.1%
Resin
Coated,
3.6%
Northern White frac sand overwhelmingly largest component of the proppant market
83% 84% 77%
58%
75%
17% 16% 23%
42%
25%
0%
20%
40%
60%
80%
100%
20/40 30/50 40/70 100 Total
Northern White (Tier 1) Brown (Tier 2&3)
Strong Frac Sand Fundamentals
9
Factors Supporting a Recovery
• Supply reduced as producers idle or shut
down operations
• Net new sand supply pushed out to 2017+
as projects are delayed or cancelled
• Sand intensity trends key driver of
increased demand; “super fracs” growing
to 15,000+ tons per well
• Drilled but uncompleted well (“DUC”)
backlog represents significant pent-up
demand
Targeting of
Shale &
Unconventional
Increased
Horizontal
Drilling
Longer Laterals
Lengths
More Stages per
Foot
More Sand per
Stage
More Wells
Drilled per Rig
GREATER FRAC SAND INTENSITY
Greater frac sand intensity driven by multiple unchanged factors
Rig / Completion Rate Impact on Sand Demand1
10
10 rigs
20 days
18 wells
18 wells
180 wells
2,500
tons
450,000
tons
Rig Count
# of rigs
Rig Efficiency
Days/well drilled
Rig Productivity
Wells drilled/year/rig
Completions
Well completions/year/rig
Wells Completed
Well completions/year
Sand Usage
Tons/well
Company XYZ Demand
Tons/year
5 rigs
16 days
22 wells
17 wells
85 wells
4,500
tons
382,500
tons
-50%
+20%
Calculated
-25%
Calculated
+80%
-15%
Before After Company XYZ
1) Hypothetical example for illustrative purposes only; some results rounded
Incentivized Management Team
11
39% 61%
100%
100% 100%
98%
100% 100%
72.2% LP 27.8% LP, IDRs
Note: 1 Blair facility began operations March 2016. 2 2% of Augusta owned by Sponsor.
Wyeville Augusta2
Whitehall Blair1
Hi-Crush Proppants
LLC (Sponsor)
Avista Capital Parters
and Co-Investors
Management &
Directors
Hi-Crush
Partners LP
(NYSE: HCLP)
Public
Unitholders
Operating
Subsidiaries
Hi-Crush GP
LLC (General
Partner)
Hi-Crush Operations
Our Model – Q2 2016 Operating Results
13
Sold FOB plant
direct to customer
Sand delivered to
terminal via rail
Customer truck
delivers to well site
Sold at terminal to
customer
Freight costs
Class-1 and short-line rail
2Q16 Sales Volumes:
849,263 tons
Terminal locations
Q2 2016
51% 49%
FOB Plant In-Basin
Hi-Crush Ranks Among Largest in Industry
14
#1
in
Wisconsin
#2
in World
Largest production capacity of
frac sand in Wisconsin
Second largest production
capacity of frac sand in the world
10.4 million1 tons capacity
1) 20/100 mesh capacity, including Sponsor’s Whitehall facility and Blair facility (completed March 2016). Includes 5.72 mm tons of
annual 20/100 mesh capacity at Augusta and Whitehall facilities, which are temporarily idled due to market conditions.
Source: Internal estimates
Logistics Flexibility Critical
15
Sandstone
Formations
Sponsor’s
Whitehall Facility
• Access to all major U.S. oil
and gas basins
• Direct loading and unloading
of unit trains
• Multiple owned and
operated in-basin terminals
across Marcellus and Utica
shales and two located in
Permian Basin
• Expanding our terminal
network in the Permian and
DJ Basins for more efficient
in-basin deliveries
• Strong relationships with
multiple Class-1 and short-
line railroads
HCLP Sand Facilities
Sponsor Sand Facility
Distribution Terminals1
Basin
Play
1) Map reflects owned and operated terminals only; does not include third-party terminals utilized by Hi-Crush to deliver sand to customers.
Efficient Railcar Management
16
Railcar Fleet 3/31/15 6/30/15 9/30/15 12/31/15 3/31/16 6/30/16
Leased or Owned 2,880 2,898 3,542 3,947 4,142 4,214
Customer or System 3,502 2,452 2,191 2,104 1,869 1,546
Total 6,382 5,350 5,733 6,051 6,011 5,760
In Storage - - 250 1,906 1,913 1,161
Quarterly Lease Costs
(for the quarter ending)
$4.7 mm $5.0 mm $5.9 mm $6.6 mm $7.1 mm $7.5 mm
• Returned all system cars
• Pushed out new deliveries; ~700 scheduled to be delivered over the next
two years; weighted toward year-end 2017 and 2018
• Storage costs in 2016 estimated to be $0.5 - $1.0 million per quarter
Railcar
Management
Update
We continue to efficiently manage our railcar fleet
Financial Results
Comparison to Prior Quarters and Prior Year
18
$ in 000s, except per unit/ton Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016
Revenues $ 83,958 $ 81,494 $ 72,077 $ 52,148 $ 38,429
Adjusted EBITDA1 $ 19,195 $ 13,426 $ 19,699 ($ 10,952) ($ 3,442)
Adjusted EPU (basic)1 $ 0.31 $ 0.15 $ 0.36 ($ 0.48) ($ 0.26)
Adjusted EPU (diluted)1 $ 0.31 $ 0.15 $ 0.35 ($ 0.48) ($ 0.26)
Sales volumes (tons) 1,190,156 1,409,032 1,209,171 962,998 849,263
Contribution margin ($/ton)2 $20.67 $14.00 $ 9.66 $ 2.41 $ 1.97
Distributions per unit3 $ 0.475 - - - -
1) Adjusted EBITDA and adjusted earnings per unit for Q3 2015, Q4 2015, Q1 2016, and Q2 2016 include add-backs for one-
time expenses related to impairments and restructuring
2) Contribution margin is defined as total revenues less costs of goods sold excluding depreciation, depletion and amortization.
Contribution margin excludes other operating expenses and income, including costs not directly associated with the
operations of our business such as accounting, human resources, information technology, legal, sales and other
administrative activities
3) Represents distributions declared for the quarter
• Increasing sand intensity more than offset by lower well completions
• Working with customers and vendors to lower delivered cost at terminal locations and to
the wellhead
• Preserving and enhancing capital and financial flexibility while investing for the eventual
recovery
Second Quarter 2016 Summary
19
Second Quarter 2016 Summary – EBITDA & DCF
20
a) Maintenance and replacement capital expenditures, including accrual for reserve replacement, were determined based on an
estimated reserve replacement cost of $1.35 per ton produced and delivered during the period. Such expenditures include those
associated with the replacement of equipment and sand reserves, to the extent that such expenditures are made to maintain our long-
term operating capacity. The amount presented does not represent an actual reserve account or requirement to spend the capital.
Reconciliation of Adjusted Net Income & EPU
21
Improved Liquidity and Financial Flexibility
22
$ in 000s As of June 30, 2016
Cash $ 39,657
Revolver $ 0
Term loan1 190,166
Other notes payable 4,991
Total debt $ 195,157
Net debt $ 155,500
Net debt / LTM Adj. EBITDA 8.30x
Revolver availability2 $ 67,413
Available liquidity3 $ 107,070
1) Senior secured term loan: $200 mm original face value at L+3.75%; rated Caa1 and B+ by Moody’s and Standard & Poor’s, respect ively;
includes accordion feature to increase capacity to $300 mm. Presented net of discounts and issuance costs.
2) Revolving credit agreement at 6/30/16: $67.4 mm available at L+4.50% ($75 mm capacity less $7.6 mm of LCs); includes accordion feature
to increase capacity to $100 mm.
3) Revolver availability plus cash.