KMG Chemicals — Debt Investor Presentation (May 2017)
45 slides from KMG Chemicals's debt investor presentation, May 23, 2017
Slide 1: Public Lender Presentation May 23, 2017
May 2015 Public Lender Presentation May 23, 2017 Exhibit 99.1
Slide 2: Safe Harbor Statement
Safe Harbor Statement Safe Harbor Statement Forward Looking Statements: With the exception of the historical information contained in this presentation, the matters described herein contain forward looking statements that are made pursuant to the safe harbor provisions of the Private Securities Liti
Slide 3: Agenda
Agenda Section I. Executive Summary Section II. KMG Overview & Acquisition Rationale Section III. Flowchem Overview Section IV. Financial Overview Section V. Transaction Overview Agenda
Slide 4: I. Executive Summary
I. Executive Summary | Lender Presentation
Slide 5: Transaction Summary
Transaction Summary KMG Chemicals, Inc. (“KMG” or the “Company”), headquartered in Fort Worth, TX and publicly traded on the NYSE (NYSE: KMG), is a globally diversified chemical manufacturer and provider serving mission critical applications in the electronic chemicals, wood treating chemicals, and
Slide 6: Sources & Uses and Pro Forma Capitalization
Sources & Uses and Pro Forma Capitalization (1) Estimated cash and debt balances (2) Market capitalization as of market close on May 22, 2017 (3) Pro Forma LTM Adjusted EBITDA inclusive of stock-based compensation and synergies (outlined on Pg. 41) Sources & Uses Pro Forma Capitalization ($ in milli
Slide 7: Presentation Team
Presentation Team Title Name KMG Tenure Prior Roles The combined company will be led by an experienced and deep management team collectively having over 230 years of industry experience (1) Joined the Board of Directors in 2008 (2) Includes tenure with Flowchem Industry Tenure Chairman, President, a
Slide 8: II. KMG Overview & Acquisition Rationale
II. KMG Overview & Acquisition Rationale
Slide 9: KMG Overview
KMG Overview Growth Driven Organization Dedicated to Operational Excellence Through a Consistent Focus on Execution and Efficiencies Manufactures, formulates, and globally distributes high impact specialty chemicals Headquarters - Fort Worth, Texas Employees - ~700 worldwide Trades NYSE: KMG - $670.
Slide 10: Key Investment Considerations
Compelling Value Proposition Underpinned by Mission Critical Chemicals Recurring Revenue Profile Drives Business Stability Proven Acquisition and Integration Strategy Leading Market Positions in Core Product Offerings Significant Barriers to Entry with Limited Threat of Substitution Solid Financial
Slide 11: Value Added Product Portfolio
Value Added Product Portfolio KMG’s mission critical products represent a minimal portion of the overall end product cost Electronic Chemicals Wood Treating Chemicals Industrial Lubricants (1) Pro forma for the Sealweld acquisition in February 2017 II. KMG Overview & Acquisition Rationale LTM Revenu
Slide 12: Growth Strategy
Growth Strategy KMG’s Acquisition Growth Strategy Well Defined Growth Strategy Focus on mature, niche segments of larger markets Establish leading market positions through consolidation and organic growth Maximize economic returns Realize operational and commercial synergies Well defined growth stra
Slide 13: The Evolution of KMG
The Evolution of KMG KMG has achieved substantial progress operationally, strategically and financially over the past decade Industrial Lubricants Business Evolution Electronic Chemicals Wood Treating Chemicals Legend: Key Acquisitions KMG has grown organically and through a disciplined acquisition
Slide 14: Management Biographies
Joined KMG in 2008 with more than three decades of experience leading consultative organizations B.S. in Chemistry & Business Administration – University of Connecticut, M.B.A. – Pepperdine University Christopher T. Fraser Chairman, President, and CEO 36+ Joined KMG in 2014 with former experience fr
Slide 15: Electronic Chemicals Overview
Historical Electronic Chemicals Revenue Pueblo, CO Electronic Chemicals Overview II. KMG Overview & Acquisition Rationale Electronic Chemicals: Global Footprint Leading global supplier Broad portfolio of value-added high purity process chemicals Essential products for the manufacture of semiconducto
Slide 16: Electronic Chemicals Overview (Continued)
North America Europe Asia Geographically Diverse Blue Chip Customer Base Critical supplier servicing the largest and most advanced semiconductor producers Leading edge technology in purification and analytical capabilities Extensive global supply chain expertise Strategic growth through consolidatio
Slide 17: Strategic Consolidation – Electronic Chemicals
Strategic Consolidation – Electronic Chemicals Proven Track Record of Executing Highly Strategic Acquisitions Ultra Pure Chemicals Business Electronic Chemicals Business Target Year Highlights Gained leading HPPC market share in U.S. ü Transitioned production from 4 facilities to 2 ü Increased U.S.
Slide 18: Proven Track Record of Realizing Synergies
($ in millions) Demonstrated ability to identify, execute, and integrate strategic acquisitions and realize meaningful synergies Proven Track Record of Realizing Synergies Significant Potential Growth from Nagase Acquisition Strong EBITDA Growth Opportunity ü Strengthens position in Asia by establis
Slide 19: HPPC Market Overview
Source: KMG March 2017 Investor Presentation (1) Excludes silicon wafers HPPC Market Overview ~$12 Billion Global Semiconductor Fab Materials Market (1) Global Semiconductor Fab Materials Market is ~$12 billion HPPC represents 13% of the total fab materials market Key products sold to the semiconduc
Slide 20: Favorable End Market Trends Drive Material Needs
Favorable End Market Trends Drive Material Needs Manufacturing Process Steps Increasing at Each Technology Node Emerging Markets Driving Semiconductor Revenue Growth II. KMG Overview & Acquisition Rationale Semiconductor Unit Growth Source: IC Insights, Gartner and KLA-Tencor Semiconductor unit grow
Slide 21: Other Chemicals Overview
Other Chemicals Overview II. KMG Overview & Acquisition Rationale Other Chemicals: Global Footprint Includes Wood Treating Chemicals and Industrial Lubricants platforms Wood Treating Chemicals Business: North America’s sole producer of pentachlorophenol Industrial Lubricants Business: manufactures v
Slide 22: Other Chemicals: Wood Treating Chemicals
Select Customers Other Chemicals: Wood Treating Chemicals Wood Treating Chemicals North America’s sole producer of EPA-registered penta Original Growth Platform for KMG: Fundamental to KMG’s development and early success Fully realized growth-through-consolidation strategy Serves the North American
Slide 23: Other Chemicals: Industrial Lubricants
Select Customers Other Chemicals: Industrial Lubricants Serves the ~$200 Million Global Valve Lubricants and Sealant Market Oil and gas pipeline and distribution Value-added specialty products Leading worldwide provider of products, services and solutions: Valve lubricants, cleaners, and sealants Fi
Slide 24: Strategic Consolidation – Industrial Lubricants
Target Year Highlights Purchase Price Strategic Consolidation – Industrial Lubricants Proven Track Record of Executing Highly Strategic Acquisitions Added premium global brand with top-tier customer base ü Broadened participation in key markets such as valve maintenance services and training ü At ac
Slide 25: Attractive Industrial Lubricants Market Trends
Source: ADI Market Study Attractive Industrial Lubricants Market Trends Stabilizing oil prices à companies expected to increase maintenance and new projects CapEx In North America, breakeven oil costs in unconventional plays are falling and competitive at today’s prices In the U.S., 65% of crude oil
Slide 26: Evolution of Industrial Lubricants
Evolution of Industrial Lubricants Industrial Lubricants Platform Expansion The acquisition of Flowchem strengthens and expands KMG’s Industrial Lubricants platform Consolidation and Geographic Expansion 2 Services, Education and Equipment 3 DRAs 4 Platform Initiation 1 II. KMG Overview & Acquisitio
Slide 27: Flowchem Acquisition Strategic Rationale
Flowchem Acquisition Strategic Rationale The pending acquisition of Flowchem strengthens KMG as a leading provider of performance products and services for optimizing pipeline operations and throughput Adds significant size, scale, and diversity ü Expands and strengthens capabilities and product off
Slide 28: Acquisition Overview
Acquisition Overview EBITDA by Segment Evolution (1) Flowchem generated $43 million of LTM (3/31) Adj. EBITDA Strong free cash flow generation Immediate run-rate savings and synergies from management and operational benefits; additional operational synergies expected over time Pro Forma Adjusted EBI
Slide 29: Flowchem Integration Strategy
Flowchem Integration Strategy Consistent with previous acquisitions, KMG will implement a thoughtful, disciplined approach to the integration of Flowchem II. KMG Overview & Acquisition Rationale Maintain and maximize Flowchem global brand ü Integrate G&A functions into KMG ü Explore consolidating op
Slide 30: III. Flowchem Overview
III. Flowchem Overview | Lender Presentation
Slide 31: Flowchem is the #2 global DRA provider
Flowchem is the #2 global DRA provider and is differentiated by its DRA focus, customer service and flexibility Leading global provider of DRA solutions, related support services, and equipment to midstream crude oil and refined products (gasoline, diesel, etc.) pipeline operators DRA Description: S
Slide 32: Energy Savings Overview of DRA Usage
Energy Savings Overview of DRA Usage Pipeline Flow Dynamics and Role of DRA Pipeline operators use DRA to increase throughput, lower operating pressure and / or reduce energy costs Fluid molecules Turbulent Flow Orderly flow with DRAs Drag in pipelines is caused by turbulent liquid flow Increased tu
Slide 33: Compelling Value Proposition
Compelling Value Proposition Flowchem DRA offers a compelling customer value proposition to pipeline operators, who are compensated for every barrel of crude oil or refined product that is moved through their pipeline assets (1) Based on 1,280 gallons of DRA (12 ppm per segment) daily on a 1,525 mil
Slide 34: Non-Cyclical Solutions Provider to Attractive Midstream Energy Sector
Non-Cyclical Solutions Provider to Attractive Midstream Energy Sector Flowchem has impressively grown volume, revenue, and profitability through various oil price environments Four Key Trends Driving DRA Market Growth Oilfield Service Group: Baker Hughes, Bri Chem, Canadian Energy Services, Flotek,
Slide 35: Global DRA Market Overview
Global DRA Market Overview Significant Addressable Market 2016 DRA Market Breakdown Historical and Projected DRA Demand Addressable market represents DRA demand at full penetration levels Global DRA industry demand is forecasted to grow at a CAGR of 5% to 9% through 2025P 2016 DRA Demand: ~$400 mill
Slide 36: IV. Financial Overview
IV. Financial Overview | Lender Presentation
Slide 37: Financial Policy Overview
Financial Policy Overview IV. Financial Overview Liquidity: Focused on maximizing financial flexibility and maintaining ample liquidity Liquidity is supported by a $50 million revolving credit facility (undrawn at close) plus significant free cash flow generating capability Publicly Stated Leverage
Slide 38: Historical Financial Summary
Historical Financial Summary (1) KMG has a 7/31 FYE, Flowchem has a 12/31 FYE (2) PF LTM financial position reflective of KMG’s LTM 1/31/2017 period (PF for the Nagase and Sealweld acquisitions) and Flowchem’s LTM 3/31/2017 financials; includes $6.0 million of pro forma run-rate savings and synergie
Slide 39: Pro Forma Adjusted EBITDA and Cumulative Free Cash Flow
($ in millions) $210.0 million of cumulative free cash flow from 2014 – LTM 1/31/17 ($ in millions) Pro Forma Adjusted EBITDA and EBITDA Margin Cumulative Free Cash Flow (1) (2) (1) Free Cash Flow Calculated as Adj. EBITDA – Capex (2) Pro Forma LTM financial position reflective of KMG’s LTM 1/31/201
Slide 40: KMG has quickly and prudently de-levered post strategic acquisitions
KMG has quickly and prudently de-levered post strategic acquisitions IV. Financial Overview Historical Long Term Leverage General Chemical Electronic Chemicals Business OM Group Ultra Pure Chemicals Business Val-Tex $25.5 million acquisition closed in March 2010 Cash consideration was funded from a
Slide 41: Adjustments, Run-Rate Savings, and Synergy Detail
Adjustments, Run-Rate Savings, and Synergy Detail Stock-based compensation Adjustment assuming full fiscal year benefit of the Sealweld acquisition (closed February 1, 2017) and Nagase acquisition and relevant pro forma adjustments (closed April 4, 2016) Cost savings related to plant consolidation a
Slide 42: V. Transaction Overview
V. Transaction Overview | Lender Presentation
Slide 43: Summary of Terms
Summary of Terms Borrower: KMG Chemicals, Inc., a Texas corporation (the “Borrower”) Guarantors: Each existing and future direct and indirect subsidiary (with exceptions to be agreed with respect to each subsidiary that is a controlled foreign corporation within the meaning of section 957 of the Int
Slide 44: Transaction Timeline
May 23rd – Lender Meeting June 9th – Lender Commitments Due June 15th – Close and Fund Financing Transaction Timeline Select Financing Milestones V. Transaction Overview 42856 42887 Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat 1 2 3 4 5 6 1 2 3 7 8 9 10 11 12 13 4 5 6 7 8 9 10 14 15 16 17
Slide 45: Key Investment Considerations
V. Transaction Overview Key Investment Considerations Compelling Value Proposition Underpinned by Mission Critical Chemicals Recurring Revenue Profile Drives Business Stability Proven Acquisition and Integration Strategy Leading Market Positions in Core Product Offerings Significant Barriers to Entr
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