A Global Leader in Engineered Materials & Opto electronic Components Investor Presentation NASDAQ Global Select: IIVI Sidoti & Company 17 th Annual Institutional Investor Forum March 18, 2013 Craig A. Creaturo, Chief Financial Officer and Treasurer
2 Safe Harbor Statement Except for historical information, the matters discussed in this presentation may contain forward-looking statements that are subject to risks and uncertainties. These risks and uncertainties could cause the forwardlooking statements and II-VI Incorporated s (the Company s) actual results to differ materially. In evaluating these forward-looking statements, you should specifically consider various factors, including the factors listed in the Risk Factors section of the Company s most recent annual report filed on Form 10-K and most recent quarterly reports filed on Form 10-Q. These factors may cause the Company s results to differ materially from any forward-looking statement. Forward-looking statements are only estimates and actual events or results may differ materially. II-VI Incorporated disclaims any obligation to update information contained in any forward-looking statement. This presentation contains certain non-gaap financial measures. Reconciliations of non-gaap financial measures to their most comparable GAAP financial measures are presented at the end of this presentation.
II VI Incorporated at a Glance 3 Founded: 1971 Headquarters: Profitability: Saxonburg Pennsylvania, USA 40 consecutive years since 1973, and counting Listing: October 1987 on NASDAQ: IIVI Employees: Locations: Businesses: Focus: History and Overview ~ 6,500 worldwide 35 locations in 14 countries 12 businesses organized into 4 reportable segments Growth; AACGR of 17% in revenues and 16% in earnings since 1987 EBITDA Margin: 21% to 26%, FY10 FY12 FY12 Revenues of $535M by Markets, Geography and Segments Medical 4% Photovoltaic 4% 18% Military 22% Optical Communication Advanced Products Group Military & Materials Non U.S. 60% 22% All Other 4% Industrial 48% U.S. 40% 14% Infrared Optics 38% Near Infrared 26% Markets Geography Segments
4 Three Acquisitions in Fiscal Quarter Ended December 31, 2012 Transaction Date Business Acquired Purchase Price (1) Recent TTM Revenues (2) II VI Segment Nov 1, 2012 M Cubed Technologies, Inc. $74M $52M Advanced Products Group Dec 3, 2012 Thin Film Filter Business and $27M $17M Near Infrared Optics Interleaver Product Line from Oclaro, Inc. Dec 21, 2012 LightWorks Optics, Inc. $35M $22M Military & Materials (1) Purchase price for LightWorks Optics, Inc. includes maximum earn out opportunities of $4.2 million. (2) TTM Revenues for M Cubed Technologies as of June 30, 2012, TTM Revenues for Thin Film Filter Business and Interleaver Product Line from Oclaro, Inc. and for LightWorks Optics, Inc. as of September 30, 2012.
M Cubed Technologies, Inc. 5 Aerospace Defense Develops advanced ceramic materials and precision motion control products addressing the semiconductor display, industrial and defense markets. Manufacturing locations in Monroe and Newtown, Connecticut and Newark, Delaware. Engineered materials company. History of successfully leveraging material technology and unique process knowledge to develop value added products for OEM markets. Intimate customer relationships and a solid reputation with industry leaders. High value consumable products. Wafer Chuck Semiconductor Application Defense Neutron Absorbing Materials
6 Thin Film Filter Business and Interleaver Product Line from Oclaro, Inc. The purchase of the thin film filter business expands the Company s precision thin film coating capabilities for both the telecom and the fast growing life science markets. Located in Santa Rosa, CA with 60 employees in a 33,000 square foot manufacturing facility. Recent revenue mix was 65% telecom and 35% life science. Optical Components Applications in Life Science: RT PCR Flow Cytometry Hematology Analyzer DNA Sequence Microscopy Plate Readers Key Products Development in Photop: Filters / Flow Cells / Lenses and Objective / Lasers / Assembly Bandpass Filters
7 LightWorks Optics, Inc. LightWorks manufactures precision optical systems and components including visible, infrared and laser based systems and subassemblies. LightWorks is complementary to II VI s existing EEO military infrared optics business, both of which are based on Southern California. LightWorks opto mechanical assembly design augments EEO s optics manufacturing/assembly. Over 50% of LightWorks business is sole source. Several current LightWorks products are driven by foreign military sales. EEO manufacturing and ISO 13485 enables growth for LightWorks Life Science business.
Common Capabilities 8 Advanced Products Group Infrared Optics Assembly Crystal Growth Military & Materials Coating Fabrication Near Infrared Optics Effective July 1, 2012, the Company changed its segment reporting structure to include VLOC in the Military & Materials segment. Previously, VLOC was included in the Near Infrared Optics segment. All segment information has been updated to reflect this change.
Segment: Infrared Optics End Markets: Industrial 95% FY12 Revenues: $202M Military 5% FY12 Segment Earnings Est. Market Size: $560M as a % of Revenues: 25% Crystal Growth: Manufacturing Operations: Zinc Selenide (ZnSe), Zinc Sulfide (ZnS) and CVD Diamond U.S., China, Singapore and Germany II VI Infrared (1971): Leading supplier of optics, components and materials to manufacturers and users of infrared/co 2 lasers (10 micron wavelength) 85% 90% of revenues come from replacement optics needed for the worldwide installed base of over 60,000 high power (>1kW) CO 2 lasers HIGHYAG (2008): Manufactures fiber coupled beam delivery systems and processing tools for industrial lasers at 1 micron wavelength, including fiber lasers 9 Owned 75% by II VI INFRARED OPTICS
Segment: Near Infrared Optics End Markets: Optical Comm. 75% FY12 Revenues: $140M Industrial 25% FY12 Segment Earnings Est. Market Size: $2B as a % of Revenues: 10% Crystal Growth: Yttrium Vanadate (YVO 4 ), Yttrium Lithium Fluoride (YLF) and Yttrium Aluminum Garnett (YAG) Manufacturing Operations: China, Vietnam, U.S., and Australia Photop (2010): Supplier of crystal material, optics, microchip lasers and optoelectronic modules primarily for optical communication networks Products include passive optical components such as WDM modules, dispersion compensation modules, switches, isolators and wavelength lockers for wired (10G/40G/100G) and wireless applications Aegis (2011): Manufacturer of tunable optical devices: optical channel monitors, fiber couplers and fiber combiners for fiber lasers Main contract manufacturer in Thailand was flooded in October 2011; fully restored manufacturing capacity with assistance from Photop 10 Photop Advanced Coating Center (2012): Purchased from Oclaro, Inc. NEAR-INFRARED OPTICS
Segment: Military & Materials End Markets: FY12 Revenues: $118M EEO, MLA & VLOC Military 100% FY12 Segment Loss PRM Photovoltaic 45% as a % of Revenues: (1)% Industrial 40% Agriculture 15% Est. Market Size: $1B Crystal Growth: Selenium (Se), Tellurium (Te) and Germanium (Ge) Manufacturing Operations: U.S. and Philippines EEO (2000): Supplier of infrared products for military applications, such as targeting, navigation and thermal imaging systems Leader in sapphire based products, including panels for the Joint Strike Fighter s Optical Targeting System LightWorks Optics, Inc. (2012): Complementary to EEO s business MLA (2010): Produces micro fiber conductive mesh patterns enabling EMI protection for military aircraft, land vehicles and missiles VLOC (1994 1996): Manufacturer of precision optics and crystal components for near infrared and visible light military applications PRM (2007): Produces and refines selenium for steel and glass manufacturing and agricultural uses, and tellurium for photovoltaic applications Supplies selenium and tellurium to other II VI businesses and also recycles scrap material for these businesses MILITARY & MATERIALS 11
Segment: Advanced Products Group End Markets: FY12 Revenues: $75M Military 30% FY12 Segment Earnings Optical Comm. 20% as a % of Revenues: 11% Industrial 20% Consumer 15% Medical 15% Est. Market Size: $1B Crystal Growth: Manufacturing Operations: Bismuth Telluride (Bi 2 Te 3 ) and Silicon Carbide (SiC) U.S., Vietnam and China 12 M Cubed (2012): Develops advanced materials and ceramics manufacturing processes in the fields of Metal Matrix Composites (MMCs) and Reaction Bonded Silicon Carbide (RBSiC). Marlow (2004): Leader in thermoelectric cooling and power generation solutions Vietnam manufacturing utilized for non military products WMG (R&D): WBG (2001): Manufactures single crystal silicon carbide substrates for wireless infrastructure, RF electronics and power switching industries Provides expertise in materials development, process development and manufacturing scale up ADVANCED PRODUCTS GROUP
13 Fiscal Year Revenues ($M) 10 Year Growth History Fiscal Year EBITDA (1), Adjusted ($M) $600 $135 $500 $535 $503 $120 $105 $400 $300 $200 $187 $255 $224 $345 $316 $292 $90 $75 $60 $130 $114 $100 $124 $143 $45 $30 $29 $34 $46 $55 $68 $80 $62 $72 $0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 $15 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Organic Growth + Timely Acquisitions = Strong Financial Results (1) Earnings before interest, taxes, depreciation and amortization (EBITDA) adjusted to exclude non cash, non tax write off of goodwill in 2006 and gain on sale of an equity investment in 2008
14 Solid Returns / Consistent Performance Return on Invested Capital Return on invested capital is defined as net income divided by the sum of the carrying value of common stock and debt.
5 Year Margin History 15 41.2% 39.7% 39.0% 41.1% 36.1% 25.3% 19.5% 21.2% 21.0% 16.4% 15.0% 25.9% 19.6% 21.3% 13.5% Impacted by Te and Se write-offs and Thailand flooding FY08(1) FY09 FY10 FY11 FY12 Gross Margin % EBITDA Margin % Operating Margin % EBITDA is defined as earnings before interest, taxes, depreciation and amortization. (1) Earnings before interest, taxes, depreciation and amortization (EBITDA) adjusted to exclude a gain on sale of an equity investment in 2008
5 Year Cash Flow History ($M) 16 The Company s Board of Directors authorized the Company to purchase up to $25 million of its Common Stock. The repurchases will be financed by cash on hand and amounts available under the Company s existing credit facility. During the quarter ended September 30, 2012, the Company repurchased approximately 317,000 shares for $5.9 million. Total repurchases under the Board approved plan were approximately 619,000 shares for $10.9 million. Free cash flow is defined as cash flow from operations less capital expenditures.
17 Trailing 12 Month Revenues and EBITDA ($M) EBITDA is defined as earnings before interest, taxes, depreciation and amortization.
Quarterly Financials ($M) 18 $140 $138 $19 $20 $18 $136 $134 $132 $13 $14 $14 $13 $12 $16 $14 $12 $130 $128 $138 $137 $10 $8 $126 $133 $132 $6 $124 $122 $127 $126 $4 $2 $120 $0 Quarterly Revenues Net Earnings
19 Solid Balance Sheet ($ M) 06/30/12 12/31/12 Cash $134.9 $162.8 Accounts Receivable &Inventory $242.4 $245.7 Fixed Assets, Net $153.9 $184.0 Total Assets $706.5 $846.9 Total Debt (1) $12.8 $124.5 Equity $591.4 $617.5 (1) Current borrowing capacity is $140 million under revolving credit facility.
20 II VI Advantages Diverse End Markets Leading Market Positions Global Manufacturing Footprint Proven Financial Success Growth via Organic and Acquisitions Market Cap: $1.1B Recent Stock Price: $17.63 per share Tangible Book Value: $10.35 per share
Non-GAAP Reconciliations ($000 s, except % s; all periods fiscal year) 21 Reconciliation of EBITDA to Net Earnings 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 EBITDA 28,560 33,974 46,389 55,156 67,539 79,940 61,850 72,443 130,311 113,800 Interest expense 849 412 945 1,790 1,007 242 178 87 103 212 Depreciation and amortization 9,327 9,632 12,705 15,784 15,849 15,524 15,354 21,039 28,446 34,693 Income taxes 4,430 7,080 8,525 10,541 12,241 24,936 7,407 12,582 18,744 17,620 Goodwill impairment 17,630 Gain on sale of equity investment (26,455) Loss (earnings) on discontinued operations, net of taxes 2,334 (487) 959 (1,383) 476 1,425 2,077 Net earnings 11,620 17,337 23,255 10,794 37,966 64,268 36,834 38,735 83,018 61,275 Revenues 123,514 142,679 187,242 223,626 254,684 316,191 292,222 345,091 502,801 534,630 Reconciliation of EBITDA Margin to Return on Sales 2008 2009 2010 2011 2012 EBITDA margin 25.3% 21.2% 21.0% 25.9% 21.3% As a % of revenues: Interest expense 0.1% 0.1% 0.0% 0.0% 0.0% Depreciation and amortization 4.9% 5.3% 6.1% 5.7% 6.5% Income taxes 7.9% 2.5% 3.6% 3.7% 3.3% Goodwill impairment Gain on sale of equity investment (8.4)% 0.0% Loss on discontinued operations, net of taxes 0.5% 0.7% Return on sales 20.3% 12.6% 11.2% 16.5% 11.5% 20.3% 12.6% 11.3% 16.6% 11.5% Reconciliation of Free Cash Flow to Cash Flow from Operations 2008 2009 2010 2011 2012 Free cash flow 27,604 33,356 58,583 32,635 45,229 Capital expenditures 17,855 15,557 13,837 40,859 42,840 Cash flow from operations 45,459 48,913 72,420 73,494 88,069
Non-GAAP Reconciliations, contd. ($000 s, except % s) 22 Reconciliation of EBITDA to Net Earnings Trailing 12 Months 9/30/2011 12/31/2011 3/31/2012 6/30/2012 9/30/2012 12/31/2012 EBITDA 131,729 124,922 118,962 113,800 107,251 112,634 Interest expense 132 184 198 212 189 335 Depreciation and amortization 29,922 31,599 33,455 34,693 35,454 37,095 Income taxes 18,344 15,543 16,639 17,620 15,915 20,564 Net earnings 83,331 77,596 68,670 61,275 55,693 54,640