CIRCOR International — Debt Investor Presentation (November 2017)
64 slides from CIRCOR International's debt investor presentation, Nov 9, 2017
Slide 1: Public Lender Presentation November 2017
Public Lender Presentation November 2017 Confidential - Not for Public Distribution
Slide 2: Forward-Looking Statements
2 Forward-Looking Statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may often be identified by the use of words such as “an
Slide 3: Use of Non-GAAP Financial Measures
3 Use of Non-GAAP Financial Measures Adjusted operating income, Adjusted operating margin, Adjusted net income, Adjusted earnings per share (diluted), EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, pro forma combined figures, net debt, net leverage and free cash flow are non-GAAP financial measure
Slide 4: Special Notice regarding Publicly Available Information
4 Special Notice regarding Publicly Available Information THE COMPANY HAS REPRESENTED THAT THE INFORMATION CONTAINED IN THIS LENDER PRESENTATION REGARDING THE COMPANY OTHER THAN PROJECTIONS, FINANCIAL ESTIMATES, FORECASTS AND OTHER FORWARD-LOOKING INFORMATION IS CONFIDENTIAL, SENSITIVE AND PROPRIETA
Slide 5: Today's Presenters
5 Scott Buckhout Chief Executive Officer Rajeev Bhalla Chief Financial Officer AJ Sharma Senior Vice President, Business Development Tanya Dawkins Corporate Treasurer Today’s Presenters Confidential - Not for Public Distribution
Slide 6: Agenda
6 Agenda Transaction Overview Chris Blum – Deutsche Bank Section 1 Key Credit Highlights Scott Buckhout – CEO AJ Sharma – SVP, Business Development Section 3 Financial Overview Rajeev Bhalla – CFO Tanya Dawkins – Corporate Treasurer Section 4 Company Overview Scott Buckhout – CEO AJ Sharma – SVP, Bu
Slide 7: Transaction Overview
Section 1 Transaction Overview Confidential - Not for Public Distribution
Slide 8: Transaction Overview
8 Transaction Overview Background On September 24, 2017, CIRCOR International, Inc. entered into a definitive agreement to acquire the Fluid Handling business (“FH”) from Colfax (“CFX”) for $855 million (the “Transaction”) or $765 million, net of $90 million anticipated tax benefits associated wit
Slide 9: Estimated Sources, Uses and Pro Forma Capitalization
9 Estimated Sources, Uses and Pro Forma Capitalization Note: Cash & debt balances presented as of Q3 2017 (a) Based on purchase price of ~$855 million less $163 million CIRCOR equity issuance and $150 million pension liability (b) Based on 20-day volume weighted average price of $49.48 as of Septemb
Slide 10: Company Overview
Section 2 Company Overview Confidential - Not for Public Distribution
Slide 11: What is CIRCOR?
11 What is CIRCOR? En e rg y Instrument Valves & Fittings: Process controls Highly Engineered Ball Valves Welded Body Valve: Gas transmission A d va n ce d Flo w Solution s Sensors: Brake pedal position sensors Control Valves: Park brake selector valves Flight Components: Landing gear va
Slide 12: Strategic Rationale
12 Strategic Rationale Combination creates $1.1bn global manufacturer of flow control products for severe service applications Strategic Overview Fluid Handling (“FH”) is a leading supplier of screw pumps – Serves severe service flow control applications in diverse end markets – Provides end-to-en
Slide 13: Fluid Handling Consistent with Disciplined M&A Strategy
13 Fluid Handling Consistent with Disciplined M&A Strategy Building on Track Record of Successful M&A Differentiated Technology Severe service engineered applications in niche flow control segments A leader in 3-screw pumps A leader in 2-screw and specialty centrifugal pumps Compelling Growth
Slide 14: Overview of CIRCOR Segments
14 Overview of CIRCOR Segments Advanced Flow Solutions (25% of PF Revenue) Financial Summary: LTM Q3 Revenue LTM Q3 Adj. EBITDA % LTM Adj. EBITDA margin $270 $47 17.5% Key Product Categories: Aerospace Valves Defense Switches and Sensors Pump Protecting Valves Control Valves Key Brands
Slide 15: Combined Company Profile
15 Fluid Handling Energy AFS Pumps Reliability Services Valves Pumps MC & RS Pro forma Combined Company Profile Broader Product Offering Greater Scale (Sales) Margin Expansion (Adj. EBITDA) Combined Sales Mix ($ millions) Pro forma Note: Amounts presented LTM Q3 2017 with the exception of combined S
Slide 16: Diversified End Market Exposure and Strong Aftermarket Channels
16 52% 17% 37% 18% 42% 28% 24% 16% 20% 6% 7% 6% 18% 8% CIR CFH Pro forma Diversified End Market Exposure and Strong Aftermarket Channels ($ millions) Oil & Gas Industrial Power Aerospace & Defense Comm. Marine Note: Amounts presented LTM Q3 2017 OEM 74% $614 $466 $1,080 Sales Mix by End Market Sales
Slide 17: Pro Forma Sourcing and Supply Chain
17 10% 5% 8% 25% CIR FH PF CIRCOR 2020 Target Make Highly technical in-house manufacturing, assembly and test In-house manufacturing is kept to high tolerance machinery that is critical to the performance of the product; examples include: ‒ Main screw in 2 and 3-screw pumps ‒ Tight tolerance and
Slide 18: CIRCOR Pro Forma Manufacturing Strategy
18 CIRCOR Pro Forma Manufacturing Strategy Manufacturing Overview Most plants operate 1 to 1.5 shifts per day for 5 days / week Both CIR / FH suppliers have enough capacity to support demand Significant number of subscale factories in high cost regions Manufacturing Footprint Headquarters CIRC
Slide 19: Key Credit Highlights
Section 3 Key Credit Highlights Confidential - Not for Public Distribution
Slide 20: Key Credit Highlights
20 Key Credit Highlights Confidential - Not for Public Distribution Mission critical products designed for severe applications with a focus on innovation A leader in niche segments with the further benefit of scale Longstanding, diverse customer base driving meaningful recurring revenues Diverse end
Slide 21: Mission critical products designed for severe applications
21 Mission critical products designed for severe applications 1 Process: Refinery Delayed Coking Unit Problem: Manual unheading of high temperature coke takes 2+ hours daily; extremely unsafe environment Product: DeltaValveTM Bottom Unheading Device (BUD) Benefit: Reduced unheading time from 2 hours
Slide 22: Mission critical products designed for severe applications
22 Mission critical products designed for severe applications 1 Refinery Valves • Higher efficiency-low steam consumption • Expand technology into ethylene market – bi- directional flow • Improve reliability and in-line service Instrumentation & Sampling • Higher pressure class • Severe service envi
Slide 23: A Leader in Niche Segments - Valves
23 A Leader in Niche Segments with the Further Benefit of Scale - Valves 2 Diversified product portfolio with recognized brands that fulfill its customers’ unique application needs Well positioned products in the growing flow and motion control markets Focused on technologically differentiated
Slide 24: A Leader in Niche Segments - Pumps
24 Product % of FH Sales A Leader in Niche Segments with the Further Benefit of Scale - Pumps 2 Portfolio breadth, application engineering and strong brand recognition are leading differentiators for FH across all end markets FH has the most comprehensive screw pump portfolio Strong manufactur
Slide 25: Longstanding, Diverse Customer Base Driving Recurring Revenues
25 OEM: 74% Longstanding, Diverse Customer Base Driving Meaningful Recurring Revenues 3 Top 10 Customers Represent 15% of Revenue Confidential - Not for Public Distribution 50% of orders are <$1 million 75% of orders are <$5 million
Slide 26: Diverse End Markets Rebounding Outlook in Key Customer Sectors
26 Diverse End Markets Rebounding Outlook in Key Customer Sectors 4 Segment Trends Outlook Exceptional strength in unconventional investment in North America Moderate increase in upstream outside North America Increase in new pipelines and upgrades Refining capacity growth in Middle East and
Slide 27: Diverse End Markets Poised for Growth
27 Diverse End Markets Poised for Growth as Demonstrated by Key Indicators Note: Capex for integrated Oils and Independent E&Ps Source: EIA, Rystad Energy, GlobalData, Exxon Mobil Confidential - Not for Public Distribution Energy Industrial Aerospace & Defense Oil & Gas Capex 1 3 % 9 % 4 % 1 5 % (9%
Slide 28: Proven Operator: Simplification
28 Proven Operator with a Clearly Executable Strategy Simplification 5 CIRCOR Simplification Since 2013 Opportunities with Fluid Handling 2016 17 Systems 0 50,000 100,000 150,000 200,000 Sq. Feet 0 500 1,000 1,500 2,000 Business Units Suppliers Factories 2016 15 Factories 2013 24 Factories 2016 ~2,6
Slide 29: CIRCOR Historical Financials Over Time
29 $846 $858 $841 $656 $590 28.6% 31.2% 30.5% 30.4% 31.0% 2012 2013 2014 2015 2016 Revenue Gross Margin ($ millions) Current management team joined CIRCOR 5 Proven Operator with a Clearly Executable Strategy CIRCOR Historical Financials Over Time (29.8)% Note: All financials are reported CIRCOR numb
Slide 30: Synergy Roadmap
30 Proven Operator with a Clearly Executable Strategy 5 Synergy Roadmap Anticipated Synergy Detail Sourcing Manufacturing Rationalization G&A Reduction $23 $17 $4 $2 Anticipate $23 million in synergies with ~90% implementation by year 2 Cost Synergies ($ millions) Confidential - Not for Public Distr
Slide 31: Integration Overview
31 Integration Overview Scott Buckhout Chief Executive Officer AJ Sharma Senior Vice President, Business Development Darryl Mayhorn Group President, Fluid Handling Fluid Handling Team Largely operates as a stand-alone 3rd group of CIRCOR Group is fully staffed, with all functions represented S
Slide 32: Attractive Financial Profile with Attractive Free Cash Flow
32 $59 $17 $46 $12 $26 $80 $44 $68 $85 $97 $90 $79 $- $50 $100 $150 2014 2015 2016 LTM Q3 2017 ($ i n m ill ion s ) CIRCOR Fluid Handling Fixed ~35% Variable ~65% Attractive Financial Profile with Attractive Free Cash Flow 6 Flexible Cost Structure Asset-light business model with a flexible cost s
Slide 33: Best-in-Class Management Team with Proven Track Record
33 Best-in-Class Management Team with Proven Track Record7 CIRCOR Leadership Strong senior management team with relevant leadership experience Scott Buckhout President, Chief Executive Officer Rajeev Bhalla Executive Vice President, Chief Financial Officer AJ Sharma Senior Vice President, Business D
Slide 34: Financial Overview
Section 4 Financial Overview Confidential - Not for Public Distribution
Slide 35: Historical Financial Overview
35 Historical Financial Overview Revenue Capital Expenditure Actual Free Cash Flow(a) Pro forma Adj. EBITDA Capex as % of sales 1.5% 1.7% 2.0% 2.5% ($ millions) Confidential - Not for Public Distribution $790 $666 $680 $614 $654 $533 $462 $466 $1,445 $1,199 $1,142 $1,080 - $400 $800 $1,200 $1,600 $2
Slide 36: Order and Backlog Overview
36 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 649 630 577 506 501 480 453 460 499 502 505 0 100 200 300 400 500 600 700 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Order and Backlog Overview Orders Backlog Quoting Activity ($ millions) Energy
Slide 37: Capital structure and de-leveraging
37 CIRCOR is focused on generating organic EBITDA growth and robust cash flow Capital structure provides ample liquidity and financial flexibility – $150 million cash flow revolver – Minimal amortization requirements on the Term Loan – Significant free cash flow to fund de-leveraging and growth
Slide 38: Syndication Overview
Section 5 Syndication Overview Confidential - Not for Public Distribution
Slide 39: Summary of Terms
39 Summary of Terms Borrower CIRCOR International, Inc. (the “Borrower”) Guarantees The Senior Secured Credit Facilities shall be unconditionally guaranteed on a senior secured basis by each of the Borrower’s direct and indirect material domestic restricted subsidiaries Security The Senior Sec
Slide 40: Pro Forma Organization Structure
40 Pro Forma Organization Structure CIRCOR International, Inc. (US) CIRCOR Foreign Subsidiaries $150mm Revolving Credit Facility (“RCF”) $785mm Term Loan B (“TLB”) Denotes Borrower Denotes Guarantor Denotes Restricted Subsidiary CIRCOR US Entities FH US Entities CIRCOR Foreign Entities Confidential
Slide 41: Questions and Answers
41 Questions and Answers Confidential - Not for Public Distribution Mission critical products designed for severe applications with a focus on innovation A leader in niche segments with the further benefit of scale Longstanding, diverse customer base driving meaningful recurring revenues Diverse end
Slide 42: Appendix I Additional Segment and Product Detail
Appendix I Additional Segment and Product Detail Confidential - Not for Public Distribution
Slide 43: Global Valve Market Overview
43 Global Valve Market Overview Lower priced, commoditized Basic design and function to open/close Simple liquids like water Stock and sell business model, limited application know how Typical operating parameters – Ambient conditions (Low temperature and pressure) Serves a broad range o
Slide 44: Energy: Product Portfolio Overview
44 Energy: Product Portfolio Overview Products Applications % of Q3 LTM 2017 Energy Sales Severity of Application Key Differentiators Blowdown Compressor Stations Gas transmission and separation systems [TBU] High Full range 1” – 60” Temp range -320ºF to +1470ºF Operating pressure up to
Slide 45: Advanced Flow Solutions: Product Portfolio Overview
45 Advanced Flow Solutions: Product Portfolio Overview Products Applications % of Q3 LTM 2017 AFS Sales Severity of Application Key Differentiators Steam boilers Paper manufacture Water treatment [TBU] Medium Converts angular position into a DC voltage Operates in harsh conditions Revers
Slide 46: Global Pump Market Overview
46 Global Pump Market Overview Less expensive (commoditized) Moving basic fluids like fresh water Mostly Centrifugal pumps Typical operating parameters – Ambient temperatures – Low viscosity – Low pressure Serves a broad range of applications – Recreation (Pools, aquariums, fountains) – Ag
Slide 47: Fluid Handling: Differentiated Product Portfolio
47 Fluid Handling: Differentiated Product Portfolio Products Applications % of 2016 FH Sales Severity of Application Key Differentiators 3 Screw Pump Fuel oil transfer Machinery lubrication Hydraulic systems High Highest efficiency Ultra-quiet pumps World-class manufacturer Global reac
Slide 48: Appendix II Additional Financial Detail
Appendix II Additional Financial Detail Confidential - Not for Public Distribution
Slide 49: CIRCOR Adjusted EBITDA Reconciliation
49 CIRCOR Adjusted EBITDA Reconciliation 1 2 3 4 5 6 7 8 9 11 10 12 1 Expenses associated with streamlining and restructuring activities including reducing overhead, consolidating facilities and the associated revaluation (write- off) of inventory 2 Costs (or gains) associated with closing facilitie
Slide 50: Fluid Handling Adjusted EBITDA Reconciliation
50 Fluid Handling Adjusted EBITDA Reconciliation 1 2 3 4 5 6 7 8 9 11 10 12 13 1 Costs associated with closing the Baric Systems, FH Middle East and Lubritech Venezuela entities 2 Colfax Corporation charges for Group corporate allocations (recorded as Management fees) in addition to expected costs t
Slide 51: Combined Company Pro Forma Adjusted EBITDA Reconciliation
51 Combined Company Pro Forma Adjusted EBITDA Reconciliation Twelve Months Ended Q3 2017 $ in millions CIRCOR Fluid Handling Pro Forma Combined Revenue, as reported $614 $466 $1,080 Net Income $15 $14 $29 Interest Expense 8 2 10 Income Taxes (2) 12 10 Depreciation & Amortization 29 11 40 Stock Compe
Slide 52: CIR and FH Free Cash Flow Reconciliation
52 (a) (a) Cash flow from operations adds back $8mm related to asbestos liability funding; the asbestos liability will not be transferred to CIRCOR as part of the acquisition of FH Source: Company filings CIR and FH Free Cash Flow Reconciliation $ in millions FY-14 FY-15 FY-16 LTM Q3 2017 CIR cash f
Slide 53: CIRCOR Segment and Revenue Reconciliation
53 CIRCOR Segment and Revenue Reconciliation CIRCOR Segment Operating Income to Segment EBITDA LTM Q3 2017 $ in millions Energy AFS Revenue, as reported $344 $270 Segment Operating Income $32.4 $34.8 Stock Compensation 0.4 0.4 Disposed Business - 5.5 Other income (expense) (0.9) (1.2) Depreciation &
Slide 54: Appendix III Financial Overview
Appendix III Financial Overview Confidential - Not for Public Distribution
Slide 55: Summary historical financial information
1 1.1. Summary historical financial information Historical financial summary CIRCOR has a long and consistent history of cash flow generation, with a track record of stable margins, low capital expenditures and through-cycle performance resiliency. ($ in millions) Revenue Pro forma Adj. EBITDA $790
Slide 56: Pro forma annual historical financials by segment
2 Pro forma annual historical financials by segment ($ in millions) 2014A 2015A 2016A LTM Q3 2017 Energy (a) $513 $384 $412 $344 Advanced Flow Solutions (a) 277 282 268 270 Fluid Handling 654 533 462 466 Total revenue $1,445 $1,199 $1,142 $1,080 Energy Adj. EBITDA $93 $50 $61 $40 % EBITDA margin 18.
Slide 57: Financial performance comparison
3 Financial performance comparison Energy Energy segment revenues of $344 million for the last twelve months ending Q3 2017 decreased $68 million, or 16%, as compared to the twelve months ending Q4 2016. The decrease was primarily driven by substantially lower shipment volumes within the Company’s l
Slide 58: AFS and Fluid Handling performance
4 AFS segment revenues of $282 million for the twelve months endings Q4 2015 increased $5 million, or 2%, as compared to the twelve months ending Q4 2014. The increase was primarily driven by industrial solutions businesses and was partially offset by the Company’s aerospace businesses where CIRCOR
Slide 59: Net working capital
5 Net working capital ($ in millions) 12/31/2014 12/31/2015 12/31/2016 9/30/2017 Days in the year 365 365 366 365 CIRCOR Reported revenue $841 $656 $590 $614 Reported COGS 584 457 407 423 Trade receivables $157 $126 $133 $130 Inventories 183 178 150 180 Accounts payable (a) 87 64 50 64 Net working c
Slide 60: Net working capital commentary
6 CIRCOR During the LTM Q3 2017 period, net working capital consumed cash of $14 million, primarily due to an increase in inventories for the North American distributed valves business as the Company ramped-up operations and the supply chain to meet the increased demand during Q2 and Q3, 2017. CIRCO
Slide 61: Synergies
7 1.2. Synergies Management has identified $23 million of cost synergies, ~90% of which will be implemented by year 2. Opportunities for further improvement lie both within the Fluid Handling business and through the acquisition integration. Currently, Fluid Handling has 5 vertically integrated fact
Slide 62: Orders and backlog overview
8 1.3. Orders and backlog overview CIRCOR has maintained consistent orders and backlog through cyclical end-market demand, with the largest impact seen in the Energy segment, which has steadily increased activity in the past three quarters. Backlog represents orders the Company believes to be firm a
Slide 63: Orders by segment commentary
9 In 2015, orders decreased 33.9% to $447 million from 2014 orders as of $676 million mainly due to lower bookings in the North American short-cycle market, a business divestiture, downstream instrumentation business, and control valves. Lower orders in the North American short-cycle market were imp
Slide 64: CIRCOR Adjusted EBITDA by Segment
10 1.4. Appendix CIRCOR Adjusted EBITDA by Segment The following tables provide a segment-level reconciliation of EBITDA, by year (excluding corporate overhead and expenses). $ in millions FY-14 FY-15 FY-16 LTM Q3 2017 CIR Segment Energy AFS Energy AFS Energy AFS Energy AFS CIR Segment Revenue $513.
Circor International — Debt Investor Presentation (November 2017) on 6ix