SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event Reported): August 13, 2019
(Exact Name of Registrant as Specified in Charter)
(State or Other Jurisdiction
375 Saxonburg Boulevard, Saxonburg, Pennsylvania 16056
(Address of Principal Executive Offices) (Zip Code)
(Registrants telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
|Item 8.01.|| |
The management of II-VI Incorporated (the Company or II-VI) will be presenting at investor conferences in the near future. The presentation material is attached hereto as Exhibit 99.1 and incorporated herein by reference. This material may also be used at one or more subsequent conferences. The information contained in the attached presentation material is summary information that is intended to be considered in the context of the Companys SEC filings and other public announcements. The Company undertakes no duty or obligation to publicly update or revise this information, although it may do so from time to time.
This communication contains forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In this context, forward-looking statements often address expected future business and financial performance and financial condition, and often contain words such as expect, anticipate, intend, plan, believe, seek, see, will, would, target, similar expressions, and variations or negatives of these words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the consummation of the proposed transaction and the anticipated benefits thereof. These and other forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements, including the failure to consummate the proposed transaction or to make any filing or take other action required to consummate such transaction in a timely matter or at all, are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements. Important factors that may cause such a difference include, but are not limited to: (i) the ability of II-VI and Finisar Corporation (Finisar) to complete the proposed transaction on the anticipated terms and timing or at all, (ii) the ability of the parties to satisfy the conditions to the closing of the proposed transaction, including obtaining required regulatory approvals, (iii) potential litigation relating to the proposed transaction, which could be instituted against II-VI, Finisar or their respective directors, (iv) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the transaction, (v) the triggering of any third party contracts containing consent and/or other similar provisions, (vi) any negative effects of the announcement of the transaction on the market price of Finisars common stock and/or negative effects of the announcement or commencement of the transaction on the market price of II-VIs common stock, (vii) uncertainty as to the long-term value of II-VIs common stock, and thus the value of the II-VI shares to be issued in the transaction, (viii) any unexpected impacts from unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition and losses on the future prospects, business and management strategies for the management, expansion and growth of the combined companys operations after the consummation of the transaction and on the other conditions to the completion of the merger, (ix) inherent risks, costs and uncertainties associated with integrating the businesses successfully and achieving all or any of the anticipated synergies, (x) potential disruptions from the proposed transaction that may harm II-VIs or Finisars respective businesses, including current plans and operations, (xi) the ability of II-VI and Finisar to retain and hire key personnel, (xii) adverse legal and regulatory developments or determinations or adverse changes in, or interpretations of, U.S. or foreign laws, rules or regulations, that could delay or prevent completion of the proposed transaction or cause the terms of the proposed transaction to be modified, (xiii) the ability of II-VI to obtain or consummate financing or refinancing related to the transaction upon acceptable terms or at all, (xiv) economic uncertainty due to monetary or trade policy, political or other issues in the United States or internationally, (xv) any unexpected fluctuations or weakness in the U.S. and global economies, (xvi) changes in U.S. corporate tax laws as a result of the Tax Cuts and Jobs Act of 2017 and any future legislation, (xvii) foreign currency effects on II-VIs and Finisars respective businesses, (xviii) competitive developments including pricing pressures, the level of orders that are received and can be shipped in a quarter, changes or fluctuations in customer order patterns, and seasonality, (xix) changes in utilization of II-VI or Finisars manufacturing capacity and II-VIs ability to effectively manage and expand its production levels, (xx) disruptions in II-VIs business or the businesses of its customers or suppliers due to natural disasters, terrorist activity, armed conflict, war, worldwide oil prices and supply, public health concerns or disruptions in the transportation system, and (xxi) the responses by the respective managements of II-VI and Finisar to any of the aforementioned factors. Additional risks are described under the heading Risk Factors in II-VIs Annual Report on Form 10-K for the year ended June 30, 2018, filed with the U.S. Securities and Exchange Commission (the SEC) on August 28, 2018 and in Finisars Annual Report on Form 10-K for the year ended April 28, 2019 filed with the SEC on June 14, 2019.
These risks, as well as other risks associated with the proposed transaction, are more fully discussed in the joint proxy statement/prospectus included in the registration statement on Form S-4 (File No. 333-229052) filed with the SEC in connection with the proposed transaction (the Form S-4). While the list of factors discussed above is, and the list of factors presented in the Form S-4 are, considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward looking statements. Neither II-VI nor Finisar assumes any obligation to publicly provide revisions or updates to any forward looking statements, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws.
No Offer or Solicitation
This communication is for informational purposes only and not intended to and does not constitute an offer to subscribe for, buy or sell, the solicitation of an offer to subscribe for, buy or sell or an invitation to subscribe for, buy or sell any securities or the solicitation of any vote or approval in any jurisdiction pursuant to or in connection with the proposed transaction or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.
Additional Information and Where to Find It
In connection with the proposed transaction between II-VI and Finisar, II-VI and Finisar have filed relevant materials with the SEC, including the Form S-4, which included a joint proxy statement of II-VI and Finisar that also constituted a prospectus of II-VI, and a definitive joint proxy statement/prospectus dated February 7, 2019 (the Joint Proxy Statement/Prospectus). INVESTORS AND SECURITY HOLDERS OF II-VI AND FINISAR ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS THAT HAVE BEEN OR WILL BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders will be able to obtain free copies of the registration statement on Form S-4 and the Joint Proxy Statement/Prospectus and other documents filed with the SEC by II-VI or Finisar through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by II-VI are available free of charge within the Investor Relations section of II-VIs internet website at https://www.ii-vi.com/investor-relations/. Copies of the documents filed with the SEC by Finisar are available free of charge on Finisars internet website at http://investor.finisar.com/investor-relations.
|Item 9.01.|| |
Financial Statements and Exhibits.
|Exhibit 99.1.||Investor conference presentation materials titled Investor Presentation August 2019 used beginning August 13, 2019.|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|Date: August 13, 2019||By:|
|Mary Jane Raymond|
|Chief Financial Officer and Treasurer|
IIVI INVESTOR PRESENTATION August 13, 2019 Exhibit 99.1
This communication contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements often address expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” similar expressions, and variations or negatives of these words. Forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements. Important factors that may cause such a difference include: (i) the ability of II-VI Incorporated (“II-VI”) and Finisar Corporation (“Finisar”) to complete the proposed transaction on the anticipated terms and timing or at all, (ii) potential litigation relating to the proposed transaction, (iii) inherent risks and costs associated with the integration of the businesses and achievement of the anticipated synergies, (iv) potential disruptions from the proposed transaction that may harm the parties’ respective businesses, (v) the ability of the parties to retain and hire key personnel, (vi) adverse legal and regulatory developments or determinations that could delay or prevent completion of the proposed transaction, and (vii) the ability of II-VI to consummate financing related to the transaction. Additional risks are described under the heading “Risk Factors” in II-VI’s Annual Report on Form 10-K for the year ended June 30, 2018, filed with the U.S. Securities and Exchange Commission (the “SEC”) on August 28, 2018, and in Finisar’s Annual Report on Form 10-K for the year ended April 28, 2019, filed with the SEC on June 14, 2019. These risks, as well as other risks associated with the proposed transaction, are more fully discussed in the joint proxy statement/prospectus included in the registration statement on Form S-4 (File No. 333-2290520) filed by II-VI with the SEC in connection with the proposed transaction. Neither II-VI nor Finisar assumes any obligation to publicly provide revisions or updates to any forward looking statements, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws. Safe Harbor Statement
II-VI At a Glance
Regions 41% 24% 10% Europe North America China Japan ROW Q4 FY2019 Revenue 6% 19% Segments 24% 49% 27% II-VI Photonics II-VI Laser solutions II-VI Performance Products Q4 FY2019 Revenue Semi. Equip. Life Science Other Military 47% 23% 13% Markets Industrial Optical Communications Q4 FY2019 Revenue 14 Countries 52 Worldwide Locations 12,000+ Worldwide employees 362.7M Q4 FY2019 Revenue II-VI Overview Core Competency ENGINEERED MATERIALS Refers to groups II and VI of the Periodic Table of Elements “TWO SIX”
New Growth Markets EUV Lithography SiC for Wireless SiC for EV 3D Sensing Core Markets Optical Communications Industrial Lasers Military Our Core & Growth Markets
IPO 1987 NASDAQ S&P 500 Micro-optics VIrgo Optics Micro-optics Lighting Optical ZnSe Growth Laser Power Corp Silicon Carbide Litton SIC Group UV Filters Laser Power Corp Thermo-electric Coolers Marlow Industries Selenium Refinery Pacific Rare Metals Laser Processing Heads Highyag Micro-optics Photop Technologies Conformal Patterning Max Levy Autograph Optical Channel Monitors Aegis Lightwave Metal Matrix Components M Cubed Technologies Military & Aerospace Optical Systems LightWorks Optics Advanced Coatings Oclaro Optical Coatings Optical Amplifiers Oclaro Optical Amplifier Semiconductor Lasers Oclaro Semiconductor Laser Epiwafer Foundry Epiworks GaAs & GaN-SiC Devices Anadigics Compound Semi. Wafer Fab Kaiam Laser Limited(U.K. Fab) Faraday Rotator Integrated Photonics Direct Diode Lasers Direct Diode IIVI Acquisition History 20+ Years of Tremendous Value Creation by Integration of Acquisitions
Proven Integration Playbook Focused on Operational Improvements and Investing for Growth Oclaro Semiconductor Laser Business Case Study Semiconductor Laser business Target had a high unit cost structure With vertical integration and wide applicability in optical and industrial markets, II-VI drove margin expansion over subsequent years II-VI Laser Enterprise Revenue and Operating Margin Then (@ Acquisition) Oclaro’s semiconductor laser business was acquired in FY2014. 1 Now Revenue Op. Margin Transaction Overview (45%) 60% FY14 FY19 Operational Excellence
Acquisition of Finisar
A Powerful Combination Pro Forma Revenue1 $2.5B Pro Forma EBITDA1 $570M Locations Worldwide Diversified Global Footprint 70 7 Target End Markets Addressable Market Size2 Total Employees Worldwide $22B 24K+ Note: Pro forma Revenue and EBITDA represents LTM 09/30/2018 for II-VI and LTM 07/29/2018 for Finisar. Represents LTM 09/30/2018 for II-VI plus LTM 07/29/2018 for Finisar and includes $150mm run-rate synergies for EBITDA. EBITDA excludes amortization of intangibles, the impact of SFAS 123(R) stock-based compensation expense and one-time charges. 2022 estimated market size. Includes 3D Sensing, Power Devices for Automotive and Wireless RF size from Yole, Optical Communications from Lightcounting and Ovum, Industrial Processing, Military, Life Sciences from Strategies Unlimited.
Proliferation of Cloud Services Strategic Window of Opportunity Now Right Technology + Right Team + Right Time Inflection Point CAGR 16% CAGR 20% TAM ($B) Combined broad base of talent, technology and manufacturing enhances our ability to hit market windows today Window of Opportunity1 Electric & Autonomous Vehicles Accelerated deployments in Mobile & 5G Communications 3D Sensing Increased Data and Video Consumption Disruptive Megatrends Note: Market size forecast from Lightcounting, Ovum and Yole.
Irreversible Megatrends I Addressing Multiple Strong and Growing Markets Optical Communications 3D Sensing & LiDAR RF Electronics in Wireless Power Electronics For Green Energy $12.1B 2022 Market For 3D sensing in consumer electronics & LiDAR in automotive For terrestrial, submarine & wireless optical infrastructure and datacenters 60% 2018-22 CAGR $1.1B For 4G remote radio heads, 5G beam forming antennas & RF electronics 26% For electric vehicles (EV/HEV), smart grid power switching, solar and wind energy $2.9B 13% GaAs | InP | Si Photonics GaAs | InP SiC Source: 3D Sensing & LiDAR, Wireless RF and Power Electronics for Green Energy from Yole, Optical Communications from Lightcounting and Ovum. $1.2B 27% GaAs | GaN/SiC | Diamond
Finisar Brings Significant Next-Generation Technologies For Communications, 3D Sensing, and LiDAR Enabling New Market Growth LCoS Diffraction Gratings Coherent Tx+Rx Assemblies Coherent Tunable Laser Tunable Laser + InP Modulator High-Speed InP DML I-Temp Tunable DBR Laser + MZ Mod High-Speed GaAs VCSEL 2D VCSEL Array Transimpedance Amplifier Laser Driver Silicon Photonics PIC + EIC Clock & Data Recovery WSS Optics Integrated Circuits InP GaAs Telecom Transceiver Technology Datacom Transceiver Technology ROADMs 3D Sensing
II-VI’s GaAs Platform + Finisar’s InP Platform = Enhanced competency in 3D Sensing and LiDAR Optimization of R&D, Capital and Asset Utilization = Faster Time to Market Vertically integrated 6 inch GaAs compound semiconductor platform, one of the largest in the world = RF Devices and advanced optoelectronic device integration VCSEL Arrays For 3D Sensing & LiDAR CAGR (’18-22): +60% Source: Yole Most Compelling Platform for 3D Sensing & LiDAR The iPhone Is Just The Tip of the Iceberg For Potential Applications Tablets Security / Biometrics Auto LIDARs VR / AR eCommerce Video Game Consoles
Growth Opportunities in 5G Mobile Infrastructure Backbone Network Front- & Backhaul Network Base Stations Handsets GaAs RF GaN/SiC RF $2.4B 13% 2022 TAM: 2018-22 CAGR: $1.4B 124% $1.1B 63% Line Cards Amplifiers OCM/OTDR LPC WSS Subsystems 2017 2018 2019 2020 Global backbone buildouts in anticipation of 5G traffic 5G optical access deployments begin in Asia to support 5G New Radio 5G Smartphones & IoT to drive 5G GaAs RF demand, 5G Optical Access deployments continue 5G service to become broadly available 5G mmWave standard to drive GaN/SiC RF demand II-VI signs agreement with SEDI to develop GaN/SiC on 150 mm II-VI to complete qualification & to begin production of GaN/SiC WSS: Wavelength Selective Switch; HPC/LPC: High/Low Port Count; OCM: Optical Channel Monitor OTDR: Optical Time Domain Reflectometer TRx: Transceiver; FH: Front-haul; BH: Backhaul; RF: Radio Frequency BiDi: Bidirectional; DWDM: Dense Wavelength Division Multiplexing Source: LightCounting Note: TAM is all inclusive (not exclusively 5G driven) Sources: LightCounting & II-VI Estimates Sources: Yole, JP Morgan & II-VI Estimates (GaN/SiC RF includes 4G & 5G) Bidi DWDM TRx 100G BH TRx 25G FH TRx HPC WSS 5G RF 5G OPTICAL ACCESS Coherent TRx DWDM Filters
II-VI’s GaAs & SiC on 6” platform + Finisar’s microelectronics design expertise = Access to larger & growing markets Collaboration with SEDI for GaN/SiC RF electronics For wireless: efficient, high power RF amplification with GaN/SiC HEMT Thin-film diamond on silicon for next generation high speed wireless electronics GaN/SiC for RF Electronics Market CAGR (‘18-’22): 26% Source: Yole A world leading supplier of SiC substrates 5G WIRELESS Remote Radio Head Beam-forming Antenna For 4G & 5G Wireless Antennas For RF Devices in Wireless Handsets SiC Substrates GaAs Epiwafers GaAs pHEMT For RF Applications in Wireless 4G WIRELESS RF Electronics for Wireless Infrastructure
II-VI’s SiC on 6” platform + Finisar’s microelectronics design expertise = Access to larger & growing markets High efficiency voltage and power conversion = SiC MOSFETs for Green Energy SiC for High Power Electronics Market CAGR (’18-’22): 27% Source: Yole A world leading supplier of SiC substrates DC-DC Converter Bi-Directional Converter/ Inverter/ Electric Motor HV Battery Electric Charger Applications Electric cars (EV/HEV) Solar & Wind Energy Smart Grid Power Switching Power Electronics for Green Energy
II-VI and Finisar Both Positioned for Near Term Margin Expansion, with Added Benefits from Combination Key Drivers of Margin Improvement Significant traction for 100G CWDM4 Gen3 platform Large upside potential for 200G and 400G CDWM4 from Hyperscale customers Developing a complete portfolio of 400G solutions Design wins for next-generation coherent products Ramp in Silicon Carbide and 3D-Sensing Increasing vertical integration Estimated $150 million run-rate cost synergies Improved time to market, time to profitability and time to scale Combination
Cost of Goods Sold Supply chain management - Procurement Infeed - Internal supply of enabling materials and components ~$85 million Sales & Marketing Savings from scale General & Administration Consolidation of overlapping corporate costs Optimization of operating model Annual Estimated Synergies Achieved Within 36 months Total Significant Value Creation Potential from Synergies Research & Development More efficient R&D with scale Complementary engineering and design teams ~$65 million ~$150 million
II-VI and Finisar have combined EBITDA generation today of $570mm1,2 including estimated $150mm run-rate synergies Combined company has a strong deleveraging profile, with significant deleveraging expected from 4.1x at announcement to under 2.5x in two years post close II-VI expected to maintain ongoing ability to maximize strategic opportunities Represents LTM 09/30/2018 for II-VI and LTM 07/29/2018 for Finisar. EBITDA excludes amortization of intangibles, the impact of SFAS 123(R) stock-based compensation expense and one-time charges. Includes $150mm run-rate synergies. Strong Deleveraging Profile 2 4.1x
Phase Timing SAMR Activity Submission 12/29/2018 ----- Pre-Registration Period No maximum length of time SAMR requests additional information from parties Registration Feb. 20, 2019 SAMR registers the filing Phase I, II, & III Registration Date + 180 days, ending August 17, 2019 SAMR contacts third parties, engages in discussion with customers, conducts market studies, and review key points with companies Refile with SAMR Refile Date + 180 days Continuing review inline with initial process. Expected completion timing Fall 2019 China - SAMR Process Overview
II-VI Additional Markets
High Power Semiconductor Lasers & Laser Optics A full suite of components for multiple laser modalities Strong CO2 deployed base in active use and strong secondary market Industrial laser components: 25-35% of worldwide revenue FIBER LASER OPTICS CO2 LASER OPTICS LASER BARS CUTTING HEADS DIRECT DIODE LASER ENGINE Fiber Lasers Market CAGR (‘17-‘22): +8% Direct Diode Market CAGR (‘17-‘22): +7% Source: Strategies Unlimited CO2 laser optics: 15-20% One micron products: 15-20% Laser Components, Processing Heads, Beam Delivery Optics / Components II-VI Core Market I Industrial Laser Materials Processing
Military-Aerospace business serves four strategic areas Intelligence surveillance & reconnaissance (ISR) Missiles and ordnance EMI & survivability Highly differentiated core capabilities & products Materials engineered in-house Complex electro-optics sub-assemblies with high value add Emerging strategic platforms World leader in large sapphire panel output 24,000 sf dedicated facility Infrared Countermeasure Systems Market CAGR (’17-’22): +8% Source: Strategies Unlimited II-VI Core Market I Military
Structural Ceramic Subsystems EUV Source System: Focusing Optics Beam Transport System CO2 System: Seed Laser, Power Amplifiers EUV Lithography System EUV Lithography already started for 7 nm node production Multiple II-VI products used in each EUV system, ~1-2% of total value Products leverage II-VI materials: ZnSe, CdTe, CVD Diamond and RBSiC REAR MIRRORS OUTPUT COUPLERS MODULATOR REACTION BONEDED SIC CVD DIAMOND EUV Lithography Systems Market CAGR (‘16-’22): 9% Source: Allied Market Research II-VI Growth Applications I EUV Lithography
II-VI Financial Summary
End Market Distribution of Full Year FY18 Revenue Reported Segments FY18 Revenue FY18 Op Margin – GAAP / Non-GAAP FY18/FY17 Revenue Growth Industrial (Automotive) Fiber Optic & Wireless Comm. Military Semi Cap Life Science, Consumer, Other Laser Solutions ** $406M 10% / 12% 28% 67% (1%) 12% 3%* 7% 11% Photonics ** $487M 13% / 17% 10% 13% 77% 0% 3% 7% Performance Products $266M 13% / 15% 24% 15% (2%) 13% 40% * 19% 13% II-VI Consolidated $1,159M 12% / 15% 19% 33% (1%) 39% 10% 8% 10% * Now managed in Performance Products as of Q4FY18 ** The Laser Solutions and Photonics’ results adjusted for the LSG move from Laser Solutions to Photonics II-VI Segment Revenue by End Markets for Full Year FY18
End Market Distribution of Q4FY19 Revenue Reported Segments Q4FY18 Revenue Q4FY19 Revenue Q4FY19 Op Margin – GAAP / Non-GAAP Q4FY19/ Q4FY18 Revenue Growth Industrial (Automotive) Fiber Optic & Wireless Comm. Military Semi Cap Life Science, Consumer, Other Laser Solutions $108M $87M 11% / 13% (19%) 67% (1%) 10% 5% 9% 9% Photonics $133M $178M 13% / 16% 34% 9% 83% 0% 2% 6% Performance Products $80M $98M 14% / 17% 23% 13% (3%) 15% 43% 17% 12% II-VI Consolidated $321M $363M 11% / 16% 13% 24% (1%) 47% 13% 8% 8% II-VI Segment Revenue by End Markets for Q4FY19
End Market Distribution of Full Year FY19 Revenue Reported Segments FY19 Revenue FYY19 Op Margin – GAAP / Non-GAAP FY19/FY18 Revenue Growth Industrial (Automotive) Fiber Optic & Wireless Comm. Military Semi Cap Life Science, Consumer, Other Laser Solutions $397M 10% / 12% (2%) 62% (1%) 12% 5% 9% 12% Photonics $639M 13% / 17% 31% 9% 82% 0% 3% 6% Performance Products $327M 13% / 17% 23% 18% (5%) 13% 41% 17% 11% II-VI Consolidated $1,363M 11% / 15% 18% 27% (2%) 45% 11% 8% 9% II-VI Segment Revenue by End Markets for Full Year FY19
GAAP Expectations II-VI Only Cash and Equivalents Cash Flow from Operations Long-Term Debt (Including current portion) FY18 FY16 FY17 Shareholder’s Equity $247M $218M $271M $161M $123M $118M $439M $235M $342M $1,024M $782M $900M Cash and Liquidity FY19 $205M $178M $467M $1,133M FY19 (Actual) FY20 (Fcst) Gross Margin 38.3% 39% - 41% EBITDA 17.9% 17.5% - 20% Operating Margin 10.9% 11%-13% Typical industry EPS adjustments are detailed at the end of this presentation. II-VI Financial Trends
Transaction Consideration Approximately $3 billion of total equity value Finisar shareholders to own approximately 31% of the combined company Per Share Consideration $15.60 in cash and 0.2218x shares of II-VI common stock Exchange ratio set at announcement based on total consideration to Finisar shareholders of $26.00 per share Sources of Financing $2.0 billion of new funded debt that is fully syndicated $450 million New Revolving Credit Facility (which we do not expect to draw for the transaction) $1,975 million New Term Loans 1 $709 million of combined balance sheet cash $1,219 million of equity issued to Finisar shareholders Approval Process Approval by II-VI and Finisar shareholders Regulatory approvals Expected Closing Fall CY2019, subject to customary closing conditions Financial Highlights Up to $100 million of expected annual cost synergies realized within 24 months of transaction close; up to $150 million within 36 months of transaction close Detailed merger integration plan in place to catalyze growth Rapid deleveraging expected, from 3.5x net total leverage at close 2 to under 1.0x net total leverage by FYE 2022 Transaction Summary Currently reflects $1,175 million of Term Loan A and $800 million of Term Loan B after Term Loan A upsize in January 2019 Agent Round. Assumes cash balance of $288 million, total debt of $2,351 million and PF Adj. EBITDA of $588 million given 6/30/19 close.
Transaction Financing $2.0 billion new funded debt, fully committed financing $450 million unfunded revolver at close Pro-forma Capitalization Statistics ($ in billion) x LTM EBITDA (w/ synergies)1 Gross Debt $2.4 4.0x Cash $0.3 0.5x Net Debt $2.1 3.5x Deleveraging and Capital Allocation Combined company has a strong deleveraging profile Rapid deleveraging expected, from 3.5x net total leverage at close 2 to under 1.0x net total leverage by FYE 2022 Ongoing ability to maximize strategic opportunities Represents statistics at 06/30/2019 close. Includes $150mm run-rate synergies. EBITDA excludes amortization of intangibles, the impact of SFAS 123(R) stock-based compensation expense and one-time charges. Assumes cash balance of $288 million, total debt of $2,351 million and PF Adj. EBITDA of $588 million given 6/30/19 close. Finisar Transaction Financing
II-VI Historical GAAP EPS and Adjusted EPS Equivalent To calculate EPS comparable to some peers, below are the values of typical adjustments used by other companies II-VI Consolidated Summary of Typical Industry Non-GAAP Adjustments Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 Amortization 3.2 3.2 3.1 3.2 3.6 3.8 3.6 3.6 3.7 4.1 4.2 4.6 Share Based Comp - COGS 0.7 0.6 0.7 0.5 1.0 0.8 0.4 0.6 1.0 0.5 0.9 0.8 Share Based Comp - SGA 3.4 3.3 3.8 3.0 5.3 4.5 3.2 3.8 4.3 4.5 7.0 6.0 M&A Related Expenses - - - 0.3 2.0 - - - 1.9 8.6 4.1 4.8 7.3 7.1 7.6 7.0 11.9 9.1 7.2 8.0 10.9 17.7 16.2 16.2 Tax - - - (8.4) - - (0.1) (0.2) - (0.1) (0.2) (0.4) Impact of the “Tax Cuts and Jobs Act” and Company Actions - - - - - 15.8 (6.5) (1.3) - - - - PAT 7.3 7.1 7.6 (1.4) 11.9 24.9 0.6 6.5 10.9 17.7 16.0 15.8 Outstand Shares 63.6 64.4 65.0 65.0 65.3 65.0 72.4* 65.1 66.2 65.7 65.7 65.7 EPS Impact of Typical Industry Non-GAAP Adj. 0.11 0.11 0.12 (0.02) 0.18 0.38 0.01 0.10 0.16 0.27 0.24 0.24 * Average Shares Outstanding – Diluted for the Three Months Ended March 31, 2018 was calculated under the If-Converted method to account for the Company’s convertible debt. Reference Table 7: Earnings Per Share Reconciliation from the Q3 FY2018 Earnings Release.
II-VI Segment Reconciliation: Operating Income to Adjusted Operating Income Q4 FY19 FY19 FY18 Adjusted II-VI Laser Solutions Operating Income $ 11.7 $ 49.3 $ 49.9 Stock Compensation (1.4 ) (7.0 ) (5.7) Amortization (0.6 ) (2.1 ) (2.1) Acquired businesses one-time expenses - - (2.0) II-VI Laser Solutions Operating Income $ 9.7 $ 40.2 $ 40.1 Adjusted II-VI Photonics Operating Income $ 28.2 $ 106.6 $ 83.2 Stock Compensation (3.6 ) (12.0 ) (10.5) Amortization (2.4 ) (9.3 ) (9.5) Acquired businesses one-time expenses - (3.4 ) - II-VI Photonics Operating Income $ 22.2 $ 81.9 $ 63.2 Adjusted II-VI Performance Products Operating Income $ 17.0 $ 53.8 $ 40.0 Stock Compensation (1.8 ) (6.0 ) (3.5) Amortization (1.6 ) (5.2 ) (3.0) Acquired businesses one-time expenses (0.2 ) (0.4 ) - II-VI Performance Products Operating Income $ 13.4 $ 42.2 $ 33.5 Transaction expenses related to pending merger (4.6 ) (15.6 ) - Total Operating Income $ 40.7 $ 148.7 $ 136.8 Adjusted Operating Income $ 56.9 $ 209.7 $ 173.1