II-VI INCORPORATED

IIVI
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II VI Incorporated : September, 2020 - Inverstor Presentation

09/16/2020 | 05:55pm

Investor Presentation

September 2020

Copyright 2020, II-VI Incorporated. All rights reserved.

Safe Harbor Statement

This presentation contains forward-looking statements relating to future events and expectations that are based on certain assumptions and contingencies. The forward-looking statements are made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 and relate to the Company's performance on a going-forward basis. The forward-looking statements in this presentation involve risks and uncertainties, which could cause actual results, performance or trends to differ materially from those expressed in the forward-looking statements herein or in previous disclosures.

The Company believes that all forward-looking statements made by it in this presentation have a reasonable basis, but there can be no assurance that management's expectations, beliefs or projections (including the Company's updated guidance for the fourth quarter of fiscal 2020 set forth in this presentation) as expressed in the forward-looking statements will actually occur or prove to be correct. In addition to general industry and global economic conditions, factors that could cause actual results to differ materially from those discussed in the forward-looking statements in this presentation include, but are not limited to: (i) the failure of any one or more of the assumptions stated above to prove to be correct; (ii) the risks relating to forward-looking statements and other "Risk Factors" discussed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2019 and in the Company's other reports filed with the Securities and Exchange Commission; (iii) the purchasing patterns of customers and end-users; (iv) the timely release of new products, and acceptance of such new products by the market; (v) the introduction of new products by competitors and other competitive responses; (vi) the Company's ability to assimilate recently acquired businesses, and risks, costs and uncertainties associated with such acquisitions; (vii) the Company's ability to devise and execute strategies to respond to market conditions; (viii) the anticipated use of the net proceeds from the proposed offerings; and/or (ix) the risks of business and economic disruption related to the currently ongoing Coronavirus outbreak and any other worldwide health epidemics and outbreaks that may arise. The Company disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events or developments, or otherwise.

All information in this presentation is as of June 29, 2020. This presentation contains non-GAAP financial measures and key metrics relating to the Company's past performance. These non-GAAP financial measures are in addition to, and not as a substitute for or superior to measures of financial performance prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. For example, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. As required by Regulation G, we have provided reconciliations of those measures to the most directly comparable GAAP measures, which are available in the Appendix.

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 2

Company Overview

II-VI at a Glance

"TWO SIX"

Vertically Integrated

Refers to groups II and VI of the

Model

Periodic Table of Elements

Core Competency

Engineered Materials

1971

22,000+

69

Year Founded

Employees

Locations

All data as of 6/31/2020 or quarter then ended

FY20 Revenue

$2.6B

Cash & Equivalents

$493M

FY20 Free Cash Flow

$160M

18

Countries

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 4

Our Vision

A world transformed through innovative materials vital to a better

life today and the sustainability of future generations

Mobile

Intelligent

Electric

Proliferation of

Deployment of

5G Wireless

Cloud Services

Increased Data and

Adoption of

Growth in Electric &

Video Consumption

3D Sensing

Autonomous

Vehicles

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 5

Core Strategy

Core Competency

  • A Leader in engineered materials and optoelectronic devices
  • Differentiated lasers, optics, and integrated circuits
  • Enabling the convergence of communications, computing, and sensing

Innovation Strategy

Markets

Diversified per Platform

Infrastructure

Capital Intensive

Performance

Valued By Customers

Products

Process Intensive

Differentiation

Engineered Materials

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 6

History of Insightful Targeting and Successful Integration of Strategic Acquisitions

10 Years of continuous revenue growth(1)

CAGR: 19%

$2,638

$2,380

4 Transformative Acquisitions

2019

2016

2013

2010

InP Technology

Platform

$683 $742

$487 $516 $551

$1,362

$1,159

$972

$827

Epitaxial Wafer

GaAs

and SiC

Electronic

Technology

Device Platform

Platform

Optical Network

& China Market

5G

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY20PF (2)

  1. Figures prior to FY2019 do not reflect the adoption of ASC 606.
  2. Includes FY20 Q1 Pro forma: Three Months Ended 09/30/2019 for II-VI and Three Months Ended 10/28/2019 for Finisar.

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 7

Thousands of Market Leading Customers Across Diverse Markets

Sampling of representative customers based on approvals for public release

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 8

II-VI Has Managed COVID-19 Effectively To Date

Early Warning from

China Footprint

Swift Reaction to Rapidly Changing Situation

Minor Disruption to

Supply Chain

  • Early China impacts forced supply chain adjustment in fiscal Q3
  • Prepared early and company-wide contingency plans across global footprint
  • Manufacturing facilities essential and now all operating
  • Office work transitioned effectively
  • Safety procedures established for all active facilities
  • II-VIvertical integration enabled company to retain control of entire supply chain
  • No major impact to productivity across office footprint

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 9

Q4 FY20 Overview

FY20 Revenue by Quarter ($M)

Q4 FY20 Revenue

$746M

$746

$666

$599$627

$341

9%

Revenue by

End Market

72%

Q1 Q1PF* Q2

Q3

Q4

  • Pro Forma Revenue
    Three Months Ened 09/30/2019 for II-VI and Three Months

Ended 10/28/2019 for Finisar.

48%

2%

Revenue by

7%

Region

16%

27%

7% Aerospace & Defense

6% Consumer Electronics

5% Semiconductor Capital Equipment

2% Life Science

1% Other

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 10

Rapid Revenue Growth at Scale

Strong Revenue Growth(1)

(Pre-Finisar Acquisition)

Growth 11%

18%

19%

18%

Finisar Acquisition

Continued Momentum

Bolstered Scale

$2,638

$1,362

$1,159

$972

$827

FY2016 FY2017 FY2018 FY2019

Note: Dollars in millions.

  1. Figures prior to FY2019 do not reflect the adoption of ASC 606.
  2. Prepared in accordance to ASC 805.

$1,362

FY2019

PF(2) FY2020

$746

$627

Q3 FY20

Q4 FY20

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 11

New U.S. Commerce Department Rulings Were Issued During August 2020

Restrictions on Huawei Based on Product and Equipment Technology

Effects on II-VI:

  • Most products scheduled to ship by 9/14 were shipped
  • Effects on Q1FY21 not expected to be material based on strong backlog and other demand
  • For Q2-Q4 FY21, Huawei expected to be 5% or less or revenue
  • Company expects overall revenue effects to be moderate due to backlog and demand and we will work to offset the variations

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 12

Enabling Mobility & Electrification

Ramping silicon carbide substrate capacity 5-10x including 200mm as well as qualifying a SiC epitaxial platform over the next 5 years

POWER ELECTRONICS FOR ELECTRIC VEHICLES

RF ELECTRONICS FOR WIRELESS BASE STATIONS AND RADAR

  • 100 and 150 mm diameter conductive substrates
  • 2015: Believed to be world's first 200 mm conductive substrates
  • For SiC MOSFET and other power devices
  • About 10% more driving distance on the same charge
  • 100 and 150 mm diameter semi-insulating substrates
  • 2019: Believed to be word's first 200 mm semi-insulating substrates
  • For SiC-based GaN HEMT devices
  • GaN/SiC enables high-bandwidth 5G bands

GREEN ENERGY

Solar & Wind Energy

Smart Grid Power Switching

EV/HEV

5G

4G

Bi-Directional Converter/ Inverter/ Electric Motor

WIRELESS

WIRELESS

DC-DC Converter

Electric Charger / HV Battery

Beam-forming Antenna

Remote Radio Head

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 13

Two Decades of SiC Materials Innovation

2'' Wafer

World First

Manufacturing

100 mm Wafer

150 mm Wafer

200 mm Wafer

3'' Wafer

Demonstrated

Demonstrated

Demonstrated

Manufacturing

High Quality Wafer

Manufacturing

4H n-Type

6H SI

Manufacturing

Major Capacity Expansion

02

03

04

05

06

07

08

09

10

11

12

13

14

15

16

17

18

19

Advantages of Large Diameter Substrates

  • Large diameter substrate fabrication cost (per unit area) is reduced significantly
  • Large diameter wafer availability has helped move SiC-based devices from niche to mainstream
  • Existing 200 mm silicon wafer fab lines can be used for SiC devices manufacturing

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 14

Vertically Integrated SiC Technology Platform

Vertical

Integration

SiC Modules

SiC Device

SiC Chips

SiC Epiwafers

SiC Substrates

GE Technology

GE Technology

Ascatron

GE Technology,

Ascatron, INNOViON

Ascatron

Legacy II-VI

Recent Strategic Activities:

  • II-VIlicenses technology for SiC from GE (6/29/20)
  • II-VIto acquire Ascatron (8/13/20)
  • II-VIto acquire the outstanding interests of the owners of the parent of INNOViON (8/13/20)

Significant SiC Market Opportunity(1)

($bn)$30+

$0.5

20202030

  1. Internal company estimates. Includes module and device TAM.

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 15

Addressing Multiple and Strong Growing Markets

RF and Power Electronics

Optical Communications

SiC | GaN/SiC | Diamond

GaAs | InP | LCoS

For electric vehicles, smart

For terrestrial, undersea,

power grids and 4G/5G RF

wireless optical infrastructure

antennas

and datacenters

3D Sensing & LiDAR

GaAs | InP

For 3D sensing in consumer

electronics & LiDAR in

automotive

Aerospace & Defense

GaAs | Sapphire

For F35, contested space,

directed energy and

hypersonics

CY25 Market

CY20-25

CAGR

$6.2B

24%

Source: Yole, Strategy Analytics, LightCounting (includes devices)

$22B

14%

Source: Ovum, LightCounting, Cignal AI, Internal Estimates

$7.5B

24%

Source: Morgan Stanley, Forbes, Yole, IDC

$14B

13%

Source: Internal estimates

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 16

Growth Opportunities in 5G Mobile Infrastructure

Mobile subscribers quickly

Accelerated need to deploy new

Carriers rearchitecting their

migrating to 5G

5G infrastructure worldwide

networks for 5G

II-VI Finisar

5G OPTICAL ACCESS

5G RADIO ACCESS

Photonic Solutions Segment

Compound Semiconductors Segments

Backbone Network

Front- & Backhaul Network

Base Stations

Handsets

Coherent TRx

HPC WSS

LPC WSS

25G FH TRx

Bidi DWDM TRx

Line Cards

Amplifiers

OCM/OTDR

DWDM Filters

Subsystems

100G BH TRx

GaN/SiC RF

GaAs RF

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 17

Indium Phosphide Devices: Upside to TAM and Gross Margins

Hyperscale

5G Optical

Coherent

Datacenters

Infrastructure

Transmission

MARKET STRATEGY

  • Leveraging our existing sales channels in the transceiver market to drive InP component revenue
  • Leveraging our proven ability to successfully market both components and modules
  • Target the right mix of components and high speed modules to enhance gross margins

Datacom Components

Telecom Components

25G and 50G DFB Lasers

10G and 25G Tunable Lasers

50G and 100G EML

InP IQ Modulators

Lasers for Silicon Photonics

Dual High-Speed Coherent Detectors

Externally Modulated Laser (EML)

Externally Modulated Tunable Laser

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 18

3D Sensing & LiDAR

  • Market drivers
    • Face biometrics, augmented reality, automotive in-cabin & LiDAR, machine vision
  • Two U.S. based compound semiconductor wafer fabs
    • Warren, NJ:Shipped hundreds of millions of 3D sensing VSCEL arrays
    • Sherman, TX: Completed qualification and begun shipping
    • Vertically integrated: Epitaxial growth, device fabrication and automated wafer testing
    • Broad portfolio of products: Lasers, optics & integrated circuits
      • Offers a roadmap to integration and miniaturization

GaAs VCSEL

940 GaAs

1550 InP

DUAL PASS

WIDE INCIDENCE

ARRAYS

EDGE-

EDGE-

BAND FILTERS

ANGLE MIRROR

EMITTING

EMITTING

LASERS

LASERS

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 19

Lasers for Materials Processing & EUV

Strong demand for laser processing heads and EUV lithography

AUTOMATION

ELECTRIC VEHICLE BATTERY MANUFACTURING

Remote laser welding heads

Laser processes adapted to most joining tasks

assisted by machine vision software

on the cell, module, pack, and frame levels

FULL LINE SUPPLIER OF MATERIALS, COMPONENTS AND SUBSYSTEMS FOR HIGH POWER LASERS

CO2 LASER OPTICS

FUSED SILICA LASER OPTICS SAPPHIRE LASER OPTICS

DEFORMABLE MIRORS

LASER MODULES

LASER BARS

DIRECT DIODE LASERS

LASER LIGHT CABLES

CUTTING HEADS

WELDING HEADS

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 20

Aerospace & Defense

Significant new opportunities ahead with strong channels to the market

STRONG ABILITY TO DIFFERENTIATE THE END SOLUTION

Advanced

Semiconductor

Electro-Optic

Materials

Lasers

Subsystems

MARKETS

PRODUCTS

DIFFERENTIATORS

Intelligence

IR sensors

Dedicated vertically integrated

Surveillance &

Windows and lenses

facilities

Reconnaissance

Sapphire enclosures

Contested Space

Telescopes

30+ year of design, fabrication,

Imaging lenses

and launch of products

Directed Energy

Laser subsystems

Beam directors

Fiber amplifiers

Supplier of key laser weapons components and subsystems

Hypersonics

Nose cones

Qualified proprietary coatings

Phased Array Laser Optics

Seeker optics

and patterning

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 21

Life Sciences

BIOTECHNOLOGY MEDICALSCIENTIFIC

Gene Sequencing and Testing for COVID-19 with

Lasers, Optics, and Thermoelectrics

II-VI plays an important role in the supply chain for Polymerase Chain Reaction (PCR) Instruments that can determine the outcome of patient testing for COVID-19.

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 22

COVID-19 Has Accelerated II-VI's Secular Tailwinds

Driving Increasing Demand for Connectivity and High-Performance Infrastructure

Video Conferencing

Life Sciences / Diagnostics

5G

Content Streaming

Smart Power

Energy Efficiency

Work-From-Home

II-VI is enabling the convergence of

communications, computing, and sensing

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 23

Financial Overview

Attractive and Increasing Gross and Operating Margins

Strong Execution and Synergy Realization Post Finisar Transaction Close Driving Margins

Non-GAAP Gross Margin(1)

Non-GAAP Operating Margin(1)

42%

38%

38%

31%

Last Quarter (2)

Last Quarter (2)

Q3 FY20

Q4 FY20

Before Close

Before Close

16%

17%

13%

9%

Last Quarter (2)

Last Quarter (2)

Q3 FY20

Q4 FY20

Before Close

Before Close

  1. All non-GAAP amounts exclude certain adjustments for share-based compensation, acquired intangible amortization expense, certain one-time transaction expenses, fair value measurement period adjustments and restructuring and related items. See Appendix for reconciliation to most comparable GAAP measures
  2. II-VIfigures are for the three months ended September 30, 2019 and Finisar figures are for the three months ended July 28, 2019.

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 25

Significant Value Creation Potential from Synergies

Annual Est Synergies

Yr 1 Annual Run Rate

Synergies Achieved

Within 36 months

75% through Yr 1

Cost of

Supply chain management - Procurement

~$85 M

~$35 M

Infeed - Internal supply of enabling

Goods Sold

materials and components

Research &

More efficient R&D with scale

Complementary engineering and

Development

design teams

General &

Consolidation of overlapping

~$65 M

~$15 M

corporate costs

Administration

Optimization of operating model

Sales &

Savings from scale

Marketing

TOTAL

~$150 M

~$50 M

Annual Run Rate refers to total savings achieved in full 12 month period.

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 26

Key Takeaways

1

One of the Largest Photonics and Compound Semiconductor Companies

2

3

4

5

Materials Expertise Drives Differentiation in Multiple Growing Markets

Vertically Integrated, Diverse Global Manufacturing Footprint

History of Insightful Targeting and Successful Integration of Strategic Acquisitions

Strong Execution: Finisar Integration and Synergies Realization Ahead of Plan

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 27

Appendix

Transaction Overview

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 28

II-VI Segment Revenue by End Markets for Q4FY20 QTD

End Market Distribution of Q3FY20 QTD Revenue

Q4FY20 Op

Q4FY20/

Pro Forma*

Revenue

Fiber Optic &

Life Science,

Reported Segments

Q4FY19

Q4FY20

Margin -

Q4FY19

Industrial

Change

Wireless

Military

Semi Cap

Consumer,

Revenue

Revenue

GAAP / Non-

Revenue

(Automotive)

FY20 Q4/

Comm.

Other

GAAP

Growth

FY19 Q4

Photonic Solutions

$178M

$517M

10% / 17%

190%

3%

95%

0%

1%

1%

Compound

$185M

$229M

9% / 16%

24%

24%

19%

20%

12%

25%

Semiconductors

(1%)

II-VI Consolidated

$363M

$746M

9% / 17%

106%

12%

9%

72%

6%

4%

9%

(0%)

* Pro Forma per FY20 Form 10-K.

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 29

II-VI Segment Revenue by End Markets for Full Year FY20

End Market Distribution of Full Year FY20 Revenue

Reported Segments

FY20

FYY20 Op Margin

FY20/FY19

Industrial

Fiber Optic &

Life Science,

- GAAP / Non-

Revenue

Wireless

Military

Semi Cap

Consumer,

Revenue

(Automotive)

GAAP

Growth

Comm.

Other

Photonic Solutions

$1,537M

3% / 15%

141%

3%

94%

0%

1%

2%

Compound

$821M

8% / 12%

13%

29%

15%

21%

12%

23%

Semiconductors

(1%)

Unallocated

$22.1

N/A

N/A

98%

2%

II-VI Consolidated

$2,380M

2% / 14%

75%

12%

67%

7%

5%

9%

(0%)

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 30

Reconciliation of GAAP Measures to Non-GAAP Measures

Finisar

Q1 FY20

Revenue

$285.0

GAAP Gross Profit

$85.3

Amortization of required technology

$0.5

Stock Compensation

$2.9

Impairment of long-lived/intangible assets

$1.7

Reduction in force costs

$0.0

Write off of discontinued product inventory

($1.8)

Non-GAAP Gross Profit

$88.6

Non-GAAP Gross Margin

31%

GAAP Operating Income (Loss)

($9.5)

Total cost of revenue adjustments

$3.4

Reduction in force costs and other restructuring

$0.1

Stock compensation

$12.8

Acquisition related costs

$1.1

Litigation settlements and resolutions and related costs

$0.0

Amortization of purchased intangibles

$0.2

Startup costs

$17.1

Non-GAAP Operating Income

$25.1

Non-GAAP Operating Margin

9%

Note: Dollars in millions. Q1 FY20 represents quarter ending October July 28, 2019.

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 31

Reconciliation of GAAP Measures to Non-GAAP Measures

Note: Dollars in millions.

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 32

Reconciliation of GAAP Measures to Non-GAAP Measures

Note: Dollars in millions.

Copyright 2020, II-VI Incorporated. All rights reserved.

Page 33

Disclaimer

II-VI Incorporated published this content on 16 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 September 2020 21:54:07 UTC

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