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KLX Equity Investor Presentation VF
KLX Equity Investor Presentation VF
December 3, 2014
Key Facts and Dates
Exchange NASDAQ
Ticker KLXI
2
Management Team
3
Board of Directors
Richard G. Hamermesh A member of the Board of Directors of B/E Aerospace since July 1987
Director Professor of Management Practice at Harvard Business School since July 1, 2002
Theodore L. Weise Business consultant and a member of the Board of Directors of Hawthorne Global Aviation
Director Previously President and CEO of Federal Express Corporation until 2000
John T. Whates, Esq. A member of the Board of Directors of B/E Aerospace since February 2012
Director Partner at Deloitte & Touche until retired in 2005
4
Company Overview
$1,716
ESG Acquisitions
ASG Acquisitions
$1,292
$1,181
$947
$799 $778
$698
$387
$252
$145 $174
$97 $105
$37
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 PF LTM
9/30/2014
Consumable
Services Bulldog
MGS
Note: Figures in millions of dollars Cornell
1 Pro forma for all energy acquisitions made since January 2013 as if each acquisition was made on January 1, 2013
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Our Two Segments
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Aerospace Solutions Group
Aerospace Solutions Group (ASG) | 76% LTM PF Revenues
One of the broadest ranges of aerospace hardware, consumables, LTM Revenues of $1.3 billion
September 30, 2014
and inventory management services worldwide, ~1 million SKUs
Distributor for every major aerospace fastener manufacturer
The leading provider of aerospace fasteners and consumables, After
Market
and of logistics services, to major aerospace OEM, airline, and New 37%
MRO businesses globally Aircraft
63%
Large, diverse customer base:
Commercial, business jet and military OEMs, as well as MROs
and airlines
Over 400 sales, marketing and customer service specialists Top 5
worldwide All 30%
Unparalleled
Favorable Long- Premier
Depth and
Term Industry Technology and
Breadth of
Trends Logistics Platform
Product Offerings
Balanced Global
Strong Customer Footprint with
Relationships Exposure to Key
Markets
Significant
Aftermarket
Exposure
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ASG | Favorable Long-term Industry Trends
25,000
20,000 Total fleet size
15,000
10,000
5,000
0
1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
Historical and Forecast World Traffic (RPMs Billions) Fleet Growth Forecast
Growing global demand for commercial air transportation Older, less efficient planes will be replaced
12,000 with more efficient, newer generation aircraft
42,180
Growth fleet
9,000
Replacement fleet
Retained fleet 21,270
6,000 36,770
20,910
New
Aircraft
3,000 15,500
20,910
0 5,410
1970 2000 2007 2014E 2021E 2028E 2035E 2013 2033E
Inventory to support all commercial and military aircraft, business jets, and
helicopters
Fasteners
Most diversified in the industry, supplying bolts, clips, hinges, rings, screws,
carbon-faced seals, gaskets, and O-rings
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ASG | Premier Technology and Logistics Platform
Planning and Includes planning tools customized to support both OEM and
Forecasting aftermarket demand planning for customers
Customized System / Real-time system across all ASG locations to support warehouse
Database management, JIT services, and kitting
Supplier and Supplier and customer portals to view reports, performance, and
Customer Portals other important data
Electronic Data
Exchange (EDI)
EDI platform and team links ASG systems to customers systems
Support of Value-
JIT, 3PL, kitting, as well as products not in standard packages (part
attributions, revision levels, etc.) required to support various
Added Services
customer systems
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ASG | Strong Customer Relationships
Key customer trends: 1) consolidate suppliers, 2) reduce supply base, 3) reduce inventory,
4) outsource planning, 5) outsource procurement, and 6) outsource quality control
Have both planned and inconsistent demand and cannot afford any downtime / loss of inventory
Selected Customers
OEM Aftermarket
Commercial Business Jet Military MRO Airlines Business Jet
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ASG | Outstanding Operational Execution
Korean Aviation
Supplier of the Year, 3rd consecutive year
Industry
Best Supplier
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ASG | Balanced Global Footprint with Exposure to Key Markets
Hamburg
Miami
Singapore
APAC
15% Revenues
Regional Headquarters 6 Facilities
Sales & Program Support
Inventory & Warehouse Support
As of year-end December 31, 2013 16
ASG | Summary Financials
$1,304
$1,268
$1,181
$947
$291
$264 $277
$213 22.9%
22.4%
22.5% 21.2%
2011 2012 2013 LTM 9/30/14 2011 2012 2013 LTM 9/30/14
Highlights
Revenues of $1,304 million have increased 38% since 2011
ASG margins pressured in short term, as revenues growth from new long-term customer
agreements initially carry lower margins until inventories have been depleted
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ASG | Focus on Maintaining Leadership Position
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Energy Services Group
Energy Services Group (ESG) | 24% LTM PF Revenues
Critical services and products for energy exploration and PF LTM Revenues of $412 million
September 30, 2014
production
Offers broad range of high margin, valued added services Revenues by Top 5
All
Customer 41%
Other
Strong presence across key production basins, including 59%
the Northeast, Rocky Mountains, Southwest, and Mid-
Continent
Leveraged to
Extensive Local
Longest Lived
Market Knowledge
Portion of the Well
and Relationships
Lifecycle
Attractive Financial
Growth Prospects
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ESG | Supportive Industry Backdrop and Outlook
Bakken
Oil production Marcellus Domestic
Eagle Ford continues to demand and
Associated Gas
Permian
grow with new shale
demand and Haynesville
reserves
new resource Fayetteville driving gas
Other Onshore Barnett
discovery production
Other Onshore Gas
Offshore
Alaska Offshore
Remanufacturing,
Machining, and
Service, restore, and test all pressure control equipment, valves,
choke manifolds, and closing units
Certification
Accommodations and
Related Surface Rental
Mobile, customizable workforce accommodations and offices and
associated rental equipment
Equipment
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ESG | Unmatched Footprint in Key Energy Producing Markets
North American footprint provides exposure to key oil and gas producing regions
ESG Locations
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ESG | Niche Market Strategy
Technical services drives revenues and profitability with support from fixed assets (including rental
equipment), rather than hard asset utilization driving margins
High variable cost component (50%) of gross margin allows for cost control across cycles
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ESG | Strong Customer Partnerships
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ESG | Summary Financials
$412
$301
$121
$91
30.2%
29.4%
Pro Forma LTM 9/30/13 Pro Forma LTM 9/30/14 Pro Forma LTM 9/30/13 Pro Forma LTM 9/30/14
Highlights
Successful integration of seven acquisitions since 2013 driving strong revenues and Adj. EBITDA
growth
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Strong Financial Position and Manageable Leverage
At separation KLX will be capitalized with $1.2 billion of senior unsecured notes
and will have more than $450 million of available cash on balance sheet
Pro Forma
LTM Adj.
(US$ in million) 30-Sep-2014 EBITDA1
Cash2 $334
Solid capital
structure
$500 million Credit Facility 0
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Disciplined Approach to Capital Deployment to Drive Growth
Strong KLX continues to generate strong results, with PF LTM revenues as of September 30,
Financial 2014 of $1.7 billion and PF Adj. EBITDA of $398 million, or a 23.2% margin
Results Strong historical revenues growth (17% CAGR since 2011) and margin expansion
Disciplined
Capital investments target operating margins of 18-20%
Approach ASG: Investment in inventory to support new programs, customers, and high margin
to Capital products
Investment ESG: Capital expenditures focused on highest margin services and products, and the
and Growth longest lived portion of the well lifecycle, completion and production
Prudent View BB rating as optimal through the cycle and are focused on maintaining that rating
Leverage KLX will be levered at approximately 3.0x LTM Adj. EBITDA at the time of separation
with
Significant Target net leverage of 2.0 to 2.5x
Flexibility Appropriate given cyclicality of business and M&A priorities
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2015 to 2017 | Three-Year Targets
20%+ organic
EPS ~$3.08 per diluted share
CAGR
annual cash tax benefit related to the amortization of goodwill for income tax purposes
3 Guidance assumes an average cost of a barrel of oil of at least ~$70 31
Key Investment Highlights
Track Record
Premier Aerospace Leading Provider of
of Successful
& Energy Services Complex Logistical
Acquisition
Platform Solutions
Integration
Track Record of
Strong End Market
Revenues Growth
Growth Across Key
and Margin
End Markets
Expansion
Flexible Balance
Sheet to Support
Attractive
Investments
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Appendix
Non-GAAP EBITDA Reconciliation
Consolidated
PF LTM
2014
Operating Earnings $ 299
Depreciation and Amortization 69
Employee Stock-Based Compensation 4
Acquisition, Repositioning & Restructuring Costs 26
Adjusted EBITDA $ 398
ASG
PF LTM
2011 2012 2013 2014
Operating Earnings $ 184 $ 218 $ 239 $ 228
Depreciation and Amortization 19 26 29 30
Employee Stock-Based Compensation 5 3 4 3
Acquisition, Repositioning & Restructuring Costs 5 17 19 16
Adjusted EBITDA $ 213 $ 264 $ 291 $ 277
ESG
PF LTM PF LTM
2013 2014
Operating Earnings $ 48 $ 71
Depreciation and Amortization 41 39
Employee Stock-Based Compensation - 1
Acquisition, Repositioning & Restructuring Costs 2 10
Adjusted EBITDA $ 91 $ 121
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Income Tax Attributes
KLX is expected to be a highly profitable, U.S. centric company that is subject to U.S. taxes
KLX will have a much lower cash tax rate than its reported book tax rate
Upon the spin, KLX will have approximately $1.2 billion of tax deductible goodwill that will be utilized to reduce the
cash taxes owed by the Company
The tax goodwill will provide a tax deduction of approximately $105 million per annum through the first nine years
and $30 million per annum thereafter through year 15, which would increase cash flow by $37 million and $11
million per annum over those respective time frames
($mm) Total 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Approx. Annual Tax
$1,205 $53 $105 $105 $105 $105 $105 $105 $105 $105 $105 $68 $30 $30 $30 $30 $15
Deductible Amortization
(1)
Cash Tax Savings 422 18 37 37 37 37 37 37 37 37 37 24 11 11 11 11 5
Assumes a 15 year life and reflects an expected cash tax rate of 35%. Exact amount will differ slightly as various tax assets have different lives and amounts
Assumes 35% tax rate and 8 - 10% discount rate using midyear convention. Exact amount will differ slightly as various tax assets have different lives and amounts
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