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| 8-K - 8-K - Versum Materials, Inc. | vsm8-k262018.htm |
VERSUM MATERIALS
EARNINGS CONFERENCE CALL:
First Quarter Fiscal 2018
February 6, 2018 – 11 AM Eastern
FORWARD-LOOKING INFORMATION
This presentation contains, and management may make, certain “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
may be identified by references to future periods, and include fiscal year 2018 financial guidance, and statements about our business strategies, operating plans, growth
rates, anticipated profitability, sales expectations, future operating income and Adjusted EBITDA, estimates regarding future capital requirements, estimates of future tax
liability and effective tax rates, our ability to execute on our strategy and deliver on our commitments to customers and stakeholders, our ability to meet customer
demand, anticipated cash flows, estimates of the size of the market for our products, forecasted industry demand, inorganic growth opportunities, our ability to
successfully compete as a leading materials supplier to the semiconductor industry, the implementation date of SAP “go live” and other matters. The words “believe,”
“expect,” “anticipate,” “project,” “estimate,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “objective,”
“forecast,” “goal,” “guidance,” “outlook,” “target” and similar expressions, among others, generally identify forward-looking statements, which are based on
management’s reasonable expectations and assumptions as of the date the statements were made. Actual results and the outcomes of future events may differ
materially from those expressed or implied in the forward-looking statements because of a number of risks and uncertainties, including, without limitation, product
supply versus demand imbalances in the semiconductor industry or in certain geographic markets may decrease the demand for our goods and services; our
concentrated customer base; our dependence upon the capital expenditure cycles of our customers; our ability to continue technological innovation and successfully
introduce new products to meet the evolving needs of our customers; our ability to protect and enforce our intellectual property rights and to avoid violating any third
party intellectual property or technology rights; unexpected interruption of or shortages in our raw material supply; inability of sole source, limited source or qualified
suppliers to deliver to us in a timely manner or at all; hazards associated with specialty chemical manufacturing, such as fires, explosions and accidents, could disrupt our
operations or the operations of our suppliers or customers; increased competition and new product development by our competitors, changing customer needs and
price changes in materials and components could result in declining demand for our products; operational, political and legal risks of our international operations; recent
changes in U.S. tax laws; the impact of changes in environmental and health and safety regulations, anticorruption enforcement, sanctions, import/export controls, tax
and other legislation and regulations in jurisdictions in which Versum Materials and its affiliates operate; our available cash and access to additional capital may be
limited by substantial leverage and debt service obligations; uncertainty regarding the availability of financing to us in the future and the terms of such financing;
agreements governing our indebtedness may restrict our current and future operations, and hamper our ability to respond to changes or to take certain actions;
government regulation of raw materials, products and facilities may impact our product manufacturing processes, handling, storage, transportation, uses and
applications; possible liability for contamination, personal injury or third party impacts if hazardous materials are released into the environment; cyber security threats
may compromise our data or disrupt our information technology applications or services; fluctuation of currency exchange rates; costs and outcomes of litigation or
regulatory investigations; the timing, impact, and other uncertainties of future acquisitions or divestitures; restrictions in our governing documents and of Delaware law
may prevent or delay an acquisition of us; our historical financial data as part of Air Products may not reflect what our financial results would have been had we been an
independent company; increased costs as a separate public company; tax and other potential liabilities to Air Products assumed in connection with the separation and
spin-off; restrictions against engaging in certain corporate transactions for two years following the separation and spin-off; potential conflicts of interest between us and
Air Products by our directors and officers; potential liabilities arising out of state and federal fraudulent conveyance laws and legal dividend requirements with respect to
the separation and spin-off and related internal reorganization transactions; and other risk factors described in our filings with the Securities and Exchange Commission,
including in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, and in our other periodic filings. Versum Materials assumes no obligation to
update any forward-looking statements or information in this presentation to reflect any subsequent change in assumptions, beliefs or expectations, or any change in
circumstances upon which such statements are based.
Non-GAAP Financial Measures. This presentation contains certain “Non-GAAP financial measures.” Please refer to the Appendix for definitions of the non-GAAP financial
measures used herein and for a reconciliation of those non-GAAP financial measures to their most comparable GAAP measures.
AGENDA
Business & Market Review: Guillermo Novo, President & CEO
Financial Overview and Guidance: George Bitto, SVP & CFO
Summary: Guillermo Novo, President & CEO
3
Refer to Appendix for reconciliations between GAAP and non-GAAP measures.
BUSINESS REVIEW
5
WELL POSITIONED FOR A STRONG 2018
Sales up 22% and Adjusted EBITDA up 10%
Investing to accelerate profitable growth
SAP “Go Live” targeted April 1
Raising Guidance for 2018
VERSUM MATERIALS
2018 Q1 RESULTS AND OUTLOOK
Refer to Appendix for reconciliations between GAAP and non-GAAP measures.
6
VERSUM SAFETY PERFORMANCE
RECORD EMPLOYEE RECORDABLE FREQUENCY
0.48
0.33
0.00
0.20
0.10
0.30
0.40
0.50
FY15 FY16 FY17
Increase in injury rate for quarter, 3 of 5 injuries from one event
Injuries driven by trips/falls and contractor activities
Reassert importance of basic safety management practices/hazards awareness
Reinforce the importance of our collective and individual safety responsibilities
0.42
0.48
FYTD18
0.83
0.60
0.70
0.80
0.90
(In millions, except percentages)
FYQ118
FYQ117
% change
Sales 330.8 270.8 +22%
Gross Profit Margin 42% 44% -200bps
Adjusted EBITDA 102.3 93.2 +10%
Adjusted EBITDA Margin 31% 34% -300bps
7 Refer to Appendix for reconciliations between GAAP and non-GAAP measures.
Robust DSS growth driven by industry spending in Korea and China and innovative
product slate
Strong AM volume growth from previous POR wins
PM volume growth despite capacity constraints in key products
Adj EBITDA growth while investing in selling & administrative/research & development
(SARD) to support business expansion
FIRST QUARTER FISCAL 2018 HIGHLIGHTS
STRONG PERFORMANCE AND CONSISTENT EXECUTION
8
INDUSTRY OUTLOOK
2018 INDUSTRY TRENDS
Advanced logic benefits from continued ramping of new technology nodes (10nm -> 7nm)
Demand for both memory (DRAM and VNAND) remains very strong
IoT, automotive and industrial applications drive robust demand for legacy nodes
Equipment spending continues to be driven by leading edge logic, VNAND and China
investments
Updated Macro Driver Outlook
SOURCE: Linx/Hilltop Economics, Semi, Gartner, Versum estimates
FISCAL YEAR 2018E v 2017A
WFE 3 - 5%
MSI 5 - 7%
FINANCIAL UPDATE
INCOME STATEMENT OVERVIEW
FIRST QUARTER FISCAL 2018 VERSUS 2017
10
(In millions, except % and per share data) FYQ118 FYQ117 % change
Sales 330.8 270.8 +22%
Gross Profit 139.2 119.9 +16%
Gross Profit Margin 42% 44% -200bps
Selling & Administrative Costs and Research & Development 35.3 30.2 +17%
Operating Income 88.9 79.1 +12%
Net Income 18.6 50.8 -63%
Diluted EPS 0.17 0.47 -64%
Adjusted Net Income 59.0 52.9 +12%
Adjusted Diluted EPS 0.54 0.48 +13%
Adjusted EBITDA 102.3 93.2 +10%
Adjusted EBITDA Margin 31% 34% -300bps
Separation and Restructuring Expenses 1.8 3.2 -44%
Effective Tax Rate 73% 23% NM
Adjusted Tax Rate 23% 23% NM
➢ Robust Top Line Funding Investment For Future Growth
▪ Strong sales growth from DS&S and Advanced Materials
▪ Adj EBITDA margins within range despite unfavorable pricing carry-over and growth in
SARD expense
▪ Double-digit Adjusted Net Income and EPS growth excluding Tax Act and Restructuring
Refer to Appendix for reconciliations between GAAP and non-GAAP measures.
NM: Not Meaningful
MATERIALS SEGMENT
FIRST QUARTER FISCAL 2018 VS 2017 – FINANCIAL PERFORMANCE DRIVERS
(In millions, except percentages) FYQ118 FYQ117 % change
Sales 214.6 208.0 +3%
Gross Profit 101.0 102.5 -1%
Gross Profit Margin 47% 49% -200BPS
Operating Income 65.8 72.9 -10%
Adjusted EBITDA 76.8 83.1 -8%
Adjusted EBITDA Margin 36% 40% -400bps
11 Refer to Appendix for reconciliations between GAAP and non-GAAP measures.
➢ Broad Based Volume Growth Across Most Products
• Strong AM volume growth driven by POR wins and customer ramps
• PM volume growth overcoming capacity constraints and unfavorable
product mix
• Adjusted EBITDA margin impacted by expected PM pricing carryover
impacts, higher raw material and product purchase costs and increased
SARD expense
DELIVERY SYSTEMS & SERVICES
FIRST QUARTER FISCAL 2018 VS 2017 – FINANCIAL PERFORMANCE DRIVERS
(In millions, except percentages) FYQ118 FYQ117 % change
Sales 115.3 61.9 +86%
Gross Profit 38.5 16.8 +129%
Gross Profit Margin 33% 27% +600BPS
Operating Income 33.4 12.4 +169%
Adjusted EBITDA 33.7 12.7 +165%
Adjusted EBITDA Margin 29% 21% +800bps
12 Refer to Appendix for reconciliations between GAAP and non-GAAP measures.
➢ Record Sales Growth and Strong Margin Performance
▪ Significant equipment and installation sales, steady services
▪ Manufacturing facilities continuing to run at high loading driving
favorable cost absorption
▪ Adjusted EBITDA expansion from strong sales and project management
TAX ACT IMPACTS
13
FIRST QUARTER FISCAL 2018 VS 2017 – TAX ACT IMPACTS
Impact on Operations
FYQ118 YTD FYQ118
Tax Provision Impact (in millions) $0.9 $3.0 – $4.5
Tax Rate (in percentages) 1.2% 1.0% – 1.5%
EPS Impact (in $/share) $0.01 $0.03 - $0.04
Non-GAAP Items
FYQ118
(in millions) Provision EPS
Repatriation Charge impact $(49.0) $(0.45)
Revaluation of Deferred Tax Position 11.4 0.10
Tax Act Impact $(37.6) $(0.35)
CASH GENERATION OVERVIEW
FIRST QUARTER FISCAL YEAR 2018 VS 2017
FREE CASH FLOW
(In millions) YTD FYQ118 YTD FYQ117
Cash Flow From Operations $39.1 $89.8
Capital Expenditures - Operating (17.2) (6.9)
Capital Expenditures - Restructuring (11.5) (2.7)
Free Cash Flow $10.4 $80.2
Other Financing, Investing Activities, Other (3.5) (7.1)
Change in Cash $6.9 $73.1
Cash at End of Period $278.3 $178.7
14
Refer to Appendix for reconciliations between GAAP and non-GAAP measures.
▪ Positive cash flow despite higher capital expenditures and unfavorable
payables timing
▪ Prior year operating cash flow favorably impacted by spin transaction
▪ Strong balance sheet with significant cash on hand
NOTES: Free Cash Flow defined as Cash from Operations less Capital Expenditures
15
A reconciliation of net income to Adjusted EBITDA as forecasted for 2018 is not provided.
See Appendix for more information.
2018 FISCAL YEAR FINANCIAL GUIDANCE
RAISING FOR SALES and ADJUSTED EBITDA
2018 GUIDANCE
(In millions, except %) REVISED 2018 OUTLOOK PRIOR 2018 OUTLOOK (Q4 call)
Sales $1,250 - $1,300 $1,180 - $1,230
Adjusted EBITDA $415 - $435 $395 - $415
CAPEX ~$120 $110 – $120
Effective Adj Tax Rate (ex Tax Act &
restructuring non-GAAP charges)
23% - 25% 23% - 25%
Restructuring Costs $15 - $20 $15 - $20
NOTES: 2018 D&A estimate of ~$50-55 million and non-controlling interest estimate of $7 million. CAPEX/M&A includes $20-
$25 million of one-time stand-up capital
➢ Underlying Semiconductor Market Demand Growth Indicators
▪ Global GDP (CY) estimated to be in the range of 3.0% - 3.2%
(up from 2.8% - 3.0% last quarter)
▪ Global MSI (FY) forecast in range of 5% - 7% (up from 4% - 6% last quarter)
▪ Wafer Fab Equipment (FY) forecast of 3% - 5% (up from -1% to -4% last quarter)
SOURCE: Linx/Hilltop Economics, Semi, Gartner, Versum estimates
SUMMARY
17
2018 PRIORITIES
STAYING FOCUSED ON EXECUTING OUR STRATEGY
Maintain EHS focus
Drive culture (accountability & customer centric)
Deliver profitable organic growth across all platforms
Disciplined capital deployment
Complete last stage of stand-up
NOTES: EHS: Environment, Health and Safety
Innovation
POR Logic, Memory, and Packaging
Productivity, Quality and Reliability
Expanding Technology Capabilities
Investment to support Materials organic growth
Investing in HVM capabilities for new products
Localizing our AM footprint and capabilities in Korea
Improving competitive position in key products
DSS well positioned to support major projects
Aligned with major CAPEX players
Establishing local footprint in China
Leverage Inorganic Growth Opportunities
18
CATALYSTS FOR GROWTH
KEY DRIVERS
VERSUM MATERIALS
Solid growth
High margins
Low capital intensity
Strong cash flow
19
BEST IN CLASS ELECTRONICS MATERIALS COMPANY
Leadership positions in a profitable and
complex semiconductor materials industry
Strong technology, commercial and
operations capabilities
Compelling growth platforms with
sustainable competitive advantage
Strong financial performance and
cash flow generation
Experienced management team with
proven track record
Global infrastructure
APPENDICES
21
CONSOLIDATED INCOME STATEMENT
FIRST QUARTER 2018 VERSUS 2017
SALES AND ADJ EBITDA DRIVERS
22
Sales (%)
Versum
Total
FYQ118
Materials
FYQ118
Delivery Systems
and Services
FYQ118
Volume 24% 7% 85%
Price/Mix (3%) (5%) -
Currency 1% 1% 1%
Total Change 22% 3% 86%
FIRST QUARTER FISCAL 2018 CHANGE VERSUS FIRST QUARTER 2017
Sales
ADJ EBITDA ($MM)
Versum
Total
FYQ118
Materials
FYQ118
Delivery Systems
and Services
FYQ118
Corporate
FYQ118
Volume 24 3 21 -
Gross Profit Impacts (4) (4) 1 (1)
SARD and Other (11) (5) (1) (5)
Total Change 9 (6) 21 (6)
ADJUSTED EBITDA
Refer to Appendix for reconciliations between GAAP and non-GAAP measures.
SEGMENT SALES, OPERATING INCOME AND ADJUSTED EBITDA
FISCAL 2017 BY QUARTER
For the Quarter Ended
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017 Total
(In millions)
SALES
Materials $ 208.0 $ 198.3 $ 206.4 $ 217.0 $ 829.7
DS&S 61.9 71.7 83.5 76.5 293.6
Corporate 0.9 0.8 0.9 1.0 3.6
Total Company Sales $ 270.8 $ 270.8 $ 290.8 $ 294.5 $ 1,126.9
For the Quarter Ended
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017 Total
(In millions, except percentages)
Materials
Operating income $ 72.9 $ 65.1 $ 69.6 $ 66.8 $ 274.4
Add: Depreciation and amortization 10.2 10.1 10.1 12.7 43.1
Add: Equity affiliates’ income — — — — —
Segment Adjusted EBITDA $ 83.1 $ 75.2 $ 79.7 $ 79.5 $ 317.5
Segment Adjusted EBITDA margin(A) 40.0 % 37.9 % 38.6 % 36.6 % 38.3 %
DS&S
Operating income $ 12.4 $ 17.7 $ 24.0 $ 17.6 $ 71.7
Add: Depreciation and amortization 0.3 0.4 0.3 0.4 1.4
Add: Equity affiliates’ income — — — — —
Segment Adjusted EBITDA $ 12.7 $ 18.1 $ 24.3 $ 18.0 $ 73.1
Segment Adjusted EBITDA margin(A) 20.5 % 25.2 % 29.1 % 23.5 % 24.9 %
Corporate
Operating loss $ (3.0 ) $ (6.8 ) $ (6.6 ) $ (4.1 ) $ (20.5 )
Add: Depreciation and amortization 0.4 0.4 0.3 0.4 1.5
Add: Equity affiliates’ income — — — — —
Segment Adjusted EBITDA $ (2.6 ) $ (6.4 ) $ (6.3 ) $ (3.7 ) $ (19.0 )
Total Versum Materials Adjusted EBITDA $ 93.2 $ 86.9 $ 97.7 $ 93.8 $ 371.6
23
CONSOLIDATED INCOME STATEMENT
FISCAL 2017 BY QUARTER
For the Quarter Ended
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017
Total
(In millions, except per share data)
Sales $ 270.8 $ 270.8 $ 290.8 $ 294.5 $ 1,126.9
Cost of sales 150.9 154.5 159.6 171.9 636.9
Selling and administrative 30.2 29.5 34.5 31.5 125.7
Research and development 10.3 10.9 11.9 12.0 45.1
Business separation, restructuring and cost
reduction actions 3.2
6.1
6.0
10.2
25.5
Other (income) expense, net (2.9 ) (0.1 ) (2.2 ) (1.2 ) (6.4 )
Operating Income 79.1 69.9 81.0 70.1 300.1
Equity affiliates’ income — — — — —
Interest expense 11.5 11.6 11.9 12.4 47.4
Income Before Taxes 67.6 58.3 69.1 57.7 252.7
Income tax provision 15.3 11.5 14.4 11.6 52.8
Net Income 52.3 46.8 54.7 46.1 199.9
Less: Net Income Attributable to Non-
controlling Interests 1.5
1.9
2.0
1.5
6.9
Net Income Attributable to Versum $ 50.8 $ 44.9 $ 52.7 $ 44.6 $ 193.0
Net income attributable to Versum per
common share:
Basic $ 0.47 $ 0.41 $ 0.48 $ 0.41 $ 1.78
Diluted $ 0.47 $ 0.41 $ 0.48 $ 0.41 $ 1.76
Shares used in computing per common
share amounts:
Basic 108.7 108.7 108.8 108.8 108.7
Diluted 109.2 109.3 109.5 109.6 109.4
24
RECONCILIATIONS
Non-GAAP Financial Measures
This presentation and the accompanying earnings press release includes “non-GAAP financial measures,” including Adjusted Net Income, Adjusted
Diluted Earnings Per Share, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted EBITDA margin, Segment Adjusted EBITDA margin, and free cash
flow. Adjusted Net Income is net income excluding certain disclosed items which we do not believe to be indicative of underlying business trends,
including business separation, restructuring and cost reduction actions, net of tax, the write-off of financing costs, net of tax, and the impact of the
Tax Act. Adjusted Diluted Earnings Per Share uses Adjusted Net Income but otherwise uses the same calculation used in arriving at diluted earnings
per share, the most directly comparable GAAP financial measure. Adjusted EBITDA is net income excluding certain disclosed items which we do not
believe to be indicative of underlying business trends, including interest expense, the write-off of financing costs, income tax provision, depreciation
and amortization expense, non-controlling interests, and business separation, restructuring and cost reduction actions. Segment Adjusted EBITDA is
segment operating income excluding segment depreciation and amortization expense. Adjusted EBITDA margin and Segment Adjusted EBITDA
margin are calculated by dividing Adjusted EBITDA and Segment Adjusted EBITDA, respectively, by sales. Free cash flow is defined as cash from
operations less capital expenditures. Versum Materials has provided in this Appendix reconciliations of net income to Adjusted EBITDA, net income
to Adjusted Net Income, Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share and segment operating income to Segment Adjusted
EBITDA, in each case the most directly comparable GAAP financial measure. Reconciliations of cash flow from operations to free cash flow are
included elsewhere in this presentation. We encourage investors to read these reconciliations.
A reconciliation of net income to Adjusted EBITDA as forecasted for 2018 is not provided. Versum Materials does not forecast net income as it
cannot, without unreasonable effort, estimate or predict with certainty various components of net income. These components include further
restructuring and other income or charges that may be incurred in 2018 as well as the related tax impacts of these items. Additionally, discrete tax
items could drive variability in our forecasted effective tax rate. All of these components could significantly impact net income. Further, in the
future, other items with similar characteristics to those currently included in Adjusted EBITDA that have a similar impact on comparability of
periods, and which are not known at this time, may exist and impact Adjusted EBITDA.
RECONCILIATIONS
Non-GAAP Financial Measures (continued)
The presentation of these non-GAAP financial measures is intended to enhance the usefulness of financial information by providing measures which
management uses internally to evaluate operating performance. We use these non-GAAP measures to assess our operating performance by
excluding certain disclosed items that we believe are not representative of our underlying business. Management may use these non-GAAP
measures to evaluate our performance period over period and relative to competitors in our industry, to analyze underlying trends in our business
and to establish operational budgets and forecasts or for incentive compensation purposes. We use Adjusted EBITDA to calculate performance-
based cash bonuses and determine whether certain performance-based options and restricted stock units vest (e.g., bonuses, options and restricted
stock units are tied to Adjusted EBITDA). Adjusted EBITDA is also used for certain covenants under our senior secured credit facilities. We use
Segment Adjusted EBITDA to evaluate the ongoing performance of our business segments. Management believes that free cash flow is meaningful
to investors because it is an indication of the strength of the company and its ability to generate cash, however it does not represent the total
increase or decrease in cash during the period. Free cash flow is not intended to be an alternative to cash flows from operating activities as a
measure of liquidity. We believe non-GAAP financial measures provide securities analysts, investors and other interested parties with meaningful
information to understand our underlying operating results and to analyze financial and business trends. These non-GAAP financial measures should
not be viewed in isolation, are not a substitute for GAAP measures, and have limitations which include but are not limited to the following:
(a) Adjusted Net Income and Adjusted EBITDA exclude the write-off of financing costs and other expenses related to business separation,
restructuring and cost reduction actions which we do not consider to be representative of our underlying business operations, however, these
disclosed items represent costs to Versum Materials; (b) Adjusted EBITDA is not intended to be a measure of cash available for management’s
discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements;
(c) though not business operating costs, interest expense and income tax provision represent ongoing costs of Versum Materials; (d) depreciation,
amortization, and impairment charges represent the wear and tear or reduction in value of the plant, equipment, and intangible assets which
permit us to manufacture and market our products; and (e) other companies may define non-GAAP measures differently than we do, limiting their
usefulness as comparative measures. A reader may find any one or all of these items important in evaluating our performance. Management
compensates for the limitations of using non-GAAP financial measures by using them only to supplement our GAAP results and to provide a more
complete understanding of the factors and trends affecting our business. In evaluating these non-GAAP financial measures, the reader should be
aware that we may incur expenses similar to those eliminated in this presentation in the future.
27
RECONCILIATION OF NI TO ADJ EBITDA, NI TO ADJ NI, DILUTED
EPS TO ADJ DILUTED EPS
FIRST QUARTER FISCAL 2018 VS 2017
28
SEGMENT SALES, OPERATING INCOME AND ADJUSTED EBITDA
FIRST QUARTER AND YEAR TO DATE FISCAL 2018 VERSUS 2017
