management presentation march 2012 - api technologies · • this presentation about api...

Management Presentation

March 2012

FORWARD LOOKING STATEMENTSFORWARD LOOKING STATEMENTS

• This presentation about API Technologies Corp. (the “Company”) includes forward‐looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects or future results of the business, operations or financial position of API made in this presentation are forward‐looking. We use words such as believe, expect, anticipate, intends, estimate, forecast, project, should and similar expressions to identify forward‐looking statements. Forward‐looking statements are based on management’s current expectations of our near‐term results, based on current information available pertaining to us and are inherently uncertain. We wish to caution investors that any forward looking statements made by or on our behalf are subjectwish to caution investors that any forward‐looking statements made by or on our behalf are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other risk factors include, but are not limited to: the affect of the unfavorable global, national and local economic conditions on our customers and our businesses, the affect of the current economic crisis on our ability to effect our business plans and strategies, the changing political conditions in the United States and other countries, governmentalstrategies, the changing political conditions in the United States and other countries, governmental laws and regulations, anticipated government budget changes, international trading and export restrictions, customer product acceptance, and access to capital markets, and foreign currency risks. These risks and uncertainties, as well as other risks and uncertainties could cause our actual results to differ significantly from management’s expectations. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward‐looking statements. We assume no obligation to update or revise any forward‐looking statements made herein or any other forward‐looking statements we make, whether as a result of new information, future events, or otherwise.

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L di t h l id f

COMPANY OVERVIEW• Leading technology provider of

RF/microwave, microelectronics, and security technologies for the defense, aerospace and commercial industriesaerospace, and commercial industries.

• API Founded in 1981; Vintage Capital invested in January 2011

2150 l ld id• 2150 employees world‐wide

• Design & manufacturing facilities in the U.S., Canada, UK

f f l– cost competitive manufacturing facilities in Mexico & China

– Cleared facilities in the US, UK, and Canada

• Domestic & international salesDomestic & international sales

– 80% Domestic

– 20% International

O 3 000 ld id• Over 3,000 customers world‐wide

3

KEY FACTSKEY FACTS

• Company: API Technologies Corp.• Exchange/Ticker: NASDAQ: ATNYExchange/Ticker: NASDAQ: ATNY• Share Price (2/17/12): $3.80• 52‐Week High / Low: $8.25 / $3.11• Shares O/S Basic/Diluted: 54 6 million / 58 0 million• Shares O/S Basic/Diluted: 54.6 million / 58.0 million• Vintage Capital Ownership: 40%• Market Cap: $205 million• Enterprise Value: $360 million• Enterprise Value: $360 million• LTM Revenue (1)(3): $294.7 million• LTM EBITDA(1)(2)(3): $51.5 million

CAPEX(1) (4) $5 2 illi• CAPEX(1) (4): $5.2million

(1) LTM period ending November 30, 2011(2) Over $22M in cost reductions implemented and being realized since June 1st, 2011(3) Includes CMT acquisition(4) CapEx second half of FY 2011 (post Spectrum acquisition) was $1 3mm(4) CapEx second half of FY 2011 (post Spectrum acquisition) was $1.3mm

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INVESTMENT THESISDominant technology provider of

RF/microwave,Microelectronics, and S i h l iSecurity technologies

for critical & high‐reliability applications

Attractive industry dynamics

Technical proficiency with decades‐long relationships with key customers

Low risk operating profile with

Significant profitability and cash generation

Low risk operating profile with substantial cost savings opportunities

Focused acquisition strategy together with organic growthProven management team

5

g

WHY RF/MICROWAVE, MICROELECTRONICS, AND SECURITY TECHNOLOGIES ?

• Growth fields with high barrier to entry well suited for technology intensive and a competitive company such as API.

L t ti i d ith i t f

AN S CURITY T CHNO OGI S ?

• Long gestation periods with re‐occurring stream of revenues

• Defense electronics which heavily rely on RF/Microwave and Microelectronics are growing at annual rate of 5% even with reduced defense budgets

• These technologies enable the intelligent battlefield

• Our focus is on a fabless model approach which provide lower cost solutions

• Large and growing Total Available Market (TAM) & Serviceable Available Market (SAM).

• Cyber security, information assurance, and secured systems are cornerstone of current and future defense and homeland security platforms

• Growing non‐defense niche applications such as medical, alternative energy, down‐hole, and critical communications heavily rely on such technologies

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RF/MICROWAVE ‐KEY PRODUCT STRATEGYDOMINATING THE SPECTRUMDOMINATING THE SPECTRUM

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RF/MICROWAVE LEADERSHIP• One of the highest revenues for high‐

reliability RF /microwave products for a non‐“Prime”

• Superior vertical integration; starting from rare earth material all the way up to highly engineered Integrated Microwave Assemblies (IMAs) A distinctMicrowave Assemblies (IMAs). A distinct differentiating factor

• “Supply‐chain friendly” offering a vast array of off‐the‐shelf and custom yproducts alongside design, engineering, prototypes, and manufacturing services

• Time‐tested heritage with no quality or major defect issues leveraging its well‐known product brands and broad domestic and international sales and distribution network

8

KEY PLAYER IN HIGH RELIABILITY• Heritage in electronics with continuous movement up

the value chain (e.g. design wins, systems and subsystems) y )

• High margin potential and limited competition due to criticality of applications and high barriers to entry

• Blue chip customer base; products on virtually every US defense electronics platform

• Leverage defense pedigree and differentiating technologies to address commercial high‐reliability end marketsend markets

• Position engineering expertise and product/brand name recognition & loyalty– No major reliability / recall issues in 20+ yearsNo major reliability / recall issues in 20 years– World’s best‐selling EMI/EMC filters– One of the world’s broadest portfolios of RF/microwave

products, offering products from ceramics to IMA’s.

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ATTRACTIVE PRODUCT PORTFOLIO (1)

Secure Systems & Information Assurance

Solutions

RF & Microwave Solutions

Electronics Manufacturing Services

Systems & Subsystems Solutions

Engineered systems for information and

One of the world’s largest high reliability suppliers of

Trusted EMS provider with certified US and off shore

Innovative supplier of highly engineered systems

56% 19% 17% 8%

information and cyber security

high‐reliability suppliers of RF, microwave and

millimeter wave solutions

certified US and off‐shore facilities

highly‐engineered systems, subsystems and components

New Product Introductions

High Powered Amplifiers IMAs

MIL-STD-1553Data Bus

FiltersVideo Aiming S stem

Power DistributionUnit

New Product Introductions

Hybrids CCA PCB SMT

Netgard™ EncryptionSuite

Lightweight ComSuite

ION™ SA5600 Secure Appliance

TEMPEST VoIPPhone

FiltersSystem Hybrids,CCA, PCB, SMT

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(1) LTM Ended 11/30/11, Pro Forma

EXAMPLES OF WHERE OUR PRODUCTS ARE USED

Robotic SurgerySystems

API id

Military Radios

API k

WirelessCommunication

Advanced

ForceProtection

Information Assurance

API Integrated APIAPI provides critical precision position sensors for advanced robotic surgical

API makes over a dozen critical components for the Harris® Falcon™ one of

Advanced microwave filters from API is used by the world’s largest

i ti

API Integrated Microwave Assemblies(IMAs) are used in Navy ships and

b i t

API secure networking products are used by Fortune 500 companies to g

systemsthe world’s most widely used troop radios

communication companies in satellites and ground stations

on submarines to provide increased protection against enemy intercepts

pprovide third-party access to critical information systems

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INVESTMENT THESISD i t t h l id fDominant technology provider of

RF/microwave,Microelectronics, and Security technologiesSecurity technologies






Targeted acquisition strategy together with organic growth

Proven management team

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World Defense Electronics FundingAvailable to the US

TOTAL DEFENSE ELECTRONICS FORECAST

C4I EO/IR EW Radar Sonar Other

Available to the USFY11‐FY15 ($M)

$40 354$41,725 $42,811

ELECTRONICS FORECAST

World Defense Electronics Funding

$8,941 $8,796$9,307

$9,459$1,510

$1,557 $1,622$1,626

$1,611

$2,460$2,470 $2,590

$2,610$2,710

$38,277$39,507 $40,354

$ ,


Available to the US FY12 ($M)Total $39.5B

$7,646$8,231 $8,624 $8,894 $9,231

$9,169$8,941

11,5868,941

1,557 2,470


4% 6%29%

$6,755$6,722 $6,910 $7,158 $7,428

6,7228,231

23%

17%$10,737 $11,586 $11,812 $12,130 $12,362

FY11 FY12 FY13 FY14 FY15

21%

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Source: The Teal Group

ATTRACTIVE INDUSTRY DYNAMICS• Changes in Department of Defense market creates

opportunities: DYNAMICSopportunities:

– Primes, unable to grow top line, seek ways to cut costs

– Streamlining supplier base an element of this t t

Top 10 US Defense ProgramsFY2013 Program Acquisition Cost ($B)

API Program Involvementstrategy

– API is a well‐positioned; substantially a one‐stop shop (from ceramics, to IMAs, to manufacturing) 9.2

9.7

F‐35 Joint Strike Fighter (JSF)

Ballistic Missile Defense

• Partner with the “primes” as they consolidate their supply chain and become their lower tier key technology and reliable supplier.

• Product/service alignment with funded and growth f d f b d

3.3

3.5

4.3

P‐8A (Poseidon)

DDG Destroyers

VIRGINIA Class Submarines

areas of defense budget

• Growth in foreign military sales

• Remodel/upgrade vs. build new

– Continued DoD need to upgrade technologies1 9

2.2

2.2

V 22 (O )

F/A‐18E/F (Super Hornet)

LCS Littoral Combat Ship

– More cost effective to refurbish than build new

– API is the incumbent, having been a key and/or initial supplier to many of those programs

1.8

1.9

1.9

KC‐46A Tanker

MQ‐1/MQ‐9

V‐22 (Osprey)

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Source: US DoD, FY13 Budget Request / Morgan Stanley Research

INVESTMENT THESISD i t t h l id fDominant technology provider of

RF/microwave,Microelectronics, and Security technologiesSecurity technologies








15

g

High‐reliability products

Advancedmicroelectronics

virtually all major defense electronics

programs

microelectronics for medical, energy and commercial aerospace

li ti

MEDICAL & INDUSTRIAL

applicationsDEFENSE

SOLUTIONS

50% INDUSTRIAL15%

16%19%

50%

GOVERNMENT& SECURITY

COMMUNICATIONS & CONSUMER

Highly engineered

16%

Security systems for national and t i it

Highly engineered products for use in satellites and majorcommunication platforms

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enterprise security

MARKETS & APPLICATIONS

Quarter Ended November 30, 2011

LONG‐STANDING CUSTOMER BASE

• Long‐standing, deep relationships built on customer collaboration

Top 10 Customers

• No customer over 8% of revenue

• Over 3,000 end customers

• Serve all the key defense contractors and broad range of Fortune 500 companies Leading Financial Institution

• Direct supplier to the U.S., U.K and Canadian governments, with several cleared facilities

• Exposed to multiple end markets

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RECENT WINS

$2.3M in power management $3.9M order for electronics

$ d f d

systems for network infrastructure systems provider

manufacturing services for DoD radar program

$1.3M order for Integrated Microwave Assemblies to be used in Navy ships, submarines and shore stations

$1.5M order for electronics manufacturing services for global power products company

$3.5M award for secure communication systems for the C di t

$1.9M order for microelectronic subsystems to be used in military aircraft Heads Up Display (HUD)Canadian government aircraft Heads Up Display (HUD)

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DIVERSE AND ATTRACTIVE PROGRAM EXPOSURE(1)• Limited program concentration in PROGRAM EXPOSURE(1)

Jamming/Anti‐Jamming

p gtargeted technology areas

• Top 10 programs/platforms account for less than 50% of revenue

Jamming/Anti Jamming

Secure Communication

Missile Programs

10.6%

10.1%Military Communications

Radar Programs

Military Aircraft (2.9%)

53%Other

Top 1047% 7.4%

Major Financial Institution/Security Device (2.3%)

U.S. Government R&D Programs (1.9%)

Electronic Warfare (1 5%)

Other

4.4%

4.4%

Electronic Warfare (1.5%)

Optical Network (1.5%)

Other

2.9%

(1) LTM November 2011

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INVESTMENT THESISDominant technology provider of gy p

RF/microwave,Microelectronics, and Security technologies




Low risk operating profile with substantialLow risk operating profile with substantial cost savings opportunities


Targeted acquisition strategy together with organic growthP t t


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LOW RISK WITH ADDITIONAL COST SAVINGS OPPORTUNITIES

Low Risk Operating Profile• Vertically Integrated

– Self‐sufficient and semi‐autonomous

Margin Expansion• $22M in cost savings since Feb. 2011

Cl f S M ’ P l B AlSelf sufficient and semi autonomous supply chain for RF/microwave products

– Quick new design turnarounds– Short production lead times on

engineering sample (less than 4 weeks)• Low integration risk

– Closure of St. Mary’s, Palm Bay, Alum Bank, and 2 excess Windber‐area facilities

– Elimination of Spectrum Corp. corporate overhead

Targeted headcount reductions• Low integration risk– Alignment of similar products and design

capabilities offers continuity and creates efficiencies

– Flexible business model; Non‐unionized work force with at will contracts

– Targeted headcount reductions

• Substantial cost savings opportunities– Facility consolidation

– Manufacturing efficiencieswork force with at will contracts

– Transition of factory to design center provides customer continuity mitigates disruption

• Low cost, price competitiveFacilities in Mississippi Mexico and China

– Redundancies reductions

– Streamlining of supply‐chain

• Incremental revenues generate high incremental margin dollars.– Facilities in Mississippi, Mexico, and China

– Mexico certified to produce cost‐sensitive ITAR controlled products

incremental margin dollars.

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RECURRING REVENUE STREAMSTHROUGH NICHE PRODUCTS & DESIGN INSTHROUGH NICHE PRODUCTS & DESIGN INS

• 90% re‐compete win rate

l f b b h l d f l• Sole or primary source on ~90% of business‐ both commercial & defense applications

• Limited competition‐ High barriers to entry

• Recurring revenue and customer loyalty

RF Solutions (RFS)

Electronics ManufacturingServices (EMS)

Other

Systems & Subsystems Solutions (S3)

Other

Secure Systems &Information Assurance (SSIA)

Other

57%30%

13%

SolePrimary

Other

60%

35%

5%PrimarySource

l

73%

22%

5%PrimarySource

Other

S l

45%

50%

5%PrimarySource

SoleSoleSource

PrimarySource

SoleSource

SoleSource

SoleSource

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(1) LTM period ending November 30, 2011

OUR FOOTPRINT • Domestic & International Footprint• Domestic & International Footprint

• Cleared facilities & personnel

• 11 cleared facilities (US, UK, and Canada) High barriers toand Canada)‐ High barriers to entry

• Certified facilities, including:

• MIL PRF 38534 (Class H and K)• MIL‐PRF‐38534 (Class H and K)

• AS9100 Rev C

• ISO 9001:2008 (All manufacturing facilities)

United Kingdom

manufacturing facilities)

• International manufacturing locations are API companies and not subcontractors; same

China;

equipment and processes as U.S. facilities

• Significant consolidation opportunities remain

Manufacturing, Design & Sales

Design & Sales

Low Cost Manufacturing Centers opportunities remain

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f g

RECENT OPERATIONAL HIGHLIGHTS

• Transitioned manufacturing out of St. Marys PA. Property soldsold.

• Transitioned manufacturing out of Palm Bay, FL operation and listed the property for sale

• Transitioning out of Alum Bank, PA manufacturing to State College, PA on track

• Shut down two storage facilities in PA ($500K i )• Shut down two storage facilities in PA ($500K savings per annum)

• No major delivery, quality or revenue impact issues associated with 2011 factory transitions and product line y pmoves

• 75% of product line revenues on unified ERP system

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INVESTMENT THESISDominant technology provider of gy p





Low risk operating profile with substantialLow risk operating profile with substantial cost savings opportunities



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HISTORICAL FINANCIALSLTM NOVEMBER 30

PRO FORMA API SENDEC AND SPECTRUMPro‐Forma,

i th 3PRO‐FORMA API, SENDEC, AND SPECTRUM

$MM 2010 2011 Revenue $381.4 (1) $287.3 (1)

comparing the 3 companies on a Year‐over‐Year basis….

Gross Profit $88.5 $66.1

Synergies / Cost Reductions – $5.4 (2)

Gross Profit $88.5 $71.5

Revenues Drop of $94mm with anEBITDA drop of $2 8 hG oss o t $88 5 $ 5

% Margin 23.2% 24.9%Adjusted EBITDA $47.6 $28.4

Synergies / Cost Reductions – $16.4 (3)

$2.8mm when executed cost cuts are taken into account

Pro Forma Adjusted EBITDA $47.6 $44.8

% Margin 12.5% 15.6%CAPEX $10 9 $5 2

Revenue drop from 2 key defense programs‐shifting to theCAPEX $10.9 $5.2

% Revenues 2.9% 1.8%(1) Does not include CMT(2) COGS portion of $16.4 million of implemented and not realized cost reductions(3) Total cost reductions implemented in FY2011 were $20 4mm $4 0mm were realized in FY2011 and are included in

shifting to the right and not lost

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(3) Total cost reductions implemented in FY2011 were $20.4mm. $4.0mm were realized in FY2011 and are included in the actual EBITDA; $16.4mm were not realized in FY2011 and are currently being realized.

QUARTERLY TRENDIN $MM

EBITDA Margin Target:IN $MM

$70

$80 $12$25

20% by August 2012 Quarter

$50

$60

$70

$8

$10

$15

$2015.2%

$30

$40

$4

$6 11.7%

$10

$15

$0

$10

$20

$0

$2

2.1%$0

$5

$0Revenue

$0Adjusted EBITDA

$0Gross Profit

May Ending Quarter 2011 August Ending Quarter 2011 November Ending Quarter 2011

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BALANCE SHEET(1)

Assets (in $ millions) Liabilities & Shareholders’ Equity (in $ millions)

$Cash & cash equivalents $15.7

Accounts receivable $53.0

Inventory $72.0

Accounts payable & accrued expenses $46.0

Current debt $1.9

O h $1 9Other $7.2

Total Current $147.9

Other $1.9

Total Current $49.8

Fixed assets $47.4

Long-term debt $165.3

Deferred taxes $9.9

Total Liabilities $225.0

Goodwill, intangibles & other $311.2

TOTAL $506.5

Total Shareholders’ Equity $281.5

TOTAL $506.5

(1) As of November 30, 2011, including CMT inventory, AR/AP(1) As of November 30, 2011, including CMT inventory, AR/AP

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f i i l & hi h li bili li ifor critical & high‐reliability applications



Low risk operating profile with substantial




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HISTORY AND RECENT ACQUISITIONS

Founded 1981 • Began as small electronics firm• Investment by Vintage Capital in January 2011

AcquiredJanuary 2011

• Key Electronics Manufacturing Services (EMS) provider for major government programs (including IED jamming)

• Brought to API significant New Product Introduction (NPI) capabilities and key customer relationships

AcquiredJune 2011

• Leading provider of RF/microwave, EMI filter products, sensors and power productsJune 2011 sensors and power products

• Brought to API significant revenue, a large and loyal customer base, and product diversity

Acquiredb

• Designer and manufacturer of RF and microwave filters, l l d l d dNovember 2011 multiplexers and related products

• Helped to further expand API’s presence within commercial microwave market to communications and satellite end markets

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ORGANIC GROWTH & ACQUISITION STRATEGY

• Target organic growth of at least 5% annually, through new products and cross selling.

• Focus on Microelectronics, RF/Microwave/Millimeter waveFocus on Microelectronics, RF/Microwave/Millimeter wave companies which offer products for high reliability and critical applications.– Fill technology roadmap gaps in new areas such as digital designs for the gy p g p g g

above products and end markets– Look for companies offering products which goes into adjacent “sockets”

in order to leverage our sales and manufacturing infrastructure.– Identify “sub par” run technology companies or companies with– Identify sub‐par run technology companies or companies with

consolidation opportunities to leverage our heritage in successful cost reductions and consolidations

– Look for product lines which can easily be integrated into our existing f t i d i f t tfactories and infrastructure.

• Target all major acquisitions to be EBITDA accretive during the first quarter post acquisition.

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• API is a leading Tier 3 and emerging Tier 2 technology

A&D TIER PYRAMID

provider to defense and high‐reliability sectors

• Dominant position in key

Tier 1$3.0B+

10 Companies

technology areas, including RF/microwave, microelectronics and security

Tier 2$500M – $3.0B25–30 Companies

• Combination of organic growth & strategic acquisitions

• Moving up the food chain,

Tier 3$100M – $500M100+ Companies

creates higher value, develops stronger ties with the primes, and delivers more differentiated content, 100+ Companies

MicroSub $100M

1000+ Companies

especially given the growth in electronic content independent of macro economics conditions

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1000+ Companies






Low risk operating profile with substantial cost




P t t

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PROVENMANAGEMENT TEAMPROVEN MANAGEMENT TEAM

BRIAN KAHN, Chairman & CEOManaging Member and Founder of Vintage Capital Management

BEL LAZAR, President & COO

Managing Member and Founder of Vintage Capital ManagementInvested in several public and private defense companies, including White Electronics Designs Corp, Integral Systems, and others

,Over 25 years of experience in the defense, semiconductor and technology sectorsMost recently served as the Senior Vice President of Operations at Microsemi CorporationPreviously spent over 22 years at International Rectifier in expanding leadership and general management roles, culminating as Vice President of the Company’s Aerospace & Defense g , g p y pbusiness unit Has completed over 12 acquisitions and over 25 consolidations within the Aerospace & Defense electronics sector

JACK FREEMAN, CFOAppointed to the position of CFO of Spectrum Control in 1990Previously was a Principal with the Certified Public Accounting firm of Root, Spitznas & Smiley, Inc.

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Low risk operating profile with substantial cost




P t t

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