REVITALIZED
FOR GROWTH
Q2 2017 EARNINGS CALL & NOVEL INGREDIENTS ACQUISITION August 1, 2017 – 9:00 am ET
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Forward-Looking Statements
Page 2
• This presentation contains or may contain forward-looking statements within the meaning of Section 27a of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The company intends these forward-looking statements to be covered by the safe harbor provisions for such statements.
• Statements made in this presentation that relate to our future performance or future financial results or other future events (which may be identified by such terms as “expect”, “estimate”, “anticipate”, “assume”, “believe”, “plan”, “intend’, “may”, “will”, “should”, “outlook”, “guidance”, “target”, “opportunity”, “potential” or similar terms and variations or the negative thereof) are forward-looking statements, including the Company’s expectations regarding the business environment and the Company’s overall guidance regarding future performance and growth. These statements are based on our current beliefs and expectations and are subject to significant risks and uncertainties. Actual results may materially differ from the expectations expressed in or implied by these forward-looking statements.
• Factors that could cause the Company’s actual results to differ materially include, but are not limited to: (1) global macroeconomic conditions and trends; (2) the behavior of financial markets, including fluctuations in foreign currencies, interest rates and turmoil in capital markets; (3) changes in regulatory controls regarding tariffs, duties, taxes and income tax rates; (4) the Company’s ability to implement and refine its Vision 2022; (5) the Company’s ability to successfully identify and complete acquisitions in line with its Vision 2022 and effectively operate and integrate acquired businesses to realize the anticipated benefits of those acquisitions; (5) the Company’s ability to realize expected cost savings and efficiencies from its performance improvement and other optimization initiatives; (6) the Company’s ability to effectively compete in its markets, and to successfully develop new and competitive products that appeal to its customers; (7) changes in consumer preferences and demand for the Company’s products or a decline in consumer confidence and spending; (8) the Company’s ability to benefit from its investments in assets and human capital and the ability to complete projects successfully and on budget; (9) economic, regulatory and political risks associated with the Company’s international operations, most notably Mexico and China; (10) volatility and increases in the price of raw materials, energy and transportation, and fluctuations in the quality and availability of raw materials and process aids; (11) the impact of a disruption in the Company’s supply chain or its relationship with its suppliers; (12) the Company’s ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws; (13) the Company’s ability to meet quality and regulatory standards in different jurisdictions in which it has operations or conducts business and (14) the Company’s ability to consummate the acquisition of Novel Ingredients and to achieve the benefits anticipated from such acquisition.
• We caution you to consider the important risks and other factors as set forth in the forward-looking statements section and in Item 1A Risk Factors in our most recent Annual Report on Form 10-K, as amended by subsequent reports on Forms 10-Q and 8-K.
• We do not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.
Regulation G: Adjusted Results
• The information presented herein regarding certain unaudited adjusted results does not conform to generally accepted accounting principles in the U.S. (U.S. GAAP). Innophos has included this non-GAAP information to assist in understanding the operating performance of the company and its reporting segments. Please see reconciliations to the most directly comparable financial measure prescribed by U.S. GAAP in the appendix.
Totals in this presentation may not foot due to rounding.
Page 3
Kim Ann Mink, Ph.D. Chairman, President and Chief Executive Officer
Han Kieftenbeld SVP and Chief Financial Officer
Agenda
1. Executive Overview
2. Q2 Financial Review and 2017 Outlook
3. Novel Ingredients Acquisition
4. Q&A
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Strong Q2 Performance – Advancing Vision 2022
Page 4
Q2 2017 Revenue and earnings performance exceeded guidance
• All segments showed positive year-over-year volume comparisons
• Continued cost savings from Operational Excellence initiatives with more scheduled for H2
• Well positioned to deliver robust H2 2017 in line with full year guidance
• Continued progress on strategic pillars
Acquiring Novel Ingredients to create a nearly $0.5 billion Food, Health and Nutrition platform and advance Vision 2022 growth strategy
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Enhancing Our Growth And Earnings Profile
Page 5
Strategic Pillars strengthen the foundation and drive performance
Operational Excellence
• Phase 1 complete; final $2m in Q2 2017
• On track with Phase 2; $5m of $13m to be realized in H2 2017
• Further performance improvement potential in 2018 and beyond
Commercial Excellence
• Fully implemented the newly aligned market-focused global sales organization and “3 in-the-box” go-to-market model
Strategic Growth
• Announced acquisition of Novel Ingredients
Advancing Vision 2022
Page 6
Innophos announces definitive agreement to acquire Novel Ingredients
+
• Creates nearly $0.5 billion Food, Health and Nutrition (FHN) platform
• Advances Vision 2022 growth strategy and enhances innovation
• Expands Innophos’ offering in high-growth Nutrition end-markets
• Expected to deliver attractive cost and tax synergies of ~$15 million
• Prudently financed using existing cost effective credit facility
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Page 7
Agenda
1. Executive Overview
2. Q2 Financial Review and 2017 Outlook
3. Novel Ingredients Acquisition
4. Q&A
> Totals in this presentation may not foot due to rounding
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Q2 2017 Performance Highlights
Page 8
30
22
30 30
1
9 13
1 4
0
2016A Vol/Mix Price Inp Cost Mfg SG&A FX 2017A
• Adjusted EBITDA of $30m and margin of 17% showing a 18 bps YOY improvement
• Sales shortfall resulting in -$8m margin impact primarily from price erosion
• Offset by +$13m from lower input costs and maintaining tight cost controls
• Manufacturing included $2.5m of fees to complete Operational Excellence phase II cost savings implementation which was offset by $2.4m of maintenance stoppage costs in the prior year
• SG&A increase primarily due to strategic project initiatives and incentive compensation programs
• Good OCF/FCF for the current quarter but comps down YOY due to significant working capital reductions in the prior year
($8m) +$8m
Adjusted EBITDA ($ Millions)
Q2
$m Variance
Sales 179 (3) -2%
Gross Profit Gross Margin
39 3 8%
22% +194 bps
Net Income 11 (1) -7%
Adj. Net Income 11 (1) -8%
Adj. EBITDA Adj. EBITDA%
30 --- ---
17% +18 bps
Diluted EPS 0.57 (0.05) -8%
Adj. Diluted EPS 0.57 (0.05) -8%
OCF 30 (15) -33%
FCF 23 (12) -35%
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Q2 2017 Sales Revenue And Gross Margin
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Quarterly Comments
• Sales Revenue down 2% YOY primarily due to lower selling prices. Favorable volume comps seen in all segments
• Food, Health and Nutrition: -3% YOY primarily due to lower average selling prices as volumes improved 2%. Export sales to Venezuela will resume in Q3 2017
• Industrial Specialties: -6% due to strong price competition in technical grade products
• Mix unfavorable due to Other sales up 28%
2016
Sales ($m) Gross Margin (% of Sales)
182 186 168 166
179
20% 22%
20% 22% 22%
0%
5%
10%
15%
20%
25%
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Q2 Q3 Q4 Q1 Q2
2017
Sales Revenue Bridge
Q2 YTD
$m % $m %
2016 182 371
Volume/Mix 6 3% (7) -2%
Price (9) -5% (19) -5%
2017 179 345
YOY Variance (3) -2% (26) -7%
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Q2 2017 Earnings
Page 10
Quarterly Comments
*Excl. $1.6m in Q2 2016, $2.4m in Q3 2016, $1.8m in Q4 2016, $1.7m in Q1 2017 and $1.8m in Q2 2017
• Net income down $1m or -7% versus prior year due to a higher tax rate as EBT was flat. Margins of 6% down 39 bps YOY.
• Adjusted EBITDA flat YOY with a margin of 17%, up 18 bps compared with prior year
• YOY average selling price erosion offset by lower input costs
• SG&A increase primarily due to strategic project initiatives and incentive compensation programs
• Sequential FX down $1m to zero due to stronger Mexican Peso
12 14 9 11 11
$0
$5
$10
$15
Q2 Q3 Q4 Q1 Q2
2016 2017
Net Income
Adjusted EBITDA*
30 34 26 28 30
16% 18%
16% 17% 17%
0%
5%
10%
15%
20%
$0
$10
$20
$30
$40
Q2 Q3 Q4 Q1 Q2
Adjustment ($m) Reported ($m) Adjusted EBITDA margin (% of Sales)
Adj. EBITDA Bridge
Q2 YOY YTD
$m % $m %
2016 30 61
Volume/Mix 1 3% (5) -8%
Price (9) -30% (19) -31%
Input costs 13 43% 23 38%
Manufacturing (1) -3% 1 2%
SG&A (4) -13% (4) -7%
FX - - 1 2%
2017 30 58
YOY Variance - - (4) -6%
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Q2 2017 Performance By Segment
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Food, Health and Nutrition Industrial Specialties Other
51% 38%
11%
Q2 2017 Sales
$179m
Food, Health and Nutrition Industrial Specialties
Sales Bridge FHN IS Other Total
2016 95 100% 72 100% 15 100% 182 100%
Volume/Mix 2 2% - - 5 31% 7 3%
Price (4) -5% (5) -6% - -3% (9) -5%
2017 92 97% 67 94% 20 72% 179 98%
YOY Variance (2) -3% (5) -6% 4 28% (3) -2%
95 94 90 91 92
22% 22% 21% 18%
20%
0%
5%
10%
15%
20%
25%
$0
$20
$40
$60
$80
$10 0
$12 0
Q2 Q3 Q4 Q1 Q2
72 70 62 64 67
15% 15%
11%
16%
14%
0%
5%
10%
15%
20%
25%
$0
$20
$40
$60
$80
$10 0
$12 0
Q2 Q3 Q4 Q1 Q2
Sales Revenue ($m) Adj. EBITDA % of Sales
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Q2 2017 Other Items
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Item Q2 2017 Q2 2016 Comment
Net interest expense $1m $2m Favorable due to lower debt levels, leverage and applicable margins
Effective tax rate 34% 29% Unfavorable due to Mexico exchange and inflation vs. prior year benefit for deconsolidation of Mexico subs
Capital expenditure $7m $10m 30% of current quarter spend is on Geismar deep well investment
Dividends $9m $9m $1.92/sh. annual dividend is 45% of LTM free cash flow
Share repurchase - - No activity
Net Debt $147m $190m 23% or $43m lower YOY
Net Debt / LTM Adjusted EBITDA
1.2x 1.7x 29% improvement YOY
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Q2 2017 Earnings Per Share
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0.61 0.69 0.47 0.55 0.57
Q2 Q3 Q4 Q1 Q2
0.63 0.75
0.52 0.59 0.57
Q2 Q3 Q4 Q1 Q2
2017 2016
Diluted EPS
Adjusted Diluted EPS* Volume/mix (0.07) (0.27)
Price (0.46) (0.97)
Costs 0.52 0.99
FX (0.01) 0.04
Operational items (0.02) (0.21)
Financing 0.03 0.05
Tax (0.03) 0.09
Shares outstanding --- (0.01)
Other (0.03) (0.04)
Other items (0.03) 0.09
Earnings per share Q2 YTD
2016 Diluted 0.61 1.27
Adjustments 0.02 0.01
2016 Adj. Diluted 0.63 1.28
YOY Variance (0.05) (0.12)
2017 Adj. Diluted 0.57 1.16
Adjustments --- 0.04
2017 Diluted 0.57 1.12
Diluted EPS ($ per share) Adjusted Diluted EPS ($ per share)
*Excl. pre-tax costs of $0.4m in Q2 2016, $1.6m in Q3 2016, $1.3m in Q4 2016, $0.9m in Q1 2017 and $0.2m in Q2 2017
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Q2 2017 Cash Delivery
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Quarterly Comments
• Good cash from operations at $30m, but lower YOY due to large working capital improvement in prior year
• Free cash flow of $23m used primarily for dividends and debt reduction
• Capital expenditure of $7m in the quarter, 30% of which was related to the Geismar deep well investment
Cash Flow Bridge
Q2 YTD
$m Variance $m Variance
Adj. EBITDA 30 -- -- 58 (4) -6%
Working Cap 8 (17) -69% (23) (36) -268%
Tax (6) -- 8% (11) 15 57%
Interest (1) -- 23% (3) 1 23%
Other -- 1 80% (2) 1 42%
OCF 30 (15) -34% 19 (23) -54%
Capex (7) 3 29% (16) 2 13%
FCF 23 (12) -35% 3 (20) -86%
45 40 57
-11 30
Q2 Q3 Q4 Q1 Q2
35 33 46
-19 23
Q2 Q3 Q4 Q1 Q2
2016 2017
Cash from Operations
Free Cash Flow
Opening 15 39 33 53 30
FCF 35 33 46 (19) 23
Financing (11) (39) (26) (4) (19)
Closing 39 33 53 30 34
($ Millions)
($ Millions)
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Outlook
Page 15
SALES COSTS EARNINGS & CASH • Soft customer demand in
packaged foods and price competition from imports
• Pruning of lower margin, less differentiated products
• Cost savings actions to largely offset pricing pressures
• Implementation of new improvement initiatives
• Selective investments in market-facing functions
• Earnings as % of sales forecast to show further enhancement
• Expect further improvements in working capital
• Capital investment at Geismar
Q3 2017 • Q3 Sales expected to be similar to Q2 2017, down ~4%
YOY, but with an anticipated mix improvement towards FHN
• Q3 Earnings forecast to be positively affected sequentially by reduced implementation fees and first-time cost savings from Phase 2 operational excellence. Input costs are expected to be in line with second quarter 2017
• Q3 Tax rate to be at the more normalized level of ~33%
Full Year • Reiterating revenue and earnings guidance for full year
2017, excluding acquisition impact
• Overall market conditions and the competitive landscape for 2017 are expected to be similar to 2016
• Phase 2 Operational Excellence fees incurred in H1 to be more than offset by Phase 2 savings, of which $5m is estimated to take effect in H2 2017
• Expect full-year revenues to be down by approximately 4% compared with 2016. Full-year earnings to be broadly in line with 2016
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
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Agenda
1. Executive Overview
2. Q2 Financial Review and 2017 Outlook
3. Novel Ingredients Acquisition
4. Q&A
Novel Brings Growth And Complementary Capabilities Innophos announces definitive agreement to acquire Novel Ingredients
+
• Creates nearly $0.5 billion Food, Health and Nutrition (FHN) platform; 60% of total Company sales
• Advances Vision 2022 growth strategy and enhances innovation
• Expands Innophos’ offering in high-growth Nutrition end-markets
• Expected to deliver attractive cost and tax synergies of ~$15 million
• Prudently financed using existing cost effective credit facility
Page 17
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
VITAL INGREDIENTS
Novel Is A Strong Fit With Our Purpose
Page 18
To provide vital ingredients for the nutrition and health of those around us, leveraging science and technology in partnership with our customers and informed by consumer trends, with a view to create value for our stakeholders.
“
”
Food Health Nutrition
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
• A leading specialty ingredients solutions provider to Food, Health and Nutrition end-markets
• Selective added value player in industrial specialties applications
• Best-in-class practices, agile supply chain and cost effective operations
• Aligned with consumer trends and partner of choice through vital solutions and systems
Page 19
Novel Advances Our Vision 2022 On All Strategic Aspects
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
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Creates A Nearly $0.5 Billion Food, Health and Nutrition Platform; 60% of Total Company Sales
60%
33%
7%
+
Note: Revenue split based on estimated pro forma revenues for 2017
54% 38%
8%
Food, Health and Nutrition Industrial Specialties Other
60% 26%
8% 6%
Ingredients Blends/Formulations Branded Other
Food, Health and Nutrition Industrial Specialties Other
Combined
2017E Sales: $696m 2017E Sales: $97m 2017E Pro Forma Sales: $793m
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
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Novel, A Technology Driven Specialty Ingredients Solution Provider
High growth end-markets
Complementary combination
Strong financial transaction rationale
Prudently financed
• Annual revenue of nearly $100 million; 2008-2016 CAGR of 19%. Headquartered in NJ, USA
• Serving attractive end-markets driven by health and wellness consumer trends with demonstrated growth in the 4-8% range, such as Immune Health, Sports Nutrition, and Cognitive Health
• Technology-based specialty ingredient supplier of botanicals, proteins, amino acids and other healthy ingredients, as well as branded ingredient and custom formulated solutions
• Recognized for its best-in-class quality assurance, strategic sourcing and world class cGMP manufacturing facility supporting more than 185 unique ingredient solutions
• 100 customer-focused employees delivering solutions to more than 200 customers
• Acquiring Novel at an important inflection point
Novel, an attractive business
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
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Novel Brings A Strong Set of Capabilities
High growth end-markets
Complementary combination
Strong financial transaction rationale
Prudently financed
Novel, an attractive business
Manufacturing
Development
Sourcing
Processing
Quality Assurance & Certification
Processes including blending, granulation, agglomeration, and wet or dry milling to support custom formulation
Formulation and pilot plant capabilities to support product concept collaboration, troubleshooting and scale up assistance
Industry leading position in sourcing premium quality ingredients. Best in class quality and traceability
Suite of patent-pending processing technologies to deliver differentiated functionality
State-of-the-art laboratory facilities to support quality assurance program and certifications
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Page 23
More Closely Aligned With Consumer Megatrends
High growth end-markets
Complementary combination
Strong financial transaction rationale
Prudently financed
Novel, an attractive business
• Health and Wellness
• Energized Ageing
• Convenience and Time Effectiveness
• Protection and Preservation
• Clean Label/Greener Food
• Sustainability
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Page 24
End-Markets With Demonstrated Growth In 4-8% Range
High growth end-markets
Complementary combination
Strong financial transaction rationale
Prudently financed
Novel, an attractive business
• Rising demand for products with specific health benefits and natural characteristics
• Changing consumer patterns and behaviors prompt need for new delivery systems
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Page 25
Strengthened Foothold In $7.2bn NA Nutraceutical Market
High growth end-markets
Complementary combination
Strong financial transaction rationale
Prudently financed
Novel, an attractive business
SOURCE: Markets & Markets, 2016
Application
2015 NAM Market
Size*
2015-2020 NAM CAGR
Dietary Supplements 2,580 6-7%
Functional Beverages 1,390 7-8%
Functional Food 1,575 6-7%
Animal Nutrition 875 7-8%
Personal Care 745 6-7%
Ingredient
2015 NAM Market Size*
2015-2020 NAM CAGR
Fibers & Specialty Carbs 1,719 7-8%
Omega 3's 938 6-7%
Vitamins 935 6-7%
Botanicals 745 7-8%
Minerals 669 6-7%
Carotenoids 663 6-7%
Probiotics 444 7-8%
Proteins & Amino Acids 306 6-7%
Prebiotics 265 7-8%
Other** 481 6-7%
* USD Millions ** Glucosamine, Chondroitin, and Polyols
Market Sub-Segment
2016-2020 Growth Rate
Cognitive Health 20%
Digestive Health 7%
Sports Nutrition 8%
Weight Management 7%
Women/Men's Health 7%
By Ingredient By Segment
By Sub-Segment
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Page 26
Complementary Market And Product Coverage
High growth end-markets
Complementary combination
Strong financial transaction rationale
Prudently financed
Novel, an attractive business
Global Supplement Companies
Mid-tier Supplement Companies
Global Food Companies
Market Coverage
Botanicals
Minerals
Excipients
Enzymes
Botanicals
Proteins
Amino Acids
Other Actives
Product Coverage
Broadened and attractive product portfolio
Processing capabilities to develop further added value solutions
Expanded end-market coverage
Both companies have a strong North America presence
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Page 27
Attractive And Highly Complementary Product Portfolios
High growth end-markets
Complementary combination
Strong financial transaction rationale
Prudently financed
Novel, an attractive business
Immune Health Heart Health
Sports Nutrition & Energy Antioxidants & Specialty Botanicals
Protein & Amino Acids Flavors & Sweeteners
Cognitive Health Weight Management
Unique botanicals,
antioxidants, and carotenoids
Nutraceutical ingredients that
support cardiovascular
health
Powerful aminos, next-gen
botanical energizers
A range of powerful antioxidants and unique specialty
botanicals
Ingredients to support cognitive
function and mental sharpness
The next generation
of advanced proteins
Premium quality sweeteners and cocoa products
Natural extracts and other weight management ingredients
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Page 28
Novel Brings Strong Portfolio Of Branded Products
High growth end-markets
Complementary combination
Strong financial transaction rationale
Prudently financed
Novel, an attractive business
Kinetiq™
Cera-Q™
Acumin™
QU995™
PhysiCor™
A next-gen, natural citrus aurantium extract clinically demonstrated to deliver resistance training
performance benefits safely and without stimulants
First of its kind, patented turmeric complex providing a range of naturally occurring turmeric root nutrients
Dual-path plant extract clinically demonstrated to reduce body fat while increasing lean mass and strength
Protein hydrolysate ingredient derived from a silk fibroin delivering a range of cognitive health benefits
The most advanced quercetin offering on the market with unsurpassed purity and superior absorption
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Page 29
Sharing A Strong And Diverse Customer Base
High growth end-markets
Complementary combination
Strong financial transaction rationale
Prudently financed
Novel, an attractive business
• Opportunity to leverage combined portfolio and grow customer base
• Innophos has longstanding relationships with market leading food and health customers where Novel has limited presence; opportunity to cross-sell and develop new offerings
• Develop innovative, technology-based ingredient solutions using combined product portfolios and processing capabilities
• Existing products and joint development provides potential access to new adjacencies
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Page 30
Supports Our Commitment To Grow And Diversify Earnings
High growth end-markets
Complementary combination
Prudently financed
Novel, an attractive business
Strong financial transaction rationale
• Adds ~$100 million of annual revenue
• Accretive to earnings per share within the first year of combined operations
• Annual cost synergies ~$4 million; revenue synergies are anticipated from combined product technology and customer relationships
• Present value from tax synergies ~$11 million
• Multiple of ~12.1x on Novel’s estimated 2017 adjusted EBITDA, and ~7.7x adjusting for expected cost and tax synergies
• Multiple of ~1.3x on Novel’s estimated 2017 sales revenue
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Page 31
Leveraging Our Cost Effective Existing Credit Facility
High growth end-markets
Complementary combination
Novel, an attractive business
• All-cash consideration of $125 million
• Acquisition will be funded with borrowings under current cost effective credit facility
• Net leverage to increase from 1.2x to 2.1x at close well within the covenants of the credit facility
• Continued strong cash conversion cycle supports current dividend and net leverage to pre-transaction level in two years
• Closing of the transaction is subject to customary closing conditions, and is expected to be completed in the third quarter of 2017
Strong financial transaction rationale
Prudently financed
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Novel is Strategically and Financially A Strong Fit
STRATEGIC FIT FINANCIAL FIT
Expanded solution capability to better serve our customers
• Diversifies participation in higher growth Food, Health and Nutrition segments
• Recognized as a leader in markets served
• Provides revenue synergies from customer portfolio overlap
• Technology and science based
• Deepens capabilities and ability to serve customers
• B-to-B customer model
Credible earnings and cash generation supported by enhanced growth potential
• Topline growth: 4-8% range
• EBITDA margin with capacity to grow to 20% range
• Reliable cash conversion cycle
• Asset light: maintenance capital <3% of sales. Working capital in 20% range
• EPS accretive in year 2
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Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
A Winning Combination
Page 33
STRATEGIC FIT • Overlapping customers
and sales channels • Linked to consumer
trends • Technology enabled
MORE GROWTH • Leadership in markets
served • Expands aperture for
profitable and faster growth
FAVORABLE ECONOMICS
• Value > investment • Enhanced earnings
profile • Sustainable cash flow
POTENT INTEGRATION
• Foundation to build critical mass
• Enhances human capital and capability
Novel is strategically and financially a strong fit
Q2 2017 EARNINGS CALL and NOVEL INGREDIENTS ACQUISITION August 1, 2017 – 9:00 am ET
Q&A
Page 34
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Non-GAAP Reconciliations
Long Term Targets
Innophos is not able to provide a reconciliation of its 2022 expectation for Adjusted EBITDA margin to GAAP net income due to the number of variables in the projected EBITDA margin for 2022 and because we are currently unable to quantify accurately certain amounts that would be required to be included in GAAP net income or the individual adjustments for such reconciliation. In addition, we believe such reconciliation would imply a degree of precision that would be confusing or misleading to investors.
Additional Information Free cash flow is a supplemental financial measure that is not required by, or presented in accordance with, US GAAP. The Company believes free cash flow is helpful in analyzing the cash flow generating capability of the business and as a performance measure for purposes of presentation in this investor presentation. The Company defines free cash flow as net cash provided from operating activities plus net cash used for investing purposes.
EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted EPS are supplemental financial measures that are not required by, or presented in accordance with, US GAAP. The Company believes EBITDA and adjusted EBITDA are helpful in analyzing the cash flow generating capability of the business and as performance measures for purposes of presentation in this investor presentation.
Net Working Capital and Operating Working Capital are supplemental financial measures that are not required by, or presented in accordance with, US GAAP. The Company believes net working capital and operating working capital are helpful in analyzing the effects on the cash flow generating capability of the business and as a performance measure for purposes of presentation in this release. The Company defines net working capital as total current assets less cash less total current liabilities, and defines operating working capital as net working capital less taxes less interest.
Page 35
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Non-GAAP Reconciliations
Page 36
Adjusted EBITDA Reconciliation to Net Income
(Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Net Income $11,223 $12,104 $22,146 $24,946
Interest expense, net 1,452 1,913 2,805 3,712
Provision for income taxes 5,794 5,025 9,980 11,908
Depreciation & amortization 9,550 9,282 19,131 18,564
EBITDA 28,019 28,324 54,062 59,130
Adjustments
Non-cash stock compensation * 1,568 1,292 2,285 1,826
Foreign exchange loss (gain) (78) 355 (135) 316
Severance/Restructuring expense (income) 326 - 1,326 (43)
Adjusted EBITDA $29,835 $29,971 $57,538 $61,229
Percent of Sales 16.7% 16.5% 16.7% 16.5%
* Not adjusted when calculating Adjusted EPS
Adjusted Net Income Reconciliation to Net Income
(Dollars in thousands, except EPS) Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Net Income (loss) $11,223 $12,104 $22,146 $24,946
Pre-tax Adjustments
Foreign exchange loss (gain) (78) 355 (135) 316
Severance/Restructuring expense (income) 326 - 1,326 (43)
Total Pre-tax Adjustments 248 355 1,191 273
Income tax effects on Adjustments 84 104 346 76
Adjusted Net Income $11,387 $12,355 $22,991 $25,143
Adjusted Diluted Earnings
Per Participating Share$0.57 $0.63 $1.16 $1.28
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Non-GAAP Reconciliations
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Segment Adjusted EBITDA Reconciliation to EBITDA
(Dollars in thousands)
FHN IS Other Total FHN IS Other Total
EBITDA $17,032 $8,654 $2,333 $28,019 $19,744 $10,136 ($1,556) $28,324
Non-cash stock compensation 887 621 60 1,568 732 534 26 1,292
Foreign exchange loss (gain) (26) 0 (52) (78) 0 0 355 355
Severance/Restructuring exp.(inc.) 130 196 0 326 0 0 0 0
Adjusted EBITDA $18,023 $9,471 $2,341 $29,835 $20,476 $10,670 ($1,175) $29,971
FHN IS Other Total FHN IS Other Total
EBITDA $32,656 $18,175 $3,231 $54,062 $39,677 $19,697 ($244) $59,130
Non-cash stock compensation 1,293 905 87 2,285 1,039 715 72 1,826
Foreign exchange loss (gain) (30) 0 (105) (135) 0 0 316 316
Severance/Restructuring exp.(inc.) 665 635 26 1,326 145 0 (188) (43)
Adjusted EBITDA $34,584 $19,715 $3,239 $57,538 $40,861 $20,412 ($44) $61,229
Three Months Ended June 30, 2017 Three Months Ended June 30, 2016
Six Months Ended June 30, 2017 Six Months Ended June 30, 2016
Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
Non-GAAP Reconciliations Cash From Operations Reconciliation to EBITDA
(Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
EBITDA $28,019 $28,324 $54,062 $59,130
Operating Working Capital 7,840 24,987 (21,382) 13,701
Taxes paid (5,940) (6,425) (11,365) (26,443)
Interest paid (1,380) (1,788) (2,685) (3,498)
All other including non-cash stock
compensation and changes in other
long-term assets and liabilities
1,496 15 726 (851)
Net cash provided from operations $30,035 $45,113 $19,356 $42,039
Cash From Operations Reconciliation to Adjusted EBITDA
(Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Adjusted EBITDA $29,835 $29,971 $57,538 $61,229
Operating Working Capital 7,592 24,632 (22,573) 13,428
Taxes paid (5,940) (6,425) (11,365) (26,443)
Interest paid (1,380) (1,788) (2,685) (3,498)
All other including changes in other
long-term assets and liabilities(72) (1,277) (1,559) (2,677)
Net cash provided from operations $30,035 $45,113 $19,356 $42,039
Free Cash Flow Reconciliation to Cash From Operations
Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands) 2017 2016 2017 2016
Cash From Operations $30,035 $45,113 $19,356 $42,039
Capital Expenditures (7,524) (10,514) (16,077) (18,538)
Free Cash Flow $22,511 $34,599 $3,279 $23,501
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Novel Ingredients Acquisition and Earnings Conference Call Second Quarter 2017 | August 1, 2017
ABOUT THE COMPANY Innophos (NASDAQ: IPHS) is a leading international producer of specialty ingredient solutions that deliver far-reaching, versatile benefits for the food, health, nutrition and industrial markets. We leverage our expertise in the science and technology of blending and formulating phosphate, mineral and botanical based ingredients to help our customers offer products that are tasty, healthy, nutritious and economical. Headquartered in Cranbury, New Jersey, Innophos has manufacturing operations across the United States, in Canada, Mexico and China. For more information please visit www.innophos.com
CONTACT Investors: Mark Feuerbach, 609-366-1204 or [email protected] Media: Ryan Flaim, Sharon Merrill Associates, 617-542-5300 or [email protected]
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