Investor Presentation

Investor Presentation
NYC – Jefferies Industrial Conference
11 August 2016
Disclosure Statement
This presentation contains forward-looking statements. Forward-looking statements may be preceded by, followed by or include the words
“believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions. These statements are based on the beliefs and
assumptions of our management. Generally, forward-looking statements include information concerning our possible or assumed future
actions, events or results of operations. Forward looking statements specifically include, without limitation, the information in this
presentation regarding: projections; efficiencies/cost avoidance; cost savings; forward loss reserves; income and margins; earnings per
share; growth; economies of scale; the economy; capital expenditures; future financing needs; future acquisitions and dispositions;
litigation; potential and contingent liabilities; management’s plans; and integration related expenses.
Although we believe that the expectations reflected in the forward-looking statements are based on reasonable assumptions, these
forward-looking statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be
materially different from those projected. We cannot guarantee future results, performance or achievements. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of the forward-looking statements. All written and oral forwardlooking statements made in connection with this presentation that are attributable to us or persons acting on our behalf are expressly
qualified in their entirety by “Risk Factors” and other cautionary statements included herein.
The information in this presentation is not a complete description of our business or the risks. There can be no assurance that other factors
will not affect the accuracy of these forward-looking statements or that our actual results will not differ materially from the results anticipated
in such forward-looking statements. Factors that could cause actual results to differ materially from those estimated by us include, but are
not limited to, our ability to manage and otherwise comply with our covenants with respect to our outstanding indebtedness; our ability to
service our indebtedness; the cyclicality of our end-use markets and the level of new commercial and military aircraft orders; industry and
customer concentration; production rates for various commercial and military aircraft programs; the level of U.S. Government defense
spending, including the impact of sequestration; compliance with applicable regulatory requirements and changes in regulatory
requirements, including regulatory requirements applicable to government contracts and sub-contracts; further consolidation of customers
and suppliers in our markets; product performance and delivery; start-up costs, manufacturing inefficiencies and possible overruns on
contracts; increased design, product development, manufacturing, supply chain and other risks and uncertainties associated with our
growth strategy to become an integrated defense aftermarket solutions provider; our ability to manage the risks associated with
international operations and sales; possible additional goodwill and other asset impairments; economic and geopolitical developments and
conditions; unfavorable developments in the global credit markets; our ability to operate within highly competitive markets; technology
changes and evolving industry and regulatory standards; the risk of environmental liabilities; and litigation with respect to us.
We caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this
presentation. We do not undertake any duty or responsibility to update any of these forward-looking statements to reflect events or
circumstances after the date of this presentation or to reflect actual outcomes.
The MEREX Group / Kellstrom Defense business is currently a portfolio company of Dubin, Clark & Company, a Boston, MA based private
equity fund and is not subject to public reporting.
The Kellstrom Advantage
Total Solution Provider for Sustainment of Legacy Defense Aircraft through
OEM Sanctioned Distribution, Component MRO, and Engineering &
Manufacturing
• Global Reach with Customers, Employees, and Relationships in Over 60 Countries
• Commitment to Compliance, with Hundreds of Active Export Licenses and
Dedicated Contract, Export and Security Personnel
• In-house Expertise including Logistics, Product Development, and Repair Solutions.
A Leader For Over 30 Years for the Sustainment
of U.S. Defense Platforms
Company Overview
Private Equity Backed Defense Aftermarket Platform
Supporting over 60 countries - US Manufactured Fixed- and Rotary-Wing Aircraft
Exclusive OEM
Distribution
Maintenance,
Repair &
Overhaul
(MRO)
Proprietary
Engineering &
Manufacturing
Program
Management
Integrated Export Compliant Parts & Services Solutions
Global Defense Spending Growth
Regional Disruptions Drive Aircraft Utilization
US Defense Spending Still Largest Opportunity
• O&M Budgets Continue to Grow 5-7% Annually
• Older Aircraft Sustainment Continues with High Operating Cadence
and Limited Replacement Build Rates
Global Defense Market Attractiveness
Bubble Size Is GDP Growth Rate
Presented By AVASCENT,
SpeedNews Defense Conference
Global Defense Spend Create Compelling Opportunities
Legacy US Defense Global Fleet
MD500
Bell Series
UH 60
CH 47
AH 64
AH1 / UH1
707 Defense
C130
P3
F4
F5 / T38
F18
F15
F16
Rotary Wing
Fixed Wing
0
500
1000
US Fleet
1500
2000
2500
3000
International Fleet
Sizable International Fleet of Legacy Platforms
3500
Market Assessment
• Regional Disruptions Drive Asset Utilization and Spend
• US and Global Partner Defense Spend Outlook Remains Positive
• Legacy Fleet Utilization and Persistence Provides Sustainment
Opportunities
• Limited New Platform Build Rates
• Continued Proliferation of Legacy Assets Into Global Market
• Aftermarket Focus On US and Key Global Partners
Building
A Defense
Aftermarket
Platform
Content page
with text
and photo
Sponsor Group Led Bolt-on Acquisitions & Asset Purchases
 Business
founded as
aerospace
parts
international
broker
1982
 Sponsor
Group
initially
invests in
Merex, Inc.
2011
 Acquired
Commerce
Overseas
Corporation
assets
2012
 Expanded
Royal Thai
Air Force
MRO
program for
F-16, F-5 &
Bell 212
 Acquired
ALCO
Services, Inc.
2013
 Purchased
RG Assets for
manufacture
of F5 & T38
Canopies
Key Partnership Agreements & Strategic Initiatives
 Acquired
Kellstrom
Defense
Aerospace,
Inc.
2014
 Marshall
Aerospace
Multi-Year
Agreement
 AMETEK
Exclusive
Aftermarket
Agreement
 Purchased
manufacturing
assets from
Sierra
 Merex Group
Rebrands
2015
 Airbus
Australia
Multi-Year
 Livermore facility
Agreement
closure and
 Royal Dutch
consolidation into
Air Force
Miramar
Multi Year
MRO Contract  Camarillo facility
 UTC Delevan
repositioned
Exclusive
Distribution
10
Management Team
Strong Leaders and Directors with Deep Industry Expertise
Name
Title
Christopher
Celtruda
Chief Executive Officer
(Joined May, 2013)
Richard
Szekelyi
[Interim] Chief Financial Officer
Dean Brady
President, Global Distribution and
Supply Chain
(Joined February, 2009)
Jonathan
Silvia
President, MRO Solutions
(Joined January, 2015)
David
Faulkner
President, Engineering and
Manufacturing
(Joined January, 2015)
Stuart
Reid
EVP, Business Development &
Product Line
(Joined June, 2013)
Bradley
Morton
Member, Board of Directors
Gen. Henry
Taylor,
U.S.A.F.
(Ret.)
Member, Board of Directors
Experience


Experience: 25+ years
Prior experience: Founder Destiny Partners; Sponsor Advisory Firm; President & Corporate Officer at
Gardner Denver; Group VP, Executive and Corporate Officer at CIRCOR Aerospace; held various
operational and business leadership positions at Honeywell / Allied Signal


Experience: 30+ years
Prior experience: Managing Director at Phoenix Management; [Various CEO and financial advisory
roles in Agriculture, Banking, Financial Services and Manufacturing industries]


Experience: 20+ years
Prior experience: Kellstrom Vice President of Programs & Supply Chain Management; Director of
Manufacturing at Astronics DME Corporation; Sales / Program Manager at DME Corporation


Experience: 20+ years
Prior experience: VP & General Manager at Ellwood Texas Forge (a division of Ellwood Group);
General Manager at McWilliams Forge Company (a subsidiary of Precision Castparts); G. M. at Spence
Engineering / Division and Leslie Controls at CIRCOR; held various operational and business leadership
positions at Honeywell


Experience: 20+ years
Prior experience: Technical Director at Defense Electronics Systems (a division of Alliant
Techsystems); Senior Program Manager of Missile System Development & Derivatives at ATK; Chief
Technology Officer at Rocketplane Global; Senior Conceptual Design Engineer at Lockheed Martin


Experience: 20+ years
Prior experience: Director of International Sales at Merex; Program Manager at CIRCOR Aerospace (a
division of CIRCOR International); Project Manager at Sargent Fletcher (a Cobham Company)


Experience: 30+ years
Prior experience: Currently serves as an independent board director for PAS Technologies. Previously,
Mr. Morton served as President of the Eaton Aerospace Group where he grew revenue of $750 million
to over $1 billion while improving operating margins


Experience: 30+ years
Prior experience: A retired Brigadier General, Gen. Taylor served for over 30 years with the U.S. Air
Force after four years with the U.S. Navy where he held various positions of increasing responsibility
Four Business Operating Segments
1 Global Distribution and Supply Chain (GDSC) – Exclusive OEM Partnerships
2
3
4
Component Maintenance, Repair and Overhaul (MRO)
Integrated Major Program Management / Platform Sustainment
Legacy Aircraft Engineering and Manufacturing / Life Extension (E&M / LEP)
Global Operating Footprint
El Segundo, California (LAX)
3,400 Sq. Ft. - Group Headquarters
Cambridge, United Kingdom (UK)
10,000 Sq. Ft. - Distribution
Camarillo, California (SoCAL)
10,000 Sq. Ft. - Eng. & Mfg.
SINGAPORE (SING)
Sales Office
Over 25 Third Party Partners Support In Country Sales Capture
Miramar, Florida (SoFL)
76,000 Sq. Ft. - MRO and GDSC
Windsor , Australia (AUS)
10,000 Sq. Ft. - Distribution
Macon, Georgia (SoGA)
104,000 Sq. Ft. - TSSR Program
Diversified Business Across Leading Defense Platforms
F-15, A-10, KC-10…
P-3
C-130
22%
25%
2%
Rotary Wing
7%
11%
3%
22%
F-18
E-8
E-6
KC-135
Boeing 707 Defense Derivatives
8%
F-16
F-5 / T-38
Segment Volume Contribution
4
Engineering &
E&M / LEP
Manufacturing (E&M)
15%
3
Margin
Maintenance, RepairMRO
and
Overhaul (MRO)
20%
2
Sustainment Programs;
TSSR
J Stars (TSSR)
31%
1
Global DistributionGDSC
and
Supply Chain (GDSC)
33%
0%
5%
10%
15%
20%
Segment Sales in $M
Total Aftermarket Solutions For Legacy Aircraft
25%
30%
35%
Maximizing Segment Alignment
Distribution
Leveraging A
Common Sales
Channel To
Drive Customer
Value
E&M
MRO
Mining Replacement Part Consumption For Re-engineering Candidates
Supplying Engineered / SAR Compliant Details and LRUs
Customer Value Created By Integrated Aftermarket Solution
Global Distribution & Supply Chain
Total Logistics Support Solutions
–
–
–
–
–
–
–
–
1
Selected Partners
Supply Chain Management (SCM)
Demand Chain Management (DCM)
OEM Parts Distribution
Excess Inventory Solutions
Technical & Platform Expertise
Obsolescence Management
Export Compliance – ITAR & EAR
IT Portal Connectivity
Exclusivity Ensures Customer Access and Pricing Power
Integrated Programs – J Stars / TSSR
•
•
•
•
2
Multi – Year Agreement For Parts and Repairs Management
Manage Full Government Inventory of Spares, Re-furbishable Accessories
Partnered with Northrop Grumman on Long Term Aircraft Sustainment
No Replacement Aircraft Funded
Sticky Business Leveraging All Segments
Kellstrom Repair Services (KRS)

3
FAA & EASA Certified Repair Station
•
Class I, II, III, & IV Instrument Repairs
•
Class I, II, & III Accessories Repairs

OEM and Third Party Repair Solutions

Primary Capabilities include:
•
Teardown, Test, & Evaluation
•
Repair, Modification, & Overhaul
•
Repair Partner Management For Global Fleet Customers
Full Accessory MRO Capability
•
Hydraulics
•
Auxiliary Power Units (APUs)
•
Pneumatics
•
Wheels & Brakes
•
Fuel
•
Instruments/Indicators
•
Landing Gear
•
Avionics Computers
Engineered Products and Life Extension
Structural
Wing
Electro-mechanical
30G Indicator
Hydraulic
Damper Assembly
4
Electronic
Accelerometer
Systems
ECS Upgrade
Canopy
Vane Door Actuator
Hydraulic Actuator
Switching Assembly-AOA
Ammo Box
Speed Brake
Control Box
Landing Gear
Ground Support Test Set
C-130 SHORT-POD™
Building a Portfolio of SAR Sanctioned Third Party Spares and Upgrades
Content
page with text
photo
Driving Exclusivity
andand
Multi
Year Content
Kellstrom Defense Focused On Growth Via Predictable, Higher Barrier Relationships and Content
Develop Proprietary
Designs & Tooling
Forge Exclusive OEM
Distribution & Repair Relationships
 Newly-forged OEM relationship team intended
 Significant opportunity to accumulate IP and
fuel high margin manufacturing capability
 Acquisition of discontinued proprietary tooling
results in sole-source status on select
products, providing high-margin, recurring
revenues
 Synergistic business model allows for quick
introduction of proprietary products through
established distribution channels
Proprietary Product Portfolio
to provide deep focus on cultivating exclusive
relationships with OEMs
 Multi-pronged approach to increased OEM
penetration includes first establishing
exclusive distribution and repair agreements,
then seeking licenses for legacy parts
manufacturing
Exclusive Distribution
Capture Multi-Year
Total Fleet Support Agreements
 Several opportunities to diversify revenues
further by acquiring multi-year agreements
Agreements would provide step-function
growth potential with recurring, year-to-year cash
flows

Impressive track record on JSTARS
program is a key differentiator in new opportunity
discussions with potential customers

Multi-Year Agreements
(Delevan)
Speed Brake
30G Indicator
Exclusive Repair Relationships
Landing Gear
Accelerometer
Royal Dutch Air Force
ECS Upgrade
Israeli Air Force
Damper Assembly
21
Business Strategy
• Favorable Sector Trends Around Legacy Aircraft Sustainment Spend
• Experienced Leadership Team In Place to Manage Organic and Acquired Growth
• Continuing to Invest In Strong Global Relationships; Channel Partners, OEMs,
Suppliers
• Legacy Assets Rationalized and Processes Driven to Maturity
• Shifted Portfolio Toward Higher Barrier, Sticky Repeat Content
• Investing In Increased IP Development and Differentiated Solutions
• Expect Higher Growth E&M and MRO to Contribute to Volume / Margin
Expansion In 2016-2018
Focus On Organic Growth
Distribution Pursuits
- Expanded OEM Relationships; Engine Related Accessories, Airframe
Systems and Rotary Wing
- Multi-Year Sustainment For C-130 H /J and F-16
Program Pursuits
- Multi Year Sustainment and Logistics For C-130, KC-10 and C-5
MRO Pursuits
- Global Component Sustainment Programs In Asia and Middle East
- Increased Landing Gear, APU and Accessory Capabilities
E&M / LEP Pursuits
- Production Spares For T38, A10, F16 and F18
- Third Party SAR Manufacturing of LRU and Details For Flow Control
- IP Development For Mod and Upgrades; C-130
Pipeline of Over $200M Of Actionable Growth
Growth Outlook
Solution Development and Sales Capture
Fuel Expected Growth
Acquisitions and Integration
Drive Volume and Margin
Changes
~ 13-15% EBITDA
2013
2016
Targeting Sales In Excess of $250M
2018
The Kellstrom Promise
People – Our business depends on our 200+ employees in the US, UK, Australia, and Singapore
working as one to support our commitment to innovation, transparency, diversity, communication,
development, and community engagement.
Integrity – KDA and its global employees are committed to upholding all requirements of doing
business globally and being fully compliant with all laws and regulations.
Ethical Conduct – We will conduct ourselves according to the highest ethical standards and will
distinguish ourselves through our professionalism, transparency, and best practices.
Trust – KDA takes customer and partner relationships seriously and is focused on building
mutually productive business.
Safety – KDA ensures that its workplace and products are held to the highest standards to ensure
that employee and customer well-being comes first.
Quality – All products and services provided by KDA and affiliated businesses are designed,
manufactured, and sourced in accordance with the highest industry standards, with AS9100 and
ISO qualified systems in place to ensure conformance.
Value – KDA provides the right combination of product, services, and support to ensure the aircraft
readiness requirements of our customers are met with the right price and timely delivery.