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Executive summary Transaction overview Davis Industries Corporation ("Davis Industries" or the "Company") is a medical devices manufacturer that delivers innovative infection prevention products and services for the healthcare market Davis Industries specializes in the following reportable segments: Endoscopy, Water Purification and Filtration, Health Disposables, and Dialysis For the LTM period ended July 31, 2017, Davis Industries generated revenue of $480.3 million and adjusted EBITDA of $99.8 million Davis Industries is currently exploring how to refinance existing debt on its balance sheet Davis Industries has $126mm of existing debt that is split into two tranches ("Tranche A" and "Tranche B") that both mature later this year Davis Industries is considering putting in place a $200 million Revolving Credit Facility, the proceeds of which would be used to refinance Tranche A and Tranche B Pro Forma for the transaction, total leverage will be 1.3x based on LTM Adjusted EBITDA of $99.8 million Sources & Uses Pro Forma Capitalization Table Sources ($mm) Before Transaction After Transaction Amount 126.0 ($mm) New Revolving Credit Facility Total Sources Amount 80.0 $126.0 Tranche A Tranche B 46.0 Uses ($mm) New Revolving Credit Facility Repay Tranche A 80.0 Total Debt $ 126.0 46.0 Repay Tranche B Total Uses $126.0 Adjusted EBITDA $99.8 99.8 x EBITDA 0.8x 0.5x 1.3x $ x EBITDA Financial overview Davis Industries Corporation - Financial Summary $ in millions Income Statement: Revenue % growth Cost of Goods Sold Gross Profit Gross margin Total operating expenses Operating income Operating margin Net profit margin Net income Balance Sheet: Cash and cash equivalents Accounts receivable Inventory Total assets Accounts payable Total debt Equity Liabilities and equity 2015 $353.1 188.0 165.1 46.8% 116.3 48.8 13.8% 27.8 7.9% $19.8 43.5 45.1 365.0 10.1 78.5 224.6 365.0 FYE July 31, 2016 $415.8 17.7% 215.2 200.6 48.3% 142.6 58.0 14.0% 34.9 8.4% $26.8 58.4 57.3 443.3 16.4 116.0 249.7 443.3 2017 15.5% 242.5 49.5% 172.9 13.5% 8.5% 501.1 501.1 $ in millions Cash Flow Statement: Cash flow from operations Capital expenditures Free Cash Flow Acquisitions Dividends paid EBITDA calculation: Adjusted EBITDA Credit ratios: Total Debt/ EBITDA Debt to total capitalization FCF/Total Debt 2015 $39.1 (7.9) 31.1 (20.4) (2.6) $70.2 1.1x 25.9% 39.7% FYE July 31, 2016 $49.0 (11.4) 37.5 (65.0) (3.1) $86.3 1.3x 31.7% 32.4% 2017 43.1 $99.8 1.3x 30.3% 34.2% Business and industry overview Company overview Davis Industries is a leading provider medical equipment and sanitation products and services in the healthcare market: Surgical Instruments: Medical Sterilizers: Single-Use Medical Disposables: Customers No customer accounted for more than 10% of consolidated net sales during FY2017, FY2016, or FY2015 Industry overview Total addressable markets ("TAM") Surgical Instruments: [Size / growing at x%] Medical Sterilization: [Size / growing at x%] Single-Use Medical Disposables: [Size / growing at x%] Market drivers Aging US population Improvements in medical technology and upgrading clinics [TBU] Competition The overall market is highly competitive with peers such as: Medical device manufacturer market growth ($bn) $137 $142 $148 $154 $161 $168 $175 $184 $194 $205 $215 $227 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E Deal structuring Collateral analysis Collateral description Accounts receivable Inventories Property and equipment, net Borrowing base recommendation Risks and Mitigants Risk Competition - Company faces rapid technology changes in the medical device and water purification industry. Regulation - Industry is experiencing significant scrutiny and regulation by governmental authorities, which may lead to greater regulation in the future. Commodity Risk - Company is heavily reliant on certain raw materials and can be adversely impacted by rising prices. Collateral shortfall - $86,000m deficiency if revolver is fully drawn Financial covenant package Eligible collateral value (Sk) Authorized advance rate (%) Available collateral ($k) Covenant Rationale Maximum Ratio: (Total Debt/EBITDA) $69,078 80% $55,262 Cash Flow Leverage Rationale: Assures adequate debt coverage 50% Minimum Ratio: (EBITDA/Total Interest) 50% Interest Coverage Rationale: Assures operating earnings can cover interest Total collateral available Minimum Ratio: (EBITDA less Capital Expenditures divided by Total Fixed Charges) Fixed Charge Coverage Less: (commitments) $126,000 Rationale: Assures sufficiency of operating eamings for fixed requirements Excess/(deficiency) Ratio: (Net Worth-Intangible assets) Minimum Tangible Net Worth Rationale: Limits investments, directing cash flow to debt repayment Minimum Liquidity Ratio: (Permit at any time its total of cash and marketable securities, to be less than a $amount) Rationale: Assures satisfactory liquidity and tracks performance vs. plan Mitigant [] Company shows top line growth year over year [] Company research leads to patents resulting in a competitive advantage [] Company has communicated to the bank that they have significant R&D investment in process [] Company regularly participants in seminars and webinars for proper regulation education [] Company has not presented any significant regulation issues historically [] Historically the company has been able to maintain strong margins [] Company has a hedging strategy in place [] Company has maintained strong and consistent cash on their balance sheet [] Company has low cash flow leverage under 1.50x and has had low cash flow leverage historically [] Company patents and performance warrants enterprise valuation which will be used as bank security Financial Model FCF Model (Smm) Revenue % Growth EBITDA % Margin Interest Expense Cash Tax Expense A in NWC Capex Dividend payments Free cash flow Cumulative free cash flow Mandatory debt repayments Cash available for debt service Cumulative free cash flow for debt service Covenant Projections (Smm). R/C facility Term Loan A Total Debt Leverage Ratio Leverage Covenant EBITDA Cushion ($) EBITDA Cushion (%) Interest Coverage Ratio Interest Coverage Covenant EBITDA Cushion ($) EBITDA Cushion (%) 2017PF 480.3 15.5% 99.8 20.8% (5.4) 2017PF 2018P 2019P 2020P 2021P 525.0 588.0 646.8 646.8 9.3% 12.0% 10.0% 0.0% 105.0 117.6 129.4 646.8 20.0% 20.0% 20.0% 100.0% (3.8) (2.0) (1.0) (20.9) (23.5) (25.8) (11.1) (15.0) (14.0) (18.4) (20.6) (22.6) (4.2) (4.7) (5.2) 46.6 51.9 60.8 46.6 98.6 159.3 46.6 51.9 60.8 46.6 98.6 159.3 2018E 2019E 2020E Year Ended July 31, 2022P 2023P 646.8 646.8 0.0% 0.0% 646.8 646.8 100.0% (1.0) (1.0) (129.0) (129.0) 153.7 100.0% (1.0) (129.0) 670.5 516.8 516.8 829.9 1,346.7 1,863.5 670.5 516.8 516.8 1,346.7 1,863.5 829.9 Year Ended July 31, 2022E 2023E 3.50x 3.50x 126.0 79.4 27.4 126.0 79.4 27.4 1.26x 0.76x 0.23x 0.00x 3.50x 3.50x 3.50x 3.50x 63.78 82.32 109.76 129.36 63.92% 78.40% 93.33% 100.00% 18.44x 27.79x 59.99x 129.36x 3.50x 3.50x 3.50x 3.50x 80.84 91.78 110.74 125.86 81.02% 87.41% 94.17% 97.29% 2021E 3.50x 3.50x 3.50x 3.50x 2024P 2025P 2026P 2027P 646.8 646.8 646.8 646.8 0.0% 0.0% 0.0% 0.0% 646.8 646.8 646.8 646.8 100.0% 100.0% 100.0% 100.0% (1.0) (129.0) (1.0) (1.0) (1.0) (129.0) (129.0) (129.0) (22.6) (22.6) (22.6) (22.6) (5.2) (5.2) (5.2) (5.2) 489.0 489.0 489.0 489.0 2,352.5 2,841.5 3,330.4 3,819.4 1867.0%7-yr Payout 489.0 489.0 489.0 489.0 2,352.5 2,841.5 3,330.4 3,819.4 2024E 2025E 2026E 2027E 0.00x 0.00x 0.00x 0.00x 3.50x 3.50x 3.50x 3.50x 646.80 646.80 646.80 646.80 100.00% 100.00% 100.00% 100.00% 646.80x 646.80x 646.80x 646.80x 3.50x 3.50x 3.50x 3.50x 643.30 643.30 643.30 99.46% 99.46% 99.46% 643.30 99.46% Executive summary Transaction overview Davis Industries Corporation ("Davis Industries" or the "Company") is a medical devices manufacturer that delivers innovative infection prevention products and services for the healthcare market Davis Industries specializes in the following reportable segments: Endoscopy, Water Purification and Filtration, Health Disposables, and Dialysis For the LTM period ended July 31, 2017, Davis Industries generated revenue of $480.3 million and adjusted EBITDA of $99.8 million Davis Industries is currently exploring how to refinance existing debt on its balance sheet Davis Industries has $126mm of existing debt that is split into two tranches ("Tranche A" and "Tranche B") that both mature later this year Davis Industries is considering putting in place a $200 million Revolving Credit Facility, the proceeds of which would be used to refinance Tranche A and Tranche B Pro Forma for the transaction, total leverage will be 1.3x based on LTM Adjusted EBITDA of $99.8 million Sources & Uses Pro Forma Capitalization Table Sources ($mm) Before Transaction After Transaction Amount 126.0 ($mm) New Revolving Credit Facility Total Sources Amount 80.0 $126.0 Tranche A Tranche B 46.0 Uses ($mm) New Revolving Credit Facility Repay Tranche A 80.0 Total Debt $ 126.0 46.0 Repay Tranche B Total Uses $126.0 Adjusted EBITDA $99.8 99.8 x EBITDA 0.8x 0.5x 1.3x $ x EBITDA Financial overview Davis Industries Corporation - Financial Summary $ in millions Income Statement: Revenue % growth Cost of Goods Sold Gross Profit Gross margin Total operating expenses Operating income Operating margin Net profit margin Net income Balance Sheet: Cash and cash equivalents Accounts receivable Inventory Total assets Accounts payable Total debt Equity Liabilities and equity 2015 $353.1 188.0 165.1 46.8% 116.3 48.8 13.8% 27.8 7.9% $19.8 43.5 45.1 365.0 10.1 78.5 224.6 365.0 FYE July 31, 2016 $415.8 17.7% 215.2 200.6 48.3% 142.6 58.0 14.0% 34.9 8.4% $26.8 58.4 57.3 443.3 16.4 116.0 249.7 443.3 2017 15.5% 242.5 49.5% 172.9 13.5% 8.5% 501.1 501.1 $ in millions Cash Flow Statement: Cash flow from operations Capital expenditures Free Cash Flow Acquisitions Dividends paid EBITDA calculation: Adjusted EBITDA Credit ratios: Total Debt/ EBITDA Debt to total capitalization FCF/Total Debt 2015 $39.1 (7.9) 31.1 (20.4) (2.6) $70.2 1.1x 25.9% 39.7% FYE July 31, 2016 $49.0 (11.4) 37.5 (65.0) (3.1) $86.3 1.3x 31.7% 32.4% 2017 43.1 $99.8 1.3x 30.3% 34.2% Business and industry overview Company overview Davis Industries is a leading provider medical equipment and sanitation products and services in the healthcare market: Surgical Instruments: Medical Sterilizers: Single-Use Medical Disposables: Customers No customer accounted for more than 10% of consolidated net sales during FY2017, FY2016, or FY2015 Industry overview Total addressable markets ("TAM") Surgical Instruments: [Size / growing at x%] Medical Sterilization: [Size / growing at x%] Single-Use Medical Disposables: [Size / growing at x%] Market drivers Aging US population Improvements in medical technology and upgrading clinics [TBU] Competition The overall market is highly competitive with peers such as: Medical device manufacturer market growth ($bn) $137 $142 $148 $154 $161 $168 $175 $184 $194 $205 $215 $227 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E Deal structuring Collateral analysis Collateral description Accounts receivable Inventories Property and equipment, net Borrowing base recommendation Risks and Mitigants Risk Competition - Company faces rapid technology changes in the medical device and water purification industry. Regulation - Industry is experiencing significant scrutiny and regulation by governmental authorities, which may lead to greater regulation in the future. Commodity Risk - Company is heavily reliant on certain raw materials and can be adversely impacted by rising prices. Collateral shortfall - $86,000m deficiency if revolver is fully drawn Financial covenant package Eligible collateral value (Sk) Authorized advance rate (%) Available collateral ($k) Covenant Rationale Maximum Ratio: (Total Debt/EBITDA) $69,078 80% $55,262 Cash Flow Leverage Rationale: Assures adequate debt coverage 50% Minimum Ratio: (EBITDA/Total Interest) 50% Interest Coverage Rationale: Assures operating earnings can cover interest Total collateral available Minimum Ratio: (EBITDA less Capital Expenditures divided by Total Fixed Charges) Fixed Charge Coverage Less: (commitments) $126,000 Rationale: Assures sufficiency of operating eamings for fixed requirements Excess/(deficiency) Ratio: (Net Worth-Intangible assets) Minimum Tangible Net Worth Rationale: Limits investments, directing cash flow to debt repayment Minimum Liquidity Ratio: (Permit at any time its total of cash and marketable securities, to be less than a $amount) Rationale: Assures satisfactory liquidity and tracks performance vs. plan Mitigant [] Company shows top line growth year over year [] Company research leads to patents resulting in a competitive advantage [] Company has communicated to the bank that they have significant R&D investment in process [] Company regularly participants in seminars and webinars for proper regulation education [] Company has not presented any significant regulation issues historically [] Historically the company has been able to maintain strong margins [] Company has a hedging strategy in place [] Company has maintained strong and consistent cash on their balance sheet [] Company has low cash flow leverage under 1.50x and has had low cash flow leverage historically [] Company patents and performance warrants enterprise valuation which will be used as bank security Financial Model FCF Model (Smm) Revenue % Growth EBITDA % Margin Interest Expense Cash Tax Expense A in NWC Capex Dividend payments Free cash flow Cumulative free cash flow Mandatory debt repayments Cash available for debt service Cumulative free cash flow for debt service Covenant Projections (Smm). R/C facility Term Loan A Total Debt Leverage Ratio Leverage Covenant EBITDA Cushion ($) EBITDA Cushion (%) Interest Coverage Ratio Interest Coverage Covenant EBITDA Cushion ($) EBITDA Cushion (%) 2017PF 480.3 15.5% 99.8 20.8% (5.4) 2017PF 2018P 2019P 2020P 2021P 525.0 588.0 646.8 646.8 9.3% 12.0% 10.0% 0.0% 105.0 117.6 129.4 646.8 20.0% 20.0% 20.0% 100.0% (3.8) (2.0) (1.0) (20.9) (23.5) (25.8) (11.1) (15.0) (14.0) (18.4) (20.6) (22.6) (4.2) (4.7) (5.2) 46.6 51.9 60.8 46.6 98.6 159.3 46.6 51.9 60.8 46.6 98.6 159.3 2018E 2019E 2020E Year Ended July 31, 2022P 2023P 646.8 646.8 0.0% 0.0% 646.8 646.8 100.0% (1.0) (1.0) (129.0) (129.0) 153.7 100.0% (1.0) (129.0) 670.5 516.8 516.8 829.9 1,346.7 1,863.5 670.5 516.8 516.8 1,346.7 1,863.5 829.9 Year Ended July 31, 2022E 2023E 3.50x 3.50x 126.0 79.4 27.4 126.0 79.4 27.4 1.26x 0.76x 0.23x 0.00x 3.50x 3.50x 3.50x 3.50x 63.78 82.32 109.76 129.36 63.92% 78.40% 93.33% 100.00% 18.44x 27.79x 59.99x 129.36x 3.50x 3.50x 3.50x 3.50x 80.84 91.78 110.74 125.86 81.02% 87.41% 94.17% 97.29% 2021E 3.50x 3.50x 3.50x 3.50x 2024P 2025P 2026P 2027P 646.8 646.8 646.8 646.8 0.0% 0.0% 0.0% 0.0% 646.8 646.8 646.8 646.8 100.0% 100.0% 100.0% 100.0% (1.0) (129.0) (1.0) (1.0) (1.0) (129.0) (129.0) (129.0) (22.6) (22.6) (22.6) (22.6) (5.2) (5.2) (5.2) (5.2) 489.0 489.0 489.0 489.0 2,352.5 2,841.5 3,330.4 3,819.4 1867.0%7-yr Payout 489.0 489.0 489.0 489.0 2,352.5 2,841.5 3,330.4 3,819.4 2024E 2025E 2026E 2027E 0.00x 0.00x 0.00x 0.00x 3.50x 3.50x 3.50x 3.50x 646.80 646.80 646.80 646.80 100.00% 100.00% 100.00% 100.00% 646.80x 646.80x 646.80x 646.80x 3.50x 3.50x 3.50x 3.50x 643.30 643.30 643.30 99.46% 99.46% 99.46% 643.30 99.46%
