Company Overview 2017
Forward-Looking Statements This presentation contains certain forward-looking statements within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934, as amended, and Section 27A of the U.S. Securities Act of 1933, as amended, with respect to certain of the Company s plans and its current goals and expectations relating to its future financial condition and performance. The Company cautions readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as may, will, seek, continue, aim, anticipate, target, expect, estimate, intend, plan, goal, believe, pro forma, projected or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding the Company s future financial position, income growth, assets, business strategy, leverage, projected levels of growth in manufacturing markets, projected costs, estimates of capital expenditures and plans and objectives for future operations and other statements that are not historical fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, U.S. domestic and global macroeconomic and business conditions, Company indebtedness, the ability to respond effectively to technological and market developments, the effects of foreign low cost labor, customer concentration risks and volatility in customer demand, risks related to attraction and retention of key personnel, management of costs and overhead, majority control of the Company s stock by a single stockholder, the outcome of any future legal proceedings, the success of future acquisitions and other strategic transactions, and the impact of competition a number of such factors being beyond the Company s control. As a result of these uncertain events and circumstances, the Company s actual future results may differ materially from the plans, goals, and expectations set forth in the Company s forward-looking statements. Any forward-looking statements made herein speak only as of the date they are made. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this presentation to reflect any changes in expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any and all additional disclosures that the Company has made or may make in documents that the Company has filed or may file with the SEC. 2
Who is ARC? A Leading Precision Metals Advanced Manufacturing Company ARC (NASDAQ: ARCW) manufactures highly engineered, complex metal parts for high tolerance applications for medical devices, aerospace, automotive, defense and firearm applications ARC s customer-centric, holistic solution focuses on Metal 3D Printing, Metal and Plastic Injection Molding, Tooling and Metal Stamping Based in the U.S., with global facilities and over 30 years of technical expertise in material development, prototyping and full production manufacturing ARC operates fast-paced, cost competitive, world class facilities focused on operational excellence and technological innovation Mission: To Bring Speed and Innovation to Traditional Manufacturing 3
What Do We Make? High Precision, Technically Complex Parts for Critical Applications Products such as turbo charger parts, fuel nozzles, surgical and dental devices, critical firearm and defense components 4
How Do We Make It? Expertise Centered Around Powder Metallurgy and Material Science ARC has over 30 years of expertise making technically complex parts from proprietary powder metal compounds for full production manufacturing Know-how developed from Metal Injection Molding ( MIM ), which laid the foundation for Metal 3D Printing, given the process and material science similarities Metal 3D Printing and MIM are Core to ARC s Differentiation 5
What Is Metal Injection Molding? Powder Metal Formed Into Complex Shapes Utilizing a Mold Compounding Molding Debinding Sintering Fine metal powders, thermoplastics, and other ingredients are mixed to create proprietary feedstock Proprietary injection molding machines powered by robots and automation are used to mold green parts Green parts are processed through an automated closed loop custom-built solvent system to remove binder material Debound parts are sintered in proprietary vacuum furnaces on custom-built in-house trays where the parts shrink ~5-15% ARC s In-House Mold Making, Proprietary Feedstock and Material Science Are Key 6
Why Metal Injection Molding? MIM Offers Design Freedom to Make Complex Parts at a Lower Cost MIM can often provide a superior solution relative to Investment Casting and Machining for large volume production of small, complex parts Investment casting tends to be labor-intensive and is a lengthy process Machining can be automated and fast, but expensive, thus generally only good for small volume Economic Solution: for many applications that are high volume, MIM can save significant cost for OEM s compared to legacy processes that are labor intensive Engineering Solution: MIM can combine multiple legacy processes into one, given design freedom and complexity possible through MIM, while still delivering dense, high strength parts that can achieve very tight tolerances 7
What Is Metal 3D Printing? Powder Metal Sintered Into Complex Shapes With A Laser Proprietary Material Development, Design Capability and Support Structures Are Key Left Image Attribution: Materialgeeza (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons Right Image Attribution: By PranjalSingh IITDelhi (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons 8
Why Metal 3D Printing? Metal 3D Printing Offers Ultimate Design Freedom and Speed Better Parts: Measurable increases in part performance, design and impact, compared to legacy methods like investment casting and machining More Efficient: Highly complex, unified parts vs. traditional multi-step methods Mass Customization: Provides ability to quickly develop unique parts on a mass scale, compared to legacy processes which are more labor intensive Faster Development: Significant speed-to-market for both prototyping and production given no cost or time investment for molds Metal 3D Printing Is Poised to be a Major Disrupter to Traditional Manufacturing 9
Who Are Our Customers? Leading OEM s With Multi-Decade Relationships Medical & Dental Devices Aerospace & Defense Auto & Engineering High Quality Customer Base For Critical Full Production Manufacturing 10
Industry Leadership ARC Consistently Recognized as a Powder Metallurgy Leader by MPIF 2016 POWDER METALLURGY WINNER Grand Prize - Aerospace/Military Award of Distinction - Aerospace/Military Award of Distinction - Medical/Dental Award of Distinction - Medical/Dental 2015 2014 POWDER METALLURGY WINNER POWDER METALLURGY WINNER Grand Prize - Hand Tools/Recreation Grand Prize - Medical/Dental Award of Distinction - Hand Tools/Recreation 2013 POWDER METALLURGY WINNER Grand Prize - Medical/Dental 2012 POWDER METALLURGY WINNER Grand Prize - Aerospace/Military 2011 POWDER METALLURGY WINNER Grand Prize - Medical/Dental Note: MPIF = Metal Powder Industries Federation 11
What Is The Market Opportunity? MIM and Metal 3D Printing Are Still in Their Infancy While MIM was initially developed over 30 years ago, it s commercial adoption has only become meaningful since the early 2000 s The global MIM market is estimated to be $1+ billion However, far more MIM applications exist than what are being currently produced today Transitioning legacy methods to MIM requires customer education, capability, speed, and capacity Metal 3D Printing is truly in its infancy, yet significant growth is expected Industry estimates generally expect the Metal 3D industry to grow to $1+ billion over the next several years Production parts are estimated to exceed prototypes in 2019 Early Metal 3D adopters have experienced significant performance improvements, as well as cost and time savings Both MIM and Metal 3D Represent Material Growth Opportunities for ARC Note: Market assumptions are based on internal ARC estimates. 12
What Does The Industry Look Like Today? Traditional Manufacturing Remains Fragmented and Antiquated Legacy metal fabrication is increasingly being displaced by newer technology like MIM and Metal 3D Printing Legacy manufacturing has often been slow to embrace change and is stymied with low energy cultures Still many small, fragmented, mom and pop facilities Many factories have also been reluctant to embrace technology and remain labor intensive This has led to a vacuum of technology and high energy talent ARC believes the future of manufacturing will be driven by technology and new economy talent The disruptors in manufacturing will embrace innovation, robotics, automation, software, and artificial intelligence Manufacturing should once again become competitive in the developed world as the historic labor arbitrage dissipates Scale and speed will be paramount to success Manufacturing is One of the Few Industries Yet to be Disrupted By Technology 13
What Are Customer Pain Points? Speed and Consolidated Supply Chains are Key to Customer Needs OEM s are under increasing pressure to launch new products as quickly as possible given the race to innovation Many metal manufacturers are slow to launch new parts Can take upwards of 6-12 months or longer Quality and on-time delivery ( OTD ) are often issues as well Customers want to launch products ASAP Quality and OTD are paramount The current supply chain is often fragmented and inefficient Riddled with one-off providers Large OEM s can have 25,000+ suppliers, which create logistical nightmares This leads to longer lead times and production bottlenecks Customers want to reduce suppliers and consolidate their supply chain Broader product offerings are valued over one-off suppliers Scale is critical to provide redundancy and supply chain safety This helps simplify procurement and improve speed to market ARC is Well Positioned to Address These Problems 14
How Is ARC Differentiated? Speed and Prototype to Production Across Numerous Solutions Fast paced, customer centric culture Significant focus on cutting out unnecessary bottlenecks in the manufacturing process Quality, OTD, and speed are central to customer solutions Full solution offering, from prototype to production Seamless solution, compared to one-off providers with disjointed offerings Enabled through in-house tooling, engineering, machining, secondary operations, as well as upsell offerings like plastic injection molding and stamping Customers deal with one sales person, who coordinates everything internally within ARC Early pioneer of MIM and now leading U.S. provider MIM has a high barrier to entry due to the proprietary equipment, feedstock, mold-making, and shrink management process ARC has decades of R&D know-how Early mover in Metal 3D Printing and now one of the leading U.S. Providers Expertise in material development, design, support structures, and proprietary software High barrier to entry due to complexity of materials, tolerances, design, and build structures Technology leader, through robotics, automation, and software Programs that are more labor intensive can be done at ARC s Mexico or Hungary facilities 15
What Is The Competitive Dynamic? ARC Has One of the Fullest Solution Across Prototyping to Full Production ARC Has A Differentiated Approach to Precision Metals Manufacturing 16
Sales Performance ARC Has Grown Substantially Over The Last Five Years ARC has grown both organically and through acquisitions With the changing competitive landscape, ARC recognized it had to change its culture to become more customer centric and unify its sales efforts ARC now has significant momentum in sales with the largest committed volume of new program launches in the Company s history Metal 3D printing is expected to be a major growth driver FY 3Q.17 y/o/y growth of 200% $120 $100 $80 $60 $40 $20 Revenue $0 2012 2013 2014 2015 2016 LTM(1) 17 (1) LTM as of 4/2/17. Dollars in millions. Other annual results FY end June 30.
Facility EBITDA Performance The Company has a Long History of Strong Facility EBITDA Over the last five years, Facility EBITDA has grown materially During the past two years, ARC has invested significantly to create a sales culture, improve speed-to-market, capacity and IP Recent margins have been impacted by: Significant development expenses in ramping the new MIM programs The growth and IP being developed in Metal 3D Printing Once the new MIM and 3D programs go into full production, margins should begin to normalize Driving margin and cash flow improvement are a major priority going forward Facility EBITDA $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 2012 2013 2014 2015 2016 LTM(1) 18 (1) LTM as of 4/2/17. Dollars in millions. Other annual results FY end June 30.
Balance Sheet Asset-Based Senior Capital Structure Senior debt is entirely asset and mortgage based, with low borrowing costs Low debt amortization Domestic cash swept daily to further reduce interest expense ($000's) 4/2/2017 Rate Balance Rate Maturity Amort. L+2.750% ABL Revolver ($25.0 mm) $10,097 3.80% 8/11/2019 None L+3.500% ARC U.S. First Mortgage 17,135 4.75% 8/11/2019 $219k/Q 0.980% ARC Hungary First Mortgage 3,422 0.98% 2021 10%/year 3.030% Capital Lease Obligations 3,564 3.03% Varied Total Senior Debt $34,218 4.05% 11.000% Subordinated Notes 15,000 11.00% 11/15/2019 None Total Debt $49,218 6.09% Cash 723 Net Debt $48,495 19
Summary Exciting Opportunity For Growth With Strong Industry Tailwinds Differentiated business model Established leader in powder metallurgy High barrier to entry in MIM and Metal 3D Printing Strong core business to drive growth Opportunity to deepen wallet share with established customer base Technology driven approach, a notable change to legacy manufacturing paradigms One of only a few public companies focused on Metal 3D Printing of parts Strong investor alignment Management and board are large shareholders Management incentives highly aligned with shareholder value creation 20
Thank You The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment. - Warren Bennis 21