Investor Presentation. February 1, 2018

Transcription

1 Investor Presentation February 1, 2018

2 Safe Harbor Statement Forward-Looking Statements This presentation contains statements that are not historical in nature, but are 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. These statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by the forward-looking statements. Forwardlooking statements include, but are not limited to, statements regarding: our ability to execute on our Cypress 3.0 strategy; the anticipated impact of our acquisition of the Broadcom wireless IoT business in July 2016; anticipated growth opportunities in the automotive and industrial markets, in the market for our USB-C products and in the IoT market; the Company s target model for certain financial metrics and expectations about factors that will impact its ability to achieve the target model; our expectations about future dividend payments and share repurchases; our ability to increase revenue; expected synergies from our merger with Spansion Inc. in 2015; our ability to reduce excess inventory; our ability to pay down our indebtedness; our efforts to reduce manufacturing costs; our ability to increase free cash flow, and expected improvements in margin and our ability to successfully execute on our margin improvement plan. Such forward-looking statements are made as of the date of this presentation and are based on our current expectations, beliefs and intentions regarding future events or our financial performance and the information available to management as of the date hereof. Readers are cautioned not to place undue reliance on these forward-looking statements, which are not guarantees of future performance. We assume no responsibility to update any such forward-looking statements. Our actual results could differ materially from those expected or projected in the forward-looking statements contained in the presentation for any number of reasons, including, but not limited to, the materialization of one or more of the risks and uncertainties set forth in the Risk Factors section in our most recent Annual Report on Form 10-K and in our subsequent SEC filings. Use of Non-GAAP Financial Measures and GAAP Reconciliation This presentation contains financial measures that have not been prepared in accordance with GAAP. Reconciliations of these non-gaap measures to their most directly comparable GAAP measures can be found in the Appendix to this presentation. There are limitations in using non-gaap financial measures including those discussed in the Appendix.

3 Cypress 3.0: Profile At-a-Glance Investment Considerations Growth Focused on the high-growth Internet of Things ( IoT ) and Auto markets Diversification Broad product line, channel and customer base (none >10%) Margins Differentiated Wi-Fi, Bluetooth, MCU, Memory and Software Leverage in model Earnings growing 4x faster than revenue Cashflow Strong cashflow for debt repayment and capital returns to shareholders Execution New management team focused on world-class execution Cypress-At-a-Glance Cypress Q Results By End Market* Industrial 17% Automotive 30% Consumer 35% Enterprise 18% By Solution Products with Cypress Inside Automotive Consumer Founded 1982 Listed Headquarters NASDAQ (CY) San Jose, California Connectivity 27% Memory 40% Q4 17 non-gaap revenue $597.5 million Q4 17 headcount 6,099 MCU 33% Industrial Enterprise *Note: Consumer includes revenue previously classified in Consumer and Mobile, Industrial includes revenue previously classified in Industrial and Military & Aerospace, Enterprise includes revenue previously classified in Computation and Communication

4 Evolution Roadmap Cypress 3.0 = Embedded Solutions Player 2010 to 2016 Investments Defocused in Emerging Tech, TrueTouch, PSoC, and Automotive 2015 Spansion merger to gain scale, strengthen Automotive and channel, gain MCU portfolio Acquisition of Broadcom IoT to establish broad connectivity leadership 2016 to 2021 New management team focused on worldclass execution Reorganized to align solutions to Go-to-Market Focused on segments growing faster than market with Automotive, USB-C and IoT Going broad through channel partnerships Sharpened customer focus Balanced R&D investment Driving Innovation (Connected car, IoT, Autonomous driving) To achieve our Financial model

5 Leader in Fast-Growing Markets No. 1: IoT Wi-Fi / Bluetooth Combos No. 1: Auto Instrument Cluster MCUs No. 1: Auto NOR Flash Memory No. 1: USB-C Controllers No. 1: USB Solutions No. 1: SRAM

6 Billions of Units IoT: Expanding Market, Multibillion-Unit Growth Opportunity Cypress MCUs, connectivity, power management and memory solutions are critical for the IoT IoT TAM Enterprise Industrial IoT Automotive IoT Consumer IoT What does it take to win in the IoT? Leading Wi-Fi/Bluetooth/BLE combo solutions Ultra-low-power, secure MCUs such as PSoC 6 purpose-built for the IoT Complete software solutions for ease of use, such as the WICED SDK Consumer Automotive Industrial Enterprise Source: ABI Research, Berg Insight, Global Semiconductor Alliance, Strategy Analytics, Broadcom/Cypress

7 Automotive: Complete Portfolio of System-Level Solutions CAGR 8 12% Increasing automotive content per car is helping to drive Cypress revenue $300 Semiconductor Content $1,000 Semiconductor Content Automotive Revenue CAGR 124% BASIC MODEL HIGH-END MODEL No. 1 in vehicle instrumentation and clusters with Traveo and Traveo II MCUs No. 1 in Wi-Fi/Bluetooth wireless combo connectivity No. 1 in TrueTouch and CapSense No. 1 in automotive NOR Flash for ADAS No. 1 in USB-C connectivity and fast charging, now coming to Automotive Connected Car CAGR: 15.9% Body Electronics CAGR: 11.1% Instrument Cluster CAGR: 10.7% The Top 8 Automotive OEMs are developing with Cypress wireless connectivity solutions Traveo II family is engineered for the next generation of body electronics Infotainment CAGR: 8.9% ADAS CAGR: 24.1% Source: Gartner, Dec-2017, Cypress internal estimates

8 $ Billions Industrial: Solutions for Industry 4.0 Smart Factories Targeting a wide range of applications including Industry 4.0 Broad product portfolio offering MCUs and memories drives a range of solutions optimized for multiple specific applications Cypress industrial solutions offer high performance plus superior safety, efficiency, reliability, accuracy and protection Flexible PSoC MCU solutions enable the fast, easy design of sensor networks and coprocessor solutions that control system intelligence Industrial TAM 1 Energy-harvesting solutions for beacons generate power from sources, e.g., solar and kinetic, prolonging battery life indefinitely Industry 4.0 Motor Control Displays & Interfaces Beacons Agriculture Smart Cities Asset Tracking Cypress PSoC MCUs, connectivity, analog and memories drive a range of applicationspecific solutions 1. Data Source: Gartner Q-Stats, Sep-2017

9 Consumer: Focus on Connected Home MCU Wireless Analog Flash Energy Harvest Micro-Inverter LED Lighting Broadband Access/Gateway Connectivity Software HomeKit, Google Cast, Amazon Web Services, MSFT Azure, IBM Cloud Services, Thread Game Console Home Security & Safety Leak, Smoke, CO2 Detection Battery Charging Smart Meter/Beacon In-Home Displays Smart Appliance Smartphone Connectivity Smart Health Set Top Box Audio / Visual Wireless Speakers & Remote Controls Cypress MCUs, wireless solutions, analog and flash memories make getting connected fast and easy Broad portfolio of connectivity solutions offering Wi-Fi/Bluetooth/Zigbee/Thread and USB Low-power, high-reliability PSoC MCU solutions and software enable the fast and easy design of sensor-based systems that provide real-time updates on energy usage, lighting and home security, enhancing user convenience and safety Seamless connectivity with all major home automation platforms, including Apple s HomeKit, GoogleCast, Amazon s Alexa, and Cloud services such as AWS, Bluemix, Azure, Alibaba WICED software development platform, community, ecosystem and IP make getting connected fast and easy

10 USB-C Products With Power Delivery Cypress Leads with 38% USB-C Market Share TAM Growth: 89% CAGR Cypress broad portfolio is a requirement for market leadership Mobile Devices C O N F I D E N T I A L Desktops / Notebooks Power Adapters Docks Monitors Cables/ Dongles Well-positioned in 5 of Top 6 PC OEMs Adoption and proliferation in laptops, handsets and peripherals now extending to Automotive fast charging and streaming Easy implementation of low-cost power delivery up to 100 W Today s laptops use multiple ports for data, power, displays, accessories and Ethernet One single USB-C port can replace them all 1. Source: Gartner, MRG report on USB products, and Cypress internal estimates Cypress has been Making USB Universal since 1996, with more than 1.4B units shipped

11 Cypress Financial Model Q Target Model Revenue $597.5M Grow faster than overall semi market Focus on high-growth segments; Targeting long-term growth of 7 9% Margin 45.4% 50% Operating Expense 25.2% < 30% Operating Margin 20.2% >20% EPS $0.28 Debt / Adj. EBITDA (LTM) 2.3x 2.0x 2.5x Executing on Margin Improvement Plan; 531 bps improvement vs. Q4 16; Exceeded Q4 17 target of 43% Maintain 27 28% long term; continue to invest in R&D with focus on high-growth products and end markets Margin improvements drive profitability; expected to grow 2.5x revenue from 2016 to 2021; Q4 17 Adjusted EDITDA3: $139.6M Highest EPS since Q4 11; 2017 EPS grew >4x faster than revenue Continued focus on debt repayment and shareholder capital returns. Paid down $143M in debt in Q4 17. DSO 45 <55 Focus on working capital and collections DOI 76 <70 Drive to optimal working inventory levels Free Cash Flow $193.8M >20% 2.5x growth over Q4 16 demonstrating leverage in model 1. Reconciliations of the margin, operating expense as a percentage of revenue, operating margin, EPS, total debt/ltm EBITDA and free cash flow non-gaap measures to their most directly comparable GAAP measures may be found in the Appendix

12 2017 A Year of Execution Improvement Target Model Enterprise Value $5.2 billion $6.5 billion 25% Revenue $1.94 billion $2.33 billion 20% Grow faster than overall semi market Margin 39.0% 42.2% 320bps 50% Operating Expense 27.1% 25.4% 170bps <30% Operating Margin $230.7 million or 11.9% $391.8 million or 16.8% 70% >20% EPS $0.49 $ % EBITDA 1 Margin % $306.2 million or 15.8% $459.4 million or 19.7% 50% FCF 1 Margin% $160 million or 8.2% $349.2 million or 15% 118% >20% Total Debt / LTM EBITDA (1) 4.3x 2.3x 2.0x 2.0x-2.5x 1. Reconciliations of the revenue, margin, operating expense and margin, EPS, EBITDA margin, FCF margin and total debt/ltm EBITDA non-gaap measures to their most directly comparable GAAP measures may be found in the Appendix

13 Financial Model Accelerating 1 Revenue ($M) Margin 2 % % 40.1% 39.3% 40.9% 43.0% 45.4% 37.8% Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Operating Expenses ($M) Adjusted EBITDA ($M) % 27% % % 26% 25% 24% Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 1. Reconciliations of these non-gaap measures to their most directly comparable GAAP measures may be found in the Appendix. 2. Margin reflects revenue less cost of revenue as a percentage of revenue. 3. Adjusted EBITDA is a non-gaap financial measure and for purposes of this presentation, it is non-gaap operating income adjusted for the impact of depreciation.

14 Commitment to Shareholder Returns $4.7B Dividend yield of 2.9% 1 Returned 42% of 2017 FCF to shareholders while paring down $248M of debt (19% reduction) $105 $167 $322 $973 $1,205 $1,210 $1,210 $1,277 $1,460 $1,460 Cumulative Share Repurchases Cumulative 2 Dividends $M $2,554 $2,554 $2,554 $2,583 $2,646 $2,711 $2,780 $2,908 $3,049 $3, Based on stock price at 12/29/17 and current dividend rate of 11c/quarter 2 Includes 2008 SunPower stock dividend

15 Investor Summary Highly diversified and stable customer base Increasing exposure to Automotive, Industrial and IoT Going broad through channel partnerships Cultural DNA as problem solver that our customers can rely on Prudent cost management; laser-focused on gross margin expansion Capital-light, flexible manufacturing drives low capital requirement Significant operating leverage delivers earnings and cash flow growth

16 Appendix

17 Non-GAAP Financial Measures To supplement its condensed consolidated unaudited financial results presented in accordance with GAAP, Cypress uses the non- GAAP financial measures listed below, which are adjusted from the most directly comparable GAAP financial measures to exclude certain items, as described in more detail below. Revenue; Margin; Margin percent; Research and development expenses; Selling, general and administrative expenses; Earnings before interest, taxes, depreciation, and amortization ("EBITDA") Provision (benefit) for income taxes; Pretax profit margin percent; Operating income (loss); Net income (loss); and Diluted earnings (loss) per share. Management believes that these non-gaap financial measures reflect an additional and useful way of viewing aspects of the Company's operations which, when viewed in conjunction with Cypress' GAAP results, provide a more comprehensive understanding of the various factors and trends affecting the Company's business and operations. The Company presents non-gaap financial measures because management uses these measures to analyze and assess the Company's financial results and to manage the business. There are limitations in using non-gaap financial measures including those discussed below. Moreover, the Company s non- GAAP measures may be calculated differently than the non-gaap financial measures used by other companies. The presentation of non-gaap financial information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP financial measures. The non-gaap financial measures supplement and should be viewed in conjunction with GAAP financial measures. As presented in the "Non-GAAP Results" tables in this press release, each of the non-gaap financial measures excludes one or more of the following items: Acquisition-related charges: Acquisition-related charges are not factored into management's evaluation of Cypress' long-term performance after the completion of acquisitions. However, a limitation of non-gaap measures that exclude acquisition-related charges is that these charges may represent payments that reduce the cash available to the Company for other purposes. Acquisitionrelated expenses primarily include: Amortization of purchased intangibles, including purchased technology, patents, customer relationships, trademarks, backlog and non-compete agreements; Amortization of step-up in value of inventory recorded as part of purchase price accounting; and One-time charges associated with the completion of an acquisition including items such as contract termination costs, severance and other acquisition-related restructuring costs; costs incurred in connection with integration activities; and legal and accounting costs. Share-based compensation expense: Share-based compensation expense relates primarily to employee stock options, restricted stock units, performance stock units and the employee stock purchase plan. Share-based compensation expense is a non-cash expense that is affected by changes in market factors including the price of Cypress common shares, which are not within the control of management. In addition, the valuation of share-based compensation is subjective, and the expense recognized by Cypress may be significantly different than the expense recognized by other companies for similar equity awards, which makes it difficult to assess Cypress results compared to its competitors. Accordingly, management excludes this item from its internal operating forecasts and models. However, a limitation of non-gaap measures that exclude share-based compensation expense is that they do not reflect the full costs of compensating employees. EBITDA: Consolidated EBITDA is calculated by adding back depreciation to the Non-GAAP operating income. EBITDA may be useful to management, investors, and other users of our financial information because it, during a given period, is an indicator of the amount of cash generated that is available to repay debt obligations, make investments, and for certain other activities. However, EBITDA should not be considered as a measure of discretionary cash available to invest in the growth of the business. EBITDA should not be considered as a substitute for, or superior to net income, operating income, diluted earnings, or net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. Other adjustments: These items are excluded from non-gaap financial measures because they are not related to the core operating activities and ongoing operating performance of Cypress. Excluding these items, which can vary significantly from quarter to quarter, allows management to better compare Cypress periodover-period performance. However, limitations of non-gaap measures that exclude these items include that these adjustments are often subjective and may not be comparable to similarly titled non-gaap financial measures used by other companies. Other adjustments primarily include: Revenue from an intellectual property license, Changes in value of deferred compensation plan assets and liabilities, Investment-related gains or losses, including equity method investments, Restructuring and related costs, Loss on extinguishment of debt, Amortization of debt issuance costs, discounts and imputed interest related to the equity component of convertible debt, Asset impairments, Tax effects of non-gaap adjustments, Certain other expenses and benefits, and Diluted weighted average shares non-gaap adjustment - for purposes of calculating non-gaap diluted earnings per share, the GAAP diluted weighted average shares outstanding is adjusted to exclude the benefits related to share-based compensation expense and includes the impact of the capped call transactions related to the convertible notes.

18 Reconciliation of GAAP Measures to Non-GAAP Measures Q4'17 Q3'17 Q2'17 Q1 17 Q4 16 Q3 16 Q2 16 GAAP Revenue $597,547 $604,574 $593,776 $531,874 $530,172 $523,845 $450,127 Revenue from IP License 6,250 6,250 Non-GAAP Revenue $597,547 $604,574 $593,776 $531,874 $530,172 $530,095 $456,377 GAAP Margin $266,404 $252,605 $236,182 $199,061 $201,952 $198,620 $158,778 Revenue from IP License 6,250 6,250 Stock-based compensation 3,497 5,156 4,833 5,331 6,589 4,852 4,278 Changes in value of deferred compensation plan Merger, integration and related costs, and adjustments related to assets held for sale 1,334 2,040 1,503 4,213 3,995 4,934 3,149 Non-GAAP Margin $271,327 $260,009 $242,655 $208,771 $212,578 $214,769 $172,541 GAAP Operating Expense $226,694 $213,508 $233,274 $215,416 $240,328 $164,924 $673,770 Stock-based compensation 21,553 17,839 25,500 20,606 28,980 22,461 14,571 Changes in value of deferred compensation plan 1,006 2,693 1,459 1, , Merger, integration and related costs, and adjustments related to assets held for sale (135) (636) 1,097 (1,479) 5,612 12,327 8,533 Settlement charges (1,000) 3,500 Amortization of Intangible assets 49,224 48,428 49,354 48,249 52,104 54,849 32,605 Restructuring costs, including severance 5, ,572 17,237 7,970 5,153 Goodwill impairment charge 488,504 Impairment related to assets held for sale 1,960 35,259 Gain related to investment in Deca Technologies (112,774) Tax impact of Non-GAAP adjustments (179) 380 Non-GAAP Operating Expense $150,428 $145,184 $151,466 $143,863 $133,996 $143,861 $123,252 Q4 17 Q3 17 Q2 17 Q1 17 Q4 16 Q3 16 Q2 16 GAAP Net (Loss) Income $(35,998) $11,033 $(22,904) $(45,782) $(72,367) $9,411 $(519,274) Revenue from IP License 6,250 6,250 Stock-based compensation 25,050 22,995 30,333 25,937 35,568 27,313 18,849 Changes in value of deferred compensation plan (112) 1, (160) Merger, integration and related costs, and adjustments related to assets held for sale 1,320 1,404 2,600 2,734 9,606 17,261 11,682 Impairment related to assets held for sale 1,960 35,259 Gain related to investment in Deca Technologies (112,774) Share in net loss and impairment of equity method investees 1 56,930 4,931 4,835 5,076 8,766 4,233 2,568 Imputed interest on convertible debt and other 4,389 7,373 4,427 4,347 4,459 3,876 1,919 Settlement charges (1,000) 3,500 Amortization of Intangible assets 49,224 48,428 49,354 48,249 52,104 54,849 32,605 Restructuring costs, including severance 5, ,572 17,237 7,970 5,153 Goodwill impairment charge 488,504 Loss on extinguishment of debt 4,250 Tax impact of Non-GAAP adjustments 2 (4,876) 1,649 1,648 2,540 (3,350) (237) (8,314) Non-GAAP Net Income 104,685 $98,980 $74,703 $45,887 $53,823 $53,467 $40,196 Non-GAAP Operating Income 120,899 $114,825 $91,188 $64,908 $78,581 $70,908 $49,289 Add: Non-GAAP Depreciation 18,701 16,674 16,045 16,156 16,057 19,494 19,638 Non-GAAP Adjusted EBITDA 139,600 $131,499 $107,233 $81,064 $94,638 $90,402 $68,927 GAAP Weighted-average diluted shares 343, , , , , , ,305 Effect of dilutive securities: Stock options, unvested restricted stock and other 14,003 5,064 15,822 14,852 17,199 6,991 12,858 Impact of convertible bond 12,110 (764) 18,208 17,304 15,138 12,577 Weighted-average common shares outstanding for diluted computation 369, , , , , , ,740 GAAP Net income per share Diluted $(0.10) $0.03 $(0.07) $(0.14) $(0.22) $0.03 $(1.65) Excluded Items per share impact of Non-GAAP adjustments $0.38 $0.24 $0.28 $ Non-GAAP earnings per share Diluted $0.28 $0.27 $0.13 $0.15 $0.15 $0.12 $ Includes $51.2 million impairment charge recorded for equity method investment in Enovix Corporation. 2. Includes benefit of $8.6 million related to impact from recent tax reform.

19 2016 Cypress Semiconductor Corporation or its affiliate. All rights reserved. Cypress, the Cypress logo, PSoC, TrueTouch, F-RAM, CapSense, Traveo, HyperBus and Making USB Universal and combinations thereof, are trademarks or registered trademarks of Cypress Semiconductor Corporation or its affiliate. ARM and Cortex are registered trademarks of ARM Limited. The Bluetooth word mark and logos are registered trademarks owned by Bluetooth SIG, Inc. and any use of such marks by Cypress Semiconductor Corporation (or its affiliates) is under license. Other trademarks and trade names used are those of their respective owners.