Investor Presentation. July 26, 2018

Transcription

1 Investor Presentation July 26, 2018

2 Safe Harbor Statement Cautionary Note Regarding 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. Forward-looking statements include, but are not limited to, statements regarding: our ability to execute on our Cypress 3.0 strategy; anticipated growth opportunities in the automotive, industrial, consumer, and enterprise markets, in the market for USB-C, wireless connectivity, and MCU products, and in the IoT market; Cypress ability to grow faster than its markets; 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; 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; expected improvements in margin; and our ability to successfully execute on our margin improvement plan. The forward-looking statements in this presentation 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 described in the Risk Factors section in our most recent Annual Report on Form 10-K and in our subsequent SEC filings. Our target model describes long-term financial objectives Cypress hopes to achieve over several years and is inherently speculative and uncertain. Cypress long-term objectives are subject to business, economic, competitive, industry, regulatory, market, and financial uncertainties, many of which are beyond Cypress control. We cannot assure you that the estimates and assumptions made in preparing the long-term objectives will prove accurate; and our target model might not be achieved. 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 Q Highlights Strong financials Revenues grew 7% sequentially to $624M Non-GAAP gross margins increased 540 basis points year-over-year to 46.3% Non-GAAP EPS grew by 57% year-over-year to 33 cents Adjusted EBITDA grew 45% year-over-year to $156M Dividend of 2.8% as of 6/29/18 Key milestones PSoC 6 in mass production and ramping revenue Transformation of storage business to higher-margin specialty sockets is largely complete Pioneer announced in-car entertainment platforms with Cypress RSDB ( Real-Time Simultaneous Dual-Band ) Outgrowing the market Gaining market share in target MCU and Wireless IoT markets Focused on high-growth and high-margin Flash storage opportunities in automotive and wireless infrastructure markets Rapidly expanding content offering for automotive; expect automotive revenue to grow 8-12% long-term

4 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%) 2 Margins Differentiated Wi-Fi, Bluetooth, MCU, Memory, and Software Leverage in model Earnings growing 2.5x faster than revenue Cashflow Strong cashflow for debt repayment and capital returns to shareholders; strong dividend yield Execution Extending Cypress product adoption through cross-selling and content gains Cypress-At-a-Glance Cypress Q Results By End Market 1 Industrial 19% Automotive 31% Consumer 31% Enterprise 19% By Solution Products with Cypress Inside Automotive Consumer Founded 1982 Listed NASDAQ (CY) Connectivity 26% Memory 41% Headquarters San Jose, California Q2 18 revenue $624.1 million Q2 18 headcount 5,893 MCU 33% Industrial Enterprise 1 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 2 Two distributors accounted for 19% and 13% of revenue in Q2 18

5 Leader in Fast-Growing Markets Growth Drivers No. 1: IoT Wi-Fi /Bluetooth Combos No. 1: Auto Instrument Cluster MCUs No. 1: Auto NOR Flash Memory $2,328M Others CAGR 0% Connectivity CAGR 16 18% No. 1: Auto Touch Controllers $1,942M No. 1: Secure, Ultra-Low Power MCUs MCUs CAGR 5 7% No. 1: USB-C Controllers No. 1: USB Solutions Memory CAGR (2 5%)

6 IoT: Multi-Billion-Unit Growth Opportunity 40.0 IoT TAM 1 What does it take to win in the IoT? Cypress Connect, Compute & Store solutions are critical for the IoT Billions of Units Enterprise Industrial IoT Automotive IoT Consumer IoT Leading Wi-Fi/Bluetooth/BLE combo solutions Ultra-low-power, secure MCUs such as PSoC 6 purpose-built for the IoT Industry-leading fail-safe memory solutions for mission-critical applications Complete software solutions for ease of use, such as the WICED SDK Consumer Automotive Industrial Enterprise 1 IoT Endpoints for Sensing, Processing and Communications Semiconductors, Worldwide Source: Gartner, Cypress internal estimates

7 Automotive: Complete Portfolio of System-Level Solutions Increasing automotive content per car is helping to drive Cypress revenue $300 Semiconductor Content BASIC MODEL $1,000 Semiconductor Content HIGH-END MODEL Automotive Revenue $625M $723M No. 1 in Wi-Fi/Bluetooth wireless combo connectivity No. 1 in TrueTouch and CapSense No. 1 in instrument cluster MCUs No. 1 in NOR Flash for ADAS No. 1 in USB-C connectivity and fast charging, now coming to Automotive Connected Car CAGR: 19.7% Body Electronics CAGR: 14.8% Instrument Cluster CAGR: 12.1% Outgrowing SAAR growth rate (2.5%) and Auto Semi TAM (5.6%) Traveo II family is engineered for the next generation of body electronics Infotainment CAGR: 10.7% ADAS CAGR: 24.3% 1 Source: Gartner, Mar-2018, Cypress internal estimates

8 Winning Fast-growing Auto Wi-Fi and Wi-Fi/ Bluetooth Combo Market TELEMATICS LTE Offload Media Services OTA Update REAR SEAT ENTERTAINMENT Multimedia Distribution Rear-seat Entertainment INFOTAINMENT Display Sharing Streaming From Phone Apple CarPlay Android Auto MirrorLink Internet Access + TAM ($M) ac Auto Wireless Connectivity Market CAGR = 18% ac MIMO ac RSDB p/ DSRC/ V2X ax BODY CONTROL Keyless Entry Phone as Key Automated Parking Tire Pressure Monitoring Remote Sensors Control The only Automotive Wi-Fi / Bluetooth combo solution in the market that concurrently delivers: Real-Time Simultaneous Dual-Band Wi-Fi Full Bluetooth throughput n throughput > 50 Mbps ac throughput > 300 Mbps Top 8 Automotive OEMs are developing with Cypress Wi-Fi / Bluetooth Combos Source: ABI Research, Cypress internal estimates

9 Industrial: Solutions for Industry 4.0 Smart Factories 70 Industrial TAM 1 Broad portfolio of Connect, Compute and Store solutions 60 Targeting a wide range of applications Solutions offer high performance with superior safety, efficiency, reliability, and protection Flexible PSoC MCU solutions enable fast, easy design of sensor networks and coprocessor solutions that control system intelligence $ Billions 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, Mar-2018

10 Consumer: Focus on Smart 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 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, Chromecast, 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

11 USB-C Products With Power Delivery Cypress Leads with 38% USB-C Market Share Well-positioned in 5 of Top 6 PC OEMs Proliferation in PCs, mobile phones, power adapters, and peripherals, now extending to Automotive fast charging 450 Type-C design wins in production Easy implementation of low-cost power delivery up to 100 W $ Millions 1, USB TAM Mobile Devices Desktops/Notebooks Power Adapters/Cables One single USB-C port can replace them all Docks Monitors Automotive USB-C Power Delivery enables up to 50% faster charging 1 Source: Gartner, MRG report on USB products, and Cypress internal estimates

12 Cypress Financial Model Q Target Model Revenue $624.1M Grow faster than overall semi market Focus on high-growth segments; Targeting long-term growth of 7 9% Non-GAAP Gross Margin 46.3% 50% Executing on Margin Improvement Plan; 540 bps improvement vs. Q2 17 Non-GAAP Operating Expense 24.0% <30% Maintain 26 27% long term; continue to invest in R&D with focus on high-growth products and end markets Non-GAAP Operating Margin 22.3% >20% Operating income expected to grow 2.5x revenue; Q2 18 Adjusted EBITDA of $155.6M increased 45% year-over-year Non-GAAP EPS $0.33 Q2 18 EPS increased 57% year-over-year Debt / Adj. EBITDA (LTM) 1.7x 2.0x Focus on debt repayment and shareholder capital returns DSO Focus on working capital and collections DOI Drive to optimal working inventory levels 1 Reconciliations of the margin, operating expense as a percentage of revenue, operating margin, EPS, and adjusted EBITDA non-gaap measures to their most directly comparable GAAP measures may be found in the Appendix

13 Financial Model Accelerating 594 Revenue ($M) % Non-GAAP Gross Margin % 1,2 45.4% 45.9% 46.3% 43.0% 40.9% 532 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Non-GAAP Operating Expenses ($M) 1 Adjusted EBITDA ($M) 1, % % % % % 24% 81 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 1 Reconciliations of these non-gaap measures to their most directly comparable GAAP measures may be found in the Appendix. 2 Gross 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 Investor Summary Highly diversified and growing customer base Strong focus on Automotive, Industrial, and Consumer Going broad through channel partnerships Problem-solver DNA that 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

15 Appendix

16 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. Non-GAAP gross profit; Non-GAAP gross margin; Non-GAAP cost of revenues; Non-GAAP interest and other expense, net; Non-GAAP research and development expenses; Non-GAAP selling, general and administrative expenses; Non-GAAP operating expenses; Non-GAAP operating expenses as a percentage of revenue; Adjusted EBITDA; Non-GAAP income tax provision (benefit); Non-GAAP pre-tax profit; Non-GAAP operating income (loss); Non-GAAP operating margin; Non-GAAP net income (loss); and Non-GAAP 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. NON-GAAP EXCLUSIONS: Each 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. Stock-based compensation expense: Stock-based compensation expense relates primarily to employee stock options, restricted stock units, performance stock units and the employee stock purchase plan. Stock-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 stock-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 stock-based compensation expense is that they do not reflect the full costs of compensating employees. Other adjustments: Additional items are excluded from non-gaap financial measures because management does not consider them to be 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 period-over-period performance. However, limitations of non-gaap measures that exclude these items include that these adjustments are often subjective and such non-gaap measures may not be comparable to similarly titled non-gaap financial measures used by other companies. These 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, Debt issuance costs, including 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 stock-based compensation expense. ADJUSTED EBITDA: Adjusted EBITDA is calculated by adjusting net income (loss) attributable to Cypress to exclude (without duplication): interest expense, income tax (provision), depreciation, amortization, equity in net loss of equity method investees, and the non-gaap adjustments described above (acquisition related charges, stock-based compensation expense, and other adjustments). Commencing in the second quarter of 2018, Cypress reconciles adjusted EBITDA to GAAP net income rather than operating income; prior period reconciliation tables have been revised to conform to the current presentation. Adjusted EBITDA may be useful to management, investors and other users of our financial information because the exclusion of certain gains, losses, and expenses facilitates comparisons of Cypress' operating performance on a period to period basis. Adjusted EBITDA should not be considered as a measure of discretionary cash available to invest in the growth of the business. In addition, adjusted EBITDA should not be considered as a substitute for, or superior to net income attributable to Cypress, operating income, or diluted earnings per share, or other financial measures prepared in accordance with GAAP.

17 Reconciliation of GAAP Measures to Non-GAAP Measures 2 Q2'18 Q1'18 Q4'17 Q3'17 Q2'17 Q1 17 GAAP Gross Profit $ 234,138 $ 212,392 $ 222,385 $ 209,696 $ 192,745 $ 157,109 GAAP Gross Margin % 37.5% 36.5% 37.2% 34.7% 32.5% 29.5% Stock-based compensation 3,986 3,584 3,001 4,720 4,000 3,885 Amortization of Intangibles and other 49,438 49,438 44,199 43,345 44,270 43,167 Restructuring costs, including severance 1,589 1, 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 Non-GAAP Gross Profit $ 289,253 $ 267,362 $ 271,328 $ 260,009 $ 242,655 $ 208,771 Non-GAAP Gross Margin % 46.3% 45.9% 45.4% 43.0% 40.9% 39.3% GAAP Operating Expense $ 183,292 $ 176,630 $ 180,691 $ 168,616 $ 183,853 $ 170,681 GAAP Operating Expense % of Revenue 29.4% 30.3% 30.2% 27.9% 31.0% 32.1% Q2'18 Q1'18 Q4'17 Q3'17 Q2'17 Q1 17 GAAP Operating Income (Loss) $ 50,846 $ 35,762 $ 41,694 $ 41,080 $ 8,892 $ (13,573) GAAP Operating Margin 8.1% 6.1% 7.0% 6.8% 1.5% (2.6)% Stock-based compensation 33,907 18,458 23,065 21,011 24,350 23,153 Changes in value of deferred compensation plan 1, ,098 2,901 1,596 1,772 Merger, integration and related costs, and adjustments related to assets held for sale 1, ,433 (129) Inventory step-up related to acquisition accounting ,864 Amortization of acquisition-related intangible assets and other 53,793 54,588 49,224 48,428 49,354 48,250 Restructuring charges 1,239 4,096 5, ,571 Gain on sale of cost method investment (1,521) Settlement charges (1,000) 3,500 Impact of Reconciling Items on Operating Income $ 88,559 $ 77,825 $ 79,205 $ 73,744 $ 82,298 $ 78,481 Non-GAAP operating Income $ 139,405 $ 113,587 $ 120,899 $ 114,824 $ 91,190 $ 64,908 Non-GAAP operating Margin 22.3% 19.5% 20.2% 19.0% 15.4% 12.2% Stock-based compensation (29,921) (14,874) (20,065) (16,292) (20,350) (19,269) Changes in value of deferred compensation plan (1,039) (622) (1,006) (2,693) (1,459) (1,605) Merger, integration and related costs, and adjustments related to assets held for sale (1,097) 1,479 Settlement charges 1,000 (3,500) Amortization of Intangibles and other (4,355) (5,150) (5,025) (5,083) (5,084) (5,083) Restructuring costs, including severance 350 (2,209) (5,302) (898) (2,340) Gain on sale of cost method investment 1,521 Non-GAAP Operating Expense $ 149,848 $ 153,775 $ 150,428 $ 145,184 $ 151,465 $ 143,863 Non-GAAP Operating Expense % of Revenue 24.0% 26.4% 25.2% 24.0% 25.5% 27.0% GAAP Net Income (Loss) attributable to Cypress $ 27,706 $ 9,078 $ (34,012) $ 13,016 $ (16,920) $ (42,999) Interest and other expense, net 14,143 18,154 21,561 18,619 16,407 19,359 Income Tax Provision 5,154 5,057 (2,773) 4,500 4,504 4,927 Equity in net loss and impairment of equity method investees1 3,755 3,461 56,930 4,931 4,835 5,076 Net gain (loss) attributable to non-controlling interests (12) GAAP Operating Income $ 50,846 $ 35,762 $ 41,694 $ 41,080 $ 8,892 $ (13,573) Impact of Reconciling Items on Operating Income 88,559 77,825 79,205 73,744 82,298 78,481 Non-GAAP operating Income $ 139,405 $ 113,587 $ 120,899 $ 114,825 $ 91,190 $ 64,908 Depreciation 16,239 17,140 18,701 16,674 16,045 16,157 Adjusted EBITDA $ 155,644 $ 130,727 $ 139,600 $ 131,499 $ 107,235 $ 81, Q4'17 includes $51.2 million impairment charge recorded for equity method investment in Enovix Corporation. 2. Fiscal 2017 financial results have been revised. Please refer to Fiscal 2017 Form 10-K for details.

18 Reconciliation of GAAP Measures to Non-GAAP Measures 2 Q2'18 Q1'18 Q4'17 Q3'17 Q2'17 Q1 17 GAAP Net Income (Loss) attributable to Cypress $ 27,706 $ 9,078 $ (34,012) $ 13,016 $ (16,920) $ (42,999) Stock-based compensation 33,907 18,458 23,066 21,012 24,350 23,154 Changes in value of deferred compensation plan (112) 1, Merger, integration and related costs, and adjustments related to assets held for sale 1,210 1,404 2,600 2,734 Equity in net loss and impairment of equity method investees1 3,755 3,461 56,930 4,931 4,835 5,076 Imputed interest on convertible debt and other 4,415 6,229 1,393 7,373 4,427 4,347 Settlement charges (1,000) 3,500 Amortization of Intangibles and other 53,793 54,588 49,224 48,428 49,354 48,249 Restructuring costs, including severance 1,239 4,096 5, ,572 Loss on extinguishment of debt 1,533 7,246 Gain on sale of cost method investment (1,521) Tax impact of Non-GAAP adjustments 1,652 2,436 (4,876) 1,649 1,648 2,540 Non-GAAP Net Income $ 124,964 $ 100,296 $ 104,687 $ 98,980 $ 74,704 $ 45,887 Q2'18 Q1'18 Q4'17 Q3'17 Q2'17 Q1 17 GAAP Net Income (Loss) attributable to Cypress $ 27,706 $ 9,078 $ (34,012) $ 13,016 $ (16,920) $ (42,999) Non-GAAP Net Income $ 124,964 $ 100,296 $ 104,687 $ 98,980 $ 74,704 $ 45,887 GAAP Weighted-average common shares outstanding, diluted Impact of non-gaap adjustments on number of diluted shares underlying performance-based restricted stock unit awards Impact of non-gaap adjustments on number of diluted shares underlying convertible bonds Non-GAAP Weighted-average common shares outstanding, diluted 371, , , , , ,964 6,554 4,618 14,003 5,064 15,822 14,852 (2,483) (2,484) 12,110 (764) 18,208 17, , , , , , ,120 GAAP Net income per share Diluted $ 0.07 $ 0.02 $ (0.10) $ 0.04 $ (0.05) $ (0.13) Per share impact of Non-GAAP adjustments $ 0.26 $ 0.25 $ 0.38 $ 0.23 $ 0.26 $ 0.26 Non-GAAP earnings per share Diluted $ 0.33 $ 0.27 $ 0.28 $ 0.27 $ 0.21 $ Q4'17 includes $51.2 million impairment charge recorded for equity method investment in Enovix Corporation. 2. Fiscal 2017 financial results have been revised. Please refer to Fiscal 2017 Form 10-K for details.

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.