Slide 1: Engaged Capital's Perspectives on BHE
Connecting Markets East & West Engaged Capital’s Perspectives on BHE STRICTLY PRIVATE AND CONFIDENTIAL April 15, 2016 © Nomura
Slide 2: Table of Contents
Table of Contents 1. Introduction to Engaged Capital and Benchmark Electronics 5 2. Executive Summary 10 3. BHE’s History of Underperformance & Governance Failures 15 a. Undisciplined Capital Allocation 15 b. Inefficient Working Capital Management 26 c. Misaligned Compensation 43 d. Ineffective Inve
Slide 3: Disclaimer
Disclaimer This presentation is for discussion and general informational purposes only. It does not have regard to the specific investment objective, financial situation, suitability, or the particular need of any specific person who may receive this presentation, and should not be taken as advice o
Slide 4: Contact Information
Contact Information Investor Contact: Morrow & Co., LLC Tom Ball, 203-658-9400 tomball@morrowco.com John Ferguson, 203-658-9400 jferguson@morrowco.com or visit www.adeeperbench.com Media Contact: Bayfield Strategy, Inc. Riyaz Lalani, 416-907-9365 rlalani@bayfieldstrategy.com
Slide 5: Introduction to Engaged Capital and Benchmark Electronics
Introduction to Engaged Capital and Benchmark Electronics
Slide 6: About Engaged Capital
About Engaged Capital Private equity style investing in public equities Focused on the small-mid cap space ($500mm - $8bn market cap) Highly concentrated, conviction indexed portfolio of 10 to 15 positions Strategy Typically own 1.0% to 9.9% of portfolio companies, no control positions Bri
Slide 7: BHE Company Overview
BHE Company Overview Company Overview 2015 Revenue Mix Provider of manufacturing, design and engineering Test & Inst. services, typically referred to as electronic manufacturing 9% Computing services (EMS) 22% Medical Traditional customers include OEMs of computing and 14% telecommunications equ
Slide 8: Timeline of Engaged Capital's Engagement with BHE
Timeline of Engaged Capital’s Engagement with BHE June 2015 Aug 2015 Oct - Nov Feb 2016 Feb 2016 March 2016 (share price in $) Met with BHE mgmt. Sent letter to Sent letter to Board Held multiple BHE announced to discuss concerns Chairman after mgmt. with concerns on discussions with BHE announced r
Slide 9: Why We Invested In BHE
Why We Invested In BHE Strong position in evolving EMS industry Attractive margins and customer mix relative to peers Trades at a discount to EMS peers We believe there is a clear path to value creation via: − Adopting a disciplined approach to capital allocation − Improving working capital
Slide 10: Executive Summary
Cs Executive Summary
Slide 11: BHE Has Failed to Create Value for Shareholders
We Believe BHE Has Failed to Create Value for Shareholders on a Short-Term or Long-Term Basis 1 Year – Indexed1 3 Year – Indexed1 10 70 60 1% 50 0 45% 40 39% (7%) 30 (10) 30% (7%) 20 10 (20) 0 (10) (30) (20) Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 A
Slide 12: BHE Has Failed To Create Value For Five Key Reasons
We Believe BHE Has Failed To Create Value For Five Key Reasons 1 Undisciplined Capital Allocation Value destructive M&A Excess capital sitting on balance sheet 2 Inefficient Working Capital Persistent working capital inefficiency has driven worst in Management class ROIC and valuation on almos
Slide 13: Underperformance Is a Consequence of the Board's Failure
We Believe BHE’s Underperformance is a Consequence of the Board’s Apparent Failure to Represent Shareholders’ Interests We believe the Board has failed to protect the interests of BHE shareholders for the following reasons and must be held accountable The Board’s corporate governance failures – Ma
Slide 14: Engaged Capital Has A Credible Plan
Engaged Capital Has A Credible Plan It Believes Will Improve Performance at BHE and Create Value for Shareholders Key Drivers of Underperformance Engaged Capital's Response Value Creation Opportunity Instill a rigorous, disciplined Undisciplined Capital Allocation approach to capital allocation Work
Slide 15: BHE's History of Underperformance & Governance Failures
BHE’s History of Underperformance & Governance Failures Undisciplined Inefficient Misaligned Ineffective Poor Corporate Capital Working Capital Incentive Investor Governance Allocation Management Compensation Communications
Slide 16: BHE Has Long Maintained an Overcapitalized Balance Sheet
BHE has Long Maintained an Overcapitalized Balance Sheet Net Cash as a Percentage of Market Capitalization Historical Comparison (2010 to Q3 2015) BHE Peer Median 50% 42% 41% 40% 38% 33% 31% 30% 28% 20% 10% 0% (5%) (10%) (8%) (8%) (9%) (9%) (11%) (20%) 2010 2011 2012 2013 2014 Q3 2015 Source: FactSe
Slide 17: Investors and Analysts Voiced Concerns on Capital Allocation
Investors and Analysts have Voiced Concerns Regarding BHE’s Capital Allocation Policy for Years Investor Commentary Analyst Commentary “So again, I think it seems like you can address all of your growth “Is there any change to your capital allocation strategy and capital requirements and still be mu
Slide 18: BHE Allocated ~38% of Enterprise Value to Acquire Secure
In October, BHE Allocated ~38% of the Company’s Enterprise Value1 To Acquire Secure Technology, Which We Believe Destroyed Value On 10/22/2015, in conjunction with its Q3:2015 earnings release, BHE announced its intention to acquire Secure Technology (“Secure”) for $230M in cash. BHE provided limi
Slide 19: Value-Destructive Acquisition Foreshadowed by Management
We Believe a Value-Destructive Acquisition Like Secure was Foreshadowed Years Ago by Management Management’s unsophisticated approach to capital allocation is, in our view, evident in their response to investor queries regarding the comparison of M&A to share repurchases Q1 2013 Question: “Going bac
Slide 20: Secure Acquisition Received Poorly by Analysts and Investors
BHE’s Acquisition of Secure Technology was Received Poorly by Analysts and Investors BHE shares declined 9% immediately following the announcement and management fielded many pointed comments from investors and analysts Performance Post-Secure Acquisition Announcement Analyst and Investor Commentary
Slide 21: Largest Shareholder Substantially Reduced its Position
Following the Secure Acquisition, BHE’s Largest Shareholder Substantially Reduced its Long-Term Position Royce & Associates was one of BHE’s largest shareholders for over a decade until, we believe, the Secure acquisition caused them to lose confidence in BHE’s capital allocation strategy Royce & As
Slide 22: Engaged Sent a Letter to the Board on Secure
Engaged Sent a Letter to the Board Highlighting Our Concerns with the Acquisition and Urging BHE to Put Secure to a Vote Selected Excerpts1 Secure, despite having EBITDA margins and revenue growth well above BHE’s corporate average, will likely generate a mid- single digit ROIC in Year 1. This rate
Slide 23: Valuation Did Not Appreciably Change Despite Secure
Despite Purchasing Secure for >10x EBITDA1, BHE’s Valuation Did Not Appreciably Change EV / Fwd. EBITDA Multiple Comparison, 10/21/2015 to Today2 12.0x 10.19x 10.0x 9.72x 9.13x 8.71x EV / Fwd. EBITDA Multiple 8.0x 6.0x 5.06x 4.73x 4.0x 2.0x 0.0x One Day Prior to Today One Day Prior to Today One Day
Slide 24: Acquisition of Secure Destroyed $50-$100M of Value
We Believe the Acquisition of Secure has Destroyed $50 – $100M of Shareholder Value, or 5-11% of BHE’s Enterprise Value Secure Purchase Price vs. Implied Value in BHE Shares1 $0 ($46) -$100 ($230) $0 to $58 ($103) $M $126 Represents 5-11% -$200 of BHE’s current enterprise value -$300 Price Paid for
Slide 25: Cash Generation Opportunity and Capital Allocation
Given the Significant Cash Generation Opportunity at BHE, We Believe a Disciplined Approach to Capital Allocation is Critical BHE Cash Generation Opportunity from Improved Working Capital Efficiency1 $800 $770 $700 $114 $304 $600 $191 $500 $M $400 $300 $466 $466 $200 $100 $0 Current Cash Cash from C
Slide 26: BHE's History of Underperformance & Governance Failures
BHE’s History of Underperformance & Governance Failures Undisciplined Inefficient Misaligned Ineffective Poor Corporate Capital Working Capital Incentive Investor Governance Allocation Management Compensation Communications
Slide 27: Engaged's Observations of BHE's Working Capital
Engaged’s Observations of BHE’s Working Capital BHE’s working capital efficiency is persistently below peers This inefficiency is driven by poor receivables and payables management Changes in customer mix do not explain BHE’s cash conversion deterioration As a result of poor working capital
Slide 28: BHE's Working Capital Management is Worst-in-Class
BHE’s Working Capital Management is Worst-in-Class Cash Conversion Cycle (CCC) Days Sales Outstanding (DSO) 100 94 80 69 70 80 70 60 55 54 53 60 50 43 43 47 43 40 40 36 30 20 20 20 10 0 0 BHE PLXS SANM CLS FLEX JBL BHE SANM FLEX PLXS CLS JBL Days Payables Outstanding (DPO) DPOs Less DSOs 40 80 71 28
Slide 29: BHE's Cash Conversion Cycle Consistently Worst Among Peers
BHE’s Cash Conversion Cycle (CCC) is Consistently the Worst Among its EMS Peers Cash Conversion Cycle (CCC) Historical Comparison 100 90 Cash Conversion Cycle 80 70 60 50 BHE BHE BHE BHE BHE BHE BHE PLXS 40 PLXS PLXS PLXS PLXS PLXS PLXS SANM SANM 30 SANM SANM SANM SANM CLS SANM CLS CLS FLEX CLS CLS
Slide 30: Inefficiency Driven by Receivables and Payables
We Believe This Inefficiency is Entirely Driven by Poor Management of Receivables and Payables Days Payable Less Days Receivable 35 30 25 20 15 DPO Less DSO 10 5 0 (5) (10) (15) (20) BHE BHE (25) BHE BHE BHE (30) BHE BHE (35) 2009 2010 2011 2012 2013 2014 2015 BHE is the only company in the EMS indu
Slide 31: Revenue Mix Shift vs. Lengthening of CCC Days
While BHE’s Long-Term Revenue Mix Shift is Consistent with Peers, BHE’s Substantial Lengthening of CCC Days is Not 5-Year Change in CCC Days 10-Year Change in CCC Days 50 50 42 40 40 30 30 20 15 13 20 12 11 10 9 10 10 0 1 0 0 (1) (10) (10) (7) (20) (20) (13) BHE CLS FLEX PLXS SANM JBL BHE SANM FLEX
Slide 32: CCC Lengthening Correlated with Deterioration in Returns
BHE’s Substantial Lengthening of its CCC is Highly Correlated with its Long-Term Deterioration in Returns 10-Year Change in operating CFROI vs. Change in CCC Days (FY 2005 – FY2015) 8.0% 80 Change in CFROI 7.3% 7.2% Change in CCC Days 70 6.0% 60 50 Change in CCC Days 42 Change in CFROI 3.9% 4.0% 40
Slide 33: Highest Margins, Worst-in-Class ROIC
Despite Possessing the HIGHEST Margins, BHE’s Working Capital Inefficiency Drives ROIC to WORST-IN-CLASS Levels CY 2015 Comparison 25.0% 20.5% 20.0% 16.8% 15.0% 14.3% 12.8% 12.9% 10.0% 10.0% 8.8% 8.6% 8.6% 7.8% 6.9% 6.4% 5.0% 4.5% 4.2% 3.5% 3.6% 2.8% 2.8% 0.0% BHE PLXS SANM CLS JBL FLEX ROIC Gross M
Slide 34: ROIC Highly Correlated with Valuation
ROIC Matters Because It is Highly Correlated with Valuation Enterprise Value / Invested Capital vs. ROIC Spread S&P 1500 Technology Index S&P 1500 Technology EMS Index 4.0x 25.0x 3.5x R² = 0.79 Enterprise Value / Invested Capital2 20.0x Enterprise Value / Invested Capital2 3.0x 15.0x R² = 0.61 2.5x
Slide 35: Inferior ROIC Causes Discount to Peers
We Believe BHE’s Inferior ROIC Causes Investors to Value the Company at a Discount to Peers EV / Fwd. EBITDA P/E ex-Net Cash 8.0x 7.3x 13.0x 12.2x 7.0x 6.3x 12.0x 6.0x 5.3x 5.6x 11.2x 5.1x 11.0x 5.0x 10.3x 3.7x 9.7x 4.0x 10.0x 9.3x 9.3x 3.0x 9.0x 2.0x 8.0x 1.0x 0.0x 7.0x JBL BHE SANM CLS FLEX PLXS C
Slide 36: Management CCC Targets Only Return to 2014 Levels
In July, Management Provided CCC Targets that Only Return BHE’s CCC to 2014 Levels… “So in terms of the [cash conversion cycle] targets and days I think certainly, 82 at some point this year toward the end of the year and then longer term 75 sometime in 2016.” – CFO Don Adam, Q2:2015 earnings call,
Slide 37: BHE Still Fell Short of Guidance
…Yet BHE Still Fell Woefully Short of Guidance Quarterly CCC Since 2013 Peer Median 110 Cash Conversion Cycle (Days) 99 100 94 91 90 90 87 82 79 81 78 79 76 78 80 70 60 50 40 30 Q1:13 Q2:13 Q3:13 Q4:13 Q1:14 Q2:14 Q3:14 Q4:14 Q1:15 Q2:15 Q3:15 Q4:15 CCC continues to be below peer levels and actually
Slide 38: Even at Long Term Target, BHE Has Longest CCC
Even if Management Achieves its Long Term CCC Target, BHE would Still Have the Longest CCC in the Industry Most Recent Reported Quarter CCC 100 94 90 80 75 70 70 60 50 47 43 40 36 30 20 20 10 0 BHE BHE PLXS SANM CLS FLEX JBL Long Term Target BHE has made no visible progress towards management’s long
Slide 39: Peer DSO and DPO Levels Would Generate ~$300M
We Believe Achieving Peer DSO and DPO Levels Would Generate ~$300M of Cash for BHE Shareholders Comparison to PLXS Cash Generation Opportunity1 Achieving PLXS DSOs DPOs DSOs and DPOs ~$110M cash ~$190M cash ~$300M cash generation generation generation 80 opportunity 80 opportunity opportunity $350 $
Slide 40: Cash Generation and Capital Allocation Can Drive Upside
We Believe Cash Generation and a Disciplined Approach to Capital Allocation Can Drive Significant Upside in BHE Shares… BHE Pro-forma Valuation1 $40 $35.01 $35 $1.89 ($1.55) $33.46 $33.46 $4.42 $30 $5.97 $25 $22.73 $20 $15 $10 Current Price Cash from Cash from Multiple Rerating Potential Margin Enga
Slide 41: BHE Leadership Slow to Address the Opportunity
…Yet BHE Leadership Has Been Inexplicably Slow to Address the Opportunity After Engaged Capital’s initial meeting with management in early June, Engaged introduced BHE management to three top-tier consulting firms who have expertise in driving working capital efficiencies BHE’s Response: Ignore
Slide 42: Working Capital Inefficiency Driven by Focus on Margin
Our Diligence Indicates BHE’s Working Capital Inefficiency is Driven by BHE’s Focus on Margin at the Expense of Returns As part of our diligence process, we spoke with the CFOs and/or IR departments of BHE’s competitors1. The difference in the competitors’ approach to customer contracting is strikin
Slide 43: BHE's History of Underperformance & Governance Failures
BHE’s History of Underperformance & Governance Failures Undisciplined Inefficient Misaligned Ineffective Poor Corporate Capital Working Capital Incentive Investor Governance Allocation Management Compensation Communications
Slide 44: Engaged Capital's Philosophy on Incentive Compensation
Engaged Capital’s Philosophy on Incentive Compensation We believe incentive compensation is one of the most powerful tools boards have at their disposal to promote value-creating behaviors and strategies in management teams Effective incentive Capital Allocation Disciplined capital compensation sets
Slide 45: 2014 Incentive Compensation Was Flawed Relative to Peers
We Believed BHE’s 2014 Incentive Compensation was Flawed Relative to Peers Metrics Used in Annual Incentive Compensation - 2014 Engaged Observations Annual Incentive Compensation JBL1 FLEX PLXS SANM CLS BHE Revenue X X X X X − BHE’s annual incentive compensation only included Operating Profit X on
Slide 46: Suggestions to Improve Incentive Compensation
Engaged Provided a Number of Suggestions to Improve BHE’s Incentive Compensation In Engaged’s communications with management and the Board, Engaged suggested a number of changes to BHE’s incentive compensation program to better align it with shareholders Engaged Suggestions Compensation Committee Ac
Slide 47: Compensation Changes Selective and Inconsistent
The Compensation Committee’s Changes to Incentive Compensation Have Been Selective and Inconsistent In 2015, the Compensation Committee removed balance sheet metrics and stopped disclosing long- term performance targets, then partially reversed course and added Cash Conversion Cycle as a metric for
Slide 48: Short-Term Incentive Compensation Targets Are Flawed
We Believe the Targets Used in BHE’s Short-Term Incentive Compensation are Flawed BHE CCC Performance vs. 2016 Incentive Compensation Target1 110 Peer Median Incentive Compensation Target Range (75-80 days) 100 Cash Conversion Cycle (Days) 90 80 70 60 50 40 30 Q1:13 Q2:13 Q3:13 Q4:13 Q1:14 Q2:14 Q3:
Slide 49: Long-Term Incentive Compensation Targets Are Flawed
We Believe the Targets Used in BHE’s Long-Term Incentive Compensation are Flawed There is a significant disparity between BHE’s reported ROIC performance and the targets set by BHE’s Compensation Committee Long-term Incentive Compensation ROIC Targets vs. Reported ROIC 4-Year Incentive Compensation
Slide 50: Definition of ROIC is Flawed, Part 1
We Believe the Compensation Committee’s Definition of ROIC is Flawed, Part 1 BHE's April 6th, 2016 letter to shareholders stated that the definition of ROIC used for incentive compensation purposes includes cash in the denominator – which has the perverse effect of promoting capital deployment towar
Slide 51: Definition of ROIC is Flawed, Part 2
We Believe the Compensation Committee’s Definition of ROIC is Flawed, Part 2 Additionally, by leaving cash in the denominator, the Compensation Committee has given management no incentive to improve working capital, since freeing up cash has no effect on ROIC under the Compensation Committee’s flawe
Slide 52: BHE's History of Underperformance & Governance Failures
BHE’s History of Underperformance & Governance Failures Undisciplined Inefficient Misaligned Ineffective Poor Corporate Capital Working Capital Incentive Investor Governance Allocation Management Compensation Communications
Slide 53: BHE Refused to Disclose Meaningful Information on Secure
Despite Investing $230M of Capital to Acquire Secure, BHE Refused to Disclose Any Meaningful Financial Information on the Company Q3 2015 Question: “You haven't given us any guidance on the operating margin and limited guidance on the growth, so give me some sense that we didn't way overpay for this
Slide 54: Earnings Presentation Inconsistent with Peers
BHE’s Earnings and Operating Margin Presentation is Inconsistent with Peers BHE is the only EMS company that includes intangible amortization expense in discussing operating margins AND EPS – Additionally, management failed to discuss the incremental amortization expense associated with Secure, wh
Slide 55: Management Fails to Communicate Investment Case, Part 1
Management Fails to Effectively Communicate BHE’s Attractive Investment Case, Part 1 We believe management’s failure to effectively speak the language of their investors contributes to the lack of analyst coverage, the lack of investor interest, and the discounted trading multiple vs. peers FLEX JBL
Slide 56: Management Fails to Communicate Investment Case, Part 2
Management Fails to Effectively Communicate BHE’s Attractive Investment Case, Part 2 While we believe the working capital improvement management guided to on the Q4:2015 earnings call is far below what is ultimately achievable, management’s targeted improvement implies 2016 free cash flow of ~$230M,
Slide 57: BHE's History of Underperformance & Governance Failures
BHE’s History of Underperformance & Governance Failures Undisciplined Inefficient Misaligned Ineffective Poor Corporate Capital Working Capital Incentive Investor Governance Allocation Management Compensation Communications
Slide 58: Governance Improvements Appear Reactive to Engaged's Campaign
Recent Improvements in Governance Appear Entirely Reactive to Engaged’s Campaign BHE Governance Pre-Engaged BHE Governance Post-Engaged Entrenched Chairman with 26 year-tenure Chairman stepped down No EMS industry experience among the New independent director with relevant EMS independent di
Slide 59: BHE's Current Board is Stale
BHE’s Current Board is Stale and in Need of Fresh Perspectives Tenure of Independent, Incumbent Directors1 Half of independent, Kenneth Lamneck incumbent directors have served for at David Scheible least 10 years Clay Williams Michael Dawson Douglas Duncan Bernee Strom 0 2 4 6 8 10 12 # of Years on
Slide 60: Low Insider Ownership Signifies Lack of Alignment
Low Insider Ownership Signifies Lack of Alignment With Shareholders BHE’s insiders own a significantly lower stake in the business than other index peers Average / Median Insider Ownership Average Median 9.0% 8.0% 7.0% BHE is significantly lower than 6.3% the average of relevant indices Insider Owne
Slide 61: Engaged Owns a Significant Percentage of BHE's Shares
In Contrast to the Board, Engaged Owns a Significant Percentage of BHE’s Shares The ENTIRE BHE Board, with an average tenure of nearly 8 years1, owns only ~0.7% of BHE shares2 BHE’s insider ownership is significantly below all relevant index averages Engaged Capital owns ~7.5x as many shares a
Slide 62: Poor Incentive Compensation a Symptom of Poor Governance
We Believe BHE’s Poor Incentive Compensation is a Symptom of Poor Governance Do as I Say, not as I Do – BHE’s April 6th letter to shareholders criticized using ROIC as a short-term incentive compensation metric – However, in 2006, the Compensation Committee (which included three current Board memb
Slide 63: Long-Tenured Directors We Seek to Replace
The Long-Tenured Directors We Seek to Replace Approved Secure and Management’s Flawed Compensation Structure Bernee Strom Clay Williams Michael Dawson Founder and Chairman of CEO of National Oilwell Varco Former CFO of Northern Offshore, WebTuner Corp Oil & gas industry background Ltd. and G
Slide 64: Engaged Capital's Proposal
Cs Engaged Capital’s Proposal
Slide 65: Engaged Capital Has A Credible Plan to Correct Underperformance
Engaged Capital Has A Credible Plan to Correct Underperformance at BHE Key Drivers of Underperformance Engaged Capital's Response Value Creation Opportunity Instill a rigorous, disciplined Undisciplined Capital Allocation approach to capital allocation Work with outside consultants to Inefficient Wo
Slide 66: Plan: Reconstitute the Board
Engaged Capital’s Plan: Reconstitute the Board Robert Gifford Jeffrey McCreary Brendan Springstubb Former SVP and President of Supply Chain Director and Former CEO of the Isola Senior Analyst at Engaged Capital Solutions at Ingram Micro, Inc. Group Former Senior Analyst at Relational Forme
Slide 67: Robert Gifford Full Biography
Robert Gifford Full Biography Mr. Gifford’s extensive expertise in supply chain management and operations will be valuable assets to the Board Robert K. Gifford, age 58, served as Senior Executive Vice President and President of Supply Chain Solutions at Ingram Micro Inc. (NYSE: IM), a global tech
Slide 68: Jeffrey McCreary Full Biography
Jeffrey McCreary Full Biography Mr. McCreary’s extensive experience leading public companies and his diverse background in the technology industry will be valuable assets to the Board Jeffrey S. McCreary, age 59, has been an independent management consultant since 2006 and a member of the board of
Slide 69: Brendan Springstubb Full Biography
Brendan Springstubb Full Biography Mr. Springstubb’s expertise in capital allocation, executive compensation, and his unique perspective as a large shareholder representative will be valuable assets to the Board Brendan B. Springstubb, age 32, has been a Senior Analyst at Engaged Capital, a Califo
Slide 70: Plan: Implement Capital Allocation Best Practices
Engaged Capital’s Plan: Implement Capital Allocation Best Practices Allocate >$750M in pro-forma cash to its highest and best use Instill a NEW capital allocation process in the boardroom so that capital will be allocated to the alternative (buybacks, dividends, acquisitions, debt repayment, and o
Slide 71: Plan: Aggressively Pursue Working Capital Efficiencies
Engaged Capital’s Plan: Aggressively Pursue Working Capital Efficiencies Free up $300M of cash tied up in working capital Re-engage outside consultants to develop and assist the company in implementing a detailed plan to address this material opportunity Shift company focus from operating margin
Slide 72: Plan: Align Executive Compensation With Shareholders
Engaged Capital’s Plan: Align Executive Compensation With Shareholders Align management compensation with the key drivers of value creation Align annual and long-term incentive compensation to drive working capital efficiency and increased ROIC – Correct the definition of ROIC used in long-term in
Slide 73: Plan: Improve Investor Communications
Engaged Capital’s Plan: Improve Investor Communications Highlight BHE’s attractive investment case to analysts and investors Align BHE’s financial reporting to be consistent with peers Increase focus on ROIC and free cash flows – BHE’s free cash flow generation potential is uniquely attractive,
Slide 74: The Time for Change is Now
Cs The Time for Change is Now
Slide 75: Current Board Has Failed in Duty to Represent Shareholders
Current Board has Failed in Their Duty to Represent BHE Shareholders’ Interests Significant stock underperformance over a short and long-term basis Allowed the company to maintain an overcapitalized balance sheet for years Approved the value-destroying acquisition of Secure Allowed working c
Slide 76: Supporting Incumbent Directors Endorses Continued Underperformance
We Believe that to Support Incumbent Directors is to Endorse Continued Underperformance Total Return Performance Since: 1/1/15 1/1/14 1/1/13 1/1/12 1/1/11 1/1/10 1/1/09 1/1/08 1/1/07 1/1/06 BHE (11%) (2%) 37% 69% 25% 20% 78% 28% (7%) 1% EMS Peer Group (4%) 20% 58% 71% 39% 49% 314% 58% 22% 9% EMS Pee
Slide 77: Engaged Capital Has A Credible Plan to Correct Underperformance
Engaged Capital Has A Credible Plan to Correct Underperformance at BHE… Key Drivers of Underperformance Engaged Capital's Response Value Creation Opportunity Instill a rigorous, disciplined Undisciplined Capital Allocation approach to capital allocation Work with outside consultants to Inefficient W
Slide 78: Vote for Engaged Capital's Nominees
…and Has Three Experienced Nominees Prepared to Immediately Enact This Plan Robert Gifford Jeffrey McCreary Brendan Springstubb Former SVP and President of Supply Director and Former CEO of the Isola Senior Analyst at Engaged Capital Chain Solutions at Ingram Micro, Inc. Group Former Senior
Slide 79: Contact Information
Contact Information Investor Contact: Morrow & Co., LLC Tom Ball, 203-658-9400 tomball@morrowco.com John Ferguson, 203-658-9400 jferguson@morrowco.com or visit www.adeeperbench.com Media Contact: Bayfield Strategy, Inc. Riyaz Lalani, 416-907-9365 rlalani@bayfieldstrategy.com
Slide 80: Engaged Capital / Director Nominees Track Record
Engaged Capital / Director Nominees Track Record
Slide 81: Engaged Capital's Exited Core Position Return Summary
Engaged Capital’s Exited Core Position Return Summary Since inception (10/1/2012) we have exited 13 Core Portfolio Positions with an average return of 21.7% and a median return of 35.9% Max. Position Holding Period Ticker Name ROI Size (Days) Agenda Item(s) Result BDBD Boulder Brands, Inc. 45.8% 22.
Slide 82: Engaged Representatives Serve as Directors on Three Boards
Representatives of Engaged Capital Currently Serve as Directors on Three Boards Agenda: Undisciplined growth spending, misaligned incentive comp Two nominees elected at 2015 annual meeting (incumbent Chairman voted off) Successfully renewed key customer licensing contract Rovi Aligned compen
Slide 83: Nominee Jeffrey McCreary Record of Value Creation
Nominee Jeffrey McCreary Has a Stellar Record of Value Creation 57% 60% 50% 57% Total Return 40% Gennum Corporation 40% 30% 20% 17% Outperformance Director (3/08 – 3/12) 10% vs. S&P 1500 -- during tenure S&P 1500 Gennum Corporation 80% 72% 70% 72% Total Return 60% MIPS Technologies 50% 49% 40% Direc
Slide 84: Appendix
esse Appendix
Slide 85: Secure Value Destruction
Secure Value Destruction Description Data Source / Calculation Price paid for Secure $230 BHE 10-K Secure NTM EBITDA $25 Engaged estimate (x) BHE EV / NTM EBITDA multiple 5.1x Engaged estimate Value of Secure EBITDA at Current BHE Multiple 126 BHE NTM EBITDA estimate 178 FactSet estimate plus $8M am
Slide 86: BHE Pro Forma Valuation
BHE Pro Forma Valuation Description Data Source / Calculation 2015 OCF ex. Change in Working Capital 141 BHE 10K 2016 OCF ex. Change in Working Capital 155 Assumes 10% growth over 2015 Less: 2016 Capex (45) Midpoint of guidance 2016 Operating FCF 110 Plus: 2017 Operating FCF 115 Assumes 5% growth ov
Slide 87: Cash Generation Opportunity from Peer DSO and DPO Levels
Cash Generation Opportunity from Peer DSO and DPO Levels Reference Description Q4 2015 Source / Calculation BHE Actual Quarterly A Revenue 626 BHE 8-K, dated 2/9/2016 B Cost of Sales 569 BHE 8-K, dated 2/9/2016 Annualized C Revenue 2,503 A*4 D Cost of Sales 2,276 B*4 E EOP Accounts Receivable 479 BH
Slide 88: Cash Generation Implied by BHE CCC Guidance
Cash Generation Implied by BHE CCC Guidance Reference Description Data Source / Calculation Reference Description Data Source / Calculation BHE Actual (Q4 2015) Implied Free Cash Flow Quarterly Y 2015 OCF ex. Change in Working Capital 141 BHE 10K A Revenue 626 BHE 8-K, dated 2/9/2016 Z 2016 OCF ex.
Slide 89: Example Quarterly Working Capital Metrics
Example Quarterly Working Capital Metrics BHE PLXS SANM CLS FLEX JBL Fiscal Quarter 4Q15 1Q16 1Q16 4Q15 3Q16 1Q16 Quarterly Revenue 626 617 1,535 1,515 6,763 5,208 Cost of Sales 569 567 1,411 1,414 6,311 4,724 Annualized Revenue 2,503 2,467 6,139 6,060 27,053 20,832 Cost of Sales 2,276 2,266 5,644 5
Slide 90: CY 2015 ROIC Calculations
CY 2015 ROIC Calculations Reference BHE PLXS SANM CLS FLEX JBL Calculation A Reported Non-GAAP Operating Income 107 110 238 195 769 738 B Stock-based compensation adjustment -- -- (19) (38) (70) (69) C Amortization adjustment 7 -- -- -- -- -- D EBITA 114 110 219 157 699 669 A+ B + C Tax Rate Calcula
Slide 91: P/E Multiples
P/E Multiples Company Reference Description Value After Tax Shares Per Share Source / Calculation BHE A Price $22.73 FactSet, as of 4/13/2016 B NTM EPS Estimate $1.64 FactSet, as of 4/13/2016 C As Reported NTM P/E 13.8x A/B D EPS Add back: Amortization E Secure 8 6 EC Estimate, 24.5% tax rate F Othe
Slide 92: P/E Multiples (cont'd)
P/E Multiples (cont’d) Company Reference Description Value After Tax Shares Per Share Source / Calculation JBL A Price $18.47 FactSet, as of 4/13/2016 B NTM EPS Estimate $2.32 FactSet, as of 4/13/2016 C As Reported NTM P/E 7.9x A/B D EPS Less: Stock-based compensation (78) (57) 191 ($0.30) EC Estima
Slide 93: EV/EBITDA Multiples
EV/EBITDA Multiples Company Reference Description Value Source / Calculation BHE A Enterprise Value 901 FactSet, as of 4/13/2016 B NTM EBITDA Estimate 170 FactSet, as of 4/13/2016 C As Reported NTM EV/EBITDA 5.3x A/B D EBITDA Plus: Amortization of Intangibles for Secure Transaction 8 EC estimate E C
Slide 94: EV/EBITDA Multiples (cont'd)
EV/EBITDA Multiples (cont’d) Company Reference Description Value Source / Calculation JBL A Enterprise Value 4,981 FactSet, as of 4/13/2016 B NTM EBITDA Estimate 1,414 FactSet, as of 4/13/2016 C As Reported NTM EV/EBITDA 3.5x A/B D EBITDA Less: Stock-based compensation (78) EC estimate E Comparable