Slide 1: 2nd Supplemental Presentation
Connecting Markets East & West 2nd Supplemental Presentation STRICTLY PRIVATE AND CONFIDENTIAL April 25, 2016 © Nomura
Slide 2: We Believe Benchmark is Attempting to Mislead Investors Regarding its Performance
We Believe Benchmark is Attempting to Mislead Investors Regarding its Performance
Slide 3: We Believe BHE is Misleading Investors Regarding Total Return Performance
We Believe BHE is Misleading Investors Regarding the Company’s Total Return Performance BHE claims: BHE’s updated investor presentation published on 4/22/2016 includes a TSR chart depicting performance through 4/20/2016 – which conveniently fails to account for the recent 14% decline in BHE’s stoc
Slide 4: BHE has Underperformed Peers and Relevant Indices Across All Time Periods
BHE has Underperformed Peers and Relevant Indices Across All Time Periods 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 (24%) (17%) 16% 43% 6% 2% 51% 9% (21%) (14%) EMS Peer Group (4%) 19% 58% 70% 38% 49% 308% 58% 23% 10% EMS Peer Group Med
Slide 5: We Believe BHE is Misleading Investors Regarding Operating Performance
We Believe BHE is Misleading Investors Regarding the Company’s Operating Performance BHE claims: BHE continues to knowingly use 2011 as a starting point for its comparisons to peers This is disingenuous as BHE’s 2011 results were severely impacted by flooding in Thailand Using either 2010 or 2
Slide 6: The Starting Points Used to Measure Operational Performance are Misleading
The Starting Points Used by the Company to Measure Operational Performance are Misleading Non-GAAP Gross Margin Cash Conversion Cycle (in Days) 10% 120 BHE Selected BHE Selected 9% 110 Starting Point Starting Point 7.9% 100 93 8% 7.2% 90 82 7% 78 6.2% 80 6% 70 5% 60 2010 2011 2012 2010 2011 2012 Non
Slide 7: BHE's Revenue Growth Targets Lack Credibility
BHE’s Revenue Growth Targets Lack Credibility BHE claims: BHE’s organic growth rate in higher- value markets has only exceeded 10% once in the last 17 quarters BHE’s organic growth rate in higher value markets has been negative for each of the past five quarters 6 Source: BHE presentation filed
Slide 8: BHE Has Fallen Well Short of its Non-Traditional Revenue Growth Targets
BHE Has Fallen Well Short of its Non-Traditional Revenue Growth Targets BHE Non-Traditional Organic Revenue Growth1 15% 11.1% 9.7% BHE’s >10% target 10% 8.8% 4.9% 5% 3.6% 1.7% 2.2% 0.8% 0.2% 0% (0.5%) (1.4%) (1.1%) (1.1%) (2.5%) (5%) (3.8%) (4.0%) (10%) (11.5%) (15%) Q1:12 Q2:12 Q3:12 Q4:12 Q1:13 Q2
Slide 9: The Secure Acquisition Illustrates Benchmark's Flawed Approach to Capital Allocation
We Believe The Secure Acquisition Illustrates Benchmark’s Flawed Approach to Capital Allocation
Slide 10: BHE's Defense of Secure Highlights Flaws in Capital Allocation
We Believe BHE’s Defense of Secure Highlights the Flaws in BHE’s Understanding of Disciplined Capital Allocation BHE claims: 1. Based on discussions with the Company’s financial advisors in November, we believe this multiple is based off of the inflated financials Secure provided to BHE – not 1 BHE’
Slide 11: BHE's Claims of Cross-Selling Wins from Secure are Not Borne Out
BHE’s Claims of Cross-Selling “Wins” from Secure are Not Borne Out by the Data BHE New Industrial Business Wins1 $120 “We are also excited to announce that we received what we believe will be the first of many new business awards from the cross-selling opportunities between our Industrial and Defens
Slide 12: Investors are Valuing Secure ~45% Below the Price Paid
Even if we Use BHE’s Inflated Estimate of Secure’s 2016 EBITDA, We Believe Investors are Valuing Secure ~45% Below the Price Paid Secure Purchase Price vs. Implied Value in BHE Shares1 $0 ($106) -$100 ($230) $M $123 Represents ~16% of BHE’s current -$200 enterprise value -$300 Price Paid for Secure
Slide 13: Shifting Revenue Towards Higher-Value End-Markets Does Not Create Value
Shifting Revenue Towards Higher-Value End-Markets Does Not Create Value In and Of Itself BHE claims: 1. We believe shifting to higher-value end markets has the potential to create value if executed with the proper focus on returns and ROIC. Higher 2 valuations are NOT simply driven by 1 the type of
Slide 14: Increase in Non-Traditional Revenue Correlated with Decline in Valuation Multiples
BHE’s Increase in Non-Traditional Revenue is Correlated with a Decline in Valuation Multiples and a Negative TSR BHE Non-Traditional Revenue Mix Since the Suntron Acquisition 80% Mix has increased from 48% to 64%... 70% 64% 58% 60% 54% 54% 53% 51% 53% 50% 51% 48% 47% 50% 43% 40% Jun-13 Sep-13 Dec-13
Slide 15: We Have Not Recommended BHE Repatriate Cash at Punitive Tax Rates
We Have Not, and Do Not, Recommended BHE Repatriate Cash at Punitive Tax Rates to Fund Repurchases BHE claims: We have never advocated that BHE repatriate cash to fund share repurchases BHE’s US / OUS cash imbalance adds intricacies to BHE’s capital deployment strategy – including differentiatin
Slide 16: Benchmark's Working Capital Analysis is Flawed
We Believe Benchmark’s Working Capital Analysis is Flawed
Slide 17: BHE's Explanation for Inefficient Accounts Receivable Does Not Make Sense
We Believe BHE’s Explanation for its Inefficient Accounts Receivable Does Not Make Sense BHE claims: 1. BHE’s statement that “end-market mix and shipping terms drive discrepancies between accounts receivable and inventory between peers” is incorrect – only inventory is 1 correlated to mix1 PLXS no
Slide 18: BHE's Logic to Combine DSOs + Days Inventory is Nonsensical
We Believe BHE’s Logic to Combine DSOs + Days Inventory is Nonsensical BHE is arguing that Days Inventory and DSOs are interchangeable, and BHE is choosing to trade off higher DSOs for lower Days Inventory vs. PLXS – However, based on differences in mix, we would expect BHE’s Days Inventory to be
Slide 19: BHE's Explanation for Inefficient Accounts Payable is Flawed
We Believe BHE’s Explanation for its Inefficient Accounts Payable is Flawed BHE claims: 1. The supposed “value creation” BHE claims to generate by taking trade discounts is not 1 meaningful using the proper valuation multiples 2 2. If BHE truly is driving more shareholder value by taking supplier di
Slide 20: BHE's Value of Trade Discounts is Inflated by Flawed Multiples
BHE’s Calculation of the Value of Trade Discounts is Inflated by Using Flawed, Unadjusted Multiples Per Share Value of Trade Discounts Less Cash Released from Forgoing Discounts1 $1.20 Unadjusted P/E multiple: Adjusted P/E multiple: Adjusted EBITDA multiple: 12.6x1 8.1x 4.6x $1.00 $0.90 $0.80 We see
Slide 21: BHE's DPOs are Well Below PLXS Levels
BHE’s DPOs are Well Below PLXS Levels Even After Adjusting for Trade Discounts BHE Pro Forma for Trade Discounts Comparison to PLXS BHE’s DPOs are significantly lower than PLXS, even after adjusting for the seven days BHE 100 DPO from 46 to 72 days: management attributes to trade discounts it 90 ~
Slide 22: Benchmark's Incentive Compensation ROIC Targets are Flawed
Benchmark’s Incentive Compensation ROIC Targets are Flawed
Slide 23: Targets in Long-Term Incentive Compensation are Flawed
We Believe the Targets Used in BHE’s Long-Term Incentive Compensation are Flawed BHE has stated that the purpose of including cash in the definition of ROIC for incentive compensation purposes was to incentivize management to either deploy cash or return it to shareholders However, the Compensat
Slide 24: Benchmark's Analysis of the Value of Our Plan is Flawed
Benchmark’s Analysis of the Value of Our Plan is Flawed
Slide 25: BHE's Attacks on Our Plan Are Unsubstantiated by the Facts
We Believe BHE’s Attacks on Our Plan Are Unsubstantiated by the Facts BHE claims: 1. We believe BHE has provided no credible reason why $300M of working capital cannot be freed 2. BHE’s “X” on the value of the cash generated in 2016 and 2017 is concerning as it suggests 3 BHE does not understand the
Slide 26: Our Nominees are Highly Qualified
Our Nominees are Highly Qualified and Ready To Help Add Value for All Benchmark Shareholders
Slide 27: 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 28: Three Experienced Nominees Prepared to Enact This Plan
…and Has Three Experienced Nominees Prepared to Immediately Enact This Plan Engaged Capital nominee Robert Gifford served as President of Supply Chain and Global Logistics for Ingram Micro, one of the world’s largest distributors of IT goods. Like BHE, Ingram Micro operates in a low-margin industr
Slide 29: Appendix
Cee Appendix
Slide 30: Value of Trade Discounts
Value of Trade Discounts Description Data Source P/E-based Value of Trade Discounts Per Share Value of Trade Discounts $1.70 BHE presentation, filed 4/22/2016 Less: Per Share Cash Value Released by Forgoing Trade Discounts ($0.80) BHE presentation, filed 4/22/2016 Per Share Net Value of Trade Discou
Slide 31: Secure Value Destruction
Secure Value Destruction Description Data Source / Calculation Price paid for Secure $230 BHE 10-K Divided by: Multiple Paid for Secure 8.5x BHE presentation filed 4/22/2016 Secure 2016E EBITDA $27 (x) BHE EV / 2016E EBITDA multiple 4.6x Engaged estimate Value of Secure EBITDA at Current BHE Multipl
Slide 32: Valuation is not Correlated with Sales Mix, Part 1
Valuation is not Correlated with Sales Mix, Part 1 P/E Multiples vs. Non-Traditional Sales Mix Correlation of Mix and P/E Multiple per BHE Correlation of Mix and P/E ex-Cash 15.0x 15.0x 14.0x 14.0x PLXS 13.0x 13.0x PLXS P/E Multiple Ex-Cash2 BHE 12.0x 12.0x R² = 0.09 P/E Multiple1 11.0x R² = 0.58 11
Slide 33: Valuation is not Correlated with Sales Mix, Part 2
Valuation is not Correlated with Sales Mix, Part 2 EV/EBITDA Multiples vs. Non-Traditional Sales Mix Correlation of Mix and EV/EBITDA Multiple 8.0x PLXS 7.5x Adjusted EV/EBITDA Multiple1 7.0x R² = 0.10 6.5x 6.0x 5.5x 5.0x 4.5x BHE 4.0x 3.5x 3.0x 25% 35% 45% 55% 65% 75% CY 2015 Non-traditional Sales
Slide 34: P/E Multiples
P/E Multiples Company Reference Description Value After Tax Shares Per Share Source / Calculation BHE A Price $19.46 FactSet, as of 4/22/2016 B 2016E EPS Estimate $1.37 FactSet, as of 4/22/2016 C As Reported 2016E P/E 14.2x A/B D EPS Add back: Amortization E Secure 8 6 EC Estimate, 22% tax rate F Ot
Slide 35: P/E Multiples (cont'd)
P/E Multiples (cont’d) Company Reference Description Value After Tax Shares Per Share Source / Calculation JBL A Price $17.96 FactSet, as of 4/22/2016 B 2016E EPS Estimate $2.23 FactSet, as of 4/22/2016 C As Reported 2016E P/E 8.0x A/B D EPS Less: Stock-based compensation (78) (57) 191 ($0.30) EC Es
Slide 36: EV/EBITDA Multiples
EV/EBITDA Multiples Company Reference Description Value Source / Calculation BHE A Enterprise Value 682 See p. 30 B 2016E EBITDA Estimate 141 FactSet, as of 4/22/2016 C As Reported 2016E EV/EBITDA Multiple 4.8x A/B D EBITDA Plus: Amortization of Intangibles for Secure Transaction 8 EC estimate E Com
Slide 37: EV/EBITDA Multiples (cont'd)
EV/EBITDA Multiples (cont’d) Company Reference Description Value Source / Calculation JBL A Enterprise Value 4,918 FactSet, as of 4/22/2016 B 2016E EBITDA Estimate 1,385 FactSet, as of 4/22/2016 C As Reported 2016E EV/EBITDA Multiple 3.6x A/B D EBITDA Less: Stock-based compensation (78) EC estimate
Slide 38: When Questioned About Working Capital, Management Has Not Indicated Any Tradeoff
When Questioned About Working Capital in the Past, Management Has Not Indicated Any Tradeoff Between Inventory and Receivables Q1 2012 Question: “And then one final one for Don on working capital. If I look at the receivable Earnings Call days, around 70, they've been rising steadily for the last fe
Slide 39: Calculation of Non-Traditional Organic Growth
Calculation of Non-Traditional Organic Growth Q1:11 Q2:11 Q3:11 Q4:11 Q1:12 Q2:12 Q3:12 Q4:12 Source & Calculation Test & Instrumentation 47 69 40 58 45 49 31 29 Medical 53 63 51 44 54 63 61 67 Industrial 160 176 165 139 163 161 167 169 A Total Non-Traditional Revenue 261 309 257 242 262 273 259 265
Slide 40: Days Inventory is the ONLY Component of Cash Conversion Cycle Correlated to Mix
Days Inventory is the ONLY Component of Cash Conversion Cycle that is Correlated to Non-Traditional Revenue Mix Days Inventory (DI) vs Non-Traditional Mix 90 PLXS 85 80 75 70 DI 65 BHE 60 55 R² = 0.88 50 45 40 25% 35% 45% 55% 65% 75% CY 2015 Non-traditional Sales Mix Days Payables Outstanding (DPO)