Formfactor, Inc. · NASDAQ:FORM
Formfactor — Investor Day (August 2020)
38 slides from Formfactor's investor day presentation, Aug 18, 2020
Slide 1: Growth Strategy and Target Financial Model Update
Growth Strategy and Target Financial Model Update August 18, 2020
Slide 2: Forward-Looking Statements; Non-GAAP Financial Measures
Forward-Looking Statements; Non-GAAP Financial Measures This presentation contains forward-looking statements within the meaning of the U.S. Securities Exchange Act of 1934 and the Securities Act of 1933. The forward-looking statements include statements concerning, among other things, our future bu
Slide 3: Agenda
Agenda Presenters • Welcome & Introduction Mike Slessor President and • Investment Thesis Chief Executive Officer • Industry Dynamics & Growth Drivers • Introducing New Target Model Shai Shahar Chief Financial Officer • Q&A 3
Slide 4: Mike Slessor, President and Chief Executive Officer
Mike Slessor President and Chief Executive Officer 4
Slide 5: FormFactor At a Glance
FormFactor At a Glance Advanced Probe Cards Engineering Systems TTM Revenue* for Chip Production 60,000,000+ 10,000+ ~ $640M MEMS PROBES/YEAR INSTALLED PROBERS Global Manufacturing, Design Recognized by and Customer Service Presence 2,000 Industry Leaders ** PEOPLE Intel TSMC Micron SK hynix Samsung
Slide 6: Compelling Investment Thesis
Compelling Investment Thesis Market leader in Benefits from powerful Technology leadership Profitable financial Active execution of large and growing secular trends: enables customers’ model with earnings acquisition strategy semiconductor test and • Exponential growth in most critical roadmap growt
Slide 7: Proven Track Record
Proven Track Record Revenue Non-GAAP Gross Margin Non-GAAP EPS* Free Cash Flow $ IN MILLIONS $ IN MILLIONS $638 $102 $103 45.3% $1.29 $1.21 $589 $1.04 44.5% $1.01 $72 44.2% 44.3% $52 $548 $530 TTM TTM TTM TTM 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 Benefits From Scale and Expandi
Slide 8: History of Value Creation and Outperformance
History of Value Creation and Outperformance FORMFACTOR, SOX AND S&P 500 HISTORICAL STOCK PERFORMANCE OUTPERFORMANCE* July 2020: Advantest Probe 300% Card Assets FormFactor Return on 250% 235% Investment October 2019: 200% 150% SOX Return on 211% Investment 100% June 2016: 50% S&P 500 0% Return on 5
Slide 9: Recognized Industry Leader
Recognized Industry Leader “Customers give FormFactor high rankings for trust in supplier and technical leadership,” said G. Dan Hutcheson, CEO of VLSIresearch. “… 2014 . 2015 . 2016 FormFactor continues to 2017 . 2018 . 2019 be a five-star supplier.” 2020 Trusted by leading semiconductor designers
Slide 10: How FormFactor Wins
How FormFactor Wins Early Customer Engagement Technology and Applications Creates Competitive Advantage Leadership Relied Upon and High Barriers to Entry by Customers Deliver Market-Leading Largest R&D Budget in Products with World-Class Served Markets, Enabled Cycle Times and Quality by Industry-Le
Slide 11: FormFactor Occupies a Unique Place in Semiconductor Industry
FormFactor Occupies a Unique Place in Semiconductor Industry Front-End: Back-End: Wafer Fabrication Equipment Wafer Test & Measurement Wafer Assembly and Final Test Industry: $55 Billion Industry: $1.9 Billion Industry: $3.5 Billion Advanced Probe Cards: $1.5B; Engineering Systems: $0.4B • 6% CAGR •
Slide 12: Customers Value, FormFactor Benefits From "Lab to Fab" Capabilities
Customers Value, FormFactor Benefits From “Lab to Fab” Capabilities FormFactor Engages Customers Throughout Their Product Life Cycle Customers benefit from FormFactor’s unique visibility accelerated path from concept R&D/Engineering to emerging trends, e.g. to volume production Silicon Photonics, Qu
Slide 13: FormFactor Benefits from Two Industry Dynamics
FormFactor Benefits from Two Industry Dynamics Slowing of Moore’s Law: Secular Growth in the Semiconductor Industry Node shrinks no longer provide cost reduction Exponential Growth in Semiconductor Use Increased Infrastructure and Enterprise Spending 4X 5G Applications in Mobility yielded / CostNorm
Slide 14: Exponential Growth in Silicon Devices Will Be Accelerated by 5G
Exponential Growth in Silicon Devices Will Be Accelerated by 5G 5G Key Factors for 5G Success • RF expertise • R&D-intensity • Dependable supplier • Customer intimacy 1981-1995 1996-2006 2007-2019 2020+ Source: Yole Development of Technology for 5G. 14
Slide 15: Infrastructure Spending and 5G Adoption Are Spurring Semiconductor and Probe Card Use
Infrastructure Spending and 5G Adoption Are Spurring Semiconductor and Probe Card Use Data Center Capital Spending Forecast1 5G Will Drive Increased Content in IN BILLIONS Mobility and Automotive Applications $120 2 10% 30B Connected Connected͌ devices by 2023 $110 Devices (tablets, PCs, etc.) Mobil
Slide 16: Advanced Packaging Addresses Scaling Challenges As Moore's Law Slows
Advanced Packaging Addresses Scaling Challenges As Moore’s Law Slows Node shrinks no longer provide cost reduction 4X Normalized Cost / yielded mm / yielded Cost Normalized Advanced Packaging improves product-level performance, power and density 45nm 7nm Source: Su (AMD), IEDM 2017. Note: Cost per y
Slide 17: Probe Cards are Critical to Advanced Packaging
Probe Cards are Critical to Advanced Packaging Cost of the Advanced TEST Packaging Solution INTENSITY Low High Some Low LOTS! Little Some High Semiconductor Die Yield Die Semiconductor Test intensity, and therefore probe card demand, increases as advanced packaging becomes widespread 17
Slide 18: Introducing Our New Target Model
INTRODUCING OUR NEW TARGET MODEL 18
Slide 19: FormFactor's Markets Offer Attractive Growth Opportunities
FormFactor’s Markets Offer Attractive Growth Opportunities Incremental Growth from Advanced Packaging and 5G Data Center Growth From FormFactor’s $650M → $850M Industry-Leading Position in $200 MILLION Fast-Growing Markets Mobility Incremental Revenue By ~2023* Automotive *Based on VLSIresearch esti
Slide 20: Unique Capabilities Position FormFactor for Faster Growth in Advanced Probe Cards
Unique Capabilities Position FormFactor for Faster Growth in Advanced Probe Cards 8%+ CAGR** FormFactor Memory • Proprietary Technologies • Strong Customer Relationships • Productive R&D Spend CAGR* 6% High Frequency (RF) Advanced Probe Card Market 5% CAGR* Probe Card Market Logic $2 Billion Advance
Slide 21: Poised for Above-Market Growth in Engineering Systems
Poised for Above-Market Growth in Engineering Systems 3D Surface Metrology 5%+ CAGR** FormFactor 200 mm • Largest Installed Base Automated • Autonomous Measurement Solutions Leader • Broadest Portfolio 3% CAGR* 300 mm Engineering Systems Market Automated Technology Leadership and Worldwide Infrastru
Slide 22: FormFactor's New Target Model
FormFactor’s New Target Model 2012 20% Target Model Revenue $178M $0.9B 16% 100% Served available market Advanced Probe Cards 36% Revenue 2019 17% $850M 32% Revenue 84% $590M 83% $2.4B* $1.6B Served available market Advanced Served available market Advanced Probe Cards & Engineering Systems Probe Ca
Slide 23: Shai Shahar, Chief Financial Officer
Shai Shahar Chief Financial Officer 23
Slide 24: Growth to $850M Target Model Revenue, Delivers $2.00 Non-GAAP EPS
Growth to $850M Target Model Revenue, Delivers $2.00 Non-GAAP EPS 2019 Actuals Target Model Revenue $590M $850M Non-GAAP Gross Margin 44.5% 47.0% Non-GAAP Operating Margin 17.3% 22.0% Non-GAAP Effective Tax Rate 22.0% 17.0% Non-GAAP Diluted Earnings Per Share $1.04 $2.00 Free Cash Flow $102M $160M S
Slide 25: Drivers of Shareholder Value Creation
Drivers of Shareholder Value Creation Revenue Growth Operating Leverage Capital Allocation • Underlying growth in • Gross Margin expansion Focused reinvestment semiconductor applications • Disciplined operating structure • R&D • Participation in Advanced • Robust Operating Cash Flow and • Capacity e
Slide 26: Revenue Growth Drives Increased Profitability
Revenue Growth Drives Increased Profitability Non-GAAP Gross Margin 47.0% 45.9% 44.2% 44.3% 44.5% 2017 2018 2019 1H 2020 TARGETTarget Model MODEL Improving operating efficiency and factory utilization will drive gross margin expansion See Supplemental Information below for reconciliations of non-GAA
Slide 27: Scale Enhances Margins, Finances Differentiating R&D
Scale Enhances Margins, Finances Differentiating R&D Non-GAAP Operating Expense as % of Revenue SG&A R&D 28% 27% 26% 26% 25% 13% 13% 12% 12% 13% 15% 14% 14% 14% 12% 2017 2018 2019 1H 2020 TARGETTarget Model MODEL Capitalize on scale to leverage our operating expense infrastructure. Continued signifi
Slide 28: Driving Operating Leverage Through Scale
Driving Operating Leverage Through Scale Non-GAAP Operating Margin 22% 20% 18% 17% 16% 2017 2018 2019 1H 2020 TARGETTarget ModelMODEL Disciplined spending and increasing scale will continue to enhance profitability See Supplemental Information below for reconciliations of non-GAAP financial measures
Slide 29: Capital Expenditures to Support Organic Growth
Capital Expenditures to Support Organic Growth Target CapEx 2017 2018 2019 2020 Model CapEx $18M $20M $21M $30M - $35M $50M-$60M Revenue $548M $530M $590M Capacity $850M Expansion CapEx as % 3.2% 3.8% 3.5% 3.5%-4.0% of Revenue New Livermore Facility Highly Automated Manufacturing Factory Expansions
Slide 30: Acquisition Strategy Adds Scale and Diversification
Acquisition Strategy Adds Scale Proven track record of and Diversification identifying and integrating accretive acquisitions Established process focused on extending long-term industry leadership • Acquisition priorities Year: 2012 Amount: $117M – Market leader in growing market – Compelling techni
Slide 31: Highly Resilient Business Model
Highly Resilient Business Model Enabled by Flexible Cost Structure • 100% of employees with variable pay component • Flexible staffing model Strong and Healthy Balance Sheet • Supported by strong free cash flows • History of successfully managing debt and significant borrowing capacity available if
Slide 32: Mike Slessor, President and Chief Executive Officer
Mike Slessor President and Chief Executive Officer 32
Slide 33: Compelling Investment Thesis
Compelling Investment Thesis Market leader in Benefits from powerful Technology leadership Profitable financial Active execution of large and growing secular trends: enables customers’ model with earnings acquisition strategy semiconductor test and • Exponential growth in most critical roadmap growt
Slide 34: Q&A
QormFactor” Q&A
Slide 35: Supplemental Information
QormFactor” Supplemental Informat ion
Slide 36: FY 2019 GAAP to Non-GAAP Reconciliation
FY 2019 GAAP to Non-GAAP Reconciliation GAAP Adjustments Non-GAAP 12-Months Ended Stock-based Amortization of Amortization of 12-Months Ended December 28, 2019 Compensation Intangibles Inventory Step-Up Restructuring Charges Acquisition Related December 28, 2019 Revenues $ 589,464 $ - $ - $ - $ - $
Slide 37: Free Cash Flow Reconciliation
Free Cash Flow Reconciliation in thousands 2013 2014 2015 2016 2017 2018 2019 Net cash provided by (used in operating activities) $ (5,802) $ 17,659 $ 36,122 $ 17,423 $ 86,323 $ 68,700 $ 121,048 Add: Cash paid for interest - - - 2,110 3,836 3,113 1,405 Add: Cash paid for acquisition related expenses
Slide 38: About Non-GAAP Financial Measures
About Non-GAAP Financial Measures We believe that the presentation of non-GAAP earnings per fully-diluted share, free cash flow and other non-GAAP measures in this presentation provides supplemental information that is important to understanding financial and business trends and other factors relati