Form Factor's CEO Presents At 19th Annual Citi Technology Conference (Transcript)

FormFactor (FORM)

Presentation at 19th Annual Citi Technology Conference

September 6, 2012 8:45 a.m. ET

Executives

Tom St. Dennis - CEO

Mike Ludwig - CFO

Analysts

Presentation

Citi Representative

With us here this morning is FormFactor. From the company is CEO Tom St. Dennis and also CFO Mike Ludwig. We’ve had an exciting event this week. I’m sure you didn’t get a restful Labor Day Weekend. But we’re excited to hear about that. And I think the format this morning will be that Tom will present about a 15-minute presentation. I’ve got a couple of questions, and then I’ll go ahead and allow the audience to also ask questions as well. Tom, welcome.

Tom St. Dennis

Thanks, I appreciate the opportunity. The event that he mentioned was that on Monday of this week we announced that we had signed a definitive agreement with MicroProbe, a private company in the probe card space to acquire them. And a lot of what we have today is to give you some perspective about that, explain where they fit in our product line, and hopefully to get you to see what we think are the outstanding prospects of the combined company and the real opportunities that MicroProbe has currently in their market space.

The two companies are very complementary. There’s really very little product overlap between the two companies. MicroProbe today is focused in the SOC market. This is the highest-growth portion of the overall probe card space. They have been recognized as the number-one supplier in the space by VLSI Research in the last year. Approximately 20% market share on that.

Their growth has been significant. We’ve got a summary slide on that for the last several years, but in 2011 they had another year of real strong growth, over 40%, and they’ve had strong earnings through the last several years.

The product portfolio, as I said, is broad, but their focus area has been in the flip chip area. These are products that are flipped into ball grid array type packages. So it’s the world of CPUs, of mobile application processors, of graphical processors. And that space is growing rapidly with smartphones, tablets, and with continued PC growth. So really very well positioned, and with a great product portfolio.

If you look at revenues over the last four years, you can see strong growth and really outstanding performance in terms of EBITDA and earnings for the company. They’ve been able to be cash flow positive as they’ve gotten into this in the last year, year and a half, funding their business. So a very healthy business overall.

So just the, I think, key takeaways, if you will, for what the two companies together represent. Currently FormFactor does supply a portion of the SOC business with our MEMS technology. This is not an area that overlaps with what MicroProbe has today. The combination of the two put us in a position now to be the leading supplier in that SOC market, across the entire market.

The combination of the two technologies, they’ve been using two-dimensional MEMS technology for a portion of their product portfolio. Complements very well with the MEMS technology that FormFactor has, as kind of a core technology or IP base.

We think that there’s opportunities for us to bring those two technologies together to help MicroProbe move ahead even faster in the space. And there’s a chance for some synergies in our manufacturing area, which will over time help out on the COGS side of the equation. And the nature of the transaction is such that it’s immediately accretive to our overall financial performance. Again, strong EBITDA performance for them, and good cash flows.

Structure on the deal was that it was $116.8 million, a combination of cash and stock, $100 million in cash, $16.8 million of FormFactor stock. It’s a little bit over 3 million shares of FormFactor stock with currently about 50 million shares outstanding.

So if you look at just a perspective of where the combined company sits now against other portions of the semiconductor industry in terms of growth opportunities, on the right is the wafer fab equipment. There’s packaging and assembly. There’s the automated test equipment here. Companies like Teradyne and Advantest.

And then these advanced probe cards that the combined company of MicroProbe and FormFactor will now serve in a leading way is the highest growth opportunity out there based on VLSI, Gartner data. Really, I think, a very compatible, synergistic, efficient combination of these two companies as we get the merger complete.

Just to give you a sense of that growth in the markets and then the growth by the different segments in the market, and also kind of where the position of both companies are. On the left-hand side there, in the upper left, you see that today FormFactor has about 7% of this market, or a relatively insignificant portion of it. MicroProbe, for 2011, was 20% of that market. So, on a combined basis, we’ve got scale and a good footprint in that market.

On the DRAM side, you can see FormFactor here with about 40% of that business. Flash continues to be opportunistic for us. It hasn’t been an area that we’ve made significant investments in. We really are, as I said, opportunistic about taking business in that particular space.

What’s exciting about this combination is that you can see the growth that is forecasted here on the SOC portion of the market. It’s dramatic, it’s driven, again, by the world of mobile devices, mobile-connected devices, tablets, smartphones, and certainly personal computers. And it is forecasted to grow at double digit rates over this period of time, 2011 to 2016.

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