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NXP Semiconductors Reports Second Quarter 2019 Results

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EINDHOVEN, The Netherlands, July 29, 2019 (GLOBE NEWSWIRE) -- NXP Semiconductors N.V. (NXPI) today reported financial results for the second quarter of 2019, ended June 30, 2019.

“NXP delivered revenue of $2.2 billion during the second quarter. With sales slightly better than the midpoint of our guidance, and good expense control, we successfully delivered improved operating profitability above the high end of our guidance range. Additionally, during the quarter we returned $716 million to our shareholders consistent with our long-term capital return policy. Looking forward, we continue to be optimistic that our product portfolio investments are addressing our customers’ long-term requirements, while in the short-term, the global demand environment has generally not improved,” said Richard Clemmer, NXP Chief Executive Officer.

Key Highlights

  • Revenue was $2.2 billion, down 3 percent year-on-year;

  • GAAP gross margin was 51.9 percent, and GAAP operating margin was 7.1 percent;

  • Non-GAAP gross margin was 53.3 percent, and non-GAAP operating margin was 28.9 percent;

  • Cash flow from operations was $517 million, with net capex investments of $106 million, resulting in non-GAAP free cash flow of $411 million;

  • On May 29, 2019, NXP announced it had entered into a definitive agreement to acquire Marvell’s Wireless Connectivity portfolio in an all-cash asset transaction valued at $1.76 billion.

Summary of Reported Second Quarter 2019 ($ millions, unaudited) (1)

Q2 2019

Q1 2019

Q2 2018

Q - Q

Y - Y

Total Revenue

$

2,217

$

2,094

$

2,290

6%

-3%

GAAP Gross Profit

$

1,151

$

1,072

$

1,180

7%

-2%

Gross Profit Adjustments (i)

$

(30

)

$

(32

)

$

(30

)

Non-GAAP Gross Profit

$

1,181

$

1,104

$

1,210

7%

-2%

GAAP Gross Margin

51.9

%

51.2

%

51.5

%

Non-GAAP Gross Margin

53.3

%

52.7

%

52.8

%

GAAP Operating Income / (Loss)

$

157

$

54

$

137

191%

15%

Operating Income Adjustments (i)

(483

)

(505

)

(481

)

Non-GAAP Operating Income

$

640

$

559

$

618

14%

4%

GAAP Operating Margin

7.1

%

2.6

%

6.0

%

Non-GAAP Operating Margin

28.9

%

26.7

%

27.0

%

Additional Information

Automotive

$

1,031

$

1,036

$

1,143

0%

-10%

Industrial & IoT

$

390

$

368

$

454

6%

-14%

Mobile

$

297

$

241

$

238

23%

25%

Comm. Infra. & Other

$

499

$

449

$

419

11%

19%

Manufacturing Services ("MSA")

$

-

$

-

$

36

NM

NM

DIO

100

113

111

DPO

67

74

90

DSO

32

35

31

Cash Conversion Cycle

65

74

52

Channel Inventory (months)

2.4

2.4

2.4

Financial Leverage (ii)

1.7x

1.7x

0.7x

  1. Additional Information for the Second Quarter 2019:

    1. For an explanation of GAAP to non-GAAP adjustments, please see “Non-GAAP Financial Measures” on page 2 of this release.

    2. Financial leverage, is defined as net debt divided by trailing twelve months adjusted EBITDA.

  • During the second quarter of 2019 NXP repurchased 6.6 million shares for a total cost of $645 million; and paid cash dividends of $71 million.

  • Weighted average number of diluted shares for the three-month period ended June 30, 2019 was 285.1 million.

  • Cash paid for income taxes related to on-going operations was $30 million. Items not related to on-going operations resulted in additional cash payments of $36 million, which was mainly due to the divestment of the Standard Products business.

Guidance for the Third Quarter 2019: ($ millions) (1)

Guidance Range

GAAP

Reconciliation

non-GAAP

Low

Mid

High

Low

Mid

High

Total Revenue

$

2,210

$

2,240

$

2,270

$

-

$

2,210

$

2,240

$

2,270

Q-Q

0

%

1

%

2

%

0

%

1

%

2

%

Y-Y

-10

%

-8

%

-7

%

-10

%

-8

%

-7

%

Gross Profit

$

1,151

$

1,173

$

1,196

$

(29

)

$

1,180

$

1,202

$

1,225

Gross Margin

52.1

%

52.4

%

52.7

%

53.4

%

53.7

%

54.0

%

Operating Income (loss)

$

167

$

180

$

193

$

(485

)

$

652

$

665

$

678

Operating Margin

7.6

%

8.0

%

8.5

%

29.5

%

29.7

%

29.9

%

Financial income (expense)

$

(84

)

$

(84

)

$

(84

)

$

(15

)

$

(69

)

$

(69

)

$

(69

)

Note (1) Additional Information:

  1. GAAP Gross Profit is expected to include Purchase Price Accounting (“PPA”) effects, ($19 million); Stock Based Compensation, ($10 million);

  2. GAAP Operating Income (loss) is expected to include PPA effects, ($378 million); Stock Based Compensation, ($87 million); Merger related costs ($10 million); Restructuring and Other Incidentals, ($10 million);

  3. GAAP Financial Income (expense) is expected to include Other financial expense ($15 million);

  4. Net cash paid for income taxes related to on-going operations is expected to be approximately ($41 million);

  5. Non-controlling interest is expected to be approximately ($10 million);

  6. Weighted average diluted share count is expected to be approximately 284 million.

NXP has based the guidance included in this release on judgments and estimates that management believes are reasonable given its assessment of historical trends and other information reasonably available as of the date of this release. Please note, the guidance included in this release consists of predictions only, and is subject to a wide range of known and unknown risks and uncertainties, many of which are beyond NXP's control. The guidance included in this release should not be regarded as representations by NXP that the estimated results will be achieved. Actual results may vary materially from the guidance we provide today. In relation to the use of non-GAAP financial information see the note regarding "Non-GAAP Financial Measures" below. For the factors, risks, and uncertainties to which judgments, estimates and forward-looking statements generally are subject see the note regarding "Forward-looking Statements." We undertake no obligation to publicly update or revise any forward-looking statements, including the guidance set forth herein, to reflect future events or circumstances.

Non-GAAP Financial Measures

In managing NXP's business on a consolidated basis, management develops an annual operating plan, which is approved by our Board of Directors, using non-GAAP financial measures. In measuring performance against this plan, management considers the actual or potential impacts on these non-GAAP financial measures from actions taken to reduce costs with the goal of increasing our gross margin and operating margin and when assessing appropriate levels of research and development efforts. In addition, management relies upon these non-GAAP financial measures when making decisions about product spending, administrative budgets, and other operating expenses. We believe that these non-GAAP financial measures, when coupled with the GAAP results and the reconciliations to corresponding GAAP financial measures, provide a more complete understanding of the Company’s results of operations and the factors and trends affecting NXP’s business. We believe that they enable investors to perform additional comparisons of our operating results, to assess our liquidity and capital position and to analyze financial performance excluding the effect of expenses unrelated to operations, certain non-cash expenses and share-based compensation expense, which may obscure trends in NXP's underlying performance. This information also enables investors to compare financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management.

These non-GAAP financial measures are provided in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. The presentation of these and other similar items in NXP’s non-GAAP financial results should not be interpreted as implying that these items are non-recurring, infrequent, or unusual. Reconciliations of these non-GAAP measures to the most comparable measures calculated in accordance with GAAP are provided in the financial statements portion of this release in a schedule entitled “Financial Reconciliation of GAAP to non-GAAP Results (unaudited).” Please refer to the NXP Historic Financial Model file found on the Financial Information page of the Investor Relations section of our website at https://investors.nxp.com for additional information related to our rationale for using these non-GAAP financial measures, as well as the impact of these measures on the presentation of NXP's operations.

In addition to providing financial information on a basis consistent with U.S. generally accepted accounting principles (“GAAP”), NXP also provides the following selected financial measures on a non-GAAP basis: (i) Gross profit, (ii) Gross margin, (iii) Research and development, (iv) Selling, general and administrative, (v) Amortization of acquisition-related intangible assets, (vi) Other income, (vii) Operating income (loss), (viii) Operating margin, (ix) Financial Income (expense), (x) adjusted net income, adjusted EBITDA and trailing 12 month adjusted EBITDA, and (xi) free cash flow and free cash flow as a percent of Revenue. The non-GAAP information excludes the amortization of acquisition related intangible assets, the purchase accounting effect on inventory and property, plant and equipment, merger related costs (including integration costs), certain items related to divestitures, share-based compensation expense, restructuring and asset impairment charges, non-cash interest expense on convertible notes, extinguishment of debt, and foreign exchange gains and losses.

Conference Call and Webcast Information

NXP will host a conference call on July 30, 2019 at 8:00 a.m. U.S. Eastern Time (2:00 p.m. Central European Time) to discuss its second quarter 2019 results and provide an outlook for the third quarter of 2019.

Interested parties may join the conference call by dialing 1 – 888 – 603 – 7644 (within the U.S.) or 1 – 484 – 747 - 6631 (outside of the U.S.). The participant pass-code is 6381567. To listen to a webcast of the event, please visit the Investor Relations section of the NXP website at https://investors.nxp.com. The webcast will be recorded and available for replay shortly after the call concludes.

About NXP Semiconductors

NXP Semiconductors N.V. (NXPI) enables secure connections and infrastructure for a smarter world, advancing solutions that make lives easier, better, and safer. As the world leader in secure connectivity solutions for embedded applications, NXP is driving innovation in the secure connected vehicle, end-to-end security & privacy, and smart connected solutions markets. Built on more than 60 years of combined experience and expertise, the company has approximately 30,000 employees in more than 30 countries and posted revenue of $9.41 billion in 2018. Find out more at www.nxp.com.

Forward-looking Statements

This document includes forward-looking statements which include statements regarding NXP’s business strategy, financial condition, results of operations, and market data, as well as any other statements which are not historical facts. By their nature, forward-looking statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. These factors, risks and uncertainties include the following: market demand and semiconductor industry conditions; the ability to successfully introduce new technologies and products; the end-market demand for the goods into which NXP’s products are incorporated; the ability to generate sufficient cash, raise sufficient capital or refinance corporate debt at or before maturity; the ability to meet the combination of corporate debt service, research and development and capital investment requirements; the ability to accurately estimate demand and match manufacturing production capacity accordingly or obtain supplies from third-party producers; the access to production capacity from third-party outsourcing partners; any events that might affect third-party business partners or NXP’s relationship with them; the ability to secure adequate and timely supply of equipment and materials from suppliers; the ability to avoid operational problems and product defects and, if such issues were to arise, to correct them quickly; the ability to form strategic partnerships and joint ventures and to successfully cooperate with alliance partners; the ability to win competitive bid selection processes to develop products for use in customers’ equipment and products; the ability to achieve targeted efficiencies and cost savings; the ability to successfully hire and retain key management and senior product architects; and, the ability to maintain good relationships with our suppliers. In addition, this document contains information concerning the semiconductor industry and NXP’s business generally, which is forward-looking in nature and is based on a variety of assumptions regarding the ways in which the semiconductor industry, NXP’s markets and product areas may develop. NXP has based these assumptions on information currently available, if any one or more of these assumptions turn out to be incorrect, actual results may differ from those predicted. While NXP does not know what impact any such differences may have on its business, if there are such differences, its future results of operations and its financial condition could be materially adversely affected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak to results only as of the date the statements were made. Except for any ongoing obligation to disclose material information as required by the United States federal securities laws, NXP does not have any intention or obligation to publicly update or revise any forward-looking statements after we distribute this document, whether to reflect any future events or circumstances or otherwise. For a discussion of potential risks and uncertainties, please refer to the risk factors listed in our SEC filings. Copies of our SEC filings are available on our Investor Relations website, https://investors.nxp.com or from the SEC website, www.sec.gov.

For further information, please contact:

Investors:

Media:

Jeff Palmer

Jacey Zuniga

jeff.palmer@nxp.com

jacey.zuniga@nxp.com

+1 408 518 5411

+1 512 895 7398


NXP Semiconductors

Table 1: Condensed consolidated statement of operations (unaudited)

($ in millions except share data)

Three Months Ended

June 30, 2019

March 31, 2019

July 1, 2018

Revenue

$

2,217

$

2,094

$

2,290

Cost of revenue

(1,066

)

(1,022

)

(1,110

)

Gross profit

1,151

1,072

1,180

Research and development

(408

)

(415

)

(438

)

Selling, general and administrative

(230

)

(248

)

(242

)

Amortization of acquisition-related intangible assets

(355

)

(357

)

(363

)

Total operating expenses

(993

)

(1,020

)

(1,043

)

Other income (expense)

(1

)

2

-

Operating income (loss)

157

54

137

Financial income (expense):

Extinguishment of debt

(10

)

-

(26

)

Other financial income (expense)

(79

)

(83

)

(45

)

Income (loss) before taxes

68

(29

)

66

Benefit (provision) for income taxes

(21

)

9

(4

)

Results relating to equity-accounted investees

(1

)

4

4

Net income (loss)

46

(16

)

66

Less: Net income (loss) attributable to non-controlling interests

5

5

12

Net income (loss) attributable to stockholders

41

(21

)

54

Earnings per share data:

Net income (loss) per common share attributable to stockholders in $:

Basic

$

0.15

$

(0.07

)

$

0.16

Diluted

$

0.14

$

(0.07

)

$

0.16

Weighted average number of shares of common stock outstanding during the period (in thousands):

Basic

281,241

287,227

344,120

Diluted

285,088

287,227

347,027

NXP Semiconductors

Table 2: Condensed consolidated balance sheet (unaudited)

($ in millions)

As of

June 30, 2019

March 31, 2019

July 1, 2018

Current assets:

Cash and cash equivalents

$

3,030

$

2,192

$

2,981

Accounts receivable, net

780

800

790

Assets held for sale

81

-

-

Inventories, net

1,144

1,241

1,326

Other current assets

396

387

414

Total current assets

5,431

4,620

5,511

Non-current assets:

Other non-current assets

706

699

793

Property, plant and equipment, net

2,397

2,407

2,352

Identified intangible assets, net

3,737

4,094

5,127

Goodwill

8,788

8,852

8,861

Total non-current assets

15,628

16,052

17,133

Total assets

21,059

20,672

22,644

Current liabilities:

Accounts payable

770

815

1,072

Restructuring liabilities-current

53

66

64

Other current liabilities

983

1,264

712

Short-term debt

1,177

1,117

2

Total current liabilities

2,983

3,262

1,850

Non-current liabilities:

Long-term debt

7,361

6,223

5,341

Restructuring liabilities

-

4

9

Deferred tax liabilities

337

390

579

Other non-current liabilities

858

862

976

Total non-current liabilities

8,556

7,479

6,905

Non-controlling interests

195

190

159

Stockholders’ equity

9,325

9,741

13,730

Total equity

9,520

9,931

13,889

Total liabilities and equity

21,059

20,672

22,644

NXP Semiconductors

Table 3: Condensed consolidated statement of cash flows (unaudited)

($ in millions)

Three Months Ended

June 30, 2019

March 31, 2019

July 1, 2018

Cash Flows from operating activities

Net income (loss)

$

46

$

(16

)

$

66

Adjustments to reconcile net income (loss):

Depreciation and amortization

506

502

496

Stock-based compensation

87

86

69

Amortization of discount on debt

11

11

11

Amortization of debt issuance costs

3

3

2

Net (gain) loss on sale of assets

1

-

-

(Gain) loss on extinguishment of debt

10

-

26

Results relating to equity accounted investees

1

(4

)

1

Changes in deferred taxes

(30

)

(63

)

(67

)

Changes in operating assets and liabilities:

(Increase) decrease in receivables and other current assets

31

(42

)

86

(Increase) decrease in inventories

84

38

(76

)

Increase (decrease) in accounts payable and other current liabilities

(218

)

(250

)

(225

)

Decrease (Increase) in other non-current assets

(14

)

20

10

Exchange differences

1

6

(5

)

Other items

(2

)

5

9

Net cash provided by (used for) operating activities

517

296

403

Cash flows from investing activities:

Purchase of identified intangible assets

(23

)

(28

)

(10

)

Capital expenditures on property, plant and equipment

(106

)

(144

)

(129

)

Purchase of interests in businesses, net of cash acquired

-

-

(18

)

Proceeds from sale of interests in businesses, net of cash divested

-

37

32

Purchase of available-for-sale securities

(15

)

(2

)

(7

)

Proceeds from the sale of securities

-

1

-

Net cash provided by (used for) investing activities

(144

)

(136

)

(132

)

Cash flows from financing activities:

Repurchase of long-term debt

(553

)

-

(1,273

)

Principal payments on long-term debt

-

-

(1

)

Proceeds from the issuance of long-term debt

1,750

-

-

Cash paid for debt issuance costs

(23

)

-

-

Dividends paid to common stockholders

(71

)

(73

)

-

Cash proceeds from exercise of stock options

5

32

10

Purchase of treasury shares

(645

)

(715

)

(2

)

Net cash provided by (used for) financing activities

463

(756

)

(1,266

)

Effect of changes in exchange rates on cash positions

2

(1

)

(7

)

Increase (decrease) in cash and cash equivalents

838

(597

)

(1,002

)

Cash and cash equivalents at beginning of period

2,192

2,789

3,983

Cash and cash equivalents at end of period

3,030

2,192

2,981

Net cash paid during the period for:

Interest

78

25

75

Income taxes

66

209

3

NXP Semiconductors

Table 4: Financial Reconciliation of GAAP to non-GAAP Results (unaudited)

($ in millions except share data)

Three Months Ended

June 30, 2019

March 31, 2019

July 1, 2018

Revenue

$

2,217

$

2,094

$

2,290

GAAP Gross profit

$

1,151

$

1,072

$

1,180

PPA effects

(20

)

(17

)

(20

)

Restructuring

-

(4

)

-

Stock Based Compensation

(10

)

(10

)

(8

)

Merger-related costs

-

(1

)

(2

)

Non-GAAP Gross profit

$

1,181

$

1,104

$

1,210

GAAP Gross margin

51.9

%

51.2

%

51.5

%

Non-GAAP Gross margin

53.3

%

52.7

%

52.8

%

GAAP Research and development

$

(408

)

$

(415

)

$

(438

)

Restructuring

(5

)

(11

)

-

Stock based compensation

(34

)

(35

)

(32

)

Merger-related costs

(2

)

(3

)

(2

)

Non-GAAP Research and development

$

(367

)

$

(366

)

$

(404

)

GAAP Selling, general and administrative

$

(230

)

$

(248

)

$

(242

)

PPA effects

(2

)

(1

)

(1

)

Restructuring

-

(10

)

-

Stock based compensation

(43

)

(41

)

(29

)

Merger-related costs

(8

)

(9

)

(21

)

Other incidentals

(3

)

(6

)

(4

)

Non-GAAP Selling, general and administrative

$

(174

)

$

(181

)

$

(187

)

GAAP amortization of acquisition-related intangible assets

$

(355

)

$

(357

)

$

(363

)

PPA effects

(355

)

(357

)

(363

)

Non-GAAP amortization of acquisition-related intangible assets

$

-

$

-

$

-

GAAP Other income (expense)

$

(1

)

$

2

$

-

Restructuring

$

-

$

-

$

1

Other incidentals

(1

)

-

-

Non-GAAP Other income (expense)

$

-

$

2

$

(1

)

GAAP Operating income (loss)

$

157

$

54

$

137

PPA effects

(377

)

(375

)

(384

)

Restructuring

(5

)

(25

)

1

Stock based compensation

(87

)

(86

)

(69

)

Merger-related costs

(10

)

(13

)

(25

)

Other incidentals

(4

)

(6

)

(4

)

Non-GAAP Operating income (loss)

$

640

$

559

$

618

GAAP Operating margin

7.1

%

2.6

%

6.0

%

Non-GAAP Operating margin

28.9

%

26.7

%

27.0

%

GAAP Financial income (expense)

$

(89

)

$

(83

)

$

(71

)

Non-cash interest expense on convertible notes

(11

)

(11

)

(11

)

Foreign exchange gain (loss)

(4

)

(7

)

-

Gain (loss) on extinguishment of long-term debt

(10

)

-

(26

)

Other financial expense

(3

)

(4

)

(3

)

Non-GAAP Financial income (expense)

$

(61

)

$

(61

)

$

(31

)

NXP Semiconductors

Table 5: Adjusted EBITDA and Free Cash Flow (unaudited)

($ in millions)

Three Months Ended

June 30, 2019

March 31, 2019

July 1, 2018

Net Income (loss)

$

46

$

(16

)

$

66

Reconciling items to EBITDA

Financial (income) expense

89

83

71

(Benefit) provision for income taxes

21

(9

)

4

Depreciation

128

124

119

Amortization

378

378

377

EBITDA

$

662

$

560

$

637

Reconciling items to adjusted EBITDA

Results of equity-accounted investees

1

(4

)

(4

)

Restructuring

5

25

(1

)

Stock based compensation

87

86

69

Merger-related costs

10

13

25

Other incidental items

4

6

4

Adjusted EBITDA

$

769

$

686

$

730

Trailing twelve month adjusted EBITDA

$

3,150

$

3,111

$

3,176

($ in millions)

Three Months Ended

June 30, 2019

March 31, 2019

July 1, 2018

Net cash provided by (used for) operating activities

$

517

$

296

$

403

Net capital expenditures on property, plant and equipment

(106

)

(144

)

(129

)

Non-GAAP free cash flow

$

411

$

152

$

274

Non-GAAP free cash flow as a percent of Revenue

19

%

7

%

12

%