- Revenue of $1,213.5 million
- GAAP and non-GAAP gross margin of 30.8 percent
- GAAP operating margin of 3.6 percent and non-GAAP operating
margin of 7.4 percent
- GAAP diluted loss per share of $0.00 and non-GAAP diluted
earnings per share of $0.12
ON Semiconductor Corporation (Nasdaq: ON) today announced that
2020 second quarter revenue was $1,213.5 million, down
approximately 10 percent compared to 2019 second quarter revenue.
2020 second quarter revenue was down approximately 5 percent as
compared to 2020 first quarter revenue.
"Despite disruption from COVID-19 pandemic, we continue to make
strong progress towards our key strategic initiatives. To achieve
our gross margin target, we have accelerated the pace of
manufacturing optimization. In addition, we have made outstanding
progress in ramp of our 300mm manufacturing processes at East
Fishkill fab with our 300mm wafer production starting in the second
quarter, significantly ahead of schedule. With expected decline in
COVID-19 related costs and ongoing recovery in global macroeconomic
activity, we expect to see sustained improvement in our margins,”
said Keith Jackson, president and CEO of ON Semiconductor. “Our
design win pipeline continues to expand rapidly with multiple
strategic wins for our power, analog and sensor products in
automotive, industrial, and cloud-power applications.
"We are beginning to see moderate recovery in demand across most
end-markets and geographies, and we expect this recovery to
continue in near term driven by improving global macroeconomic
activity."
Second Quarter Results (GAAP)
(in millions, except per share
data)
2Q 2020
2Q 2019
Year-Over- Year Change
1Q 2020
Sequential Change
Revenue
$1,213.5
$1,347.7
(10
)%
$1,277.9
(5
)%
Gross Profit
$374.3
$499.0
(25
)%
$402.7
(7
)%
Operating Income
$43.1
$158.3
(73
)%
$18.6
132
%
Net Income (Loss) Attributable to ON
Semiconductor Corporation
($1.4
)
$101.8
(101
)%
($14.0
)
90
%
Diluted Earnings (Loss) Per Share
$0.00
$0.24
(100
)%
($0.03
)
100
%
Diluted Shares Outstanding
410.1
417.7
(2
)%
410.6
—
%
Second Quarter Results
(Non-GAAP)
(in millions, except per share
data)
2Q 2020
2Q 2019
Year-Over- Year Change
1Q 2020
Sequential Change
Revenue
$1,213.5
$1,347.7
(10)
%
$1,277.9
(5)
%
Gross Profit
$374.3
$499.6
(25)
%
$402.7
(7)
%
Operating Income
$89.7
$211.4
(58)
%
$84.0
7
%
Net Income Attributable to ON
Semiconductor Corporation
$50.2
$175.0
(71)
%
$42.8
17
%
Diluted Earnings Per Share
$0.12
$0.42
(71)
%
$0.10
20
%
Diluted Shares Outstanding
411.0
413.8
(1)
%
412.8
—
%
Second Quarter Key Cash Flow
Items
(in millions)
2Q 2020
2Q 2019
Year-Over- Year Change
1Q 2020
Sequential Change
Cash Taxes, net of indemnification
$5.6
$12.9
(57)
%
$9.9
(43)
%
Operating Cash Flow
$154.5
$222.4
(31)
%
$166.0
(7)
%
Free Cash Flow
$81.2
$68.9
18
%
$33.7
141
%
THIRD QUARTER 2020 OUTLOOK
Based on product booking trends, backlog levels, and estimated
turns levels, the Company anticipates 2020 third quarter revenue to
be approximately $1,200 million to $1,330 million.
GAAP and Non GAAP gross margin for third quarter of 2020 is
expected to be between 32.0 percent and 34.0 percent.
The 2020 third quarter outlook also includes anticipated
stock-based compensation expense of approximately $17 million to
$19 million. Net cash paid for income taxes is expected to be $17
million to $22 million.
The following table outlines ON Semiconductor's projected third
quarter of 2020 GAAP and non-GAAP outlook.
Total ON Semiconductor GAAP
Special Items ***
Total ON Semiconductor
Non-GAAP****
Revenue
$1,200 to $1,330 million
$1,200 to $1,330 million
Gross Margin
32.0% to 34.0%
32.0% to 34.0%
Operating Expenses
$307 to $327 million
$30 to $34 million
$277 to $293 million
Other Income and Expense (including
interest expense), net
$42 to $45 million
$9 to 10 million
$33 to $35 million
Diluted Shares Outstanding **
416 million
5 million
411 million
*
Convertible Notes, Non-cash Interest
Expense is calculated pursuant to FASB's Accounting Standards
Codification Topic 470: Debt.
**
Diluted shares outstanding can vary as a
result of, among other things, the actual exercise of options or
vesting of restricted stock units, the incremental dilutive shares
from the Company's convertible senior subordinated notes, and the
repurchase or the issuance of stock or convertible notes or the
sale of treasury shares. In periods in which the quarterly average
stock price per share exceeds $18.50, the non-GAAP diluted share
count and non-GAAP net income per share include the impact of the
Company’s hedge transactions issued concurrently with our 1.00%
convertible notes. As such, at an average stock price per share
between $18.50 and $25.96, the hedging activity offsets the
potentially dilutive effect of the 1.00% convertible notes. In
periods when the quarterly average stock price per share exceeds
$20.72, the non-GAAP diluted share count and non-GAAP net income
per share include the anti-dilutive impact of the Company’s hedge
transactions issued concurrently with the 1.625% convertible notes.
At an average stock price per share between $20.72 and $30.70, the
hedging activity offsets the potentially dilutive effect of the
1.625% convertible notes. Both GAAP and non-GAAP diluted share
counts are based on the Company’s stock price as of July 3,
2020.
***
Special items may include: amortization of
acquisition-related intangibles; expensing of appraised inventory
fair market value step-up; purchased in-process research and
development expenses; restructuring, asset impairments and other,
net; goodwill impairment charges; gains and losses on debt
prepayment; non-cash interest expense; actuarial (gains) losses on
pension plans and other pension benefits; and certain other special
items, as necessary. These special items are out of our control and
could change significantly from period to period. As a result, we
are not able to reasonably estimate and separately present the
individual impact or probable significance of these special items,
and we are similarly unable to provide a reconciliation of the
non-GAAP measures. The reconciliation that is unavailable would
include a forward-looking income statement, balance sheet and
statement of cash flows in accordance with GAAP. For this reason,
we use a projected range of the aggregate amount of special items
in order to calculate our projected non-GAAP operating expense
outlook.
****
We believe these non-GAAP measures provide
important supplemental information to investors. We use these
measures, together with GAAP measures, for internal managerial
purposes and as a means to evaluate period-to-period comparisons.
However, we do not, and you should not, rely on non-GAAP financial
measures alone as measures of our performance. We believe that
non-GAAP financial measures reflect an additional way of viewing
aspects of our operations that, when taken together with GAAP
results and the reconciliations to corresponding GAAP financial
measures that we also provide in our releases, provide a more
complete understanding of factors and trends affecting our
business. Because non-GAAP financial measures are not standardized,
it may not be possible to compare these financial measures with
other companies' non-GAAP financial measures, even if they have
similar names.
TELECONFERENCE
ON Semiconductor will host a conference call for the financial
community at 9 a.m. Eastern Daylight Time (EDT) on August 10, 2020
to discuss this announcement and ON Semiconductor’s 2020 second
quarter results. The Company will also provide a real-time audio
webcast of the teleconference on the Investor Relations page of its
website at http://www.onsemi.com. The
webcast replay will be available at this site approximately one
hour following the live broadcast and will continue to be available
for approximately 30 days following the conference call. Investors
and interested parties can also access the conference call via
telephone by dialing (877) 356-3762 (U.S./Canada) or (262) 558-6155
(International). In order to join this conference call, you will be
required to provide the Conference ID Number, which is 6089248.
About ON Semiconductor
ON Semiconductor (Nasdaq: ON) is driving energy efficient
innovations, empowering customers to reduce global energy use. The
Company is a leading supplier of semiconductor-based solutions,
offering a comprehensive portfolio of energy efficient power
management, analog, sensors, logic, timing, connectivity, discrete,
SoC and custom devices. The Company’s products help engineers solve
their unique design challenges in automotive, communications,
computing, consumer, industrial, medical, aerospace and defense
applications. ON Semiconductor operates a responsive, reliable,
world-class supply chain and quality program, a robust compliance
and ethics program, and a network of manufacturing facilities,
sales offices and design centers in key markets throughout North
America, Europe and the Asia Pacific regions. For more information,
visit http://www.onsemi.com.
ON Semiconductor and the ON Semiconductor logo are registered
trademarks of Semiconductor Components Industries, LLC. All other
brand and product names appearing in this document are registered
trademarks or trademarks of their respective holders. Although the
Company references its website in this news release, information on
the website is not to be incorporated herein.
This document contains “forward-looking statements,” as that
term is defined in Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical facts,
included or incorporated in this document could be deemed
forward-looking statements, particularly statements about the
future financial performance of ON Semiconductor, including
financial guidance for the year ending December 31, 2020.
Forward-looking statements are often characterized by the use of
words such as “believes,” “estimates,” “expects,” “projects,”
“may,” “will,” “intends,” “plans” or “anticipates” or by
discussions of strategy, plans or intentions. All forward-looking
statements in this document are made based on our current
expectations, forecasts, estimates and assumptions and involve
risks, uncertainties and other factors that could cause results or
events to differ materially from those expressed in the
forward-looking statements. Among these factors are our revenue and
operating performance; economic conditions and markets (including
current financial conditions); risks related to our ability to meet
our assumptions regarding outlook for revenue and gross margin as a
percentage of revenue; effects of exchange rate fluctuations; the
cyclical nature of the semiconductor industry; changes in demand
for our products; changes in inventories at our customers and
distributors; risks associated with restructuring actions and
workforce reductions; technological and product development risks;
enforcement and protection of our intellectual property rights and
related risks; risks related to the security of our information
systems and secured network; availability of raw materials,
electricity, gas, water and other supply chain uncertainties; our
ability to effectively shift production to other facilities when
required in order to maintain supply continuity for our customers;
variable demand and the aggressive pricing environment for
semiconductor products; our ability to successfully manufacture in
increasing volumes on a cost-effective basis and with acceptable
quality for our current products; risks associated with our
acquisitions and dispositions generally, including our ability to
realize the anticipated benefits of our acquisitions and
dispositions, including our acquisition of Quantenna; risks that
acquisitions or dispositions may disrupt our current plans and
operations, (including the risk of unexpected costs, charges or
expenses resulting from acquisitions or dispositions and
difficulties arising from integrating and consolidating acquired
businesses, our timely filing of financial information with the
Securities and Exchange Commission (“SEC”) for acquired businesses
and our ability to accurately predict the future financial
performance of acquired businesses); competitor actions, including
the adverse impact of competitor product announcements; pricing and
gross profit pressures; risks associated with the addition of
Huawei Technologies Co., Ltd. and its non-U.S. affiliates and
subsidiaries, and other customers, to the U.S. Department of
Commerce, Bureau of Industry Security Entity List; loss of key
customers; risks associated with restructuring actions and
workforce reductions; order cancellations or reduced bookings;
changes in manufacturing yields; control of costs and expenses and
realization of cost savings and synergies from restructurings; the
costs to defend against or pursue litigation and the potential
significant costs associated with adverse litigation outcomes;
risks associated with decisions to expend cash reserves for various
uses in accordance with our capital allocation policy such as debt
prepayment, stock repurchases or acquisitions rather than to retain
such cash for future needs; risks associated with our substantial
leverage and restrictive covenants in our debt agreements that may
be in place from time to time; risks associated with our worldwide
operations, including changes in trade policies, foreign employment
and labor matters associated with unions and collective bargaining
arrangements, continuing political unrest in markets in which we do
significant business, including Hong Kong, as well as man-made
and/or natural disasters and public health and safety outbreaks
affecting our operations or financial results, including as a
result of the outbreak of the novel coronavirus disease 2019
(COVID-19) pandemic; the threat or occurrence of international
armed conflict and terrorist activities both in the United States
and internationally; risks of changes in U.S. or international tax
rates or legislation; risks and costs associated with increased and
new regulation of corporate governance and disclosure standards;
risks related to new legal requirements; and risks and expenses
involving environmental or other governmental regulation.
Additional factors that could affect our future results or events
are described under Part I, Item 1A “Risk Factors” in our 2019
Annual Report on Form 10-K filed with the SEC on February 19, 2020
(our "2019 Form 10-K") and from time to time in our other SEC
reports. Readers are cautioned not to place undue reliance on
forward-looking statements. We assume no obligation to update such
information, except as may be required by law. You should carefully
consider the trends, risks and uncertainties described in this
document, our 2019 Form 10-K and other reports filed with or
furnished to the SEC before making any investment decision with
respect to our securities. If any of these trends, risks or
uncertainties actually occurs or continues, our business, financial
condition or operating results could be materially adversely
affected, the trading prices of our securities could decline, and
you could lose all or part of your investment. All forward-looking
statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this cautionary
statement.
ON SEMICONDUCTOR
CORPORATION
UNAUDITED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in millions, except per share
data)
Quarters Ended
Six Months Ended
July 3, 2020
April 3, 2020
June 28, 2019
July 3, 2020
June 28, 2019
Revenue
$
1,213.5
$
1,277.9
$
1,347.7
$
2,491.4
$
2,734.3
Cost of revenue (exclusive of amortization
shown below)
839.2
875.2
848.7
1,714.4
1,721.6
Gross profit
374.3
402.7
499.0
777.0
1,012.7
Gross margin
30.8
%
31.5
%
37.0
%
31.2
%
37.0
%
Operating expenses:
Research and development
156.1
171.0
147.0
327.1
298.8
Selling and marketing
65.6
76.8
73.6
142.4
150.7
General and administrative
62.9
71.2
74.1
134.1
147.0
Amortization of acquisition-related
intangible assets
29.1
32.3
27.5
61.4
53.2
Restructuring, asset impairments and other
charges, net
16.2
32.8
18.1
49.0
23.7
Intangible asset impairment
1.3
—
0.4
1.3
1.6
Total operating expenses
331.2
384.1
340.7
715.3
675.0
Operating income
43.1
18.6
158.3
61.7
337.7
Other income (expense), net:
Interest expense
(41.9
)
(42.5
)
(33.7
)
(84.4
)
(65.4
)
Interest income
1.5
1.9
3.0
3.4
5.5
Loss on debt refinancing and
prepayment
—
—
(0.4
)
—
(0.4
)
Other income (expense)
(2.8
)
0.1
(1.0
)
(2.7
)
1.1
Other income (expense), net
(43.2
)
(40.5
)
(32.1
)
(83.7
)
(59.2
)
Income (loss) before income taxes
(0.1
)
(21.9
)
126.2
(22.0
)
278.5
Income tax (provision) benefit
(0.8
)
8.2
(23.3
)
7.4
(61.5
)
Net income (loss)
(0.9
)
(13.7
)
102.9
(14.6
)
217.0
Less: Net income attributable to
non-controlling interest
(0.5
)
(0.3
)
(1.1
)
(0.8
)
(1.1
)
Net income (loss) attributable to ON
Semiconductor Corporation
$
(1.4
)
$
(14.0
)
$
101.8
$
(15.4
)
$
215.9
Net income (loss) per common share
attributable to ON Semiconductor Corporation:
Basic
$
—
$
(0.03
)
$
0.25
$
(0.04
)
$
0.52
Diluted
$
—
$
(0.03
)
$
0.24
$
(0.04
)
$
0.52
Weighted average common shares
outstanding:
Basic
410.1
410.6
411.9
410.3
411.3
Diluted
410.1
410.6
417.7
410.3
417.8
ON SEMICONDUCTOR
CORPORATION
UNAUDITED CONSOLIDATED BALANCE
SHEETS
(in millions)
July 3, 2020
April 3, 2020
December 31, 2019
Assets
Cash and cash equivalents
$
2,060.4
$
1,982.0
$
894.2
Receivables, net
667.4
652.0
705.0
Inventories
1,285.4
1,251.9
1,232.4
Other current assets
131.2
146.4
188.4
Total current assets
4,144.4
4,032.3
3,020.0
Property, plant and equipment, net
2,566.5
2,579.9
2,591.6
Goodwill
1,663.4
1,663.4
1,659.2
Intangible assets, net
527.8
558.2
590.5
Deferred tax assets
325.2
331.0
307.8
Other assets
300.5
256.0
256.4
Total assets
$
9,527.8
9,420.8
$
8,425.5
Liabilities, Non-Controlling Interest
and Stockholders’ Equity
Accounts payable
$
522.9
503.9
$
543.6
Accrued expenses and other current
liabilities
546.1
542.6
538.8
Current portion of long-term debt
695.6
689.6
736.0
Total current liabilities
1,764.6
1,736.1
1,818.4
Long-term debt
4,044.8
4,043.0
2,876.5
Deferred tax liabilities
61.5
60.8
60.2
Other long-term liabilities
397.6
343.3
346.3
Total liabilities
6,268.5
6,183.2
5,101.4
ON Semiconductor Corporation stockholders’
equity:
Common stock
5.7
5.7
5.7
Additional paid-in capital
3,854.6
3,830.3
3,809.5
Accumulated other comprehensive loss
(67.6
)
(66.5
)
(54.3
)
Accumulated earnings
1,175.9
1,177.3
1,191.3
Less: Treasury stock, at cost
(1,732.5
)
(1,731.9
)
(1,650.5
)
Total ON Semiconductor Corporation
stockholders’ equity
3,236.1
3,214.9
3,301.7
Non-controlling interest
23.2
22.7
22.4
Total stockholders' equity
3,259.3
3,237.6
3,324.1
Total liabilities and stockholders'
equity
$
9,527.8
9,420.8
$
8,425.5
ON SEMICONDUCTOR
CORPORATION
UNAUDITED RECONCILIATION OF
NET INCOME (LOSS) TO ADJUSTED EBITDA AND
NET CASH PROVIDED BY OPERATING
ACTIVITIES
(in millions)
Quarters Ended
Six Months Ended
July 3, 2020
April 3, 2020
June 28, 2019
July 3, 2020
June 28, 2019
Net income (loss)
$
(0.9
)
$
(13.7
)
$
102.9
$
(14.6
)
$
217.0
Adjusted for:
Restructuring, asset impairments and
other, net
16.2
32.8
18.1
49.0
23.7
Intangible asset impairment
1.3
—
0.4
1.3
1.6
Interest expense
41.9
42.5
33.7
84.4
65.4
Interest income
(1.5
)
(1.9
)
(3.0
)
(3.4
)
(5.5
)
Loss on debt refinancing and
prepayment
—
—
0.4
—
0.4
Income tax provision (benefit)
0.8
(8.2
)
23.3
(7.4
)
61.5
Net income attributable to non-controlling
interest
(0.5
)
(0.3
)
(1.1
)
(0.8
)
(1.1
)
Depreciation and amortization
153.9
161.2
144.0
315.1
279.8
Amortization of fair market value step-up
of inventory
—
—
0.6
—
0.6
Third party acquisition and divestiture
related costs
—
0.3
6.5
0.3
9.8
Indemnification gain
—
—
—
—
(4.9
)
Adjusted EBITDA
211.2
212.7
325.8
423.9
648.3
Increase (decrease):
Restructuring, asset impairments and
other, net
(16.2
)
(32.8
)
(18.1
)
(49.0
)
(23.7
)
Interest expense
(41.9
)
(42.5
)
(33.7
)
(84.4
)
(65.4
)
Interest income
1.5
1.9
3.0
3.4
5.5
Income tax (provision) benefit
(0.8
)
8.2
(23.3
)
7.4
(61.5
)
Net income attributable to non-controlling
interest
0.5
0.3
1.1
0.8
1.1
Amortization of fair market value step-up
of inventory
—
—
(0.6
)
—
(0.6
)
Third party acquisition and divestiture
related costs
—
(0.3
)
(6.5
)
(0.3
)
(9.8
)
Indemnification gain
—
—
—
—
4.9
(Gain) loss on sale or disposal of fixed
assets
(3.1
)
0.2
—
(2.9
)
0.4
Amortization of debt discount and issuance
costs
3.0
3.0
3.4
6.0
6.6
Share-based compensation expense
18.0
15.7
27.3
33.7
47.0
Non-cash interest on convertible notes
9.8
9.5
9.3
19.3
18.4
Non-cash asset impairment charges
5.8
1.4
—
7.2
—
Change in deferred tax balances
6.7
(19.0
)
3.3
(12.3
)
32.3
Other
1.8
—
5.8
1.8
1.5
Changes in assets and liabilities
(41.8
)
7.7
(74.4
)
(34.1
)
(244.2
)
Net cash provided by operating
activities
$
154.5
$
166.0
$
222.4
320.5
$
360.8
Cash flows from investing activities:
Purchase of property, plant and
equipment
$
(73.3
)
$
(132.3
)
$
(153.5
)
$
(205.6
)
$
(310.5
)
Proceeds from sale of property, plant and
equipment
0.9
—
1.4
0.9
1.4
Deposits utilized (made) for purchase of
property, plant and equipment
(1.7
)
2.2
9.8
0.5
(0.3
)
Purchase of business, net of cash
acquired
—
(4.5
)
(867.0
)
(4.5
)
(867.0
)
Settlement of purchase price from previous
acquisition
—
26.0
—
26.0
—
Purchase of license and deposit made for
manufacturing facility
—
—
(100.0
)
—
(100.0
)
Release of escrow related to
divestiture
—
—
5.0
—
5.0
Net cash used in investing activities
$
(74.1
)
$
(108.6
)
$
(1,104.3
)
(182.7
)
$
(1,271.4
)
Cash flows from financing activities:
Proceeds for the issuance of common stock
under the employee stock purchase plan
3.9
7.5
$
6.4
$
11.4
$
13.8
Proceeds from exercise of stock
options
—
—
0.4
—
0.9
Payment of tax withholding for restricted
stock units
(0.6
)
(16.0
)
(1.1
)
(16.6
)
(27.2
)
Repurchase of common stock
—
(65.4
)
(50.8
)
(65.4
)
(125.8
)
Borrowings under debt agreements
—
1,165.0
900.0
1,165.0
904.3
Payment of debt issuance and other
financing costs
—
—
(4.7
)
—
(4.7
)
Repayment of long-term debt
(4.3
)
(56.0
)
(26.4
)
(60.3
)
(38.6
)
Acquisition related payments
(0.6
)
(4.9
)
—
(5.5
)
—
Payment of finance lease obligations
—
—
(0.2
)
—
(0.4
)
Net cash provided by (used in) financing
activities
$
(1.6
)
$
1,030.2
$
823.6
1,028.6
$
722.3
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(0.1
)
0.2
0.3
0.1
0.3
Net increase (decrease) in cash, cash
equivalents and restricted cash
$
78.7
$
1,087.8
$
(58.0
)
1,166.5
$
(188.0
)
Cash, cash equivalents and restricted
cash, beginning of period
1,982.0
894.2
957.1
894.2
1,087.1
Cash, cash equivalents and restricted
cash, end of period
$
2,060.7
$
1,982.0
$
899.1
2,060.7
$
899.1
ON SEMICONDUCTOR
CORPORATION
RECONCILIATION OF GAAP VERSUS
NON-GAAP DISCLOSURES
(in millions, except per share
and percentage data)
Quarters Ended
Six Months Ended
July 3, 2020
April 3, 2020
June 28, 2019
July 3, 2020
June 28, 2019
Reconciliation of GAAP gross profit to non-GAAP gross
profit:
GAAP gross profit
$
374.3
$
402.7
$
499.0
$
777.0
$
1,012.7
Special items:
a)
Amortization of fair market value step-up
of inventory
—
—
0.6
—
0.6
Total special items
—
—
0.6
—
0.6
Non-GAAP gross profit
$
374.3
$
402.7
$
499.6
$
777.0
$
1,013.3
Reconciliation of GAAP gross margin to non-GAAP gross
margin:
GAAP gross margin
30.8
%
31.5
%
37.0
%
31.2
%
37.0
%
Special items:
a)
Amortization of fair market value step-up
of inventory
—
%
—
%
0.1
%
—
%
—
%
Total special items
—
%
—
%
0.1
%
—
%
0.1
%
Non-GAAP gross margin
30.8
%
31.5
%
37.1
%
31.2
%
37.1
%
Reconciliation of GAAP operating expenses to non-GAAP operating
expenses:
GAAP operating expenses
$
331.2
$
384.1
$
340.7
$
715.3
$
675.0
Special items:
a)
Amortization of acquisition-related
intangible assets
(29.1
)
(32.3
)
(27.5
)
(61.4
)
(53.2
)
b)
Restructuring, asset impairments and
other, net
(16.2
)
(32.8
)
(18.1
)
(49.0
)
(23.7
)
c)
Intangible asset impairment
(1.3
)
—
(0.4
)
(1.3
)
(1.6
)
d)
Third party acquisition and divestiture
related costs
—
(0.3
)
(6.5
)
(0.3
)
(9.8
)
Total special items
(46.6
)
(65.4
)
(52.5
)
(112.0
)
(88.3
)
Non-GAAP operating expenses
$
284.6
$
318.7
$
288.2
$
603.3
$
586.7
Reconciliation of GAAP operating income to non-GAAP operating
income:
GAAP operating income
$
43.1
$
18.6
$
158.3
$
61.7
$
337.7
Special items:
a)
Amortization of fair market value step-up
of inventory
—
—
0.6
—
0.6
b)
Amortization of acquisition-related
intangible assets
29.1
32.3
27.5
61.4
53.2
c)
Restructuring, asset impairments and
other, net
16.2
32.8
18.1
49.0
23.7
d)
Intangible asset impairment
1.3
—
0.4
1.3
1.6
e)
Third party acquisition and divestiture
related costs
—
0.3
6.5
0.3
9.8
Total special items
46.6
65.4
53.1
112.0
88.9
Non-GAAP operating income
$
89.7
$
84.0
$
211.4
$
173.7
$
426.6
Reconciliation of GAAP operating margin to non-GAAP operating
margin (operating income / revenue):
GAAP operating margin
3.6
%
1.5
%
11.7
%
2.5
%
12.4
%
Special items:
a)
Amortization of fair market value step-up
of inventory
—
%
—
%
0.1
%
—
%
—
%
b)
Amortization of acquisition-related
intangible assets
2.4
%
2.5
%
2.0
%
2.5
%
1.9
%
c)
Restructuring, asset impairments and
other, net
1.3
%
2.6
%
1.3
%
2.0
%
0.9
%
d)
Intangible asset impairment
0.1
%
—
%
—
%
0.1
%
0.1
%
e)
Third party acquisition and divestiture
related costs
—
%
—
%
0.5
%
—
%
0.4
%
Total special items
3.8
%
5.1
%
4.0
%
4.5
%
3.2
%
Non-GAAP operating margin
7.4
%
6.6
%
15.7
%
7.0
%
15.6
%
Reconciliation of GAAP income (loss) before income taxes to
non-GAAP income before income taxes:
GAAP income (loss) before income taxes
$
(0.1
)
$
(21.9
)
$
126.2
$
(22.0
)
$
278.5
Special items:
a)
Amortization of fair market value step-up
of inventory
—
—
0.6
—
0.6
b)
Amortization of acquisition-related
intangible assets
29.1
32.3
27.5
61.4
53.2
c)
Restructuring, asset impairments and
other, net
16.2
32.8
18.1
49.0
23.7
d)
Intangible asset impairment
1.3
—
0.4
1.3
1.6
e)
Third party acquisition and divestiture
related costs
—
0.3
6.5
0.3
9.8
f)
Loss on debt refinancing and
prepayment
—
—
0.4
—
0.4
g)
Non-cash interest on convertible notes
9.8
9.5
9.3
19.3
18.4
h)
Indemnification gain
—
—
—
—
(4.9
)
Total special items
56.4
74.9
62.8
131.3
102.8
Non-GAAP income before income taxes
$
56.3
$
53.0
$
189.0
$
109.3
$
381.3
Reconciliation of GAAP net income (loss) attributable to ON
Semiconductor Corporation to non-GAAP net income attributable to ON
Semiconductor Corporation:
GAAP net income (loss) attributable to ON Semiconductor Corporation
$
(1.4
)
$
(14.0
)
$
101.8
$
(15.4
)
$
215.9
Special items:
a)
Amortization of fair market value step-up
of inventory
—
—
0.6
—
0.6
b)
Amortization of acquisition-related
intangible assets
29.1
32.3
27.5
61.4
53.2
c)
Restructuring, asset impairments and
other, net
16.2
32.8
18.1
49.0
23.7
d)
Intangible asset impairment
1.3
—
0.4
1.3
1.6
e)
Third party acquisition and divestiture
related costs
—
0.3
6.5
0.3
9.8
f)
Loss on debt refinancing and
prepayment
—
—
0.4
—
0.4
g)
Non-cash interest on convertible notes
9.8
9.5
9.3
19.3
18.4
h)
Indemnification gain
—
—
—
—
(4.9
)
i)
Adjustment of income taxes
(4.8
)
(18.1
)
10.4
(22.9
)
33.4
Total special items
51.6
56.8
73.2
108.4
136.2
Non-GAAP net income attributable to ON Semiconductor Corporation
$
50.2
$
42.8
$
175.0
$
93.0
$
352.1
Adjustment of income taxes:
Tax adjustment for special items (1)
$
(11.8
)
$
(15.7
)
$
(13.2
)
$
(27.6
)
$
(21.6
)
Other non-GAAP tax adjustment (2)
7.0
(2.4
)
20.0
4.7
51.0
Tax indemnified by third parties
—
—
3.6
—
4.0
Total adjustment of income taxes
$
(4.8
)
$
(18.1
)
$
10.4
$
(22.9
)
$
33.4
Reconciliation of GAAP diluted shares outstanding to non-GAAP
diluted shares outstanding:
GAAP diluted shares outstanding
410.1
410.6
417.7
410.3
417.8
Special items:
a)
Less: dilutive shares attributable to
convertible notes
—
—
(3.9
)
—
(3.9
)
b)
Add: dilutive shares attributable to
share-based awards
0.9
2.2
—
1.6
—
Total special items
0.9
2.2
(3.9
)
1.6
(3.9
)
Non-GAAP diluted shares outstanding
411.0
412.8
413.8
411.9
413.9
Non-GAAP diluted earnings per share:
Non-GAAP net income attributable to ON Semiconductor Corporation
$
50.2
$
42.8
$
175.0
$
93.0
$
352.1
Non-GAAP diluted shares outstanding
411.0
412.8
413.8
411.9
413.9
Non-GAAP diluted earnings per share
$
0.12
$
0.10
$
0.42
$
0.23
$
0.85
Reconciliation of net cash provided by operating activities to
free cash flow:
Net cash provided by operating activities
$
154.5
$
166.0
$
222.4
$
320.5
$
360.8
Special items:
a)
Purchase of property, plant and
equipment
(73.3
)
(132.3
)
(153.5
)
(205.6
)
(310.5
)
Total special items
(73.3
)
(132.3
)
(153.5
)
(205.6
)
(310.5
)
Free cash flow
$
81.2
$
33.7
$
68.9
$
114.9
$
50.3
(1)
Tax impact of non-GAAP special items (a-h)
is calculated using the federal statutory rate of 21% for all
periods presented.
(2)
The income tax adjustment primarily
represents the use of the net operating loss, non-cash impact of
not asserting indefinite reinvestment on earnings of our foreign
subsidiaries, deferred tax expense not affecting taxes payable, and
non-cash expense (benefit) related to uncertain tax positions.
Certain of the amounts in the above tables may not total due to
rounding of individual amounts.
Details of the share-based compensation expense related to
restricted stock units, stock grant awards and employee stock
purchase plan is provided below:
Quarters Ended
Six Months Ended
July 3, 2020
April 3, 2020
June 28, 2019
July 3, 2020
June 28, 2019
Cost of revenue
$
2.8
$
2.5
$
3.5
$
5.3
$
5.4
Research and development
4.4
4.1
5.4
8.5
9.0
Selling and marketing
3.1
2.9
4.6
6.1
8.4
General and administrative
7.7
6.2
13.8
13.8
24.2
Total share-based compensation expense
$
18.0
$
15.7
$
27.3
$
33.7
$
47.0
NON-GAAP MEASURES
To supplement the consolidated financial results prepared in
accordance with GAAP, ON Semiconductor uses certain non-GAAP
measures, which are adjusted from the most directly comparable GAAP
measures to exclude items related to the amortization of intangible
assets, amortization of acquisition-related intangibles, expensing
of appraised inventory fair market value step-up, inventory
valuation adjustments, purchased in-process research and
development expenses, restructuring, asset impairments and other,
net, goodwill impairment charges, gains and losses on debt
prepayment, non-cash interest expense, actuarial (gains) losses on
pension plans and other pension benefits, third party acquisition
and divestiture related costs, tax impact of these items and
certain other non-recurring items, as necessary. Management does
not consider the effects of these items in evaluating the core
operational activities of ON Semiconductor. Management uses these
non-GAAP measures internally to make strategic decisions, forecast
future results and evaluate ON Semiconductor’s current performance.
In addition, the Company believes that most analysts covering ON
Semiconductor use the non-GAAP measures to evaluate ON
Semiconductor's performance. Given management’s and other relevant
use of these non-GAAP measures, ON Semiconductor believes these
measures are important to investors in understanding ON
Semiconductor’s current and future operating results as seen
through the eyes of management. In addition, management believes
these non-GAAP measures are useful to investors in enabling them to
better assess changes in ON Semiconductor’s core business across
different time periods. These non-GAAP measures are not prepared in
accordance with, and should not be considered alternatives or
necessarily superior to, GAAP financial data and may be different
from non-GAAP measures used by other companies. Because non-GAAP
financial measures are not standardized, it may not be possible to
compare these financial measures with other companies’ non-GAAP
financial measures, even if they have similar names.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that represents
net income before interest expense, interest income, provision for
income taxes, depreciation and amortization expense and special
items. We use the adjusted EBITDA measure for internal managerial
evaluation purposes, as a means to evaluate period-to-period
comparisons and as a performance metric for the vesting and release
of certain of our performance-based equity awards. SEC Regulation G
and other federal securities laws regulate the use of financial
measures that are not prepared in accordance with generally
accepted accounting principles. We believe this measure provides
important supplemental information to investors. However, we do
not, and you should not, rely on non-GAAP financial measures alone
as measures of our performance.
Non-GAAP Revenue
The use of non-GAAP revenue allows management to evaluate, among
other things, the revenue from the Company’s core businesses and
trends across different reporting periods on a consistent basis,
independent of special items. In addition, non-GAAP revenue is an
important component of management’s internal performance
measurement and incentive and reward process as it is used to
assess the current and historical financial results of the business
and for strategic decision making, preparing budgets, obtaining
targets and forecasting future results. Management presents this
non-GAAP financial measure to enable investors and analysts to
evaluate the Company's revenue generation performance relative to
the direct costs of operations of ON Semiconductor’s core
businesses.
Non-GAAP Gross Profit and Gross Margin
The use of non-GAAP gross profit and gross margin allows
management to evaluate, among other things, the gross margin and
gross profit of the Company’s core businesses and trends across
different reporting periods on a consistent basis, independent of
non-cash items including, generally speaking, expensing of
appraised inventory fair market value step-up and the impact from
the change in revenue recognition on distributor sales. In
addition, it is an important component of management’s internal
performance measurement and incentive and reward process as it is
used to assess the current and historical financial results of the
business and for strategic decision making, preparing budgets,
obtaining targets and forecasting future results. Management
presents this non-GAAP financial measure to enable investors and
analysts to evaluate our revenue generation performance relative to
the direct costs of revenue of ON Semiconductor’s core
businesses.
Non-GAAP Operating Income and Operating Margin
The use of non-GAAP operating income and operating margin allows
management to evaluate, among other things, the operating margin
and operating income of the Company’s core businesses and trends
across different reporting periods on a consistent basis,
independent of non-cash items including, generally speaking,
expensing of appraised inventory fair market value step-up, the
impact from the change in revenue recognition on distributor sales,
amortization and impairments of intangible assets, third party
acquisition and divestiture related costs, restructuring charges
and certain other special items as necessary. In addition, it is an
important component of management’s internal performance
measurement and incentive and reward process as it is used to
assess the current and historical financial results of the business
and for strategic decision making, preparing budgets, obtaining
targets and forecasting future results. Management presents this
non-GAAP financial measure to enable investors and analysts to
evaluate the Company's revenue generation performance relative to
the direct costs of operations of ON Semiconductor’s core
businesses.
Non-GAAP Net Income Attributable to ON Semiconductor and
Non-GAAP Diluted Earnings Per Share
The use of non-GAAP net income attributable to ON Semiconductor
and non-GAAP diluted earnings per share allows management to
evaluate the operating results of ON Semiconductor’s core
businesses and trends across different reporting periods on a
consistent basis, independent of non-cash items including,
generally, the amortization and impairments of intangible assets,
expensing of appraised inventory fair market value step-up, the
impact from the change in revenue recognition on distributor sales,
restructuring, gains and losses on debt prepayment, non-cash
interest expense, actuarial (gains) losses on pension plans and
other pension benefits, third party acquisition and divestiture
related costs, tax indemnification by third parties, tax impact of
these items and other non-GAAP adjustments and certain other
special items, as necessary. In addition, these items are important
components of management’s internal performance measurement and
incentive and reward process, as they are used to assess the
current and historical financial results of the business and for
strategic decision making, preparing budgets, setting targets and
forecasting future results. Management presents these non-GAAP
financial measures to enable investors and analysts to understand
the results of operations of ON Semiconductor’s core businesses
and, to the extent comparable, to compare our results of operations
on a more consistent basis against those of other companies in our
industry.
Free Cash Flow
The use of free cash flow allows management to evaluate, among
other things, the ability of the Company to make interest or
principal payments on its debt. Free cash flow is defined as the
difference between cash flow from operating activities and capital
expenditures disclosed under investing activities in the
consolidated statement of cash flows. Free cash flow is not an
alternate to cash flow from operating activities as a measure of
liquidity. It is an important component of management’s internal
performance measurement and incentive and reward process as it is
used to assess the current and historical financial results of the
business and for strategic decision making, preparing budgets,
obtaining targets and forecasting future results. Management
presents this non-GAAP financial measure to enable investors and
analysts to evaluate our revenue generation performance relative to
the direct costs of operations of ON Semiconductor’s core
businesses.
Non-GAAP Diluted Share Count
The use of non-GAAP diluted share count allows management to
evaluate, among other things, the potential dilution due to the
outstanding stock options and restricted stock units excluding the
dilution from the convertible notes that is covered by hedging
activity up to a certain threshold. In periods when the quarterly
average stock price per share exceeds $18.50, the non-GAAP diluted
share count includes the anti-dilutive impact of the Company’s
hedge transactions issued concurrently with the 1.00% convertible
notes. As such, at an average stock price per share between $18.50
and $25.96, the hedging activity offsets the potentially dilutive
effect of the 1.00% convertible notes. In periods when the
quarterly average stock price per share exceeds $20.72, the
non-GAAP diluted share count includes the anti-dilutive impact of
the Company’s hedge transactions issued concurrently with the
1.625% convertible notes. As such, at an average stock price per
share between $20.72 and $30.70, the hedging activity offsets the
potentially dilutive effect of the 1.625% convertible notes.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200808005005/en/
Kris Pugsley Corporate/Media Communications ON Semiconductor
(312) 909-0661 kris.pugsley@onsemi.com
Parag Agarwal Vice President - Investor Relations &
Corporate Development ON Semiconductor (602) 244-3437
investor@onsemi.com
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