ON Semiconductor Reports First Quarter 2021 Results

ON SEMICONDUCTOR CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share data)

	Quarters Ended
	April 2, 2021			December 31, 2020			April 3, 2020
Revenue	$	1,481.7		$	1,446.3		$	1,277.9
Cost of revenue (exclusive of amortization shown below)	960.5			948.7			875.2
Gross profit	521.2			497.6			402.7
Gross margin	35.2		%	34.4		%	31.5		%
Operating expenses:
Research and development	173.6			159.7			171.0
Selling and marketing	78.9			71.0			76.8
General and administrative	72.4			62.4			71.2
Amortization of acquisition-related intangible assets	25.0			29.3			32.3
Restructuring, asset impairments and other charges, net	42.5			7.2			32.8
Intangible asset impairment	2.9			—			—
Total operating expenses	395.3			329.6			384.1
Operating income	125.9			168.0			18.6
Other income (expense), net:
Interest expense	(33.4)			(41.8)			(42.5)
Interest income	0.4			0.6			1.9
Other income (expense)	4.5			(6.3)			0.1
Other income (expense), net	(28.5)			(47.5)			(40.5)
Income (loss) before income taxes	97.4			120.5			(21.9)
Income tax (provision) benefit	(7.1)			(30.7)			8.2
Net income (loss)	90.3			89.8			(13.7)
Less: Net income attributable to non-controlling interest	(0.4)			(0.8)			(0.3)
Net income (loss) attributable to ON Semiconductor Corporation	$	89.9		$	89.0		$	(14.0)
Net income (loss) per common share attributable to ON Semiconductor Corporation:
Basic	$	0.22		$	0.22		$	(0.03)
Diluted	$	0.20		$	0.21		$	(0.03)
Weighted average common shares outstanding:
Basic	413.4			411.3			410.6
Diluted	445.4			431.6			410.6

ON SEMICONDUCTOR CORPORATION UNAUDITED CONSOLIDATED BALANCE SHEETS (in millions)


	April 2, 2021		December 31, 2020		April 3, 2020
Assets
Cash and cash equivalents	$	1,042.5	$	1,080.7	$	1,982.0
Receivables, net	683.6		676.0		652.0
Inventories	1,295.5		1,251.4		1,251.9
Other current assets	166.0		176.0		146.4
Total current assets	3,187.6		3,184.1		4,032.3
Property, plant and equipment, net	2,489.4		2,512.3		2,579.9
Goodwill	1,663.4		1,663.4		1,663.4
Intangible assets, net	441.1		469.0		558.2
Deferred tax assets	447.2		429.0		331.0
Other assets	401.7		410.2		256.0
Total assets	$	8,630.4	$	8,668.0	$	9,420.8
Liabilities, Non-Controlling Interest and Stockholders’ Equity
Accounts payable	$	605.0	$	572.9	$	503.9
Accrued expenses and other current liabilities	588.3		570.0		542.6
Current portion of long-term debt	536.7		531.6		689.6
Total current liabilities	1,730.0		1,674.5		1,736.1
Long-term debt	2,806.9		2,959.7		4,043.0
Deferred tax liabilities	53.9		57.3		60.8
Other long-term liabilities	390.0		418.4		343.3
Total liabilities	4,980.8		5,109.9		6,183.2
ON Semiconductor Corporation stockholders’ equity:
Common stock	5.8		5.7		5.7
Additional paid-in capital	4,161.0		4,133.1		3,830.3
Accumulated other comprehensive loss	(55.9)		(57.6)		(66.5)
Accumulated earnings	1,515.4		1,425.5		1,177.3
Less: Treasury stock, at cost	(1,996.7)		(1,968.2)		(1,731.9)
Total ON Semiconductor Corporation stockholders’ equity	3,629.6		3,538.5		3,214.9
Non-controlling interest	20.0		19.6		22.7
Total stockholders' equity	3,649.6		3,558.1		3,237.6
Total liabilities and stockholders' equity	$	8,630.4	$	8,668.0	$	9,420.8

ON SEMICONDUCTOR CORPORATION UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA AND NET CASH PROVIDED BY OPERATING ACTIVITIES (in millions)

	Quarters Ended
	April 2, 2021		December 31, 2020		April 3, 2020
Net income (loss)	$	90.3	$	89.8	$	(13.7)
Adjusted for:
Restructuring, asset impairments and other, net	42.5		7.2		32.8
Intangible asset impairment	2.9		—		—
Interest expense	33.4		41.8		42.5
Interest income	(0.4)		(0.6)		(1.9)
Income tax provision (benefit)	7.1		30.7		(8.2)
Net income attributable to non-controlling interest	(0.4)		(0.8)		(0.3)
Depreciation and amortization	153.4		153.8		161.2
Actuarial losses on pension plans and other pension benefits	—		4.0		—
Third party acquisition and divestiture related costs	0.2		0.7		0.3
Adjusted EBITDA	329.0		326.6		212.7
Increase (decrease):
Restructuring, asset impairments and other, net	(42.5)		(7.2)		(32.8)
Interest expense	(33.4)		(41.8)		(42.5)
Interest income	0.4		0.6		1.9
Income tax (provision) benefit	(7.1)		(30.7)		8.2
Net income attributable to non-controlling interest	0.4		0.8		0.3
Actuarial losses on pension plans and other pension benefits	—		(4.0)		—
Third party acquisition and divestiture related costs	(0.2)		(0.7)		(0.3)
(Gain) loss on sale or disposal of fixed assets	0.3		(1.4)		0.2
Amortization of debt discount and issuance costs	2.4		3.0		3.0
Share-based compensation	22.3		16.5		15.7
Non-cash interest on convertible notes	4.6		8.8		9.5
Non-cash asset impairment charges	3.2		3.3		1.4
Change in deferred tax balances	(23.2)		26.5		(19.0)
Other	(2.0)		5.2		—
Changes in assets and liabilities	(35.7)		94.9		7.7
Net cash provided by operating activities	$	218.5	$	400.4	$	166.0
Cash flows from investing activities:
Purchase of property, plant and equipment	$	(77.0)	$	(116.4)	$	(132.3)
Proceeds from sale of property, plant and equipment	0.2		4.8		—
Deposits utilized (made) for purchase of property, plant and equipment	(0.4)		(0.1)		2.2
Purchase of business, net of cash acquired	—		—		(4.5)
Settlement of purchase price from previous acquisition	—		—		26.0
Deposit made for manufacturing facility	—		(100.0)		—
Net cash used in investing activities	$	(77.2)	$	(211.7)	$	(108.6)
Cash flows from financing activities:
Proceeds for the issuance of common stock under the employee stock purchase plan	$	6.6	$	5.8	$	7.5
Payment of tax withholding for restricted stock units	(28.5)		(2.9)		(16.0)
Repurchase of common stock	—		—		(65.4)
Issuance and borrowings under debt agreements	—		—		1,165.0
Payment of debt issuance and other financing costs	—		(0.2)		—
Repayment of borrowings under debt agreements	(154.1)		(759.3)		(56.0)
Payments related to previous acquisition	(2.1)		(0.6)		(4.9)
Dividend to non-controlling shareholder	—		(5.0)		—
Net cash provided by (used in) financing activities	$	(178.1)	$	(762.2)	$	1,030.2
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(0.8)		0.2		0.2
Net increase (decrease) in cash, cash equivalents and restricted cash	$	(37.6)	$	(573.3)	$	1,087.8
Beginning cash, cash equivalents and restricted cash	1,081.5		1,654.8		894.2
Ending cash, cash equivalents and restricted cash	$	1,043.9	$	1,081.5	$	1,982.0

ON SEMICONDUCTOR CORPORATION RECONCILIATION OF GAAP VERSUS NON-GAAP DISCLOSURES (in millions, except per share and percentage data)

			Quarters Ended
			April 2, 2021			December 31, 2020			April 3, 2020

Reconciliation of GAAP to non-GAAP gross profit:
GAAP gross profit			$	521.2		$	497.6		$	402.7
	Special items:
	a)	Amortization of fair market value step-up of inventory	—			—			—
		Total special items	—			—			—
Non-GAAP gross profit			$	521.2		$	497.6		$	402.7
Reconciliation of GAAP to non-GAAP gross margin:
GAAP gross margin			35.2		%	34.4		%	31.5		%
	Special items:
	a)	Amortization of fair market value step-up of inventory	—		%	—		%	—		%
		Total special items	—		%	—		%	—		%
Non-GAAP gross margin			35.2		%	34.4		%	31.5		%
Reconciliation of GAAP to non-GAAP operating expenses:
GAAP operating expenses			$	395.3		$	329.6		$	384.1
	Special items:
	a)	Amortization of acquisition-related intangible assets	(25.0)			(29.3)			(32.3)
	b)	Restructuring, asset impairments and other, net	(42.5)			(7.2)			(32.8)
	c)	Intangible asset impairment	(2.9)			—			—
	d)	Third party acquisition and divestiture related costs	(0.2)			(0.7)			(0.3)
		Total special items	(70.6)			(37.2)			(65.4)
Non-GAAP operating expenses			$	324.7		$	292.4		$	318.7
Reconciliation of GAAP to non-GAAP operating income:
GAAP operating income			$	125.9		$	168.0		$	18.6
	Special items:
	a)	Amortization of acquisition-related intangible assets	25.0			29.3			32.3
	b)	Restructuring, asset impairments and other, net	42.5			7.2			32.8
	c)	Intangible asset impairment	2.9			—			—
	d)	Third party acquisition and divestiture related costs	0.2			0.7			0.3
		Total special items	70.6			37.2			65.4
Non-GAAP operating income			$	196.5		$	205.2		$	84.0
*Reconciliation of GAAP to non-GAAP operating margin (operating income / revenue)* :**
GAAP operating margin			8.5		%	11.6		%	1.5		%
	Special items:
	a)	Amortization of acquisition-related intangible assets	1.7		%	2.0		%	2.5		%
	b)	Restructuring, asset impairments and other, net	2.9		%	0.5		%	2.6		%
	c)	Intangible asset impairment	0.2		%	—		%	—		%
	d)	Third party acquisition and divestiture related costs	—		%	—		%	—		%
		Total special items	4.8		%	2.6		%	5.1		%
Non-GAAP operating margin			13.3		%	14.2		%	6.6		%
Reconciliation of GAAP to non-GAAP income before income taxes:
GAAP income (loss) before income taxes			$	97.4		$	120.5		$	(21.9)
	Special items:
	a)	Amortization of acquisition-related intangible assets	25.0			29.3			32.3
	b)	Restructuring, asset impairments and other, net	42.5			7.2			32.8
	c)	Intangible asset impairment	2.9			—			—
	d)	Third party acquisition and divestiture related costs	0.2			0.7			0.3
	e)	Actuarial losses on pension plans and other pension benefits	—			4.0			—
	f)	Non-cash interest on convertible notes	4.6			8.8			9.5
		Total special items	75.2			50.0			74.9
Non-GAAP income before income taxes			$	172.6		$	170.5		$	53.0
Reconciliation of GAAP to non-GAAP net income attributable to ON Semiconductor Corporation:
GAAP net income (loss) attributable to ON Semiconductor Corporation			$	89.9		$	89.0		$	(14.0)
	Special items:
	a)	Amortization of acquisition-related intangible assets	25.0			29.3			32.3
	b)	Restructuring, asset impairments and other, net	42.5			7.2			32.8
	c)	Intangible asset impairment	2.9			—			—
	d)	Third party acquisition and divestiture related costs	0.2			0.7			0.3
	e)	Actuarial losses on pension plans and other pension benefits	—			4.0			—
	f)	Non-cash interest on convertible notes	4.6			8.8			9.5
	g)	Adjustment of income taxes	(13.8)			8.1			(18.1)
		Total special items	61.4			58.1			56.8
Non-GAAP net income attributable to ON Semiconductor Corporation			$	151.3		$	147.1		$	42.8
Adjustment of income taxes:
Tax adjustment for special items (1)			$	(15.8)		$	(10.5)		$	(15.7)
Impact of the Domestication of non-U.S. IP and related effects (2)			—			(2.1)			—
Other non-GAAP tax adjustment (3)			2.0			20.7			(2.4)
		Total adjustment of income taxes	$	(13.8)		$	8.1		$	(18.1)
Reconciliation of GAAP to non-GAAP diluted shares outstanding:
GAAP diluted shares outstanding			445.4			431.6			410.6
	Special items:
	a)	Less: dilutive shares attributable to convertible notes	(12.8)			(14.8)			—
	b)	Add: dilutive shares attributable to share-based awards	—			—			2.2
		Total special items	(12.8)			(14.8)			2.2
Non-GAAP diluted shares outstanding			432.6			416.8			412.8
Non-GAAP diluted earnings per share:
Non-GAAP net income attributable to ON Semiconductor Corporation			$	151.3		$	147.1		$	42.8
Non-GAAP diluted shares outstanding			432.6			416.8			412.8
Non-GAAP diluted earnings per share			$	0.35		$	0.35		$	0.10
Reconciliation of net cash provided by operating activities to free cash flow:
Net cash provided by operating activities			$	218.5		$	400.4		$	166.0
	Special items:
	a)	Purchase of property, plant and equipment	(77.0)			(116.4)			(132.3)
		Total special items	(77.0)			(116.4)			(132.3)
Free cash flow			$	141.5		$	284.0		$	33.7

(1)		Tax impact of non-GAAP special items (a-f) is calculated using the federal statutory rate of 21% for all periods presented.
(2)		The Company simplified its corporate structure by repatriating the economic rights of its non-U.S. intellectual property to the United States via domestication of certain foreign subsidiaries (the "Domestication") during 2020. The Domestication resulted in a benefit from recognizing certain deferred tax assets, net of deferred tax liabilities, of $62.9 million for the year ended December 31, 2020. Additionally, the Domestication caused the Company to reassess the full valuation allowance recorded against its U.S. state deferred tax assets. As a result, the Company also released approximately $49.5 million of its valuation allowance recorded against its U.S. state deferred tax assets during the year ended December 31, 2020. Of the total $112.4 million described above, $110.3 million and $2.1 million were recorded during the third and fourth quarters of 2020, respectively.
(3)		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.

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