onsemi Reports Record Revenue and Non-GAAP Earnings Per Share

onsemi Reports Record Revenue and Non-GAAP Earnings Per Share for Third Quarter 2021

onsemi (Nasdaq: ON) is driving disruptive innovations to help build a better future. With a focus on automotive and industrial end-markets, the company is accelerating change in megatrends such as vehicle electrification and safety, sustainable energy grids, industrial automation, and 5G and cloud infrastructure. With a highly differentiated and innovative product portfolio, onsemi creates intelligent power and sensing technologies that solve the world’s most complex challenges and leads the way in creating a safer, cleaner, and smarter world.

onsemi, and the onsemi 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 includes “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 onsemi, including financial guidance for the year ending December 31, 2021. 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. Certain factors that could affect our future results or events are described under Part I, Item 1A “Risk Factors” in the 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 16, 2021 (the “2020 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 2020 Form 10-K and subsequent 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 us or persons acting on our 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									Nine Months Ended
	October 1, 2021			July 2, 2021			October 2, 2020			October 1, 2021			October 2, 2020
Revenue	$	1,742.1		$	1,669.9		$	1,317.3		$	4,893.7		$	3,808.7
Cost of revenue (exclusive of amortization shown below)		1,021.3			1,029.8			876.1			3,011.6			2,590.5
Gross profit		720.8			640.1			441.2			1,882.1			1,218.2
Gross margin		41.4	%		38.3	%		33.5	%		38.5	%		32.0	%
Operating expenses:
Research and development		154.5			166.3			156.1			494.4			483.2
Selling and marketing		68.4			76.1			65.3			223.4			207.7
General and administrative		75.7			73.2			62.2			221.3			196.3
Amortization of acquisition-related intangible assets		24.7			24.8			29.6			74.5			91.0
Restructuring, asset impairments and other charges, net		(1.7	)		17.5			9.0			58.3			58.0
Intangible asset impairment		—			—			—			2.9			1.3
Total operating expenses		321.6			357.9			322.2			1,074.8			1,037.5
Operating income		399.2			282.2			119.0			807.3			180.7
Other income (expense), net:
Interest expense		(31.9	)		(33.1	)		(42.2	)		(98.4	)		(126.6	)
Interest income		0.5			0.2			0.9			1.1			4.3
Loss on debt refinancing and prepayment		—			(26.2	)		—			(26.2	)		—
Gain on divestiture of business		10.2			—			—			10.2			—
Other income (expense)		(5.8	)		(1.1	)		0.4			(2.4	)		(2.3	)
Other income (expense), net		(27.0	)		(60.2	)		(40.9	)		(115.7	)		(124.6	)
Income before income taxes		372.2			222.0			78.1			691.6			56.1
Income tax (provision) benefit		(61.8	)		(37.9	)		83.1			(106.8	)		90.5
Net income		310.4			184.1			161.2			584.8			146.6
Less: Net income attributable to non-controlling interest		(0.7	)		—			(0.6	)		(1.1	)		(1.4	)
Net income attributable to ON Semiconductor Corporation	$	309.7		$	184.1		$	160.6		$	583.7		$	145.2
Net income per common share attributable to ON Semiconductor Corporation:
Basic	$	0.72		$	0.43		$	0.39		$	1.38		$	0.35
Diluted	$	0.70		$	0.42		$	0.38		$	1.32		$	0.35
Weighted average common shares outstanding:
Basic		430.6			427.7			410.8			423.8			410.5
Diluted		440.7			443.6			418.3			443.1			414.4

ON SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions)

	October 1, 2021			July 2, 2021			December 31, 2020
Assets
Cash and cash equivalents	$	1,389.2		$	1,091.1		$	1,080.7
Receivables, net		720.0			669.1			676.0
Inventories		1,327.6			1,309.3			1,251.4
Other current assets		205.0			160.4			176.0
Total current assets		3,641.8			3,229.9			3,184.1
Property, plant and equipment, net		2,427.8			2,457.8			2,512.3
Goodwill		1,662.7			1,663.4			1,663.4
Intangible assets, net		390.3			416.3			469.0
Deferred tax assets		382.1			429.9			429.0
Other assets		436.0			397.1			410.2
Total assets	$	8,940.7		$	8,594.4		$	8,668.0
Liabilities, Non-Controlling Interest and Stockholders’ Equity
Accounts payable	$	599.3		$	610.2		$	572.9
Accrued expenses and other current liabilities		641.8			643.6			570.0
Current portion of long-term debt		203.0			201.3			531.6
Total current liabilities		1,444.1			1,455.1			1,674.5
Long-term debt		2,910.5			2,907.1			2,959.7
Deferred tax liabilities		46.8			49.8			57.3
Other long-term liabilities		394.9			378.0			418.4
Total liabilities		4,796.3			4,790.0			5,109.9
ON Semiconductor Corporation stockholders’ equity:
Common stock		6.0			6.0			5.7
Additional paid-in capital		4,498.5			4,470.3			4,133.1
Accumulated other comprehensive loss		(48.6	)		(52.2	)		(57.6	)
Accumulated earnings		2,009.2			1,699.5			1,425.5
Less: Treasury stock, at cost		(2,341.4	)		(2,339.2	)		(1,968.2	)
Total ON Semiconductor Corporation stockholders’ equity		4,123.7			3,784.4			3,538.5
Non-controlling interest		20.7			20.0			19.6
Total stockholders' equity		4,144.4			3,804.4			3,558.1
Total liabilities and stockholders' equity	$	8,940.7		$	8,594.4		$	8,668.0

ON SEMICONDUCTOR CORPORATION UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (in millions)

	Quarters Ended									Nine Months Ended
	October 1, 2021			July 2, 2021			October 2, 2020			October 1, 2021			October 2, 2020
Cash flows from operating activities:
Net income	$	310.4		$	184.1		$	161.2		$	584.8		$	146.6
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	149.9			153.1			156.2			456.4			471.3
Loss (gain) on sale and disposal of fixed assets	2.0			—			1.1			2.3			(1.8		)
Gain on divestiture of business	(10.2		)	—			—			(10.2		)	—
Loss on debt refinancing and prepayment	—			26.2			—			26.2			—
Amortization of debt discount and issuance costs	2.9			2.7			3.1			8.0			9.1
Share-based compensation	22.7			29.1			17.5			74.1			51.2
Non-cash interest on convertible notes	7.0			6.0			10.1			17.6			29.4
Non-cash asset impairment charges	3.3			1.4			7.0			10.8			14.2
Intangible asset impairment charges	—			—			—			—			1.3
Change in deferred tax balances	44.2			18.5			(136.8		)	39.5			(149.1		)
Other	0.2			2.0			3.5			0.2			5.3
Changes in assets and liabilities	(83.5		)	64.9			(59.5		)	(54.3		)	(93.6		)
Net cash provided by operating activities	$	448.9		$	488.0		$	163.4		$	1,155.4		$	483.9
Cash flows from investing activities:
Purchase of Property, Plant and Equipment ("PP&E")	$	(93.2	)	$	(104.8	)	$	(61.6	)	$	(275.0	)	$	(267.2	)
Deposits and proceeds from sale of PP&E	—			6.4			0.6			6.6			1.5
Deposits utilized (made) for purchase of PP&E	(18.7		)	(2.4		)	1.8			(21.5		)	2.3
Divestiture of business, net of cash transferred	3.4			—			—			3.4			—
Purchase of business, net of cash acquired	—			—			—			—			(4.5		)
Purchase of available-for-sale securities	(43.8		)	—			—			(43.8		)	—
Proceeds from sale or maturity of available-for-sale securities	2.8			—			—			2.8			—
Settlement of purchase price from previous acquisition	—			—			—			—			26.0
Net cash used in investing activities	$	(149.5	)	$	(100.8	)	$	(59.2	)	$	(327.5	)	$	(241.9	)
Cash flows from financing activities:
Proceeds for the issuance of common stock under the ESPP	$	6.2		$	5.7		$	6.4		$	18.5		$	17.8
Payment of tax withholding for RSUs	(2.2		)	(3.5		)	(0.5		)	(34.2		)	(17.1		)
Repurchase of common stock	—			—			—			—			(65.4		)
Issuance and borrowings under debt agreements	—			787.3			693.0			787.3			1,858.0
Reimbursement of debt issuance costs	—			2.7			—			2.7			—
Payment of debt issuance costs	(0.3		)	(3.5		)	(2.2		)	(3.8		)	(2.2		)
Repayment of borrowings under debt agreements	(4.1		)	(1,060.6		)	(1,204.3		)	(1,218.8		)	(1,264.6		)
Payment for purchase of bond hedges	—			(160.3		)	—			(160.3		)	—
Proceeds from issuance of warrants	—			93.8			—			93.8			—
Payments related to prior acquisition	(0.7		)	(0.2		)	(2.8		)	(3.0		)	(8.3		)
Net cash provided by (used in) financing activities	$	(1.1	)	$	(338.6	)	$	(510.4	)	$	(517.8	)	$	518.2
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(0.2		)	—			0.3			(1.0		)	0.4
Net increase in cash, cash equivalents and restricted cash	298.1			48.6			(405.9		)	309.1			760.6
Beginning cash, cash equivalents and restricted cash	1,092.5			1,043.9			2,060.7			1,081.5			894.2
Ending cash, cash equivalents and restricted cash	$	1,390.6		$	1,092.5		$	1,654.8		$	1,390.6		$	1,654.8

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

			Quarters Ended									Nine Months Ended
			October 1, 2021			July 2, 2021			October 2, 2020			October 1, 2021			October 2, 2020

Reconciliation of GAAP to non-GAAP gross profit:
GAAP gross profit			$	720.8		$	640.1		$	441.2		$	1,882.1		$	1,218.2
	Special items:
	a)	Non-recurring facility costs	2.5			0.7			—			3.2			—
		Total special items	2.5			0.7			—			3.2			—
Non-GAAP gross profit			$	723.3		$	640.8		$	441.2		$	1,885.3		$	1,218.2
Reconciliation of GAAP to non-GAAP gross margin:
GAAP gross margin			41.4		%	38.3		%	33.5		%	38.5		%	32.0		%
	Special items:
	a)	Non-recurring facility costs	0.1		%	—		%	—		%	0.1		%	—		%
		Total special items	0.1		%	0.1		%	—		%	—		%	—		%
Non-GAAP gross margin			41.5		%	38.4		%	33.5		%	38.5		%	32.0		%
Reconciliation of GAAP to non-GAAP operating expenses:
GAAP operating expenses			$	321.6		$	357.9		$	322.2		$	1,074.8		$	1,037.5
	Special items:
	a)	Amortization of acquisition-related intangible assets	(24.7		)	(24.8		)	(29.6		)	(74.5		)	(91.0		)
	b)	Restructuring, asset impairments and other, net	1.7			(17.5		)	(9.0		)	(58.3		)	(58.0		)
	c)	Intangible asset impairment	—			—			—			(2.9		)	(1.3		)
	d)	Third party acquisition and divestiture related costs	(2.4		)	(1.4		)	—			(4.0		)	(0.3		)
		Total special items	(25.4		)	(43.7		)	(38.6		)	(139.7		)	(150.6		)
Non-GAAP operating expenses			$	296.2		$	314.2		$	283.6		$	935.1		$	886.9
Reconciliation of GAAP to non-GAAP operating income:
GAAP operating income			$	399.2		$	282.2		$	119.0		$	807.3		$	180.7
	Special items:
	a)	Non-recurring facility costs	2.5			0.7			—			3.2			—
	b)	Amortization of acquisition-related intangible assets	24.7			24.8			29.6			74.5			91.0
	c)	Restructuring, asset impairments and other, net	(1.7		)	17.5			9.0			58.3			58.0
	d)	Intangible asset impairment	—			—			—			2.9			1.3
	e)	Third party acquisition and divestiture related costs	2.4			1.4			—			4.0			0.3
		Total special items	27.9			44.4			38.6			142.9			150.6
Non-GAAP operating income			$	427.1		$	326.6		$	157.6		$	950.2		$	331.3
*Reconciliation of GAAP to non-GAAP operating margin (operating income / revenue)* :**
GAAP operating margin			22.9		%	16.9		%	9.0		%	16.5		%	4.7		%
	Special items:
	a)	Non-recurring facility costs	0.1		%	—		%	—		%	0.1		%	—		%
	b)	Amortization of acquisition-related intangible assets	1.4		%	1.5		%	2.2		%	1.5		%	2.4		%
	c)	Restructuring, asset impairments and other, net	(0.1		)%	1.0		%	0.7		%	1.2		%	1.5		%
	d)	Intangible asset impairment	—		%	—		%	—		%	0.1		%	—		%
	e)	Third party acquisition and divestiture related costs	0.1		%	0.1		%	—		%	0.1		%	—		%
		Total special items	1.6		%	2.7		%	3.0		%	2.9		%	4.0		%
Non-GAAP operating margin			24.5		%	19.6		%	12.0		%	19.4		%	8.7		%
Reconciliation of GAAP to non-GAAP income before income taxes:
GAAP income before income taxes			$	372.2		$	222.0		$	78.1		$	691.6		$	56.1
	Special items:
	a)	Non-recurring facility costs	2.5			0.7			—			3.2			—
	b)	Amortization of acquisition-related intangible assets	24.7			24.8			29.6			74.5			91.0
	c)	Restructuring, asset impairments and other, net	(1.7		)	17.5			9.0			58.3			58.0
	d)	Intangible asset impairment	—			—			—			2.9			1.3
	e)	Third party acquisition and divestiture related costs	2.4			1.4			—			4.0			0.3
	f)	Loss on debt refinancing and repayment	—			26.2			—			26.2			—
	g)	Actuarial losses on pension plans and other pension benefits	5.5			—			—			5.5			—
	h)	Gain on divestiture of a business	(10.2		)	—			—			(10.2		)	—
	i)	Non-cash interest on convertible notes	7.0			6.0			10.1			17.6			29.4
		Total special items	30.2			76.6			48.7			182.0			180.0
Non-GAAP income before income taxes			$	402.4		$	298.6		$	126.8		$	873.6		$	236.1
Reconciliation of GAAP to non-GAAP net income attributable to ON Semiconductor Corporation:
GAAP net income attributable to ON Semiconductor Corporation			$	309.7		$	184.1		$	160.6		$	583.7		$	145.2
	Special items:
	a)	Non-recurring facility costs	2.5			0.7			—			3.2			—
	b)	Amortization of acquisition-related intangible assets	24.7			24.8			29.6			74.5			91.0
	c)	Restructuring, asset impairments and other, net	(1.7		)	17.5			9.0			58.3			58.0
	d)	Intangible asset impairment	—			—			—			2.9			1.3
	e)	Third party acquisition and divestiture related costs	2.4			1.4			—			4.0			0.3
	f)	Loss on debt refinancing and prepayment	—			26.2			—			26.2			—
	g)	Non-cash interest on convertible notes	7.0			6.0			10.1			17.6			29.4
	h)	Actuarial losses on pension plans and other pension benefits	5.5			—			—			5.5			—
	i)	Gain on divestiture of a business	(10.2		)	—			—			(10.2		)	—
	j)	Adjustment of income taxes	40.4			15.1			(97.5		)	41.7			(120.4		)
		Total special items	70.6			91.7			(48.8		)	223.7			59.6
Non-GAAP net income attributable to ON Semiconductor Corporation			$	380.3		$	275.8		$	111.8		$	807.4		$	204.8
Adjustment of income taxes:
Tax adjustment for special items (1)			$	(6.3	)	$	(16.1	)	$	(10.2	)	$	(38.2	)	$	(37.8	)
Impact of the Domestication of non-U.S. IP and related effects (2)			—			—			(110.3		)	—			(110.3		)
Other non-GAAP tax adjustment (3)			46.7			31.2			23.0			79.9			27.7
		Total adjustment of income taxes	$	40.4		$	15.1		$	(97.5	)	$	41.7		$	(120.4	)
Reconciliation of GAAP to non-GAAP diluted shares outstanding:
GAAP diluted shares outstanding			440.7			443.6			418.3			443.1			414.4
	Special items:
	a)	Less: dilutive shares attributable to convertible notes	(5.0		)	(8.6		)	(5.7		)	(8.9		)	(2.3		)
		Total special items	(5.0		)	(8.6		)	(5.7		)	(8.9		)	(2.3		)
Non-GAAP diluted shares outstanding			435.7			435.0			412.6			434.2			412.1
Non-GAAP diluted earnings per share:
Non-GAAP net income attributable to ON Semiconductor Corporation			$	380.3		$	275.8		$	111.8		$	807.4		$	204.8
Non-GAAP diluted shares outstanding			435.7			435.0			412.6			434.2			412.1
Non-GAAP diluted earnings per share			$	0.87		$	0.63		$	0.27		$	1.86		$	0.50
Reconciliation of net cash provided by operating activities to free cash flow:
Net cash provided by operating activities			$	448.9		$	488.0		$	163.4		$	1,155.4		$	483.9
	Special items:
	a)	Purchase of property, plant and equipment	(93.2		)	(104.8		)	(61.6		)	(275.0		)	(267.2		)
		Total special items	(93.2		)	(104.8		)	(61.6		)	(275.0		)	(267.2		)
Free cash flow			$	355.7		$	383.2		$	101.8		$	880.4		$	216.7

(1)	Tax impact of non-GAAP special items (a-i) 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"). The Domestication resulted in a benefit from recognizing certain deferred tax assets, net of deferred tax liabilities, of $60.4 million. 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 released approximately $49.9 million of its valuation allowance recorded against its U.S. state deferred tax assets.
(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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