07.27.18
NXP Semiconductors N.V. reported financial results for the second quarter 2018 ended July 1, 2018.
NXP delivered second quarter revenue of $2.29 billion, an increase of 4% year on year, and an increase of 1% as compared to the prior quarter. HPMS segment revenue was $2.19 billion, an increase of 5% year on year, and an increase of 1% on a sequential basis.
Within the Automotive group, second quarter revenue was $1,008 million, up 7% year on year, with auto MCU, advanced analog and infotainment all contributing to the year on year growth. Within the Secure Connected Devices group, second quarter revenue was $644 million, up 10% year on year driven by demand for general purpose, multi-market MCUs, high performance application processors, and the continued year on year growth of mobile transaction products, offset with declines in mobile audio.
In the Secure Interface and Infrastructure group, second quarter revenue was $398 million, down 9% year on year due to declines within the Digital Networking and RF-based product groups, with annual growth in Interface and Power products partially offsetting declines. Lastly, in Secure Identification Solutions group, second quarter revenue was $143 million, up 7% year on year due to growth in the mobility and retail market.
NXP has received notice from Qualcomm Incorporated that Qualcomm has terminated, effective immediately, the purchase agreement between NXP and an affiliate of Qualcomm following the inability to obtain the required approval for the transaction from the State Administration for Market Regulation (SAMR) of the People’s Republic of China prior to the end date stipulated by the parties under the purchase agreement. Qualcomm has notified NXP that it will pay the $2 billion in termination compensation by 9:00 am, New York City time, on July 26, 2018.
“While it is unfortunate that the semiconductor powerhouse that would have resulted from the transaction with Qualcomm could not close after 21 months of diligent efforts by the team, we are confident in our future as an independent market leader and will continue to focus our efforts to drive our long-term strategy in our leadership markets of automotive and secure IoT solutions. Our strategic preparation has us more convinced about the opportunity from our key focus areas, which we will share more about at our upcoming Analyst Day in New York City,” said Richard Clemmer, NXP’s president and CEO.
“Consistent with our historic policy of returning excess cash to shareholders, the NXP Board of Directors has authorized a $5 billion share repurchase program based on the significant strength of the NXP capital structure, and its confidence in the company’s ability to drive long-term growth and strong cash flow,” said Clemmer.
“In the second quarter, our GAAP operating margin was 6.0%, an increase from the 2.3% reported in the second quarter of 2017 due to better fall-through on higher revenue as well as lower expenses related to purchase price accounting. Our second quarter non-GAAP operating margin was 27.0%, a decline of 140-basis points as compared to 28.4% reported in the second quarter of 2017, primarily due to increased investments in new product development. On a sequential basis, our second quarter GAAP operating margin declined 10-basis points from the 6.1% reported in the first quarter of 2018, and our non-GAAP operating margin declined 20-basis points due to lower fall through and continued investments in new products. And finally, we repaid $1.25 billion of our long-term debt during the quarter, resulting in a total long-term debt balance of $5.34 billion. Due to the improved net debt position and positive cash flow generation, our overall financial leverage was reduced to 0.74x,” said Peter Kelly, NXP CFO.
Total gross debt was $5.34 billion, down from the $6.58 billion at the end of the first quarter of 2018, and down from the $6.55 billion at the end of the second quarter of 2017. Net debt at the end of the second quarter was $2.36 billion, an improvement from the $2.60 billion at the end of the first quarter of 2018, and from the $3.91 billion at the end of the second quarter of 2017.
Trailing 12 months, adjusted EBITDA was $3.18 billion, flat sequentially from $3.18 billion at the end of the first quarter of 2018, and an increase from $3.07 billion at the end of the second quarter of 2017. Financial leverage, defined as net debt divided by trailing twelve months adjusted EBITDA was 0.74x, an improvement from 0.82x at the end of the first quarter of 2018, and an improvement from 1.27x reported at the end of the second quarter of 2017.
Cash flow from operations was $403 million, a decrease from the $620 million at the end of the first quarter of 2018, driven by annual cash bonus payments, interest coupon on retired debt and income tax payments.
NXP delivered second quarter revenue of $2.29 billion, an increase of 4% year on year, and an increase of 1% as compared to the prior quarter. HPMS segment revenue was $2.19 billion, an increase of 5% year on year, and an increase of 1% on a sequential basis.
Within the Automotive group, second quarter revenue was $1,008 million, up 7% year on year, with auto MCU, advanced analog and infotainment all contributing to the year on year growth. Within the Secure Connected Devices group, second quarter revenue was $644 million, up 10% year on year driven by demand for general purpose, multi-market MCUs, high performance application processors, and the continued year on year growth of mobile transaction products, offset with declines in mobile audio.
In the Secure Interface and Infrastructure group, second quarter revenue was $398 million, down 9% year on year due to declines within the Digital Networking and RF-based product groups, with annual growth in Interface and Power products partially offsetting declines. Lastly, in Secure Identification Solutions group, second quarter revenue was $143 million, up 7% year on year due to growth in the mobility and retail market.
NXP has received notice from Qualcomm Incorporated that Qualcomm has terminated, effective immediately, the purchase agreement between NXP and an affiliate of Qualcomm following the inability to obtain the required approval for the transaction from the State Administration for Market Regulation (SAMR) of the People’s Republic of China prior to the end date stipulated by the parties under the purchase agreement. Qualcomm has notified NXP that it will pay the $2 billion in termination compensation by 9:00 am, New York City time, on July 26, 2018.
“While it is unfortunate that the semiconductor powerhouse that would have resulted from the transaction with Qualcomm could not close after 21 months of diligent efforts by the team, we are confident in our future as an independent market leader and will continue to focus our efforts to drive our long-term strategy in our leadership markets of automotive and secure IoT solutions. Our strategic preparation has us more convinced about the opportunity from our key focus areas, which we will share more about at our upcoming Analyst Day in New York City,” said Richard Clemmer, NXP’s president and CEO.
“Consistent with our historic policy of returning excess cash to shareholders, the NXP Board of Directors has authorized a $5 billion share repurchase program based on the significant strength of the NXP capital structure, and its confidence in the company’s ability to drive long-term growth and strong cash flow,” said Clemmer.
“In the second quarter, our GAAP operating margin was 6.0%, an increase from the 2.3% reported in the second quarter of 2017 due to better fall-through on higher revenue as well as lower expenses related to purchase price accounting. Our second quarter non-GAAP operating margin was 27.0%, a decline of 140-basis points as compared to 28.4% reported in the second quarter of 2017, primarily due to increased investments in new product development. On a sequential basis, our second quarter GAAP operating margin declined 10-basis points from the 6.1% reported in the first quarter of 2018, and our non-GAAP operating margin declined 20-basis points due to lower fall through and continued investments in new products. And finally, we repaid $1.25 billion of our long-term debt during the quarter, resulting in a total long-term debt balance of $5.34 billion. Due to the improved net debt position and positive cash flow generation, our overall financial leverage was reduced to 0.74x,” said Peter Kelly, NXP CFO.
Total gross debt was $5.34 billion, down from the $6.58 billion at the end of the first quarter of 2018, and down from the $6.55 billion at the end of the second quarter of 2017. Net debt at the end of the second quarter was $2.36 billion, an improvement from the $2.60 billion at the end of the first quarter of 2018, and from the $3.91 billion at the end of the second quarter of 2017.
Trailing 12 months, adjusted EBITDA was $3.18 billion, flat sequentially from $3.18 billion at the end of the first quarter of 2018, and an increase from $3.07 billion at the end of the second quarter of 2017. Financial leverage, defined as net debt divided by trailing twelve months adjusted EBITDA was 0.74x, an improvement from 0.82x at the end of the first quarter of 2018, and an improvement from 1.27x reported at the end of the second quarter of 2017.
Cash flow from operations was $403 million, a decrease from the $620 million at the end of the first quarter of 2018, driven by annual cash bonus payments, interest coupon on retired debt and income tax payments.