ON Semiconductor Reports Record Revenue and Non-GAAP Earnings

ON Semiconductor Reports Record Revenue and Non-GAAP Earnings per Share for Second Quarter 2021

About ON Semiconductor

ON Semiconductor (Nasdaq: ON) is driving energy efficient electronics innovations that help make the world greener, safer, inclusive and connected. The company has transformed into our customers’ supplier of choice for power, analog, sensor and connectivity solutions. The company’s superior products help engineers solve their most unique design challenges in automotive, industrial, cloud power, and Internet of Things (IoT) applications. 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 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 ON Semiconductor, 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 our 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 16, 2021 (our “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									Six Months Ended
	July 2, 2021			April 2, 2021			July 3, 2020			July 2, 2021			July 3, 2020
Revenue	$	1,669.9		$	1,481.7		$	1,213.5		$	3,151.6		$	2,491.4
Cost of revenue (exclusive of amortization shown below)	1,029.8			960.5			839.2			1,990.3			1,714.4
Gross profit	640.1			521.2			374.3			1,161.3			777.0
Gross margin	38.3		%	35.2		%	30.8		%	36.8		%	31.2		%
Operating expenses:
Research and development	166.3			173.6			156.1			339.9			327.1
Selling and marketing	76.1			78.9			65.6			155.0			142.4
General and administrative	73.2			72.4			62.9			145.6			134.1
Amortization of acquisition-related intangible assets	24.8			25.0			29.1			49.8			61.4
Restructuring, asset impairments and other charges, net	17.5			42.5			16.2			60.0			49.0
Intangible asset impairment	—			2.9			1.3			2.9			1.3
Total operating expenses	357.9			395.3			331.2			753.2			715.3
Operating income	282.2			125.9			43.1			408.1			61.7
Other income (expense), net:
Interest expense	(33.1)			(33.4)			(41.9)			(66.5)			(84.4)
Interest income	0.2			0.4			1.5			0.6			3.4
Loss on debt refinancing and prepayment	(26.2)			—			—			(26.2)			—
Other income (expense)	(1.1)			4.5			(2.8)			3.4			(2.7)
Other income (expense), net	(60.2)			(28.5)			(43.2)			(88.7)			(83.7)
Income (loss) before income taxes	222.0			97.4			(0.1)			319.4			(22.0)
Income tax (provision) benefit	(37.9)			(7.1)			(0.8)			(45.0)			7.4
Net income (loss)	184.1			90.3			(0.9)			274.4			(14.6)
Less: Net income attributable to non-controlling interest	—			(0.4)			(0.5)			(0.4)			(0.8)
Net income (loss) attributable to ON Semiconductor Corporation	$	184.1		$	89.9		$	(1.4)		$	274.0		$	(15.4)
Net income (loss) per common share attributable to ON Semiconductor Corporation:
Basic	$	0.43		$	0.22		$	—		$	0.65		$	(0.04)
Diluted	$	0.42		$	0.20		$	—		$	0.62		$	(0.04)
Weighted average common shares outstanding:
Basic	427.7			413.4			410.1			420.5			410.3
Diluted	443.6			445.4			410.1			444.5			410.3

ON SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions)
	July 2, 2021		April 2, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	1,091.1	$	1,042.5	$	1,080.7
Receivables, net	669.1		683.6		676.0
Inventories	1,309.3		1,295.5		1,251.4
Other current assets	160.4		166.0		176.0
Total current assets	3,229.9		3,187.6		3,184.1
Property, plant and equipment, net	2,457.8		2,489.4		2,512.3
Goodwill	1,663.4		1,663.4		1,663.4
Intangible assets, net	416.3		441.1		469.0
Deferred tax assets	429.9		447.2		429.0
Other assets	397.1		401.7		410.2
Total assets	$	8,594.4	$	8,630.4	$	8,668.0
Liabilities, Non-Controlling Interest and Stockholders’ Equity
Accounts payable	$	610.2	$	605.0	$	572.9
Accrued expenses and other current liabilities	643.6		588.3		570.0
Current portion of long-term debt	201.3		536.7		531.6
Total current liabilities	1,455.1		1,730.0		1,674.5
Long-term debt	2,907.1		2,806.9		2,959.7
Deferred tax liabilities	49.8		53.9		57.3
Other long-term liabilities	378.0		390.0		418.4
Total liabilities	4,790.0		4,980.8		5,109.9
ON Semiconductor Corporation stockholders’ equity:
Common stock	6.0		5.8		5.7
Additional paid-in capital	4,470.3		4,161.0		4,133.1
Accumulated other comprehensive loss	(52.2)		(55.9)		(57.6)
Accumulated earnings	1,699.5		1,515.4		1,425.5
Less: Treasury stock, at cost	(2,339.2)		(1,996.7)		(1,968.2)
Total ON Semiconductor Corporation stockholders’ equity	3,784.4		3,629.6		3,538.5
Non-controlling interest	20.0		$	20.0	19.6
Total stockholders' equity	3,804.4		3,649.6		3,558.1
Total liabilities and stockholders' equity	$	8,594.4	$	8,630.4	$	8,668.0

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 2, 2021		April 2, 2021		July 3, 2020			July 2, 2021		July 3, 2020
Net income (loss)	$	184.1	$	90.3	$	(0.9)		$	274.4	$	(14.6)
Adjusted for:
Restructuring, asset impairments and other charges, net	17.5		42.5		16.2			60.0		49.0
Intangible asset impairment	—		2.9		1.3			2.9		1.3
Interest expense	33.1		33.4		41.9			66.5		84.4
Interest income	(0.2)		(0.4)		(1.5)			(0.6)		(3.4)
Loss on debt refinancing and prepayment	26.2		—		—			26.2		—
Income tax provision (benefit)	37.9		7.1		0.8			45.0		(7.4)
Net income attributable to non-controlling interest	—		(0.4)		(0.5)			(0.4)		(0.8)
Depreciation and amortization	153.1		153.4		153.9			306.5		315.1
Third party acquisition and divestiture related costs	1.4		0.2		—			1.6		0.3
Adjusted EBITDA	453.1		329.0		211.2			782.1		423.9
Increase (decrease):
Restructuring, asset impairments and other, net	(17.5)		(42.5)		(16.2)			(60.0)		(49.0)
Interest expense	(33.1)		(33.4)		(41.9)			(66.5)		(84.4)
Interest income	0.2		0.4		1.5			0.6		3.4
Income tax (provision) benefit	(37.9)		(7.1)		(0.8)			(45.0)		7.4
Net income attributable to non-controlling interest	—		0.4		0.5			0.4		0.8
Third party acquisition and divestiture related costs	(1.4)		(0.2)		—			(1.6)		(0.3)
Loss (gain) on sale or disposal of fixed assets	—		0.3		(3.1)			0.3		(2.9)
Amortization of debt discount and issuance costs	2.7		2.4		3.0			5.1		6.0
Share-based compensation	29.1		22.3		18.0			51.4		33.7
Non-cash interest on convertible notes	6.0		4.6		9.8			10.6		19.3
Non-cash asset impairment charges	1.4		3.2		5.8			4.6		7.2
Change in deferred tax balances	18.5		(23.2)		6.7			(4.7)		(12.3)
Other	2.0		(2.0)		1.8			—		1.8
Changes in assets and liabilities	64.9		(35.7)		(41.8)			29.2		(34.1)
Net cash provided by operating activities	$	488.0	$	218.5	$	154.5		$	706.5	$	320.5
Cash flows from investing activities:
Purchase of property, plant and equipment	$	(104.8)	$	(77.0)	$	(73.3)		$	(181.8)	$	(205.6)
Deposits and proceeds from sale of property, plant and equipment	6.4		0.2		0.9			6.6		0.9
Deposits utilized (made) for purchase of property, plant and equipment	(2.4)		(0.4)		(1.7)			(2.8)		0.5
Purchase of business, net of cash acquired	—		—		—			—		(4.5)
Settlement of purchase price from previous acquisition	—		—		—		—	—		26.0
Net cash used in investing activities	$	(100.8)	$	(77.2)	$	(74.1)		$	(178.0)	$	(182.7)
Cash flows from financing activities:
Proceeds for the issuance of common stock under the ESPP	$	5.7	$	6.6	$	3.9		$	12.3	$	11.4
Payment of tax withholding for restricted stock units	(3.5)		(28.5)		(0.6)			(32.0)		(16.6)
Repurchase of common stock	—		—		—			—		(65.4)
Issuance and borrowings under debt agreements	787.3		—		—			787.3		1,165.0
Reimbursement of debt issuance costs	2.7		—		—			2.7		—
Payment of debt issuance costs	(3.5)		—		—			(3.5)		—
Repayment of borrowings under debt agreements	(1,060.6)		(154.1)		(4.3)			(1,214.7)		(60.3)
Payments related to prior acquisition	(0.2)		(2.1)		(0.6)			(2.3)		(5.5)
Payment for purchase of bond hedges	(160.3)		—		—			(160.3)		—
Proceeds from issuance of warrants	93.8		—		—			93.8		—
Net cash provided by (used in) financing activities	$	(338.6)	$	(178.1)	$	(1.6)		$	(516.7)	$	1,028.6
Effect of exchange rate changes on cash, cash equivalents and restricted cash	—		(0.8)		(0.1)			(0.8)		0.1
Net increase (decrease) in cash, cash equivalents and restricted cash	$	48.6	$	(37.6)	$	78.7		$	11.0	$	1,166.5
Beginning cash, cash equivalents and restricted cash	1,043.9		1,081.5		1,982.0			1,081.5		894.2
Ending cash, cash equivalents and restricted cash	$	1,092.5	$	1,043.9	$	2,060.7		$	1,092.5	$	2,060.7

ON SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP VERSUS NON-GAAP DISCLOSURES
(in millions, except per share and percentage data)
			Quarters Ended									Six Months Ended
			July 2, 2021			April 2, 2021			July 3, 2020			July 2, 2021			July 3, 2020

Reconciliation of GAAP to non-GAAP gross profit:
GAAP gross profit			$	640.1		$	521.2		$	374.3		$	1,161.3		$	777.0
	Special items:
	a)	Non-recurring facility costs	0.7			—			—			0.7			—
		Total special items	0.7			—			—			0.7			—
Non-GAAP gross profit			$	640.8		$	521.2		$	374.3		$	1,162.0		$	777.0
Reconciliation of GAAP to non-GAAP gross margin:
GAAP gross margin			38.3		%	35.2		%	30.8		%	36.8		%	31.2		%
	Special items:
	a)	Non-recurring facility costs	—		%	—		%	—		%	—		%	—		%
		Total special items	0.1		%	—		%	—		%	0.1		%	—		%
Non-GAAP gross margin			38.4		%	35.2		%	30.8		%	36.9		%	31.2		%
Reconciliation of GAAP to non-GAAP operating expenses:
GAAP operating expenses			$	357.9		$	395.3		$	331.2		$	753.2		$	715.3
	Special items:
	a)	Amortization of acquisition-related intangible assets	(24.8)			(25.0)			(29.1)			(49.8)			(61.4)
	b)	Restructuring, asset impairments and other, net	(17.5)			(42.5)			(16.2)			(60.0)			(49.0)
	c)	Intangible asset impairment	—			(2.9)			(1.3)			(2.9)			(1.3)
	d)	Third party acquisition and divestiture related costs	(1.4)			(0.2)			—			(1.6)			(0.3)
		Total special items	(43.7)			(70.6)			(46.6)			(114.3)			(112.0)
Non-GAAP operating expenses			$	314.2		$	324.7		$	284.6		$	638.9		$	603.3
Reconciliation of GAAP to non-GAAP operating income:
GAAP operating income			$	282.2		$	125.9		$	43.1		$	408.1		$	61.7
	Special items:
	a)	Non-recurring facility costs	0.7			—			—			0.7			—
	b)	Amortization of acquisition-related intangible assets	24.8			25.0			29.1			49.8			61.4
	c)	Restructuring, asset impairments and other, net	17.5			42.5			16.2			60.0			49.0
	d)	Intangible asset impairment	—			2.9			1.3			2.9			1.3
	e)	Third party acquisition and divestiture related costs	1.4			0.2			—			1.6			0.3
		Total special items	44.4			70.6			46.6			115.0			112.0
Non-GAAP operating income			$	326.6		$	196.5		$	89.7		$	523.1		$	173.7
*Reconciliation of GAAP to non-GAAP operating margin (operating income / revenue)* :**
GAAP operating margin			16.9		%	8.5		%	3.6		%	12.9		%	2.5		%
	Special items:
	a)	Non-recurring facility costs	—		%	—		%	—		%	—		%	—		%
	b)	Amortization of acquisition-related intangible assets	1.5		%	1.7		%	2.4		%	1.6		%	2.5		%
	c)	Restructuring, asset impairments and other, net	1.0		%	2.9		%	1.3		%	1.9		%	2.0		%
	d)	Intangible asset impairment	—		%	0.2		%	0.1		%	0.1		%	0.1		%
	e)	Third party acquisition and divestiture related costs	0.1		%	—		%	—		%	0.1		%	—		%
		Total special items	2.7		%	4.8		%	3.8		%	3.7		%	4.5		%
Non-GAAP operating margin			19.6		%	13.3		%	7.4		%	16.6		%	7.0		%
Reconciliation of GAAP to non-GAAP income before income taxes:
GAAP income (loss) before income taxes			$	222.0		$	97.4		$	(0.1)		$	319.4		$	(22.0)
	Special items:
	a)	Non-recurring facility costs	0.7			—			—			0.7			—
	b)	Amortization of acquisition-related intangible assets	24.8			25.0			29.1			49.8			61.4
	c)	Restructuring, asset impairments and other, net	17.5			42.5			16.2			60.0			49.0
	d)	Intangible asset impairment	—			2.9			1.3			2.9			1.3
	e)	Third party acquisition and divestiture related costs	1.4			0.2			—			1.6			0.3
	f)	Loss on debt refinancing and repayment	26.2			—			—			26.2			—
	g)	Non-cash interest on convertible notes	6.0			4.6			9.8			10.6			19.3
		Total special items	76.6			75.2			56.4			151.8			131.3
Non-GAAP income before income taxes			$	298.6		$	172.6		$	56.3		$	471.2		$	109.3
Reconciliation of GAAP to non-GAAP net income attributable to ON Semiconductor Corporation:
GAAP net income (loss) attributable to ON Semiconductor Corporation			$	184.1		$	89.9		$	(1.4)		$	274.0		$	(15.4)
	Special items:
	a)	Non-recurring facility costs	0.7			—			—			0.7			—
	b)	Amortization of acquisition-related intangible assets	24.8			25.0			29.1			49.8			61.4
	c)	Restructuring, asset impairments and other, net	17.5			42.5			16.2			60.0			49.0
	d)	Intangible asset impairment	—			2.9			1.3			2.9			1.3
	e)	Third party acquisition and divestiture related costs	1.4			0.2			—			1.6			0.3
	f)	Loss on debt refinancing and prepayment	26.2			—			—			26.2			—
	g)	Non-cash interest on convertible notes	6.0			4.6			9.8			10.6			19.3
	h)	Adjustment of income taxes	15.1			(13.8)			(4.8)			1.3			(22.9)
		Total special items	91.7			61.4			51.6			153.1			108.4
Non-GAAP net income attributable to ON Semiconductor Corporation			$	275.8		$	151.3		$	50.2		$	427.1		$	93.0
Adjustment of income taxes:
Tax adjustment for special items (1)			$	(16.1)		$	(15.8)		$	(11.8)		$	(31.9)		$	(27.6)
Other non-GAAP tax adjustment (2)			31.2			2.0			7.0			33.2			4.7
		Total adjustment of income taxes	$	15.1		$	(13.8)		$	(4.8)		$	1.3		$	(22.9)
Reconciliation of GAAP to non-GAAP diluted shares outstanding:
GAAP diluted shares outstanding			443.6			445.4			410.1			444.5			410.3
	Special items:
	a)	Less: dilutive shares attributable to convertible notes	(8.6)			(12.8)			—			(10.7)			—
	b)	Add: dilutive shares attributable to share-based awards	—			—			0.9			—			1.6
		Total special items	(8.6)			(12.8)			0.9			(10.7)			1.6
Non-GAAP diluted shares outstanding			435.0			432.6			411.0			433.8			411.9
Non-GAAP diluted earnings per share:
Non-GAAP net income attributable to ON Semiconductor Corporation			$	275.8		$	151.3		$	50.2		$	427.1		$	93.0
Non-GAAP diluted shares outstanding			435.0			432.6			411.0			433.8			411.9
Non-GAAP diluted earnings per share			$	0.63		$	0.35		$	0.12		$	0.98		$	0.23
Reconciliation of net cash provided by operating activities to free cash flow:
Net cash provided by operating activities			$	488.0		$	218.5		$	154.5		$	706.5		$	320.5
	Special items:
	a)	Purchase of property, plant and equipment	(104.8)			(77.0)			(73.3)			(181.8)			(205.6)
		Total special items	(104.8)			(77.0)			(73.3)			(181.8)			(205.6)
Free cash flow			$	383.2		$	141.5		$	81.2		$	524.7		$	114.9

(1)		Tax impact of non-GAAP special items (a-g) 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.

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