Bill Betz
Executive Vice President and Chief Financial Officer at NXP Semiconductors
Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q4 and provided our revenue outlook for Q1, I will move to the financial highlights. Overall, our Q4 financial performance was good. Revenue and non-GAAP gross profit were both modestly above the midpoint of our guidance range, while operating expenses were in-line with the midpoint of our guidance. Taken together, we delivered non-GAAP earnings per share of $3.18 or $0.05 better than the midpoint of our guidance. Furthermore, we continued to tightly manage sales into the distribution channel with weeks of inventory in the channel, flat sequentially at eight weeks. I will first provide full-year highlights and then move to the Q4 results. Full-year revenue for 2024 was $12.61 billion, down 5% year-on-year due to a weak macro in the Western markets, while China continued to be resilient. We generated $7.33 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58.1%, down 40 basis-points year-on-year. Now total non-GAAP operating expenses were $2.96 billion or 23.5% of revenue, slightly above our long-term operating expense model as we continue to invest in our strategy supporting long-term profitable growth. Total non-GAAP operating profit was $4.37 billion, down 6% year-on-year. This reflects a non-GAAP operating margin of 34.6%, down 50 basis-points year-on-year and in-line with our long-term financial model. Non-GAAP interest expense was $275 million. Taxes related to ongoing operations were $686 million or a 16.8% non-GAAP effective tax-rate. Non-controlling interest was $32 million and the results from equity account investees associated with our joint-venture manufacturing partnerships was zero. Stock-based compensation, which is not included in our non-GAAP earnings was $461 million. Turning to full-year cash-flow performance. We generated $2.78 billion in cash-flow from operations and invested $693 million in net capex or about 5.5% of revenue. Taken together, this resulted in $2.09 billion of non-GAAP free-cash flow or about 17% of revenue. During 2024, we repurchased 5.73 million shares for $1.37 billion and paid cash dividends of $1.04 billion or 37% of cash-flow from operations. In total, we returned $2.41 billion to our owners, which was 115% of the total non-GAAP free-cash flow generated during the year. Now moving to the details of Q4. Total revenue was $3.11 billion, down 9% year-on-year and modestly above the midpoint of our guidance range. We generated $1.79 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 57.5%, down 120 basis-points year-on-year and in-line with the midpoint of our guidance range. Total non-GAAP operating expenses were $725 million or 23.3% of revenue, down $66 million year-on-year and in-line with the midpoint of our guidance range. From a total operating profit perspective, non-GAAP operating profit was $1.06 billion and non-GAAP operating margin was 34.2%, down 140 basis-points year-on-year and above the midpoint of our guidance range. Non-GAAP interest expense was $74 million, while taxes for ongoing operations were $164 million or a 16.5% non-GAAP effective tax-rate. Non-controlling interest was $10 million and results from equity account invest fees associated with our joint-venture manufacturing partnerships was zero, although $2 million better than our expectations. Stock-based compensation, which is not included in our non-GAAP earnings was $117 million. Now I would like to turn to the changes in our cash and debt. Our total debt at the end of Q4 was $10.85 billion, up $672 million sequentially due to the attractively priced loan from the European Investment Bank. Our ending cash balance was $3.29 billion, up $144 million sequentially due to the cumulative effect of additional liquidity, capital returns, capex investments and cash generation during Q4. The resulting net-debt was $7.56 billion and we exited the quarter with a trailing 12-month adjusted EBITDA of $5.06 billion. Our ratio of net-debt to trailing 12-month adjusted EBITDA at the end of Q4 was 1.5 times and our 12-month adjusted EBITDA interest coverage was 21.3 times. During Q4, we paid $258 million in cash dividends and repurchased $455 million of our shares, after the end-of-the quarter and through January 31, we bought an additional 101 million of our shares under an established 10b51 program. Turning to working capital metrics. Days of inventory was 151 days, an increase of two days sequentially, while we maintain distribution channel inventory at eight weeks. As we have highlighted throughout the previous year, given the uncertain demand environment, we continue to make the intentional choice to control the increase of channel inventory. Days receivables were 30 days, flat sequentially, and days payable were 65 days, an increase of five days versus the prior quarter due to improving our payment terms with suppliers. However, taken together, our cash conversion cycle was 116 days, an improvement of three days versus the prior quarter. Cash-flow from operations was $391 million and net capex was $99 million or 3% of revenue, resulting in non-GAAP free-cash flow of $292 million or 9% of revenue. During Q4, we paid a $275 million capacity access fee-related to BSFC, which is included in our cash-flow from operations. Additionally, we paid $50 million into our -- the ESMC equity-accounted foundry joint-venture under-construction in Germany, which is included in our cash-flow from investing. First, turning now to our expectations for the first-quarter. As Kurt mentioned, we anticipate Q1 revenue to be $2.825 billion, plus or minus about $100 million. At the midpoint, this is down about 10% year-on-year and down about 9% sequentially. We expect non-GAAP gross margin to be about 56.3%, plus or minus 50 basis-points, driven by the return of our annual price concessions and lower revenue fall-through over our fixed costs. Operating expenses are expected to be about $700 million, plus or minus about $10 million. The sequential decline is driven by restructuring the business and lower variable compensation. Taken together, we see non-GAAP operating margin to be 31.5% at the midpoint. We estimate non-GAAP financial expense to be about $80 million and we expect the non-GAAP tax-rate to be 17.5% of profit before-tax, non-controlling interest will be about $5 million and results from equity account invest fees to be about $1 million. For Q1, we suggest for modeling purposes, you use an average share count of 256 million shares. We expect stock-based compensation, which is not included in our non-GAAP guidance to be $128 million. Taken together at the midpoint, this implies a non-GAAP earnings per share of $2.59. Turning to uses of cash. We expect capital expenditures to be around 5% of revenue. We also will make a $125 million capacity access fee into VSMC, which was originally planned for Q4. Additionally, we will make a $32 million equity investment into ESMC and a $76 million equity investment into VSMC, our two equity-accounted foundry joint-ventures under-construction. For full-year 2025 modeling purposes, consistent with comments from our recent Investor Day, we expect operating expenses to stay with our long-term model of 23% for the year. We will see a step-up of operating expenses due to the annualized merits, the $15 million annual license fee, along with variable compensation movements pending actual performance. First, we suggest using a non-GAAP tax-rate of 17.5% plus or minus 50 basis-points. And for stock-based compensation, we suggest using $475 million. For non-controlling interest, we suggest modeling $30 million-plus or minus a few million. And for equity-accounted invest fees, we suggest modeling $10 million loss plus or minus a few million depending out on the build progress for both ESMC and the SMC joint-venture from our front-end facilities. For capital expenditures, we expect to stay within the long-term model of 5% or less closing, I would like to highlight a few focus areas for NXP. First, as you can see, we have taken some restructuring charges in Q4 as we are creating space for our recent acquisitions to prevent dilution and to ensure we stay within our long-term operating expense model. Second, our internal front-end utilizations will remain in the low 70% range. Consistent with our hybrid manufacturing strategy, we are now also concretely planning the consolidation of our internal 200 millimeter factories. And lastly, as visibility remains very cloudly cloudy, we will rigorously focus on managing what is in our control to navigate a soft landing while executing our growth strategy. And of course, there is no change to our capital allocation strategy. With that, I would like to turn it back to the operator for your questions.
