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STMicroelectronics Reports 2019 Second Quarter Financial Results

July 25, 2019 1:28 AM

PR No: C2909C

Geneva, July 25, 2019 - STMicroelectronics (NYSE: STM), a global semiconductor leader serving customers across the spectrum of electronics applications, reported U.S. GAAP financial results for the second quarter ended June 29, 2019. This press release also contains non-U.S. GAAP measures (see Appendix for additional information).

ST reported second quarter net revenues of $2.17 billion, gross margin of 38.2%, operating margin of 9.0%, and net income of $160 million or $0.18 diluted earnings per share.

Jean-Marc Chery, STMicroelectronics President & CEO, commented:

Quarterly Financial Summary (U.S. GAAP)

(US$ m, except per share data) Q2 2019 Q1 2019 Q2 2018 Q/Q Y/Y
Net Revenues $2,173 $2,076 $2,269 4.7% (4.2)%
Gross Profit $830 $818 $911 1.6% (8.9)%
Gross Margin 38.2% 39.4% 40.2% (120) bps (200) bps
Operating Income $196 $211 $289 (7.0)% (32.0)%
Operating Margin 9.0% 10.2% 12.7% (120) bps (370) bps
Net Income $160 $178 $261 (10.2)% (38.7)%
Diluted Earnings Per Share $0.18 $0.20 $0.29 (10.0)% (37.9)%


Second Quarter 2019 Summary Review

Net Revenues By Product Group (US$ m) Q2 2019 Q1 2019 Q2 2018 Q/Q Y/Y
Automotive and Discrete Group (ADG) $885 $903 $870 (2.1)% 1.7%
Analog, MEMS and Sensors Group (AMS) $694 $552 $613 25.7% 13.2%
Microcontrollers and Digital ICs Group (MDG) $591 $617 $782 (4.2)% (24.4)%
Others $3 $4 $4 - -
Total Net Revenues $2,173 $2,076 $2,269 4.7% (4.2)%

Net revenues totaled $2.17 billion. On a sequential basis revenues increased 4.7%, 230 basis points better than the mid-point of the Company’s guidance. On a year-over-year basis, second quarter net revenues decreased 4.2% as the Company recorded lower sales in Analog, Microcontrollers and Digital ICs, partially offset by growth in Automotive and Power Discrete, MEMS and Sensors. On a year-over-year basis, sales to OEMs increased 10.3%, while Distribution decreased 27.0% due to the ongoing inventory correction.

Gross profit totaled $830 million, representing a year-over-year decrease of 8.9%. Gross margin of 38.2% decreased 200 basis points year-over-year, mainly impacted by usual sales price pressure, unfavorable product mix and unsaturation charges. Second quarter gross margin was 30 basis points lower than the mid-point of the Company’s guidance, mainly due to unfavorable product mix. Second quarter gross margin includes 80 basis points of unsaturation charges.

Operating income decreased 32.0% to $196 million, compared to $289 million in the year-ago quarter. The Company’s operating margin decreased 370 basis points on a year-over-year basis to 9.0% of net revenues, compared to 12.7% in the 2018 second quarter.

By product group, compared with the year-ago quarter:

Automotive and Discrete Group (ADG):

Analog, MEMS and Sensors Group (AMS):

Microcontrollers and Digital ICs Group (MDG):

Net income and diluted earnings per share decreased to $160 million and $0.18, respectively, compared to $261 million and $0.29, respectively, in the year-ago quarter.

Cash Flow and Balance Sheet Highlights

Trailing 12 Months
(US$ m) Q2 2019 Q1 2019 Q2 2018 Q2 2019 Q2 2018(1) TTM Change
Net cash from operating activities $324 $341 $360 $1,694 $1,835 (7.7)%
Free cash flow (non-U.S. GAAP) $(67) $(67) $(40) $343 $280 22.5%


(1) Q2 2018 trailing 12 months includes 2017 amounts that have been adjusted to reflect the reclassification as operating cash flows of the implied interest paid in the settlement of our convertible bonds.

Capital expenditure payments, net of proceeds from sales, were $372 million in the second quarter. In the year-ago quarter, capital expenditures, net, were $390 million.

Inventory at the end of the quarter was $1.89 billion, up from $1.77 billion in the prior quarter. Day sales of inventory at quarter-end was 129 days compared to 124 days in the prior quarter.

Free cash flow (non-U.S. GAAP) was negative $67 million in the second quarter, compared to negative $40 million in the year-ago quarter.

In the second quarter, the Company paid cash dividends totaling $53 million and executed a $64 million share buy-back as part of its ongoing program.

ST’s net financial position (non-U.S. GAAP) was $308 million at June 29, 2019 compared to $510 million at March 30, 2019 and reflected total liquidity of $2.51 billion and total financial debt of $2.20 billion.

Business Outlook

The Company’s guidance for the 2019 third quarter is:

Conference Call and Webcast Information

STMicroelectronics will conduct a conference call with analysts, investors and reporters to discuss its second quarter 2019 financial results and current business outlook today at 9:30 a.m. Central European Time (CET) / 3:30 a.m. U.S. Eastern Time (ET). A live webcast (listen-only mode) of the conference call will be accessible at ST’s website, http://investors.st.com, and will be available for replay until August 9, 2019.

Use of Supplemental Non-U.S. GAAP Financial Information

This press release contains supplemental non-U.S. GAAP financial information.

Readers are cautioned that these measures are unaudited and not prepared in accordance with U.S. GAAP and should not be considered as a substitute for U.S. GAAP financial measures. In addition, such non-U.S. GAAP financial measures may not be comparable to similarly titled information from other companies.

See the Appendix of this press release for a reconciliation of the Company’s non-U.S. GAAP financial measures to their corresponding U.S. GAAP financial measures. To compensate for these limitations, the supplemental non-U.S. GAAP financial information should not be read in isolation, but only in conjunction with the Company’s consolidated financial statements prepared in accordance with U.S. GAAP.

Forward-looking Information

Some of the statements contained in this release that are not historical facts are statements of future expectations and other forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended) that are based on management’s current views and assumptions, and are conditioned upon and also involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those anticipated by such statements, due to, among other factors:

Such forward-looking statements are subject to various risks and uncertainties, which may cause actual results and performance of our business to differ materially and adversely from the forward-looking statements. Certain forward-looking statements can be identified by the use of forward looking terminology, such as “believes,” “expects,” “may,” “are expected to,” “should,” “would be,” “seeks” or “anticipates” or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans or intentions.

Some of these risk factors are set forth and are discussed in more detail in “Item 3. Key Information — Risk Factors” included in our Annual Report on Form 20-F for the year ended December 31, 2018, as filed with the SEC on February 28, 2019. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this release as anticipated, believed, or expected. We do not intend, and do not assume any obligation, to update any industry information or forward-looking statements set forth in this release to reflect subsequent events or circumstances.

About STMicroelectronics

ST is a global semiconductor leader delivering intelligent and energy-efficient products and solutions that power the electronics at the heart of everyday life. ST’s products are found everywhere today, and together with our customers, we are enabling smarter driving and smarter factories, cities and homes, along with the next generation of mobile and Internet of Things devices.

By getting more from technology to get more from life, ST stands for life.augmented.

In 2018, the Company’s net revenues were $9.66 billion, serving more than 100,000 customers worldwide.

Further information can be found at www.st.com.

For further information, please contact:

INVESTOR RELATIONS:
Céline Berthier
Group VP, Investor Relations
Tel: +41 22 929 58 12
[email protected]

MEDIA RELATIONS:
Alexis Breton
Corporate External Communications
STMicroelectronics
Tel: + 33 6 59 16 79 08
[email protected]

STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF INCOME
(in millions of U.S. dollars, except per share data ($))
Three months ended
June 29, June 30,
2019 2018
(Unaudited) (Unaudited)
Net sales 2,160 2,250
Other revenues 13 19
NET REVENUES 2,173 2,269
Cost of sales (1,343) (1,358)
GROSS PROFIT 830 911
Selling, general and administrative (269) (277)
Research and development (381) (356)
Other income and expenses, net 18 11
Impairment, restructuring charges and other related closure costs (2) -
Total operating expenses (634) (622)
OPERATING INCOME 196 289
Interest income (expense), net - (2)
Other components of pension benefit costs (3) (3)
Income (loss) on equity-method investments - -
INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTEREST 193 284
Income tax expense (33) (21)
NET INCOME 160 263
Net income attributable to noncontrolling interest - (2)
NET INCOME ATTRIBUTABLE TO PARENT COMPANY 160 261
EARNINGS PER SHARE (BASIC) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS 0.18 0.29
EARNINGS PER SHARE (DILUTED) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS 0.18 0.29
NUMBER OF WEIGHTED AVERAGE SHARES USED IN CALCULATING DILUTED EPS 901.7 915.6


STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF INCOME
(in millions of U.S. dollars, except per share data ($))
Six months ended
June 29, June 30,
2019 2018
(Unaudited) (Unaudited)
Net sales 4,232 4,463
Other revenues 17 31
NET REVENUES 4,249 4,494
Cost of sales (2,601) (2,695)
GROSS PROFIT 1,648 1,799
Selling, general and administrative (540) (542)
Research and development (749) (705)
Other income and expenses, net 51 26
Impairment, restructuring charges and other related closure costs (2) (20)
Total operating expenses (1,240) (1,241)
OPERATING INCOME 408 558
Interest income (expense), net 2 (5)
Other components of pension benefit costs (7) (5)
Income (loss) on equity-method investments 1 -
INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTEREST 404 548
Income tax expense (65) (44)
NET INCOME 339 504
Net income attributable to noncontrolling interest (1) (4)
NET INCOME ATTRIBUTABLE TO PARENT COMPANY 338 500
EARNINGS PER SHARE (BASIC) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS 0.38 0.56
EARNINGS PER SHARE (DILUTED) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS 0.37 0.55
NUMBER OF WEIGHTED AVERAGE SHARES USED IN CALCULATING DILUTED EPS 902.3 915.1


STMicroelectronics N.V.
CONSOLIDATED BALANCE SHEETS
As at June 29, March 30, December 31,
In millions of U.S. dollars 2019 2019 2018
(Unaudited) (Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents 2,119 2,307 2,266
Restricted cash 60 60 -
Marketable securities 333 331 330
Trade accounts receivable, net 1,162 1,102 1,277
Inventories 1,890 1,765 1,562
Other current assets 437 454 419
Total current assets 6,001 6,019 5,854
Goodwill 163 163 121
Other intangible assets, net 296 291 212
Property, plant and equipment, net 3,930 3,740 3,495
Non-current deferred tax assets 675 659 672
Long-term investments 62 62 61
Other non-current assets 390 455 452
5,516 5,370 5,013
Total assets 11,517 11,389 10,867
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt 174 173 146
Trade accounts payable 895 895 981
Other payables and accrued liabilities 885 950 874
Dividends payable to stockholders 166 6 60
Accrued income tax 48 44 59
Total current liabilities 2,168 2,068 2,120
Long-term debt 2,030 2,015 1,764
Post-employment benefit obligations 389 381 385
Long-term deferred tax liabilities 12 14 14
Other long-term liabilities 338 298 160
2,769 2,708 2,323
Total liabilities 4,937 4,776 4,443
Commitment and contingencies
Equity
Parent company stockholders' equity
Common stock (preferred stock: 540,000,000 shares authorized, not issued; common stock: Euro 1.04 nominal value, 1,200,000,000 shares authorized, 911,174,420 shares issued, 896,021,163 shares outstanding) 1,157 1,157 1,157
Capital surplus 2,915 2,881 2,843
Retained earnings 2,065 2,169 1,991
Accumulated other comprehensive income 525 474 509
Treasury stock (216) (202) (141)
Total parent company stockholders' equity 6,446 6,479 6,359
Noncontrolling interest 134 134 65
Total equity 6,580 6,613 6,424
Total liabilities and equity 11,517 11,389 10,867


STMicroelectronics N.V.
SELECTED CASH FLOW DATA
Cash Flow Data (in US$ millions) Q2 2019 Q1 2019 Q2 2018
Net Cash from operating activities 324 341 360
Net Cash used in investing activities (391) (408) (401)
Net Cash from (used in) financing activities (123) 173 (60)
Net Cash increase (decrease) (188) 101 (108)
Selected Cash Flow Data (in US$ millions) Q2 2019 Q1 2019 Q2 2018
Depreciation & amortization 212 206 193
Net payment for Capital expenditures (372) (322) (390)
Dividends paid to stockholders (53) (54) (54)
Change in inventories, net (116) (215) (157)

Appendix
STMicroelectronics
Supplemental Financial Information

Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018
Net Revenues By Market Channel (%)
Total OEM 70% 66% 69% 68% 61%
Distribution 30% 34% 31% 32% 39%
€/$ Effective Rate 1.14 1.16 1.17 1.18 1.19
Product Group Data (US$ m)
Automotive & Discrete Group (ADG)
- Net Revenues 885 903 967 901 870
- Operating Income 73 95 141 116 84
Analog, MEMS & Sensors Group (AMS)
- Net Revenues 694 552 988 899 613
- Operating Income 74 43 202 157 64
Microcontrollers & Digital ICs Group (MDG)
- Net Revenues 591 617 689 719 782
- Operating Income 45 83 122 119 159
Others (a)
- Net Revenues 3 4 4 3 4
- Operating Income (Loss) 4 (10) (22) 6 (18)
Total
- Net Revenues 2,173 2,076 2,648 2,522 2,269
- Operating Income 196 211 443 398 289


(a) Net revenues of Others includes revenues from sales assembly services and other revenue. Operating income (loss) of Others includes items such as unused capacity charges, impairment, restructuring charges and other related closure costs, management reorganization costs, phase out and start-up costs, and other unallocated expenses such as: strategic or special research and development programs, certain corporate-level operating expenses, patent claims and litigations, and other costs that are not allocated to product groups, as well as operating earnings of other products. Others includes:


(US$ m) Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018
Unused Capacity Charges 7 1 - - -
Impairment & Restructuring Charges 2 - 2 - -

(Appendix – continued)
STMicroelectronics
Supplemental Non-U.S. GAAP Financial Information
U. S. GAAP – Non-U.S. GAAP Reconciliation

The supplemental non-U.S. GAAP information presented in this press release is unaudited and subject to inherent limitations. Such non-U.S. GAAP information is not based on any comprehensive set of accounting rules or principles and should not be considered as a substitute for U.S. GAAP measurements. Also, our supplemental non-U.S. GAAP financial information may not be comparable to similarly titled non-U.S. GAAP measures used by other companies. Further, specific limitations for individual non-U.S. GAAP measures, and the reasons for presenting non-U.S. GAAP financial information, are set forth in the paragraphs below. To compensate for these limitations, the supplemental non-U.S. GAAP financial information should not be read in isolation, but only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP.

Operating income (loss) before impairment and restructuring charges and one-time items is used by management to help enhance an understanding of ongoing operations and to communicate the impact of the excluded items, such as impairment, restructuring charges and other related closure costs. Adjusted net earnings and earnings per share (EPS) are used by management to help enhance an understanding of ongoing operations and to communicate the impact of the excluded items like impairment, restructuring charges and other related closure costs attributable to ST and other one-time items, net of the relevant tax impact.

The Company believes that these non-U.S. GAAP financial measures provide useful information for investors and management because they measure the Company’s capacity to generate profits from its business operations, excluding the effect of acquisitions and expenses related to the rationalizing of its activities and sites that it does not consider to be part of its on-going operating results, thereby offering, when read in conjunction with the Company’s U.S. GAAP financials, (i) the ability to make more meaningful period-to-period comparisons of the Company’s on-going operating results, (ii) the ability to better identify trends in the Company’s business and perform related trend analysis, and (iii) an easier way to compare the Company’s results of operations against investor and analyst financial models and valuations, which usually exclude these items.

(US$ m, except earnings per share data) Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018
U.S. GAAP Net Earnings 160 178 418 369 261
U.S. GAAP Diluted Earnings Per Share 0.18 0.20 0.46 0.41 0.29
Impairment & Restructuring 2 - 2 - -
Estimated Income Tax Effect - - - - -
Non-U.S. GAAP Net Earnings 162 178 420 369 261
Non-U.S. GAAP Diluted Earnings Per Share 0.18 0.20 0.46 0.41 0.29

(Appendix – continued)

Net financial position (non-U.S. GAAP measure): resources (debt), represents the balance between our total liquidity and our total financial debt. Our total liquidity includes cash and cash equivalents, restricted cash, short-term deposits and marketable securities, and our total financial debt includes short-term borrowings, current portion of long-term debt and long-term debt, all as reported in our consolidated balance sheet. We believe our net financial position provides useful information for investors and management because it gives evidence of our global position either in terms of net indebtedness or net cash position by measuring our capital resources based on cash and cash equivalents, restricted cash, short-term deposits and marketable securities and the total level of our financial indebtedness.

(US$ m) Jun 29
2019
Mar 30 2019 Dec 31 2018 Sep 29
2018
Jun 30
2018
Cash and cash equivalents 2,119 2,307 2,266 1,835 1,683
Restricted Cash 60 60 - - -
Short term deposits - - - 8 15
Marketable securities 333 331 330 328 429
Total liquidity 2,512 2,698 2,596 2,171 2,127
Short-term debt (174) (173) (146) (117) (118)
Long-term debt (2,030) (2,015) (1,764) (1,607) (1,598)
Total financial debt (2,204) (2,188) (1,910) (1,724) (1,716)
Net financial position 308 510 686 447 411

Free cash flow (non-U.S. GAAP measure) is defined as net cash from operating activities minus net cash from (used in) investing activities, excluding payment for purchases (proceeds from the sale of) marketable securities and short-term deposits. We believe free cash flow provides useful information for investors and management because it measures our capacity to generate cash from our operating and investing activities to sustain our operating activities. Free cash flow does not represent total cash flow since it does not include the cash flows generated by or used in financing activities. In addition, our definition of free cash flow may differ from definitions used by other companies.

(US$ m) Q2
2019
Q1
2019
Q4
2018
Q3
2018
Q2
2018
Net cash from operating activities 324 341 656 373 360
Net cash used in investing activities (391) (408) (284) (152) (401)
Payment for purchase and proceeds from sale of marketable securities, and investment in short-term deposits

-
- (9) (107) 1
Free cash flow (67) (67) 363 114 (40)

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