Freescale Semiconductor, Ltd. (NYSE:FSL) today announced financial results for the first quarter ended April 4, 2014. Highlights include:
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“We continue to see solid progress on our initiatives to increase revenue and improve gross margin,” said Gregg Lowe, president and CEO. “All five product groups generated revenue growth sequentially and year over year. With a 15 percent year-over-year growth in revenue, the company continues to make strides in gaining market share.
“Our results continue to benefit from margin expansion and deleveraging efforts, as our sequential revenue increase of 4 percent drove an adjusted earnings per share growth of 42 percent.”
First Quarter Highlights
Net sales for the first quarter of 2014 were $1.13 billion, compared to $1.08 billion in the fourth quarter of 2013 and $981 million in the first quarter of 2013.
Operating earnings for the period were $155 million, compared to $145 million in the fourth quarter of 2013 and $104 million in the first quarter of 2013. Operating earnings improved on a sequential and year-over-year basis due to higher sales and improving gross margins, partially offset by increased investments in new products and higher incentive compensation.
Net loss for the first quarter was $23 million, or $0.08 per share, compared to a net loss of $118 million, or $0.46 per share, in the fourth quarter of 2013 and a net loss of $48 million, or $0.19 per share in the first quarter of 2013. First quarter 2014 results included a $59 million loss associated with debt retirement and refinancing transactions completed during the quarter, which will result in lower interest expense in future quarters.
Adjusted operating earnings (defined in Note 1 to the Consolidated Financial Information attached to this press release) for the three months ended April 4, 2014 were $186 million, compared to earnings of $174 million in the fourth quarter of 2013 and $117 million in the first quarter of 2013.
Adjusted net earnings for the first quarter of 2014 were $77 million, or $0.27 per share, compared to $50 million, or $0.19 per share, in the fourth quarter of 2013 and a loss of $8 million, or $0.03 per share, in the first quarter of 2013. Adjusted net earnings improved sequentially and year over year due to improving sales and gross margin along with lower interest expense associated with the company’s capital structure initiatives.
Descriptions of EBITDA**, Adjusted EBITDA, adjusted operating earnings and adjusted net earnings (loss) and the reconciliations to our GAAP results are included in the tables and notes attached to this press release.
Product Group Revenues
The company’s net sales figures for the first quarter of 2014 were as follows:
- Microcontroller net sales were $223 million, compared to $220 million in the fourth quarter of 2013 and $177 million in the first quarter of last year. On a year-over-year basis, Microcontroller revenues benefited from increased sales into distribution and higher sales of applications processors into the automotive market.
- Digital Networking net sales were $249 million, compared to $246 million in the fourth quarter of 2013 and $202 million in the first quarter of last year. Year-over-year networking sales growth was broad based across service provider, enterprise and general embedded segments. Sequentially, the networking business benefited from higher sales of service provider equipment, including wireless base stations in China.
- Automotive Microcontroller net sales were $304 million, compared to $267 million in the fourth quarter of 2013 and $254 million in the first quarter of last year. Automotive Microcontroller sales benefited from growth in all key geographies and in distribution due to growth in semiconductor content and higher automotive production levels.
- Analog and Sensor net sales were $198 million, compared to $190 million in the fourth quarter of 2013 and $177 million in the first quarter of last year. Analog and Sensor sales benefited on a sequential and year-over-year basis from higher sales into the growing worldwide automotive market.
- RF net sales, which include sales of power amplifiers to the wireless infrastructure market, were $113 million, compared to $96 million in the fourth quarter of 2013 and $86 million in the first quarter of last year. On a sequential and year-over-year basis, RF sales increased due to increased spending on 3G and 4G wireless networks, particularly in China.
- Other net sales were $40 million, compared to $63 million in the fourth quarter of 2013 and $85 million in the first quarter of last year. Revenues declined primarily due to lower intellectual property revenue along with lower sales into the wireless handset market, consistent with the company’s prior decision to exit that market.
Other Financial Information
- Capital Expenditures for the quarter were $56 million;
- Cash and Cash Equivalents were $709 million and;
- Adjusted EBITDA* for the latest twelve months ending April 4, 2014 was $949 million.
*Adjusted for various items as indicated and defined in Note 1 to the Notes to the Consolidated Financial Information attached to this press release.
**Reflects EBITDA excluding the effects of other items.
Second Quarter 2014 Outlook
For the second quarter of 2014, the company expects:
- Net sales to be between $1.14 billion and $1.20 billion;
- Gross margins to increase approximately 50 to 75 basis points on a sequential basis.
Conference Call and Webcast
Freescale’s quarterly earnings call is scheduled to begin at 4:00 p.m. Central Daylight Time on April 24, 2014. The company will offer a live webcast of the conference call over the Internet at www.freescale.com/investor.
Caution Regarding Forward-Looking Statements
This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our business strategy, goals and expectations concerning future revenues, operations and margins. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Actual results and trends in the future may differ materially from those suggested or implied by the forward-looking statements depending on a variety of factors. Some of the factors that we believe could affect our results include general economic and business conditions; our ability to meet unscheduled or temporary increases in demand; our substantial indebtedness; our ability to service our outstanding indebtedness and the impact such indebtedness may have on the way we operate our business; the loss of one or more of our significant customers or strategic relationships; any downturns in the cyclical industry in which we operate; our competitive environment and our ability to make technological advances; interruptions in our production or manufacturing capacity and our ability to obtain supplies; economic conditions in the industries in which our products are sold; maintenance and protection of our intellectual property; political and economic conditions in the countries where we conduct business; geological conditions in some of the earthquake-prone countries where certain of our customers and suppliers are based; the costs of environmental compliance and/or the imposition of liabilities under environmental laws and regulations; potential product liability or personal injury claims; inability to make necessary capital expenditures; loss of key personnel; the financial viability of our customers, distributors or suppliers; and our ability to achieve cost savings as well as other matters described under “Risk Factors” in our Annual Report on Form 10-K and other filings with the SEC. We undertake no obligation to update any information contained in this press release.
Non-GAAP Financial Measures
Included within this press release and the accompanying tables and notes are non-GAAP financial measures that supplement the company’s consolidated financial information prepared under GAAP. The company describes these non-GAAP financial measures and reconciles them to the most directly comparable GAAP measures in the tables and notes attached to this press release. The company’s management believes that these non-GAAP measures provide a more meaningful representation of the company’s ongoing financial performance than GAAP measures alone. In addition, the company uses Adjusted EBITDA to measure compliance with certain of its debt covenants. These non-GAAP measures are included solely for informational and comparative purposes and are not meant as a substitute for GAAP. You should consider them together with the consolidated financial information located in the tables attached to this press release.
