Freescale Semiconductor Announces Fourth Quarter and Full-Year 2014 Results

Freescale Semiconductor, Ltd. (NYSE:FSL) today announced financial results for the fourth quarter and full-year ended December 31, 2014. Highlights include:

“Freescale continues to make consistent progress in gaining market share, improving profitability and improving our capital structure,” said Gregg Lowe, president and CEO. “Our revenues grew 11 percent over the prior year and all indications are that we gained market share in 2014. Gross margins improved over the prior year and our adjusted earnings per share grew more than three times compared to the prior year. Our end market exposure, margin and earnings momentum position us well for another solid performance in 2015.”

*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 effect of other items.

Fourth Quarter and Full-Year Highlights

• Net sales for the fourth quarter of 2014 were $1.10 billion, down nine percent sequentially due to seasonality and lower sales into both the industrial market and distribution. Compared to last year, fourth quarter sales were up two percent. Product group revenue was up six percent compared to the fourth quarter last year.
• For the year, net sales for the company increased 11 percent and product group revenue increased 16 percent. All five product groups’ revenue grew over last year with four of the five generating double-digit growth.
• Gross margins for the quarter were 47.2 percent, up from 46.3 percent in the third quarter of 2014. Operating efficiencies and procurement savings contributed to the sequential increase in gross margin, offset by the impact of lower sales volume and a modest decline in utilization.
• Gross margins for 2014 were 45.9 percent compared to 42.7 percent in the prior year. Operating efficiencies and procurement savings helped contribute to the year-over-year improvement.
• Operating earnings for the fourth quarter were $178 million, compared to $215 million in the third quarter of 2014 and $145 million in the fourth quarter of 2013. Operating earnings were impacted by lower sales on a sequential basis. On a year-over-year basis, operating earnings benefited from higher sales and improving gross margins.
• Net earnings for the fourth quarter were $63 million, or $0.20 per share, compared to net earnings of $125 million, or $0.40 per share, in the third quarter of 2014 and a net loss of $118 million, or a loss per share of $0.46, in the fourth quarter of 2013. Fourth quarter 2014 net earnings included the impact of $12 million of reorganization of business and other charges and $10 million of costs related to the company’s redemption of $100 million of debt securities during the fourth quarter.
• Adjusted operating earnings (defined in Note 1 to the Consolidated Financial Information attached to this press release) for the fourth quarter of 2014 were $211 million compared to earnings of $243 million in the third quarter of 2014 and $174 million in the fourth quarter of 2013. For the year, adjusted operating earnings were $848 million compared to $616 million in 2013. As a percentage of sales, adjusted operating earnings improved to 18.3 percent in 2014 compared to 14.7 percent last year.
• Adjusted net earnings (defined in Note 1 to the Consolidated Financial Information attached to this press release) for the fourth quarter of 2014 were $129 million, or $0.42 per share, compared to $150 million, or $0.49 per share, in the third quarter of 2014 and $50 million, or $0.19 per share, in the fourth quarter of 2013. Adjusted earnings per share for 2014 were $1.56, compared to $0.45 in 2013.
• Adjusted net earnings benefited from significant improvements in gross margin and lower interest expense associated with the company’s de-leveraging activities. During 2014, the company reduced total debt by approximately $915 million and reduced annualized interest expense by approximately $95 million. Inclusive of the $250 million debt redemption announced earlier this month, total debt will be reduced by $1.2 billion and annualized interest expense reduced by $120 million.

Descriptions of EBITDA, Adjusted EBITDA, adjusted operating earnings and adjusted net earnings 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 fourth quarter and full-year 2014 were as follows:

• Microcontrollers net sales were $232 million, compared to $250 million in the third quarter of 2014 and $220 million in the fourth quarter of last year. For calendar 2014, Microcontrollers net sales grew 15 percent compared to the prior year, benefiting from increased sales of its 32-bit microcontroller products into distribution and higher sales of applications processors into the automotive market.
• Digital Networking net sales were $217 million, compared to $281 million in the third quarter of 2014 and $246 million in the fourth quarter of last year. Networking net sales declined on a sequential basis due to lower sales to certain service provider customers and lower sales into the industrial market. For calendar 2014, Networking net sales grew 13 percent compared to the prior year, benefiting from growth in service provider, including wireless base stations in China, enterprise and the general embedded segments.
• Automotive MCU net sales were $271 million, compared to $303 million in the third quarter of 2014 and $267 million in the fourth quarter of last year. Sequentially, Automotive MCU sales declined due to seasonality. For calendar 2014, Automotive MCU sales grew 12 percent compared to the prior year, benefiting from growth in all key geographies and in distribution due to increases in vehicle semiconductor content and higher worldwide automotive production.
• Analog and Sensors net sales were $193 million, compared to $201 million in the third quarter of 2014 and $190 million in the fourth quarter of last year. Sequentially, Analog and Sensors net sales were lower due to automotive seasonality. For calendar 2014, Analog and Sensors sales grew eight percent, benefiting from increased vehicle semiconductor content and growth in worldwide automotive production.
• RF net sales, which include sales of power amplifiers to the wireless infrastructure market, were $164 million, compared to $157 million in the third quarter of 2014 and $96 million in the fourth quarter of last year. For calendar 2014, RF sales grew 57 percent compared to last year, due to increased spending on 3G and 4G wireless networks, particularly in China.
• Other net sales were $26 million, compared to $21 million in the third quarter of 2014 and $63 million in the fourth quarter of last year. Intellectual property revenues declined sequentially, offset by growth in foundry and other revenues. For calendar 2014, Other net sales declined 63 percent, due to significantly lower intellectual property revenues and 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 fourth quarter were $74 million and for the year were $249 million;
• Cash and Cash Equivalents were $696 million, inclusive of debt redemption activities during the quarter totaling $110 million; and
• Adjusted EBITDA* for the latest twelve months ended December 31, 2014 was $1.10 billion.

First Quarter 2015 Outlook

For the first quarter of 2015, the company expects:

• Net sales to be between $1.135 billion and $1.185 billion;
• Gross margins to be essentially flat on a sequential basis.