ON Semi Reports Strong First Quarter 2017 Results

ON Semiconductor Corporation has announced financial results for the first quarter of 2017. Total GAAP revenue in the first quarter of 2017 was $1,436.7 million, up approximately 76 percent compared to the same quarter last year, and up approximately 14 percent as compared to revenue in the prior quarter; GAAP gross margin of 35.0 percent and non-GAAP gross margin of 35.4 percent; GAAP operating margin of 12.8 percent and non-GAAP operating margin of 13.2 percent; Operating cash flow of $208.5 million and free cash flow of $155.8 million.

Non-GAAP revenue, which excludes the one-time impact from a change in revenue recognition to the “sell-in” method from the “sell-through” method, was $1,281.6 million, up approximately 57 percent as compared to the same quarter last year, and up approximately two percent as compared to revenue in the prior quarter.

“We continue to demonstrate strong growth in our revenue and profitability, and our free cash flow generation has improved significantly year over year,” said Keith Jackson, president and CEO of ON Semiconductor. “With a broad portfolio of analog, power and sensor products, operating leverage, and synergies from our acquisition of Fairchild, we believe that we are well positioned to benefit from improving industry demand environment.”

Mr. Jackson continued, “Business conditions continue to improve across most end-markets and geographies. Our momentum in key end-markets, including industrial, automotive and communications remains strong. Commentary from our global customers in industrial, automotive and communications end-markets and macro-economic data point to improving business trends in 2017.”

Effective Jan. 1, 2017, ON Semiconductor began recognizing revenue at the time it ships products to distributors with appropriate provisions for future price adjustments and returns (the “sell-in” method). Prior to transitioning to the “sell-in” method, the Company utilized the “sell-through” method pursuant to which it deferred the recognition of revenue until distributors reported that they had sold the Company’s products to end customers.

The Company historically has utilized the “sell-through” method due to its inability to reasonably estimate the provisions for future price adjustments and returns necessary for “sell-in” revenue recognition. As a result of improvements in the Company’s systems and processes for sales in to the distribution channel implemented during the first quarter of 2017, the Company concluded that it is now able to reasonably estimate returns and pricing concessions such as ship and credit rights.

As a result of the change in the Company’s revenue recognition methodology, revenues for the first quarter of 2017 included a one-time adjustment, which has been excluded from the Company’s non-GAAP revenues.

Based on product booking trends, backlog levels, and estimated turns levels, the Company anticipates that total revenue will be approximately $1,285 to $1,335 million in the second quarter of 2017. Backlog levels for the second quarter of 2017 represent approximately 80 to 85 percent of anticipated second quarter 2017 revenue. The outlook for the second quarter of 2017 includes anticipated stock-based compensation expense of approximately $20 million to $22 million. Net cash paid for income taxes is expected to be $12 million to $16 million.