STMicroelectronics N : Q2/21 Earnings Conference Call Remarks

STMicroelectronics

Jean-Marc Chery - President & CEO

Q2 2021 Financial Results

July 29, 2021 - FINAL

Good morning and thank you for joining ST for our Q2 2021 earnings conference call.

Let me begin with some opening comments, starting with Q2:

• Net revenues and gross margin came in at the high-end of our business outlook range, driven by continued strong demand globally.
• Year-overyear, net revenues grew 43.4% to $2.99 billion. Our gross margin of 40.5% and operating margin of 16.3% improved from 35.0% and 5.1%, respectively. Our net income rose to $412 million.
• On a sequential basis, net revenues decreased 0.8% due to the normal seasonality in Personal Electronics.

On H1 2021:

Net revenues increased 39.1% year-over-year to $6.01 billion, driven by growth in all product groups, except the RF Communications sub-group. H1 operating margin was 15.5% and net income was $776 million.

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On Q3 2021:

At the mid-point of our outlook, we expect net revenues in the third quarter to be about $3.2 billion, representing an increase of 20% year-over-year and 7.0% sequentially. Gross margin is expected to be about 41.0% at the mid-point.

For the full year 2021:

• We will now drive the Company based on a plan for full year
  2021 revenues of about $12.5 billion, plus or minus $100 million: a year-over-year increase of 22.3% versus our prior plan of 18.4% growth at the mid-point. This growth is expected to be driven by strong dynamics in all the end markets we address and our engaged customer programs.
• We also now plan to invest about $2.1 billion in CAPEX to support the strong market demand and our strategic initiatives.

Now, let's move to a detailed review of the second quarter.

Net revenues increased 43.4% year-over-year, with higher sales in our three product groups and all sub-groups except, as expected, the RF Communications sub-group.Year-over-year, sales to OEMs increased 38.4% and 53.1% to Distribution.

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On a sequential basis, net revenues decreased 0.8% but were 300 basis points above the mid-point of our outlook. ADG and MDG reported increases in net revenues on a sequential basis while AMS decreased.

Gross profit was $1.21 billion, increasing 66.1% on a year-over- year basis.

The gross margin increased by 550 basis points year-over-year to 40.5%, mainly driven by the full saturation of our fabs compared with the high level of unloading charges last year, as well as manufacturing efficiencies, favorable pricing and improved product mix. These positive drivers were partially offset by negative currency effects, net of hedging. Our second quarter gross margin was 100 basis points above the mid-point of our guidance, mainly thanks to more favorable pricing and improved product mix.

Second quarter operating margin increased to 16.3%, from 5.1% in Q2 2020, with improvements in all three product groups. Net operating expenses were $725 million.

Net income increased to $412 million, from $90 million in Q2 2020, and our diluted earnings per share were $0.44.

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Looking at the year-over-year performance, all product groups registered double-digit growth:

• ADG revenues increased 48.2%, on growth in both Automotive and in Power Discrete.
• AMS revenues increased 62.3%, on higher Analog, MEMS and Imaging product sales.
• MDG revenues increased 22.3%, on growth in Microcontrollers partially offset by the expected decline in RF Communications.

By product group on a year-over-year basis, all product groups showed improvement in operating margin:

• ADG operating margin increased to 9.5% from 2.3%;
• AMS operating margin increased to 18.6% from 9.0%; and
• MDG operating margin increased to 22.9% from 15.9%.

Net cash from operating activities increased to $602 million in Q2, compared to $387 million in the year-ago quarter. Free cash flow increased to $125 million compared to $28 million in the year-ago quarter, with CAPEX of $438 million versus $312 million in the year-ago quarter.

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During the second quarter, we paid $52 million of cash dividends to shareholders, and we executed a $156 million share buy-back, completing our $750 million share repurchase program launched in 2018. On July 1, 2021, we announced the launch of a new share buy-back program of up to $1.04 billion to be executed within a three-year period.

Our net financial position was $1.08 billion at July 3, 2021, compared to $1.19 billion at April 3, 2021. It reflected total liquidity of $4.25 billion and total financial debt of $3.17 billion.

During Q2 we exercised the call option for the early redemption of our 2024 Tranche B convertible bond issued in 2017. The settlement of the $750 million principal amount bond is expected to be completed in Q3.

Let's now discuss the market and business dynamics.

During the second quarter we were again operating with a backdrop of strong demand, stretching the global supply chains. We have continued to work closely with our customers across all verticals and channels to adapt to this difficult allocation situation.

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