NXP Semiconductors N.V. (NXPI) Earnings Call Transcript & Summary

Welcome to the 2020 Annual General Meeting of NXP Semiconductors N.V. held at the Head Office in Eindhoven, Netherlands. I will now turn the call over to Sir Peter Bonfield, Chairman of the Board, to open the meeting.

Welcome everybody. My name is Peter Bonfield, Chairman of the Board of NXP Semiconductor N.V. and I'd like to open this annual general meeting of our shareholders of NXP Semiconductor N.V. and extend a warm welcome to all of you who are attending this shareholders' meeting. As a result of the COVID-19 pandemic, this year's shareholder meeting is a hybrid meeting. We decided on this format in order to limit the risk for our employees, shareholders and other stakeholders and to make use of the temporary legislation measures from the Dutch government. That is why most of you, including myself, are attending this meeting via an audiocast. I'm also pleased to introduce my fellow Board member, Rick Clemmer, CEO, who is dialing in as well; and Kurt Sievers, our President and nominated to be the successor of Rick as our CEO, but we'll come back to that later in the meeting. And furthermore, I'd like to introduce Peter Kelly, our Chief Financial Officer; Jennifer Wuamett, General Counsel of the company; and Jean Schreurs, Chief Corporate Counsel. And I would like to designate Jennifer, in accordance with Article 27.4 of our Articles of Association, as the person keeping the minutes of this meeting. I'll begin with a few formalities. For the record, I state that the official language of this meeting shall be English. The general meeting has been convened with due observance of NXP's Articles of Association and Dutch Law. The notice to attend the general meeting was placed at NXP's website in April and published in the Dutch national newspaper Trouw on the 1st of May this year. Together with the notice, the following documents have been provided for shareholders. The agenda and exploratory notes thereof, and all being part of the proxy statement and NXP's 2019 IFRS annual report and the 2019 Form 10-K. And these documents have also been available for inspections at NXP's offices in Eindhoven since the date of accommodation and will remain to be available for inspection until the end of this meeting. On 29th of April this year, the record date for this meeting, NXP's total issued and outstanding share capital amounted to 63,927,100 -- sorry, EUR 63,103,927.60, and that consisted of 315,519,638 common shares. Now each common shares entitles the holder thereof to cast 1 vote. However, treasury shares do not carry voting rights. And at the record date, the company held 36,433,261 treasury shares. As a result, at the record date of the meeting of voting rights amounted to 279,086,377. So please be informed that all shareholders present or registered for the meeting are represented by proxy. We have informed our shareholders that questions related to the agenda of this general meeting could be submitted by e-mail. But no shareholders have made use of the possibility to submit questions before the meeting. After each voting item, I'll ask Mr. Schreurs as proxy holders for the shareholders who voted for their proxies to mention the voting instructions per proposal. The votes of those shareholders who are against the proposal or abstain from voting shall be explicitly mentioned in the minutes of the meeting and will be published on the company's website after the meeting. So Mr. Schreurs, can you inform us how many shares are present or represented in this meeting?

Thank you, Mr. Chairman. I can inform you that the holders of 239,509,099 common shares are presented or represented at the meeting, which is approximately 85.8%. In total, we -- the shareholders may cast 239,509,099 votes.

Well, thank you, Jean. So with that, I confirm that more than 50% of the company's issued share capital is present or represented at this general meeting of shareholders so that valid resolutions can be adopted at this meeting. Now I'd like to continue with the agenda, whereby I'll give a short summary of each agenda proposal. First discussion item on the agenda relates to the various topics dealt within NXP's 2019 IFRS annual report. So before moving to the adoption of the 2019 IFRS annual report, we briefly discuss our dividend and reservation policy. In 2018, the Board has adopted a dividend policy, pursuant to which the company currently pays a cash distribution on the company's ordinary shares on a quarterly basis. The current dividend plan is to pay a stable or raising dividend to make payments quarterly in the first month of each quarter. The quarterly distributions are made pursuant to Articles 34 and 35 of the company's Articles of Associations. And future dividends, if any, and their timing and amount may be affected by, among other things, management's views on potential future capital requirements for strategic transactions, including acquisitions, earnings level, contractual restrictions, cash position and overall financial conditions, and of course, changes to our business model. So after this short explanation of our dividend policy, I continue with the discussion of the 2019 statutory annual report and proposals to adopt the 2019 statutory annual report, which will be voting item 1. The company has prepared 2 sets of financial statements. One based on accounting principles generally accepted in the United States of America, U.S. GAAP, and one based on Dutch law and International Financial Reporting Standards, IFRS, as adopted by the European Union, and these are the statutory annual accounts. For internal and external reporting purposes, the company follows U.S. GAAP. However, the 2019 statutory annual accounts are the annual accounts that have been submitted to this general meeting for adoption. The 2019 statutory annual report, including the 2019 statutory annual accounts as prepared in accordance with Dutch law, is published on the company's website and is also available at the principal offices of the company. Since there are no questions received relating to the adoption of the 2019 statutory accounts, I hereby propose to adopt the 2019 statutory accounts. So Mr. Schreurs, can you inform us the proxy voting for item 1, as referred to in proxy statements, and please give us the approximate numbers? The specific and detailed vote numbers and percentages will be published after the meeting on the company's website and filed with the SEC. Mr. Schreurs?

Mr. Chairman, this is to inform you that according to the proxies we have received, approximately 99.8% is in favor of this voting item 1. So the overall majority of the votes is for the proposal.

So thank you. So I hereby record that the proposal to adopt the 2019 statutory accounts as defined in voting item 1 has been approved. The next item on the agenda is the discharge from the liability for NXP's current directors. It is proposed to discharge the members of the Board of Directors, in accordance with Dutch law, for the performance of their respective duties in the financial year 2019. The proposed discharge only covers the matters that are disclosed in the statutory annual report or otherwise publicly disclosed as per today. Since no questions were submitted before the meeting relating to the proposed discharge of the directors, I hereby propose to discharge the executive members -- member and nonexecutive members of the Board for their responsibilities in the financial year 2019 to a vote. So Mr. Schreurs, again, can you inform us about the proxy voting for item 2, as referred to in the proxy statement?

Mr. Chairman, this is to inform you that according to the proxies we have received, approximately 99.6% is in favor of this voting item 2. So the overall majority of the votes is for the proposal.

Thanks, Jean. And I hereby record that the proposal to discharge the members of the Board for their responsibilities as defined in voting item 2 has been adopted. So the next topic on the agenda is the composition of our Board of Directors. As we announced on the 5th of March this year, the Board proposes the appointment of Mr. Kurt Sievers as the company's Executive Director and Chief Executive Officer to succeed Mr. Rick Clemmer, who has successfully led NXP since 2009. The Board considers Kurt Sievers to be the ideal candidate to become NXP's next Executive Director and Chief Executive Officer. After a distinguished career, establishing NXP as the world leader in automotive semiconductor solutions, the Board believes Kurt Sievers has all the requisite skills to lead NXP and to drive the strategy that Rick Clemmer and the management team have developed over the past years. Kurt is unique in his ability to translate vision and strategy into world class execution, bringing together teams to drive results, he has demonstrated the ability to focus, motivate and lead a globally diverse organization and embodies NXP's ethos of a customer-focused passion to win. Now as we look forward to the next chapter in NXP's history, it is important to recognize Rick Clemmer's immense contribution and unwavering leadership of NXP. The industry-leading company that Kurt is about to take over is a direct result of Rick's years of selfless dedication and business acumen and thoughtful leadership. So Rick, the Board and I, and I know I'm talking also on behalf of many of the NXP investors, want to thank you for many years of hard work and your unrelenting focus, which has resulted in NXP being an established market leader, ideally positioned to navigate an ever-changing global semiconductor market. In connection with the proposed appointment of Kurt Sievers as our new Executive Director and President and CEO, the company and Mr. Sievers entered into a management agreement and various arrangements related to his compensation and benefits. A copy of the agreements and associated arrangements are filed with the U.S. Securities and Exchange Commission and are further disclosed and explained in the proxy statement and are published on the company's website. Now in addition to the appointment of Kurt Sievers as our new Executive Director, President and CEO, the current term of appointment of all nonexecutive members of the Board will expire at the end of today's annual general meeting. The Board believes that at the current time fostering continuity on the Board by nominating all of our current 9 nonexecutive directors for reappointment is instrumental to the ongoing execution of our mission and strategy as well as the delivery of a sustainable long-term value to shareholders, while also serving the interest of our other stakeholders. The appointment of Kurt Sievers as Executive Director and the reappointment of all 9 current nonexecutive directors will either -- will take effect after today's annual general meeting and shall be for a term ending directly after the 2021 annual general meeting. So as there are no questions related to the proposed appointments and reappointments submitted before the meeting, I hereby put the proposal to appoint Kurt Sievers as the Executive Member of the Board of Directors and the proposal to reappoint all current nonexecutive members of the Board of Directors to a vote. So Mr. Schreurs, can you inform us about the proxy voting for items 3A through 3J, as referred to in the proxy statement.

Mr. Chairman, this is to inform you that according to the proxies we have received for the voting items 3A to 3J, all are well above 75% in favor of the proposals with most being over 90% in favor. The proposed appointment for Mr. Kurt Sievers is at 99.8%. So the overall majority of the votes is for all the proposals in 3A to 3J.

So thank you, Jean. I hereby record that the proposals as defined in voting on item 3A to 3J have been adopted and thus Mr. Kurt Sievers is appointed our new Executive Director, President and CEO, and that all current nonexecutive directors are reappointed again. So congratulations to all our directors, in particular, Kurt. But first of all, I'd like Rick to say a few words. You've lead the company fantastically well over the years, Rick. So a few words from you.

Thank you very much, Sir Peter. So I just wanted to take the opportunity to thank all of our shareholders for their support over the last 11.5 years on the journey that we've set forth. Our success over that period of time has laid a foundation, as what Peter said, as for a great company. We have the technology and the people and team to be positioned to take the company to the next level. I've been fortunate to work with Kurt over the last decade and really am confident to the management team in taking NXP going forward. I will continue on to support Kurt in any way, shape and form to do anything that I can for the company during the period of time that I support him as a strategic adviser.

Well, thanks, Rick, very nice words and well done, great job. And I must admit you can look back with a great deal of satisfaction on the success that you've made of NXP. But Kurt, now a few words from you as the new CEO.

Yes. Thank you very much, Sir Peter. And thanks to you and the entire Board for facilitating a very consistent transition plan from Rick over to me and suggesting my appointment as the new CEO of NXP. And most of all, thanks to all of you, your -- our valued shareholders for giving me such a strong vote of trust and of confidence with approving my appointment. I couldn't be more excited and couldn't be more looking forward to continue working with you in close relations as we've done over the past couple of years already. And finally, I want to say a word of big thanks to you, Rick, for all I had the privilege to learn from you over the past many years and that you have supported me so greatly in this consistent transition plan over the past period. And in that regard, I also look much forward to our continued collaboration, where you will help me and NXP in your role as strategic adviser. And finally, let me just say I'm very, very humbled and excited at the same time to now be the CEO of NXP and lead this company to huge success and profitable growth with the best of my efforts. Back to you, Sir Peter.

Okay. Well, thanks, Kurt, and we'll wish you all the best of luck. Thank you very much. So the next items on the agenda are the authorization of the Board to issue ordinary shares or grant rights to acquire ordinary shares and to restrict or exclude preemption rights. These voting items are further explained in our proxy statement under items 4 and item 5. The Board considers it in the best interest of the company and its stakeholders for the Board to be able to react in a timely manner when strategic business opportunities arise that require the issuance of ordinary shares. For example, this designation has been used in the past in relation to the issue of convertible bonds in 2014. As in previous years, this proposed to authorize the Board to issue shares and to grant rights to acquire shares and to exclude preemptive rights for a period of 18 months and up to 10% of the issued share capital. Since there were no questions relating to proposed authorization, I will put proposals to a vote. So Mr. Schreurs, can you inform us about the proxy voting for item 4 and 5, as referred to in the proxy statements.

Thank you, Mr. Chairman. This is to inform you that according to the proxies we have received, approximately 99.4% and 97.4% is in favor of these voting items 4 and 5. So the overall majority of the votes is for the proposals as referred to in items 4 and 5.

Thank you, Jean. I hereby record that the proposals as defined in voting items 4 and 5 have been adopted. Now next item on the agenda, voting item 6, is the authorization of the Board to acquire ordinary shares in the company. The purpose of this proposal is to create flexibility to return capital to the shareholders and to cover obligations of the company to deliver ordinary shares. So in addition to being a means to return value to shareholders, repurchases of shares in NXP's own share capital could be used by the Board to demonstrate a commitment to NXP's business and confidence in the long-term growth of NXP. It also provides increased liquidity for investors and covers obligations under NXP's share-based compensation plans. The proposal in voting item 6 is to authorize the Board for a period of 18 months with effect from today's annual general meeting to repurchase ordinary shares up to 10% of the issued share capital. Shares may only be repurchased, pursuant to this authorization so as long as the total number of shares held by the company in treasury does not exceed 20% of the company's issued share capital, all as in further laid out in the proxy statement under voting item 6. Since again, there are no questions relating to this proposed repurchase authorization prior to the meeting, I hereby put the proposal to authorize the Board to repurchase share to a vote. So Mr. Schreurs, can you inform us about the proxy voting for item 6, as referred to in the proxy statement.

Yes. Mr. Chairman. This is to inform you that according to the proxies we have received, approximately 99.3% is in favor of this voting item 6. So the overall majority of the votes is for the proposal.

Okay. Thank you, Jean. And I hereby record that the repurchase authorization as defined in voting item 6 has been adopted. The next item on the agenda relates to the proposal to cancel any or all ordinary shares in the share capital of the company held or repurchased by the company under the authorization referred to under voting item 6, resulting in a reduction of the company's issued ordinary shares. The number of shares that will be canceled will be determined by the Board with a maximum of the number of shares that may be acquired pursuant to voting item 6. And again, no questions have been received before this meeting relating to the proposed cancellation. So I hereby put the proposal to authorize the Board to cancel repurchased shares to a vote. So Mr. Schreurs, again, can you inform us about the proxy of voting item 7, as referred to in the proxy statement.

Mr. Chairman, this is to inform you that according to the proxies we have received, approximately 99.8% is in favor of this voting item 7. So the overall majority of the vote is for the proposal.

Thank you, Jean. I hereby record that the cancellation proposal as defined in voting item 7 has been adopted. Now in accordance with the procedures set forth in the company's policy on audit independence, the Audit Committee conducted a competitive process to determine the company's independent registered public accounting firm for the fiscal years 2020 through 2022. The company invited several independent registered public accounting firms to participate in this process. As a result of the review of proposals received, the Board, as advised by its Audit Committee, determined to recommend that Ernst & Young Accountants LLP, EY, stand for appointment as the company's independent registered public accounting firm. Now representations of both KPMG and EY are invited for this annual general meeting to respond to questions. However, no questions have been received before the meeting relating to the proposed appointment of EY. And thus, I hereby put the proposal to appoint EY to a vote. Mr. Schreurs, can you inform us again the proxy voting for item 8, as referred to in the proxy statement.

Mr. Chairman, this is to inform you that according to the proxies we have received, approximately 99.7% is in favor of this voting item 8. So the overall majority of the votes is for the proposal.

Thank you, Jean, and I hereby record that the proposal to appoint EY as the company's independent auditor as defined in voting item 8 has been adopted. Now the next item on the agenda for voting item 9 is the remuneration of the nonexecutive directors of the Board's committees. Now this topic has been set since the last time at the annual general meeting held in 2016. Since then, the Board installed 3 permanent committees: the Audit Committee; the Compensation Committee; and the Nominating and Governance committee, which is reason for the Board to advise to reset the committee's membership remuneration to conform to market levels. So as further explained in the proxy statement under voting item 9, the Board proposes that all members of the committees will receive an annual fixed fee of USD 15,000, and the Chairs of all Committees will receive USD 30,000. No further changes in cash remuneration or equity grants to members of the Board are proposed. And since there were no questions related to proposed remuneration of the members and chairs of the Board committees, I hereby put the proposal on remuneration to a vote. So Mr. Schreurs, can you inform us about the proxy voting for item 9, as referred to in the proxy statements.

Mr. Chairman, this is to inform you that according to the proxies we have received, approximately 99.1% is in favor of this voting item 9. So the overall majority of the vote is for the proposal.

Thank you, and I hereby record that the proposal as defined in voting item 9 has been adopted. Now the next item on the agenda relates to the proposal to amend the Articles of Association. The amendment relates to the decision of the company to transition to a U.S. domestic filer status under the U.S. federal securities laws and to cease making use of the foreign private issuer accommodations. As part of this transition, we also had to comply with a NASDAQ listing standard that the company's bylaws provide for a quorum of at least 33.33 of the outstanding shares of the company's voting -- common voting stock. Now the Board wants to reflect a quorum requirement in the Articles of Association at a level high enough to ensure that generally a broad range of shareholders are represented in person or by proxy. So in line with best practice, the Board proposes a quorum of more than 50% of the issued and outstanding shares. A specific language of the amendment is reflected in the proxy statement under voting item 10. So again, no questions have been received before the meeting relating to the proposed amendments of the article. So I hereby put the proposal to amend the Articles of Association to a vote. So Mr. Schreurs, can you inform us about the proxy voting for item 10, as referred to in the proxy statements.

Mr. Chairman, this is to inform you that according to the proxies we have received, approximately 99.8% is in favor of this voting item 10. So the overall majority of the votes is for the proposal.

So thank you, Jean, and I hereby record that the proposal as defined in voting item 10 has been adopted. Now as we are now a U.S. domestic filer, we are requesting a nonbinding advisory vote to approve the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis in our proxy statement. The specific information and compensation details as well as the proposed resolution can be found in the proxy statement under voting item 11. With this item, we're also providing the opportunity to discuss the implementation of the remuneration policy as required under Dutch Corporate Law. An explanation to the implementation of the remuneration policy is given in our annual report, in particular, in note 32 and in the Compensation Discussion and Analysis incorporated in the proxy statement. NXP has a robust executive compensation structure in place, resolved by the Compensation Committee of the Board, using an independent outside compensation adviser as well. Now in determining pay levels, the Committee aims to ensure that pay levels are competitive within the technology and semiconductor market as with all employees in the local market in which they live and work. Executive pay is comprised of multiple elements which, in aggregate, places a large percent of compensation at risk and incentivize strategic decision-making for the benefit of the entire company and its shareholders. So in aggregate, the compensation program is intended to ensure retention of our executives, like other key employees, over time. Losing executives is detrimental to the organization and takes much more time and effort to replace. The detailed information presented in our proxy statement, especially in regard to equity awards, is provided at a fair value at the time of the grants, as if it's actually received all at once. The value actually delivered is dependent upon performance factor and therefore, involves risks for over 60% of pay. Only 16% to 19% of pay is fixed and not at risk during -- in the year. Now especially in relation to the reboot grant made in July 2018, after the termination of the quality -- the Qualcomm transition, the Compensation Committee of the Board wanted to ensure that we had a stable, capable and committed executive team in order to reboot the organization after 2 years being focused on getting the Qualcomm transaction completed. I now put the proposal to approve the executive compensation to a vote. So Mr. Schreurs, can you inform us about the proxy voting for item 11, as referred to in the proxy statement.

Mr. Chairman, this is to inform you that according to the proxies we have received, approximately 36.1% is in favor of this voting item 11. 63.7% is against and 0.2% abstain from voting. So the overall majority of the votes is against the proposal.

Thanks, Jean. So I hereby record that the proposal as defined in voting item 11 has been rejected. Now while we're disappointed on the Say on Pay vote on this voting item 11, the Compensation Committee and the Board wanted to ensure, as I said, that we had a stable, capable and committed executive team after the termination of the Qualcomm transaction by granting an extraordinary award in 2018, weighted 70% on NXP's performance relative to its peers. These amounts are not yet earned and may or may not pay out at the levels represented due to the performance factors. Now in determined pay levels, the Compensation Committee aims to ensure that pay levels are competitive within the technology and semiconductor market as with all of our employees and executive pay is comprised of multiple elements, which in aggregate plays a large percentage of compensation at risk and therefore, incentivize strategic decision-making for the benefit of the entire company and its shareholders. So please be assured that the Compensation Committee and the Board will discuss the voting results on the Say on Pay and the feedback we have received from investors today. In the months to come, we will have further discussion with our shareholders and advisers with a goal to get much better alignment in our 2021 Shareholder Meeting. Now at least once every 6 years, we need to ask our shareholders whether shareholder advisory votes to approve our executive compensation should occur every 1, 2 or 3 years. Our Board has determined that an annual Say on Pay vote is appropriate for NXP and its shareholders at this time. And therefore, our Board recommends in voting item 12 that the vote for a 1-year interval for the advisory Say on Pay vote. The nonbinding advisory vote on the frequency of future advisory votes on executive compensation is a plurality vote. So no questions have been received before the meeting relating to the frequency of future shareholder vote on Say on Pay, and thus, I hereby put the proposal on voting item 12 to a vote. Mr. Schreurs, can you inform us about the proxy voting for item 12, as referred to in the proxy statement.

Mr. Chairman, this is to inform you that according to the proxies we have received, approximately 99.5% is in favor of a Say on Pay to be held annually. So the overall majority of the votes is for the proposal as made by the Board.

Thanks, Jean, and I hereby record that going forward, a Say on Pay will be held annually as proposed by the Board on voting item 12 as reflected in the proxy statement. So we've now dealt with all of the agenda items and voted on all of the voting items. But before I close this meeting, I would like to thank all of you for your attendance. I hope you all remain safe and healthy, and that next year, we can have an ordinary annual shareholder meeting where we can meet in person, as we are used to, without the complexities of the COVID-19 pandemic. So thank you, and all stay safe and well. Thank you.

Ladies and gentlemen, this now concludes the 2020 Annual General Meeting. You may now disconnect.