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

Welcome to the 2021 Annual General Meeting of NXP Semiconductors N.V. I will now turn the call over to Sir Peter Bonfield, Chairman of the Board, to open the meeting.

Well, hello, everyone. My name is Peter Bonfield, Chairman of the Board of Directors. And I'd like to open this Annual General Meeting of Shareholders of NXP Semiconductors N.V. and extend a warm welcome to all of you who are attending the shareholder meeting. And as a result of the COVID-19 pandemic, this year's shareholders' meeting is a virtual meeting. We've decided on this format in order to limit the risk for our employees, shareholders and other stakeholders and to make use of the temporary legislative measures from the Dutch government. Only why most of you included myself are attending this meeting via an audiocast. I'm also pleased to introduce my fellow Board members, Kurt Sievers, who is the Chief Executive and President, who is dialing in as well. And also, I'd like to introduce Peter Kelly, our Chief Financial Officer; Jennifer Wuamett, who's the General Counsel of the company; and Jean Schreurs who's the Chief Corporate Counsel. And also attending this meeting are representatives of Ernst & Young, the company's external auditors. In this respect, please note we did not receive any questions for the auditors and the auditors also do not intend to make a statement. I'd like to designate Jennifer in accordance with Articles 27.4 of our Articles of Association as the person keeping the minutes of this meeting. So I'll start with a few formalities. For the record, I state that the official language of this meeting shall be English. And the general meeting has been convened with due observance of NXP's Article of Association and Dutch law. The notice to attend the general meeting was placed at NXP's website on April 6 this year and published in that Dutch national newspaper trail on the 7th of April this year. And together with the notice, the following documents have been provided for shareholders: The agenda and explanatory notes; all parts of the proxy statement; and NXP's 2020 IFRS annual report and the 2020 Form 10-K. And these documents have also been made available for inspection at NXP's office in Eindhoven since the date of the convocation and will remain available for inspection until the end of this meeting. So on the 28th of April this year, the record date for this meeting, NXP's total issued and outstanding share capital amounted to EUR 57,930,927.60, consisting of 280,519,638 common shares, and each common share entitles the holder to cast 1 vote. However, treasury shares do not carry voting rights. And at the record date, the company held 13,769,152 treasury shares. So as a result, at the record date, the number of shares with voting rights amounts to 275,750,486. So please be informed that all shareholders present or registered for the meeting are represented by proxy. We have informed our shareholders that questions relating 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. Now after each voting item, I will ask Jean Schreurs, as a proxy holder for the shareholders who voted 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 publicized on the company's website after the meeting. So Jean, can you please inform us how many shares are present or represented at this meeting?

Thank you, Mr. Chairman. I can inform you that the holders of 242,458,594 common shares or approximately 87.9% are present or represented at this meeting who in total, may cast 242,458,594 votes.

So thank you, Jean. So with that, I can 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, and I'll give a short summary of each agenda proposal. The first discussion item on the agenda relates to the various topics dealt within NXP's 2020 IFRS annual report. Now before the adoption of the 2020 IFRS annual report, let's 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 rising dividend and 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 Association. And future dividends, if any, and their timing and amount may be affected by, among other factors, management's views on potential future capital requirements for strategic transactions including acquisitions; earnings levels; contractual restrictions; the cash position; and overall financial condition and changes to our business model. So after this short explanation of our dividend policy, I will continue with a discussion of the 2020 statutory annual report and proposal to adopt the 2020 statutory annual accounts. So this is voting item one. The company has proposed has prepared 2 sets of financial statements. One based on accounting principles generally accepted in the United States of America, that's 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/external reporting purposes, the company follows U.S. GAAP. However, the 2020 statutory annual accounts are the annual accounts that are being submitted to the general meeting for adoption. The 2020 statutory annual report, including the 2020 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. And so if there are no questions received relating to the adoption of the 2020 statutory accounts, I hereby propose to adopt the 2020 statutory accounts. Jean, can you inform us about the proxy vote for item 1 as referred to in the proxy statement? So 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. So, Jean?

Mr. Chairman, thank you. This is to inform you that according to the proxies we 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, Jean. So I hereby record the proposal to adopt the 2020 statutory accounts as defined in voting item 1 has been approved. Now the next item on the agenda is the discharge from 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 2020. The proposed discharge only covers the matters that are disclosed in the statutory annual report or otherwise publicly disclosed as per today. Again, as no questions were submitted before the meeting relating to the proposed discharge of the directors, I hereby propose to discharge the executive members and nonexecutive members of the Board of Directors for their responsibilities in the financial year 2020 to a vote. So Jean, can you inform us about the proxy voting for item 2 as referred to in the proxy statements?

Yes, 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 2. So the overall majority of the vote is for the proposal.

So thank you, Jean. So 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. Our next topic on the agenda is the composition of our Board of Directors. Now the current term appointment of Kurt Sievers, our President and Chief Executive Officer, as well as the term of appointment of all current 9 nonexecutive members of the Board will expire at the end of today's Annual General Meeting. The Board believes that fostering continuity on the Board by nominating Kurt Sievers and 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 sustainable, long-term value to our shareholders while also serving the interest of all of our other stakeholders. In addition, the Board has nominated 2 new members for appointment as nonexecutive directors: Annette Clayton and Anthony Foxx. Ms. Clayton is the CEO and President of Schneider Electric North America, a multinational firm specializing in energy management and industrial automation solutions; and Mr. Foxx is the Chief Policy Officer and Senior Adviser to the President and CEO of Lyft. Previously, Mr. Foxx served as the 17th United States Secretary of Transportation. And each brings skills and experiences that will contribute to NXP's continuing growth and evolution. So the reappointment of Kurt Sievers as Executive Director, the reappointment of all 9 current nonexecutive directors and the appointment of 2 new nominees will take effect directly after today's Annual General Meeting and shall be for a term directly ending after 2022 Annual General Meeting. And again, since there are no questions relating to the proposed nominations submitted before the meeting, I hereby put the Board appointment proposals to a vote. So Jean, can you inform us about the proxy voting for items 3a to 3l as referred to in the proxy statement?

Yes, Mr. Chairman. This is to inform you that according to the proxies we have received for the voting items 3a to 3l, the overall majority of the votes is for the proposals with a majority, a clear majority being over 85% in favor of the proposals.

So thank you, Jean. So I hereby record the proposals as defined in voting items of 3a to 3l have been adopted and, thus, that Mr. Kurt Sievers is reappointed as the Executive Director and that the 11 nominees for nonexec directors are all appointed. So congratulations to all directors. Now 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. Now these voting items are further explained in our proxy statement under the items 4 and 5. Now 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. So as in previous years, it's 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 for up to 10% of the issued share capital. Since there are no questions related to the proposed authorization, I hereby put the proposals to a vote. So Jean, can you inform us about the proxy voting for items 4 and 5 as referred to in the proxy statement?

Yes, Mr. Chairman. This is to inform you that according to the proxies we have received, approximately 99.7% has voted in favor of item 4 and 97.9% in favor of item 5. So the overall majority of the votes is for the proposals as we referred to in 4 and 5.

So thank you, Jean. So I hereby record that the proposal as defined in voting items 4 and 5 have been adopted. Now the next item on the agenda, voting item 6, is the authorization of the Board to acquire ordinary shares in the company. Now the purpose of this proposal is to create flexibility to return capital to shareholders and to cover obligations of the company to deliver ordinary shares. Now in addition to being a means of returning value to shareholders, repurchases of shares in NXP's own share capital could be used by the Board to demonstrate a commitment to the NXP's business and confidence in the long-term growth of NXP, also provide increased liquidity for investors and cover obligations under NXP's share-based compensation plans. So 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 of up to 10% of the issued share capital. Now shares may only be repurchased pursuant to this authorization so long as the total number of shares held by the company and treasury does not exceed 20% of the company's issued share capital or as in further laid out in the proxy statement under item -- voting item 6. And since there are no questions relating to the proposal repurchase authorization before the meeting, I hereby put the proposal to authorize the Board to repurchase shares to a vote. So Jean, could you inform us about the proxy voting for item 6 as in the proxy statement?

Yes, Mr. Chairman. This is to inform you that according to the proxies we have received, approximately 99.2% is in favor of this voting item 6. So the overall majority of the vote is for the proposal.

So again, thank you, Jean. So I hereby record that the repurchase authorization as defined in voting item 6 has been adopted. Now the next item on the agenda relates to the proposal to cancel any or all ordinary shares in the share cap 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. Now the number of shares that will be canceled will be determined by the Board with a maximum equal to the number of ordinary shares held or repurchased by the company in its issued share capital. So again, no questions have been received before the meeting relating to proposed cancellations. So I hereby put the proposal to authorize the Board to cancel repurchase shares to a vote. So Jean, can you inform us about the proxy voting for item 7 as referred to in the proxy statement?

Yes, Mr. Chairman. This is to inform you that according to the proxies we have received, approximately 99.4% is in favor of this voting item 7. So the overall majority of the vote is for the proposal.

So thank you, Jean. So I hereby record that the cancellation proposal as defined in item voting -- sorry, voting item 7 has been adopted. Now the next item on the agenda, voting item 8, is the amended remuneration of the nonexecutive directors. Now in addition to an annual fixed cash fee, which has remained unchanged for 10 years since the Initial Public Offering of the company in August 2010 and a cash compensation for members of the Board committees which was set in 2020, nonexecutive directors also receive an annual equity award. So as further explained in the proxy statement under voting item 8, the Board proposes to increase the maximum grant value of the annual equity awards to the nonexecutive directors from $200,000 to $225,000 in order to support the abilities to attract and retain talented nonexecutive directors. No further changes in cash remuneration of the members of the Board are proposed. So since there were no questions related to proposed remuneration of the nonexecutive directors, I hereby put that proposal on the remuneration to a vote. So Jean, can you inform us again about the proxy voting on item 8 as referred to in the proxy statement?

Yes, Mr. Chairman. This to inform you that according to the proxies we have received, approximately 99.2% is in favor of this voting item 8. So the overall majority of the votes is for the proposal.

So thank you, Jean. So I hereby record the proposal as defined in voting item 8 has been adopted. Now I'm sure as you're aware, we are a U.S. domestic filer. And 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 9. And with this item, we also provide the opportunity to shareholders 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 IFRS annual report, in particular, Note 31 and in the compensation discussion and analysis incorporated in the proxy statement. Now NXP has a robust executive compensation structure in place, resolved by the Compensation Committee of the Board using an independent outside compensation adviser. And in determining pay levels, the committee aims to ensure that pay levels are competitive within the technology and semiconductor market in the local market in which people live and work. Executive pay is comprised of multiple elements, which, in aggregate, plays a large percentage of compensation at risk and incent strategic decision-making for the benefit of the entire company and its shareholders. Only approximately between 10% and 16% of pay is fixed and not at risk during the year. And NXP's Board of Directors has worked thoughtfully to address the concerns of shareholders expressed during the 2020 Say on Pay vote and took substantial actions. Taken into account our shareholders' desire for pay for performance, the Board did not make any adjustments to the annual bonus targets and did not provide any special equity grants even in the face of the unprecedented COVID-19 pandemic. We also established and committed to an ongoing engagement process with our shareholders on compensation and broader ESG matters. The broader context of our executive compensation for the year also shows a commitment to paying for performance and aligned to shareholders' interests, including a temporary pay cut during 2020 for our named executive officers and our full Board, no annual bonus payout for 2020 and no modifications to awards or targets as a result of COVID-19. So I'll now put the proposal to approve the executive compensation to a vote. So Jean, can you inform us about the proxy voting item for item 9 as referred to in the proxy statement?

Yes, Mr. Chairman, this to inform you that according to the proxies we have received, approximately 65.3% is in favor of this voting item 9. So the overall majority of the votes is for the proposal.

So thank you, Jean. So I hereby record that the proposal as defined in voting item 9 has been accepted. We're pleased with this outcome and will continue with our policy of paying for performance and with our shareholder outreach program throughout this year. So we've now dealt with all agenda items and voted on all of the voting items. So before I close this meeting, I would like to thank you all for your attendance, and I hope you all remain safe and healthy and that next year, we'll have an ordinary Annual Shareholder Meeting as we're used to without the complexities of COVID-19. So thank you for your attendance. And hopefully, next year, we'll see you all in person. Thank you very much.

Ladies and gentlemen, this concludes the 2021 Annual General Meeting. You may now disconnect.