Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This interim Management’s Discussion and Analysis ("MD&A") should be read in conjunction with our consolidated financial statements and notes and the MD&A in our Annual Report on Form 10-K for the year ended December 31, 2021. This discussion contains forward-looking statements that involve a number of risks and uncertainties, including any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances, including the expected timeline to remediate the identified material weakness in our internal control over financial reporting, the uncertain nature, magnitude, and duration of hostilities stemming from Russia's recent military invasion of the Ukraine, and our response to the current global pandemic and the potential impact the pandemic will have on our operations, liquidity, customers, facilities and supply chain. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing, and in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K. Our actual results may differ materially from those contained in any forward-looking statements. We undertake no obligation to update any forward-looking statement to reflect subsequent events or circumstances.

Our MD&A is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. MD&A is organized as follows:

• Overview - Overall analysis of financial and other highlights to provide context for the MD&A

• Results of Operations - An analysis of our financial results

• Liquidity and Capital Resources - An analysis of changes in our balance sheets and cash flows

• Information Regarding Guarantors of NXP - Financial information of the Obligor Group on a combined basis

Overview

($ in millions, unless otherwise stated)			Q1 2022						Q1 2021
Revenue			3,136						2,567
Gross profit			1,777						1,355
Operating income (loss)			873						492
Cash flow from operating activities			856						732
Total debt			10,573						7,611
Net debt			7,890						5,769
Diluted weighted average number of shares outstanding			265,109						283,263
Diluted net income per share			2.48						1.25
Dividends per common share			0.8450						0.5625

Q1 2022 compared to Q1 2021

Revenue for the three months ended April 3, 2022 was $3,136 million compared to $2,567 million for the three months ended April 4, 2021, an increase of $569 million or an increase of 22% year-on-year. The strong revenue growth during the quarter was primarily due to ongoing industry-wide demand for semiconductors in the company’s focused end markets, as well as positive mix effects within the company’s focused end markets, and increased volumes of products shipped. Additionally, the company continued to experience the effects of increased input costs from its suppliers which were passed along to end customers in the form of higher average selling prices.

Our gross profit percentage for the first quarter of 2022 increased from 52.8% in the first quarter of 2021 to 56.7%, primarily from the continued significant acceleration of revenue in the first quarter of 2022 when compared to the same period in 2021, which led to improved loading and cost reductions, combined with sales price increases due to shortage and high demand, partly offset by higher input costs.

We continue to generate strong operating cash flows, with $856 million in cash flows from operations for the first quarter of 2022. We returned $701 million to our shareholders during the first quarter of 2022. Our cash position at the end of the first quarter of 2022 was $2,683 million. On January 31, 2022, the NXP Board of Directors approved a 50% increase in the quarterly cash dividend to $0.845 per common share for the first quarter of 2022.

Results of operations

The following table presents operating income for each of the three month periods ended April 3, 2022 and April 4, 2021, respectively:

($ in millions, unless otherwise stated)			Q1 2022						Q1 2021
Revenue			3,136						2,567
% nominal growth			22.2						27.0
Gross profit			1,777						1,355
Research and development			(518)						(461)
Selling, general and administrative			(251)						(222)
Amortization of acquisition-related intangible assets			(135)						(180)
Other income (expense)			—						—
Operating income (loss)			873						492

Revenue

Q1 2022 compared to Q1 2021

Revenue for the three months ended April 3, 2022 was $3,136 million compared to $2,567 million for the three months ended April 4, 2021, an increase of $569 million or an increase of 22% year-on-year, with growth in all of the Company’s four focus end markets.

Revenue by end-market was as follows:

($ in millions, unless otherwise stated)			Q1 2022						Q1 2021						Change
Automotive			1,557						1,229						26.7		%
Industrial & IoT			682						571						19.4		%
Mobile			401						346						15.9		%
Communication Infrastructure & Other			496						421						17.8		%
Revenue			3,136						2,567						22.2		%

Revenue by sales channel was as follows:

($ in millions, unless otherwise stated)			Q1 2022						Q1 2021						Change
Distributors			1,680						1,468						14.4		%
OEM/EMS			1,412						1,064						32.7		%
Other			44						35						25.7		%
Revenue			3,136						2,567						22.2		%

Revenue by geographic region, which is based on the customer’s shipped-to location was as follows:

($ in millions, unless otherwise stated)			Q1 2022						Q1 2021						Change
Greater China and Asia Pacific			1,700						1,482						14.7		%
EMEA (Europe, the Middle East and Africa)			638						467						36.6		%
Americas			432						321						34.6		%
Japan			218						189						15.3		%
South Korea			148						108						37.0		%
Revenue			3,136						2,567						22.2		%

n			Automotive						n			Mobile
n			Industrial IoT						n			Comm Infra & Other

			n			Distributors						n			Other
			n			OEM/EMS

The increase in revenue is attributed to the combination of ongoing demand, across NXP’s Automotive, Industrial IoT, Mobile, and the Communications Infrastructure & Other end-markets, as well as the effects of increased input costs from NXP suppliers which were passed along to our end customers in the form of higher average selling prices.

From an end market perspective, within the automotive end-market the year-on-year growth was driven by strong demand across the entire automotive product portfolio - both our distribution partners and OEM customers - in support of the secular shift of electrification, advanced driver safety and assistance, and driver connectivity systems. Growth within the Industrial & IoT market reflects the successful continuation of adoption of our complete secure, connected edge processing solutions which leverage our broad processor portfolio, complimented by connectivity, analog attach and security products. Growth within the Mobile end market was due to ongoing adoption of our secure embed transaction solutions across all regions primarily in the Greater China including Asia Pacific regions, as well as early adoption of the company’s new secure ultra-wide-band (“UWB”) solutions.

When aggregating all end-markets together, and reviewing sales channel performance, business transacted through NXP's third party distribution partners was $1,680 million, an increase of 14.4%. Sales to NXP's direct OEM and EMS customers was $1,412 million, an increase of 32.7% versus the first quarter of 2021.

From a geographic perspective, revenue increased across all regions.

Revenue from the Automotive end-market was $1,557 million, an increase of $328 million or 26.7% year-on-year. Within Automotive, customers are focused on the key functional pillars of safety, electrification and improved driver comfort to accelerate competitive differentiation. These broad functional areas are fundamentally enabled by the secular adoption of new and increased levels of semiconductor content, which is layered on top of a strong base of existing electronic content in modern automobiles. Furthermore, the increase in Automotive revenue during the first quarter of 2022 can be attributed to the ongoing demand for our automotive products.

Revenue from the Industrial & IoT end-market was $682 million, an increase of $111 million or 19.4% year-on-year. The Industrial & IoT market is driven by the secular trend of multi-market OEMs seeking to enable secure, connected, high performance processing solutions at the edge of the network, whether it is in factory automation, smart building/smart home or the exploding plethora of connected IoT devices. The innovation in this market is being driven by thousands of relatively smaller customers, which NXP effectively services through its extended global distribution channel. During the first quarter of 2022, the year-on-year increase was driven by the continued growth in demand of NXP’s high performance industrial application processors, hybrid multi-core crossover processors, and low-power embedded microcontrollers, in addition to strong demand for the company’s analog high-speed interface devices and system security solutions.

Revenue from the Mobile end-market was $401 million with an increase of $55 million or 15.9% year-on-year. The year-on-year increase was driven by the continued strong adoption of secure mobile wallet solutions and increased demand for UWB Mobile, which was offset by declines in advanced power systems driven by load switch demand decline. Our mobile customers are primarily serviced through our global distribution channels.

Revenue in the Communication Infrastructure and Other end-market was $496 million, an increase of $75 million or 17.8% year-on-year. The Communication Infrastructure and Other end-market is an amalgamation of three separate product portfolios, which service multiple markets, including cellular base stations; the network edge equipment, and the secure access, transit and government sponsored identification market.

The year-on-year growth in the first quarter of 2022 was driven by a combination of high performance RF Power amplifier products for cellular base-station applications, broad based demand for secure access and identification solutions, and multi-core processors. Offsetting these positive growth trends were declines in demand for the company’s smart antennae products used in the Android mobile handset market

Gross profit

Q1 2022 compared to Q1 2021

Gross profit for the three months ended April 3, 2022 was $1,777 million, or 56.7% of revenue, compared to $1,355 million, or 52.8% of revenue for the three months ended April 4, 2021. The increase of $422 million in gross profit was driven by improved factory loading, increased manufacturing volumes, and higher sales prices which were offset by higher input costs.

Operating expenses

Q1 2022 compared to Q1 2021

Operating expenses for the three months ended April 3, 2022 totaled $904 million, or 28.8% of revenue, compared to $863 million, or 33.6% of revenue, for the three months ended April 4, 2021.

The following table below presents the composition of operating expenses by line item in the statement of operations:

($ in millions, unless otherwise stated)			Q1 2022						Q1 2021
Research and development			518						461
Selling, general and administrative			251						222
Amortization of acquisition-related intangible assets			135						180
Total operating expenses			904						863

n			R&D			n			SG&A			n			Amortization acquisition-related

Q1 2022 compared to Q1 2021

The increase in operating expenses was a result of the following items:

Research and development (R&D) costs primarily consist of engineer salaries and wages (including share based compensation and other variable compensation), engineering related costs (including outside services, fixed-asset, IP and other licenses related costs), shared service center costs and other pre-production related expenses. R&D costs for the three months ended April 3, 2022 increased by $57 million, or 12.4%, when compared to the three months ended April 4, 2021 driven by:

+ higher personnel-related costs, including variable compensation costs; and

+ higher pre-production related expenses.

Selling, general and administrative (SG&A) costs primarily consist of personnel salaries and wages (including share based compensation and other variable compensation), communication and IT related costs, fixed-asset related costs and sales and marketing costs (including travel expenses). SG&A costs for the three months ended April 3, 2022 increased by $29 million, or 13.1%, when compared to the three months ended April 4, 2021 mainly due to:

+ higher personnel-related costs, including variable compensation costs;

+ higher legal expense; and

+ higher professional services.

Amortization of acquisition-related intangible assets decreased by $45 million, or 25.0%, when compared to the three months ended April 4, 2021 driven by:

- an impairment charge in Q1 2021 as a result of the discontinuation of an IPR&D project.

Financial income (expense)

The following table presents the details of financial income and expenses:

($ in millions, unless otherwise stated)			Q1 2022						Q1 2021
Interest income			2						1
Interest expense			(104)						(87)
Total interest expense, net			(102)						(86)
Foreign exchange rate results			—						1
Miscellaneous financing costs/income and other, net			(3)						(2)
Total other financial income (expense)			(3)						(1)
Total			(105)						(87)

Q1 2022 compared to Q1 2021

Financial income (expense) was an expense of $105 million in the first quarter of 2022 compared to an expense of $87 million in the first quarter of 2021. The change in financial income (expense) is primarily attributable to an increase in interest expense as a result of (re)financing activities.

Benefit (provision) for income taxes

Q1 2022 compared to Q1 2021

Our provision for income taxes was $114 million (14.8% effective tax rate) for the first quarter of 2022 compared to a provision for income taxes of $40 million (9.9% effective tax rate) for the first quarter of 2021. The increase in the income tax expense was due to higher income before income taxes as a result of the improved operational performance of the company which was partly offset by an increase in tax incentives also taking into account the effect of specific US tax law that became effective as from 2022. In addition to this, in the first three months of 2021 there was an income tax benefit due to changes in estimates of prior positions and due to a net change in the valuation allowance.

Net income (loss)

The following table presents the composition of net income for the periods reported:

($ in millions, unless otherwise stated)			Q1 2022						Q1 2021
Operating income (loss)			873						492
Financial income (expense)			(105)						(87)
Benefit (provision) for income taxes			(114)						(40)
Results relating to equity-accounted investees			12						(1)
Net income (loss)			666						364

Liquidity and Capital Resources

We derive our liquidity and capital resources primarily from our cash flows from operations. We continue to generate strong positive operating cash flows. At the end of the first quarter of 2022, our cash balance was $2,683 million, a decrease of $147 million compared to December 31, 2021. Taking into account the available amount of the Unsecured Revolving Credit Facility of $1,500 million, we had access to $4,183 million of liquidity as of April 3, 2022.

We currently use cash to fund operations, meet working capital requirements, for capital expenditures and for potential common stock repurchases, dividends and strategic investments. Based on past performance and current expectations, we believe that our current available sources of funds (including cash and cash equivalents, RCF Agreement, plus anticipated cash generated from operations) will be adequate to finance our operations, working capital requirements, capital expenditures and potential dividends for at least the next twelve months. Our capital expenditures were $280 million in the first three months of 2022, compared to $150 million in the first three months of 2021. During the three month period ended April 3, 2022, we repurchased $552 million, or 2.7 million shares of our common stock pursuant to our share buyback programs at a weighted average price of $207.94 per share.

Our total debt amounted to $10,573 million as of Q1 2022, an increase of $1 million compared to December 31, 2021 ($10,572 million).

At April 3, 2022, our cash balance was $2,683 million of which $185 million was held by SSMC, our consolidated joint venture company with TSMC. Under the terms of our joint venture agreement with TSMC, a portion of this cash can be distributed by way of a dividend to us, but 38.8% of the dividend will be paid to our joint venture partner.

Cash flows

Our cash and cash equivalents during the first three months of 2022 decreased by $147 million as follows:

($ in millions, unless otherwise stated)			YTD 2022						YTD 2021
Net cash provided by (used for) operating activities			856						732
Net cash (used for) provided by investing activities			(329)						(181)
Net cash provided by (used for) financing activities			(674)						(979)
Increase (decrease) in cash and cash equivalents			(147)						(428)

Cash Flow from Operating Activities

For the first three months of 2022 our operating activities provided $856 million in cash. This was primarily the result of net income of $666 million, adjustments to reconcile the net income of $352 million and changes in operating assets and liabilities of ($164) million. Adjustments to net income (loss) includes offsetting non-cash items, such as depreciation and amortization of $310 million, share-based compensation of $89 million and changes in deferred taxes of ($33) million.

The change in operating assets and liabilities was attributable to the following:

The $61 million increase in receivables and other current assets for the three months ended April 3, 2022 was mainly driven by increases in various other assets with the most significant activities relating to a $20 million other receivables and $10 million in IT prepayments.

The $122 million increase in inventories for the three months ended April 3, 2022 was primarily related to increased production levels as we work to align inventory on hand with the current revenue forecasts.

The $266 million increase in accounts payable and other liabilities for the three months ended April 3, 2022 was primarily related to the increase in the accrual for variable compensation of $100 million as a result of improved operating results, $117 million in trade accounts payable as a result of increased distributor rebates outstanding, and $55 million in interest payable due to timing of interest payments, and $1 million of other net movements including the non-cash adjustment for capital expenditures and purchased IP; partially offset by the $7 million reduction in restructuring liabilities.

The $247 million increase in other non-current assets for the three months ended April 3, 2022 was primarily related to prepayments to secure long-term production supply with multiple vendors.

For the first three months of 2021 our operating activities provided $732 million in cash. This was primarily the result of net income of $364 million, adjustments to reconcile the net income of $444 million and changes in operating assets and liabilities of ($78) million. Adjustments to net income (loss) includes offsetting non-cash items, such as depreciation and amortization of $341 million, share-based compensation of $91 million, amortization of the debt issuance costs of $2 million, a gain on equity securities of $(3) million, results relating to equity-accounted investees of $1 million and changes in deferred taxes of $12 million.

Cash Flow from Investing Activities

Net cash used for investing activities amounted to $329 million for the first three months of 2022 and principally consisted of the cash outflows for capital expenditures of $280 million, $43 million for the purchase of identified intangible assets, $5 million for the purchase of equipment leased to others, $4 million for the net purchase of interests of businesses, partly offset by $2 million from the proceeds from return of equity investments and $1 million from the proceeds from disposals of property, plant and equipment.

Net cash used for investing activities amounted to $181 million for the first three months of 2021 and principally consisted of the cash outflows for capital expenditures of $150 million and $37 million for the purchase of identified intangible assets, partly offset by net proceeds of $6 million related to sales and purchases of investments.

Cash Flow from Financing Activities

Net cash used for financing activities was $674 million for the first three months of 2022 compared to net cash provided by financing activities of $979 million for the first three months of 2021, detailed in the table below:

($ in millions)			YTD 2022						YTD 2021
Cash paid for debt issuance costs			(1)						—
Dividends paid to common stockholders			(149)						(105)
Cash proceeds from exercise of stock options and savings from ESPP			28						31
Purchase of treasury shares			(552)						(905)

Additional Capital Requirements

Expected working and other capital requirements are described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. At April 3, 2022, other than for changes disclosed in the “Notes to Condensed Consolidated Financial Statements” and “Liquidity and Capital Resources” in this Quarterly Report, there have been no other material changes to our expected working and other capital requirements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Information Regarding Guarantors of NXP (unaudited)

Summarized Combined Financial Information for Guarantee of Securities of Subsidiaries

The following debt instruments are guaranteed, fully and unconditionally, jointly and severally, by NXP Semiconductors N.V. and issued or guaranteed by NXP USA, Inc., NXP B.V. and NXP LLC, (together, the “Subsidiary Obligors” and together with NXP Semiconductors N.V., the “Obligor Group”): 4.625% Senior Notes due 2023, 4.875% Senior Notes due 2024, 2.700% Senior Notes due 2025, 5.350% Senior Notes due 2026, 3.875% Senior Notes due 2026, 3.150% Senior Notes due 2027, 5.550% Senior Notes due 2028, 4.300% Senior Notes due 2029, 3.400% Senior Notes due 2030, 2.500% Senior Notes due 2031, 2.650% Senior Notes due 2032, 3.250% Senior Notes due 2041, 3.125% Senior Notes due 2042, and the 3.250% Senior Notes due 2051 (together the “ Notes”). Other than the Subsidiary Obligors, none of the Company’s subsidiaries (together the “Non-Guarantor Subsidiaries”) guarantee the Notes. The Company consolidates the Subsidiary Obligors in its consolidated financial statements and each of the Subsidiary Obligors are wholly owned subsidiaries of the Company.

All of the existing guarantees by the Company rank equally in right of payment with all of the existing and future senior indebtedness of the Obligor Group. There are no significant restrictions on the ability of the Obligor Group to obtain funds from respective subsidiaries by dividend or loan.

The following tables present summarized financial information of the Obligor Group on a combined basis, with intercompany balances and transactions between entities of the Obligor Group eliminated and investments and equity in the earnings of the Non-Guarantor Subsidiaries excluded. The Obligor Group’s amounts due from, amounts due to, and intercompany transactions with Non-Guarantor Subsidiaries have been disclosed below the table, when material.

Summarized Statements of Income

			For the three months ended
($ in millions)			April 3, 2022
Revenue			1,813
Gross Profit			921
Operating income			366
Net income			178

Summarized Balance Sheets

			As of
($ in millions)			April 3, 2022						December 31, 2021
Current assets			2,570						2,535
Non-current assets			11,545						11,576
Total assets			14,115						14,111
Current liabilities			812						637
Non-current liabilities			10,856						10,792
Total liabilities			11,668						11,429
Obligor's Group equity			2,447						2,682
Total liabilities and Obligor's Group equity			14,115						14,111

NXP Semiconductors N.V. is the head of a fiscal unity for the corporate income tax and VAT that contains the most significant Dutch wholly-owned group companies. The Company is therefore jointly and severally liable for the tax liabilities of the tax entity as a whole, and as such the income tax expense of the Dutch fiscal unity has been included in the Net income of the Obligor Group.

The financial information of the Obligor Group includes sales executed through a Non-Guarantor Subsidiary single-billing entity as a sales agent on behalf of an entity in the Obligor Group. The Obligor Group has sales to non-guarantors (for the three months ended April 3, 2022: $158 million). The Obligor Group has amounts due from equity financing (April 3, 2022: $6,626 million; December 31, 2021: $5,167 million) and due to debt financing (April 3, 2022: $3,162 million; December 31, 2021: $3,053 million) with non-guarantor subsidiaries.