QORVO, INC. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions, and are not historical facts and typically are identified by use of terms such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management's current judgment and expectations, but our actual results, events and performance could differ materially from those expressed or implied by forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as is required underU.S. federal securities laws. Our business is subject to numerous risks and uncertainties, including those relating to fluctuations in our operating results; our substantial dependence on developing new products and achieving design wins; our dependence on several large customers for a substantial portion of our revenue; continued volatility and uncertainty in customer demand, worldwide economies and financial markets resulting from the impact of the COVID-19 pandemic, conflict inUkraine or other macroeconomic factors; a loss of revenue if defense and aerospace contracts are canceled or delayed; our dependence on third parties; risks related to sales through distributors; risks associated with the operation of our manufacturing facilities; business disruptions; poor manufacturing yields; increased inventory risks and costs due to timing of customer forecasts; our inability to effectively manage or maintain evolving relationships with chipset suppliers; our ability to continue to innovate in a very competitive industry; underutilization of manufacturing facilities as a result of industry overcapacity; unfavorable changes in interest rates, pricing of certain precious metals, utility rates and foreign currency exchange rates; our acquisitions and other strategic investments failing to achieve financial or strategic objectives; our ability to attract, retain and motivate key employees; warranty claims, product recalls and product liability; changes in our effective tax rate; changes in the favorable tax status of certain of our subsidiaries; enactment of international or domestic tax legislation, or changes in regulatory guidance; risks associated with environmental, health and safety regulations, and climate change; risks from international sales and operations; economic regulation inChina ; changes in government trade policies, including imposition of tariffs and export restrictions; we may not be able to generate sufficient cash to service all of our debt; restrictions imposed by the agreements governing our debt; our reliance on our intellectual property portfolio; claims of infringement of third-party intellectual property rights; security breaches and other similar disruptions compromising our information; theft, loss or misuse of personal data by or about our employees, customers or third parties; provisions in our governing documents andDelaware law may discourage takeovers and business combinations that our stockholders might consider to be in their best interests; and volatility in the price of our common stock. These and other risks and uncertainties, which are described in more detail under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedApril 2, 2022 andQorvo's subsequent reports and statements that we file with theSEC , could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements. 17 -------------------------------------------------------------------------------- Table of Contents OVERVIEW The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the consolidated results of operations and financial condition ofQorvo . MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and accompanying Notes to Condensed Consolidated Financial Statements.
We design, develop, manufacture and market our products to
MP is a global supplier of cellular, ultra-wideband, Wi-Fi and other wireless solutions for a variety of applications, including smartphones, wearables, laptops, tablets and Internet of Things ("IoT").
IDP is a global supplier of RF, system-on-a-chip and power management solutions for a wide range of markets, including cellular and IT infrastructure, automotive, renewable energy, defense and IoT.
These business segments are based on the organizational structure and
information reviewed by our Chief Executive Officer, who is our chief operating
decision maker ("CODM") and are managed separately based on the end markets and
applications they support. The CODM allocates resources and evaluates the
performance of each operating and reportable segment primarily based on
operating income. Refer to Note 10 of the Notes to Condensed Consolidated
Financial Statements for additional information regarding our reportable
operating segments as of July 2, 2022 . Refer to Note 13 for additional
information regarding our subsequent change in reportable operating segments.
As previously disclosed in our Annual Report on Form 10-K, filed on May 20,
2022 , the COVID-19 pandemic has impacted the semiconductor industry supply chain
causing uncertainty in customer demand, worldwide economies and financial
markets. During fiscal 2023, we experienced unexpectedly weakened demand for 5G
handsets in China and EMEA due to the measures taken in China to control the
COVID-19 pandemic and the conflict in Ukraine . As a result, we did not meet the
minimum purchase commitments under a long-term capacity reservation agreement
with a foundry supplier. This purchase shortfall resulted in an impairment to
the prepaid refundable deposit under the agreement of approximately $13.0
million in the first quarter of fiscal 2023. We also performed an analysis of
the inventory purchased under the agreement and recorded additional reserves of
approximately $11.0 million for inventory in excess of management's demand
forecasts. Additionally, we assessed the future minimum purchase commitments
over the remaining term of the agreement and recorded an estimated shortfall of
$86.0 million in accordance with Accounting Standards Codification 330,
"Inventory." These transactions resulted in a total increase to cost of goods
sold of $110.0 million in the first quarter of fiscal 2023. In performing this
assessment, the Company considered Company-specific forecasts, legal
obligations, macroeconomic factors and market and industry trends. These factors
include significant management judgment and estimates and, to the extent that
these assumptions are incorrect or there are further declines in management's
demand forecasts, additional charges may or may not be recorded in future
periods. We continue to place orders for wafer volumes supported by current
demand while working to renegotiate the terms of the agreement with the foundry
supplier.
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FIRST QUARTER FISCAL 2023 FINANCIAL HIGHLIGHTS
•Revenue for the first quarter of fiscal 2023 decreased 6.8% as compared to the first quarter of fiscal 2022, driven primarily by lower demand for 5G handsets inChina and EMEA, partially offset by higher demand for our defense, base station and power management products.
•Gross margin for the first quarter of fiscal 2023 decreased to 36.2% as
compared to 49.2% for the first quarter of fiscal 2022, resulting primarily from
•Operating income was$101.9 million for the first quarter of fiscal 2023 as compared to$297.1 million for the first quarter of fiscal 2022. This decrease was primarily due to unfavorable gross margin, lower revenue and higher operating expenses.
•Net income per diluted share was
•Capital expenditures were
•During the first quarter of fiscal 2023, we repurchased approximately 3.3
million shares of our common stock for approximately
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--------------------------------------------------------------------------------Table of Contents RESULTS OF OPERATIONS Consolidated
The following table presents a summary of our results of operations (in thousands, except percentages):
Three Months Ended
% of % of Increase Percentage
July 2, 2022 Revenue July 3, 2021 Revenue (Decrease) Change
Revenue $ 1,035,358 100.0 % $ 1,110,351 100.0 % $ (74,993) (6.8) %
Cost of goods sold 660,108 63.8 564,168 50.8 95,940 17.0
Gross profit 375,250 36.2 546,183 49.2 (170,933) (31.3)
Research and development 168,568 16.3 152,079 13.7 16,489 10.8
Selling, general and administrative 101,815 9.8 90,299 8.1 11,516 12.8
Other operating expense 3,008 0.3 6,703 0.6 (3,695) (55.1)
Operating income $ 101,859 9.8 % $ 297,102 26.8 % $ (195,243) (65.7) %
Revenue decreased for the three months ended July 2, 2022 , compared to the three
months ended July 3, 2021 . This decrease was primarily due to lower demand for
5G handsets in China and EMEA and customer product mix shifts resulting from
ongoing global macroeconomic challenges including the COVID-19 pandemic, the
conflict in Ukraine and supply chain disruptions. These decreases were partially
offset by higher demand for our defense, base station and power management
products.
Gross margin decreased for the three months ended
Operating expenses increased for the three months endedJuly 2, 2022 , compared to the three months endedJuly 3, 2021 , primarily due to additional headcount and higher design and development costs associated with our 5G related products, as well as additional headcount related to our biotechnology testing solutions and power device solutions. Operating Segments Mobile Products Three Months Ended Percentage (In thousands, except percentages) July 2, 2022 July 3, 2021 Decrease Change Revenue$ 732,918 $ 836,138 $ (103,220) (12.3) % Operating income 208,087 299,690 (91,603) (30.6) Operating income as a % of revenue 28.4 %
35.8 %
MP revenue decreased for the three months endedJuly 2, 2022 , compared to the three months endedJuly 3, 2021 , primarily due to lower demand for 5G handsets inChina and EMEA and customer product mix shifts resulting from ongoing global macroeconomic challenges including the COVID-19 pandemic, the conflict inUkraine and supply chain disruptions. MP operating income decreased for the three months endedJuly 2, 2022 , compared to the three months endedJuly 3, 2021 , primarily due to decreased revenue, unfavorable gross margin and higher operating expenses. Gross margin was negatively impacted by inventory adjustments and average selling price erosion. Operating expenses increased primarily due to additional headcount and higher design and development costs associated with our 5G related products. 20 -------------------------------------------------------------------------------- Table of Contents Infrastructure and Defense Products Three Months
Ended
Percentage
(In thousands, except percentages)
Increase Change Revenue$ 302,440 $ 274,213 $ 28,227 10.3 % Operating income 76,278 67,339 8,939 13.3 Operating income as a % of revenue 25.2 % 24.6 % IDP revenue increased for the three months endedJuly 2, 2022 , compared to the three months endedJuly 3, 2021 , primarily due to higher demand for our defense, base station and power management products. IDP operating income increased for the three months endedJuly 2, 2022 , compared to the three months endedJuly 3, 2021 , primarily due to higher revenue, partially offset by unfavorable changes in gross margin and increased operating expenses. Gross margin was unfavorable primarily due to higher manufacturing costs, partially offset by average selling price expansion and lower inventory adjustments. Operating expenses increased primarily due to additional headcount associated with our biotechnology testing solutions and power device solutions.
Refer to Note 10 of the Notes to Condensed Consolidated Financial Statements for
a reconciliation of reportable segment operating income to the consolidated
operating income for the three months ended
INTEREST, OTHER (EXPENSE) INCOME AND INCOME TAXES
Three Months Ended
(In thousands) July 2, 2022 July 3, 2021
Interest expense $ (17,252) $ (15,279)
Other (expense) income, net (5,062) 16,791
Income tax expense (10,661) (12,988)
Interest expense
During the three months ended July 2, 2022 , we recorded interest expense
primarily related to our 1.750% senior notes due 2024 (the "2024 Notes"), our
4.375% senior notes due 2029 (the "2029 Notes") and our 3.375% senior notes due
2031 (the "2031 Notes"). During the three months ended July 3, 2021 , we recorded
interest expense primarily related to our 2029 Notes and 2031 Notes. Refer to
Note 6 of the Notes to Condensed Consolidated Financial Statements for
additional information.
Other (expense) income, net
Other (expense) income includes our share of investments in limited
partnerships' earnings and gains (losses) from our other investments. Refer to
Note 5 of the Notes to Condensed Consolidated Financial Statements for
additional information.
Income tax expense
During the three months ended July 2, 2022 , we recorded income tax expense of
$10.7 million , comprised primarily of tax expense related to international
operations generating pre-tax book income and the impact of global intangible
low tax income, partially offset by tax benefits related to domestic and
international operations generating pre-tax book losses and domestic tax credits
and discrete tax items recorded during the period. The discrete tax benefit
primarily resulted from certain charges associated with a long-term capacity
reservation agreement recorded during the period (refer to Note 8 of the Notes
to Condensed Consolidated Financial Statements for further information).
During the three months ended July 3, 2021 , we recorded income
tax expense of $13.0 million which was comprised primarily of tax expense
related to domestic and international operations generating pre-tax book income,
partially offset by tax benefits related to international operations generating
pre-tax book losses, domestic tax credits and discrete tax items recorded during
the period. The discrete tax benefit was primarily related to the recognition of
previously unrecognized tax benefits due to the expiration of the statute of
limitations, tax deductions related to stock-based compensation and tax benefits
associated with other non-recurring restructuring activities.
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A valuation allowance remained against certain domestic and foreign net deferred
tax assets as it is more likely than not that the related deferred tax assets
will not be realized.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated by operations is our primary source of liquidity. As ofJuly 2, 2022 , we had working capital of approximately$1,654.0 million , including$858.8 million in cash and cash equivalents, compared to working capital of approximately$1,774.7 million , including$972.6 million in cash and cash equivalents as ofApril 2, 2022 . Our$858.8 million of total cash and cash equivalents as ofJuly 2, 2022 , includes approximately$666.5 million held by our foreign subsidiaries, of which$511.3 million is held byQorvo International Pte. Ltd. inSingapore . If the undistributed earnings of our foreign subsidiaries are needed in theU.S. , we may be required to pay state income and/or foreign local withholding taxes to repatriate these earnings. Stock Repurchases During the three months endedJuly 2, 2022 , we repurchased approximately 3.3 million shares of our common stock for approximately$350.0 million (including transaction costs) under our share repurchase program. As ofJuly 2, 2022 , approximately$511.7 million remains available for repurchases under the program. Cash Flows from Operating Activities Net cash provided by operating activities was$273.0 million and$341.6 million for the three months endedJuly 2, 2022 andJuly 3, 2021 , respectively. This decrease in cash provided by operating activities was primarily due to decreased profitability and the associated negative working capital impact resulting from lower demand for 5G handsets inChina and EMEA. Cash Flows from Investing Activities Net cash used in investing activities was$38.9 million and$228.0 million for the three months endedJuly 2, 2022 andJuly 3, 2021 , respectively. There were no acquisitions during the three months endedJuly 2, 2022 , and we acquiredNextInput, Inc. during the three months endedJuly 3, 2021 . Refer to Note 3 of the Notes to Condensed Consolidated Financial Statements for additional information regarding our business acquisitions. Cash Flows from Financing Activities Net cash used in financing activities was$345.9 million and$311.4 million for the three months endedJuly 2, 2022 andJuly 3, 2021 , respectively, primarily due to our stock repurchases. Refer to Note 7 of the Notes to Condensed Consolidated Financial Statements for additional information regarding our stock repurchases.
COMMITMENTS AND CONTINGENCIES
Credit Agreement OnSeptember 29, 2020 , we and certain of ourU.S. subsidiaries (the "Guarantors") entered into a five-year unsecured senior credit facility pursuant to a credit agreement (as amended, restated, modified or otherwise supplemented from time to time, the "Credit Agreement") withBank of America, N.A ., acting as administrative agent, and a syndicate of lenders. The Credit Agreement amended and restated our previous credit agreement dated as ofDecember 5, 2017 . The Credit Agreement includes a senior revolving line of credit (the "Revolving Facility") of up to$300.0 million and included a senior term loan of$200.0 million (collectively the "Credit Facility") which was fully repaid in fiscal 2022. The Revolving Facility includes a$25.0 million sublimit for the issuance of standby letters of credit and a$10.0 million sublimit for swing line loans. The Credit Facility is available to finance working capital, capital expenditures and other general corporate purposes. Pursuant to the Credit Agreement, we may request one or more additional tranches of term loans or increases to the Revolving Facility, up to an aggregate of$500.0 million and subject to, among other things, securing additional funding commitments from the existing or new lenders.
During the three months ended
The Credit Agreement contains various conditions, covenants and representations with which we must be in compliance in order to borrow funds and to avoid an event of default. As ofJuly 2, 2022 , we were in compliance with these covenants. 22
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2024 Notes OnDecember 14, 2021 , we issued$500.0 million aggregate principal amount of our 2024 Notes. Interest on the 2024 Notes is payable onJune 15 andDecember 15 of each year at a rate of 1.750% per annum. The 2024 Notes will mature onDecember 15, 2024 , unless earlier redeemed in accordance with their terms. The 2024 Notes are senior unsecured obligations of the Company and are guaranteed, jointly and severally, by the Guarantors. 2029 Notes OnSeptember 30, 2019 , we issued$350.0 million aggregate principal amount of our senior notes due 2029 (the "Initial 2029 Notes"). OnDecember 20, 2019 andJune 11, 2020 , we issued an additional$200.0 million and$300.0 million , respectively, aggregate principal amount of such notes (together with the Initial 2029 Notes, the "2029 Notes"). Interest on the 2029 Notes is payable onApril 15 andOctober 15 of each year at a rate of 4.375% per annum. The 2029 Notes will mature onOctober 15, 2029 , unless earlier redeemed in accordance with their terms. The 2029 Notes are senior unsecured obligations of the Company and are guaranteed, jointly and severally, by the Guarantors. 2031 Notes OnSeptember 29, 2020 , we issued$700.0 million aggregate principal amount of our 2031 Notes. Interest on the 2031 Notes is payable onApril 1 andOctober 1 of each year at a rate of 3.375% per annum. The 2031 Notes will mature onApril 1, 2031 , unless earlier redeemed in accordance with their terms. The 2031 Notes are senior unsecured obligations of the Company and are guaranteed, jointly and severally, by the Guarantors.
For additional information regarding our long-term debt, refer to Note 6 of the Notes to Condensed Consolidated Financial Statements.
Capital Commitments As of
Purchase Obligations Refer to Note 8 of the Notes to Condensed Consolidated Financial Statements for additional information regarding our purchase obligations.
Future Sources of Funding Our future capital requirements may differ materially
from those currently projected and will depend on many factors, including market
acceptance of and demand for our products, acquisition opportunities,
technological advances and our relationships with suppliers and customers. Based
on current and projected levels of cash flows from operations, coupled with our
existing cash, cash equivalents and our Credit Facility, we believe that we have
sufficient liquidity to meet both our short-term and long-term cash
requirements. However, if there is a significant decrease in demand for our
products, or if our revenue grows faster than we anticipate, operating cash
flows may be insufficient to meet our needs. If existing resources and cash from
operations are not sufficient to meet our future requirements or if we perceive
conditions to be favorable, we may seek additional debt or equity financing.
Additional debt or equity financing could be dilutive to holders of our common
stock. Further, we cannot be sure that any additional debt or equity financing,
if required, will be available on favorable terms, if at all.
Legal We are involved in various legal proceedings and claims that have arisen
in the ordinary course of business that have not been fully adjudicated. We
accrue a liability for legal contingencies when we believe that it is both
probable that a liability has been incurred and the amount of the loss can be
reasonably estimated. We regularly evaluate developments in our legal matters
that could affect the amount of the previously accrued liability and record
adjustments as appropriate. Although it is not possible to predict with
certainty the outcome of the unresolved legal matters, it is the opinion of
management that these matters will not, individually or in the aggregate, have a
material adverse effect on our consolidated financial position or results of
operations. The aggregate range of reasonably possible losses in excess of
accrued liabilities, if any, associated with these unresolved legal matters is
not material.
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Taxes We are subject to income and other taxes in the United States and in
numerous foreign jurisdictions. Our domestic and foreign tax liabilities are
subject to the allocation of revenues and expenses in different jurisdictions.
Additionally, the amount of taxes paid is subject to our interpretation of
applicable tax laws in the jurisdictions in which we operate. We are subject to
audits by tax authorities. While we endeavor to comply with all applicable tax
laws, there can be no assurance that a governing tax authority will not have a
different interpretation of the law than we do or that we will comply in all
respects with applicable tax laws, which could result in additional taxes. There
can be no assurance that the outcomes from tax audits will not have an adverse
effect on our results of operations in the period during which the review is
conducted.
SUPPLEMENTAL PARENT AND GUARANTOR FINANCIAL INFORMATION
In accordance with the indentures governing the 2024 Notes, the 2029 Notes and the 2031 Notes (together, the "Notes"), our obligations under the Notes are fully and unconditionally guaranteed on a joint and several unsecured basis by the Guarantors, which are listed on Exhibit 22 to this Quarterly Report on Form 10-Q. Each Guarantor is 100% owned, directly or indirectly, byQorvo, Inc. ("Parent"). A Guarantor can be released in certain customary circumstances. Our otherU.S. subsidiaries and our non-U.S. subsidiaries do not guarantee the Notes (such subsidiaries are referred to as the "Non-Guarantors"). The following presents summarized financial information for the Parent and the Guarantors on a combined basis as of and for the periods indicated, after eliminating (i) intercompany transactions and balances among the Parent and Guarantors, and (ii) equity earnings from, and investments in, any Non-Guarantor. The summarized financial information may not necessarily be indicative of the financial position and results of operations had the combined Parent and Guarantors operated independently from the Non-Guarantors.
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