Qorvo(QRVO) - 2023 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the quarterly period ended July 2, 2022, including balance sheets, income, comprehensive income, equity, and cash flows, with accompanying notes Condensed Consolidated Balance Sheets The balance sheet as of July 2, 2022, shows total assets decreased to $7.33 billion, driven by lower cash and higher inventories, while total liabilities slightly rose and equity decreased to $4.30 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | July 2, 2022 | April 2, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $858,791 | $972,592 | | Inventories | $847,378 | $755,748 | | Total current assets | $2,372,489 | $2,449,865 | | Total assets | $7,330,521 | $7,509,072 | | Liabilities & Equity | | | | Total current liabilities | $718,450 | $675,127 | | Long-term debt | $2,047,183 | $2,047,098 | | Total liabilities | $3,029,916 | $2,955,854 | | Total stockholders' equity | $4,300,605 | $4,553,218 | Condensed Consolidated Statements of Income For the three months ended July 2, 2022, revenue decreased 6.8% to $1.035 billion, gross profit fell 31.3%, operating income declined 65.7%, and net income dropped to $68.9 million, with diluted EPS at $0.65 Consolidated Statements of Income (in thousands, except per share data) | Metric | Three Months Ended July 2, 2022 | Three Months Ended July 3, 2021 | | :--- | :--- | :--- | | Revenue | $1,035,358 | $1,110,351 | | Gross Profit | $375,250 | $546,183 | | Operating Income | $101,859 | $297,102 | | Net Income | $68,884 | $285,626 | | Diluted EPS | $0.65 | $2.51 | Condensed Consolidated Statements of Comprehensive Income Total comprehensive income for the quarter was $45.7 million, a significant decrease from $288.9 million year-over-year, primarily due to lower net income and a negative foreign currency translation adjustment Consolidated Statements of Comprehensive Income (in thousands) | Item | Three Months Ended July 2, 2022 | Three Months Ended July 3, 2021 | | :--- | :--- | :--- | | Net income | $68,884 | $285,626 | | Other comprehensive (loss) income | ($23,206) | $3,269 | | Total comprehensive income | $45,678 | $288,895 | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased from $4.55 billion to $4.30 billion, mainly due to $350.0 million in common stock repurchases and an other comprehensive loss, partially offset by net income - Key changes in stockholders' equity for the three months ended July 2, 2022 include: net income of $68.9 million, other comprehensive loss of $23.2 million, and common stock repurchases of $350.0 million[19] Condensed Consolidated Statements of Cash Flows Net cash from operations was $273.0 million, down year-over-year, while net cash used in investing activities was lower, and net cash used in financing activities increased due to higher stock repurchases, resulting in a net cash decrease of $113.8 million Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended July 2, 2022 | Three Months Ended July 3, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $273,006 | $341,570 | | Net cash used in investing activities | ($38,894) | ($227,962) | | Net cash used in financing activities | ($345,943) | ($311,379) | | Net decrease in cash | ($113,832) | ($197,779) | Notes to Condensed Consolidated Financial Statements The notes detail key accounting policies, a significant increase in inventories, business acquisitions, a $110 million charge for a capacity agreement due to weakened demand, revenue by geography, and a subsequent reorganization of operating segments - Due to weakened demand for 5G handsets in China and EMEA, the company failed to meet minimum purchase commitments with a foundry supplier, resulting in a total charge of $110.0 million to cost of goods sold in Q1 FY2023, comprising a $13.0 million deposit impairment, $11.0 million in excess inventory reserves, and an $86.0 million estimated shortfall for future commitments[54][55][80] Revenue by Geography (in thousands) | Geography | Q1 FY2023 Revenue | Q1 FY2022 Revenue | | :--- | :--- | :--- | | United States | $396,031 | $319,181 | | China | $283,476 | $535,937 | | Other Asia | $192,328 | $109,278 | | Taiwan | $91,172 | $85,214 | | Europe | $72,351 | $60,741 | | Total revenue | $1,035,358 | $1,110,351 | - In the second quarter of fiscal 2023, the company reorganized its operating structure from two segments (MP and IDP) into three new segments: Connectivity and Sensors Group (CSG), High Performance Analog (HPA), and Advanced Cellular Group (ACG), with financial reporting reflecting this new structure starting with the quarter ending October 1, 2022[65][71][73] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 6.8% revenue decline to weak 5G handset demand in China and EMEA, with gross margin falling sharply due to a $110.0 million charge, leading to a 65.7% decrease in operating income, while $350.0 million of common stock was repurchased Consolidated Results of Operations (in thousands) | Metric | Q1 FY2023 | Q1 FY2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $1,035,358 | $1,110,351 | (6.8)% | | Gross Profit | $375,250 | $546,183 | (31.3)% | | Operating Income | $101,859 | $297,102 | (65.7)% | Mobile Products (MP) Segment Performance (in thousands) | Metric | Q1 FY2023 | Q1 FY2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $732,918 | $836,138 | (12.3)% | | Operating Income | $208,087 | $299,690 | (30.6)% | Infrastructure and Defense Products (IDP) Segment Performance (in thousands) | Metric | Q1 FY2023 | Q1 FY2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $302,440 | $274,213 | 10.3% | | Operating Income | $76,278 | $67,339 | 13.3% | - Liquidity remains strong with $858.8 million in cash and cash equivalents, with the company's primary source of liquidity being cash from operations, which was $273.0 million for the quarter, and $350.0 million was used to repurchase 3.3 million shares of common stock during the quarter[98][100][101] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposures during the first quarter of fiscal 2023, referring to its Annual Report on Form 10-K for further discussion - There were no material changes to the company's market risk exposures during the first quarter of fiscal 2023[121] Controls and Procedures Management, including the CEO and Interim CFO, concluded that the company's disclosure controls and procedures were effective as of July 2, 2022, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and Interim CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[122] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[123] PART II — OTHER INFORMATION Risk Factors This section highlights a material inventory management risk, where manufacturing based on non-binding customer forecasts can lead to excess inventory and costs, exemplified by a $110 million charge due to weakened 5G handset demand - The company is subject to significant inventory risks because it purchases materials and builds products based on customer forecasts that are not binding commitments, which can lead to high inventory carrying costs and obsolescence if demand is lower than expected[126] - As a direct result of this risk, unexpectedly weakened demand for 5G handsets in China and EMEA caused the company to not meet minimum purchase commitments with a foundry supplier, leading to a total charge of $110.0 million in the first quarter of fiscal 2023[128] Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company repurchased 3.295 million shares of common stock for approximately $350 million at an average price of $106.23 per share, with $511.7 million remaining for future repurchases Issuer Purchases of Equity Securities (in thousands, except per share data) | Period | Total Shares Purchased | Average Price Paid per Share | Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | April 3 - April 30, 2022 | 340 | $115.93 | $822.3 million | | May 1 - May 28, 2022 | 1,320 | $105.08 | $683.7 million | | May 29 - July 2, 2022 | 1,635 | $105.15 | $511.7 million | | Total | 3,295 | $106.23 | $511.7 million | - The repurchases were made under a $2.0 billion share repurchase program authorized by the Board of Directors on May 5, 2021[130] Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including the LIBOR Transition Amendment, a list of subsidiary guarantors, certifications by the CEO and Interim CFO, and iXBRL formatted financial statements - The exhibits filed with this report include certifications from the CEO and Interim CFO pursuant to the Sarbanes-Oxley Act of 2002 and financial data formatted in iXBRL[134]