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Qorvo(R) Reports Fiscal 2016 Fourth Quarter Results

Revenue Diversification and Highly Integrated Solutions Expected to Drive Growth


Quarterly Financial Highlights

  • On a GAAP basis, quarterly revenue totaled $608.1 million, gross margin was 41.8%, operating income was $8.5 million, and loss per share was $0.18
  • On a Non-GAAP basis, revenue was $607.1 million, gross margin was 50.0%, operating income was $160.6 million, and diluted EPS was $1.04
  • Cash flow from operations was $160.5 million, with free cash flow of $76.1 million
  • Qorvo repurchased approximately 10.0 million shares of common stock

Strategic Highlights

  • Acquired GreenPeak Technologies, a recognized leader in ultra-low power, short-range RF solutions, to expand Qorvo's presence in the rapidly growing market for Internet of Things
  • Supported production ramp of recently launched premium-tier smartphone with high-band PAD, low-band PAD, an ASM, and additional high-performance RF solutions
  • Secured multiple design wins with leading China-based smartphone manufacturer, supporting upcoming premium-tier marquee smartphone platform, with high-band RF Fusion(TM), mid-band RF Fusion(TM), low-band RF Fusion(TM), an ET PMIC, multiple switches, and multiple antenna control solutions
  • Delivered high volume shipments of BAW-based multiplexers enabling carrier aggregation in 4G LTE devices in support of China-based performance-tier smartphone market
  • Expanded product portfolio and achieved multiple design wins across antenna control solutions, aperture tuners, impedance tuners, low noise amplifiers, and discrete switches
  • Enjoyed robust design win activity in mobile Wi-Fi with industry-leading RF Fusion(TM) integrated front end modules (iFEMs) and captured multiple Wi-Fi design wins for automotive applications
  • Secured reference design on Quantenna's QSR10G Wi-Fi solution, which enables the industry's first 10G Wave 3 solution through True 8x8(TM) MIMO configuration for 5GHz networks with a 4x4 MIMO configuration on 2.4GHz networks
  • Grew over 25% sequentially in wireless infrastructure, indicating continued recovery in base station market
  • Expanded GaN product portfolio and captured large international design wins for products in defense and base station applications

Qorvo(R) QRVO, -1.11% a leading provider of core technologies and RF solutions for mobile, infrastructure and defense applications, today announced financial results for the Company's fiscal 2016 fourth quarter, ended April 2, 2016.

On a GAAP basis, March quarterly revenue was $608.1 million, gross margin was 41.8%, operating income was $8.5 million, and net loss was $24.2 million, or a loss of $0.18 per share based on 132.7 million shares outstanding.

On a non-GAAP basis, March quarterly revenue declined sequentially 2% to $607.1 million, and gross margin increased 210 basis points sequentially to 50.0%. Operating expenses were $142.9 million, reflecting reduced variable compensation expense. Operating income was $160.6 million, or 26.4% of sales, and net income was $142.6 million, or $1.04 per diluted share based on 137.5 million shares outstanding. Cash flow from operations was $160.5 million, with free cash flow of $76.1 million.

Financial Outlook

Qorvo currently believes the demand environment in its end markets supports the following non-GAAP expectations for the June 2016 quarter:

  • Quarterly revenue of approximately $650 million
  • Gross margin of approximately 50%
  • Net interest expense of approximately $15 million
  • A tax rate of approximately 10%
  • Diluted EPS of approximately $1.05, based on approximately 133 million shares outstanding

Qorvo's actual quarterly results may differ from these expectations and projections, and such differences may be material.

Comments from Management

Bob Bruggeworth, president and chief executive officer of Qorvo, said, "During the March quarter, Qorvo enjoyed strong customer demand for our highly integrated solutions, led by products incorporating our premium filters. We expect these highly integrated solutions will continue to drive our growth.

"Across all of Qorvo's markets, it's increasingly clear that our industry-leading portfolio of RF products and technologies represents a significant competitive advantage. We are offering customers a combination of performance and integration that's not been available previously, putting us in a favorable position to gain content and outpace our markets."

Steve Buhaly, chief financial officer of Qorvo, said, "Qorvo's strong financial performance affords us multiple opportunities to invest our cash. We acquired GreenPeak Technologies to expand into the rapidly growing Internet of Things, we are investing in our BAW capacity to support increasing customer forecasts, and, since the beginning of fiscal 2016, we have returned approximately $1.3 billion to shareholders through share repurchases."

The following tables set forth selected GAAP and non-GAAP financial information for Qorvo's respective March 2016, December 2015, and March 2015 quarters. See the more detailed financial information for Qorvo, including reconciliation of GAAP and non-GAAP financial information, attached.

(In millions, except for percentages and EPS)
Qorvo Qorvo
For the quarter ended April 2, 2016 For the quarter ended January 2, 2016 Change vs. Q3 FY 2016
Revenue $ 608.1 $ 620.7 $ (12.6 )
Gross profit $ 254.2 $ 231.0 $ 23.2
Gross margin 41.8 % 37.2 % 4.6 ppt
Operating expenses $ 245.7 $ 244.2 $ 1.5
Operating income (loss) $ 8.5 $ (13.2 ) $ 21.7
Net loss $ (24.2 ) $ (11.1 ) $ (13.1
Weighted average diluted shares 132.7 139.3 (6.6 )
Diluted EPS $ (0.18 ) $ (0.08 ) $ (0.10
(In millions, except for percentages and EPS)
Qorvo Qorvo
For the quarter ended April 2, 2016 For the quarter ended January 2, 2016 Change vs. Q3 FY 2016
Revenue $ 607.1 $ 619.7 $ (12.6 )
Gross profit $ 303.5 $ 296.7 $ 6.8
Gross margin 50.0 % 47.9 % 2.1 ppt
Operating expenses $ 142.9 $ 139.8 $ 3.1
Operating income $ 160.6 $ 156.9 $ 3.7
Net income $ 142.6 $ 148.0 $ (5.4 )
Weighted average diluted shares 137.5 144.1 (6.6 )
Diluted EPS $ 1.04 $ 1.03 $ 0.01
(In millions, except for percentages and EPS)
Qorvo Qorvo
For the quarter ended April 2, 2016 For the quarter ended March 28, 2015 Change vs. Q4 FY 2015
Revenue $ 608.1 $ 634.9 $ (26.8 )
Gross profit $ 254.2 $ 188.9 $ 65.3
Gross margin 41.8 % 29.8 % 12.0 ppt
Operating expenses $ 245.7 $ 291.4 $ (45.7 )
Operating income (loss) $ 8.5 $ (102.5 ) $ 111.0
Net (loss) income $ (24.2 ) $ 6.5 $ (30.7 )
Weighted average diluted shares 132.7 150.5 (17.8 )
Diluted EPS $ (0.18 ) $ 0.04 $ (0.22 )
(In millions, except for percentages and EPS)
Qorvo Qorvo
For the quarter ended April 2, 2016 For the quarter ended March 28, 2015 Change vs. Q4 FY 2015
Revenue $ 607.1 $ 633.9 $ (26.8 )
Gross profit $ 303.5 $ 319.8 $ (16.3 )
Gross margin 50.0 % 50.4 % (0.4 ) ppt
Operating expenses $ 142.9 $ 150.2 $ (7.3 )
Operating income $ 160.6 $ 169.6 $ (9.0 )
Net income $ 142.6 $ 167.2 $ (24.6 )
Weighted average diluted shares 137.5 150.5 (13.0 )
Diluted EPS $ 1.04 $ 1.11 $ (0.07 )

[1] Excludes share-based compensation, amortization of intangibles, acquisition and integration-related costs, intellectual property rights (IPR) litigation costs, non-cash deferred royalty revenue and equal and offsetting non-cash prepaid royalty amortization, start-up costs, restructuring and disposal costs, (gain) loss on assets, gain on investment, and an adjustment of income taxes for cash basis.

In addition to disclosing financial results calculated in accordance with United States (U.S.) generally accepted accounting principles (GAAP), Qorvo's earnings release contains some or all of the following non-GAAP financial measures: (i) non-GAAP revenue, (ii) non-GAAP gross profit and gross margin, (iii) non-GAAP operating income and operating margin, (iv) non-GAAP net income, (v) non-GAAP net income per diluted share, (vi) non-GAAP operating expenses (research and development, marketing and selling and general and administrative), (vii) free cash flow, (viii), EBITDA, (ix) return on invested capital (ROIC), and (x) net debt or positive net cash. Each of these non-GAAP financial measures is either adjusted from GAAP results to exclude certain expenses or derived from multiple GAAP measures, which are outlined in the "Reconciliation of GAAP to Non-GAAP Financial Measures" tables, attached, and the "Additional Selected Non-GAAP Financial Measures And Reconciliations" tables, attached.

In managing Qorvo's business on a consolidated basis, management develops an annual operating plan, which is approved by our Board of Directors, using non-GAAP financial measures. In developing and monitoring performance against this plan, management considers the actual or potential impacts on these non-GAAP financial measures from actions taken to reduce costs with the goal of increasing gross margin and operating margin. In addition, management relies upon these non-GAAP financial measures to assess whether research and development efforts are at an appropriate level, and when making decisions about product spending, administrative budgets, and other operating expenses. Also, we believe that non-GAAP financial measures provide useful supplemental information to investors and enable investors to analyze the results of operations in the same way as management. We have chosen to provide this supplemental information to enable investors to perform additional comparisons of our operating results, to assess our liquidity and capital position and to analyze financial performance excluding the effect of expenses unrelated to operations, certain non-cash expenses and share-based compensation expense, which may obscure trends in Qorvo's underlying performance.

We believe that these non-GAAP financial measures offer an additional view of Qorvo's operations that, when coupled with the GAAP results and the reconciliations to corresponding GAAP financial measures, provide a more complete understanding of Qorvo's results of operations and the factors and trends affecting Qorvo's business. However, these non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

Our rationale for using these non-GAAP financial measures, as well as their impact on the presentation of Qorvo's operations, are outlined below:

Non-GAAP revenue. Non-GAAP revenue excludes non-cash deferred royalty revenue. We believe that the exclusion of this non-cash adjustment to revenue provides management and investors a more effective means of evaluating our historical and projected performance.

Non-GAAP gross profit and gross margin. Non-GAAP gross profit and gross margin exclude share-based compensation expense, amortization of intangible assets, acquired inventory step-down and revaluation, non-cash deferred royalty revenue, non-cash prepaid royalty amortization, adjustments for restructuring and disposal costs, and certain non-cash expenses. We believe that exclusion of these costs in presenting non-GAAP gross profit and gross margin gives management and investors a more effective means of evaluating Qorvo's historical performance and projected costs and the potential for realizing cost efficiencies. We believe that the majority of Qorvo's purchased intangibles are not relevant to analyzing current operations because they generally represent costs incurred by the acquired company to build value prior to acquisition, and thus are effectively part of transaction costs rather than ongoing costs of operating Qorvo's business. In this regard, we note that (i) once the intangibles are fully amortized, the intangibles will not be replaced with cash costs and therefore, the exclusion of these costs provides management and investors with better visibility into the actual costs...