Business context and reporting period
Skyworks Solutions, Inc. designs analog semiconductors used across wireless, automotive, broadband, industrial, consumer and other markets. This Form 10-Q covers the fiscal third quarter and first nine months ended July 2, 2021; comparable periods ended June 26, 2020. Dollar amounts are in millions except per-share data.
Financial performance and liquidity
| Metric | Three months ended July 2, 2021 | Year-over-year change | Nine months ended July 2, 2021 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $1,116.4 | +51.5% | $3,798.2 | +58.3% |
| Gross profit / margin | $558.6 / 50.0% | +67.2%; margin up from 45.3% | $1,898.7 / 50.0% | +64.5%; margin up from 48.1% |
| Operating income / margin | $339.8 / 30.4% | Up from $147.5 / 19.9% | $1,285.2 / 33.8% | Up from $624.2 / 26.0% |
| Net income | $337.8 | Up from $129.7 | $1,172.0 | Up from $567.9 |
| Diluted EPS | $2.02 | Up from $0.77 | $7.02 | Up from $3.33 |
For the nine months, operating cash flow was $1,373.7, capital expenditures were $374.8, and net cash used in investing activities was $101.0. Financing activities provided $1,005.6, including $1,489.7 of net debt proceeds; dividends paid were $248.1 and share repurchases were $195.6. Cash and cash equivalents were $2,845.0 at quarter-end; cash, cash equivalents and marketable securities totaled $2,978.1.
At July 2, 2021, total assets were $7,486.2, current assets $4,521.9 and current liabilities $578.3. Long-term debt, net, was $1,487.1; there were no borrowings under the $1.0 billion term loan facility or $750 million revolver at quarter-end. The notes comprised $500 million each due 2023, 2026 and 2031.
Material changes and notable items
- Management attributed revenue growth primarily to stronger demand for wireless connectivity and technology upgrade cycles, including 5G and Wi-Fi 6, as well as increased average content per device.
- Higher volume and favorable product mix contributed to gross-profit growth, partly offset by lower average selling prices. The prior-year comparison also included a $23.4 million Mexicali production-utilization charge related to a temporary COVID-19 shutdown.
- SG&A rose 54.7% in the quarter, primarily due to costs related to contemplated business combinations and higher employee compensation. R&D increased 11.8%, reflecting investment in technology and products.
- The quarter’s income-tax benefit was $1.6, including a $42.8 benefit from reducing uncertain-tax-position reserves after conclusion of an IRS examination. The nine-month tax provision was $110.5, including a $34.8 benefit from that reserve reduction.
- On July 26, 2021, after quarter-end, Skyworks completed its $2.75 billion all-cash acquisition of Silicon Laboratories’ Infrastructure and Automotive business. It also borrowed $1.0 billion under its term facility to fund part of the purchase price and related costs. Purchase accounting and pro forma combined financial information were not yet available in the filing.
- The company retired 68.5 million treasury shares at historical cost of $4,342.6. It repurchased no shares under its new January 2021 repurchase program during the quarter and temporarily suspended that program in connection with the acquisition and related debt.
Outlook, risks and contingencies
The filing gives no specific revenue or earnings guidance. Management said available cash, expected operating cash generation, term-facility proceeds and revolver availability were expected to fund operating and capital needs for at least the next 12 months, while noting that future financing needs and availability are not assured. The company cited continuing uncertainty from COVID-19, including potential supply-chain disruption, production constraints and employee absences. It also highlighted acquisition integration and benefit-realization risks, increased indebtedness and covenant compliance risks, and potential intellectual-property litigation exposure. Management did not believe pending legal proceedings were reasonably likely to result in a material loss. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth, 5G/Wi-Fi 6 demand and favorable product mix persist, and how pricing and margins evolve.
- The acquisition’s final purchase-price allocation, financing mix, integration costs and realized benefits; the acquired business was not included in the quarter’s reported results.
- Post-acquisition debt levels, interest expense, leverage covenant headroom and liquidity after the $1.0 billion term borrowing.
- The sustainability of earnings and tax rates, considering the unusual uncertain-tax-position benefit and other tax factors.
- Capital spending, working-capital needs, dividend commitments and the timing of any resumption of share repurchases.
- Exposure to COVID-19-related supply and production disruption, as well as material developments in litigation or other contingencies.