Skyworks Solutions, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Third quarter ended July 1, 2022; comparisons are with the quarter ended July 2, 2021. Fiscal year ends September 30. Skyworks supplies analog semiconductors for wireless connectivity and markets including smartphones, automotive, industrial, broadband, and infrastructure.
Financial performance
- Revenue: Q3 revenue was $1.233 billion, up 10.4% year over year. Revenue for the first nine months was $4.079 billion, up 7.4%.
- Profit and margins: Q3 gross profit was $583.3 million; gross margin fell to 47.3% from 50.0%. Operating income was $325.8 million, down from $339.8 million, and operating margin declined to 26.4% from 30.4%. Net income was $267.3 million versus $337.8 million; diluted EPS was $1.66 versus $2.02. For the nine months, net income was $973.0 million and diluted EPS was $5.93, compared with $1.172 billion and $7.02.
- Cash flow: Nine-month operating cash flow was $1.188 billion, down from $1.374 billion. Capital expenditures were $347.7 million. Working-capital changes, especially higher inventory and supplier deposits, reduced cash generation.
- Liquidity: Cash, cash equivalents, and marketable securities totaled $662.2 million at July 1, down $365.0 million from October 1, 2021. Current assets were $2.908 billion and current liabilities $1.226 billion.
- Debt: Balance-sheet debt was $2.188 billion, including $498.8 million current and $1.689 billion long-term. This includes $700 million outstanding under the term loan facility and approximately $1.5 billion of senior notes. No revolver borrowings were outstanding; the revolving facility provides up to $750 million.
- Other metrics: Inventory rose to $1.102 billion from $885.0 million at fiscal year-end. The company repurchased $806.5 million of stock and paid $273.7 million in dividends during the first nine months.
Changes versus the prior comparable period
- Revenue growth reflected the prior-year acquisition of Silicon Laboratories’ Infrastructure and Automotive business and stronger demand for 5G and advanced Wi-Fi products, partly offset by lower mobile-product demand from smartphone customers in China.
- Gross profit increased, but margin declined. Management cited favorable product mix and new-product volume, partly offset by lower comparable unit volumes and higher acquisition-related amortization, including inventory step-up costs.
- Operating expenses increased, notably R&D and intangible amortization. Interest expense also rose following the 2021 issuance of notes and term loans. Lower net income reflected these costs and a higher Q3 tax provision than the prior-year tax benefit.
- Cash used in financing activities was $1.197 billion, versus $1.006 billion provided in the prior-year period, primarily reflecting increased repurchases and dividends and the absence of prior-year debt issuance proceeds.
Outlook, risks, and unusual items
- The filing provides no specific revenue, earnings, or margin guidance. Management said existing cash, expected operating cash generation, and revolver availability should fund anticipated operating and capital needs, while noting that future acquisitions or inability to access adequate funding could affect operations.
- Management described customary seasonal strength in fiscal Q4 and Q1, with Q2 and Q3 typically lower. It also reported pandemic-related semiconductor supply constraints; their duration and extent remained uncertain.
- Key risks discussed include supply-chain disruption, COVID-19 effects, geopolitical and inflationary conditions, foreign-exchange exposure, and intellectual-property disputes. The company reported no pending legal proceeding it believed reasonably likely to cause a material loss.
- Acquisition-related intangible amortization was a significant expense: $65.9 million in Q3 and $211.8 million in the first nine months. The filing reported no impairment indicators during the period.
- After quarter-end, the board declared a $0.62-per-share dividend, payable September 15, 2022. The disclosure-controls evaluation concluded controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- How elevated inventory and supplier deposits develop, and whether supply constraints or customer demand changes affect production and cash conversion.
- The ongoing effect of the acquisition on revenue mix, gross margins, amortization, and debt service.
- Debt maturities, especially the $498.8 million of current debt, and continued availability of the $750 million revolver.
- The sustainability of cash generation alongside capital spending, dividends, and share repurchases; $1.2 billion remained authorized under the repurchase program at July 1.
- Management’s subsequent outlook and any material developments in the risks and contingencies identified in this filing.