Skyworks Solutions, Inc. — Q1 Fiscal 2022 Form 10-Q
Reporting period and business context: The quarter ended December 31, 2021 (13 weeks), compared with the 13 weeks ended January 1, 2021. Skyworks supplies analog semiconductors for wireless and other markets, including smartphones, automotive, industrial, infrastructure, and connected-home applications.
Financial performance
- Revenue: $1.510 billion, essentially unchanged from $1.510 billion a year earlier. Management attributed the slight increase primarily to the fiscal 2021 acquisition supporting high-growth markets.
- Profit and margins: Gross profit was $714.7 million, down 6.2%; gross margin fell to 47.3% from 50.4%. Operating income was $445.9 million versus $570.7 million, with operating margin declining to 29.5% from 37.7%. Net income was $399.9 million versus $509.3 million; diluted EPS was $2.40 versus $3.05.
- Expense drivers: Cost of goods sold rose to $795.7 million from $748.3 million. R&D increased 24.3% to $151.1 million and SG&A increased 23.1% to $82.0 million, primarily reflecting headcount-related costs and acquisition-related staffing. Amortization of intangibles was $33.3 million versus $2.8 million; acquisition-related amortization, including inventory step-up, was a key contributor to lower gross profit.
- Cash flow: Operating cash flow was $581.7 million, up from $485.1 million, primarily due to favorable working-capital changes, including receivables. Capital expenditures were $95.8 million; operating cash flow less capital expenditures was approximately $485.9 million. Investing activities used $98.0 million and financing activities used $490.2 million.
- Liquidity and debt: Cash and cash equivalents were $876.4 million; marketable securities totaled $140.5 million. Combined cash, cash equivalents, and securities were $1.017 billion, down $10.3 million from October 1, 2021. Balance-sheet long-term debt was $2.187 billion. Term-loan borrowings were $700 million after $50 million of repayments; $1.5 billion of senior notes were outstanding, and the $750 million revolver was undrawn.
- Capital returns: The company repurchased 1.7 million shares under its repurchase program for $269.4 million and paid $92.5 million in dividends. The board declared a $0.56-per-share dividend payable March 15, 2022.
- Tax: The provision was $36.2 million, with an 8.3% effective tax rate, compared with $61.6 million and 10.8% a year earlier. The rate reflected, among other factors, foreign earnings taxed at lower rates, FDII benefits, and windfall tax deductions.
Changes, outlook, and risks
Revenue was flat, while gross and operating margins and earnings declined materially year over year. Acquisition-related amortization and inventory step-up, increased R&D and SG&A, and new interest expense on debt issued in 2021 contributed to the change. Cash generated from operations increased, but financing outflows also rose, mainly from repurchases, loan repayments, payroll-tax withholding on equity awards, and dividends.
Management stated that existing cash and securities, expected operating cash flow, and access to the revolver should be sufficient for short- and long-term liquidity needs, while cautioning that future funding availability is not assured. The filing provides no specific revenue or earnings guidance. COVID-19-related supply constraints remained a risk; their duration and extent were uncertain. The company also cited risks from economic conditions, intellectual-property disputes, and other factors discussed in its 2021 Form 10-K. It reported no pending legal proceedings reasonably likely to result in a material loss and no material changes to contractual-obligation disclosures. Management reported disclosure controls were effective and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether supply constraints, including those related to COVID-19, affect production, customer demand, or costs.
- The continuing effect of acquisition-related intangible amortization and inventory step-up on reported margins and earnings.
- Whether operating cash flow and liquidity remain sufficient alongside debt service, capital spending, dividends, and repurchases.
- Debt maturities, variable-rate term-loan exposure, and the company’s capacity to meet planned cash requirements.
- Future revenue mix and growth across smartphone and newer automotive, industrial, infrastructure, and other markets.