Skyworks Solutions, Inc. — Q3 FY2018 Form 10-Q
Reporting period: Third quarter and first nine months of fiscal 2018, ended June 29, 2018. Comparisons are with the corresponding periods of fiscal 2017. Amounts are in millions except per-share data.
Financial performance
| Metric | Q3 FY2018 | Q3 FY2017 | Nine months FY2018 | Nine months FY2017 |
|---|---|---|---|---|
| Revenue | $894.3 | $900.8 | $2,859.6 | $2,666.8 |
| Gross profit / margin | $451.6 / 50.5% | $453.6 / 50.4% | $1,447.1 / 50.6% | $1,342.9 / 50.4% |
| Operating income / margin | $306.3 / 34.3% | $304.8 / 33.9% | $979.2 / 34.3% | $907.9 / 34.1% |
| Net income | $286.5 | $246.2 | $632.9 | $728.9 |
| Diluted EPS | $1.57 | $1.32 | $3.44 | $3.90 |
| Operating cash flow | Not separately provided | Not separately provided | $1,053.0 | $1,038.7 |
- Q3 revenue decreased 0.7%; nine-month revenue increased 7.2%. Management attributed nine-month growth to demand from smartphone customers and growth in IoT, automotive, industrial, medical and military markets, partly offset by lower average selling prices.
- Q3 gross profit fell $2.0, as lower selling prices and unit volumes reduced gross profit by $52.8, partly offset by favorable mix and lower per-unit materials and manufacturing costs of $50.8. For nine months, gross profit rose $104.2, with positive mix, cost and volume effects of $227.0 partly offset by a $122.8 impact from lower selling prices.
- Q3 net income increased despite slightly lower revenue; the effective tax rate fell to 7.8% from 19.7%, including a $12.0 tax benefit from releasing reserves after statute expiration. Nine-month net income declined, principally reflecting tax reform charges.
Balance sheet, liquidity and capital returns
- At June 29, 2018, cash and cash equivalents were $1,158.1; marketable securities were $490.7 ($384.4 current and $106.3 noncurrent). Cash plus marketable securities totaled $1,648.8.
- Total current assets were $2,631.4 and current liabilities $358.3. Total liabilities were $700.4; the filing reports no borrowings in the presented balance sheet.
- Nine-month investing cash outflow was $809.2, including $310.0 of capital expenditures and $490.6 net purchases of marketable securities. Financing cash outflow was $702.5, including $524.5 of stock repurchases and $175.2 of dividends.
- The company repurchased 5.1 million shares during the nine months. Of a $1.0 billion authorization, $647.9 remained available at June 29, 2018. Dividends declared and paid were $0.32 per share quarterly; a subsequent $0.38-per-share dividend was announced July 19, 2018.
- Management expects cash, marketable securities and operating cash generation to fund operations and anticipated needs for at least 12 months, while noting future investments or acquisitions could require additional resources.
Outlook, significant items and risks
- The nine-month tax provision included a provisional $238.0 charge for the mandatory deemed repatriation tax and an $18.5 charge from revaluing deferred tax assets and liabilities. The company said these estimates remained subject to refinement, with final adjustments anticipated by September 28, 2018. The repatriation tax is payable over eight years.
- Management cited seasonal demand patterns, including typical consumer-electronics strength in the second half of the calendar year, and ongoing average selling price erosion in the semiconductor industry. No specific revenue or earnings guidance is provided in the filing.
- Management preliminarily expected adoption of the new revenue-recognition standard in FY2019 to have no material impact, but said its assessment was continuing. The effect of the new lease standard and other listed accounting standards was also under evaluation.
- Risks include pricing pressure, foreign-exchange exposure, and intellectual-property disputes that could result in adverse outcomes or injunctive relief. The company reported no pending legal proceeding it believed reasonably possible to cause a material loss, and no material changes to previously disclosed risk factors.
- Disclosure controls were assessed as effective at the reasonable-assurance level; no material change in internal control over financial reporting was reported.
Most important facts for investors to verify
- How much of nine-month revenue growth persists as smartphone and newer-market demand develops, given the reported price erosion.
- Final tax-reform transition calculations and the resulting tax expense and payment schedule.
- Cash generation and capital-spending requirements alongside repurchases, dividends and any future acquisitions.
- Whether the preliminary assessment of revenue-standard adoption and the stated 12-month liquidity outlook remain valid.