Skyworks Solutions, Inc. — Q1 Fiscal 2018 Form 10-Q
Reporting period: First quarter of fiscal 2018, the 13 weeks ended December 29, 2017. Comparisons are with the 13 weeks ended December 30, 2016, unless otherwise noted. Skyworks makes analog semiconductors for markets including smartphones, automotive, broadband, industrial and connected-home applications.
Financial results
| Metric | Q1 FY2018 | Q1 FY2017 | Change |
|---|---|---|---|
| Net revenue | $1,051.9 million | $914.3 million | +15.0% |
| Gross profit / margin | $536.8 million / 51.0% | $463.9 million / 50.7% | +15.7%; margin +0.3 points |
| Operating income / margin | $383.5 million / 36.4% | $321.9 million / 35.1% | +19.1% |
| Net income | $70.4 million | $257.8 million | -72.7% |
| Diluted EPS | $0.38 | $1.38 | Lower, principally reflecting tax-reform charges |
| Operating cash flow | $360.8 million | $495.9 million | -$135.1 million |
| Capital expenditures | $28.2 million | $50.1 million | |
| Cash and cash equivalents | $1,681.5 million at Dec. 29, 2017 | $1,616.8 million at Sept. 29, 2017 | +$64.7 million |
The effective tax rate was 81.7%, versus 19.7% in the prior-year quarter. The quarter included estimated one-time charges of $257.8 million for the deemed repatriation tax and $18.5 million for revaluation of deferred tax balances, partly offset by a $16.2 million windfall stock-deduction benefit. These tax-reform estimates are provisional. The filing does not present a clear standalone debt balance; reported total liabilities were $693.8 million.
Material changes and financial position
- Revenue growth was attributed mainly to higher demand from a key smartphone customer, increased RF and analog content per device, IoT applications and broader products for new markets. Lower average selling prices partly offset growth.
- Gross profit benefited from $81.2 million of favorable effects from product mix and higher unit volumes, partly offset by an $8.3 million impact from lower average selling prices.
- Operating cash flow fell year over year, primarily because of a $156.3 million unfavorable change in cash flows related to accounts payable, which management attributed to vendor-payment timing.
- Current assets were $2,686.6 million and current liabilities $321.5 million at quarter-end. Cash included $742.0 million held domestically and $939.5 million held by foreign subsidiaries.
- Financing outflows included $172.5 million of stock repurchases, $59.1 million of dividends and $44.7 million of payroll-tax withholding payments on equity awards. The quarterly dividend was $0.32 per share.
Outlook, risks and unusual items
- Management said cash on hand and expected operating cash generation should be sufficient for operating needs and commitments for at least the next 12 months, while noting that future strategic investments or acquisitions could require additional resources.
- No quantitative revenue or earnings guidance is provided in the filing. Management noted that the second fiscal quarter is typically seasonally lower and generally follows industry trends.
- On January 31, 2018, the board authorized a new stock repurchase program of up to $1 billion through January 31, 2020, replacing the prior program. Repurchases may be suspended or discontinued; management expects to use working capital.
- The $257.8 million deemed repatriation tax is payable over eight years. Management expects to finalize tax-reform accounting adjustments by fiscal year-end 2018; final impacts could differ materially from current estimates.
- Risks include semiconductor-industry price erosion, customer demand and seasonality, foreign-exchange exposure, and intellectual-property litigation that could potentially result in injunctive relief. The company reported no pending legal matter it believed reasonably likely to result in a material loss and no material change to previously disclosed risk factors.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How provisional tax-reform estimates, including the deemed repatriation charge and deferred-tax revaluation, change when finalized.
- The extent to which revenue growth depends on the key smartphone customer, and how demand, product mix and average selling prices develop.
- Whether operating cash flow rebounds after the accounts-payable timing effect and how cash generation supports repurchases, dividends and investment.
- The pace and funding of repurchases under the new $1 billion authorization, alongside the company’s substantial cash held overseas.
- Developments in intellectual-property claims and the potential effects of new accounting standards, including the upcoming revenue-recognition adoption.