Skyworks Solutions, Inc. — Q1 FY2016 10-Q
Reporting period: 13 weeks ended January 1, 2016; comparative period ended January 2, 2015. Financial statements are unaudited. Skyworks supplies analog semiconductors for wireless and other markets, including smartphones, tablets, automotive, industrial, medical and broadband.
Financial results
| Metric | Q1 FY2016 | Q1 FY2015 | Change |
|---|---|---|---|
| Revenue | $926.8 million | $805.5 million | +15.1% |
| Gross profit / margin | $472.1 million / 50.9% | $373.0 million / 46.3% | +26.6%; margin +4.6 points |
| Operating income / margin | $330.5 million / 35.6% | $246.8 million / 30.6% | +33.9%; margin +5.0 points |
| Net income | $355.3 million | $195.2 million | +82.0% |
| Diluted EPS | $1.82 | $1.01 | +80.2% |
| Operating cash flow | $345.3 million | $383.2 million | Down $37.9 million |
| Capital expenditures | $79.5 million | $87.2 million | Down $7.7 million |
Cash and cash equivalents were $1.233 billion at January 1, 2016, versus $1.044 billion at October 2, 2015. Total liabilities were $447.9 million and stockholders’ equity was $3.483 billion. The balance sheet does not show a separate debt balance; the filing text does not provide a clear debt total. Current assets were $2.115 billion and current liabilities $367.9 million.
Material changes and notable items
- Revenue growth reflected higher RF and analog content per device, smartphone adoption, demand in emerging markets as 3G/4G expanded, tablet demand, and expansion into new vertical markets.
- Gross margin improved primarily from higher unit volumes and lower materials and manufacturing costs; pricing erosion, product mix and other costs partly offset those gains. Management said established-product average selling prices typically decline 5%–10% annually.
- Net income included an $88.5 million PMC-Sierra merger termination fee, recorded after PMC terminated the proposed acquisition. The fee was not recurring operating revenue.
- The 15.0% effective tax rate, down from 21.1%, benefited from a $24.0 million tax benefit following resolution of the IRS audit of FY2012 and FY2013, and $10.2 million of research-credit benefits, among other factors. These items make reported earnings less directly comparable.
- Operating cash flow declined despite higher net income, partly due to a $96.2 million accounts-payable cash outflow and a $19.0 million inventory increase. Cash generation also included the merger fee.
- A business was classified as held for sale: $25.3 million of assets and $4.8 million of liabilities. The company expected the sale to close by the end of FY2016 Q2; it was not classified as discontinued operations.
Outlook, liquidity and risks
Management expected cash on hand and cash generated from operations to fund operating needs, R&D, capital expenditures, potential acquisitions and dividends for at least the next 12 months, while cautioning that future funding availability is not assured. No specific revenue or earnings guidance was provided in the supplied filing text. Management noted typical seasonality, with the second fiscal quarter generally lower, and ongoing pricing pressure on established products.
Cash included $819.7 million held domestically and $413.5 million held by foreign subsidiaries; $370.5 million of foreign cash was considered indefinitely reinvested and could incur material tax effects if repatriated. Capital spending supported manufacturing expansion and capacity. A $400 million stock repurchase authorization remained available, with no purchases under the program in the quarter; reported share repurchases primarily represented employee-award tax withholding. The company declared and paid a $0.26-per-share dividend.
Management reported no material change to previously disclosed risk factors, no material off-balance-sheet arrangements, and no legal loss accrual because losses were not considered probable. It stated pending litigation was not reasonably expected to result in a material loss, while noting intellectual-property disputes can pose injunctive and financial risks. Foreign-exchange and interest-rate exposures were described as not material at present.
Important facts for investors to verify
- How much of the earnings and EPS increase reflects the one-time PMC termination fee and tax benefits, versus underlying operating performance.
- Whether revenue growth and gross-margin gains persist amid expected product price erosion, product-mix changes and seasonal softness.
- Cash conversion and working-capital trends, including accounts payable and inventory, alongside planned manufacturing investment.
- Completion, proceeds and financial impact of the planned business sale, and the treatment of foreign cash if repatriated.
- Future use of the $400 million repurchase authorization and sustainability of dividends.