Skyworks Solutions, Inc. — Fiscal 2023 Third-Quarter 10-Q
Reporting period: 13 weeks ended June 30, 2023; comparisons are with the 13 weeks ended July 1, 2022. Nine-month figures cover the respective 39-week periods. Skyworks supplies analog and mixed-signal semiconductors for wireless and other markets.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Revenue | $1,071.2m | $1,232.6m | $3,553.6m | $4,078.6m |
| Gross profit | $464.1m | $583.3m | $1,629.2m | $1,935.7m |
| Gross margin | 43.3% | 47.3% | 45.8% | 47.5% |
| Operating income | $230.7m | $325.8m | $871.0m | $1,138.9m |
| Net income | $195.8m | $267.3m | $738.0m | $973.0m |
| Diluted EPS | $1.22 | $1.66 | $4.61 | $5.93 |
- Q3 revenue declined 13.1% year over year; nine-month revenue declined 12.9%. Management attributed the decline primarily to weaker mobile-product demand among Android smartphone customers.
- Q3 gross profit fell 20.4%; management cited lower average selling prices and unit volumes, partly offset by favorable product mix. Gross margin contracted 4.0 percentage points.
- Q3 operating margin was 21.5%, versus 26.4% a year earlier; net margin was 18.3%, versus 21.7%. Nine-month operating margin was 24.4%, versus 28.0%; net margin was 20.8%, versus 23.9%.
- Q3 interest expense rose to $16.2m from $11.3m, primarily reflecting higher variable rates on term loans. The effective tax rate was 11.8% for Q3 and 11.4% for the first nine months.
Cash flow, liquidity and debt
- For the first nine months, operating cash flow was $1,490.9m, versus $1,188.3m. Management attributed the increase primarily to favorable working-capital changes, especially lower receivables.
- Nine-month investing cash use was $146.2m, including $140.2m in capital expenditures. Financing cash use was $1,189.1m, including $700.0m of debt repayments, $296.7m of dividends and $175.3m of stock repurchases.
- At June 30, cash and cash equivalents were $721.6m and marketable securities totaled $17.9m, or $739.5m combined. Current assets were $3,124.9m and current liabilities $816.9m.
- Balance-sheet debt carrying value totaled $1,491.6m: $150.0m current and $1,341.6m long-term. The company also reported $500.0m outstanding under its term credit agreement and $1.0bn principal of senior notes; no revolving-facility borrowings were outstanding. On July 12, 2023, it repaid $150.0m of term loans, leaving $350.0m outstanding under that agreement.
- Management said existing cash, expected operating cash generation and the $750m revolving facility are expected to cover short- and long-term liquidity needs, while noting future acquisitions or insufficient access to capital could require additional resources.
Material changes, outlook and risks
- Revenue weakness and lower gross margins were the main operating changes. Revenue by channel showed direct-customer sales falling to $134.2m from $284.8m; distributor sales were $937.0m versus $947.8m.
- Restructuring, impairment and other charges were $4.4m in Q3 and $28.0m for nine months, versus $2.1m and $9.3m, respectively. The nine-month increase primarily reflected impairment charges on divested assets; Q3 charges included employee severance. The filing reports $17.0m of asset impairment charges in the nine-month cash-flow reconciliation.
- No specific revenue, earnings or margin guidance is provided in the supplied filing text. Management describes typical seasonality, with fiscal fourth and first quarters generally stronger than the second and third quarters.
- Risks discussed include uncertain business impacts from COVID-19, demand and industry conditions, variable-rate debt, foreign-exchange exposure, and intellectual-property disputes. Management said it did not believe pending legal proceedings were reasonably likely to result in a material loss. It also reported effective disclosure controls and no material change in internal control over financial reporting.
- The board declared a $0.68-per-share dividend on August 7, 2023, payable September 19, 2023. A new $2.0bn repurchase authorization runs through February 1, 2025; no shares were repurchased under that program during Q3.
Important facts for investors to verify
- Whether Android smartphone demand, unit volumes and average selling prices continue to pressure sales and gross margin, and whether product mix remains supportive.
- The pace of receivables collection and inventory levels, given the importance of working-capital movements to reported operating cash flow.
- Debt balances and repayment terms, including the July 2023 term-loan repayment, the July 2024 term-credit-agreement expiry, and sensitivity to variable interest rates.
- The extent and cash impact of impairment, restructuring, severance and remaining intangible-asset amortization.
- Future capital allocation among dividends, repurchases, capital expenditures and potential acquisitions; the filing gives no specific operating forecast.