Silicon Laboratories Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2021, three months ended April 3, 2021; unaudited. The filing’s comparison is with the three months ended April 4, 2020. Although the request metadata says “2020 Q1,” the filing covers Q1 2021. Fiscal 2020 had an extra week in its first quarter, so the year-over-year comparison is not period-length equivalent.
Financial performance
| Metric | Q1 2021 | Prior-year quarter |
|---|---|---|
| Revenue | $255.5 million | $214.9 million |
| Gross profit / margin | $150.6 million / 58.9% | $129.2 million / 60.1% |
| Operating income | $22.2 million | $3.9 million |
| Net income | $13.5 million | $2.2 million |
| Diluted EPS | $0.29 | $0.05 |
| Cash from operations | $14.5 million | $59.7 million |
- Revenue rose 18.9%. IoT revenue increased 34.1% to $158.2 million; infrastructure and automotive revenue was nearly flat at $97.3 million.
- Management attributed revenue growth mainly to demand for wireless connectivity and MCU products, as well as acquisition-related revenue. Product unit volumes increased 32.9%, while average selling prices fell 10.1%.
- Gross margin fell 1.2 percentage points, primarily due to product mix and lower average selling prices. Operating expenses were $128.4 million, up $3.2 million; R&D increased while SG&A declined.
- Interest expense increased to $11.3 million from $5.5 million, including a $3.4 million loss on extinguishment of the 2022 convertible notes and higher note-related interest. The effective tax rate was 1.5%, versus a tax benefit and negative 35.4% rate in the prior-year quarter.
Liquidity, balance sheet and debt
- Cash, cash equivalents and short-term investments totaled $572.9 million at April 3, 2021, including approximately $401.7 million held by U.S. entities. Cash and cash equivalents alone were $205.2 million.
- Current assets were $860.9 million and current liabilities $150.8 million. Total assets were $1.87 billion; total liabilities were $663.6 million.
- The company had $535 million principal amount of 0.625% convertible notes due 2025, with a net carrying amount of $434.3 million. Its $400 million revolving credit facility was undrawn, and the company reported compliance with its covenants.
- During the quarter, it paid $140.6 million in cash and issued 528,022 shares in connection with conversion and redemption of the remaining 2022 notes. Operating cash flow was lower year over year, reflecting a $35.7 million net cash outflow from changes in operating assets and liabilities.
- Accounts receivable increased to $103.7 million; DSO was 37 days. Inventory increased to $79.2 million; DOI was 68 days. Management said existing liquidity and credit availability should cover requirements for at least 12 months.
Outlook, material events and risks
- Q2 fiscal 2021 outlook: Revenue of $262–$272 million; gross margin of 57%–58%; operating expenses of approximately $130 million; effective tax rate of 7%; diluted EPS of $0.28–$0.38. Management expected R&D expense to increase and SG&A to remain relatively stable in Q2.
- Subsequent event: On April 22, 2021, the company agreed to sell its infrastructure and automotive business to Skyworks Solutions for $2.75 billion in cash. The sale was subject to regulatory approval and customary conditions, with closing expected in Q3 fiscal 2021. The company could not estimate the gain; it expected held-for-sale and discontinued-operations treatment beginning in Q2.
- Key exposures: Management cited constrained semiconductor foundry, assembly and test capacity, longer supplier lead times, supply-chain disruption and COVID-19 uncertainty. The company is fabless and depends on third parties, principally in Asia.
- About 90% of quarterly revenue was from outside the United States. Distributors represented 79% of revenue, and two distributors together represented 48%. No individual customer represented more than 10% of revenue.
- A Norwegian tax assessment concerning intercompany pricing could involve approximately $16.6 million of additional tax; the company is appealing and believes its position is more likely than not to be sustained. Management cautioned that an unfavorable outcome could materially affect the financial statements.
- Approximately $6.0 million par value of auction-rate securities remained illiquid; the securities have contractual maturities in 2046, and the company cannot predict when funds will become available.
Important facts for investors to verify
- Progress, regulatory approvals, expected closing and proceeds treatment for the $2.75 billion Skyworks transaction, including the eventual gain and discontinued-operations impact.
- Whether semiconductor supply constraints, inventory growth and lower selling prices affect future shipments, margins and working capital.
- Performance against Q2 revenue, margin and EPS guidance, noting the shorter current-year comparison period versus prior-year Q1.
- Cash generation and liquidity after repayment of the 2022 notes, and the company’s ability to service the 2025 convertible notes.
- Outcome of the Norwegian tax appeal and any change in the company’s tax reserves or exposure.