Business context and reporting period
Skyworks Solutions, Inc. designs and sells high-performance analog semiconductors for communications and other markets, including smartphones, automotive, industrial, medical and wireless infrastructure. This unaudited Form 10-Q covers fiscal first-quarter 2013, the 13 weeks ended December 28, 2012; comparisons are with the 13 weeks ended December 30, 2011.
Financial performance
| Metric | Q1 FY2013 | Q1 FY2012 |
|---|---|---|
| Revenue | $453.7 million | $393.7 million |
| Gross profit / margin | $192.6 million / 42.4% | $171.9 million / 43.6% |
| Operating income / margin | $86.6 million / 19.0% | $75.0 million / 19.0% |
| Net income | $66.5 million | $57.1 million |
| Diluted EPS | $0.34 | $0.30 |
| Operating cash flow | $147.7 million | $77.2 million |
| Capital expenditures | $26.4 million | $6.4 million |
Revenue increased 15.2% and net income increased about 16%. Gross margin declined 1.2 percentage points as price erosion and product mix outweighed unit-volume growth and lower per-unit costs. R&D rose 23.7% to $58.1 million, primarily due to headcount and compensation associated with the AATI acquisition and increased development activity. SG&A fell 11.1% to $38.1 million, mainly reflecting lower legal fees. The effective tax rate was 23.4%, versus 23.5%.
Liquidity, balance sheet and cash flow
Cash and cash equivalents were $377.5 million at December 28, 2012, up from $306.3 million at September 28, 2012; restricted cash was $0.8 million. Current assets were $899.6 million and current liabilities $155.7 million. Total liabilities were $207.1 million and stockholders’ equity was $1.944 billion. The balance sheet reports no debt balance; interest expense was negligible in the quarter. Management expected cash on hand and operating cash generation to fund requirements for at least the next 12 months.
Operating cash flow benefited from higher earnings and working-capital movements, including $45.4 million of receivables collections; accounts payable reductions used $29.2 million. Investing cash outflow was $25.6 million. Financing cash outflow was $50.8 million, including $41.7 million of share repurchases and $15.2 million of tax withholding on equity awards. Cash, cash equivalents and restricted cash totaled $378.4 million, including $162.2 million held by foreign subsidiaries; $96.2 million of foreign cash was considered indefinitely reinvested and could incur material tax effects if repatriated.
Outlook, risks and unusual items
- No numerical revenue or earnings guidance is provided. Management cited investment in manufacturing equipment to support anticipated accelerating demand from key customers.
- Management expects established-product average selling prices to decline approximately 5%–10% annually, with volume growth, cost reductions and new products intended to offset the pressure.
- Congress enacted a retroactive extension of the federal R&D tax credit in January 2013. The benefit was to be reflected in Q2 FY2013; had it been enacted in Q1, income tax expense would have been approximately $7.0 million lower.
- The company incurred $1.6 million of restructuring charges, primarily employee severance for a front-end solutions restructuring plan; substantially all related cash payments were expected in fiscal 2013.
- A November 2012 authorization permits up to $200 million of stock repurchases. The company repurchased approximately 1.9 million shares for $41.7 million in the quarter; $158.3 million remained authorized.
- Shareholder litigation relating to the AATI acquisition remained pending, with a hearing on defendants’ demurrers scheduled for February 15, 2013. The company recorded no loss accrual, judging losses remote. The filing also notes general intellectual-property litigation and indemnification risks.
- Gross unrecognized tax benefits increased $3.6 million to $55.9 million. Auction-rate securities had a $2.3 million carrying value versus $3.2 million par; the filing identifies potential impairment and liquidity risk. Management reported no material off-balance-sheet arrangements and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether revenue growth and expected customer demand continue, and whether higher volumes and manufacturing savings offset selling-price erosion and product-mix effects.
- How the retroactive R&D tax-credit extension affects Q2 tax expense and the full-year effective tax rate.
- Progress and remaining costs of the restructuring plan, and the timing and scale of capital expenditures.
- Use of the remaining repurchase authorization and its effect on cash and shares outstanding.
- Developments in the AATI shareholder litigation, uncertain tax positions and auction-rate securities.