Form 10-Q Qorvo, Inc. For: Dec 31
Tweet
Share
E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended December 31, 2022
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from _____to _____
Commission File Number 001-36801
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip code) | ||||||||||
(336 ) 664-1233
(Registrant's telephone number, including area code)
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||||||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| þ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of January 26, 2023, there were 99,889,210 shares of the registrant’s common stock outstanding.
QORVO, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
| Page | |||||
Item 1. Financial Statements (Unaudited). | |||||
Condensed Consolidated Statements of Comprehensive Income | |||||
2
PART I — FINANCIAL INFORMATION
ITEM 1.
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
| December 31, 2022 | April 2, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net of allowance of $405 and $402 as of December 31, 2022 and April 2, 2022, respectively | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses | |||||||||||
| Other receivables | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net of accumulated depreciation of $1,846,373 and $1,734,608 as of December 31, 2022 and April 2, 2022, respectively | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Long-term investments | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingent liabilities (Note 8) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Preferred stock, $.0001 par value; 5,000 shares authorized; no shares issued and outstanding | |||||||||||
| Common stock and additional paid-in capital, $.0001 par value; 405,000 shares authorized; 100,021 and 106,303 shares issued and outstanding at December 31, 2022 and April 2, 2022, respectively | |||||||||||
| Accumulated other comprehensive (loss) income | ( | ||||||||||
| Retained earnings | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Other operating expense | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| (Loss) income before income taxes | ( | ||||||||||||||||||||||
| Income tax expense | ( | ( | ( | ( | |||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | $ | ||||||||||||||||||
| Net (loss) income per share: | |||||||||||||||||||||||
| Basic | $ | ( | $ | $ | $ | ||||||||||||||||||
| Diluted | $ | ( | $ | $ | $ | ||||||||||||||||||
| Weighted average shares of common stock outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | ||||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | $ | ||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term investment nature | ( | ( | ( | ||||||||||||||||||||
| Reclassification adjustments, net of tax: | |||||||||||||||||||||||
| Foreign currency gain realized upon liquidation of subsidiary | ( | ( | |||||||||||||||||||||
| Amortization of pension actuarial loss | |||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||
| Total comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
| Accumulated Other Comprehensive (Loss) Income | Retained Earnings | ||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||
| Three Months Ended | Shares | Amount | Total | ||||||||||||||||||||||||||
| Balance, October 1, 2022 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Net loss | — | ( | ( | ||||||||||||||||||||||||||
| Other comprehensive income | — | ||||||||||||||||||||||||||||
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes | ( | ( | |||||||||||||||||||||||||||
| Issuance of common stock in connection with employee stock purchase plan | |||||||||||||||||||||||||||||
Repurchase of common stock, including transaction costs | ( | ( | ( | ( | |||||||||||||||||||||||||
Stock-based compensation | — | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Balance, October 2, 2021 | $ | $ | $ | $ | |||||||||||||||||||||||||
Net income | — | ||||||||||||||||||||||||||||
| Other comprehensive loss | — | ( | ( | ||||||||||||||||||||||||||
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes | ( | ( | |||||||||||||||||||||||||||
Issuance of common stock in connection with employee stock purchase plan | |||||||||||||||||||||||||||||
Repurchase of common stock, including transaction costs | ( | ( | ( | ( | |||||||||||||||||||||||||
Stock-based compensation | — | ||||||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | $ | |||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
6
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
| Accumulated Other Comprehensive (Loss) Income | Retained Earnings | ||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||
| Nine Months Ended | Shares | Amount | Total | ||||||||||||||||||||||||||
| Balance, April 2, 2022 | $ | $ | $ | $ | |||||||||||||||||||||||||
Net income | — | ||||||||||||||||||||||||||||
| Other comprehensive loss | — | ( | ( | ||||||||||||||||||||||||||
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes | ( | ( | |||||||||||||||||||||||||||
Issuance of common stock in connection with employee stock purchase plan | |||||||||||||||||||||||||||||
Repurchase of common stock, including transaction costs | ( | ( | ( | ( | |||||||||||||||||||||||||
Stock-based compensation | — | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Balance, April 3, 2021 | $ | $ | $ | $ | |||||||||||||||||||||||||
Net income | — | ||||||||||||||||||||||||||||
| Other comprehensive loss | — | ( | ( | ||||||||||||||||||||||||||
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes | ( | ( | |||||||||||||||||||||||||||
Issuance of common stock in connection with employee stock purchase plan | |||||||||||||||||||||||||||||
Repurchase of common stock, including transaction costs | ( | ( | ( | ( | |||||||||||||||||||||||||
Stock-based compensation | — | ||||||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | $ | |||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
7
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended | |||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation | |||||||||||
| Intangible assets amortization | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Stock-based compensation expense | |||||||||||
| Other, net | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable, net | ( | ||||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Accounts payable and accrued liabilities | ( | ||||||||||
| Income taxes payable and receivable | ( | ( | |||||||||
| Other liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Purchase of businesses, net of cash acquired | ( | ( | |||||||||
| Other investing activities | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payment of debt | ( | ||||||||||
| Proceeds from debt issuances | |||||||||||
| Repurchase of common stock, including transaction costs | ( | ( | |||||||||
| Proceeds from the issuance of common stock | |||||||||||
| Tax withholding paid on behalf of employees for restricted stock units | ( | ( | |||||||||
| Other financing activities | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash at the beginning of the period | |||||||||||
| Cash, cash equivalents and restricted cash at the end of the period | $ | $ | |||||||||
| Reconciliation of cash, cash equivalents and restricted cash: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in "Other current assets" and "Other non-current assets" | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Capital expenditures included in liabilities | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
8
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying Condensed Consolidated Financial Statements of Qorvo, Inc. and Subsidiaries (together, the "Company" or "Qorvo") have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of these financial statements requires management to make estimates and assumptions, which could differ materially from actual results. In addition, certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). In the opinion of management, the financial statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of the interim periods presented. These Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in Qorvo’s Annual Report on Form 10-K for the fiscal year ended April 2, 2022.
The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. During the second quarter of fiscal 2023, the Company updated its organizational structure to more closely align similar technologies and applications with customers and end markets. The Company manages its business and reports its financial results in three reportable segments: High Performance Analog ("HPA"), Connectivity and Sensors Group ("CSG") and Advanced Cellular Group ("ACG").
Certain items in the fiscal 2022 financial statements (including prior period segment results) have been reclassified to conform with the fiscal 2023 presentation.
The Company uses a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of each year. Each fiscal year, the first quarter ends on the Saturday closest to June 30, the second quarter ends on the Saturday closest to September 30 and the third quarter ends on the Saturday closest to December 31. Fiscal years 2023 and 2022 are 52-week years.
2. INVENTORIES
The components of inventories, net of reserves, are as follows (in thousands):
| December 31, 2022 | April 2, 2022 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total inventories | $ | $ | |||||||||
3. BUSINESS ACQUISITIONS
United Silicon Carbide, Inc.
On October 19, 2021, the Company acquired all the outstanding equity interests of United Silicon Carbide, Inc. ("United SiC"), a leading manufacturer of silicon carbide ("SiC") power semiconductors, for a total purchase price of $236.7 million. The acquisition expanded the Company's offerings to include SiC power products for a range of applications, such as electric vehicles, battery charging, IT infrastructure, renewables and circuit protection.
The purchase price comprised cash consideration of $227.2 million and contingent consideration of up to $31.3 million which is expected to be paid to the sellers (in the first quarter of fiscal 2024) upon achieving certain revenue and gross margin targets over the period beginning on the acquisition date through December 31, 2022. The estimated fair value of the contingent consideration liability was $9.5 million as of the acquisition date. At April 2, 2022, the contingent consideration liability was remeasured to a fair value of $17.6 million and is included in "Other long-term liabilities" in the Condensed Consolidated Balance Sheet. At December 31, 2022, the maximum contingent consideration of $31.3 million was earned and is included in "Other current liabilities" in the Condensed Consolidated Balance Sheet, with the increase in fair value recognized in "Other operating expense" in the Condensed Consolidated Statement of Operations. Refer to Note 5 for further information related to the fair value measurement.
9
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
NextInput, Inc.
On April 5, 2021, the Company acquired all the outstanding equity interests of NextInput, Inc. ("NextInput"), a leader in microelectromechanical system ("MEMS")-based sensing solutions, for a total cash purchase price of $173.3 million. The acquisition expanded the Company's offerings of MEMS-based products for mobile applications, providing sensing solutions for a broad range of applications in other markets.
4. GOODWILL AND INTANGIBLE ASSETS
During the second quarter of fiscal 2023, the Company updated its organizational structure (see Note 1).
The changes in the carrying amount of goodwill are as follows (in thousands):
HPA | CSG | ACG | Total | ||||||||||||||||||||
Balance as of April 2, 2022 (1) | $ | $ | $ | $ | |||||||||||||||||||
| NextInput measurement period adjustments | |||||||||||||||||||||||
| United SiC measurement period adjustments | ( | ( | |||||||||||||||||||||
| Effect of changes in foreign currency exchange rates | ( | ( | |||||||||||||||||||||
Balance as of December 31, 2022 (1) | $ | $ | $ | $ | |||||||||||||||||||
(1) The Company’s goodwill balance is presented net of accumulated impairment losses and write-offs totaling $669.6
The following summarizes information regarding the gross carrying amounts and accumulated amortization of intangible assets (in thousands):
| December 31, 2022 | April 2, 2022 | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||||
| Developed technology | $ | $ | $ | $ | |||||||||||||||||||
| Customer relationships | |||||||||||||||||||||||
| Technology licenses | |||||||||||||||||||||||
| Trade names | |||||||||||||||||||||||
| In-process research and development | N/A | N/A | |||||||||||||||||||||
Total (1) | $ | $ | $ | $ | |||||||||||||||||||
(1) Amounts include the impact of foreign currency translation.
At the beginning of each fiscal year, the Company removes the gross asset and accumulated amortization amounts of intangible assets that have reached the end of their useful lives and have been fully amortized. Useful lives are estimated based on the expected economic benefit to be derived from the intangible assets.
5. INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Equity Method Investments
The Company invests in limited partnerships and accounts for these investments using the equity method. The carrying amounts of these investments, as of December 31, 2022 and April 2, 2022, were $20.2 million and $27.1 million, respectively, and are classified as "Long-term investments" in the Condensed Consolidated Balance Sheets. During the three and nine months ended December 31, 2022, the Company recorded a loss of $5.0 million and $4.7 million, respectively, based on its share of the limited partnerships' earnings. During the three and nine months ended January 1, 2022, the Company recorded a loss of $2.4 million and income of $13.6 million, respectively, based on its share of the limited partnerships' earnings. These amounts are included in "Other income, net" in the Condensed Consolidated Statements of Operations. During the three and
10
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
nine months ended December 31, 2022, the Company received cash distributions of $0.2 million and $2.2 million, respectively, from these limited partnerships. No cash distributions were received during the three months ended January 1, 2022 and $13.5 million of cash distributions were received during the nine months ended January 1, 2022. The cash distributions were recognized as reductions to the carrying value of the investments and included in the cash flows from investing activities in the Condensed Consolidated Statements of Cash Flows.
Fair Value of Financial Instruments
The fair value of the financial assets and liabilities measured on a recurring basis was determined using the following levels of inputs (in thousands):
| Total | Quoted Prices In Active Markets For Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Marketable equity securities | $ | $ | $ | $ | |||||||||||||||||||
Invested funds in deferred compensation plan (1) | |||||||||||||||||||||||
Contingent earn-out liability (2) | ( | ( | |||||||||||||||||||||
| April 2, 2022 | |||||||||||||||||||||||
| Marketable equity securities | $ | $ | $ | $ | |||||||||||||||||||
Invested funds in deferred compensation plan (1) | |||||||||||||||||||||||
Contingent earn-out liability (2) | ( | ( | |||||||||||||||||||||
(1) Invested funds under the Company's non-qualified deferred compensation plan are held in a rabbi trust and consist of mutual funds. The fair value of the mutual funds is calculated using the net asset value per share determined by quoted active market prices of the underlying investments.
(2) At December 31, 2022, the maximum contingent consideration was recorded related to the acquisition of United SiC (refer to Note 3). At April 2, 2022, the fair value of this liability was estimated using an option pricing model.
6. LONG-TERM DEBT
| December 31, 2022 | April 2, 2022 | ||||||||||
| 1.750% senior notes due 2024 | $ | $ | |||||||||
| 4.375% senior notes due 2029 | |||||||||||
| 3.375% senior notes due 2031 | |||||||||||
| Finance leases and other | |||||||||||
| Unamortized premium, discount and issuance costs, net | ( | ( | |||||||||
| Less current portion of long-term debt | ( | ( | |||||||||
| Total long-term debt | $ | $ | |||||||||
Credit Agreement
On September 29, 2020, the Company and certain of its U.S. subsidiaries (the "Guarantors") entered into a five-year unsecured senior credit facility pursuant to a credit agreement (as amended, restated, modified or otherwise supplemented from time to time, the "Credit Agreement") with Bank of America, N.A., acting as administrative agent, and a syndicate of lenders. The Credit Agreement amended and restated the previous credit agreement dated as of December 5, 2017. The Credit Agreement includes a senior revolving line of credit (the "Revolving Facility") of up to $300.0 million, and included a senior term loan of $200.0 million (collectively, the "Credit Facility"), that was fully repaid in fiscal 2022.
11
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
On April 6, 2022, the Company and the administrative agent entered into an amendment to the Credit Agreement (the "LIBOR Transition Amendment") to replace the London Interbank Offered Rate as a reference rate available for use in the computation of interest under the Credit Agreement. As a result of the LIBOR Transition Amendment, at the Company’s option, loans under the Credit Agreement will bear interest at (i) the Applicable Rate (as defined in the Credit Agreement) plus the Term SOFR (as defined in the Credit Agreement) or (ii) the Applicable Rate plus a rate equal to the highest of (a) the federal funds rate plus 0.50 %, (b) the prime rate as set by the administrative agent, and (c) the Term SOFR plus 1.0 % (the "Base Rate"). All swing line loans will bear interest at a rate equal to the Applicable Rate plus the Base Rate. The Term SOFR is the rate per annum equal to the forward-looking Secured Overnight Financing Rate term rate for interest periods of one, three or six months (as selected by the Company) plus an adjustment (as defined in the Credit Agreement). The Applicable Rate for Term SOFR loans ranges from 1.000 % per annum to 1.250 % per annum, and the Applicable Rate for Base Rate loans ranges from 0.000 % per annum to 0.250 % per annum. Undrawn amounts under the Credit Facility are subject to a commitment fee ranging from 0.150 % to 0.200 %.
During the three and nine months ended December 31, 2022, there were no borrowings under the Revolving Facility.
Senior Notes due 2024
On December 14, 2021, the Company issued $500.0 million aggregate principal amount of its 1.750 % senior notes due 2024 (the "2024 Notes"). The 2024 Notes will mature on December 15, 2024, unless earlier redeemed in accordance with their terms. The 2024 Notes are senior unsecured obligations of the Company and are guaranteed, jointly and severally, by the Guarantors.
The 2024 Notes were issued pursuant to an indenture, dated as of December 14, 2021 (the "2021 Indenture"), by and among the Company, the Guarantors and Computershare Trust Company, N.A., as trustee. The 2021 Indenture contains customary events of default, including payment default, exchange default, failure to provide certain notices thereunder and certain provisions related to bankruptcy events. The 2021 Indenture also contains customary negative covenants.
Interest is payable on the 2024 Notes on June 15 and December 15 of each year. The Company paid interest of $4.4 million and $8.8 million on the 2024 Notes during the three and nine months ended December 31, 2022, respectively.
Senior Notes due 2029
On September 30, 2019, the Company issued $350.0 million aggregate principal amount of its 4.375 % senior notes due 2029 (the "Initial 2029 Notes"). On December 20, 2019, and June 11, 2020, the Company issued an additional $200.0 million and $300.0 million, respectively, aggregate principal amount of such notes (together, the "Additional 2029 Notes" and together with the Initial 2029 Notes, the "2029 Notes"). The 2029 Notes will mature on October 15, 2029, unless earlier redeemed in accordance with their terms. The 2029 Notes are senior unsecured obligations of the Company and are guaranteed, jointly and severally, by the Guarantors.
The Initial 2029 Notes were issued pursuant to an indenture, dated as of September 30, 2019, by and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee, and the Additional 2029 Notes were issued pursuant to supplemental indentures, dated as of December 20, 2019, and June 11, 2020 (such indenture and supplemental indentures, collectively, the "2019 Indenture"). The 2019 Indenture contains substantially the same customary events of default and negative covenants as the 2021 Indenture.
Interest is payable on the 2029 Notes on April 15 and October 15 of each year. The Company paid interest of $18.6 million on the 2029 Notes during the three months ended December 31, 2022 and January 1, 2022, and paid interest of $37.2 million during the nine months ended December 31, 2022 and January 1, 2022.
Senior Notes due 2031
On September 29, 2020, the Company issued $700.0 million aggregate principal amount of its 3.375 % senior notes due 2031 (the "2031 Notes"). The 2031 Notes will mature on April 1, 2031, unless earlier redeemed in accordance with their terms. The 2031 Notes are senior unsecured obligations of the Company and are guaranteed, jointly and severally, by the Guarantors.
12
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The 2031 Notes were issued pursuant to an indenture, dated as of September 29, 2020, by and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee (the "2020 Indenture"). The 2020 Indenture contains substantially the same customary events of default and negative covenants as the 2021 Indenture.
Interest is payable on the 2031 Notes on April 1 and October 1 of each year. The Company paid no interest on the 2031 Notes during the three months ended December 31, 2022 and January 1, 2022, and paid interest of $11.8 million during the nine months ended December 31, 2022 and January 1, 2022.
Fair Value of Long-Term Debt
Interest Expense
During the three and nine months ended December 31, 2022, the Company recognized total interest expense of $18.1 million and $54.2 million, respectively, primarily related to the 2024 Notes, the 2029 Notes and the 2031 Notes, partially offset by interest capitalized to property and equipment of $1.0 million and $3.0 million, respectively. During the three and nine months ended January 1, 2022, the Company recognized total interest expense of $16.3 million and $48.7 million, respectively, primarily related to the 2029 Notes and the 2031 Notes, partially offset by interest capitalized to property and equipment of $0.9 million and $2.8 million, respectively.
7. STOCK REPURCHASES
On November 2, 2022, the Company announced that its Board of Directors authorized a new share repurchase program to repurchase up to $2.0 billion of the Company's outstanding common stock, which included the remaining authorized dollar amount under a prior program terminated concurrent with the new authorization. Under the current program, share repurchases are made in accordance with applicable securities laws on the open market or in privately negotiated transactions. The extent to which the Company repurchases its shares, the number of shares and the timing of any repurchases depends on general market conditions, regulatory requirements, alternative investment opportunities and other considerations. The program does not require the Company to repurchase a minimum number of shares, does not have a fixed term, and may be modified, suspended, or terminated at any time without prior notice.
During the three and nine months ended December 31, 2022, the Company repurchased approximately 2.2 million and 7.2 million shares of its common stock for approximately $201.6 million and $711.7 million, respectively (including transaction costs) under the prior and current share repurchase programs. As of December 31, 2022, approximately $1,855.0 million remains available for repurchases under the current share repurchase program.
During the three and nine months ended January 1, 2022, the Company repurchased approximately 1.9 million and 4.8 million shares, respectively, of its common stock for approximately $302.0 million and $825.4 million, respectively (including transaction costs).
8. COMMITMENTS AND CONTINGENT LIABILITIES
Purchase Obligations
Amidst ongoing industry-wide supply constraints, the Company entered into a long-term capacity reservation agreement with a foundry supplier during the second quarter of fiscal 2022. Under this agreement, the Company was required to purchase, and
13
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
the foundry supplier was required to supply, a certain number of wafers (at predetermined sales prices) for calendar years 2022 through 2025. In connection with this agreement, the Company paid a refundable deposit (which was recorded in "Other non-current assets" in the Condensed Consolidated Balance Sheets), and if the purchase commitments per the agreement were not met, under certain circumstances the supplier could deduct the amount of the purchase shortfall from the prepaid refundable deposit at the end of each calendar year.
During fiscal 2023, the Company has experienced unexpectedly weakened demand for 5G handsets in China and EMEA primarily due to unprecedented disruption resulting from measures taken in China to control the COVID-19 pandemic and the conflict in Ukraine. As a result, the Company did not meet the minimum purchase commitments under this long-term capacity reservation agreement.
In the first quarter of fiscal 2023, the purchase shortfall resulted in an impairment to the prepaid refundable deposit of approximately $13.0 million and additional reserves of approximately $11.0 million for inventory in excess of demand forecasts were recorded. Additionally, the Company assessed the future minimum purchase commitments over the remaining term of the agreement and recorded an estimated shortfall of $86.0 million, of which $8.0 million was recorded in "Other current liabilities" and $78.0 million was recorded in "Other long-term liabilities" in accordance with Accounting Standards Codification ("ASC") 330, "Inventory." These transactions resulted in a total increase to cost of goods sold of $110.0 million in the first quarter of fiscal 2023.
In October 2022, the Company renegotiated the terms of the agreement with the foundry supplier, which included extending the duration of the agreement through calendar year 2026. The Company believes that the amended agreement more closely aligns the contractual purchase commitments with forecasted demand. As a result of the amended agreement, in the second quarter of fiscal 2023, the Company recorded an impairment to the prepaid refundable deposit of approximately $38.0 million and additional reserves of approximately $5.0 million for inventory in excess of demand forecasts, which reduced the estimated shortfall liability that was previously recorded by $43.0 million. In the third quarter of fiscal 2023, the Company recorded an impairment to the prepaid refundable deposit of approximately $8.0 million and additional reserves of approximately $4.0 million for inventory in excess of demand forecasts, which reduced the estimated shortfall liability that was previously recorded by $12.0 million. There was no impact to the statements of operations in the second or third quarters of fiscal 2023. There were no material changes to the Company's estimated future purchase obligations under the current terms of the capacity reservation agreement during the current quarter.
In performing these assessments, the Company considered Company-specific forecasts, legal obligations, macroeconomic and geopolitical factors as well as market and industry trends. These factors include significant management judgment and estimates and, to the extent that these assumptions are incorrect or there are further declines in management's demand forecasts, additional charges may be recorded in future periods.
Legal Matters
The Company is involved in various legal proceedings and claims that have arisen in the ordinary course of business that have not been fully adjudicated. The Company accrues a liability for legal contingencies when it believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company regularly evaluates developments in its legal matters that could affect the amount of the previously accrued liability and records adjustments as appropriate. Although it is not possible to predict with certainty the outcome of the unresolved legal matters, it is the opinion of management that these matters will not, individually or in the aggregate, have a material adverse effect on the Company’s consolidated financial position or results of operations. The aggregate range of reasonably possible losses in excess of accrued liabilities, if any, associated with these unresolved legal matters is not material.
14
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. REVENUE
The following table presents the Company's revenue disaggregated by geography, based on the location of the customers' headquarters (in thousands):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | ||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| China | |||||||||||||||||||||||
| Other Asia | |||||||||||||||||||||||
| Taiwan | |||||||||||||||||||||||
| Europe | |||||||||||||||||||||||
Total revenue | $ | $ | $ | $ | |||||||||||||||||||
The Company also disaggregates revenue by operating segments (refer to Note 11).
10. RESTRUCTURING
In fiscal 2023, the Company has taken actions to improve efficiencies in its operations and further align the organization with its strategic objectives. The Company will continue to evaluate its operating footprint, cost structure and strategic opportunities.
The following table summarizes the charges resulting from the restructuring actions (in thousands):
| Three Months Ended December 31, 2022 | Nine Months Ended December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Cost of Goods Sold | Other Operating Expense | Total | Cost of Goods Sold | Other Operating Expense | Total | ||||||||||||||||||||||||||||||
| Contract termination and other costs | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Asset impairment costs (1) | |||||||||||||||||||||||||||||||||||
One-time employee termination benefits (2) | ( | ( | |||||||||||||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
(1) Relates to the adjustment of certain property and equipment to reflect its fair value.
(2) Includes reversal due to adjustment of previously accrued restructuring charges.
The following table summarizes the activity related to the Company's restructuring liabilities for the nine months ended December 31, 2022 (in thousands):
| One-Time Employee Termination Benefits | Contract Termination and Other Costs | Total | |||||||||||||||
| Accrued restructuring balance as of April 2, 2022 | $ | $ | $ | ||||||||||||||
| Costs incurred and charged to expense | |||||||||||||||||
| Cash payments | ( | ( | ( | ||||||||||||||
| Accrued restructuring balance as of December 31, 2022 | $ | $ | $ | ||||||||||||||
15
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
11. OPERATING SEGMENT INFORMATION
HPA is a leading global supplier of RF and power management solutions for infrastructure, defense and aerospace, automotive power and other markets. HPA leverages a diverse portfolio of differentiated technologies and products to support multiyear growth trends, including electrification, renewable energy, the increasing semiconductor spend in defense and 5G deployments outside of China.
CSG is a leading global supplier of connectivity and sensor components and systems featuring multiple technologies such as UWB, Matter®, Bluetooth® Low Energy, Zigbee®, Thread®, Wi-Fi®, cellular IoT and MEMS-/BAW-based sensors. CSG combines the connectivity and sensors businesses formerly split between Mobile Products and Infrastructure and Defense Products. CSG’s markets include smart home, automotive connectivity, industrial automation, smartphones, wearables, gaming and other high-growth IoT connectivity and healthcare markets.
ACG is a leading global supplier of cellular RF solutions for smartphones, wearables, laptops, tablets and various other devices. ACG leverages world-class technology and systems-level expertise to deliver a broad portfolio of high performance cellular products to the world's leading smartphone and consumer electronics companies. ACG is a highly diversified supplier of custom and open market cellular solutions, serving iOS and Android original equipment manufacturers.
The "All other" category includes operating expenses such as stock-based compensation expense, amortization of intangible assets, restructuring related charges, acquisition and integration related costs, charges associated with a long-term capacity reservation agreement, fixed asset impairments, gain (loss) on sale of fixed assets, start-up costs and other miscellaneous corporate overhead expenses that the Company does not allocate to its reportable segments because these expenses are not included in the segment operating performance measures evaluated by the Company’s CODM. The CODM does not evaluate operating segments using discrete asset information. The Company’s operating segments do not record intercompany revenue. The Company does not allocate gains and losses from investments, interest expense, other (expense) income, or taxes to operating segments. Except as discussed above regarding the "All other" category, the Company’s accounting policies for segment reporting are the same as for the Company as a whole.
16
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following tables present details of the Company’s operating and reportable segments and a reconciliation of the "All other" category (in thousands):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| HPA | $ | $ | $ | $ | |||||||||||||||||||
| CSG | |||||||||||||||||||||||
| ACG | |||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
| Operating income (loss): | |||||||||||||||||||||||
| HPA | $ | $ | $ | $ | |||||||||||||||||||
| CSG | ( | ( | |||||||||||||||||||||
| ACG | |||||||||||||||||||||||
| All other | ( | ( | ( | ( | |||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| (Loss) income before income taxes | $ | ( | $ | $ | $ | ||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | ||||||||||||||||||||
| Reconciliation of "All other" category: | |||||||||||||||||||||||
| Stock-based compensation expense | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Amortization of intangible assets | ( | ( | ( | ( | |||||||||||||||||||
Restructuring related charges (1) | ( | ( | |||||||||||||||||||||
Acquisition and integration related costs | ( | ( | ( | ( | |||||||||||||||||||
Charges associated with a long-term capacity reservation agreement (2) | ( | ||||||||||||||||||||||
| Other | ( | ( | ( | ||||||||||||||||||||
| Loss from operations for "All other" | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
(1) Refer to Note 10 for additional information.
(2) Refer to Note 8 for additional information.
12. INCOME TAXES
The Company’s income tax expense was $13.2 million and $82.1 million for the three and nine months ended December 31, 2022, respectively, and $67.0 million and $112.5 million, for the three and nine months ended January 1, 2022, respectively. The Company’s effective tax rate was (474.1 )% and 25.4 % for the three and nine months ended December 31, 2022, respectively, and 23.6 % and 12.1 % for the three and nine months ended January 1, 2022, respectively.
The Company's effective tax rate for the three and nine months ended December 31, 2022 differed from the statutory rate primarily due to tax rate differences in foreign jurisdictions, global intangible low tax income ("GILTI"), domestic tax credits generated and discrete tax items recorded during the period. A discrete tax expense of $2.2 million and a discrete tax benefit of $10.4 million was recorded for the three and nine months ended December 31, 2022. The discrete tax expense for the three months ended December 31, 2022 primarily resulted from foreign currency gains recognized for tax purposes. The discrete tax benefit for the nine months ended December 31, 2022 primarily resulted from certain charges associated with a long-term
17
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
capacity reservation agreement (refer to Note 8 for further information), partially offset by foreign currency gains recognized for tax purposes.
The Company's effective tax rate for the three and nine months ended January 1, 2022 differed from the statutory rate primarily due to tax rate differences in foreign jurisdictions, GILTI, domestic tax credits and discrete tax items recorded during the period. A discrete tax expense of $42.5 million and $12.0 million was recorded during the three and nine months ended January 1, 2022, respectively. The discrete tax expense for the three and nine months ended January 1, 2022 primarily related to the revaluation of deferred tax assets due to the extension of the Company’s tax holiday in Singapore. The discrete tax expense for the nine months ended January 1, 2022 was partially offset by the recognition of previously unrecognized tax benefits due to the expiration of the statute of limitations, stock-based compensation deductions and net tax benefits associated with other non-recurring restructuring activities, including a discrete charge associated with the intercompany restructuring of the NextInput intellectual property.
13. NET (LOSS) INCOME PER SHARE
The following table sets forth the computation of basic and diluted net (loss) income per share (in thousands, except per share data):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Numerator for basic and diluted net (loss) income per share — net (loss) income available to common stockholders | $ | ( | $ | $ | $ | ||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Denominator for basic net (loss) income per share — weighted average shares | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
Stock-based awards | |||||||||||||||||||||||
| Denominator for diluted net (loss) income per share — adjusted weighted average shares and assumed conversions | |||||||||||||||||||||||
| Basic net (loss) income per share | $ | ( | $ | $ | $ | ||||||||||||||||||
| Diluted net (loss) income per share | $ | ( | $ | $ | $ | ||||||||||||||||||
In the computation of net loss per share for the three months ended December 31, 2022, approximately 2.0 million shares of outstanding stock-based awards were excluded because the effect of their inclusion would have been anti-dilutive. In the computation of diluted net income per share for the nine months ended December 31, 2022, approximately 0.9 million shares of outstanding stock-based awards were excluded because the effect of their inclusion would have been anti-dilutive. An immaterial number of shares of outstanding stock-based awards were excluded from the computation of diluted net income per share for the three and nine months ended January 1, 2022 because the effect of their inclusion would have been anti-dilutive.
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions, and are not historical facts and typically are identified by use of terms such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management's current judgment and expectations, but our actual results, events and performance could differ materially from those expressed or implied by forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as is required under U.S. federal securities laws. Our business is subject to numerous risks and uncertainties, including those relating to fluctuations in our operating results; our substantial dependence on developing new products and achieving design wins; our dependence on several large customers for a substantial portion of our revenue; continued volatility and uncertainty in customer demand, worldwide economies and financial markets resulting from the impact of the COVID-19 pandemic, conflict in Ukraine or other macroeconomic factors; a loss of revenue if defense and aerospace contracts are canceled or delayed; our dependence on third parties; risks related to sales through distributors; risks associated with the operation of our manufacturing facilities; business disruptions; poor manufacturing yields; increased inventory risks and costs, including under long-term supply agreements, due to timing of customers' forecasts; our inability to effectively manage or maintain evolving relationships with chipset suppliers; our ability to continue to innovate in a very competitive industry; underutilization of manufacturing facilities; unfavorable changes in interest rates, pricing of certain precious metals, utility rates and foreign currency exchange rates; our acquisitions and other strategic investments failing to achieve financial or strategic objectives; our ability to attract, retain and motivate key employees; warranty claims, product recalls and product liability; changes in our effective tax rate; changes in the favorable tax status of certain of our subsidiaries; enactment of international or domestic tax legislation, or changes in regulatory guidance; risks associated with environmental, health and safety regulations, and climate change; risks from international sales and operations; economic regulation in China; changes in government trade policies, including imposition of tariffs and export restrictions; we may not be able to generate sufficient cash to service all of our debt; restrictions imposed by the agreements governing our debt; our reliance on our intellectual property portfolio; claims of infringement of third-party intellectual property rights; security breaches and other similar disruptions compromising our information; theft, loss or misuse of personal data by or about our employees, customers or third parties; provisions in our governing documents and Delaware law may discourage takeovers and business combinations that our stockholders might consider to be in their best interests; and volatility in the price of our common stock. These and other risks and uncertainties, which are described in more detail under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended April 2, 2022 and Qorvo's subsequent reports and statements that we file with the SEC, could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements.
19
OVERVIEW
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the consolidated results of operations and financial condition of Qorvo. MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and accompanying Notes to Condensed Consolidated Financial Statements.
Qorvo is a global leader in the development and commercialization of technologies and products for wireless, wired and power markets.
During the second quarter of fiscal 2023, we updated our organizational structure to more closely align similar technologies and applications with customers and end markets. We manage our business and report our financial results in three reportable segments: High Performance Analog ("HPA"), Connectivity and Sensors Group ("CSG") and Advanced Cellular Group ("ACG"). Refer to Note 11 of the Notes to Condensed Consolidated Financial Statements for additional information regarding our reportable operating segments as of December 31, 2022.
HPA is a leading global supplier of RF and power management solutions for infrastructure, defense and aerospace, automotive power and other markets. HPA leverages a diverse portfolio of differentiated technologies and products to support multiyear growth trends, including electrification, renewable energy, the increasing semiconductor spend in defense and 5G deployments outside of China.
CSG is a leading global supplier of connectivity and sensor components and systems featuring multiple technologies such as UWB, Matter®, Bluetooth® Low Energy, Zigbee®, Thread®, Wi-Fi®, cellular IoT and MEMS-/BAW-based sensors. CSG combines the connectivity and sensors businesses formerly split between Mobile Products and Infrastructure and Defense Products. CSG’s markets include smart home, automotive connectivity, industrial automation, smartphones, wearables, gaming and other high-growth IoT connectivity and healthcare markets.
ACG is a leading global supplier of cellular RF solutions for smartphones, wearables, laptops, tablets and various other devices. ACG leverages world-class technology and systems-level expertise to deliver a broad portfolio of high performance cellular products to the world's leading smartphone and consumer electronics companies. ACG is a highly diversified supplier of custom and open market cellular solutions serving iOS and Android original equipment manufacturers.
As previously disclosed in our Annual Report on Form 10-K, filed on May 20, 2022, the COVID-19 pandemic has impacted the semiconductor industry supply chain, causing uncertainty in customer demand, worldwide economies and financial markets. During fiscal 2023, we have experienced unexpectedly weakened demand for 5G handsets in China and EMEA due to unprecedented disruption resulting from measures taken in China to control the COVID-19 pandemic and the conflict in Ukraine. As a result, we did not meet the minimum purchase commitments under a long-term capacity reservation agreement with a foundry supplier. In the first quarter of fiscal 2023, the purchase shortfall resulted in an impairment to the prepaid refundable deposit of approximately $13.0 million and additional reserves of approximately $11.0 million for inventory in excess of demand forecasts were recorded. Additionally, we assessed the future minimum purchase commitments over the remaining term of the agreement and recorded an estimated shortfall of $86.0 million in accordance with Accounting Standards Codification 330, "Inventory." These transactions resulted in a total increase to cost of goods sold of $110.0 million in the first quarter of fiscal 2023. In October 2022, we renegotiated the terms of the agreement with the foundry supplier, which included extending the duration of the agreement through calendar year 2026. We believe that the amended agreement more closely aligns the contractual purchase commitments with our forecasted demand. As a result of the amended agreement, in the second quarter of fiscal 2023, we recorded an impairment to the prepaid refundable deposit of approximately $38.0 million and additional reserves of approximately $5.0 million for inventory in excess of demand forecasts, which reduced the estimated shortfall liability that was previously recorded by $43.0 million. In the third quarter of fiscal 2023, we recorded an impairment to the prepaid refundable deposit of approximately $8.0 million and additional reserves of approximately $4.0 million for inventory in excess of demand forecasts, which reduced the estimated shortfall liability that was previously recorded by $12.0 million. There was no impact to the statements of operations in the second or third quarters of fiscal 2023. In performing these assessments, we considered Company-specific forecasts, legal obligations, macroeconomic and geopolitical factors as well as market and industry trends. These factors include significant management judgment and estimates and, to the extent that these assumptions are incorrect or there are further declines in management's demand forecasts, additional charges may be recorded in future periods.
20
THIRD QUARTER FISCAL 2023 FINANCIAL HIGHLIGHTS
•Revenue for the third quarter of fiscal 2023 decreased 33.3% as compared to the third quarter of fiscal 2022, primarily due to ongoing global macroeconomic challenges which resulted in lower demand for 5G handsets and other consumer facing products, such as Wi-Fi. Demand was also negatively impacted by ongoing efforts to consume channel inventories.
•Gross margin for the third quarter of fiscal 2023 decreased to 36.1% as compared to 49.2% for the third quarter of fiscal 2022, primarily due to factory underutilization costs resulting from lower production levels, as well as inventory charges related to demand fluctuations and a quality issue from a third-party supplier. These decreases to gross margin were partially offset by favorable changes in product mix.
•Operating income was $8.7 million for the third quarter of fiscal 2023 as compared to $296.0 million for the third quarter of fiscal 2022. This decrease was primarily due to lower revenue and lower gross margin.
•Net loss per share was $0.16 for the third quarter of fiscal 2023 as compared to net income per diluted share of $1.95 for the third quarter of fiscal 2022.
•Capital expenditures were $34.4 million for the third quarter of fiscal 2023 as compared to $50.5 million for the third quarter of fiscal 2022.
•During the third quarter of fiscal 2023, we repurchased approximately 2.2 million shares of our common stock for approximately $201.6 million.
21
RESULTS OF OPERATIONS
Consolidated
The following tables present a summary of our results of operations (in thousands, except percentages):
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| December 31, 2022 | % of Revenue | January 1, 2022 | % of Revenue | Increase (Decrease) | Percentage Change | ||||||||||||||||||||||||||||||
| Revenue | $ | 100.0 | % | $ | 100.0 | % | $ | (370,676) | (33.3) | % | |||||||||||||||||||||||||
| Cost of goods sold | 63.9 | 50.8 | (90,634) | (16.0) | |||||||||||||||||||||||||||||||
| Gross profit | 268,051 | 36.1 | 548,093 | 49.2 | (280,042) | (51.1) | |||||||||||||||||||||||||||||
| Research and development | 20.1 | 13.9 | (4,963) | (3.2) | |||||||||||||||||||||||||||||||
| Selling, general and administrative | 10.3 | 7.3 | (5,734) | (7.0) | |||||||||||||||||||||||||||||||
| Other operating expense | 4.5 | 1.4 | 17,936 | 114.6 | |||||||||||||||||||||||||||||||
| Operating income | $ | 8,729 | 1.2 | % | $ | 296,010 | 26.6 | % | $ | (287,281) | (97.1) | % | |||||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| December 31, 2022 | % of Revenue | January 1, 2022 | % of Revenue | Increase (Decrease) | Percentage Change | ||||||||||||||||||||||||||||||
| Revenue | $ | 100.0 | % | $ | 100.0 | % | $ | (542,860) | (15.6) | % | |||||||||||||||||||||||||
| Cost of goods sold | 59.7 | 50.7 | (9,259) | (0.5) | |||||||||||||||||||||||||||||||
| Gross profit | 1,182,228 | 40.3 | 1,715,829 | 49.3 | (533,601) | (31.1) | |||||||||||||||||||||||||||||
| Research and development | 16.6 | 13.4 | 21,313 | 4.6 | |||||||||||||||||||||||||||||||
| Selling, general and administrative | 9.4 | 7.6 | 10,045 | 3.8 | |||||||||||||||||||||||||||||||
| Other operating expense | 1.6 | 0.8 | 18,363 | 61.9 | |||||||||||||||||||||||||||||||
| Operating income | $ | 372,150 | 12.7 | % | $ | 955,472 | 27.5 | % | $ | (583,322) | (61.1) | % | |||||||||||||||||||||||
Revenue decreased for the three and nine months ended December 31, 2022, compared to the three and nine months ended January 1, 2022, primarily due to ongoing global macroeconomic challenges (including the measures taken in China to control the COVID-19 pandemic, the conflict in Ukraine and the negative impact of higher inflation on consumer spending) which resulted in lower demand for 5G handsets and other consumer facing products, such as Wi-Fi. Demand was also negatively impacted by ongoing efforts to consume channel inventories. The decreased revenue for the nine months ended December 31, 2022, compared to the nine months ended January 1, 2022, was partially offset by content gains in mass-tier handsets and higher demand for our defense and silicon carbide ("SiC")-based power management products.
Gross margin decreased for the three months ended December 31, 2022, compared to the three months ended January 1, 2022, primarily due to factory underutilization costs resulting from lower production levels, as well as inventory charges related to demand fluctuations and a quality issue from a third-party supplier. These decreases to gross margin were partially offset by favorable changes in product mix.
Gross margin decreased for the nine months ended December 31, 2022, compared to the nine months ended January 1, 2022, primarily due to charges recorded in the first quarter of fiscal 2023 associated with a long-term capacity reservation agreement, factory underutilization costs resulting from lower production levels, as well as inventory charges related to demand fluctuations and quality issues from third-party suppliers. These decreases to gross margin were partially offset by favorable changes in product mix.
Operating expenses increased for the three months ended December 31, 2022, compared to the three months ended January 1, 2022, primarily due to restructuring charges (see Note 10 of the Notes to Condensed Consolidated Financial Statements for additional information), partially offset by lower employee-related costs.
22
Operating expenses increased for the nine months ended December 31, 2022, compared to the nine months ended January 1, 2022, primarily due to employee-related costs and restructuring charges. Travel expenses also increased during the nine months ended December 31, 2022, as travel restrictions and our policies originally implemented in response to the COVID-19 pandemic have eased.
Operating Segments
High Performance Analog
| Three Months Ended | ||||||||||||||||||||||||||
| (In thousands, except percentages) | December 31, 2022 | January 1, 2022 | Decrease | Percentage Change | ||||||||||||||||||||||
| Revenue | $ | $ | $ | (26,865) | (14.8) | % | ||||||||||||||||||||
| Operating income | (27,115) | (47.6) | ||||||||||||||||||||||||
| Operating income as a % of revenue | 19.2 | % | 31.3 | % | ||||||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||||
| (In thousands, except percentages) | December 31, 2022 | January 1, 2022 | Increase | Percentage Change | ||||||||||||||||||||||
| Revenue | $ | $ | $ | 97,252 | 19.6 | % | ||||||||||||||||||||
| Operating income | 40,149 | 28.5 | ||||||||||||||||||||||||
| Operating income as a % of revenue | 30.5 | % | 28.4 | % | ||||||||||||||||||||||
HPA revenue decreased for the three months ended December 31, 2022, compared to the three months ended January 1, 2022, primarily due to a decrease in demand for base station products and power products supporting solid-state drives and power tools, driven by ongoing efforts to consume channel inventories. These decreases were partially offset by higher demand for our SiC-based power management products.
HPA revenue increased for the nine months ended December 31, 2022, compared to the nine months ended January 1, 2022, primarily due to higher demand for our defense, SiC-based power management and base station products. These increases were partially offset by a decrease in demand for power products supporting solid-state drives and power tools, driven by ongoing efforts to consume channel inventories.
HPA operating income decreased for the three months ended December 31, 2022, compared to the three months ended January 1, 2022, primarily due to the effects of decreased revenue, including factory underutilization.
HPA operating income increased for the nine months ended December 31, 2022, compared to the nine months ended January 1, 2022, primarily due to increased revenue and lower inventory charges, partially offset by factory underutilization.
Connectivity and Sensors Group
| Three Months Ended | ||||||||||||||||||||||||||
| (In thousands, except percentages) | December 31, 2022 | January 1, 2022 | Decrease | Percentage Change | ||||||||||||||||||||||
| Revenue | $ | $ | $ | (60,768) | (38.6) | % | ||||||||||||||||||||
| Operating (loss) income | ( | (52,254) | (247.5) | |||||||||||||||||||||||
| Operating (loss) income as a % of revenue | (32.2) | % | 13.4 | % | ||||||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||||
| (In thousands, except percentages) | December 31, 2022 | January 1, 2022 | Decrease | Percentage Change | ||||||||||||||||||||||
| Revenue | $ | $ | $ | (132,736) | (25.3) | % | ||||||||||||||||||||
| Operating (loss) income | ( | (107,213) | (138.7) | |||||||||||||||||||||||
| Operating (loss) income as a % of revenue | (7.6) | % | 14.7 | % | ||||||||||||||||||||||
23
CSG revenue decreased for the three and nine months ended December 31, 2022, compared to the three and nine months ended January 1, 2022, primarily due to a decrease in end market demand for Wi-Fi components in addition to ongoing efforts to consume channel inventories.
CSG operating income decreased for the three and nine months ended December 31, 2022, compared to the three and nine months ended January 1, 2022, primarily due to decreased revenue, factory underutilization and higher inventory charges.
Advanced Cellular Group
| Three Months Ended | ||||||||||||||||||||||||||
| (In thousands, except percentages) | December 31, 2022 | January 1, 2022 | Decrease | Percentage Change | ||||||||||||||||||||||
| Revenue | $ | $ | $ | (283,043) | (36.5) | % | ||||||||||||||||||||
| Operating income | (194,086) | (66.0) | ||||||||||||||||||||||||
| Operating income as a % of revenue | 20.3 | % | 38.0 | % | ||||||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||||
| (In thousands, except percentages) | December 31, 2022 | January 1, 2022 | Decrease | Percentage Change | ||||||||||||||||||||||
| Revenue | $ | $ | $ | (507,376) | (20.6) | % | ||||||||||||||||||||
| Operating income | (386,776) | (40.4) | ||||||||||||||||||||||||
| Operating income as a % of revenue | 29.2 | % | 38.9 | % | ||||||||||||||||||||||
ACG revenue decreased for the three and nine months ended December 31, 2022, compared to the three and nine months ended January 1, 2022, primarily due to ongoing global macroeconomic challenges (including the measures taken in China to control the COVID-19 pandemic, the conflict in Ukraine and the negative impact of higher inflation on consumer spending) which resulted in lower demand for 5G handsets. Demand for ACG products was also negatively impacted by ongoing efforts to consume channel inventories. The decreased revenue for the nine months ended December 31, 2022, compared to the nine months ended January 1, 2022, was partially offset by content gains in mass-tier handsets.
ACG operating income decreased for the three and nine months ended December 31, 2022, compared to the three and nine months ended January 1, 2022, primarily due to factory underutilization costs resulting from lower production levels, as well as inventory charges related to demand fluctuations and quality issues from third-party suppliers. These decreases to operating income were partially offset by favorable changes in customer mix. Operating expenses increased for the nine months ended December 31, 2022, compared to the nine months ended January 1, 2022, primarily due to employee-related costs.
Refer to Note 11 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of reportable segment operating income to the consolidated operating income for the three and nine months ended December 31, 2022 and January 1, 2022.
INTEREST, OTHER INCOME (EXPENSE) AND INCOME TAXES
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (In thousands) | December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | |||||||||||||||||||
| Interest expense | $ | (17,066) | $ | (15,328) | $ | (51,222) | $ | (45,934) | |||||||||||||||
| Other income, net | 5,562 | 2,532 | 2,714 | 24,077 | |||||||||||||||||||
| Income tax expense | (13,156) | (66,951) | (82,074) | (112,537) | |||||||||||||||||||
Interest expense
During the three and nine months ended December 31, 2022, we recorded interest expense primarily related to our 1.750% senior notes due 2024 (the "2024 Notes"), our 4.375% senior notes due 2029 (the "2029 Notes") and our 3.375% senior notes due 2031 (the "2031 Notes"). During the three and nine months ended January 1, 2022, we recorded interest expense primarily related to our 2029 Notes and our 2031 Notes. Refer to Note 6 of the Notes to Condensed Consolidated Financial Statements for additional information.
Other income, net
Other income is primarily attributed to interest income as well as gains (losses) from our share of investments in limited partnerships and gains (losses) from other investments. Refer to Note 5 of the Notes to Condensed Consolidated Financial Statements for additional information.
Income tax expense
During the three and nine months ended December 31, 2022, we recorded income tax expense of $13.2 million and $82.1 million, respectively, comprised primarily of tax expense related to international operations generating pre-tax book income and the impact of global intangible low tax income, partially offset by tax benefits related to domestic and international operations generating pre-tax book losses and domestic tax credits and discrete tax items recorded during the period. The discrete tax expense for the three months ended December 31, 2022 primarily resulted from foreign currency gains recognized for tax purposes. The discrete tax benefit for the nine months ended December 31, 2022 primarily resulted from certain charges associated with a long-term capacity reservation agreement (refer to Note 8 of the Notes to Condensed Consolidated Financial Statements for further information), partially offset by foreign currency gains recognized for tax purposes.
During the three and nine months ended January 1, 2022, we recorded income tax expense of $67.0 million and $112.5 million, respectively, comprised primarily of tax expense related to domestic and international operations generating pre-tax book income and discrete charges recorded during the period, partially offset by tax benefits related to international operations generating pre-tax book losses and domestic tax credits. The discrete tax expense for the three and nine months ended January 1, 2022 primarily related to the revaluation of deferred tax assets due to the extension of the Company’s tax holiday in Singapore through December 31, 2031. The discrete tax expense for the nine months ended January 1, 2022 was partially offset by the recognition of previously unrecognized tax benefits due to the expiration of the statute of limitations, stock-based compensation deductions and net tax benefits associated with other non-recurring restructuring activities, including a discrete charge associated with the intercompany restructuring of the NextInput, Inc. ("NextInput") intellectual property.
A valuation allowance remained against certain domestic and foreign net deferred tax assets as it is more likely than not that the related deferred tax assets will not be realized.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated by operations is our primary source of liquidity. As of December 31, 2022, we had working capital of approximately $1,644.1 million, including $918.8 million in cash and cash equivalents, compared to working capital of approximately $1,774.7 million, including $972.6 million in cash and cash equivalents as of April 2, 2022.
Our $918.8 million of total cash and cash equivalents as of December 31, 2022, includes approximately $755.1 million held by our foreign subsidiaries, of which $585.0 million is held by Qorvo International Pte. Ltd. in Singapore. If the undistributed earnings of our foreign subsidiaries are needed in the U.S., we may be required to pay state income and/or foreign local withholding taxes to repatriate these earnings.
Stock Repurchases
During the nine months ended December 31, 2022, we repurchased approximately 7.2 million shares of our common stock for approximately $711.7 million (including transaction costs) under the prior and current share repurchase programs. As of December 31, 2022, approximately $1,855.0 million remains available for repurchases under the current program.
25
Cash Flows from Operating Activities
Net cash provided by operating activities was $777.8 million and $703.4 million for the nine months ended December 31, 2022 and January 1, 2022, respectively. This increase in cash provided by operating activities was primarily due to changes in working capital, partially offset by decreased profitability. In the nine months ended January 1, 2022, cash provided by operating activities was impacted by the increase in prepaid expenses and other assets primarily due to prepayments of certain fees and deposits associated with a long-term capacity reservation agreement.
Cash Flows from Investing Activities
Net cash used in investing activities was $117.4 million and $552.2 million for the nine months ended December 31, 2022 and January 1, 2022, respectively. There were no acquisitions during the nine months ended December 31, 2022, and we acquired NextInput and United Silicon Carbide, Inc. during the nine months ended January 1, 2022. Refer to Note 3 of the Notes to Condensed Consolidated Financial Statements for additional information regarding our business acquisitions.
Cash Flows from Financing Activities
Net cash used in financing activities was $714.0 million and $558.5 million for the nine months ended December 31, 2022 and January 1, 2022, respectively, primarily due to our stock repurchases and debt obligation activity. Refer to Notes 6 and 7 of the Notes to Condensed Consolidated Financial Statements for additional information regarding our long-term debt and stock repurchases, respectively.
COMMITMENTS AND CONTINGENCIES
Credit Agreement On September 29, 2020, we and certain of our U.S. subsidiaries (the "Guarantors") entered into a five-year unsecured senior credit facility pursuant to a credit agreement (as amended, restated, modified or otherwise supplemented from time to time, the "Credit Agreement") with Bank of America, N.A., acting as administrative agent, and a syndicate of lenders. The Credit Agreement amended and restated our previous credit agreement dated as of December 5, 2017. The Credit Agreement includes a senior revolving line of credit (the "Revolving Facility") of up to $300.0 million and included a senior term loan of $200.0 million (collectively, the "Credit Facility") which was fully repaid in fiscal 2022. The Revolving Facility includes a $25.0 million sublimit for the issuance of standby letters of credit and a $10.0 million sublimit for swing line loans. The Credit Facility is available to finance working capital, capital expenditures and other general corporate purposes.
Pursuant to the Credit Agreement, we may request one or more additional tranches of term loans or increases to the Revolving Facility, up to an aggregate of $500.0 million and subject to, among other things, securing additional funding commitments from the existing or new lenders.
During the nine months ended December 31, 2022, there were no borrowings under the Revolving Facility.
The Credit Agreement contains various conditions, covenants and representations with which we must be in compliance in order to borrow funds and to avoid an event of default. As of December 31, 2022, we were in compliance with these covenants.
2024 Notes On December 14, 2021, we issued $500.0 million aggregate principal amount of our 2024 Notes. Interest on the 2024 Notes is payable on June 15 and December 15 of each year at a rate of 1.750% per annum. The 2024 Notes will mature on December 15, 2024, unless earlier redeemed in accordance with their terms. The 2024 Notes are senior unsecured obligations of the Company and are guaranteed, jointly and severally, by the Guarantors.
2029 Notes On September 30, 2019, we issued $350.0 million aggregate principal amount of our senior notes due 2029 (the "Initial 2029 Notes"). On December 20, 2019, and June 11, 2020, we issued an additional $200.0 million and $300.0 million, respectively, aggregate principal amount of such notes (together with the Initial 2029 Notes, the "2029 Notes"). Interest on the 2029 Notes is payable on April 15 and October 15 of each year at a rate of 4.375% per annum. The 2029 Notes will mature on October 15, 2029, unless earlier redeemed in accordance with their terms. The 2029 Notes are senior unsecured obligations of the Company and are guaranteed, jointly and severally, by the Guarantors.
2031 Notes On September 29, 2020, we issued $700.0 million aggregate principal amount of our 2031 Notes. Interest on the 2031 Notes is payable on April 1 and October 1 of each year at a rate of 3.375% per annum. The 2031 Notes will mature on April 1, 2031, unless earlier redeemed in accordance with their terms. The 2031 Notes are senior unsecured obligations of the Company and are guaranteed, jointly and severally, by the Guarantors.
26
For additional information regarding our long-term debt, refer to Note 6 of the Notes to Condensed Consolidated Financial Statements.
Capital Commitments As of December 31, 2022, we had capital commitments of approximately $84.9 million primarily for expanding capability to support new products, equipment and facility upgrades and cost savings initiatives.
Purchase Obligations Refer to Note 8 of the Notes to Condensed Consolidated Financial Statements for additional information regarding our purchase obligations.
Future Sources of Funding Our future capital requirements may differ materially from those currently projected and will depend on many factors, including market acceptance of and demand for our products, acquisition opportunities, technological advances and our relationships with suppliers and customers. Based on current and projected levels of cash flows from operations, coupled with our existing cash, cash equivalents and our Credit Facility, we believe we have sufficient liquidity to meet both our short-term and long-term cash requirements. However, if there is a significant decrease in demand for our products, or if our demand grows faster than we anticipate, operating cash flows may be insufficient to meet our needs. If existing resources and cash from operations are not sufficient to meet our future requirements or if we perceive conditions to be favorable, we may seek additional debt or equity financing. Additional debt or equity financing could be dilutive to holders of our common stock. Further, we cannot be sure that any additional debt or equity financing, if required, will be available on favorable terms, if at all.
Legal We are involved in various legal proceedings and claims that have arisen in the ordinary course of business that have not been fully adjudicated. We accrue a liability for legal contingencies when we believe that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We regularly evaluate developments in our legal matters that could affect the amount of the previously accrued liability and record adjustments as appropriate. Although it is not possible to predict with certainty the outcome of the unresolved legal matters, it is the opinion of management that these matters will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position or results of operations. We believe the aggregate range of reasonably possible losses in excess of accrued liabilities, if any, associated with these unresolved legal matters is not material.
Taxes We are subject to income and other taxes in the United States and in numerous foreign jurisdictions. Our domestic and foreign tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions. Additionally, the amount of taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we operate. We are subject to audits by tax authorities. While we endeavor to comply with all applicable tax laws, there can be no assurance that a governing tax authority will not have a different interpretation of the law than we do or that we will comply in all respects with applicable tax laws, which could result in additional taxes. There can be no assurance that the outcomes from tax audits will not have an adverse effect on our results of operations in the period during which the review is conducted.
SUPPLEMENTAL PARENT AND GUARANTOR FINANCIAL INFORMATION
In accordance with the indentures governing the 2024 Notes, the 2029 Notes and the 2031 Notes (together, the "Notes"), our obligations under the Notes are fully and unconditionally guaranteed on a joint and several unsecured basis by the Guarantors, which are listed on Exhibit 22 to this Quarterly Report on Form 10-Q. Each Guarantor is 100% owned, directly or indirectly, by Qorvo, Inc. ("Parent"). A Guarantor can be released in certain customary circumstances. Our other U.S. subsidiaries and our non-U.S. subsidiaries do not guarantee the Notes (such subsidiaries are referred to as the "Non-Guarantors").
27
The following presents summarized financial information for the Parent and the Guarantors on a combined basis as of and for the periods indicated, after eliminating (i) intercompany transactions and balances among the Parent and Guarantors, and (ii) equity earnings from, and investments in, any Non-Guarantor. The summarized financial information may not necessarily be indicative of the financial position and results of operations had the combined Parent and Guarantors operated independently from the Non-Guarantors.
Summarized Balance Sheets (in thousands) | December 31, 2022 | April 2, 2022 | |||||||||
| ASSETS | |||||||||||
Current assets (1) | $ | 910,455 | $ | 771,528 | |||||||
| Non-current assets | $ | 2,495,346 | $ | 2,624,454 | |||||||
| LIABILITIES | |||||||||||
| Current liabilities | $ | 216,933 | $ | 241,674 | |||||||
Long-term liabilities (2) | $ | 2,711,093 | $ | 2,634,501 | |||||||
(1) Includes net amounts due from Non-Guarantor subsidiaries of $391.4 million and $286.8 million as of December 31, 2022 and April 2, 2022, respectively.
(2) Includes net amounts due to Non-Guarantor subsidiaries of $490.0 million and $433.5 million as of December 31, 2022 and April 2, 2022, respectively.
| Summarized Statement of Operations | Nine Months Ended | |||||||
| (in thousands) | December 31, 2022 | |||||||
| Revenue | $ | 705,253 | ||||||
| Gross profit | $ | 11,800 | ||||||
| Net loss | $ | (211,944) | ||||||
28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes to our market risk exposures during the third quarter of fiscal 2023. For a discussion of our exposure to market risk, refer to Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," contained in Qorvo's Annual Report on Form 10-K for the fiscal year ended April 2, 2022.
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, the Company’s management, with the participation of the Company’s Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), evaluated the effectiveness of the Company’s disclosure controls and procedures in accordance with Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our CEO and CFO concluded that the Company’s disclosure controls and procedures were effective, as of such date, to enable the Company to record, process, summarize and report in a timely manner the information that the Company is required to disclose in its Exchange Act reports, and to accumulate and communicate such information to management, including the Company’s CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
29
PART II — OTHER INFORMATION
ITEM 1A. RISK FACTORS.
Other than the risk factor set forth below, there have been no material changes to the risk factors identified in Part I, Item 1A., "Risk Factors" in Qorvo's Annual Report on Form 10-K for the fiscal year ended April 2, 2022.
We are subject to inventory risks and costs because we purchase materials and build our products based on forecasts provided by customers before receiving purchase orders for the products.
In order to ensure availability of our products for some of our largest end customers, we purchase materials and start manufacturing certain products in advance of receiving purchase orders based on forecasts provided by these customers. However, these forecasts do not represent binding purchase commitments and we do not recognize sales for these products until they are shipped to or consumed by the customer. As a result, we incur significant inventory and manufacturing costs in advance of anticipated sales. Because demand for our products may not materialize, or may be lower than expected, purchasing materials and manufacturing based on forecasts subjects us to heightened risks of higher inventory carrying costs, increased obsolescence and higher operating costs. These inventory risks are exacerbated when our customers purchase indirectly through contract manufacturers or hold component inventory levels greater than their consumption rate because this reduces our visibility regarding the customers’ accumulated levels of inventory.
In order to ensure availability of our products for some of our largest end customers, we purchase materials and start manufacturing certain products in advance of receiving purchase orders based on forecasts provided by these customers. However, these forecasts do not represent binding purchase commitments and we do not recognize sales for these products until they are shipped to or consumed by the customer. As a result, we incur significant inventory and manufacturing costs in advance of anticipated sales. Because demand for our products may not materialize, or may be lower than expected, purchasing materials and manufacturing based on forecasts subjects us to heightened risks of higher inventory carrying costs, increased obsolescence and higher operating costs. These inventory risks are exacerbated when our customers purchase indirectly through contract manufacturers or hold component inventory levels greater than their consumption rate because this reduces our visibility regarding the customers’ accumulated levels of inventory.
For example, amidst ongoing industry-wide supply constraints, we entered into a long-term capacity reservation agreement with a foundry supplier during the second quarter ended October 2, 2021. Under the agreement we were required to purchase, and the supplier was required to supply, a certain number of wafers for calendar years 2022 through 2025. In connection with this agreement, we paid a refundable deposit and if the purchase commitments per the agreement were not met, under certain circumstances the supplier could deduct the amount of the purchase shortfall from the prepaid refundable deposit at the end of each calendar year.
During fiscal 2023, we have experienced unexpectedly weakened demand for 5G handsets in China and EMEA due to unprecedented disruption resulting from measures taken in China to control the COVID-19 pandemic and the conflict in Ukraine. As a result, we did not meet the minimum purchase commitments under this agreement, which resulted in the recognition of purchase shortfalls and an increase to our cost of goods sold in the first quarter of fiscal 2023.
In October 2022, we renegotiated the terms of the agreement with the foundry supplier, which included extending the duration of the agreement through calendar year 2026. We believe that the amended agreement more closely aligns the contractual purchase commitments with our forecasted demand. To the extent that management’s assumptions pertaining to anticipated future demand are incorrect or there are further declines in management's demand forecasts, additional charges may be recorded in future periods, which would have a negative impact on our gross margin and other operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(c) Issuer Purchases of Equity Securities
| Period | Total number of shares purchased (in thousands) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs (in thousands) | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) | ||||||||||||||||||||||
| October 2, 2022 to October 29, 2022 | 686 | $ | 81.36 | 686 | $ | 295.9 | ||||||||||||||||||||
| October 30, 2022 to November 26, 2022 | 780 | 92.90 | 780 | 1,928.3 | ||||||||||||||||||||||
| November 27, 2022 to December 31, 2022 | 765 | 95.86 | 765 | 1,855.0 | ||||||||||||||||||||||
| Total | 2,231 | $ | 90.37 | 2,231 | $ | 1,855.0 | ||||||||||||||||||||
30
On November 2, 2022, we announced that our Board of Directors (the "Board") authorized a new share repurchase program to repurchase up to $2.0 billion of our outstanding common stock, which included the remaining authorized dollar amount under the prior program terminated concurrent with the new authorization. Under the current program, share repurchases are made in accordance with applicable securities laws on the open market or in privately negotiated transactions. The extent to which we repurchase our shares, the number of shares and the timing of any repurchases depends on general market conditions, regulatory requirements, alternative investment opportunities and other considerations. The program does not require us to repurchase a minimum number of shares, does not have a fixed term, and may be modified, suspended, or terminated at any time without prior notice.
ITEM 5. OTHER INFORMATION.
On November 9, 2022, the Board amended the bylaws of the Company (the “Restated Bylaws”) to address matters regarding nominations of directors. The Restated Bylaws, without limitation, (a) require additional information and representations in the notice(s) a stockholder is required to provide to the Company for director nominations, (b) modify the time period for which notices to the Company must be provided to be timely for the Company’s annual meeting of stockholders to not earlier than the close of business on the 150th day and not later than the close of business on the 120th day prior to the first anniversary of the preceding year's annual meeting, and (c) address matters relating to Rule 14a-19 under the Exchange Act.
The foregoing description of the Restated Bylaws is a summary and is qualified in its entirety by reference to the text of the Restated Bylaws, which is included as Exhibit 3.1 and is incorporated herein by reference.
31
ITEM 6. EXHIBITS.
| 3.1 | |||||
| 22 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 32.2 | |||||
| 101 | The following materials from our Quarterly Report on Form 10-Q for the quarter ended December 31, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Stockholders' Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to Condensed Consolidated Financial Statements | ||||
| 104 | The cover page from our Quarterly Report on Form 10-Q for the quarter ended December 31, 2022, formatted in iXBRL | ||||
Our SEC file number for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 001-36801.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Qorvo, Inc. | |||||||||||
| Date: | February 2, 2023 | /s/ Grant A. Brown | |||||||||
| Grant A. Brown | |||||||||||
Senior Vice President and Chief Financial Officer | |||||||||||
33
ATTACHMENTS / EXHIBITS
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Picton Mahoney Asset Management Announces Monthly Distribution for Picton Mahoney Fortified Income Alternative Fund Exchange Traded Fund Units, Picton Mahoney Fortified Special Situations Alternative
- Parvis Announces Grant of Restricted Share Units
- Bayer US President Sebastian Guth to Serve as Honorary Chair for UNCF NJ 80th Anniversary Masked Ball Gala to Support HBCUs
Create E-mail Alert Related Categories
SEC FilingsSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
