QORVO, INC. 
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 underU.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; the COVID-19 pandemic materially and adversely affecting our financial condition and results of operations; 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 due to timing of customer forecasts; our inability to effectively manage or maintain evolving relationships with platform providers; our ability to continue to innovate in a very competitive industry; underutilization of manufacturing facilities as a result of industry overcapacity; 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 inChina ; 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 andDelaware 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 in our most recent Annual Report on Form 10-K and in other reports and statements that we file with theSEC , could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements.
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 leader in the development and commercialization of technologies and
products for wireless and wired connectivity. We combine highly differentiated
technologies, systems-level expertise and manufacturing scale to serve a diverse
set of customers a broad portfolio of innovative solutions that enable a more
connected world.
The semiconductor industry is experiencing supply constraints for certain items
such as capacitors, laminates and silicon. While we expect the industry to
address these constraints over time, we have taken strategic actions to provide
flexibility in our supply chain. The extent of the impact of the COVID-19
pandemic also remains uncertain, and we will continue to monitor the
implications of the pandemic as it relates to these matters.
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We design, develop, manufacture and market our products to U.S. and
international original equipment manufacturers and original design manufacturers
in two operating segments, which are also our reportable segments: Mobile
Products ("MP") and Infrastructure and Defense Products ("IDP").
MP is a global supplier of cellular, Ultra Wideband ("UWB"), Wi-Fi and other solutions for a variety of applications, including smartphones, wearables, laptops, tablets and Internet of Things ("IoT").
IDP is a global supplier of RF, system-on-a-chip and power management solutions for applications in wireless infrastructure, defense, Wi-Fi, smart home, automotive and IoT.
These business segments are based on the organizational structure and
information reviewed by our Chief Executive Officer, who is our chief operating
decision maker ("CODM"), and are managed separately based on the end markets and
applications they support. The CODM allocates resources and evaluates the
performance of each reportable segment primarily based on operating income. See
Note 11 of the Notes to Condensed Consolidated Financial Statements in Part I,
Item 1 of this report for additional information regarding our reportable
operating segments.
FIRST QUARTER FISCAL 2022 FINANCIAL HIGHLIGHTS:
•Revenue for the first quarter of fiscal 2022 increased 41.0% as compared to the first quarter of fiscal 2021, driven primarily by higher demand for our 5G mobile solutions and Wi-Fi products, partially offset by lower demand for our base station products. •Gross margin for the first quarter of fiscal 2022 was 49.2% as compared to 41.4% for the first quarter of fiscal 2021, primarily due to lower intangible amortization expense as well as lower unit costs on higher volume and productivity. Lower inventory charges and improved product mix also contributed to gross margin expansion. •Operating income was$297.1 million for the first quarter of fiscal 2022 as compared to$92.7 million for the first quarter of fiscal 2021. This increase was primarily due to higher revenue and gross margin, partially offset by higher operating expenses. Operating expenses increased primarily due to higher personnel costs, partially offset by lower intangible amortization expense.
•Net income per diluted share was
•Capital expenditures were
•OnMay 5, 2021 , our Board of Directors authorized a new share repurchase program to repurchase up to$2.0 billion of our outstanding common stock, which included approximately$236.9 million authorized under the prior program terminated concurrent with the new authorization. During the first quarter of fiscal 2022, we repurchased approximately 1.7 million shares of our common stock for approximately$300.0 million under the prior and current share repurchase programs.
•We completed the acquisition of
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--------------------------------------------------------------------------------Table of Contents RESULTS OF OPERATIONS Consolidated
The following table presents a summary of our results of operations (in thousands, except percentages):
Three Months Ended
% of % of Increase Percentage
July 3, 2021 Revenue June 27, 2020 Revenue (Decrease) Change
Revenue $ 1,110,351 100.0 % $ 787,451 100.0 % $ 322,900 41.0 %
Cost of goods sold 564,168 50.8 461,662 58.6 102,506 22.2
Gross profit 546,183 49.2 325,789 41.4 220,394 67.6
Research and development 152,079 13.7 130,071 16.5 22,008 16.9
Selling, general and administrative 90,299 8.1 86,604 11.0 3,695 4.3
Other operating expense 6,703 0.6 16,402 2.1 (9,699) (59.1)
Operating income $ 297,102 26.8 % $ 92,712 11.8 % $ 204,390 220.5 %
Revenue increased primarily due to higher demand for our 5G mobile solutions and
Wi-Fi products, partially offset by lower demand for our base station products.
The higher demand for our 5G mobile solutions was driven by the continued 5G
smartphone ramp and associated content increases with our largest customers. The
increased demand for our Wi-Fi products was in support of hybrid work-
/learn-from-home and other connectivity trends.
Gross margin increased primarily due to lower intangible amortization expense as well as lower unit costs on higher volume and productivity. Lower inventory charges and improved product mix also contributed to gross margin expansion.
Operating expenses increased primarily due to additional headcount associated with the design and development of our UWB solutions and biotechnology testing solutions as well as the acquisitions ofNextInput and 7Hugs Labs S.A.S. ("7Hugs"). Incentive-based cash compensation and stock-based compensation expense also increased, partially offset by lower intangible amortization expense and lower acquisition and integration-related expenses. Operating Segments Mobile Products Three Months Ended Percentage (In thousands, except percentages) July 3, 2021 June 27, 2020 Increase Change Revenue$ 836,138 $ 468,404 $ 367,734 78.5 % Operating income 299,690 109,983 189,707 172.5 Operating income as a % of revenue 35.8 %
23.5 %
MP revenue increased primarily due to the higher demand for our 5G mobile solutions driven by the continued 5G smartphone ramp and associated content increases with our largest customers.
MP operating income increased primarily due to the effects of increased revenue, including improved product mix and lower unit costs on higher volume and productivity, partially offset by higher operating expenses. Operating expenses increased primarily due to additional headcount associated with the design and development of our UWB solutions and acquisitions ofNextInput and 7Hugs. 18 -------------------------------------------------------------------------------- Table of Contents Infrastructure and Defense Products
Three Months Ended
Percentage
(In thousands, except percentages) July 3, 2021 June 27, 2020 Decrease Change
Revenue $ 274,213 $ 319,047 $ (44,834) (14.1) %
Operating income 67,339 93,755 (26,416) (28.2)
Operating income as a % of revenue 24.6 % 29.4 %
IDP revenue decreased primarily due to lower demand for our base station products, partially offset by increased demand for our Wi-Fi and broadband products. The higher demand for our Wi-Fi and broadband products was in support of hybrid work- /learn-from-home and other connectivity trends.
IDP operating income decreased primarily due to decreased revenue and higher operating expenses, partially offset by favorable changes in gross margin. Operating expenses increased primarily due to additional headcount associated with the design and development of our biotechnology testing solutions. Gross margin was favorable primarily due to lower unit costs and lower inventory charges. See Note 11 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of segment operating income to the consolidated operating income for the three months endedJuly 3, 2021 , andJune 27, 2020 .
INTEREST, OTHER INCOME AND INCOME TAXES
Three Months Ended
(In thousands) July 3, 2021 June 27, 2020
Interest expense $ (15,279) $ (18,849)
Other income, net 16,791 23,137
Income tax expense (12,988) (78)
Interest expense
During the three months ended
Other income, net During the three months endedJuly 3, 2021 , andJune 27, 2020 , we recorded income of$14.5 million and$15.7 million , respectively, based on our share of investments in limited partnerships' earnings. Income tax expense Our provision for income taxes for the three months endedJuly 3, 2021 , andJune 27, 2020 , was calculated by applying an estimate of the annual effective tax rate for the full fiscal year to "ordinary" income or loss (pre-tax income or loss excluding unusual or discrete items) for those respective periods. During the three months endedJuly 3, 2021 , we recorded income tax expense of$13.0 million which was comprised primarily of tax expense related to domestic and international operations generating pre-tax book income, partially offset by tax benefits related to international operations generating pre-tax book losses, domestic tax credits and discrete tax items recorded during the period. The discrete tax benefit was primarily related to the recognition of previously unrecognized tax benefits due to the expiration of the statute of limitations, tax deductions related to stock-based compensation and tax benefits associated with other non-recurring restructuring activities. 19 -------------------------------------------------------------------------------- Table of Contents During the three months endedJune 27, 2020 , we recorded income tax expense of$0.1 million which was comprised primarily of tax expense related to international operations generating pre-tax book income, partially offset by a tax benefit related to domestic and international operations generating pre-tax book losses, domestic tax credits and the recognition of a discrete tax benefit resulting from a retroactive incentive allowing previously non-deductible payments to be amortized. 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 ofJuly 3, 2021 , we had working capital of approximately$1,670.4 million , including$1,200.2 million in cash and cash equivalents, compared to working capital of approximately$1,802.2 million , including$1,397.9 million in cash and cash equivalents as ofApril 3, 2021 . Our$1,200.2 million of total cash and cash equivalents as ofJuly 3, 2021 , includes approximately$1,100.4 million held by our foreign subsidiaries, of which$976.7 million is held byQorvo International Pte. Ltd. inSingapore . If the undistributed earnings of our foreign subsidiaries are needed in theU.S. , we may be required to pay state income and/or foreign local withholding taxes to repatriate these earnings. Stock Repurchases During the three months endedJuly 3, 2021 , we repurchased approximately 1.7 million shares of our common stock for approximately$300.0 million , including transaction costs, under our prior and current share repurchase programs. As ofJuly 3, 2021 , approximately$1,714.0 million remained available for repurchases under the current program. Cash Flows from Operating Activities Operating activities for the three months endedJuly 3, 2021 , generated cash of$341.6 million , compared to$214.3 million for the three months endedJune 27, 2020 , primarily due to increased profitability, partially offset by changes in working capital. Cash Flows from Investing Activities Net cash used in investing activities was$228.0 million for the three months endedJuly 3, 2021 , compared to$23.3 million for the three months endedJune 27, 2020 . This decrease in cash flows was primarily due to the acquisition ofNextInput . See Note 4 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$311.4 million for the three months endedJuly 3, 2021 , primarily due to our stock repurchases. See Note 8 of the Notes to Condensed Consolidated Financial Statements for additional information regarding our stock repurchases. Net cash provided by financing activities was$229.8 million for the three months endedJune 27, 2020 , primarily due to the proceeds received from the issuance of an additional$300.0 million aggregate principal amount of our 4.375% senior notes due 2029. See Note 7 of the Notes to Condensed Consolidated Financial Statements for additional information regarding our long-term debt.
COMMITMENTS AND CONTINGENCIES
Credit Agreement OnSeptember 29, 2020 , we and certain of ourU.S. subsidiaries (the "Guarantors") entered into a five-year unsecured senior credit facility pursuant to a credit agreement (the "2020 Credit Agreement") withBank of America, N.A . acting as administrative agent and a syndicate of lenders. The 2020 Credit Agreement amended and restated our previous credit agreement dated as ofDecember 5, 2017 (the "2017 Credit Agreement"). The 2020 Credit Agreement includes a senior term loan (the "2020 Term Loan") of up to$200.0 million and a senior revolving line of credit (the "Revolving Facility") of up to$300.0 million (collectively the "Credit Facility").
On the closing date of the 2020 Credit Agreement, we repaid the remaining
principal balance of
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Pursuant to the 2020 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 securing additional funding
commitments from the existing or new lenders. 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. Outstanding amounts are due in full on the maturity date of
September 29, 2025 , subject to scheduled amortization of the 2020 Term Loan
principal prior to the maturity date as set forth in the 2020 Credit Agreement.
During the three months ended July 3, 2021 , there were no borrowings under the
Revolving Facility.
The 2020 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 July 3, 2021 , we were in compliance with
these covenants.
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 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 senior notes due 2031
(the "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.
For additional information regarding our long-term debt, see Note 7 of the Notes to Condensed Consolidated Financial Statements.
Capital Commitments As ofJuly 3, 2021 , we had capital commitments of approximately$121.3 million primarily for increasing manufacturing capacity, expanding capability to support new products, equipment and facility upgrades, and cost savings initiatives. Future Sources of Funding Our future capital requirements may differ materially from those currently projected and will depend on many factors, including the long-term impact of the COVID-19 pandemic on our business, financial conditions, results of operations, and cash flows, as well as 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 flow from operations, coupled with our existing cash, cash equivalents and our Credit Facility, we believe that 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 in the event that growth is faster than we anticipate, operating cash flows may be insufficient to meet our needs. If our existing liquidity is not sufficient to meet our future requirements or if we perceive conditions to be favorable, we may seek additional debt or equity financing. We cannot be sure that any additional debt or equity financing will not be dilutive to holders of our common stock or that 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. The aggregate range of reasonably possible losses in excess of accrued liabilities, if any, associated with these unresolved legal matters is not material. 21 -------------------------------------------------------------------------------- Table of Contents Taxes We are subject to income and other taxes inthe 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 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, byQorvo, Inc. ("Parent"). A Guarantor can be released in certain customary circumstances. Our otherU.S. subsidiaries and our non-U.S. subsidiaries do not guarantee the Notes (such subsidiaries are referred to as the "Non-Guarantors"). 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) July 3, 2021 April 3, 2021 Due from Non-Guarantors$ 338,193 $ 532,440 Other current assets 384,863 610,646 Total current assets$ 723,056 $ 1,143,086 Non-current assets$ 2,444,685 $ 2,450,960 Current liabilities$ 241,813 $ 240,943 Payable to Non-Guarantors$ 411,693 $ 395,323 Other long-term liabilities 1,856,844 1,855,343 Total long-term liabilities$ 2,268,537 $ 2,250,666 Summarized Statement of Income Three Months Ended (in thousands) July 3, 2021 Revenue $ 274,037 Gross profit $ 70,922 Net loss from continuing operations $ (3,413) Net loss $ (3,413) 22
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