Qualcomm : FY 2020 2nd Quarter Financial Results and Guidance

Financial Results and Guidance

As of April 29, 2020

Quarterly Results and Guidance	Q2FY20 Guidance(1)		Q2FY20 Results(2)	Q3FY20 Guidance(3)
GAAP revenues	$4.9B - $5.7B		$5.2B	$4.4B - $5.2B
Non-GAAP(4) diluted earnings per share (EPS)	$0.80 - $0.95	$0.88	$0.60 - $0.80
Non-GAAP combined R&D and SG&A expenses,	Increase 5% - 7%		Increase 4%	~ Flat
sequential quarter change
GAAP Interest expense, net of investments and
other income	~$100M		$393M	~$100M
Non-GAAP tax rate	~14%		14%	~14%
Weighted average diluted share count	~1.16B		1.15B	~1.14B
Segment Results and Guidance:
QCT revenues	$3.9B - $4.5B		$4.1B	$3.6B - $4.2B
QCT earnings before tax (EBT) margin %	15% - 17%	16%	14% - 16%
MSMTM chip shipments	125M - 145M		129M	125M - 145M
QTL revenues	$1.0B - $1.2B		$1.1B	$750M - $950M
QTL EBT margin %	61% - 65%		63%	50% - 56%
Annual Guidance			FY20 Prior Guidance(1)	FY20 Guidance(3)
Non-GAAP tax rate			~14%	~14%
	CY19 Current Est.		CY20 Prior Est.(1)	CY20 Current Est.
3G/4G/5G global device shipments(5)	~1.76B		1.75B - 1.85B	Not provided
5G global handset shipments	Not provided		175M - 225M	175M - 225M

Financial Strength

	March 2020	March 2019
Total cash, cash equivalents and marketable securities	$10.0B	$10.4B
Total assets	$31.9B	$34.0B
Stockholders' equity	$3.0B	$3.9B
Debt(6)	$15.9B	$16.4B
	Q2FY20(8)	Q2FY19(8)
EBITDA(7)	$1.3B	$1.3B
Adjusted EBITDA(7)	$1.5B	$1.4B

1. Previous guidance as of February 5, 2020. Our financial guidance for the second quarter of fiscal 2020 excluded QTL revenues from Huawei.
2. Our second quarter fiscal 2020 GAAP and Non-GAAP results were negatively impacted by the global coronavirus (COVID-19) pandemic, which caused a reduction in demand of 3G/4G/5G handsets of approximately 21% compared to our prior expectation and on a year-over-year basis. In addition, our GAAP results were also negatively impacted by $265 million, or ($0.21) per share, in non-marketable investment impairments, resulting in part from the impacts of COVID-19.
3. Given the uncertainty caused by the COVID-19 pandemic, including the timing and pace of economic recovery, our guidance for the third quarter of fiscal 2020 is based on a planning assumption that there will be an approximate 30% reduction in handset shipments relative to our prior expectations, resulting in an estimated impact of greater than ($0.30) to EPS in the third quarter of fiscal 2020. However, the actual impact may differ materially due to the challenging economic environment and highly uncertain effects of COVID-19.
4. Non-GAAPinformation excludes our QSI (Qualcomm Strategic Initiatives) segment and certain share-based compensation, acquisition-related items, tax items and other items. Further discussion regarding our use of Non-GAAP financial measures and reconciliations between GAAP and Non-GAAP results are included in this presentation.
5. Global 3G/4G/5G device shipments represent our estimate of CDMA-based,OFDMA-based and CDMA/OFDMA multimode subscriber devices shipped globally, excluding TD-SCDMA devices that do not implement LTE.
6. Includes short-term and long-term debt.
7. EBITDA is defined as net income before income tax expense, depreciation and amortization expense, interest expense and investment and other income, net. Adjusted EBITDA also excludes the following items: QSI segment, certain acquisition-related items, certain share-based compensation and certain other items that management views as unrelated to our ongoing business.
8. QTL results for the second quarter of fiscal 2020 included royalties from Apple as a result of the settlement with Apple and its contract manufacturers in April 2019 and excluded royalties due on the sales of Huawei's consumer wireless products. QTL results for the second quarter of fiscal 2019 excluded royalties due on sales of Apple or other products by Apple's contract manufacturers and included $150 million of royalties resulting from an interim agreement with Huawei.

MSMs are products of Qualcomm Technologies, Inc. and/or its subsidiaries

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Note Regarding Use of Non-GAAP Financial Measures

The Non-GAAP financial measures presented herein should be considered in addition to, not as a substitute for or superior to, financial measures calculated in accordance with GAAP. In addition, "Non-GAAP" is not a term defined by GAAP, and as a result, our Non-GAAP financial measures might be different than similarly titled measures used by other companies. Reconciliations between GAAP and Non-GAAP financial measures are presented herein.

We use Non-GAAP financial information: (i) to evaluate, assess and benchmark our operating results on a consistent and comparable basis; (ii) to measure the performance and efficiency of our ongoing core operating businesses, including the QCT (Qualcomm CDMA Technologies) and QTL (Qualcomm Technology Licensing) segments; and (iii) to compare the performance and efficiency of these segments against competitors. Non-GAAP measurements used by us include revenues, cost of revenues, research and development (R&D) expenses, selling, general and administrative (SG&A) expenses, other income or expenses, operating income, interest expense, net investment and other income, income or earnings before income taxes, effective tax rate, net income, diluted earnings per share, EBITDA and Adjusted EBITDA. We are able to assess what we believe is a more meaningful and comparable set of financial performance measures for Qualcomm and its business segments by using Non-GAAP information. In addition, the HR and Compensation Committee of the Board of Directors uses certain Non-GAAP financial measures in establishing portions of the performance-based incentive compensation programs for our executive officers. We present Non-GAAP financial information to provide greater transparency to investors with respect to our use of such information in financial and operational decision-making. This Non-GAAP financial information is also used by institutional investors and analysts in evaluating our business and assessing trends and future expectations.

Non-GAAP information excludes our QSI (Qualcomm Strategic Initiatives) segment and certain share-based compensation, acquisition-related items, tax items and other items.

• QSI is excluded because we expect to exit our strategic investments in the foreseeable future, and the effects of fluctuations in the value of such investments and realized gains or losses are viewed as unrelated to our operational performance.
• Share-basedcompensation expense primarily relates to restricted stock units. We believe that excluding non-cashshare-based compensation from the Non- GAAP financial information allows us and investors to make additional comparisons of the operating activities of our ongoing core businesses over time and with respect to other companies.
• Certain other items are excluded because we view such items as unrelated to the operating activities of our ongoing core businesses, as follows:
• • Acquisition-relateditems include amortization of certain intangible assets, recognition of the step-up of inventories and property, plant and equipment to fair value and the related tax effects of these items, as well as any effects from restructuring the ownership of such acquired assets. Additionally, we exclude third-party acquisition and integration services costs and costs related to temporary debt facilities and letters of credit executed prior to the close of an acquisition.
  • We exclude certain other items that we view as unrelated to our ongoing businesses, such as major restructuring and restructuring-related costs, goodwill and indefinite- and long-lived asset impairments and awards, settlements and/or damages arising from legal or regulatory matters. Beginning in the second quarter of fiscal 2020, we exclude gains and losses driven by the revaluation of our deferred compensation plan liabilities recognized in operating expenses and the offsetting gains and losses on the related plan assets recognized in investment and other income. Amounts prior to the second quarter of fiscal 2020, which were not material, continue to be included in our Non-GAAP results.
  • Certain tax items that are unrelated to the fiscal year in which they are recorded are excluded in order to provide a clearer understanding of our ongoing Non-GAAP tax rate and after-tax earnings.

Reconciliations of GAAP to Non-GAAP Financial Measures

Second Quarter Fiscal 2020 Results

			Less Share-
	GAAP		Based	Less Other	Non-GAAP
(in millions, except per share data)	Results	Less QSI	Compensation	Items(1)	Results
Net income (loss)	$468	($208)	($259)	($80)	$1,015
Diluted earnings per share (EPS)	$0.41	($0.18)	($0.22)	($0.07)	$0.88
Diluted shares	1,151	1,151	1,151	1,151	1,151

1. Other items excluded from Non-GAAP results included $85 million of acquisition-related charges, $6 million of interest expense related to the 2018 and 2019 European Commission fines and a $2 million charge related to restructuring-related activities, partially offset by a $23 million gain related to a favorable legal settlement. Other items excluded from Non-GAAP results also included $72 million of gains driven by the revaluation of our deferred compensation plan liabilities, which reduced operating expenses, offset by corresponding $72 million of losses driven by the revaluation of the associated plan assets, which were included within investment and other (expense) income, net. The tax expense in the "Other Items" column included a $46 million foreign currency loss related to a noncurrent receivable related to our refund claim of Korean withholding taxes paid in prior periods, partially offset by a $14 million tax benefit for the tax effect of acquisition-related charges, a $12 million benefit to reconcile the tax provision of each column to the total GAAP tax provision for the quarter and a $10 million tax benefit from the combined effect of other items in EBT.

Sums may not equal totals due to rounding.

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Business Outlook

	Q2FY20	Q3FY20
	Guidance(1)	Guidance(2)(3)(4)
Revenues	$4.9B - $5.7B	$4.4B - $5.2B
GAAP diluted EPS	$0.50 - $0.65	$0.29 - $0.49
Less diluted EPS attributable to QSI	$-	$-
Less diluted EPS attributable to share-based compensation	($0.23)	($0.23)
Less diluted EPS attributable to other items(5)	($0.07)	($0.08)
Non-GAAP diluted EPS	$0.80 - $0.95	$0.60 - $0.80

1. Previous guidance as of February 5, 2020. Our financial guidance for the second quarter of fiscal 2020 excluded QTL revenues from Huawei.
2. Guidance as of April 29, 2020. Our guidance for revenues and EPS for the third quarter of fiscal 2020 excludes QTL revenues from Huawei.
3. Given the uncertainty caused by the COVID-19 pandemic, including the timing and pace of economic recovery, our guidance for the third quarter of fiscal 2020 is based on a planning assumption that there will be an approximate 30% reduction in handset shipments relative to our prior expectations, resulting in an estimated impact of greater than ($0.30) to EPS in the third quarter of fiscal 2020. However, the actual impact may differ materially due to the challenging economic environment and highly uncertain effects of COVID-19.
4. Our guidance throughout this presentation does not include provisions for future asset impairments or for pending legal matters, other than future legal amounts that are probable and estimable. Further, due to their nature, certain income and expense items, such as certain investments, derivative and foreign currency transaction gains or losses, cannot be accurately forecast. Accordingly, we only include such items in our guidance to the extent they are reasonably certain; however, actual results may differ materially from the outlook.
5. Our guidance for EPS attributable to other items is primarily attributable to acquisition-related items.

Combined R&D and SG&A Expenses

Q2FY20

Sequential %

Q1FY20

Q2FY20

Increase

Q2FY20

Q3FY20

(in millions, except percentages)

Results

Results

(Decrease)

Guidance(1)

Guidance(2)

GAAP combined R&D and SG&A

Increase 5%

- 7%

Increase 2% - 4%

$1,934

$1,951

1

%

sequentially

sequentially

Less QSI

3

3

N/P

N/P

N/P

Less share-based compensation

286

300

N/P

N/P

N/P

Less other items(3)

2

(62)

N/P

N/P

N/P

Non-GAAP combined R&D and

$1,643

$1,710

4

%

Increase 5%

- 7%

Flat sequentially

SG&A expenses

sequentially

1. Previous guidance as of February 5, 2020.
2. Guidance as of April 29, 2020.
3. Other items in the second quarter of fiscal 2020 consisted of a $71 million gain driven by the revaluation of our deferred compensation plan liabilities, which reduced R&D and SG&A expenses, partially offset by $7 million in acquisition-related charges and $2 million in restructuring-related charges. Other items in the first quarter of fiscal 2020 consisted primarily of acquisition-related items, offset by a net gain from restructuring-related activities.

N/P - Not provided

Tax Rates

Estimated(3) Q2FY20 tax rate

Q2FY20 Tax rate

Estimated(4) Q3FY20 tax rate

Previous estimated(3) FY20 annual tax rate

Estimated(4) FY20 annual tax rate

				Less Share-
GAAP	Less QSI(1)	Based	Less Other	Non-GAAP
Results	Compensation(1)	Items (1)(2)	Results
12	%	-	%	(1	%)	(1	%)	14	%
22	%	4	%	2	%	2	%	14	%
15	%	-	%	-	%	1	%	14	%
11	%	-	%	(1	%)	(2	%)	14	%
12	%	-	%	(1	%)	(1	%)	14	%

1. The incremental effect of our adjustments to the Non-GAAP tax rate is calculated by allocating the difference between (i) the tax expense (benefit) calculated based on the GAAP tax rate and (ii) the actual or estimated tax expense (benefit) for each column.
2. In the second quarter of fiscal 2020, the tax expense in the "Other Items" column included a $46 million foreign currency loss related to a noncurrent receivable related to our refund claim of Korean withholding taxes paid in prior periods, partially offset by a $14 million tax benefit for the tax effect of acquisition-related charges, a $12 million benefit to reconcile the tax provision of each column to the total GAAP tax provision for the quarter and a $10 million tax benefit from the combined effect of other items in EBT.
3. Previous guidance as of February 5, 2020.
4. Guidance as of April 29, 2020.

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EBITDA and Adjusted EBITDA

(In millions)	Q2FY20	Q2FY19
Net income	$468	$663
Plus income tax expense	130	143
Plus depreciation and amortization expense	340	345
Plus interest expense	146	162
Less investment and other (expense) income, net	(247)	28
EBITDA	$1,331	$1,285
Adjustments
Less QSI operating income(1)	$4	$88
Less share-based compensation operating loss(1)	(309)	(221)
Less other items*	88	16
Adjusted EBITDA	$1,548	$1,402
*Other items includes:
Restructuring and restructuring-related charges(2)	$2	$25
Acquisition-related charges(2)	5	2
Revaluation of deferred compensation plan liabilities	(72)	-
Gain due to partial recovery of fine	-	(43)
Benefit related to favorable legal settlement	(23)	-
Total other items	($88)	($16)

1. As depreciation and amortization was $0 for the second quarter of fiscal 2020 and 2019, EBITDA for the QSI segment and certain share-based compensation is equal to operating income.
2. Excludes depreciation and amortization.

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Note Regarding Forward Looking Statements

In addition to the historical information contained herein, this presentation and the conference call that accompanies it contain forward-looking statements that are inherently subject to risks and uncertainties, including but not limited to statements regarding the coronavirus (COVID-19) pandemic and its impact on the global economy, demand for devices that incorporate our products and intellectual property, our supply chain, our workforce, 5G network deployments, 5G device forecasts, and our business and financial results; our remaining on schedule with our product commitments, and continuing to advance our 5G roadmap and support customers while meeting a very complex set of R&D and supply chain requirements, despite the challenging work environment; our expectation that the overall handset market will be down 30% in the June quarter driven by the impact of shut-downs outside of China, while benefitting from the rebound we are seeing in China; our using the China demand trends we saw in Q2 to model rest of the world demand trends in Q3; our expectation that in the second half of calendar year 2020 we will see the market return to levels we expected at the beginning of 2020; 5G growth drivers remaining intact; 5G device launches, launch timing and sell through; our belief that 5G is progressing as planned and that we continue to be well positioned to drive the rapid adoption of 5G globally; our continuing to evaluate our cash flow and capital policy; our growth opportunities, including opportunities in 5G, radio frequency (RF) front-end, and adjacencies such as automotive, IoT, security, networking, mobile compute, always connected PCs and cloud AI, and our growth, revenues, design wins, share and investments therein and our positioning to take advantage of opportunities in these areas; our business, product and technology strategies; our technologies and technology leadership; our products, product performance, product leadership and product roadmap; new product releases and announcements; our business and share trends, as well as market and industry trends, and their potential impact on our business, and our positioning to take advantage thereof; and our expectations, estimates, forecasts and guidance related to revenues, earnings per share (EPS), MSM chip shipments, revenue per MSM, EBT margins, combined R&D and SG&A expenses, interest expense net of investment and other income, tax rates, weighted average share count, and 3G/4G/5G and 5G device forecasts, as well as the drivers, factors and planning assumptions underlying such expectations, estimates, forecasts and guidance.

Forward-looking statements are generally identified by words such as "estimates," "guidance," "expects," "anticipates," "intends," "plans," "believes," "seeks" and similar expressions. Actual results may differ materially from those referred to in the forward-looking statements due to a number of important factors, including but not limited to the coronavirus (COVID-19) pandemic and its impact on the global economy, economic uncertainty, consumer and business confidence, demand for devices that incorporate our products and intellectual property, our and the global wireless industry's supply chains and transportation and distribution networks and workforces, and 5G network deployments; commercial network deployments, expansions and upgrades of CDMA, OFDMA and other communications technologies, our customers' and licensees' sales of products and services based on these technologies and our customers' demand for our products and services; competition in an environment of rapid technological change; our dependence on a small number of customers and licensees, which increasingly includes a small number of Chinese OEMs; our dependence on the premium-tier device segment; attacks on our licensing business model, including current and future legal proceedings and governmental investigations and proceedings, including potential adverse outcomes relating to the Federal Trade Commission lawsuit against us, and actions of quasi-governmental bodies and standards and industry organizations; potential changes in our patent licensing practices, whether due to governmental investigations, private legal proceedings challenging those practices, or otherwise; the difficulties in enforcing and protecting our intellectual property rights; our ability to extend our technologies, products and services into new and expanded product areas and adjacent industry segments and applications outside of traditional cellular industries; risks associated with the operation and control of our manufacturing facilities; the continued and future success of our licensing programs, which requires us to continue to evolve our patent portfolio, and which may be impacted by the proliferation of devices in new industry segments, and the need to renew or renegotiate license agreements that are expiring; our dependence on a limited number of third-party suppliers; claims by third parties that we infringe their intellectual property; strategic acquisitions, transactions and investments and our ability to consummate planned strategic acquisitions; our compliance with laws, regulations, policies and standards; our use of open source software; the cyclical nature of the semiconductor industry, and our stock price and earnings volatility; our indebtedness and our significant stock repurchase program; security breaches of our information technology systems or other misappropriation of our technology, intellectual property or other proprietary or confidential information; potential tax liabilities; global, regional or local economic conditions or political actions that impact the industries in which we operate; our ability to attract and retain qualified employees; foreign currency fluctuations; and failures in our products or in the products of our customers or licensees, including those resulting from security vulnerabilities, defects or errors. These and other risks are set forth in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2020 filed with the SEC. Our reports filed with the SEC are available on our website at www.qualcomm.com. We undertake no obligation to update, or continue to provide information with respect to, any forward- looking statement or risk factor, whether as a result of new information, future events or otherwise.

This presentation includes "non-GAAP financial measures" as that term is defined in Regulation G. Further discussion regarding our use of non- GAAP financial measures, as well as the most directly comparable GAAP (accounting principles generally accepted in the United States) financial measures and information reconciling these non-GAAP financial measures to our financial results prepared in accordance with GAAP, are included in this presentation. The non-GAAP financial measures presented herein should be considered in addition to, and not a substitute for, or superior to, financial measures calculated and presented in accordance with GAAP.

We refer to "Qualcomm" for ease of reference. However, in connection with our October 2012 reorganization, Qualcomm Incorporated continues to operate QTL and own the vast majority of our patent portfolio, while Qualcomm Technologies, Inc., its wholly-owned subsidiary, operates, along with its subsidiaries, substantially all of our products and services businesses, including QCT, and substantially all of our research and development functions.

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