A month has gone by since the last earnings report for Qorvo (QRVO). Shares have added about 8.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Qorvo due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Qorvo Q2 Earnings Beat Estimates, Revenues Rise Y/Y
Qorvo Inc. reported second-quarter fiscal 2021 non-GAAP earnings of $2.43 per share, which improved 59.9% on a year-over-year basis. The figure surpassed the Zacks Consensus Estimate by 13.55%.
Revenues surged 31.4% year over year to $1.06 billion. Further, the top line outpaced the consensus mark by 4.86%. Moreover, the figure was above the higher end of management’s revised guided range of $1 billion to $1.03 billion.
Management noted that fiscal 2021 is a fiscal year with 53-weeks, with the reported quarter being a 14-week fiscal quarter.
Improvement in both Mobile Products (MP) and Infrastructure and Defense (IDP) contributed to the results. The company benefited from broad-based demand in 5G handsets, Wi-Fi 6 and IoT products.
Quarter Details & Business Highlights
Segment-wise, MP revenues of $754 million, exceeded the company’s expectations, driven by seasonality uptick in mobile and handset demand. Impact of global supply chain disruptions due to COVID-19 was less owing to strength in inventory management.
During the fiscal second quarter, the company witnessed robust traction for its chips utilized in 5G smartphones. These offerings are highly integrated and high-performance solutions, which enable customers to reduce product footprint and accelerate products to market.
Additionally, the company has extended shipments of low-band, mid-/high- and ultra-high-band modules, and BAW-based antenna-plexers which are witnessing accelerated adoption across leading smartphone OEMs.
Moreover, broad-based content gains across Wi-Fi 6 solutions, which are being implemented in leading tablets, smartphones, gateways, smart speakers, mesh networks, and virtual reality headsets, contributed to the fiscal second-quarter performance.
Further, synergies from Decawave acquisition have significantly expanded Qorvo’s capabilities and positions it well to benefit from growing demand for proximity awareness applications, secure payments and secure access for smartphones, automotive and IoT.
IDP revenues grew “strongly” year over year to $306 million. The year-over-year increase can primarily be attributed to robust growth in the company’s wireless connectivity, revenues of which doubled year over year. The improvement was driven by momentum in deployment of WiFi 6 solutions and robust 5G infrastructure market demand on improving buildout of 5G networks.
Gains from rise in 5G base station deployments remained a tailwind.
In the connectivity and broadband business, the company increased shipments of Wi-Fi 6 solutions to cater to rising need for data to home owing to COVID-19 induced shelter-in-place guidelines. Notably, Qorvo expanded its global customer base for Wi-Fi 6 solutions, front-end modules (FEM) and BAW filters during the quarter under review.
The company also rolled out high-performance BAW filters for 5G small cells and repeaters to facilitate the coexistence of 5G band 41 and Wi-Fi.
Further, growth reflects strong demand for the Qorvo’s solutions in defense (advanced radars and other electronic warfare products) and power management technologies. Rapid adoption of gallium nitride or GaN amplifiers for high-power applications also drove the defense top line.
Notably, uptick in GaN high-power amplifiers and small signal components improved during the reported quarter, driven by increasing deployment of 5G massive MIMO antennas.
In fact, the company clinched multiple design wins across 5G massive MIMO base stations and initiated shipments of GaN amplifiers, which are deployed in massive MIMO C-band base stations.
Also, Qorvo’s advanced RF semiconductor packaging capabilities aided it in clinching a multi-year U.S. government State-of-the-Art Heterogeneous Integrated Packaging (SHIP) program.
In the programmable power management business, the company’s programmable ICs and other products witnessed robust growth in solid state storage in client and enterprise computing, and solid momentum in brushless motor control applications.
Markedly, Qorvo has acquired ultra-wideband (UWB) software and system solution pioneer 7Hugs Labs S.A.S. to boost UWB system solutions capabilities and bolster design expertise with focus on mobile, IoT and automotive end-markets.
The company also inked partnership agreement with Sigma Connectivity, a notable design services company, to develop advanced UWB solutions with focus on the creation of advanced applications.
In automotive domain, the company commenced sampling of a second-generation automotive cellular V2X FEM in a bid to address vital system-level challenges.
Operational Details
Non-GAAP gross margin expanded 520 basis points (bps) from the year-ago quarter to 51.7%. This can be attributed to lower manufacturing cost and favorable product mix.
Non-GAAP operating expenses increased 31.1% year over year to $218.6 million.
As a percentage of revenues, the figure contracted 10 bps from the year-ago quarter to 20.6%.
Non-GAAP operating income improved 58.1% to $203.7 million. Non-GAAP operating margin expanded 530 bps from the year-ago quarter to 31.1%. This can be attributed to gross margin expansion.
Balance Sheet & Cash Flow
As of Oct 3, 2020, cash and cash equivalents were $2 billion compared with $1.14 billion reported as of Jun 27, 2020. As of Oct 3, 2020, long-term debt was $2.67 billion compared with $1.87 billion as of Jun 27, 2020.
During the quarter, Qorvo undertook several deleveraging steps to improve financial flexibility. The company renewed unsecured credit facility, extending it through 2025. The company also increased term loan to $200 million.
Further, Qorvo raised $700 million through issuance of unsecured notes slated to mature in 2031. At the end of the quarter, the proceeds and cash on hand were utilized to pay down notes slated to mature in 2026.
Management noted that the “revolver is untapped.” Markedly, Qorvo had concluded the fiscal first quarter with unused $300 million unsecured revolver. Also, the weighted average maturity of the company’s debt is 2029, with “no material near-term maturities.”
Net cash provided by operating activities was $281 million, compared with $214.3 million in the prior quarter. Free cash flow during the reported quarter amounted to $237.4 million, compared with $184.4 million in the prior quarter.
During the fiscal second quarter, the company repurchased shares worth $105 million.
Q3 View
For third-quarter fiscal 2021, Qorvo anticipates revenues of $1.06 billion (+/-$15 million), with MP and IDP contributing $790 million and $270 million, respectively.
Strength in smartphone vertical, upgrades in 5G smartphones, and gains from consistent growth in 5G infrastructure, power management, 5G base stations, Wi-Fi 6 solutions and defense end-markets is anticipated to drive performance in third-quarter fiscal 2021.
Management noted that the company had suspended shipments to Huawei in mid-September in compliance with Department of Commerce guidelines. Although the company has received license for certain mobile products, the fiscal third-quarter guidance assumes no sales to Huawei.
Non-GAAP earnings are projected to be $2.65 per share (at the mid-point of the revenue guidance).
Non-GAAP gross margin is anticipated to be 52.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 42.96% due to these changes.
VGM Scores
At this time, Qorvo has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Qorvo has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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