A month has gone by since the last earnings report for Qorvo (QRVO). Shares have added about 0.1% 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 drivers.
Qorvo Q1 Earnings & Revenues Tops Estimates
Qorvo delivered first-quarter fiscal 2020 non-GAAP earnings of $1.36 per share, surpassing the Zacks Consensus Estimate of $1.15 and improving 41.7% from the year-ago quarter.
Revenues on a non-GAAP basis increased 11.9% year over year to $775.6 million. Moreover, the figure was above management’s guidance of $730 million to $750 million. Further, the top line outpaced the Zacks Consensus Estimate of $740 million.
The results can be attributed to improved progress in IDP and stringent cost control measures. The company benefited from increased demand in the performance-tier for RF Fusion based solutions, antenna tuning, discrete components and BAW-based multiplexers.
Notably, Huawei is one of the more prominent customers of Qorvo. During the quarter, the company noted sales to Huawei represented approximately 22% of total revenues, up from 14% in the year-ago quarter period. Moreover for fiscal 2019, sales to Huawei contributed 15% to total revenues.
Segment-wise, Mobile Products (MP) revenues were $556 million. The segmental revenues were aided by robust demand from top customers.
Infrastructure and Defense (IDP) revenues grew double-digit year over year to $219 million, marking 13th consecutive quarter of growth. The year-over-year increase can primarily be attributed to robust growth in the company’s wireless connectivity, improvement in base station solutions and robust 5G infrastructure market demand.
Further, growth reflects strong demand for the company’s solutions in defense (advanced radars and other electronic warfare products) and connectivity (Wi-Fi and emerging IoT applications). Rapid adoption of GaN for high-power applications also drove the defense top line.
In the quarter under review, Qorvo acquired Active-Semi International, Inc. with an aim to strengthen portfolio of programmable analog and mixed signal power offerings. In fact, the company anticipates the buyout to bolster addressable markets by approximately $3 billion. Post the acquisition, financials of Active-Semi will be reported under Qorvo’s IDP operating segment.
The company also recently expanded GaN shipments into S-band (2-4 GHz) and C-band (4-8 GHz) applications for defense radar programs. Further, the company was chosen to supply GaN amplifiers for low Earth orbit satellites by Syrlinks in order to aid OneWeb space-based internet connectivity globally.
Qorvo was also selected by Samsung to offer the latter with antenna tuning, high-band PAD and Wi-Fi iFEM for mass market Galaxy A series. Further, Qorvo increased shipments of 5G massive MIMO infrastructure solutions to various OEMs. The company also secured new design wins across all sub-6 GHz 5G frequency bands. The company’s expanding RF product portfolio pertaining to 5G and massive MIMO base stations bodes well in the long haul. Notably, Qorvo sampled BAW-based 5G antennaplexer solutions in a bid to aid customers in utilizing antenna architectures for 5G devices.
Accelerating timeline for 5G deployment bodes well for Qorvo. It has participated in dozens of 5G field trials and demonstrations. We believe an expanding portfolio enabling 5G deployment augurs well for the company.
Non-GAAP gross margin expanded 220 bps from the year-ago quarter to 46.2%. This can be attributed to favorable product mix.
Non-GAAP operating expenses increased 4.6% year over year and came in at $167.9 million.
Non-GAAP operating margin expanded 370 bps from the year-ago quarter to 24.5%.
Balance Sheet & Cash Flow
As of Jun 29, 2019, cash and cash equivalents were $629.6 million compared with $711 million reported in the previous quarter. Long-term debt was $1.02 billion compared with $919.3 million at the end of the previous quarter.
Net cash provided by operating activities was $257 million, up from $187.3 million in the previous quarter. Free cash flow during the reported quarter came in at $207 million.
During the quarter under review, the company repurchased shares worth $100 million under the share repurchase program.
For the second quarter of fiscal 2020, Qorvo anticipates revenues between $745 million and 7650 million. Earnings are projected to be $1.30 per share at mid-point.
Management anticipates the second quarter revenues to be impacted by seasonal ramps from the top customer, which will be offset by lower sales to Huawei.
Further, Mobile Products revenues in the second quarter are expected to be up sequentially. IDP revenues are expected to decline year over year and sequentially, primarily owing to restriction from supplying products to Huawei and its affiliates.
Non-GAAP gross margin is anticipated to be in the range of 46% to 46.5%. Operating expenses are expected to increase in the second quarter to approximately $166 million.
For the fiscal 2020, the company anticipates sales to Huawei to be less than 10% of total revenues.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
Currently, Qorvo has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Qorvo has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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