It has been about a month since the last earnings report for Qorvo (QRVO Quick QuoteQRVO - Free Report) . Shares have lost about 1.4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Qorvo due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Qorvo Q3 Earnings Beat Estimates, Revenues Rise Y/Y

Qorvo Inc. reported third-quarter fiscal 2021 non-GAAP earnings of $3.08 per share, which improved 65.6% on a year-over-year basis. The figure exceeded the company’s expectations of $2.65 and surpassed the Zacks Consensus Estimate by 15.36%.

Revenues increased 3.3% year over year to $1.095 billion. Further, the top line outpaced the consensus mark by 1.96%. Moreover, the figure was above the higher end of management’s guided range of $1.06 billion (+/-$15 million).

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 devices and proximity awareness applications.

Accelerated deployment of 5G, the roll-out of Wi-Fi 6 and 6E technologies, and growing clout of precision location applications based on ultra-wideband (UWB) technology is favoring the company’s prospects. Also, innovation in biotechnologies, is opening new avenues of business.

Quarter Details & Recent Business Highlights

Segment-wise, MP revenues of $826 million exceeded the company’s expectations of $790 million, driven by seasonality uptick and higher 5G content in smartphones.

During the fiscal third 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 third-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 30% year over year to $269 million. The year-over-year increase can primarily be attributed to robust growth across the company’s defense, programmable power management and IoT end-markets, revenues of which doubled year over year. The improvement can also be attributed to momentum in deployment of Wi-Fi 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 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 communications applications and domestic airborne radars 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 5G/LTE, C-V2X and Wi-Fi automotive-qualified products capabilities aided it in clinching supply deals across OEMs including Audi, BMW and Volvo.

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.

Also, gains form buyout of ultra-wideband (UWB) software and system solution pioneer, 7Hugs Labs S.A.S., remains noteworthy. It is enabling the acquirer to boost UWB system solutions capabilities and bolster design expertise with focus on mobile, IoT and automotive end-markets.

The company’s multi-protocol SOC with low power capabilities and custom software facilitating solar-charging remote controls were selected by a leading television manufacturer.

Margins in Detail

Non-GAAP gross margin expanded 510 basis points (bps) from the year-ago quarter to 54.4%. Non-GAAP gross margin was anticipated to be 52.5%. This can be attributed to lower manufacturing and inventory costs, and strong end-market demand that led to revenue growth.

Non-GAAP operating expenses increased 10.6% year over year to $194.2 million. As a percentage of revenues, the figure contracted 250 bps from the year-ago quarter to 17.7%.

Non-GAAP operating income surged 59% to $203.7 million. Non-GAAP operating margin expanded 770 bps from the year-ago quarter to 36.7%. This can be attributed to gross margin expansion and lower operating expenses.

Balance Sheet & Cash Flow

As of Jan 2, 2021, cash and cash equivalents were $1.234 billion compared with $2 billion reported as of Oct 3, 2020. As of Jan 2, 2021, long-term debt was $1.744 billion compared with $2.67 billion as of Oct 3, 2020.

During the quarter, Qorvo undertook several deleveraging steps to improve financial flexibility. Management noted that the proceeds and cash on hand were utilized to pay down notes slated to mature in 2026 and the remaining 2025 notes.

Also, the company stated that the “revolver is untapped.” Markedly, Qorvo had concluded the fiscal second 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 $403.7 million, compared with $281 million in the prior quarter. Free cash flow during the reported quarter amounted to $367.6 million, compared with $237.4 million in the prior quarter.

During the fiscal third quarter, the company repurchased shares worth $160 million.

Q4 View

For fourth-quarter fiscal 2021, Qorvo anticipates revenues between $1.025 billion and $1.055 billion, with MP and IDP contributing $770 million and $270 million, respectively.

Strength in smartphone vertical, upgrades in 5G smartphones with increase in 5G content, and gains from consistent growth in 5G infrastructure, power management, 5G base stations, Wi-Fi 6 solutions and defense end-markets are anticipated to drive performance in fourth-quarter fiscal 2021.

Management noted that the company had suspended shipments to Huawei in mid-September 2020 in compliance with Department of Commerce guidelines. The company has received license for certain mobile products.

Non-GAAP earnings are projected to be $2.42 per share (at the mid-point of the revenue guidance). Non-GAAP gross margin is anticipated in the range of 50.5% to 51%.

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 14.88% due to these changes.

VGM Scores

At this time, Qorvo has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. 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 B. 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 #2 (Buy). We expect an above average return from the stock in the next few months.