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Qorvo (QRVO) Q2 Earnings & Revenues Top Estimates, Up Y/Y

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Qorvo Inc. (QRVO - Free Report) delivered second-quarter fiscal 2019 non-GAAP earnings of $1.75 per share, surpassing the Zacks Consensus Estimate of $1.62 per share. The figure jumped 15.1% from the year-ago quarter.

Revenues on a non-GAAP basis increased 7.6% year over year to $884.4 million. The figure was above management’s guidance of $850-$860 million. The Zacks Consensus Estimate is pegged at $856 million.

The results can be attributed to robust mobile growth, 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.

Shares of the company went up more than 3%, yesterday. Notably, Qorvo shares have gained 10.4% year-to-date, against the industry’s decline of 9.1%.

Quarter Details

Segment-wise, Mobile Products (“MP”) revenues were $667 million, up 37% sequentially driven by improving demand of flagship smartphone product.

Infrastructure and Defense (“IDP”) revenues grew 15% year over year to $218million. The year-over-year increase was primarily due to robust growth in company’s wireless connectivity and growth in base station solutions.

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 defense top-line growth.

Revenue for IDP's GaN-based applications surged 27% year over year.

Qorvo unveiled QPG6095 system-on-chip (SoC) controller integrated with new LEEDARSON smart light bulb and light switch solution to enhance smart home communications systems for ultra-low-power wireless applications.

Further, Qorvo was selected by Samsung to supply 3.5 GHz 5G FEM, supporting multiple 5G mobile device samples. The company also started shipping RF Fusion Phase 6 for Vivo's NEX flagship smartphone.

Accelerating timeline for 5G deployment bodes well for Qorvo. The company has participated in dozens of 5G field trials and demonstrations. We believe an expanding portfolio enabling 5G deployment augurs well for the company.

Operational Details

Non-GAAP gross margin expanded 30 basis points (bps) from the year-ago quarter to 47.7%. This was primarily due to favorable product mix, increase in factory utilization and productivity.

Non-GAAP operating expenses as percentage of revenues contacted 30 bps on a year-over-year basis to 19% primarily on the back of positive impact from restructuring activities.

Non-GAAP operating margin expanded 50 bps from the year-ago quarter to 28.6%.

Balance Sheet & Cash Flow

As of Sep 29, 2018, cash and cash equivalents were $557.9 million compared with $392 million reported in the previous quarter. Long-term debt was $735.1 million as compared with $558.3 million at the end of the previous quarter.

Net cash provided by operating activities was $214.5 million up from $75 million in the previous quarter. Free cash flow during the quarter came in at $144.4 million.

During the reported quarter, repurchased worth $87 million shares under the share repurchase program.

Guidance

For the third quarter of fiscal 2019, Qorvo expects revenues between $880 million and $900 million. Non-GAAP gross margin is anticipated to be roughly 50% due to favorable product mix. Earnings are projected to be $1.95 per share at mid-point. The Zacks Consensus Estimate for revenues and earnings are pegged at $907.4 million and $2.00 per share, respectively.

IDP is expected to report strong results in the third quarter with robust growth in infrastructure. MP revenues are anticipated to increase sequentially backed by seasonal smartphone ramps.

Operating expenses are expected to decrease in the third quarter to approximately $165 million.

Management forecasts second half fiscal 2019 gross margin to be at least 50%.

For fiscal 2019, Qorvo continues to expect revenues to grow around 10% driven by strong growth from premium mobile products and continued strength in defense, IoT and GaN.

Qorvo announced that IDP long-term growth prospects are bright due to a diversified product portfolio that include solutions for advanced radars and other electronic warfare defense applications, Wi-Fi and connectivity applications as well as GaAs and GaN products for wireless infrastructure.

For fiscal 2019, operating expenses as percentage of revenues are anticipated to around 20%.

Zacks Rank & Stocks to Consider

Qorvo carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are NetApp, Inc. (NTAP - Free Report) , Intel Corporation (INTC - Free Report) and Upland Software, Inc. (UPLD - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NetApp, Intel and Upland Software have a long-term earnings growth rate of 14.1%, 8.4% and 20%, respectively.

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