Good day, and welcome to Qorvo, Inc. Earning Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Douglas DeLieto, Vice President, Investor Relations. Please go ahead.

Thanks very much. Hello everyone and welcome to Qorvo's fiscal 2024 fourth quarter earnings call. This call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to read -- to review the safe harbor statement contained in the earnings release published today, as well as the risk factors associated with our business in our annual report on form 10-K filed with the SEC because these risk factors may affect our operations and financial results. In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain non-cash expenses or other items that may obscure trends in our underlying performance. During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today, available on our Investor Relations website at ir.qorvo.com, under Financial Releases. Joining us today are Bob Bruggeworth, President and CEO; Grant Brown, CFO; Dave Fullwood, Senior Vice President of Sales & Marketing and other members of Qorvo's management team. And with that, I'll turn the call over to Bob.

Thanks, Doug, and welcome everyone to Qorvo's fiscal 2024 fourth quarter call. I'd like to begin by reminding our audience that we issued a press release last week announcing the date of our upcoming Qorvo 2024 Investor Day. The event will be held June 11. It will be webcast for all audiences and it will begin at 08:30 a.m. Eastern. Our last Investor Day was in 2018, and we're very excited to discuss in detail our expanded opportunities and our enthusiasm for the future. Across our businesses, Qorvo is at the forefront of global secular macro trends, including mobility, connectivity, electrification and datafication. These macro trends are enabling new applications and new user experiences, many of which are made accessible to you by the company's Qorvo supplies and the devices we enable. Our customers continually seek to improve key performance parameters such as power out, current consumed, talk time, battery life and time between charges. This is happening across our markets in aerospace and defense, automotive, consumer, infrastructure, industrial and enterprise. It is increasing customer focus on power efficiency, throughput, functional density, form factor and other areas where Qorvo delivers a significant competitive advantage. Complementing this, legacy technologies are transitioning to more advanced technologies like active electronic scanning systems, advanced power management, force sensing touch sensors, RF MEMS, and a range of system-on-a-chip and system-in-a-package solutions to improve performance and enhance functionality. Also, new connectivity protocols are being adopted across our businesses, including 5G advance, DOCSIS 4.0, Wi-Fi 6, 6E and 7, Matter and ultra-wideband. Qorvo is driving innovation to enable these trends, while expanding our capabilities and product offerings to target a growing set of opportunities. Now let's turn to the strategic highlights beginning with HPA. HPA returned to year-over-year growth in the March quarter, supported by strong sequential…

Thanks, Bob, and good afternoon everyone. Revenue for the quarter was $941 million, non-GAAP gross margin was 42.5%, and non-GAAP diluted EPS was $1.39, all exceeding the midpoint of our guidance range. Revenue for fiscal Q4 increased approximately 49% year-over-year. As communicated last quarter, improving customer demand in HPA supported a return to year-over-year growth. HPA revenue grew 24% year-over-year in the March quarter, driven by a stronger than anticipated performance in our defense business. In ACG, revenue grew 56% year-over-year in the March quarter, supported by strong content on multiple, large customer platforms. In CSG, we delivered 50% year-over-year growth and our fourth consecutive quarter of sequential growth due to strength in Wi-Fi, automotive and other areas. Consistent with our prior comments, non-GAAP gross margin of 42.5% for the March quarter reflected a higher percentage of Android 5G mass market product, which was manufactured during periods of lower factory utilization. Non-GAAP operating expenses in the quarter were $253 million. We continue to invest in new product development to drive multi-year growth across our businesses. Alongside our growth oriented investments, we're investing to upgrade the core systems and processes we use to run our business. This multi-year initiative is intended to extend our competitive advantage and enable us to scale growth in diverse dynamic markets. Our goal is to increase operational efficiency, unlock internal data to leverage new software capabilities, including AI, and support our broad-based growth objectives. We expect this initiative will span approximately three years and we will present the spend in other operating expense on our non-GAAP P&L. As we progress through the project, we will provide related expense guidance on a quarterly basis. Turning to the cash flow statement, in fiscal Q4, we generated operating cash flow of $202 million and capital expenditures for the period…

We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Ruben Roy with Stifel.

Thank you very much. Hi, Grant, I wanted to see if you can -- you had some commentary in the press release on sort of the guidance and how to think about the guidance for June, but was wondering if you could provide a little bit more detail on kind of what's going on with ACG and the defense after the strong quarter you saw in March, and if you could maybe just walk us through the moving parts in the three segments as we think about the guidance for the June quarter?

Sure. Thanks for the question, Ruben. I'll start off with the June quarter guide overall and then we can get into the segments. The sequential decline in the June quarter revenue guidance primarily reflects the ramp patterns at our two largest customers at ACG. And then, within HPA, the seasonal timing of large defense programs and a slower rollout of DOCSIS 4.0 as we've talked about previously. ACG is expected to decline -- just to break it down, ACG is expected to decline in the high single digits in June. HPA will decline in the low double digits. And CSG is expected to be approximately flat. Looking back at ACG, we don't breakout customer percentages by quarter. But I mentioned in my prepared remarks that our largest customer represented approximately 46% of total fiscal '24 revenue, which was up from 37% in '23 and 33% in fiscal '22. So, follow that, those increases there increase our revenue exposure to the seasonal ramp patterns we have with our largest customers, and that's impacting the June quarter. Looking at HPA, it's a similar seasonal dynamic. We have successfully grown our revenue base in defense and aerospace, and this represents the largest percentage of HPA revenue and actually set a record in fiscal Q4. While we expect our D&A business to grow year-on-year in fiscal '25, program timing and seasonality is having an outsized impact on the sequential performance in June quarter, just given the relative size within HPA. Looking at gross margin, we expect a substantial improvement in September as we sell through all the high-cost inventory or the vast majority of it, I should say, in June and we continue to expect full year fiscal '25 gross margin will improve modestly over '24.

That's great. Thank you, Grant, for that detail. And I guess as a follow-up, in the press release also you talk about your view about modest growth, seeing -- expecting modest growth '25 over '24. Just wondering, I know you don't provide longer-term guidance in any meaningful detail, but 90 days into the New Year, has anything changed with the way you're thinking about? Because I think you said you were expecting -- it would be reasonable to expect growth in fiscal '25 over '24 last quarter. So, just wondering if there's been any changes in how you're viewing the growth or inventory levels or sell-through demand would be helpful. Thank you.

Sure. No change to our view on inventory -- channel inventory, especially within the Android area, it looks relatively clear. I think June will be the last quarter. We'll really be talking about the high-cost inventory and the underutilization impact associated with that. So that's maybe one change that we haven't spoken to in the past as far as timing goes. In terms of fiscal '25 in general, it's a little early to provide any detailed quarterly guidance. But absent any macro-related disruptions, we do expect to grow both revenue and gross margin modestly in fiscal '25 on a year-over-year full fiscal year basis. It's worth pointing out that given the timing of the content gains at our largest customer and the success in the defense market, as I mentioned earlier, our revenue seasonality will be more closely aligned to those annual ramp profiles. So that's clear in our Q1 guidance, but will also be included in our full fiscal year. In terms of the shape of revenue across fiscal '25, we do expect strong sequential growth in September, some modest sequential growth in December, and then that revenue profile will reflect the sequential growth in defense. That begins in September and even stronger in December. So, we may be slightly unlike fiscal '24, we'll have a bigger December than September is our current expectation because of the strength there in defense. On gross margins, we expect substantial improvement in September, as I mentioned, roughly flattish in December and then down slightly in March. So, again, a similar seasonal profile. Overall for the year, probably implied a full fiscal year gross margin for fiscal '25 in the mid-40%s.

Your next question comes from Karl Ackerman with BNP Paribas.

Thank you. Grant, I want to follow-up to the gross margin question that you just spoke about. I guess, is the lower gross margin guide driven by seasonally stronger Android sales in June? And then, while gross margins increased in September, does that suggest Android is weaker in the second half? I ask because while your peer this evening said that China Android rose 40% year-over-year in the first half, there have been some conflicting data points on Android demand in the second half. So, if you could clarify that, that would be helpful.

Yeah, sure. So, in terms of gross margin, I think, in any given quarter, it's heavily dependent on mix, as you're pointing out, right? There's variability by end market and product category. But as I look at the manufacturing costs associated with what we're selling, any underutilization impact is going to be impacted by when the products are manufactured and where they're manufactured. So, for Qorvo, when matters, because the utilization rate at the time it's produced, and the where matters, because of where the products that contain higher content from external foundries or OSATs are less impacted by our internal loadings. So, for June, our gross margin guidance really reflects, I guess, primarily three things. First, we're actively selling through the higher-cost inventories burdened by the underutilization. This is somewhat of an artifact of past underutilization. The second is that we see the typical seasonal decline in our largest customer, as I mentioned, and those products contain higher levels of external content. And then third, we expect a seasonal decline in the defense programs like most of our high mix, lower volume businesses. These are accretive to gross margin. So, it's heavily mix dependent. I pointed out June will mark the low point as we actively sell through that remaining high-cost inventory. And again, that really reflects the inefficiencies caused by those underutilized fabs that were whipsawed by a massive inventory correction. We believe we're well past the worst of those utilization levels and as we sell through the material, it will pave the way for higher gross margins I commented on for the full fiscal year color I talked about earlier. For September, if we pivot to that, we expect gross margin to improve substantially as three headwinds reverse; the seasonal ramp will reflect more external content, the defense revenue is expected to grow sequentially, and the underutilization impact should fall to less than or around 100 basis points versus the, call it, 300 basis points that we experienced last quarter.

Yeah, very clear. If I may just sneak a quick one. And you mentioned about recovery in defense. I was curious your thoughts on silicon carbide. I did not hear that -- any comments in your prepared script. I know that the industrial market is going through a downturn, but any thoughts on recovery of the silicon carbide business or whether the macro has influenced your own success in silicon carbide whether it's in industrial and/or defense? Thank you.

Hey, Karl. This is Dave. I can take that one. So, Bob, you had commented on some of this, but we've had some good success there in data centers and that part of the market actually looks quite good. We've talked in the past, too, about some of our success we've had in areas like solar that's being heavily impacted by the interest rate environment. And so that market is extremely soft right now. So, it's kind of a mixed bag when you look at our silicon carbide business. Still quite a small business. So, we're growing into new markets, and so there's lots of opportunities there. The sales funnel is growing and strong, but the end markets are really dependent on some of the interest rate environment that we're experiencing.

Your next question comes from Edward Snyder with Charter Equity Research.

Ed, are you there?

Yeah. Sorry about that, guys. A couple of questions, if I could. Last quarter, we had some discussions about content growth and strength in the second half. I know you haven't guided that to this quarter at all. I just want to get an update, if possible, now that you've had a chance, most of those wins have been awarded and you're probably working on qualifying it? Any alteration at all in terms of how strong you think it'll be in the second half in terms of content or revenue growth without guiding? I'm just trying to get a feel for if anything's changed.

Hi, Ed, it's Bob. Thanks for the question. And we're very confident in our outlook with our largest customer. We're confident, as I said last time, in gaining share this year, and still very confident in our outlook for -- in FY '25 gaining share, FY '26 gaining share, growing revenue. Still feel real good about both of those.

Good. And then, you closed the Anokiwave deal and most folks, if you look at their product line, it's pretty much a carbon copy of everything you'd need for a millimeter wave to a mobile platform. And there's been some news of recently that there seem to be a win with that. Is that -- my impression was when that was first announced that it was going to be an infrastructure play. Does it have a mobile play to it? And how confident you are that it's going to gain any traction given how weak normal wave has been in the mobile business for a while?

Thanks, Ed. Good opportunity to clear that up. When we made the acquisition, our focus was actually on defense. The infrastructure market is pretty volatile, but we still think there's a play there, but it's primarily on the defense side. We don't have any plans at this time to bring it into the mobile phone business -- mobile part of our business.

Your next question comes from Srini Pajjuri with Raymond James. Pardon me, your next question comes from Chris Caso with Wolfe Research.

Yes, hi. The first question, I just wanted to clarify a comment that you made, you talked about revenue and gross margin up in fiscal '25, but you said modestly. And I just wanted to make sure that -- was that modest comment meant for revenue and gross margin up modestly or just gross margin?

Thanks for the question, Chris. It was for both.

Okay. So, both revenue and -- so, okay, so that's clear. As a follow-up on that, I wanted to talk about the changes to capital intensity that you were taking. Can you give a little more color on that, and kind of where the targets might sit when you're done with that program, and kind of what you're doing to achieve that?

Sure. So, from a capital intensity perspective, I still think that we'll be spending CapEx in and around that 5% target level. As we look out over time, it could vary based on capacity required to support customer demand, but that's our current target.

Your next question comes from Srini Pajjuri with Raymond James.

Thank you. Bob, in your guidance for fiscal year revenue to be up modestly, obviously, you said previously that you expect your largest customer to grow year-on-year this year. So, the rest of the business, I'm just curious, given, I mean, we've been weak in broad market -- not broad market and non, I guess, smartphone segments for a while. They seem to be lumpy, but some of them are coming back. So, I'm just curious as to what's the outlook for the outside of your largest customer, what's causing you to be a bit more cautious here? It seems like you're kind of -- you're sounding a bit more cautious than last quarter. So, I'm just trying to understand what's giving you that pause?

Sure. Let me take that one and then Bob can fill in terms of the latter part of your question. I think for fiscal '25, generally, we're optimistic. We do expect to grow. We're going to expand gross margin as we currently see it. I think we're having success at our largest customers and that's creating more seasonality, which you're seeing in June. But on the whole, the year will be up. It also creates an opportunity for us to grow in our defense business, where we're seeing some recent congressional budget approvals, as well as some of the foreign aid packages, which is driving our order activity there. So, we're seeing a strong tailwind on the defense business in the fiscal second half. So that would, for us, begin in the December quarter and follow through into March again. Those are some of the drivers we see. And I don't know, Bob, if -- I think we missed the last part of your question, I think was in around confidence at our largest customer?

I was just wondering, I guess last quarter you definitely sounded a bit more confident about the next year or two at your largest customer. Looks like that hasn't changed. And given your view on your largest customer, I would have thought the fiscal year guidance would be up more than just modestly. So, I'm just trying to understand what's kind of giving you that pause outside of your largest customer.

We still believe we're going to grow in the Android ecosystem, to be clear. So, again, we didn't comment on the full year last time. The only comment I made was I wanted to correct some noise that was in the market about we had lost a socket potentially at our largest customer and I want to make that clear. So, I'm sure that came across clear. However, when we look out over the year, I mean, there's a lot of things to judge for the year. I think it's great that we're able to provide you some color, at least how we think of things today. But I'd say, if anything, we're being somewhat conservative, just given what's going on. As you know, our Android market in China, quite honestly, it's going to be flat quarter-over-quarter to slightly up, but we're very cautious on China and the economy turning around there, where they're actually doing well is in some of the export market. So, just given everything that we see going on globally, interest rates, you see what's going on with the Fed in our own country and going around the world, I think it's prudent to take a conservative view when we give our outlook, whether it's the number of units at our largest customer or what's going to happen to end demand with consumers. We're just being cautious, but we're confident we can grow. And I think that's how I'd leave that.

Thanks, Bob. If I may have a follow-up on gross margins. Grant, obviously, you're talking about improving gross margin in the second half of the fiscal year. I guess, how do we go from -- I think you're exiting the fiscal year, maybe in the high 40%s -- mid to high 40%s. How do you go from mid to high 40%s to the previous, I guess, peak levels of 52%, 53%? And what's the plan to -- I mean is it a function of revenue or are there any other initiatives that are in place to get us back to that gross margin level?

Sure. Thanks for the question. So, utilization is obviously critical, and it's improving. And we've spoken quite a bit about it. But maybe just to put that into context, the utilization across our US fabs is actually currently up 20 percentage points versus Q1 a year ago. So, looking at just a simple average across our wafer fabs, the percent utilization went from the 40%s to now the 60%s, and all that hasn't flowed into the P&L yet. So, we still have meaningful opportunity to improve and reach more optimal levels, call it, in the 80%s or higher across the board. We've talked a bit, as a specific example, to our WiFi business in CSG, which is facing the underutilization here in our North Carolina gas line, each of those products is coupled to the fab that was designed and qualified. And so, we can't move production overnight. But over time, we can optimize this. So, load balancing across our factory network is always being evaluated, and it's a potential for opportunity there. But beyond just utilization, we are taking active steps to improve gross margin. If you look at it maybe by business or maybe from a manufacturing perspective, in ACG, specifically, we're managing our portfolio to better match cost with the product tiering. So, to align Android's entry tier, our new low, mid, high integrated products are a great example. This is not a single product, but actually a family of products that are better optimized for that segment of the market. In HPA, we expect our high mix, lower volume businesses generally carry higher gross margins to be among our fastest-growing opportunities. Defense is a good example. I've spoken to that, where we expect a strong fiscal second half and for growth to continue well beyond this fiscal year given the budget approvals and the order activity we're seeing. CSG, I just mentioned the WiFi business, but it's our highest growth opportunities there are in products that run in high-volume external silicon partners. So, overall, business mix will play a role in margin expansion over time. Those product lines will grow faster and they'll become a bigger portion of our revenue mix, less susceptible to underutilization, of course, because they're externally sourced. From an overall manufacturing perspective, we expect to benefit from continued die size reductions, wafer size increases, and we can continue reducing our capital intensity. We're continuously looking at factory footprints for opportunities to optimize and consolidate our operations, and you've already seen us take steps there such as divesting our Farmers Branch facilities as well as our Beijing and Dezhou facilities. So, we have a lot of opportunity to get there. It's not simply utilization, but obviously, that's a big part of it.

Your next question comes from Thomas O'Malley with Barclays.

Hey, guys, thanks for taking my questions. So, on the last call, you kind of talked about the shape of the year being very similar year-over-year if look at fiscal year '24 and fiscal year '25. With June coming in a bit lighter, could you just update us on how you're seeing the shape of the year? Does that peak a bit higher in the September, December period just because Q1 was a bit weaker? Any color on what you're kind of seeing in terms of the shape of the year being similar? Or does that change at all with what we're looking at in June?

Sure. It's similar to fiscal '24. As I mentioned, we do expect, unlike fiscal '24, that we'll have a larger December than September and then down seasonally in March. So, in that regard, it's slightly different than what we saw in fiscal '24. But generally speaking, the September, December quarters will be our largest within the fiscal year.

That's super helpful. And then just to put a nail in the coffin here, but just on the Android business into the June quarter, so you're talking about better China, but also you don't have a flagship launch in the June quarter from another large customer. When you net that out, do you see the ability to grow kind of sequentially into the June quarter? It's just hard to know the various growth rates. I know you have some idea of size, but any color you could give there on the Android business, just June specifically?

June, most likely for -- hi, this is Bob. June most likely is going to be flat to up with the Android ecosystem. As you pointed out, we're coming off a big flagship ramp at our second largest customer with tremendous content. We're offsetting that with growth outside of them.

Your next question comes from Christopher Rolland with Susquehanna.

Hey, guys. Yeah, just working through that gross margin thing, we're talking about like 500 basis points or 600 basis points for September. Is that roughly the magnitude to get to that gross margin expansion we need?

I think you're in the right ballpark, Chris. I gave a rough estimate for the year. So, I believe you backed into it properly.

Okay. Great. And I have no other questions. Thanks.

Your next question comes from Peter Peng with JPMorgan.

Hey, good afternoon. Thanks for taking my questions. Let me go back to that modest revenue growth. Are you expecting growth across all segments? Or are you expecting some decline in certain segments?

For the full year, we are expecting growth across all segments.

Got it. And thanks for that. That's helpful. And then, I think, last quarter, you talked about smartphone shipments, low single digits, and 5Gs kind of in that 10%-plus range. Has that view changed? And is that -- I guess, the full year guidance, is there just more conservatism there? So maybe if you can answer?

Yeah. No change in the outlook. We're still thinking low single digits for the overall market. And like you said, 5G growing greater than 10%.

Your next question comes from Tim Arcuri with UBS.

Hi. This is [Aman] (ph) jumping in for Tim. We're hearing from some of your peers some inventory built at your largest customer in March. Are you seeing a similar trend? And then, how should we think about growth in largest customer as we progress through this year? And do you have visibility in terms of content growth as we look into next calendar year?

This is Bob. And what I can tell you is that we don't see any channel inventory between us and our largest customer. And the reason is pretty straightforward. We ship directly to their manufacturers. So, this has come up maybe a year or so ago, and now come up now, and we don't see anything like that.

Thank you.

That concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

We want to thank everyone for joining us tonight. We appreciate your interest in Qorvo, and we look forward to speaking with you during our Investor Day on June 11 and at upcoming investor events. Thank you, and I hope you have a great evening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.