Q3 Fiscal 2019 | Q3 Fiscal 2018 3 | Year-Over-Year Change 1 | Q2 Fiscal 2019 | Sequential Change 1 | |||||
Revenues | $9.6B | $5.6B | +73% | $5.0B | +93% | ||||
Operating income | $5.3B | $0.9B | N/M | $0.9B | N/M | ||||
Net income | $2.1B | $1.2B | +79% | $0.7B | N/M | ||||
Diluted earnings per share | $1.75 | $0.81 | +116% | $0.55 | N/M | ||||
Operating cash flow 2 | $4.9B | $2.1B | +139% | $0.8B | N/M |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 2 of 15 |
Q3 Fiscal 2019 | Q3 Fiscal 2018 | Year-Over-Year Change | Q2 Fiscal 2019 | Sequential Change | |||||
Revenues | $4.9B | $5.6B | (13%) | $4.9B | —% | ||||
Operating income | $1.2B | $1.4B | (13%) | $1.2B | +4% | ||||
Net income | $1.0B | $1.5B | (34%) | $0.9B | +5% | ||||
Diluted earnings per share | $0.80 | $1.00 | (20%) | $0.77 | +4% |
• | The third quarter of fiscal 2019 GAAP results included: |
◦ | $4.7 billion of revenues, or $3.23 per share, resulting from settlement agreements with Apple and its contract manufacturers, and which were not allocated to our segment results. |
◦ | $2.5 billion tax expense, or ($2.01) per share, due to the write-off of a deferred tax asset as a result of an agreement with the Internal Revenue Service (IRS) under which we will forgo the federal tax basis step-up in certain distributed intellectual property. |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 3 of 15 |
◦ | $275 million charge, or ($0.22) per share, for the fine imposed by the European Commission (EC) in July 2019 (2019 EC fine), for which we intend to provide financial guarantees to satisfy the obligation in lieu of a cash payment during the appeal. |
• | The third quarter of fiscal 2019 GAAP and Non-GAAP results included: |
◦ | $150 million of revenues, or $0.10 per share for GAAP and $0.11 per share for Non-GAAP, resulting from an interim agreement with Huawei. |
• | The third quarter of fiscal 2018 GAAP results included: |
◦ | $112 million of restructuring and restructuring-related charges, or ($0.06) per share, related to our Cost Plan that was announced in the second quarter of fiscal 2018. |
• | The third quarter of fiscal 2018 GAAP and Non-GAAP results included: |
◦ | $500 million of revenues, or $0.30 per share for GAAP and $0.26 per share for Non-GAAP, resulting from an interim agreement with Huawei for royalties due after the second quarter of fiscal 2017. |
• | The second quarter of fiscal 2019 GAAP and Non-GAAP results included: |
◦ | $150 million of revenues, or $0.10 per share for GAAP and $0.11 per share for Non-GAAP, resulting from an interim agreement with Huawei. |
(in millions, except percentages) | Q3 Fiscal 2019 | Q3 Fiscal 2018 | Year-Over-Year Change | Q2 Fiscal 2019 | Sequential Change | ||||
QCT | |||||||||
Revenues | $3,567 | $4,087 | (13%) | $3,722 | (4%) | ||||
EBT 1 | $504 | $607 | (17%) | $542 | (7%) | ||||
EBT as % of revenues | 14% | 15% | (1%) | 15% | (1%) | ||||
MSMTM chip shipments | 156 | 199 | (22%) | 155 | +1% | ||||
QTL | |||||||||
Revenues | $1,292 | $1,443 | (10%) | $1,122 | +15% | ||||
EBT 1 | $898 | $1,027 | (13%) | $674 | +33% | ||||
EBT as % of revenues | 70% | 71% | (1%) | 60% | +10% |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 4 of 15 |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 5 of 15 |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 6 of 15 |
Q4 FY18 Results (1) | Current Guidance Q4 FY19 Estimates (2)(3) | ||||||
Revenues | $5.8B | $4.3B - $5.1B | |||||
Year-over-year change | decrease 12% - 26% | ||||||
GAAP diluted earnings (loss) per share (EPS) | ($0.36) | $0.38 - $0.48 | |||||
Year-over-year change | N/M | ||||||
Less diluted EPS attributable to QSI | ($0.01) | $— | |||||
Less diluted EPS attributable to share-based compensation | ($0.14) | ($0.18 | ) | ||||
Less diluted EPS attributable to other items | ($1.10) | ($0.09 | ) | ||||
Non-GAAP diluted EPS | $0.89 | $0.65 - $0.75 | |||||
Year-over-year change | decrease 16% - 27% | ||||||
Other Information | |||||||
MSM chip shipments | 232 | M | 140M - 160M | ||||
Year-over-year change | decrease 31% - 40% | ||||||
QTL revenues | $1.1B | $1.0B - $1.2B | |||||
Year-over-year change | decrease 10% - increase 8% |
(1) | The fourth quarter of fiscal 2018 results excluded QTL revenues for royalties due on sales of Apple and other products by Apple’s contract manufacturers. The fourth quarter of fiscal 2018 results included $100 million of QTL revenues from Huawei under an interim agreement for royalties due after the second quarter of fiscal 2017. Further, the fourth quarter of fiscal 2018 results included a $2.0 billion charge related to a termination fee paid to NXP and included the impact of the significant stock repurchase program that was implemented following the termination of the purchase agreement. Diluted EPS attributable to other items for the fourth quarter of fiscal 2018 was primarily attributable to acquisition-related items and restructuring and restructuring-related charges related to our Cost Plan. |
(2) | Our guidance for revenues and diluted EPS attributable to other items for the fourth quarter of fiscal 2019 is primarily attributable to acquisition-related items. |
(3) | Our financial guidance for the fourth quarter of fiscal 2019 excludes QTL revenues for royalties due on sales of products by Huawei. |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 7 of 15 |
GAAP Results | Less QSI | Less Share-Based Compensation | Less Other Items (a) (b) | Non-GAAP Results | ||||||||||||
Q3 FISCAL 2019 | ||||||||||||||||
Revenues | $9,635 | $18 | $— | $4,723 | (c) | $4,894 | ||||||||||
Operating income (loss) | 5,317 | 10 | (246) | 4,339 | 1,214 | |||||||||||
EBT | 5,501 | 312 | (246) | 4,334 | 1,101 | |||||||||||
EBT as % of revenues | 57 | % | 22 | % | ||||||||||||
Net income (loss) | 2,149 | 237 | (198) | 1,128 | 982 | |||||||||||
Diluted EPS | $1.75 | $0.19 | ($0.16) | $0.92 | $0.80 | |||||||||||
Diluted shares | 1,231 | 1,231 | 1,231 | 1,231 | 1,231 | |||||||||||
Q2 FISCAL 2019 | ||||||||||||||||
Revenues | $4,982 | $98 | $— | $— | $4,884 | |||||||||||
Operating income (loss) | 940 | 88 | (221) | (89) | 1,162 | |||||||||||
EBT | 806 | 17 | (221) | (81) | 1,091 | |||||||||||
EBT as % of revenues | 16 | % | 22 | % | ||||||||||||
Net income (loss) | 663 | 21 | (191) | (99) | 932 | |||||||||||
Diluted EPS | $0.55 | $0.02 | ($0.16) | ($0.08) | $0.77 | |||||||||||
Diluted shares | 1,217 | 1,217 | 1,217 | 1,217 | 1,217 | |||||||||||
Q3 FISCAL 2018 | ||||||||||||||||
Revenues | $5,577 | $20 | $— | ($50) | $5,607 | |||||||||||
Operating income (loss) | 903 | 2 | (189) | (312) | 1,402 | |||||||||||
EBT | 934 | (7) | (189) | (264) | 1,394 | |||||||||||
EBT as % of revenues | 17 | % | 25 | % | ||||||||||||
Net income (loss) | 1,202 | (5) | (155) | (129) | 1,491 | |||||||||||
Diluted EPS | $0.81 | $0.00 | ($0.10) | ($0.09) | $1.00 | |||||||||||
Diluted shares | 1,487 | 1,487 | 1,487 | 1,487 | 1,487 |
(a) | At fiscal year end, the quarterly tax provision (benefit) for each column equals the annual tax provision (benefit) for each column computed in accordance with GAAP. In interim quarters, the sum of these provisions (benefits) may not equal the total GAAP tax provision, and this difference is included in the tax provision (benefit) in the “Other Items” column. See the “Reconciliations of GAAP Tax Rates to Non-GAAP Tax Rates” herein for further details. |
(b) | Further details of amounts included in the “Other Items” column for the current period are included in the “Supplemental Information and Reconciliations” and the “Reconciliations of GAAP Tax Rates to Non-GAAP Tax Rates” sections herein. Details of amounts included in the “Other Items” column for prior periods are included in the news releases for those periods. |
(c) | In the third quarter of fiscal 2019, other items excluded from Non-GAAP revenues were comprised of licensing revenues resulting from the settlement with Apple and its contract manufacturers and were not allocated to our segment results. |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 8 of 15 |
Q3 FISCAL 2019 | ||||||||||||||||||||
($ in millions) | GAAP Results | Less QSI | Less Share-Based Compensation | Less Other Items (a) | Non-GAAP Results | |||||||||||||||
Cost of revenues | $2,114 | $5 | $8 | $96 | $2,005 | |||||||||||||||
Research and development (R&D) expenses | 1,380 | — | 164 | 1 | 1,215 | |||||||||||||||
Selling, general and administrative (SG&A) expenses | 547 | 3 | 74 | 10 | 460 | |||||||||||||||
Other expenses | 277 | — | — | 277 | — | |||||||||||||||
Interest expense | 160 | — | — | 5 | 155 | |||||||||||||||
Investment and other income, net | 344 | 302 | — | — | 42 | (b) | ||||||||||||||
Diluted EPS impact of the interim agreement with Huawei | $0.10 | $0.00 | $0.00 | ($0.01) | (c) | $0.11 |
(a) | Other items excluded from Non-GAAP results included a $275 million charge related to the 2019 EC fine, $106 million of acquisition-related charges, $5 million of interest expense related to the 2018 EC fine and $3 million of net charges primarily related to our Cost Plan. |
(b) | Included $72 million in interest and dividend income and $12 million in net gains on marketable securities, partially offset by $27 million of impairment losses on other investments, $10 million in our share in equity method investee net losses and $5 million in net foreign currency losses. |
(c) | At fiscal year end, the quarterly tax provision (benefit) for each column equals the annual tax provision (benefit) for each column computed in accordance with GAAP. In interim quarters, the sum of these provisions (benefits) may not equal the total GAAP tax provision, and this difference is included in the tax provision (benefit) in the “Other Items” column. |
($ in millions) | GAAP Results | Less QSI | Less Share-Based Compensation | Less Other Items (b) (c) | Non-GAAP Results | ||||||||||||||||||||||||||
Q3 FISCAL 2019 | |||||||||||||||||||||||||||||||
Income (loss) before income taxes | $ | 5,501 | $ | 312 | $ | (246 | ) | $ | 4,334 | $ | 1,101 | ||||||||||||||||||||
Income tax (expense) benefit | (3,352 | ) | (75 | ) | 48 | (3,206 | ) | (119 | ) | ||||||||||||||||||||||
Net income (loss) | $ | 2,149 | $ | 237 | $ | (198 | ) | $ | 1,128 | $ | 982 | ||||||||||||||||||||
Tax rate | 61 | % | (10 | %) | (a) | 9 | % | (a) | 51 | % | (a) | 11 | % | ||||||||||||||||||
FISCAL 2019 | |||||||||||||||||||||||||||||||
Estimated annual tax rate | 41 | % | (1 | %) | (a) | 5 | % | (a) | 37 | % | (a) | — | % | ||||||||||||||||||
Q4 FISCAL 2019 Guidance | |||||||||||||||||||||||||||||||
Estimated Q4 Fiscal 2019 tax rate | 16 | % | — | % | 1 | % | 2 | % | 13 | % |
(a) | The incremental effect of our adjustments to the Non-GAAP tax rate is calculated by allocating the difference between (i) the tax expense (benefit) calculated based on the GAAP tax rate and (ii) the actual or estimated tax expense (benefit) for each column. |
(b) | In the third quarter of fiscal 2019, the tax expense in the “Other Items” column included a $2.5 billion charge for the write-off of a deferred tax asset, a $738 million charge for the combined effect of other items in EBT and a $70 million charge related to other certain impacts of final treasury regulations issued in the third quarter of fiscal 2019, partially offset by a $21 million benefit to reconcile the tax provision for each column to the total GAAP tax provision for the quarter, a $19 million benefit for the tax effect of acquisition-related items in EBT, an $18 million tax benefit related to a prior year and a $16 million benefit for release of a valuation allowance. |
(c) | In fiscal 2019, the estimated annual effective tax rate for the “Other Items” column included a $2.5 billion charge for the write-off of a deferred tax asset, a $766 million charge for the combined effect of other items in EBT and a $70 million charge related to other certain impacts of final treasury regulations issued in the third quarter of fiscal 2019, partially offset by $71 million benefit for the tax effect of acquisition-related items in EBT, a $33 million benefit for release of a valuation allowance and an $18 million tax benefit related to a prior year. |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 9 of 15 |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 10 of 15 |
• | QSI is excluded because the Company expects to exit its strategic investments in the foreseeable future, and the effects of fluctuations in the value of such investments and realized gains or losses are viewed by management as unrelated to the Company’s operational performance. |
• | Share-based compensation expense primarily relates to restricted stock units. Management believes that excluding non-cash share-based compensation from the Non-GAAP financial information allows management and investors to make additional comparisons of the operating activities of the Company’s ongoing core businesses over time and with respect to other companies. |
• | Certain other items are excluded because management views such items as unrelated to the operating activities of the Company’s ongoing core businesses, as follows: |
• | Acquisition-related items include amortization of certain intangible assets, recognition of the step-up of inventories and property, plant and equipment to fair value and the related tax effects of these items, as well as any effects from restructuring the ownership of such acquired assets. Additionally, the Company excludes third-party acquisition and integration services costs and costs related to temporary debt facilities and letters of credit executed prior to the close of an acquisition. |
• | The Company excludes certain other items that management views as unrelated to the Company’s ongoing businesses, such as major restructuring and restructuring-related costs, goodwill and indefinite- and long-lived asset impairments and awards, settlements and/or damages arising from legal or regulatory matters. |
• | Certain tax items that are unrelated to the fiscal year in which they are recorded are excluded in order to provide a clearer understanding of the Company’s ongoing Non-GAAP tax rate and after-tax earnings. In fiscal 2018, the Company excluded the full impact of the estimated one-time repatriation tax on deemed repatriated earnings and profits of U.S.-owned foreign subsidiaries, including the portion that relates to earnings and profits of U.S.-owned foreign subsidiaries generated in the first quarter of fiscal 2018. |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 11 of 15 |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 12 of 15 |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 13 of 15 |
June 30, 2019 | September 30, 2018 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 13,923 | $ | 11,777 | |||
Marketable securities | 435 | 311 | |||||
Accounts receivable, net | 2,390 | 2,904 | |||||
Inventories | 1,774 | 1,693 | |||||
Other current assets | 682 | 699 | |||||
Total current assets | 19,204 | 17,384 | |||||
Deferred tax assets | 1,172 | 936 | |||||
Property, plant and equipment, net | 3,037 | 2,975 | |||||
Goodwill | 6,308 | 6,498 | |||||
Other intangible assets, net | 2,350 | 2,955 | |||||
Other assets | 2,062 | 1,970 | |||||
Total assets | $ | 34,133 | $ | 32,718 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Trade accounts payable | $ | 1,587 | $ | 1,825 | |||
Payroll and other benefits related liabilities | 1,014 | 1,081 | |||||
Unearned revenues | 527 | 500 | |||||
Short-term debt | 3,000 | 1,005 | |||||
Other current liabilities | 4,725 | 6,978 | |||||
Total current liabilities | 10,853 | 11,389 | |||||
Unearned revenues | 1,251 | 1,620 | |||||
Income taxes payable | 2,114 | 2,312 | |||||
Long-term debt | 13,426 | 15,365 | |||||
Other liabilities | 1,026 | 1,225 | |||||
Total liabilities | 28,670 | 31,911 | |||||
Stockholders’ equity: | |||||||
Preferred stock, $0.0001 par value; 8 shares authorized; none outstanding | — | — | |||||
Common stock and paid-in capital, $0.0001 par value; 6,000 shares authorized; 1,218 and 1,219 shares issued and outstanding, respectively | 581 | — | |||||
Retained earnings | 4,687 | 542 | |||||
Accumulated other comprehensive income | 195 | 265 | |||||
Total stockholders’ equity | 5,463 | 807 | |||||
Total liabilities and stockholders’ equity | $ | 34,133 | $ | 32,718 |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 14 of 15 |
Three Months Ended | Nine Months Ended | ||||||||||||||
June 30, 2019 | June 24, 2018 | June 30, 2019 | June 24, 2018 | ||||||||||||
Revenues: | |||||||||||||||
Equipment and services | $ | 3,531 | $ | 4,110 | $ | 11,037 | $ | 12,750 | |||||||
Licensing | 6,104 | 1,467 | 8,422 | 4,083 | |||||||||||
Total revenues | 9,635 | 5,577 | 19,459 | 16,833 | |||||||||||
Costs and expenses: | |||||||||||||||
Cost of revenues | 2,114 | 2,491 | 6,481 | 7,394 | |||||||||||
Research and development | 1,380 | 1,416 | 3,957 | 4,237 | |||||||||||
Selling, general and administrative | 547 | 655 | 1,646 | 2,297 | |||||||||||
Other | 277 | 112 | 408 | 1,605 | |||||||||||
Total costs and expenses | 4,318 | 4,674 | 12,492 | 15,533 | |||||||||||
Operating income | 5,317 | 903 | 6,967 | 1,300 | |||||||||||
Interest expense | (160 | ) | (212 | ) | (477 | ) | (561 | ) | |||||||
Investment and other income, net | 344 | 243 | 377 | 454 | |||||||||||
Income before income taxes | 5,501 | 934 | 6,867 | 1,193 | |||||||||||
Income tax (expense) benefit | (3,352 | ) | 268 | (2,987 | ) | (5,644 | ) | ||||||||
Net income (loss) | $ | 2,149 | $ | 1,202 | $ | 3,880 | $ | (4,451 | ) | ||||||
Basic earnings (loss) per share | $ | 1.77 | $ | 0.81 | $ | 3.20 | $ | (3.01 | ) | ||||||
Diluted earnings (loss) per share | $ | 1.75 | $ | 0.81 | $ | 3.17 | $ | (3.01 | ) | ||||||
Shares used in per share calculations: | |||||||||||||||
Basic | 1,217 | 1,478 | 1,214 | 1,479 | |||||||||||
Diluted | 1,231 | 1,487 | 1,224 | 1,479 |
Qualcomm Announces Third Quarter Fiscal 2019 Results | Page 15 of 15 |
Three Months Ended | Nine Months Ended | ||||||||||||||
June 30, 2019 | June 24, 2018 | June 30, 2019 | June 24, 2018 | ||||||||||||
Operating Activities: | |||||||||||||||
Net income (loss) | $ | 2,149 | $ | 1,202 | $ | 3,880 | $ | (4,451 | ) | ||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization expense | 353 | 414 | 1,051 | 1,165 | |||||||||||
Income tax provision in excess of (less than) income tax payments | 3,164 | (508 | ) | 2,206 | 4,958 | ||||||||||
Non-cash portion of share-based compensation expense | 246 | 189 | 698 | 659 | |||||||||||
Net gains on marketable securities and other investments | (332 | ) | (26 | ) | (340 | ) | (101 | ) | |||||||
Indefinite and long-lived asset impairment charges | — | 63 | 203 | 96 | |||||||||||
Impairment losses on marketable securities and other investments | 42 | 19 | 111 | 40 | |||||||||||
Other items, net | (16 | ) | (99 | ) | (207 | ) | (46 | ) | |||||||
Changes in assets and liabilities: | |||||||||||||||
Accounts receivable, net | 1,251 | 376 | 1,451 | 470 | |||||||||||
Inventories | (46 | ) | 2 | (95 | ) | 245 | |||||||||
Other assets | (10 | ) | 14 | 15 | 72 | ||||||||||
Trade accounts payable | (94 | ) | 215 | (267 | ) | (296 | ) | ||||||||
Payroll, benefits and other liabilities | (1,807 | ) | 245 | (2,534 | ) | 1,698 | |||||||||
Unearned revenues | 9 | (53 | ) | (113 | ) | (178 | ) | ||||||||
Net cash provided by operating activities | 4,909 | 2,053 | 6,059 | 4,331 | |||||||||||
Investing Activities: | |||||||||||||||
Capital expenditures | (248 | ) | (214 | ) | (570 | ) | (625 | ) | |||||||
Purchases of debt and equity marketable securities | — | (77 | ) | — | (5,835 | ) | |||||||||
Proceeds from sales and maturities of debt and equity marketable securities | 32 | 1,446 | 124 | 9,105 | |||||||||||
Acquisitions and other investments, net of cash acquired | (67 | ) | (22 | ) | (185 | ) | (192 | ) | |||||||
Proceeds from other investments | 6 | 48 | 45 | 207 | |||||||||||
Other items, net | 69 | (47 | ) | 117 | (45 | ) | |||||||||
Net cash (used) provided by investing activities | (208 | ) | 1,134 | (469 | ) | 2,615 | |||||||||
Financing Activities: | |||||||||||||||
Proceeds from short-term debt | 1,511 | 3,822 | 4,808 | 9,385 | |||||||||||
Repayment of short-term debt | (1,510 | ) | (2,868 | ) | (4,813 | ) | (7,198 | ) | |||||||
Repayment of long-term debt | — | (1,571 | ) | — | (1,571 | ) | |||||||||
Proceeds from issuance of common stock | 87 | 52 | 264 | 387 | |||||||||||
Repurchases and retirements of common stock | (69 | ) | (1,000 | ) | (1,088 | ) | (1,425 | ) | |||||||
Dividends paid | (755 | ) | (911 | ) | (2,257 | ) | (2,600 | ) | |||||||
Payments of tax withholdings related to vesting of share-based awards | (82 | ) | (77 | ) | (225 | ) | (273 | ) | |||||||
Payment of purchase consideration related to RF360 joint venture | (44 | ) | (42 | ) | (44 | ) | (157 | ) | |||||||
Other items, net | (53 | ) | (37 | ) | (91 | ) | (54 | ) | |||||||
Net cash used by financing activities | (915 | ) | (2,632 | ) | (3,446 | ) | (3,506 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | 2 | (51 | ) | 2 | (19 | ) | |||||||||
Net increase in total cash and cash equivalents | 3,788 | 504 | 2,146 | 3,421 | |||||||||||
Total cash and cash equivalents at beginning of period | 10,135 | 39,946 | 11,777 | 37,029 | |||||||||||
Total cash and cash equivalents at end of period | $ | 13,923 | $ | 40,450 | $ | 13,923 | $ | 40,450 | |||||||
Reconciliation to the condensed consolidated balance sheets | |||||||||||||||
Cash and cash equivalents | $ | 13,923 | $ | 35,619 | $ | 13,923 | $ | 35,619 | |||||||
Restricted cash and restricted cash equivalents included in other assets | — | 4,831 | — | 4,831 | |||||||||||
Total cash and cash equivalents at end of period | $ | 13,923 | $ | 40,450 | $ | 13,923 | $ | 40,450 |