Q2 2025 Qorvo Inc Earnings Call

October 29, 2024

[inaudible]

Speaker Change: Good day and welcome to the Corvo Inc. 2nd quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero.

Speaker Change: After today's presentation, there will be an opportunity to ask questions.

Speaker Change: Please note this event is being recorded. I would not like to turn the conference over to Mr. Douglas DeLieto, Vice President of Investor Relations. Please go ahead, sir. Thanks very much. Hello everyone and welcome to Corbore Woods, this is called 2025 Second Quarter earnings call.

Speaker Change: This call will include forward-looking statements that involve risk factors that could cause our actual results to different materially from management's current expectations.

Speaker Change: We encourage you to review the State Harbor Statement contained in our earnings released published today, as well as the risk factors associated with our business and our annual report on Form 10K, followed the SEC. Because these risk factors may affect our operations and financial results.

Speaker Change: and today's release and on today's Colman-Gravival Gap and Non-Gap Financial Results.

Speaker Change: We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze the natural performance without the impact of certain non-catch expenses or other items that may have skewered trends in our underlying performance.

Speaker Change: During our call, our comments and comparisons to income statement items we've faced primarily on non-gap results.

Speaker Change: 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.corvo.com under Financial Releases.

Speaker Change: Joining us today are Bob Bruggeworth, President and CEO, Grant Brown, CFO, Dave Fullwood, Senior Vice President of Sales and Marketing, and other members of Corvo's management team. And with that, I'll turn the call over to Bob.

Bob Bruggeworth: Thanks, Doug, and welcome, everyone, to our call. Similar to our first-quarter earnings call, our prepared remarks tonight will focus on achievements and opportunities by end market.

Bob Bruggeworth: Corvo's six end markets are automotive, consumer, defense and aerospace, industrial and enterprise, infrastructure, and mobile.

Bob Bruggeworth: Our markets are underpinned by global megatrends, such as electrification, connectivity, mobility, sustainability, datafication, and AI. These trends make possible new functionality and new user experiences that are made available to end users by the customers we serve and the products we enable. Consistent with our comments at our Investor Day, in HPA, we continue to expand our defense and aerospace business during the quarter while building a broad-based business in power management.

Bob Bruggeworth: For the full fiscal year, we expect HPA will grow in the mid-teens.

Bob Bruggeworth: In the markets served by CSG, we maintained our Wi-Fi leadership during the quarter while investing in diverse growth businesses, including an expanding portfolio of automotive solutions and SOCs for ultrawideband and matter. We expect CSG will also grow in the mid-teens this fiscal year.

Bob Bruggeworth: In the mobile market, ACG supported a seasonal ramp during the quarter at our largest customer.

Bob Bruggeworth: As we said during our Investor Day, our largest opportunity in ACG is with this customer. They represent over half of the smartphone RFPAM, and we are investing today to grow our share with them next year and in subsequent programs over multiple years.

Bob Bruggeworth: Within the Android ecosystem, Corvo is a leading supplier to the flagship, premium, and mid-tier 5G smartphones.

Bob Bruggeworth: While the flagship and premium tiers are holding up well, the mix in the mid and entry tiers has shifted towards entry-tier 5G at the expense of mid-tier 5G.

Bob Bruggeworth: In our current view, we don't expect this next shift in Android 5G from the mid-tier to the entry tier will reverse.

Bob Bruggeworth: While challenging in the near term, this dynamic reinforces ACG's primary strategy of investing to grow our business at our largest customer.

Bob Bruggeworth: ACG's product roadmap is focused primarily on 5G advanced products for our largest customer and the flagship and premium tiers of our Android customers.

Bob Bruggeworth: Our growth opportunity and the flagship remain strong. By contrast, the mid-tier used to be approximately half of the total Android 5G volumes, and has declined over the last few quarters to less than a third.

Bob Bruggeworth: In each of the markets we serve, our customers continue to require higher performance, greater efficiency, and smaller form factor to increase functional density, enhance the user experience, and extend their competitive position.

Bob Bruggeworth: Turning to quarterly highlights. In the automotive market, we secured a Vita-X design win with a U.S.-based automotive tier 1 in support of an automotive OEM based in Germany. Production volumes for this first win are expected to shift in the current quarter.

Bob Bruggeworth: We were also selected to supply a full suite of VitaX and Network Access device RF products in support of an automotive OEM, with production volumes also expected to ramp this quarter.

Bob Bruggeworth: In other automotive applications, Corvo's force-sensing touch sensors are enabling digital cockpit, climate control, and the best-selling SUV of an additional automotive OEM based in Germany.

Bob Bruggeworth: For an EV OEM based in North America, Corvo was selected to supply force-sensing touch sensors for a 2026 model launch.

Bob Bruggeworth: We have content in this customer's current generation model and the number of placements increased in this new award. Our technology's solid surface architecture demonstrates measurable advantages over traditional buttons both inside and outside the cabin.

Bob Bruggeworth: In consumer markets, we increased shipments of force-sensing touch sensors in support of high-end audio headphones and expanded our touch sensor engagements in laptop trackpads.

Bob Bruggeworth: We also continue to ramp our first-generation battery management system for outdoor power tools and other applications.

Bob Bruggeworth: We will sample our second generation solution later this fiscal year and target applications including power tools and e-mobility applications including scooters and e-bikes.

Bob Bruggeworth: In Wi-Fi, we offer a full portfolio of FEMs, iFEMs, and filters.

Bob Bruggeworth: Our Wi-Fi 6 shipments to consumer markets continue to grow in applications including sound bars.

Bob Bruggeworth: Shipments of Wi-Fi 7 also grew.

Bob Bruggeworth: The RF content opportunity is significantly higher in Wi-Fi 7 than in previous generations, and the industry analysts expect Wi-Fi 7 volumes to overtake Wi-Fi 6 as soon as 2027.

Bob Bruggeworth: In connectivity systems, demand for ultrawideband, BLE, and matter over thread was broad-based across consumer applications, including smart home, location tags, speakers, and other consumer electronics.

Bob Bruggeworth: We received our first production order for our newest BLE Matter SoC from a large retailer of home furnishing products based in Europe, opening up a new addressable market for Corvo.

Bob Bruggeworth: By leveraging concurrent Connect technology, our SoC enables BLE, MATTER, and ZigBee to operate simultaneously.

Bob Bruggeworth: This ensures backward and forward compatibility given Zigbee's large install base and the growing adoption of matter over thread.

Bob Bruggeworth: including within smart home and smart phone ecosystems. Matter-over-thread is a low-latency, point-to-point, and mesh technology that significantly upgrades the user experience versus legacy systems.

Bob Bruggeworth: in Defense and Aerospace Markets.

Bob Bruggeworth: Multi-year tailwinds continue to drive our business.

Bob Bruggeworth: They include the upgrade cycle to non-terrestrial networks, and from mechanical radar systems to active electronic scanning radar systems, as well as continuous drivers like on-shoring, the trend of one-to-many, and system-level functionality requiring advanced RF packaging.

Bob Bruggeworth: Design activity and DNA during the quarter was a quarterly record and diversified across markets including terrestrial, airborne, and ship-borne radars, comms, space, and electronic warfare.

Bob Bruggeworth: Design Wins included new and existing product categories, as well as new platforms and new customers.

Bob Bruggeworth: In SAPCOM, we continue to see strength in commercial communications.

Bob Bruggeworth: Quorvo has content in both the LEO satellites and the customer ground terminals with the leading satellite broadband network providers.

Bob Bruggeworth: We also have content on commercial and private jets and are helping to bring improved connectivity to air travel.

Bob Bruggeworth: During the quarter, we were awarded a key development contract for an electronic warfare application leveraging our Spatium solid-state PA products.

Bob Bruggeworth: Solid-state PAs have the advantages in size, weight, and power versus traveling wave tubes. They are also more reliable with a lower total cost of ownership.

Bob Bruggeworth: At Industrial and Enterprise, we continue to ramp power management solutions for enterprise SSDs to more broadly serve AI and data center applications and expand on our strong position and client SSDs for laptops.

Bob Bruggeworth: We also expanded our engagements to supply ultrawideband solutions into Wi-Fi 7 enterprise access points.

Bob Bruggeworth: With the inclusion of Corvo's Ultra Wideband technology, enterprise access points serve as anchors in enabling indoor navigation and other applications that leverage precision location awareness.

Bob Bruggeworth: For smart home metering, we are developing a proprietary sub-1 GHz FEM to support a leading smart energy ecosystem provider.

Bob Bruggeworth: In other low-power IoT applications, CATM and CAT1, interest in design activity continues to build in consumer, industrial, and enterprise markets.

Bob Bruggeworth: This multi-chip module delivers more than 30% size reduction versus hybrid solutions and features adjustable DC current to optimize DC power consumption versus RF output.

Bob Bruggeworth: We recently showcased our broadband portfolio at the SCTE Tech Expo in Atlanta, and we expect our newest solutions to build upon our leadership in DOCSIS 4.0.

Bob Bruggeworth: In the mobile market, we secured new wins at the leading Android smartphone OEM across this customer's smartphone portfolio. In their Spring 2025 flagship smartphone, we secured Wi-Fi content and multiple 5G

Bob Bruggeworth: front-end placements in the main and secondary transmort paths.

Bob Bruggeworth: At other Android customers, we secured additional design wins for our recently launched low, mid, and high band pad. Each LMH pad delivers a 40% savings in surface area versus prior architectures.

Bob Bruggeworth: This enables customers to leverage the space savings for other functionality, such as processing or memory.

Bob Bruggeworth: Shipments of our LMH packs are expected to grow sequentially this quarter and again in March.

Bob Bruggeworth: Across Android OEMs, the adoption of ultrawideband in smartphones represents a significant opportunity for Corvo.

Bob Bruggeworth: During September, we build upon the design we mentioned last quarter in the Moto X50 Ultra by securing additional ultra-wideband design wins in upcoming smartphones and tags.

Bob Bruggeworth: These winds are an early indication of the trend we expect of ultra-wide wind proliferating across high-volume smartphones and accessories.

Bob Bruggeworth: Furthermore, we expanded Wi-Fi 7 shipments across Android OEMs in support of MediaTek's Dimensity 9400 chipset.

Bob Bruggeworth: Corvo's Wi-Fi 7 FEMS are optimized with the Dimensity 9400 to deliver flagship Android smartphones superior performance.

Bob Bruggeworth: Looking further out, we are expanding our TMIC portfolio for the mobile market beyond RF to deliver new innovations that reduce current consumption and significantly extend battery life.

Bob Bruggeworth: We are a pioneer and leader in envelope tracking and average power tracking, RF power management for smartphones.

Bob Bruggeworth: And we have been awarded a contract by a top-tier Android OEM to develop our first DC-to-DC PMIC for mobile phones.

Bob Bruggeworth: Our proprietary power management solutions deliver superior efficiency and we are excited to bring our technology to flagship smartphones.

Bob Bruggeworth: At a high level, Corvo is investing in core strengths to drive growth with differentiated products and technologies in diverse markets. We are also executing on cost and productivity initiatives to reduce capital intensity and structurally enhance gross margins.

Bob Bruggeworth: In ACG, we're investing to grow at our largest customer.

Bob Bruggeworth: In HPA, we're investing to grow in defense and aerospace and power management. In CSG, our growth investments are focused on automotive, next-gen Wi-Fi, and matter and ultrawideband SFCs.

Bob Bruggeworth: Corvo solves our customers' most complex RF and power challenges related to efficiency, performance, and size, and we are confident in our ability to drive long-term growth and diversification. And with that, I'll turn the call over to Grant.

Grant Brown: Thanks, Bob, and good afternoon everyone. Revenue for the quarter was $1,047,000,000, representing an increase of 18% sequentially. Revenue exceeded the midpoint of our guidance range, driven by double-digit sequential growth in all three operating segments.

Grant Brown: Non-GAP gross margin of 47% matched the high end of our guidance range. Non-GAP operating expenses in the quarter were $280 million, which included approximately $7 million of spend associated with our digital transformation.

Grant Brown: Non-GAAP diluted EPS of $1.88 came in above the midpoint of our guidance range.

Grant Brown: On the balance sheet, as of quarter end, we had over $1 billion of cash and equivalents and approximately $1.5 billion of long-term debt. There is approximately $412 million of our 2024 notes that remain outstanding, which we currently expect to retire this December.

Grant Brown: We ended the quarter with a net inventory balance of $694 million, the lowest balance in three years, reflecting our ongoing inventory reduction efforts.

Grant Brown: This represents a decrease of $32 million sequentially and over $145 million on a year-over-year basis.

Grant Brown: Turning to the cash flow statement, we generated operating cash flow of $128 million and capital expenditures of $33 million, resulting in free cash flow of $95 million.

Grant Brown: As a reminder, our CapEx spend will vary quarter to quarter and reflects the timing of cash disbursements.

Grant Brown: Consequently, CapEx as a percentage of sales in any given quarter may be above or below our target of approximately 5% of sales.

Grant Brown: We repurchased approximately $81 million of stock at an average price of $110 per share in the quarter.

Grant Brown: The rate and pace of our share repurchases considers several key factors, including our long-term financial outlook, free cash flow, debt maturities, alternative uses of cash, and other relevant strategic considerations.

Grant Brown: This approach ensures that our capital allocation strategy balances future growth with the return of capital and aligns with our underlying goal of delivering long-term shareholder value.

Grant Brown: Turning to our current quarter outlook, we expect revenue of approximately $900 million, plus or minus $25 million.

Grant Brown: non-GAAP gross margin of approximately 45% and non-GAAP diluted EPS between $1.10 and $1.30.

Grant Brown: In our updated outlook, we anticipate fiscal 2025 revenue to be slightly down compared to fiscal 2024, primarily due to two factors affecting our smartphone business.

Grant Brown: In the near term, while the flagship and premium tier are holding up well, content and ramp profiles vary by model, and we are experiencing an unfavorable mix.

Grant Brown: Additionally, in the mass market segment of Android smartphones, the mix has shifted to entry-tier 5G devices at the expense of mid-tier 5G. These factors are expected to impact our revenue and margins in the second half of fiscal 2025 and into early fiscal 2026.

Grant Brown: In our current view, we do not expect the shift in Android mass market from mid-tier 5G to entry-tier 5G smartphones to reverse.

Grant Brown: As a result, we are taking appropriate actions, including reductions in manufacturing and operating expenses, as we focus on opportunities that align with our long-term profitability objectives.

Grant Brown: We project non-GAAP operating expenses in the December quarter will be approximately $265 million with variability related to the timing of program development spend, operating expense reductions, and other factors.

Grant Brown: According to our current schedule, spend associated with our digital transformation is expected to be approximately $15 million this quarter. We continue to expect approximately $40 million of related expense in fiscal 25.

Grant Brown: with quarterly variability related to the achievement of progress-based milestones and variability in the rate, pace, and scope of the project.

Grant Brown: Below the operating income line, non-operating expense is expected to be between $8 and $10 million, reflecting interest paid on our fixed rate debt offset by interest income earned on our cash balances, FX gains or losses, along with other items.

Grant Brown: We currently earn a higher rate of interest on our cash deposits than we pay on our 1.75% 2024 notes.

Grant Brown: Should we retire our 2024 notes in mid-December as expected, non-operating expense will increase in the March quarter by $3 to $4 million over the current run rate due to this interest rate differential.

Grant Brown: Our non-GAAP tax rate for fiscal year 2025 is expected to be within a range of 10 to 12 percent. We project this will increase over time, primarily due to changes in tax legislation.

Speaker Change: With regards to operations, the Corvo team continues to execute extremely well.

Speaker Change: On previous calls, we have highlighted multiple initiatives to drive continuous improvement in product development, semiconductor device design, process engineering, factory planning, and manufacturing efficiency.

Speaker Change: The transition to 8-inch BAW is a noteworthy example that unlocked effective capacity within the same factory footprint.

Speaker Change: Furthermore, we have reduced capital intensity through the divestment or consolidation of multiple production facilities, including our Beijing and Dejaux Test and Assembly locations, and our FABs in Farmers Branch, Texas, and Apopka, Florida.

Speaker Change: To further optimize our internal factory footprint, we are transferring all gallium arsenide, or gas production, from our North Carolina fab to our Oregon fab.

Speaker Change: Currently, our North Carolina fab is a dual-use facility that manufactures wafers for both gas amplifiers and saw filters. As we transfer gas production to Oregon, we are working closely with customers to manage end-of-life gas products built in North Carolina.

Speaker Change: Our North Carolina fab will continue to manufacture soft filter wafers, including our latest LRT saw technology. The transfer of our gas production to Oregon will make room for anticipated soft filter growth in North Carolina.

Speaker Change: is a further example of the proactive steps we are taking and continue to evaluate in order to streamline operations and improve gross margin.

Speaker Change: During the quarter we made the decision to evaluate strategic alternatives for our silicon carbide business.

Speaker Change: Our highly experienced team has made considerable strides in advancing the JFET silicon carbide technology.

Speaker Change: We believe an owner who is strategically focused on this business and can leverage pre-existing sales and support overhead will be able to create more value with the asset.

Speaker Change: For Corvo, exiting the silicon carbide market will allow us to reduce operating expenses and avoid the capital expenditures necessary to remain engaged. The business remains and will continue to remain included in our financial non-GAAP guidance until a definitive course of action has been determined.

Speaker Change: As we communicated at our Investor Day in June, Corvo has multiple drivers of growth, diversification, and profitability.

Speaker Change: In terms of growth, we expect HPA and CSG to grow in the mid-teens this fiscal year. Beyond this fiscal year, we expect HPA and CSG will continue to benefit from the intersection of multi-year secular growth opportunities with our technology capabilities and product portfolios.

Speaker Change: By segment, our growth targets are strong double-digit growth for CSG, double-digit growth for HPA, and mid- to high-single-digit growth for ACG.

Speaker Change: In terms of diversification, our long-term objective is to generate 50% or more of total revenue from HPA plus CSG. In the September quarter, HPA plus CSG represented approximately 28% of total revenue.

Speaker Change: This was up sequentially and up from 23% in the same quarter last year.

Speaker Change: In terms of profitability, we continue to execute on the structural actions referenced earlier to improve gross margin in Fiscal 26 and beyond.

Speaker Change: However, the shift from the mid-tier to the entry-tier models, where price sensitivity is higher given competition from discrete solutions, is reducing the total addressable market and our revenue opportunity as we maintain price discipline in that subsegment.

Speaker Change: Although the underlying market for mass market 5G and Android is trending toward the more competitive entry tier, it is worth noting that flagship and premium tier smartphones represent the largest portion of our SAN.

Speaker Change: For Corvo we expect

Speaker Change: This will pressure revenue, factory volumes, and utilization into next fiscal year. Partially offsetting this, we expect to see margin accretive drivers such as strength and highly customized placements for flagship smartphones, as well as DNA and other highly differentiated product areas that enhance our business mix.

Speaker Change: Lastly, we are executing well on structural adjustments to our manufacturing operations and taking actions to reduce operating expenses.

Speaker Change: In summary, we serve an expanding set of customers and in markets with highly differentiated solutions.

Speaker Change: We're actively deploying capital to drive growth, diversification, and increasing profitability as we are confident in our ability to deliver on the goals we laid out during our Investor Day. At this time, please open the line for questions.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. Please limit yourself to one question and one follow-up.

Speaker Change: And if you have further questions, you may re-enter the question queue. And to withdraw your question, please press star, then two. And at this time, we'll pause momentarily to assemble our roster.

Speaker Change: And the first question will come from Tom O'Malley with Barclays. Please go ahead.

Tom O'malley: Hey, guys. Good afternoon. Thanks, Bob and Grant, for getting me on the call here.

Tom O'malley: I just wanted to dig into the commentary in the press release on the content and rant profiles varying by model. You have some comments on Android later, so obviously maybe more associated with the large North American customer. Can you just...

Speaker Change: Douglas Bruggeworth, Grant Brown, Douglas DeLieto

Speaker Change: It seems like you're trending down year over year pretty substantially. So just maybe help me walk through what's actually going on there.

Grant Brown: Sure. Thanks, Tom. This is Grant. Let me take that one.

Grant Brown: If we look at the year on the whole, as I said in our formal remarks.

Grant Brown: We expect fiscal 25 to be down slightly compared to fiscal 24, call it maybe a few percentage points or so.

Grant Brown: very low single digits. And that reflects the shift in Android 5G that we mentioned in the mass market area.

Grant Brown: and the transition to some of the entry tier levels.

Grant Brown: Outside of that mass market, the flagship and premium tiers, as I said, are holding up well, and there are some unfavorable trends there, you know, in some of the variables, like unit volumes, content by model, RAM profiles, and other variables. And that's, you know, really at any customer. We're not being specific, but it's across all of our customers in that tier.

Grant Brown: At least at our largest Android customer, our revenue in their highest volume fall models is less than it was last year and less than the design wins we're actually looking at in the spring launch. So feel comfortable and confident there about that particular handset.

Grant Brown: You know, at our largest customer, there's little that we can say. However, you know, we do expect a low single-digit decline in revenue there for that confluence of variables that I mentioned earlier. But as we look into next year, we continue to be enthusiastic about the breadth of our opportunities at our largest customer, and we're engaged on more programs today than ever in investing to increase our content. So, you know, we're competing for products that we've supplied before and some placements that are new for us.

Speaker Change: Appreciate the color there. And then the second is just on the gross margin profile. So, if you look at your December guidance, you just gave some op-ecs in the commentary, so it implies kind of 44% change on the gross margin side. You're talking about...

Speaker Change: you know some manufacturing changes as well to help optimize the business given the lower volumes that you're seeing.

Speaker Change: Douglas Bruggeworth, Grant Brown, Douglas DeLieto

Speaker Change: gross margin level is the right way to think about things, or does it get worse given the manufacturing decisions?

Speaker Change: In terms of our long-term view, no change to our guidance at the investor day around 50% plus long-term gross margins. So no change there. You know, on gross margin in the December and March quarters and into early 2026, fiscal 26.

Speaker Change: We do expect to see the headwind associated with that mixed shift in the entry tier for those Android devices.

Speaker Change: It'll cause the utilization gross margin to come down a bit versus our prior comments. But we still expect fiscal Q1 to mark the low point in fiscal 25, and we will report a full year.

Speaker Change: for fiscal 25 with margins in the mid-40s, as you pointed out. You know, somewhat comparable to last fiscal year, plus or minus. But I did maybe just quickly note that, you know, in the December quarter, year-over-year, our gross margin will be up on lower revenue. So it really substantiates the hard work we're doing to pull costs out.

Speaker Change: Thank you.

Speaker Change: Sure.

Speaker Change: No comments on customer specifics, but, you know, generally speaking, as we said, we expected the premium and flagship tiers to be holding up well, you know, the Android dynamic is having an impact on us as we intentionally.

Speaker Change: pivot away from the entry-tier areas that are more margin compressed.

Speaker Change: and focus ourselves on the higher tiers and the areas of the mid-tiers where we see the most value for us and our customers. So you know, at least in terms of overall volumes, you know, I wouldn't read it directional to any one particular customer.

Speaker Change: This is Bob. I'll add to that that CSG is also going to be down quarter over quarter. There's a few reasons for that. We can go into that later. I think that's also important to keep in mind. And historically, if you look at the last three years, we have been down in December just because of the profile of our largest customer.

Speaker Change: Got it. And then in terms of the mix inside of Android, I mean does that change your longer-term growth targets for mobile moving forward relative to what you provided in your analyst day?

Bob Bruggeworth: As far as ACG goes, we're still sticking with our strong single-digit growth rate there. Brann had in his prepared remarks, so we don't see that affecting us long-term by any means. In fact, we gain confidence every day, it seems, that we are going to be able to grow that business.

Speaker Change: The next question will come from Christopher Rowland with Susquehanna. Please go ahead.

Speaker Change: Are you there, Chris?

Christopher Rowland: Hi, sorry about that.

Christopher Rowland: So, I know it might be a bit early to talk about March, but seasonality, you guys have traditionally been down, I think, 10 or 11%, something like that.

Christopher Rowland: So, as we look out, how might this outlook compare to traditional seasonality as you view it today?

Speaker Change: Sure, thanks for the question, Chris.

Speaker Change: The big seasonal drivers, as you point out, are pretty well known, but usually the impact of the seasonality can vary year to year, so we don't provide formal guidance out that far in advance, but for modeling purposes, you know, you could assume that we'd be down in the five to ten percent range sequentially, which would fit in with our total company commentary around being down very modestly for the for the full fiscal year.

Speaker Change: Directionally, you know, we would expect ACG to be down more than that just given the seasonal dynamics there, but we should expect both HPA and CSG to be growing in the March quarter. In fact, HPA substantially so. We have, as Bob pointed out, some record design activity there, and in fact we actually had record billings activity as well. So, feeling comfortable about our HPA business heading into the end of the fiscal year.

Speaker Change: Thank you for squaring that circle for me and then if I heard it correctly with your footprint change.

Speaker Change: I believe I heard that you were anticipating growth in SAW. I was wondering if you could flesh that out a little bit. And then how do we think about the dynamics for you guys, SAW versus BAW opportunities moving forward? Thanks.

Bob Bruggeworth: This is Bob, Grant. I'll go ahead and take that. From a SAW perspective, as we talked about a couple quarters ago, that we released our next generation SAW, and there are certain bands

Bob Bruggeworth: that are in the mid-band spectrum, if you will, where SAW performs.

Bob Bruggeworth: quite well. That's our LRT saw, that is, not a standard saw or temp comp saw. So we see plenty of opportunities in that, whether it's in the transmit path or the dual on the TXDSM as an example on the secondary transmit. And for some opportunities, as

Bob Bruggeworth: We're seeing more and more people want Power Class 2 in some of the lower frequencies. It's another good technology there.

Speaker Change: Douglas Bruggeworth, Grant Brown, Douglas DeLieto

Speaker Change: Okay, so this sounds like it's primarily for Android. Is that right, Bob?

Bob Bruggeworth: It's available to any of our customers. Like I said, it's frequency dependent.

Speaker Change: Excellent. Thank you, Bob.

Speaker Change: The next question will come from Edward Snyder with Charter Equity Research. Please go ahead.

Speaker Change: When you got it, you thought you'd grow your content.

Speaker Change: and something else going on. Maybe get up with.

Speaker Change: Douglas Bruggeworth, CFP®, Financial Planner & Investment Advisor

Speaker Change: Thanks for the question, Ed. I think the comment was a couple quarters ago when we said we expected to grow slightly for the year. What's actually happened is primarily the Android is what's off from our expectations.

Speaker Change: That's what's off.

Speaker Change: Grant commented already a little bit about

Speaker Change: our largest Android customer.

Speaker Change: for their spring launch.

Speaker Change: We did not do as well as what we had expected in the prior years, but we already know we're going to regain that back next year.

Speaker Change: So feel good about that, but that definitely was a share loss that we weren't planning on, but also that whole dynamic that we've talked about the mid-tier moving down and, you know, the pricing discipline that we're putting in intentionally saying we're not going to chase this bad business. So that's been the shift over the last six months or so, and it's really been accelerated over the last probably four months.

Speaker Change: And just to clarify, Bob, in our largest Android customer is the second half models where our content is lower. We expect to gain that back in the first half of next year.

Speaker Change: All right, okay.

Speaker Change: So if we sit back, Bob, I'll direct this to you strategically. You were there during the YMN CDMA days in the early 2000s, where it was kind of a zero-sum game because there just wasn't much content being added to phones. That all changed with 4G. And as we kind of expected when you first looked at 5G,

Speaker Change: you know, turning to that model here where it's mostly a share shift. You're already seeing it, just as you guys announced today, and we've seen it for some time, that the Chinese are moving.

Speaker Change: in that direction where they're taking value out of a lot of their phones. Samsung has clearly cut content in their flagships versus what they used to do two or three years ago. And now it sounds like competition in your largest customer has heated up.

Speaker Change: There's another area you can start engaging in or maybe pour more OPEX and R&D in to try to make up for kind of just I would say kind of a flagging.

Speaker Change: Handset business, which it looks like it's going to be...

Speaker Change: and I'll continue for some...

Speaker Change: ancillary effect due in terms of the content is going to go up and the size is going to go down. Is that something that we can look forward to driving more of your own business?

Speaker Change: Ed, thanks for the question. A lot to unpack there, but let me start at the highest level. As far as more competitors or largest customer, I guess that's thanks to us. As Grant said in his prepared remarks, we're now working on sockets that we had not worked on before that are now, we believe, available for us to win. So we're not seeing any new competitors there. I think it's the same people. I think, as you've commented, we've shifted R&D dollars already ahead of, again, what we thought was going to be there, ramped on in some of our Android business.

Speaker Change: As far as the flagship phones, you know, we still believe we bring the technologies that's needed to be able to...

Speaker Change: make a good margin there, which is why we said we'd stay focused on flagship and premium.

Speaker Change: And yes, maybe from an RF content, there may not be more being added in some, but there's still other areas that are being added in the RF section. We've talked about terrestrial, but I think people are losing sight of, we still need more and better RF. I commented about Power Class II. That can't be done with a traditional soft filter, and we're seeing more and more Power Class II. You've heard us talk about that over the years.

Speaker Change: So, we still think there's a place for us to play with our technology so we can win.

Speaker Change: Now, your comment about...

Speaker Change: being able to invest in other areas. Yes, we have shifted dollars. I'll remind the group that we've shifted dollars in the DNA as well as in the power management and HPA. We exited the infrastructure market where we were focused on our GAN for the PAs. As you know, that market's gone to roughly 4 1⁄2 customers that were available to us to 2 1⁄2.

Speaker Change: That being Ericsson, Nokia, and a little bit of Samsung. So we've already shifted those R&D dollars. And, you know, we talked about our DNA business growing. And quite honestly.

Speaker Change: For the group to hear, our DNA business is now bigger than our China Android-based cellular business.

Speaker Change: So, we're doing some of the things you've mentioned and, you know, why I've got to stand right now. You know, in CSG, we're looking for that, along with HPA, to both grow double digits.

Speaker Change: You know, this year in CSG, as you know, we've been investing in ultra-wideband.

Speaker Change: feel good about how we're shifting the dollars.

Speaker Change: But as you know, growth first comes from our largest customer, then it'll come from our DNA and power business, and then lastly in our CST business. So thanks for the question, Ed.

Speaker Change: Thank you

Speaker Change: The next question will come from Nicholas Doyle with Needham. Please go ahead.

Nicholas Doyle: Hey guys, thanks for taking my question. Just, I guess, a clarification on the entry segment of Android. Are you guys, you know, walking away entirely, or... I mean, I'm thinking if Android's mixing down, you guys have talked about the LMHPAD game, so just wondering when that can start to offset.

Nicholas Doyle: And also, how long will the mixed shift to entry phones be an overhang? Does it go away, does the, you know, the overhang go away entirely or do you expect some stabilization at some point in calendar 25?

Grant Brown: Thanks, Nick. This is Grant. Let me take the second part of your question, then I'll pass it over to Dave.

Grant Brown: at least in terms of the TAM, which I think you were hinting at, I believe it'll be more like a reset and then we'll grow from there. And as we communicated at investor day in that single digit range, but call it a reset of maybe a billion dollars approximately in the TAM. And we're seeing that in our fiscal Q3, Q4, and probably in the Q1 of fiscal 26. And then from there, I think we'll have readjusted rather intentionally via our pricing discipline, our position in the markets and some of the mid tier.

Grant Brown: and, as you pointed out, the LMH, which I'm sure Dave can talk more about. But it's very much an intentional move in order to prioritize profitability and focus on the customers where we're adding value and they recognize and are willing to pay for those integrated modules to differentiate their phones.

Speaker Change: Yeah, so as far as that shift, as Grant mentioned, you know, it's

Speaker Change: largely driven by the macro weakness and especially in China but other markets as well where the consumer behavior has shifted.

Speaker Change: And so we're responding to that and, you know.

Speaker Change: edited.

Speaker Change: Relates to the low-mid-high, we mentioned last quarter that we're just starting to ramp that we now have

Speaker Change: design wins and POs with the top four OEMs in China.

Speaker Change: But our expectations now for that product family is that we will not participate in that, especially in that entry tier, as Grant mentioned, with our pricing discipline. It's not a market that we plan to participate in.

Speaker Change: So, we're going through a bit of a pocket, that pocket may be a little bit bigger as we transition from the old architecture to the new low-mid-high architecture, but also as we come out of the other side of it, our expectations now for that family of products is certainly lower than when it was.

Speaker Change: due to the TAM reduction that Grant mentioned.

Speaker Change: Thanks. And my second question is on the OPEX. Could you just expand a little bit on the reductions? I know you mentioned a couple things in the prepared remarks.

Speaker Change: down $15 million or so next quarter, and does that continue trending lower? Thanks.

Speaker Change: Sure. On OpEx, our guide incorporates the reductions that reflect that change in the Android business. You know, resource allocation, as Bob was pointing out earlier, is an ongoing process, right? It allows us to focus on...

Speaker Change: and shift dollars to the best investment areas that we have. And I think that will continue as we look forward in time and continue to develop the plans and target areas for our OPEX dollars going forward. I won't guide OPEX any further than the current quarter, but it is definitely an area that we're going to use to realign ourselves with the highest and best use of our resources.

Speaker Change: Thank you.

Speaker Change: The next question will come from Chris Sankar with TD Cowen. Please go ahead.

Chris Sankar: Thanks for taking my question. I actually have two short-term and a long-term questions. First one, Bob, on the short-term, over the next two quarters, I'm going to look at your guidance relative to consensus.

Speaker Change: Douglas Bruggeworth, Grant Brown, Douglas DeLieto

Speaker Change: Sure.

Grant Brown: This is Grant. Let me take that one.

Grant Brown: Douglas Bruggeworth, Grant Brown, Douglas DeLieto

Grant Brown: Achievability of our 50% gross margin target. Just by means of reference, you know, if we do look at some of that business that we're talking about in the Android space,

Grant Brown: Right now, China-based Android is under $100 million and expected to trend lower over the course of fiscal 26. So our exposure to that has grown smaller. If you look at our China-based Android revenue down over 75% from the peak, and

Grant Brown: Android revenue in general is down 50% from the peak. So, you know, significant reduction in exposure there already. And as we move forward, we'll be adding in or looking to add in more margin accretive revenue going forward.

Speaker Change: Thanks for that, Grant. I think you kind of answered my next question, which is long-term, which is kind of like about a 50% gross margin, because it looks like some of the headwinds are facing it. There's some cyclical content-related stuff. There's also some structural changes. So with the time reduction, et cetera, is it fair to assume that there's a lot of

Speaker Change: restructuring plus focus on profitable opportunities is kind of what gets you the 50% or do you think there are other levels that you could pull?

Speaker Change: It's a fair mix of both. I'd say it's the business mix exposure to HPA and then improving profitability in CSG, as well as a focus on profitability within the Android ecosystem especially.

Speaker Change: as we target some of the premium flagship and the upper end of the mid-tier where highly integrated devices and our gross margin is better.

Speaker Change: Thank you very much.

Speaker Change: Thank you.

Speaker Change: The next question will come from Peter Pang with J.P. Morgan. Please go ahead.

Peter Pang: Good afternoon and thank you for taking my question.

Peter Pang: If I look at where consensus expectations versus the guidance for the ACG segment, it seems like it's about $400 million or shortfall. Maybe if you can just bucket into the bucket that you described, how much of that is just a shift to the lower tier? How much of that is just different content and rental costs?

Speaker Change: Thanks for the question, Peter.

Speaker Change: It's hard for us to bucket anything against analyst consensus because, you know, we don't model analyst consensus, so I don't have a good baseline to compare it to.

Speaker Change: As we look at it, a healthy portion of it is simply related to the models, mixes, and associated volumes there as they impact Corvo specifically. A large portion of it is related to our pricing discipline, and as we look into the second half,

Speaker Change: the trend toward the entry-tier Android 5G, which has a, as I mentioned, a billion-dollar impact on TAM and we have a meaningful market share there, call it in the 20 to 30 plus percent market share. So it has a very meaningful impact on Corvo specifically.

Speaker Change: Got it, okay. And then a follow-up is on...

Speaker Change: At your largest customer, does your content vary across the different SKUs or do you have a certain over-indexed exposure to certain SKUs?

Bob Bruggeworth: This is Bob. I'll go ahead and take that one. It's obviously public if you've done teardowns.

Bob: We have various content, depending on the models and the SKUs and where they go. And that's continued through the years. So mixing models within the current year, the prior year, the year before that, that all gets into the mix and models that Grant was talking about. So, yes, our content varies. It's not the same in every phone they make.

Speaker Change: Thank you.

Speaker Change: The next question will come from Carl Akerman with BNP Paribas. Please go ahead.

Carl Akerman: Yes, thank you gentlemen. I have a clarification question and a follow-on I'll just ask at the same time if I may.

Carl Akerman: What is the right way to think about the mix you have of mid-tier Android of that $100 million per quarter you're running at today?

Carl Akerman: And the reason why I ask is, I guess, how much of the change in your outlook on China Android is driven by competitive dynamics from Chinese RFID vendors versus market demand dynamics shifting to different smartphone OEMs that you may not have exposure with today?

Speaker Change: Thank you.

Speaker Change: Yeah, this is Dave. Historically, you know, we've been more concentrated in the high tiers and down into the mid-tier, and with the shift into the entry tier, that's obviously a headwind for us. So...

Speaker Change: What was the second part of your question? One of the questions I think he was asking is, you know, is a competitor where we don't play, maybe he's hitting it a long way. I mean, that's playing out as we expected.

Speaker Change: Yeah, I mean Huawei is definitely playing out as expected. I mean they're on track for what we had projected, you know, earlier in the year to do about 45 million units. So I don't think that's meaningfully different than what we thought. The big change is with this

Speaker Change: shipped into the entry tier.

Speaker Change: And the competitive dynamics there, as you go down in the tier, the discrete solutions become more prevalent. And the pricing environment, as Grant mentioned, is tougher there, so we don't tend to compete there. The other dynamic is our customers tend to outsource.

Speaker Change: the lower end phones to the OEM channel, which we don't traditionally participate in. Historically, that's been mostly 4G. We're seeing more and more of that is 5G entry-tier phones as well. And so, you know, as they outsource those phones, that directly comes out of our available market.

Speaker Change: Got it. Thank you.

Speaker Change: This concludes our question-and-answer session.

Speaker Change: I would like to turn the conference back over to management for any closing remarks. Please go ahead.

Speaker Change: We want to thank everyone for joining us on tonight's call. We appreciate your interest and we look forward to speaking with many of you at upcoming investor events. Thanks again and have a great evening.

Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: [music]

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Speaker Change: Good day and welcome to the Corvo, Inc., second quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero.

Speaker Change: After today's presentation, there will be an opportunity to ask questions.

Speaker Change: Please note this event is being recorded. I would now like to turn the conference over to Mr. Douglas DeLieto, Vice President of Investor Relations. Please go ahead, sir. Thanks very much. Hello, everyone, and welcome to Corbo's fiscal 2025 second quarter earnings call.

Speaker Change: 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.

Speaker Change: We encourage you to review the Safe Harbor Statement contained in our 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.

Speaker Change: In today's release and on today's call, we provide both GAAP and non-GAAP financial results.

Speaker Change: 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.

Speaker Change: During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results.

Speaker Change: For complete reconciliation of gap to non-gap financial measures, please refer to our earnings release issued earlier today, available on our Investor Relations website at ir.forvo.com under Financial Releases.

Bob Bruggeworth: Corvo's six end markets are automotive, consumer, defense and aerospace, industrial and enterprise, infrastructure, and mobile.

Bob Bruggeworth: Our markets are underpinned by global megatrends such as electrification, connectivity, mobility, sustainability, datafication, and AI.

Bob Bruggeworth: These trends make possible new functionality and new user experiences that are made available to end users by the customers we serve and the products we enable.

Bob Bruggeworth: Consistent with our comments at our Investor Day, in HPA, we continue to expand our defense and aerospace business during the quarter while building a broad-based business in power management.

Bob Bruggeworth: For the full fiscal year, we expect HPA will grow in the mid-teens.

Bob Bruggeworth: In the markets served by CSG, we maintained our Wi-Fi leadership during the quarter while investing in diverse growth businesses, including an expanding portfolio of automotive solutions and SOCs for ultra-wideband and matter. We expect CSG will also grow in the mid-teens this fiscal year.

Bob Bruggeworth: In the mobile market, ACG supported a seasonal rent during the quarter at our largest customer.

Bob Bruggeworth: Within the Android ecosystem, Corvo is a leading supplier to the flagship, premium, and mid-tier 5G smartphones.

Bob Bruggeworth: While the flagship and premium tiers are holding up well, the mix in the mid and entry tiers has shifted towards entry-tier 5G at the expense of mid-tier 5G.

Bob Bruggeworth: In our current view, we don't expect this next shift in Android 5G from the mid-tier to the entry tier will reverse.

Bob Bruggeworth: While challenging in the near term, this dynamic reinforces ACG's primary strategy of investing to grow our business at our largest customer.

Bob Bruggeworth: ACG's product roadmap is focused primarily on 5G advanced products for our largest customer and the flagship and premium tiers of our Android customers.

Bob Bruggeworth: Turning to quarterly highlights. In the automotive market, we secured a Vita-X design win with a U.S.-based automotive tier 1 in support of an automotive OEM based in Germany.

Bob Bruggeworth: Production volumes for this first wind are expected to shift in the current quarter.

Bob Bruggeworth: For an EV OEM based in North America, Corvo was selected to supply force sensing touch sensors for a 2026 model launch.

Bob Bruggeworth: In consumer markets, we increased shipments of force-sensing touch sensors in support of high-end audio headphones and expanded our touch sensor engagements in laptop trackpads.

Bob Bruggeworth: We also continue to ramp our first-generation battery management system for outdoor power tools and other applications.

Bob Bruggeworth: We will sample our second generation solution later this fiscal year and target applications including power tools and e-mobility applications including scooters and e-bikes.

Bob Bruggeworth: In Wi-Fi, we offer a full portfolio of FEMs, iFEMs, and filters.

Bob Bruggeworth: Our Wi-Fi 6 shipments to consumer markets continue to grow in applications including soundbars.

Bob Bruggeworth: Shipments of Wi-Fi 7 also grew.

Bob Bruggeworth: By leveraging Concurrent Connect technology, our SoC enables BLE, MATTER, and ZigBee to operate simultaneously.

Bob Bruggeworth: This ensures backward and forward compatibility given Zigbee's large install base and the growing adoption of Matter over Thread, including within smart home and smart phone ecosystems.

Bob Bruggeworth: Matter-over-thread is a low-latency, point-to-point, and mesh technology that significantly upgrades the user experience versus legacy systems.

Bob Bruggeworth: in Defense and Aerospace Markets.

Speaker Change: Multi-year tailwinds continue to drive our business. They include the upgrade cycle to non-terrestrial networks and from mechanical radar systems to active electronic scanning radar systems, as well as continuous drivers like on-shoring, the trend of one-to-many, and system-level functionality requiring advanced RF packaging.

Speaker Change: Design activity in DNA during the quarter was a quarterly record and diversified across markets including terrestrial, airborne, and ship-borne radars, comms, space, and electronic warfare.

Speaker Change: Design wins included new and existing product categories, as well as new platforms and new customers.

Speaker Change: In SATCOM, we continue to see strength in commercial communications.

Speaker Change: Quorvo has content in both the LEO satellites and the customer ground terminals with the leading satellite broadband network providers. We also have content on commercial and private jets and are helping to bring improved connectivity to air travel.

Speaker Change: During the quarter, we were awarded a key development contract for an electronic warfare application leveraging our Spatium solid-state PA products.

Speaker Change: Solid-state PAs have the advantages in size, weight, and power versus traveling wave tubes. They are also more reliable with a lower total cost of ownership.

Speaker Change: At Industrial and Enterprise, we continue to ramp power management solutions for enterprise SSDs to more broadly serve AI and data center applications and expand on our strong position and client SSDs for laptops.

Speaker Change: We also expanded our engagements to supply ultrawideband solutions into Wi-Fi 7 enterprise access points.

Speaker Change: With the inclusion of Corvo's Ultra Wideband technology, enterprise access points serve as anchors in enabling indoor navigation and other applications that leverage precision location awareness.

Speaker Change: For smart home metering, we are developing a proprietary sub-1 gigahertz FEM to support a leading smart energy ecosystem provider.

Speaker Change: In other low-power IoT applications, CATM and CAT1, interest in design activity continues to build in consumer, industrial, and enterprise markets.

Speaker Change: For infrastructure markets, we introduced the industry's first 24-volt power doubler for DOCSIS 4.0 broadband and cable TV applications.

Speaker Change: This multi-chip module delivers more than 30% size reduction versus hybrid solutions and features adjustable DC current to optimize DC power consumption versus RF output.

Speaker Change: We recently showcased our broadband portfolio at the SCTE Tech Expo in Atlanta, and we expect our newest solutions to build upon our leadership in DOCSIS 4.0.

Speaker Change: In the mobile market, we secured new wins at the leading Android smartphone OEM across this customer's smartphone portfolio. In their Spring 2025 flagship smartphone, we secured Wi-Fi content and multiple 5G.

Speaker Change: front-end placements in the main and

Speaker Change: At other Android customers, we secured additional design wins for our recently launched low, mid, and high band pad. Each LMH pad delivers a 40% savings in surface area versus prior architectures.

Speaker Change: This enables customers to leverage the space savings for other functionality, such as processing or memory.

Speaker Change: Shipments of our LMH pads are expected to grow sequentially this quarter and again in March.

Speaker Change: Across Android OEMs, the adoption of ultrawideband in smartphones represents a significant opportunity for Corva.

Speaker Change: During September, we build upon the design we mentioned last quarter in the Moto X50 Ultra by securing additional ultra-wideband design wins in upcoming smartphones and tags.

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