Q3 2025 Qorvo Inc Earnings Call
Speaker Change: Good day, and welcome to the Corvo Third 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: To ask a question, you may press star then 1 on your touchtone phone. And to withdraw your question, please press star then 2.
Speaker Change: We ask that you please limit yourself to one question and one follow-up, and if you have further questions, you may re-enter the question queue.
Speaker Change: Please note this event is being recorded. I would now like to turn the conference over to Mr. Douglas DeLieto, Vice President and Investor Relations. Please go ahead, sir.
Thanks very much. Hello, everyone, and welcome to Corbett's Fiscal.
Speaker Change: 2025 third quarter earnings call. This call will include forward-looking statements that involve risk factors that could cause our actual results to be to differ materially from management's current expectations.
Speaker Change: We encourage you 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.
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 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. Corvo serves six primary end markets. They are automotive, consumer, defense and aerospace, industrial and enterprise, infrastructure, and mobile.
Speaker Change: Each is underpinned by global megatrends including electrification, connectivity, mobility, sustainability, datafication, and AI.
Speaker Change: These trends are driving new functionality and new user experiences that are made possible by the customers we serve and the products our technologies enable.
Speaker Change: Looking at our business by operating segment, in HPA, we continue to grow our defense and aerospace business while expanding our business in power management.
Speaker Change: including an expanding portfolio of automotive solutions and SOCs for ultra-wideband, BLE, thread, and matter.
Speaker Change: In ACG, we are focused primarily on delivering 5G advanced products for our largest customer and for the flagship and premium tiers of Android.
Speaker Change: Our largest growth opportunity in ACG is with our largest customer, and we are investing today to continue increasing our share with them in subsequent programs over multiple years.
Speaker Change: As we said on last quarter's call, the opportunity in mass-tier Android 5G declined at a faster rate than anticipated during our investor day. Android build plans changed to reflect higher consumer demand for entry-tier 5G devices.
Speaker Change: In response, during the December quarter, we implemented changes across the organization in how we support Android 5G. This included a reduction in force in ACG and other company functions.
Speaker Change: We narrowed our focus to the premium and flagship tiers to increase profitability and reduce variability.
Our 5G product.
Speaker Change: Development Spend is now focused solely on premium and flagship tiers.
Speaker Change: While we continue to serve master programs previously awarded, we expect these lower margin programs to go end of life in fiscal 26 and into fiscal 27.
Speaker Change: Besides the impact for fiscal 25, total Android 5G revenue in ACG is expected to be approximately $875 million.
Speaker Change: Of this, we expect Android 5G to decline gradually by approximately $150 to $200 million annually in fiscal 26 and again in fiscal 27.
Speaker Change: The majority of the decline will be China-based, with the balance being mid-tier at Samsung.
Speaker Change: In fiscal 26, we expect a single-digit decline in ACG revenue and growth of approximately 10 to 12 percent in CSG and HPA, x the Silicon Card by business.
Speaker Change: In HPA and CSG, our long-term revenue targets haven't changed, and we expect double-digit growth in fiscal 25 and double-digit growth again next fiscal year in HPA and CSG.
Speaker Change: We believe the actions we are taking will have a positive impact on our gross margin.
Speaker Change: For reference, gross margin in the December quarter included a headwind of approximately 300 basis points attributed to the divested silicon carbide business and the mass tier Android 5G revenue we are in the process of exiting.
Speaker Change: As we look into fiscal 26, we expect gross margin to expand by approximately 150 basis points on roughly flat revenue. In a moment, Grant will expand on the actions we're taking to improve gross margin and reduce OPEX.
Now let's look at our performance and opportunities by market.
Grant Brown: These include upgrades to non-terrestrial networks and the transition from mechanical radar systems to active electronic scanning radar systems.
Tailwinds also include on-shoring, the
Grant Brown: The design wins in December were diversified across radar, comms, space, and electronic warfare. In electronic warfare, Corvo offers an industry-leading wideband solid-state PA technology.
Grant Brown: Corvo is unique in that we can service the opportunity onshore, in the U.S., from a limit up to a full system solution through our advanced manufacturing facility in Texas.
Grant Brown: December was a record revenue quarter for our DNA business and we expect continued strength to support full year, year-over-year growth this fiscal year and next fiscal year.
Grant Brown: In industrial and enterprise, revenue was up sequentially. During the quarter, we achieved critical performance milestones related to ultra-wideband and Wi-Fi enterprise access points.
Grant Brown: We're engaged with two leading Tier 1 equipment manufacturers with ultra-wideband and Wi-Fi 7 content at both, and we expect commercial production to begin this calendar year.
Grant Brown: We see this as a significant milestone in ultrawideband adoption, creating the essential infrastructure for new ultrawideband-driven services enabled by indoor navigation, asset management, and real-time location services.
Grant Brown: We increased shipments of high-frequency BOSS filters in support of enterprise Wi-Fi deployments across geographies, and we expanded power management engagements with new and existing customers in enterprise SSDs.
Grant Brown: Turning to infrastructure, we believe we are past the bottom and are now seeing stabilization in our broadband and cellular base station businesses.
December revenue increased significantly year-over-year in both markets.
Grant Brown: In the broadband market, we are supporting DOCSIS 4.0 deployments at multiple operators in North America. We are early in these deployments with significant share, and we are positioned for growth in our broadband business this coming fiscal year.
Grant Brown: In our base station business, we have weathered an industry-wide inventory correction and see opportunities for a small signal portfolio in markets like India.
Grant Brown: In automotive, revenue for the quarter declined sequentially as end-market softness continues. During the quarter, automotive OEMs and Tier 1s continue to show strong interest in our growing portfolio of automotive-grade ultra-wideband products.
Grant Brown: This includes a design win for an Asia-based EV OEM to supply our ultra-wideband solutions in an upcoming vehicle launch.
Grant Brown: Our sales funnel of automotive ultra wideband opportunities continues to grow as we bring a broad set of new content and capabilities.
Grant Brown: The ultra-wideband opportunity in automotive includes multiple anchors and up to $20 per car addressing secure access, child presence detection, kick sensors, and other precision short-range radar applications.
Grant Brown: This is new content presenting the type of complex RF challenge Corvo is uniquely positioned to solve.
Grant Brown: In consumer markets, December quarterly revenue declined sequentially, reflecting market headwinds. For Corvo, customer demand continued to build across consumer applications for our matter SOCs.
Grant Brown: We are ramping MATTER SoCs alongside our Wi-Fi 7 FEMS for a leading provider of Wi-Fi ecosystems based in the U.S.
Grant Brown: This customer is an early adopter of MATTER technology in home networking applications, enabling seamless connectivity across lighting, thermostats, window sensors, and other consumer applications.
Grant Brown: We supported a U.S.-based network operator in their migration to Wi-Fi 7 with multiple Corvo Wi-Fi 7 FEMs, and we secured a design win to support an upcoming Wi-Fi 7 ramp with a network operator in Japan.
Grant Brown: Lastly, we expanded shipments of our high-frequency BHA filters for service providers in the U.S. and in Europe.
Grant Brown: In the mobile market, revenue declined sequentially. During the quarter, we successfully supported the flagship launch at our largest customer.
Grant Brown: Shipments during the quarter included discrete placements, such as tuners, as well as integrated placements, like ultra-high bend pads. This customer represented just over 50% of the total revenue in the December quarter.
Grant Brown: In the current quarter, we expect sales to this customer to decline sequentially, though less than the last couple of years.
Grant Brown: As we have said previously, we have secured sufficient wins to date to give us confidence in year-over-year content growth in this year's fall launch.
Grant Brown: Corvo revenue is more heavily weighted towards the pro and pro max models versus lower content consumer models.
Grant Brown: Volumes and mix across models and model years can change our weighted average content in any given year. Given these variables, for FY26, we're currently forecasting revenue at our largest customer to be flat to up modestly.
Grant Brown: At Our Largest Customer, we've been invited to compete and are engaged on more product programs than ever before.
Grant Brown: At our second largest customer, Corotas Design wins this year with this career-based Android OEM SPAN, our product portfolio.
Grant Brown: We will be broadly represented this year in the flagship launch, Ramping Now, as well as in their high-volume mid-tier, premium-tier, and flagship-tier smartphone programs launching throughout the year.
Grant Brown: Corvo content in 2025 will include low-band, mid-high-band, and ultra-high-band pads, as well as mid-high secondary transmit, antenna tuning, discrete filters, and Wi-Fi 7FEMs.
Grant Brown: Corvo is executing on a broad set of strategic initiatives to expand margin, generate strong free cash flow, and increase shareholder value.
Grant Brown: We remain very focused on driving growth and diversification while finding opportunities to improve operating efficiency and enhance our cost structure.
Grant Brown: The actions we are taking have already resulted in gross margin improvements and a meaningful reduction in our forward OPEX in the current quarter and for fiscal 26. And with that, I'll turn the call over to Grant.
Thanks, Bob, and good afternoon, everyone.
Grant Brown: Our December quarter results were favorable relative to our guidance with revenue of $916,000,000 and non-GAAP diluted EPS of $1.61 per share.
Grant Brown: On the balance sheet, as of quarter end, we held approximately $770 million in cash and equivalents. Our cash balance at quarter end reflects the retirement of $412 million of our 2024 notes.
Grant Brown: Following the repayment of these notes, we now have approximately one and a half billion dollars of long-term debt remaining and no near-term maturities.
Grant Brown: We ended the quarter with a net inventory balance of six hundred and fifty six million dollars. This represents a decrease thirty eight million dollars sequentially and a decrease of seventy million dollars on a year-over-year basis.
Grant Brown: Turning to the cash flow statement, we generated operating cash flow of $214 million and capital expenditures of $38 million, which resulted in free cash flow of $176 million.
Grant Brown: As a reminder, our CapEx spend will vary quarter to quarter and reflect the timing of cash disbursements. 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 $100 million of stock at an average price of $73 per share in the quarter. The rate and pace of our share repurchase 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 is designed to ensure 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 $850 million plus or minus $25 million, non-GAAP gross margin between 43% and 44%, and non-GAAP diluted EPS between $0.90 and $1.10.
Grant Brown: The sale of our Silicon Carbide business earlier this month is reflected in our guidance. We will record a negligible amount of Silicon Carbide revenue in Q4 versus approximately $9 million in the December quarter and approximately $30 million in fiscal 25.
Grant Brown: We project non-GAAP operating expenses in the March quarter to be approximately $250 million. This includes other operating expense of $1 to $2 million associated with the remaining portion of our digital transformation project.
Grant Brown: We expect other operating expense related to this project to remain at this quarterly level throughout fiscal 26.
Grant Brown: This aligns with our prior comments that non-operating expense would increase following the retirement of our 1.75% 2024 notes.
Grant Brown: Our non-GAAP tax rate for Fiscal 25 is expected to be approximately 11%.
Grant Brown: We expect our non-GAAP tax rate could increase to between 18% and 19% in fiscal 26 as new regulations take effect.
Grant Brown: However, the impact of global minimum tax legislation for U.S.-based companies under the new administration, as well as changes to international tax policy, remain highly uncertain.
Grant Brown: For modeling purposes, in Fiscal 26, we expect gross margin to expand by approximately 150 basis points on roughly flat revenue.
Grant Brown: This reflects a single-digit decline in ACG revenue and growth of approximately 10 to 12% in CSG and HPA, excluding silicon carbide.
Grant Brown: In ACG, we expect Android 5G to decline by $150 million to $200 million from approximately $875 million in fiscal 25.
Grant Brown: At our largest customer for fiscal 26, we expect revenue to be flat to up modestly.
Grant Brown: Beginning the fiscal year, our June quarter has multiple seasonal items to consider. June is the lowest seasonal quarter for our largest customer. We are on the other side of the galaxy ramp at Samsung. And like prior years, our DNA business will be down meaningfully in June on a sequential basis due to program timing, while expected to grow double digits for the full year.
Regarding our actions to improve gross margin.
Grant Brown: Each business segment brings distinctive drivers. Beginning with ACG, we expect to enhance margins and reduce variability as our portfolio management efforts and pricing strategies reduce our exposure to legacy mass-tier Android 5G.
Grant Brown: In HPA, the divestiture of our silicon carbide business is margin accretive. In addition, our strategic investments supporting continued growth in DNA will also be accretive.
Grant Brown: In CSG, gross margin will increase with the relocation of gas production from our underutilized North Carolina facility to our high-volume Oregon site.
Grant Brown: We continuously evaluate further opportunities to reduce our capital intensity and product costs, including process technology advancements and die size reductions.
Grant Brown: The complexity of our solutions coupled with the global RF compliance requirements faced by our customers results in multi-year design cycles.
Grant Brown: We're working closely with our customers as we align our factory footprint to address only the most differentiated elements of our products and increasingly leverage the scale, capabilities, and cost-effectiveness of our outsource partners.
Grant Brown: On operating expenses, we implemented a significant workforce reduction, primarily targeting our mass market Android business as well as supporting areas, to enhance our cost structure. In parallel, we streamlined our digital transformation efforts, canceling numerous elements of the project to ensure the scope aligned with the anticipated economic benefits.
Grant Brown: And finally, the sale of our silicon carbide business is accretive to both gross and operating margins.
Grant Brown: These actions are reflected in our Q4 guidance and will extend into fiscal 2026.
Grant Brown: Overall, we anticipate achieving over $100 million in gross annualized savings across COGS and OPEX.
Grant Brown: A portion of these savings will be reinvested in the key growth areas such as DNA, power management, ultra-wideband, and programs for our largest customer, as well as to offset inflationary pressures.
Grant Brown: On a net basis, we expect non-GAAP operating expenses to average approximately $250 million per quarter in fiscal 26, subject to typical quarterly variability.
Grant Brown: We're confident that the steps we're taking today across our product portfolio and manufacturing footprint are positioning us for success. We're reducing capital intensity and focusing our internal production only where it differentiates our products.
Grant Brown: The benefits of these strategic initiatives will become increasingly evident as we advance through Fiscal 26 and into Fiscal 27.
Speaker Change: Before we open up the call for questions, we want to briefly address the filing that was recently made by Starbird Value.
Speaker Change: We welcome engagement with all our shareholders and value their input on ways to create shareholder value. With that said, the purpose of today's call is to discuss our third quarter results and outlook. We appreciate you keeping your questions focused on those topics.
Speaker Change: At this time, please open the line for questions. Thank you.
Speaker Change: Thank you. 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.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then two. We ask that you please limit yourself to one question and one follow-up, and if you have further questions, you may re-enter the question queue. And at this time, we'll pause momentarily to assemble our roster.
Speaker Change: And the first question will come from Gary Mobley with Loop. Please go ahead.
Gary Mobley: Hi guys, thanks for taking my question. I wanted to verify some of the numbers that you guys had in your prepared remarks.
Gary Mobley: If I heard correctly, you will have, in fiscal year 25, about $875 million of revenue from Android customers and that
Gary Mobley: That might whittle down to something less than $500 million over the next five years. I presume the remainder will be primarily Samsung and maybe some high-end customers over in China. Am I running through all that math correctly?
Gary Mobley: and you're correct on it's going to be going down about 150 to 200 million this year, probably the same. Most of that will be in China, to your point, but it does include some of the Samsung business and includes more than HBOX because we do have other customers in China, some that sell in the US.
Gary Mobley: The remainder of that that's still remaining will be in that premium and flagship tier.
Got it. Okay. Thank you.
So Bob, I know you were clear on
Speaker Change: the assumption that HPA would grow double-digit percent in fiscal year 26, but
Speaker Change: I wanted to ask a question about the repeatability of the HPA strength that you just showed in the third quarter. If I'm not mistaken, there might have been maybe a Department of Defense contract, maybe something a little bit atypical in the quarter. Maybe you can just give us a sense of the details of that to the extent you can and the repeatability of it.
Bob Bruggeworth: Sure. Thanks, Gary. We did see nice growth in December. We're also going to see even better growth in March.
Bob Bruggeworth: And it really gets to the timing of the defense contractors and when they flow their money to us.
Bob Bruggeworth: some are tied a little bit more, they give us orders right before the end of the government's fiscal year, which as you know is at the end of roughly our third quarter.
Bob Bruggeworth: and then obviously the end of their own calendar year, so we actually see a back half typically much stronger than the first half in our defense business.
Bob Bruggeworth: So, yes, we saw good growth in December quarter, we're also going to see even better growth in the March quarter. And then, as Grant mentioned, you know, it's going to drop off in the June quarter. But for the year, we expect defense business to grow actually faster than all of HPA.
Thank you, guys.
Speaker Change: Our DNA business is now approximately a $400 million business. And again, as Bob mentioned, you know, rather seasonal.
Douglas DeLieto, Robert Bruggeworth
Speaker Change: It could be as much as $75 million coming down in June before growing for the entire year, largely faster than our HPA business in the 10 to 12 range.
Thanks, Greg.
and Robert Bruggeworth. Thank you.
Speaker Change: The next question will come from Harsh Kumar with Piper Sandler. Please go ahead.
Harsh Kumar: Could you maybe talk about what that means, what we should be thinking and expecting? You know, if you can just paint a picture for us, that would be helpful. Then I do have a follow-up.
Speaker Change: Yeah, thanks, Harsh. On the last quarter's call, we mentioned that we'd probably be down 5% to 10%. You can see our guidance is roughly within that range.
Speaker Change: And what I said in my prepared remarks is we'll be down at our largest customer, but not as much as we've been in prior years. And that's all the color that I'm able to add at this time, Marge.
Speaker Change: Okay, that's fair. And then, Grant, maybe you talked about a lot of things on the gross margin side. If I had to say, you know, what would be the one or two biggest things that you think, Bob or Grant, that are needle movers for the gross margin?
We talked about high forties and the ultimate.
and I'm Robert Bruggeworth.
Speaker Change: What will be two of the biggest things that will be happening to make the margin go up in your opinion?
Speaker Change: Thanks Arsh, appreciate the question. We're working on a lot of fronts as it relates to gross margin. You know, probably two of the larger ones would be as we exit some of the Android business that Bob mentioned, it'll have a creative impact on our gross margin just as it relates to revenue mix.
Speaker Change: Beyond exiting some of that Android business, we're also looking at factory costs and factory footprint and ways we can leverage our outsourced suppliers. We had a sizable workforce reduction and cost reduction that we handled in the December quarter and that's going to help us as we look forward. And then, of course, you know, there's also the process improvement, dye reductions, and other sort of blocking and tackling types.
Douglas DeLieto, Robert Bruggeworth, and Robert Bruggeworth, Jr.
Thank you, sir. Thanks.
Speaker Change: The next question will come from Tom O'Malley with Barclays. Please go ahead.
Speaker Change: Hey guys, thanks for taking my question. My first one was just in relation to March Guidance. So you gave us $8.75 for the year on Android. You can set that pretty easily. And then you talked about less than seasonal declines in your largest customer. So do you have a...
Speaker Change: You talked about mid-teens growth on the full year. Both of those look to be tracking a little bit ahead, just given where guidance is. So, is there any weakness that you would call out amongst those two businesses in any pockets, other than the silicon carbide stuff, or just trying to square away the math here? If I set Apple down a little better than Seasal and Android to your number, you're getting a little bit above guidance. Any help with March to start?
Speaker Change: Sure, let me take the question. So you're right, the silicon carbide revenue is an important factor as we look into the March quarter. There'll be a negligible amount of revenue.
Speaker Change: in March versus the December quarter of approximately $9 million. So that's one of the changes. It was, for modeling purposes, approximately $30 million for the entire fiscal 25.
Speaker Change: You know, outside of that, as you mentioned, this typical seasonal dynamics with the ramp down to our largest customer, Android is expected to be up sequentially given flagship platform launches. And then there's a...
Douglas DeLieto, Robert Bruggeworth
Speaker Change: that we benefited from in Q2 and overall year-over-year both those businesses will be up double digits and and then as we look forward we'll continue the momentum into fiscal 26.
Speaker Change: Gotcha, and then you gave a decent amount of color in the prepared remarks.
Speaker Change: On June, you highlighted that that's normally bottom seasonal for the largest customer. And then you talked about the fence being down as well. Just given that you went out of your way to highlight that in the prepared remarks, could you give us any color from a total company perspective, what you're expecting there?
Speaker Change: We didn't provide any guidance necessarily at a total company level, you know, but if you're modeling it roughly, you're in that down 10 to 15 percent range for the full company.
heading into the June quarter.
Speaker Change: Again, the seasonal dynamics there are, you know, a very strong defense business, which has grown in terms of percent of our total top line. So we've benefited from the growth, but the seasonality and order patterns that our customers create a dynamic heading into June that's larger than typical. And then the Android ramp at a large customer for their flagship.
Speaker Change: We'll also be ramping down in the same period that our largest customer ranks down, so quite a number of seasonal factors. Although for the year, as Bob pointed out, we do expect to be approximately flat in revenue, so there will be growth in the outside quarters.
Speaker Change: The next question will come from Carl Ackerman with BNP Paravis. Please go ahead.
Okay, thank you gentlemen
Speaker Change: Give your comments on the Android ecosystem. I was hoping you could address the Outlook for RF content for the industry.
Speaker Change: over the next couple of years if the baseband modem of your largest customer remains at your largest, remains at your competitor. I ask because some investors have been concerned that reuse could remain if the baseband share remains status quo. I was hoping to get your clarification on that. Thank you.
Speaker Change: Sorry Carl, could you clarify, did you say our largest customer or the industry? I wasn't sure what you were talking about with the baseband.
Speaker Change: I'm referring to your within the iOS ecosystem whether if there is a change or no change in the baseband modem whether you think there's a growing risk of reuse or if you do think there is innovation and continued content gains in that area of the market.
Speaker Change: I want to make sure I understand the question. You're asking if they stay with the Qualcomm baseband and there's been a lot of discussion about them coming out with their own baseband. If they stay with the Qualcomm baseband, what happens to the RF sections? I just want to make sure I understand. That is correct. That is correct. Yes. How do we think about the content opportunity for that? That is correct.
Speaker Change: All depends on their future architectures, which I know we don't comment on, but, you know, history has been every successive model There's more and better RF required. So, you know, and that includes our tuners All the other parts that we make for them better filters to better Integrated modules, etc. So we don't see a change. Yeah, the only thing that we've said and
Speaker Change: and we continue to reiterate that the ETIC that we would be able to provide to the internal platform we wouldn't provide on the Qualcomm platform.
Speaker Change: So that would be the major difference that you would see.
We're up.
Got it. Very helpful.
Speaker Change: The next question will come from Vivek Arai with Bank of America Securities. Please go ahead.
and Robert Bruggeworth. Thank you. Thank you.
Speaker Change: Thanks for taking my question. Boba, I wanted to kind of come back to this long-term growth opportunity for your ACG or mobile business. You mentioned that it could be flattish, I think you said, for fiscal 26, if I got it right, but then starts to regrow.
Speaker Change: When you are gaining content right among some of the high-end
and when cellular units are expected to grow.
Speaker Change: then, you know, how does it start to regrow until, I don't know, 60 takes off? I guess my real question is how much are you baking in for the continued headwinds from all the China insourcing and Qualcomm competition? Is it possible ACG business sort of stays flattish for the next several years?
Speaker Change: Yeah, thanks for the question, Vivek. In my prepared remarks, we did talk about us actually being down in ACG for FY26.
to be clear.
Speaker Change: So we said that we said that HPA and CSG would grow double digits so that gets you to the company flat
Speaker Change: high tier phones in the Android ecosystem. So that's our current plan. But in 26, we were pretty clear, it's going to be down.
Speaker Change: Okay. And then maybe a follow-up for Grant on gross margins and OPEX. I think you gave us the gross margin sense for the seasonal quarters and any sense of how the gross margin progresses, you know, prior to that. And then I think OPEX, you mentioned $250 million. How does that kind of progress through the year?
Thank you.
Sure. Thanks, Vivek.
Douglas DeLieto, Robert Bruggeworthworth.com.
Um...
Speaker Change: In terms of OPEX, there are some normal seasonal patterns in terms of payroll-related items that we'll see in March. Typically June could be in that same neighborhood based on program development spend, and I would expect to model approximately that level throughout the year, plus or minus probably approximately $5 million per quarter, depending on any of those seasonal impacts.
Thank you.
Speaker Change: The next question will come from Tashia Hari with Goldman Sachs. Please go ahead.
Speaker Change: Hi, thank you so much for taking the question. You guys talked quite a bit about some of the restructuring initiatives, you know, in motion today, or things that you've executed on. You know, you talked about headcount reduction. Obviously, you sold your SIC business and, you know, the gas business, shifting some production from North Carolina to Oregon.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show.
Grant Brown: Thanks, Toshia. This is Grant. Let me start with a question and then we can...
Get to your follow-up, if one.
Grant Brown: You know, we're constantly considering ways to optimize our factory footprint. In fact, it's a topic that we regularly consider. And it shifts with revenue mix and the demand that we're choosing to support over time. The best way to think about it is, as we described it at our investor day, we'll manufacture internally where it differentiates our product or where a foundry market doesn't exist.
Grant Brown: Today, filters is a great example where we make those in Richardson and there's not a commercial or merchant market available for those.
and then we will outsource.
Grant Brown: to some of our trusted partners where we can mutually benefit.
Grant Brown: from their scale and their technology development. So we can pick and choose the technologies from our outsource partners that are best suited to our products, both from a performance and cost perspective, without having to support each of those individual manufacturing technologies in-house.
Speaker Change: That's great. Thank you. And then as a quick follow-up, just on customer concentration, with Apple I guess flat or growing nicely, and your Android business coming down, revenue concentration is growing. All else equal, I think investors typically prefer a diverse revenue stream. I know you guys talked about HPA and CSG outgrowing,
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host
Speaker Change: I'll take this on. In the past, as you know, a lot of our acquisitions have been more technology-based and complement
Douglas DeLieto, Robert Bruggeworth
Speaker Change: And we could significantly increase shareholder value by making a transaction like that. I mean, obviously, we did a good job when we merged the two companies of RFMD and Triquin. And if we saw another opportunity to do that, we would certainly be active on that.
Thank you.
Speaker Change: The next question will come from Chris Casso with Wolf Research. Please go ahead.
Speaker Change: Yes, thank you. Just a question with regard to some of your comments regarding your largest customer on short-term and long-term. And I know, you know, typically there's not much you could say, but you did indicate that, you know, you expected your content to grow this year.
You talked about, you know, flat to modestly up.
Speaker Change: I guess I'd interpret that as probably a modest content increase this year, so if you could clarify that. And then, you know, longer term, you're going to need growth of that largest customer to grow the ACG business, given what you're doing in Android. Maybe if you give us a sense of where the opportunity is for you.
Speaker Change: Is that, you know, just additional content that fits into your traditional strong areas or is that, you know, going after some market share from some others?
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Grant Brown: Thanks Chris. This is Grant. Let me take the first part of your question and then maybe Dave or Bob could comment on the future opportunity set. But at our largest customer, you know, there's no changes to, you know, the comments that Bob made and I made in December. You know, we're confident in the awards.
Grant Brown: that we have to date in the upcoming fall platform. And for the year, we expect it to be flat up modestly there. Volume and mix are always uncertain.
Grant Brown: and you know, if you want to split it into our fiscal year halves, the first half of our fiscal year versus the second half, our largest customer will likely to be down in the first half of fiscal 26.
Grant Brown: is more weighted to the pro models versus the consumer models. So as we pointed out last quarter, the model mix does have an impact on our revenue, but we'll continue to live on our strategy of gaining content, and as the volume pulls through revenue, I think we're well-positioned there.
Speaker Change: I'll take the second part on, you know, what we're working on to grow our share and share of wallet at our largest customer. In the areas we currently support, there's opportunities to gain share.
Speaker Change: Obviously, we've talked pretty clearly with the group that if they come out with their own modem, their baseband, we believe we'll be able to pick up the ETPMIC. So that's actually gain in RF content for us.
Speaker Change: that is taking share from an incumbent, and then clearly there's other highly integrated modules that, you know, we've been invited to participate in and work towards winning. So that's the playbook that we're laying out for our team.
Speaker Change: Got it. Helpful. I guess the other question was on the tax rate and I think you said is it the tax rate could go...
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel.
Speaker Change: Sure, so right now, you know, we are approximately 11% and it could go as high as 18 to 19% as we're modeling today. There's opportunities for us to improve and there's a lot of changes that could happen either internationally or here domestically. So it remains, again, highly uncertain, but, you know, to be conservative, right now we're expecting it to grow.
to approximately 18 to 19 percent.
Thanks.
Speaker Change: The next question will come from Chris Sankar with TD Cowen. Please go ahead.
Chris Sankar: Thanks for taking my question, and thanks for a lot of the cover you gave both Bob and Grant. I'm just curious, when you look into the first half, your largest customers expected to release a low-end smartphone.
Chris Sankar: and Samsung is expected to come out with the Galaxy S25. How to choose, how to think about your content opportunity in those? Is it increasing, decreasing? Any way you can quantify it would be helpful. And then I'll follow up.
Chris Sankar: Sorry, we can talk about Galaxy 25 because that's been released.
Chris Sankar: Anything to do with our largest customer that hasn't been released, we're not going to make any comments, but Dave, if you want to take that.
Dave Fullwood: Yeah, and when you look at the Galaxy S25 compared to last year, it's very similar. A lot of the highly integrated modules, very similar content we had last year in terms of low band.
Dave Fullwood: mid-high band and Wi-Fi. I think we've talked about this before with their late change in the modem that did impact us just from a time and readiness standpoint on software that we were not able to keep the ultra wideband socket that we had there and some of the tuners.
Dave Fullwood: but in general it's similar content but slightly reduced year-over-year because of those factors.
Dave Fullwood: The only thing I can add, at least that our largest customer, we commented that in my opening comments that, you know, our content is skewed towards the Pro and Pro Max, not the standard phone that they offer. There's obviously more RF content in those phones, but we have a larger share there.
Speaker Change: Got it. Very helpful. And then, Bob, just curious, you know, I know you don't participate in the low-end
Speaker Change: Douglas DeLieto, Professor of Business Administration and the CEO, Cognizant Group, Inc., is a
Speaker Change: you know, from the low end into the high end, and they certainly all
and we're supporting them there with our portfolio.
Speaker Change: The challenge that we've had in that market that we've talked about and the reason we gave the guidance we did.
Speaker Change: on the annual basis is really that mid-tier collapsing into the entry tier, and that's the part where we're no longer going to participate in, but we'll continue supporting those customers in those premium and flagship tiers.
Thank you very much.
Speaker Change: The next question will come from Christopher Rowland with Susquehanna. Please go ahead.
Speaker Change: Hey guys, thanks for the question. The revenue at your largest customer, flat to up,
Speaker Change: If I understand that correctly, that assumption would include opportunities in the PMIC or Envelope Tracker, but does not include any integrated modules that sound like they have not been awarded yet. Is that how we should think about that?
Speaker Change: portfolio products we sell into that customer. I did give some color on the first half versus the second half and how Fiscal 26 compares to Fiscal 25, which should give you some indication of how or the timing related to it. But other than that, we can't get into any of the details related to our largest customer and things that haven't yet been released.
Speaker Change: Understood. Thank you for that. And in terms of capital, perhaps you can talk about your capital needs looking forward just given you're consolidating some of this footprint.
Speaker Change: and then, you know, in terms of uses of cash moving forward, what your priorities are overall. Thank you.
Sure. Thanks, Chris.
Speaker Change: In terms of our uses of cash and the way we think about capital allocation, there's no change. We meet with our board very regularly to review every quarter. We go through the different needs from working capital to CapEx to organic, inorganic opportunities to invest for growth, and retiring debt was one of those that we had been discussing for quite some time.
return on investment.
Speaker Change: you know, largely the capacity we need, we have in place, and so we're looking at maintenance capex.
Speaker Change: and or any improvements to that process to maintain our differentiation and then we will use outside partners.
Speaker Change: in order to leverage their scale and prevent us from having to invest more in our factory network from a CapEx perspective.
Thanks so much, Grant.
Speaker Change: The next question will come from Ruben Roy with Stiefel. Please go ahead.
Yeah, thank you. I guess this question is for Dave.
Speaker Change: You guys talked a lot about the DNA momentum here. I was wondering if you could maybe spend a few minutes on some of the other segments, industrial enterprise, infrastructure. It's nice to hear the stabilization.
Speaker Change: in areas like broadband. What's the visibility like? We've seen a lot and heard a lot of mixed data points for these end markets. I'm just wondering if you talk about the design activity environment and your visibility. We appreciate the sort of longer-term guidance by segment, but we'd love to hear a little more about visibility into
Speaker Change: Yeah, definitely in some of those markets near-term, we see the weakness in the demand of existing running programs like in automotive and industrial.
Speaker Change: And so, but we're still growing from a relatively small base and a lot of the businesses that were engaged there, and it's a lot of new content that we're addressing. So, from a forward looking standpoint, we're pretty excited about the opportunities that we have there.
Speaker Change: The growth in our funnel of opportunities and the engagements that we have in customers. So we've talked about
and Enterprise, the upgrade of Wi-Fi to Wi-Fi 7.
Speaker Change: and the opportunities that we have in adding ultra-wideband for indoor navigation and real-time location services. So that's all going well. Bob mentioned some of the...
ramps we have going on this year.
Speaker Change: And then in power management, we've got some good engagements there as we move from our solid state drive business more into the enterprise segment. We've got good content growth opportunities moving forward there. In automotive, we've definitely seen ultra wideband adoption really starting to take off across.
Speaker Change: You know all online customers and all the tier one. So the engagement there has been really strong and you know, we expect to see ultra wideband adoption happening over the next three to five years and You know, we expect to be one of the one of the leaders in that market. So that's a great opportunity for us
Speaker Change: And one part we didn't talk about in defense is in the SATCOM business, that's been a bright spot as well. And so when you look at, you know, these satellites that are going up in a LEO satellite, you know, we could have thousands of dollars of content every time one of those.
Speaker Change: get deployed in the space and when you look at the direct-to-sale that's more like a base station in space so we could have tens of thousands of dollars for content of content for satellite so those are great for us opportunities for force in our defense market even outside of the traditional defense business
Speaker Change: and ACG. Should we expect any meaningful change of mix in OPEX ACG versus the other two segments or do you think it'll be kind of steady state longer term?
Speaker Change: We're looking at OPEX improvement across the company, not necessarily within any given operating segment. There's a lot of shared resources across the company that are allocated based on the size of the business and how much effort is put in by the support functions.
Speaker Change: So when we think about OPEX, it's across the entire company.
Speaker Change: It is the most recent workforce reduction that was in certain cases specific to Android as we think about a product roadmap and as we look forward which products we are going to develop and support and we took appropriate action to reflect.
Speaker Change: the revenue change in fiscal 26 and 27 that we discussed today.
Thank you.
Speaker Change: The next question will come from Edward Snyder with Charter Equity Research. Please go ahead.
Edward Snyder: Thanks a lot. I just want to dig down a little bit more on the guidance for the fall of your largest customer and what your assumptions are there. We assume units are flat and the Pro Max split is the same as it was last year. I just want to be clear that you're guiding for content gains. And if those content gains, how much does that include, let's say, releasing two different SKUs with two different modems? Because I know it seems, based on your comments, Bob, that you're pretty confident your content is going to go up on an internally developed modem.
Speaker Change: Thanks, Ed. As far as if there's an internal modem, yes, we're very confident our ETPNIC will be in there.
Speaker Change: As far as the content, we've already been awarded, I think we've pretty much said already we believe in that. We did not comment on how many modems they're going to use or anything for their year, but I'm very confident in our...
Speaker Change: our belief that we're going to gain content this year based on what we've already been awarded. Okay, so the awards, if everything else was held constant, you'll see content increases based on the awards itself, right?
Thanks for joining us. I'm Robert Bruggeworth.
Speaker Change: Yeah, and it's largely driven by the upgrade of those radar systems from mechanical to, you know, the AESA radars, like you mentioned, and so, yeah, that's a fantastic content opportunity, and we're closely engaged with all the primes and leaders in the market there. So, yeah, we see for an AESA airborne radar, you know, going on planes that, you know, we have.
Douglas DeLieto, Robert Bruggeworth
Thanks, guys.
Thank you. Thanks, Ed.
Speaker Change: Your next question will come from Vijay Rakesh with Mizuho. Please go ahead.
with the China Growth Mentored Giving.
Speaker Change: Sure, Vijay. So we had said on a run rate from a China Android perspective, you know, we are right around that hundred million dollar per quarter mark and we would expect to track down to the 50 million level plus or minus.
Speaker Change: And then if you move your mix more to just the top two customers,
Speaker Change: Is that a risk-given, you know, it's much more a sandbox and you start to compete, I'm sure that your peers have a kind of a pretty similar strategy, does that make that sandbox fairly, you know, very competitive and constrictive again?
Speaker Change: I would say today they're both very competitive. Nothing's really changed there at our largest customer as well as at our second largest customer. I mean, that's.
Speaker Change: what we've been dealing with for the last 10 years at Corvo. So, we're not seeing much change there in that sense. The real change has been, as we've been talking about in China, that mid-tier, which was a great place where we made a lot of money over the years, has really downshifted as consumers looking for more entry-level phones. That's been the big change.
Thank you.
Thank you.
Speaker Change: This concludes our question and answer session. 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. Hope you have a great evening.
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Speaker Change: Good day and welcome to the Corvo Third Quarter 2025 Earnings Conference Call.
Speaker Change: 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: To ask a question, you may press star then 1 on your touchtone phone. And to withdraw your question, please press star then 2.
Speaker Change: We ask that you please limit yourself to one question and one follow-up, and if you have further questions, you may re-enter the question queue.
Speaker Change: Please note this event is being recorded. I would now like to turn the conference over to Mr. Douglas DeLieto, Vice President and Investor Relations. Please go ahead, sir.
Thanks very much. Hello everyone and welcome to Corvo's Fiscal.
Speaker Change: 2025 Third 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.
Speaker Change: We encourage you 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.
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 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. Corvo serves six primary end markets. They are automotive, consumer, defense and aerospace, industrial and enterprise, infrastructure, and mobile.
Bob Bruggeworth: Each is underpinned by global megatrends, including electrification, connectivity, mobility, sustainability, datafication, and AI.
Bob Bruggeworth: These trends are driving new functionality and new user experiences that are made possible by the customers we serve and the products our technologies enable.
Bob Bruggeworth: Looking at our business by operating segment, in HPA, we continue to grow our defense and aerospace business while expanding our business in power management.
Bob Bruggeworth: including an expanding portfolio of automotive solutions and SOCs for ultra-wideband, BLE, thread, and matter.
Bob Bruggeworth: In ACG, we are focused primarily on delivering 5G advanced products for our largest customer and for the flagship and premium tiers of Android.
Bob Bruggeworth: Our largest growth opportunity in ACG is with our largest customer, and we are investing today to continue increasing our share with them in subsequent programs over multiple years.
Bob Bruggeworth: As we said on last quarter's call, the opportunity in mass-tier Android 5G declined at a faster rate than anticipated during our investor day. Android build plans changed to reflect higher consumer demand for entry-tier 5G devices.
Bob Bruggeworth: In response, during the December quarter, we implemented changes across the organization in how we support Android 5G. This included a reduction in force in ACG and other company functions.
Bob Bruggeworth: We narrowed our focus to the premium and flagship tiers to increase profitability and reduce variability.
our 5G product.
Bob Bruggeworth: Development Spend is now focused solely on premium and flagship tiers.
Bob Bruggeworth: While we continue to serve mass-tier programs previously awarded, we expect these lower-margin programs to go end-of-life in Fiscal 26 and into Fiscal 27.
Bob Bruggeworth: Besides the impact for fiscal 25, total Android 5G revenue in ACG is expected to be approximately $875 million.
Bob Bruggeworth: Of this, we expect Android 5G to decline gradually by approximately $150 to $200 million annually in fiscal 26 and again in fiscal 27.
Bob Bruggeworth: The majority of the decline will be China-based, with the balance being mid-tier at Samsung.
Bob Bruggeworth: In fiscal 26, we expect a single-digit decline in ACG revenue and growth of approximately 10 to 12 percent in CSG and HPA, x the Silicon Card by business.
Bob Bruggeworth: Beginning in FY27, we expect ACG to return to growth where updated long-term revenue target is for mid-single-digit growth.
Bob Bruggeworth: In HPA and CSG, our long-term revenue targets haven't changed, and we expect double-digit growth in fiscal 25 and double-digit growth again next fiscal year in HPA and CSG.
Bob Bruggeworth: We believe the actions we are taking will have a positive impact on our gross margin.
Bob Bruggeworth: For reference, gross margin in the December quarter included a headwind of approximately 300 basis points attributed to the divested silicon carbide business and the mass tier Android 5G revenue we are in the process of exiting.
Grant Brown: As we look into fiscal 26, we expect gross margin to expand by approximately 150 basis points on roughly flat revenue. In a moment, Grant will expand on the actions we're taking to improve gross margin and reduce OPEX.
Now let's look at our performance and opportunities by market.
Grant Brown: We saw sequential strength during the quarter in defense and aerospace, industrial and enterprise, and infrastructure. In DNA, revenue was up sequentially in the December quarter, driven by multi-year tailwinds.
Grant Brown: These include upgrades to non-terrestrial networks and the transition from mechanical radar systems to active electronic scanning radar systems.
Grant Brown: TelWINs also include on-shoring, the trend of one-to-many, and system-level functionality requiring advanced RF packaging.
Grant Brown: The design wins in December were diversified across radar, comms, space, and electronic warfare. In electronic warfare, Corvo offers an industry-leading wideband solid-state PA technology.
Grant Brown: Corvo is unique in that we can service the opportunity onshore in the U.S. from a limit up to a full system solution through our advanced manufacturing facility in Texas.
Grant Brown: December was a record revenue quarter for our DNA business and we expect continued strength to support full year, year-over-year growth this fiscal year and next fiscal year.
Grant Brown: In industrial and enterprise, revenue was up sequentially. During the quarter, we achieved critical performance milestones related to ultra-wideband and Wi-Fi enterprise access points.
Grant Brown: We're engaged with two leading Tier 1 equipment manufacturers with ultra-wideband and Wi-Fi 7 content at both, and we expect commercial production to begin this calendar year.
Grant Brown: We see this as a significant milestone in ultrawideband adoption, creating the essential infrastructure for new ultrawideband-driven services enabled by indoor navigation, asset management, and real-time location services.
Grant Brown: We increased shipments of high-frequency boss filters in support of enterprise Wi-Fi deployments across geographies and we expanded power management engagements with new and existing customers in enterprise SSDs.
Grant Brown: Turning to infrastructure, we believe we are past the bottom and are now seeing stabilization in our broadband and cellular base station businesses.
December revenue increased significantly year-over-year in both markets.
Grant Brown: In the broadband market, we are supporting DOCSIS 4.0 deployments at multiple operators in North America. We are early in these deployments with significant share, and we are positioned for growth in our broadband business this coming fiscal year.
Grant Brown: In our base station business, we have weathered an industry-wide inventory correction and see opportunities for our small signal portfolio in markets like India.
Grant Brown: In automotive, revenue for the quarter declined sequentially as end-market softness continues. During the quarter, automotive OEMs and Tier 1s continue to show strong interest in our growing portfolio of automotive-grade ultra-wideband products.
Grant Brown: This includes a design win for an Asia-based EV OEM to supply our ultra-wideband solutions in an upcoming vehicle launch.
Grant Brown: Our sales funnel of automotive ultra wideband opportunities continues to grow as we bring a broad set of new content and capabilities.
Grant Brown: The ultra-wideband opportunity in automotive includes multiple anchors and up to $20 per car, addressing secure access, child presence detection, kick sensors, and other precision short-range radar applications.
Grant Brown: In consumer markets, December quarterly revenue declined sequentially, reflecting market headwinds. For Corvo, customer demand continued to build across consumer applications for our MATTER SoCs.
Grant Brown: We are ramping MATTER SoCs alongside our Wi-Fi 7 FEMs for a leading provider of Wi-Fi ecosystems based in the U.S.
Grant Brown: This customer is an early adopter of MATTER technology in home networking applications, enabling seamless connectivity across lighting, thermostats, window sensors, and other consumer applications.
Grant Brown: We supported a U.S.-based network operator in their migration to Wi-Fi 7 with multiple Corvo Wi-Fi 7 FEMs, and we secured a design win to support an upcoming Wi-Fi 7 ramp with a network operator in Japan.
Grant Brown: Lastly, we expanded shipments of our high-frequency BHA filters for service providers in the U.S. and in Europe.
Grant Brown: In the mobile market, revenue declined sequentially. During the quarter, we successfully supported the flagship launch at our largest customer.
Grant Brown: Shipments during the quarter included discrete placements, such as tuners, as well as integrated placements, like ultra-high bend pads. This customer represented just over 50% of the total revenue in the December quarter.
Grant Brown: In the current quarter, we expect sales to this customer to decline sequentially, though less than the last couple of years.
Grant Brown: As we have said previously, we have secured sufficient wins to date to give us confidence in year-over-year content growth in this year's fall launch.
Grant Brown: Corvo revenue is more heavily weighted towards the pro and pro max models versus lower content consumer models.
Grant Brown: Volumes and mix across models and model years can change our weighted average content in any given year. Given these variables, for FY26, we're currently forecasting revenue at our largest customer to be flat to up modestly.
Grant Brown: At Our Largest Customer, we've been invited to compete and are engaged on more product programs than ever before.
Grant Brown: At our second largest customer, Corotas Design wins this year with this career-based Android OEM SPAN, our product portfolio.