Cirrus Logic : Transcript Q1FY2023 (PDF)

Corrected Transcript

02-Aug-2022

Cirrus Logic, Inc. (CRUS)

Q1 2023 Earnings Call

	Total Pages: 12
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Cirrus Logic, Inc. (CRUS)	Corrected Transcript
Q1 2023 Earnings Call	02-Aug-2022

CORPORATE PARTICIPANTS

Chelsea Heffernan	Venkatesh R. Nathamuni
Vice President-Investor Relations, Cirrus Logic, Inc.	Chief Financial Officer, Cirrus Logic, Inc.
John Forsyth
President, Chief Executive Officer & Director, Cirrus Logic, Inc.

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OTHER PARTICIPANTS

Matthew D. Ramsay	David Williams
Analyst, Cowen & Co. LLC	Analyst, The Benchmark Co. LLC
Tore Egil Svanberg	Tom O'Malley
Analyst, Stifel, Nicolaus & Co., Inc.	Analyst, Barclays Capital, Inc.
Christopher Rolland	Ananda Baruah
Analyst, Susquehanna Financial Group LLLP	Analyst, Loop Capital Markets LLC

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MANAGEMENT DISCUSSION SECTION

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic First Quarter Fiscal Year 2023 Financial Results Q&A session. At this time, all participants are in a listen-only mode. After a brief statement, we will open up the call for questions from analysts. Instructions for queuing up will be provided at that time. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Ms. Chelsea Heffernan, Vice President of Investor Relations. Ms. Heffernan, please begin.

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Chelsea Heffernan

Vice President-Investor Relations, Cirrus Logic, Inc.

Thank you and good afternoon. Joining me on today's call is John Forsyth, Cirrus Logic's Chief Executive Officer; and Venk Nathamuni, Chief Financial Officer.

Today, we announced our financial results for the first quarter fiscal year 2023 at approximately 4:00 PM Eastern Time. The shareholder letter discussing our financial result, the earnings press release, along with the webcast of this Q&A session, are all available at the company's Investor Relations website.

This call will feature questions from analysts covering our company. Additionally, the results and guidance we will discuss on the call will include non-GAAP financial measures that exclude certain items. Reconciliation of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release and are all available on the company's Investor Relations website.

Please note that during this session, we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause the actual results to differ materially from projections.

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Cirrus Logic, Inc. (CRUS)	Corrected Transcript
Q1 2023 Earnings Call	02-Aug-2022

By providing this information, the company expressly disclaims any obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Please refer to the press release and the shareholder letter issued today, which are available on the Cirrus Logic website and the latest 10- K, as well as corporate filings registered with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from the current expectation.

Now, I'd like to turn the call over to John.

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John Forsyth

President, Chief Executive Officer & Director, Cirrus Logic, Inc.

Thank you, Chelsea, and thank you everyone for joining today's call. As you have seen in the press release, Cirrus Logic delivered outstanding results with record first quarter revenue even in light of continued supply chain constraints.

Before we discuss the details of those results, I'd like to take a moment to recap the three key pillars of the strategy driving the momentum and success that we are now seeing. These are, one, maintaining our leadership position in smartphone audio by continuing to deliver world-class products and outstanding execution to the leading customers in the market. Two, broadening sales of audio components into key profitable applications beyond smartphones. And three, leveraging our world-class,mixed-signal engineering expertise in order to build a growing footprint of products outside of audio in the area we call our high-performancemixed-signal product lines. We believe this area will yield significant opportunities both within smartphones and beyond.

This quarter we continue to execute on all three fronts to an impressive extent. In audio, we've been encouraged by customer engagement across our portfolio of amplifiers and codecs. During the quarter, we began developing a next-generation smart codec for smartphones in the 22-nanometer process node and also began initial production ramps ahead of new smartphone introductions later this year.

Additionally, we are proud to have recently received the Galaxy Quality best award from Samsung's MX division for our quality performance. This further demonstrates the reputation Cirrus Logic has for outstanding execution among our world-class customers.

Despite a near-term slowdown in demand in the laptop market, customer engagement there remains strong and we continue to see an increased opportunity for high-quality audio and laptops, as we benefit from several secular trends that we believe can contribute to revenue growth and market diversity longer-term. To capitalize on these trends, we are now sampling a new amplifier and recently taped out a new codec both optimized specifically for the emerging audio architectures and laptops. In fiscal year 2023, we expect to see over 40 new laptop models come to market featuring our components.

Turning to our high-performancemixed-signal product lines, development and design activity are stronger than ever across this category. Our customer engagements and the close engineering collaboration with our customer around camera controllers continues to strengthen as we work together to identify new opportunities to enable advanced functionality and to improve the camera experience. In fiscal year 2023, we expect to benefit from both a higher attach rate of our camera controller in the newest devices and also a more favorable mix of smartphones on the market that include our camera components.

And in power, building on the success of our first-generation power conversion and control IC, we are today investing in intellectual property and capabilities that will bring further innovations and address new challenges, including those of battery health and longevity in the coming years.

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Cirrus Logic, Inc. (CRUS)	Corrected Transcript
Q1 2023 Earnings Call	02-Aug-2022

In summary, we're delighted with our financial results, our customer engagement and our progress in executing against our strategy in the quarter. We remain focused on serving our customers, diversifying our product portfolio and broadening our addressable market into new application areas. With the wide range of technology investments we're making today, we believe we have a solid pipeline of opportunities to expand HPMS dollar content in fiscal year 2024 and beyond.

And with that, let me now turn the call over to Venk to provide an overview of our financial results for our fiscal first quarter 2023, as well as guidance for fiscal Q2 2023.

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Venkatesh R. Nathamuni

Chief Financial Officer, Cirrus Logic, Inc.

Thank you, John. Fiscal first quarter revenue was $393.6 million and a record for the June quarter. Revenue was up 42% from a year ago and above the high-end of our guidance range. Our strong results were driven by high- performance mixed-signal content gains and, to a lesser extent, higher ASPs.

Non-GAAP gross profit in the quarter was $202.9 million and non-GAAP gross margin was 51.5% and exceeded expectations due to favorable product mix.

On a sequential basis, gross margin was down as cost increases that took effect in January were fully reflected in product shipments during the June quarter. This was partially offset by a favorable product mix. The year-over- year change in gross margin reflects the favorable impact of higher ASPs on our general market products. Going forward, we expect gross margin to be more in line with our long-term model and I'll cover this topic more in the guidance section.

Non-GAAP operating expenses in the quarter were $119.5 million, down $3.6 million sequentially. Operating expenses came in slightly below the midpoint of our guidance range, despite higher revenue and the sequential decline was primarily driven by a reduction in variable compensation and employee-related cost. This was partially offset by higher product development expenses. Non-GAAP operating income was $83.4 million in the first quarter or 21% of revenue. Non-GAAP net income in the first quarter was $64.5 million or $1.12 per share.

Let me now turn to the balance sheet. Our balance sheet remains strong and we ended the first quarter of fiscal year 2023 with approximately $454 million in cash and cash equivalents. This was up roughly $9.5 million from the prior quarter due to strong cash flow generation, partially offset by stock repurchases during the quarter. I'd note we have no debt outstanding.

Inventory was $174 million, up $36 million sequentially and days of inventory was 83 days in Q1, up 28 days sequentially. I'd note this is in line with normal seasonal trends as we began building ahead of product launches later this year.

Turning to cash flow, cash flow from operations was $74.4 million in the quarter and free cash flow for the quarter was $67.1 million. In Q1, we utilized $56.4 million to repurchase roughly 725,000 shares of our common stock at an average price of $77.78.

As of the end of Q1 fiscal year 2023, we had $136.1 million remaining in our 2021 share repurchase authorization. Furthermore, the Board of Directors last month authorized the company to repurchase up to an additional $500 million of the company's common stock. We expect to continue to return capital in the form of stock repurchases, which we believe will provide a long-term benefit to shareholders going forward.

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Cirrus Logic, Inc. (CRUS)	Corrected Transcript
Q1 2023 Earnings Call	02-Aug-2022

And now on to the guidance. For the fiscal second quarter of 2023, we expect revenue in the range of $450 million to $490 million. On a year-over-year basis, our expected revenue growth is largely driven by higher ASPs and, to a lesser extent, increased high-performancemixed-signal content in smartphones. As I alluded to earlier, we expect gross margins to be around our long-term model of 50% due primarily to product mix. As a result, in the September quarter, we expect gross margin to range from 49% to 51%.

Non-GAAP operating expense is expected to be up sequentially in the range of $123 million to $129 million. The sequential increase is expected to be driven primarily by higher product development cost. We expect SG&A to remain flat sequentially.

On the tax front, as we mentioned in our Q4 fiscal 2022 earnings release, due largely to a tax rule effective this year that requires companies to capitalize and amortize R&D expenses rather than deduct them in the current year, we expect our fiscal 2023 non-GAAP effective tax rate to be approximately 23% to 25%. We continue to anticipate that under this rule, our effective tax rate will decrease and may return to a normalized range in about five years as additional years of R&D expenses are amortized for purposes absent any changes to the legislation. However, there appears to be legislative support for delaying or eliminating this rule which we're watching closely. I'd note that without the impact of this rule, our non-GAAP effective tax rate would be in our more typical mid- teens range.

In closing, we had a strong Q1 fiscal year 2023. Going forward, we will focus on the best opportunities to enable the company to continue to grow both revenue and profitability over the long-term. And before we begin the Q&A, I'd like to note that while we understand that there's intense interest related to our largest customer, in accordance with Cirrus Logic company policy, we will not discuss specifics about this business relationship.

With that, let me turn the call to Chelsea to start the Q&A session.

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Chelsea Heffernan

Vice President-Investor Relations, Cirrus Logic, Inc.

Thanks, Venk. We will now start the Q&A portion of the earnings call. Please limit yourself to a single question and one follow-up.

Operator, we are now ready to take questions.

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