Cirrus Logic : Transcript Q3FY2022 (PDF)

Corrected Transcript

31-Jan-2022

Cirrus Logic, Inc. (CRUS)

Q3 2022 Earnings Call

	Total Pages: 19
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Cirrus Logic, Inc. (CRUS)	Corrected Transcript
Q3 2022 Earnings Call	31-Jan-2022

CORPORATE PARTICIPANTS

Thurman Klay Case	Chelsea Heffernan
Chief Financial Officer & Vice President-Finance, Cirrus Logic, Inc.	Vice President-Investor Relations, Cirrus Logic, Inc.
John Forsyth
President, Chief Executive Officer & Director, Cirrus Logic, Inc.

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OTHER PARTICIPANTS

Tore Egil Svanberg	Christopher Rolland
Analyst, Stifel, Nicolaus & Co., Inc.	Analyst, Susquehanna International Group LLP (SIG)
Matthew D. Ramsay	Raji Gill
Analyst, Cowen & Co. LLC	Analyst, Needham & Co. LLC
Blayne Curtis	Ananda Baruah
Analyst, Barclays Capital, Inc.	Analyst, Loop Capital Markets LLC
Ruben Roy	Vivek Arya
Analyst, WestPark Capital, Inc. (Securities)	Analyst, BofA Securities, Inc.
David Williams	Derek Soderberg
Analyst, The Benchmark Co. LLC	Analyst, Colliers Securities LLC

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MANAGEMENT DISCUSSION SECTION

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Third Quarter Fiscal Year 2022 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 call is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Thurman Case, Chief Financial Officer. Mr. Case, you may begin.

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Thurman Klay Case

Chief Financial Officer & Vice President-Finance, Cirrus Logic, Inc.

Thank you and good afternoon. Joining me on today's call is John Forsyth, Cirrus Logic's Chief Executive Officer; and Chelsea Heffernan, our Vice President of Investor Relations. Today, we announced our financial results for the third quarter fiscal year 2022 at approximately 4:00 PM. The shareholder letter discussing our financial results, the earnings press release, including a reconciliation of non-GAAP financial information to the most directly comparable GAAP information along with the webcast of this Q&A session are all available on the company's Investor Relations website at investor.cirrus.com.

This call will feature questions from the analysts covering our company as well as questions submitted to us via email at [e-mail]. Please note that during this session, we may make projections and other forward-

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Cirrus Logic, Inc. (CRUS)	Corrected Transcript
Q3 2022 Earnings Call	31-Jan-2022

looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections. 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 Form 10-K, as well as other corporate filings made with the Security (sic) [Securities] (00:02:17) and Exchange Commission for additional discussions of risk factors that could cause actual results to differ materially from current expectations. Now, I'll turn the call over to John.

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John Forsyth

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

Thank you Thurman. Cirrus Logic reported record revenue of $548.3 million in the December quarter, above the top end of our guidance, driven by significant contributions from increased high-performancemixed-signal contents shipping into smartphones and strong overall demand for our products. These results reflect our continued momentum in fiscal year 2022 and mark another milestone in the execution of our strategy to diversify our product and technology portfolio. High-performancemixed-signal products contributed 38% of total revenue in the quarter with the most significant areas of growth coming from increased shipments of camera controller content and our power conversion and control IC.

We were also encouraged by progress in other areas of our business. In fast charging while we have seen some impacts from the comparative softness in parts of the China smartphone market towards the end of the calendar year, we continue to see OEMs heavily promote fast charging as a differentiating feature and we take that two new components during the quarter that are expected to go into production in the first half of the fiscal year.

In our audio product lines, design activity for components shipping and flag shipping mid-tier android smartphones was robust and we're excited about new devices utilizing our products that will be introduced in the first half of the calendar year. We also continue to see positive momentum with audio and laptops. Most of our laptop revenue in the past year has been driven by codec shipments. However in the December quarter, we also began initial shipments of our first boosted amplifiers in this device category, again, marking great progress by the team towards one of our strategic objectives.

Looking forwards, we're excited by the opportunities to expand our addressable market and drive diversification in the coming years through both our audio business and in particular our high-performancemixed-signal business. With this in mind, today we are funding strategic developments in new technologies in a range of areas including sensing, power and battery systems. These investments target both opportunities for incremental content in products where we ship today and opportunities in new applications end markets.

While our high-performancemixed-signal product line represents 33% of our year-to-date sales in fiscal year 2022, we anticipate that this can expand to at least half of our revenue in the future even as we continue to consolidate and build on our audio leadership. We're very encouraged overall by the traction we're gaining with our high-performancemixed-signal solutions and remain optimistic that that are meaningful opportunities for further growth and product diversification ahead.

Before we begin the Q&A, I would like to note as always that while we understand there is intense interest related to our largest customer, in accordance with our policy, we do not discuss specifics about our business relationship.

Operator, we're now ready to take questions.

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Cirrus Logic, Inc. (CRUS)	Corrected Transcript
Q3 2022 Earnings Call	31-Jan-2022

QUESTION AND ANSWER SECTION

Operator: Thank you, sir. [Operator Instructions] Our first question comes from the line of Tore Svanberg from Stifel. Your line is open.

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Tore Egil Svanberg

Analyst, Stifel, Nicolaus & Co., Inc.

Q

Yes, thank you and congratulations on the record results. My first question is on the guidance which is better than seasonal. You made some references to better ASPs, but is that the main difference, the better ASPs or are there other things contributing to the above seasonal guidance?

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John Forsyth

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

A

Thanks, Tore. The main drivers of both the guidance and the results we are reporting are units and content increases with price adjustments also being a component. But as regards looking out to the March quarter, the guidance is mostly driven by the strength of demand for our products and our customers' products and us working to meet that demand.

So in fact when we look at the March quarter, it doesn't look like a typical seasonal quarter - seasonal step down from December to March, it looks very strong. We're actually pulling material into the current quarter wherever we can in order to try to meet customer demand. And so, our expectation as we go beyond that when we get into the June quarter, we're not guiding the June quarter just now, but we expect the seasonal pattern between the March quarter and the June quarter to be more typical of what we'd expect between the December and the March quarters but the principal driver for the strong guidance and the strong results is units and the content gains which we have talked about.

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Tore Egil Svanberg

Analyst, Stifel, Nicolaus & Co., Inc.

Q

Very good. And as a follow-up, you obviously expect high-performancemixed-signal to continue with the very strong momentum and you mentioned sensing power and battery management as the three areas you are continuing to invest in. Just to give us some perspective, what kind of inning are we in as far as those three new product offerings or those two technologies becoming a more material part of the business going forward?

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John Forsyth

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

A

I think the potential is really great. We're still in the early innings. On the power side, we are in the second quarter of shipping V1, our first power product and then obviously we've got fast charging products, most of which were really designed before the Lion acquisition was complete, either shipping or coming out. But we have a lot more in both of those areas that we believe we can do.

In addition, if we look at the camera controller content which is also an important contributor to the high- performance mixed-signal, again that scenario where we saw some year-on-year content increase through additional attach rate in the current cycle but where we anticipate sustained year-on-year growth both through attach rate and through feature enhancement and so when we look at our roadmaps whether it's for sensing,

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Cirrus Logic, Inc. (CRUS)	Corrected Transcript
Q3 2022 Earnings Call	31-Jan-2022

power, battery-related technologies, camera controllers and so on, all the moving pieces in the high-performancemixed-signal space, we have a lot of projects that are either on the way or we have got slated for the future there.

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Operator: Our next question comes from the line of Matt Ramsay from Cowen. Your line is open.

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Matthew D. Ramsay

Analyst, Cowen & Co. LLC

Q

Thank you very much. Congrats. Good afternoon, guys. I guess I wanted to ask a couple of questions that are kind of interrelated to kick things off and they're around ASPs and gross margin. You guys had taken the gross margin range down a couple of quarters ago and are coming in well above that which is great to see. So I guess for John and for Thurman, how sustainable do you think these margin levels are into the next fiscal year?

And I guess related to that, Tore touched a little bit on this ASP comment that was made in a couple places in the shareholder letter, one big thematic in semis right now is input cost going up and the ability of companies to pass those input cost on to the customer base and I think there was an investor assumption that given your concentration with your largest customer that might be difficult for you guys but judging from the margins, it looks like that is in fact happening. So if you could discuss those two dynamics in relation to the gross margin that would be helpful? Thank you.

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John Forsyth

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

A

Thanks, Matt and thanks for the nice words there. I would characterize our gross margin outlook as cautiously improved relative to my comments a couple of quarters back, but I would also encourage you and other folks not to extrapolate from the immediate quarter's guidance. There are some transient affects here and we expect the gross margin - our gross margin to normalize around 50% as we look to the new fiscal year. So that's the right place to be modeling I think.

And what's going on there is we have some price increases, price adjustments across a range of our products but we have also absorbed a lot of cost increases over the past year and have some new cost increases kicking in which kicked in at the start of this calendar year and these things don't true up perfectly in terms of timing. So in the March quarter, we have some sales which are going to be of inventory that was built on a slightly lower cost base. It inflates the gross margin a little for a period but then we expect that to normalize around 50% again.

So regarding your broader question on pricing, clearly, I think we have communicated in the past few calls that rising costs have been a feature of our business over the past year. We have absorbed a lot of that everywhere we can really. At the same time, our customers rely on us for innovation and value our partnership and so across a range of products and across our customer base, we work very closely with customers to find ways of solving that. Clearly, we're still absorbing cost, hence my comments about normalizing around 50%, but we do feel on a better footing than we did a couple of quarters ago.

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Matthew D. Ramsay

Analyst, Cowen & Co. LLC

Q

Thanks, John for all the details there. As a follow-up, I appreciate the investments that are being made in the non- audio parts of the business and that's going to be a disproportionate piece of growth going forward. I think you guys have been very clear on that. There has been new opportunities that have come up in non-smartphone markets, you mentioned laptops and a few others. I wondered, John, if you might offer some similar commentary

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