The following discussion should be read along with the unaudited consolidated condensed financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended March 26, 2022, contained in our fiscal year 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "Commission") on May 20, 2022. We maintain a website at investor.cirrus.com, which makes available free of charge our most recent annual report and all other filings we have made with the Commission.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q including Management's Discussion and Analysis of Financial Condition and Results of Operations and certain information incorporated herein by reference contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). These forward-looking statements are based on expectations, estimates, forecasts and projections and the beliefs and assumptions of our management as of the filing of this Form 10-Q. In some cases, forward-looking statements are identified by words such as "expect," "anticipate," "target," "project," "believe," "goals," "estimates," "intend," and variations of these types of words and similar expressions which are intended to identify these forward-looking statements. In addition, any statements that refer to our plans, expectations, strategies or other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements and readers should not place undue reliance on such statements. We undertake no obligation, and expressly disclaim any duty, to revise or update publicly any forward-looking statement for any reason.

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see "Item 1A - Risk Factors" in our 2022 Annual Report on Form 10-K filed with the Commission on May 20, 2022, and in Part II, Item 1A "Risk Factors" within this Quarterly Report on Form 10-Q. Readers should carefully review these risk factors, as well as those identified in other documents filed by us with the Commission.

Overview

Cirrus Logic, Inc. ("Cirrus Logic," "We," "Us," "Our," or the "Company") is a leader in low-power, high-precision mixed-signal processing solutions that create innovative user experiences for the world's top mobile and consumer applications.

We remain committed to our three-pronged strategy for growing our business: first, maintaining our leadership position in smartphone audio; second, broadening sales of audio components in key profitable applications beyond smartphones; and third, applying our mixed-signal engineering expertise to develop solutions in new, adjacent high-performance mixed-signal applications and markets.

As capacity constraints persist, Cirrus Logic continues to experience demand in excess of supply. In fiscal year 2022, we entered into a long-term Capacity Reservation and Wafer Supply Commitment Agreement with GlobalFoundries, to expand our ability to address unprecedented market demand and provide customers with much-needed supply assurance. We are working with our partners to expand capacity where possible. See additional information in Note 13 - Commitments and Contingencies of the Notes to the Consolidated Condensed Financial Statements.


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Impact of COVID-19

We continue to expect that COVID-19 will have an adverse effect on our business, financial condition, and results of operations and, with the pandemic ongoing, we are unable to predict the full extent and nature of these impacts at this time. The COVID-19 pandemic will likely heighten or exacerbate many of the other risks described in the risk factors listed in our Form 10-K for the year ended March 26, 2022, and in our other filings with the Commission.

In the longer term, the COVID-19 pandemic is likely to continue to adversely affect the economies and financial markets of many countries, potentially leading to a global economic downturn, inflation or a recession. This would likely adversely affect the demand environment for our products and those of our customers, particularly consumer products such as smartphones, which may, in turn negatively affect our revenue and operating results. To date, any negative impact of COVID-19 on the overall demand for our products, cash flow from operations, need for capital expenditures, and our liquidity position has been limited.

Critical Accounting Policies and Estimates

Our discussion and analysis of the Company's financial condition and results of operations are based upon the unaudited consolidated condensed financial statements included in this report, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts. We evaluate the estimates on an on-going basis. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

There have been no significant changes during the three months ended June 25, 2022, to the information provided under the headings "Critical Accounting Estimates" and "Summary of Significant Accounting Policies" included in our fiscal year 2022 Annual Report on Form 10-K for the fiscal year ended March 26, 2022.

Recently Issued Accounting Pronouncements

For a discussion of recently issued accounting pronouncements, refer to Note 2 of the Notes to the Consolidated Condensed Financial Statements.

Results of Operations

Our fiscal year is the 52- or 53-week period ending on the last Saturday in March. Fiscal years 2023 and 2022 are both 52-week fiscal years.


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The following table summarizes the results of our operations for the first three
months of fiscal years 2023 and 2022, respectively, as a percentage of net
sales. All percentage amounts were calculated using the underlying data in
thousands, unaudited:

                                              Three Months Ended
                                            June 25,           June 26,
                                              2022               2021
Net sales                                           100  %        100  %
Gross margin                                         51  %         50  %
Research and development                             28  %         31  %
Selling, general and administrative                   9  %         12  %

Income from operations                               14  %          7  %
Interest income                                       -  %          -  %
Interest expense                                      -  %          -  %
Other income                                          -  %          -  %
Income before income taxes                           14  %          7  %
Provision for income taxes                            4  %          1  %
Net income                                           10  %          6  %



Net Sales

Net sales for the first quarter of fiscal year 2023 increased $116.4 million, or 42 percent, to $393.6 million from $277.3 million in the first quarter of fiscal year 2022. Net sales from high-performance mixed-signal products increased $79.2 million for the quarter versus the first quarter of fiscal year 2022, primarily due to content gains, particularly in smartphones. Net sales from our audio products increased $37.1 million, primarily driven by higher ASPs.

International sales, including sales to U.S.-based end customers that manufacture products through contract manufacturers or plants located overseas, were approximately 98 percent of net sales for each of the first quarters of fiscal years 2023 and 2022. Our sales are denominated primarily in U.S. dollars.

Since the components we produce are largely proprietary, we consider our end customer to be the entity specifying the use of our component in their design. These end customers may purchase our products directly from us, through distributors or third-party manufacturers contracted to produce their designs. For the first quarter of fiscal years 2023 and 2022, our ten largest end customers represented approximately 89 percent and 90 percent of our net sales, respectively.

We had one end customer, Apple Inc., that purchased through multiple contract manufacturers and represented approximately 79 percent and 72 percent, of the Company's total net sales for the first quarter of fiscal years 2023 and 2022, respectively.

No other end customer or distributor represented more than 10 percent of net sales for the three months ended June 25, 2022 or June 26, 2021.

For more information, please see Part II-Item 1A-Risk Factors- "We depend on a limited number of customers and distributors for a substantial portion of our sales, and the loss of, or a significant reduction in orders from, or pricing on products sold to, any key customer or distributor could significantly reduce our sales and our profitability."

Gross Margin

Gross margin was 51.5 percent in the first quarter of fiscal year 2023, up from 50.5 percent in the first quarter of fiscal year 2022. The increase reflects the favorable impact of higher ASPs on general market products in excess of supply chain cost increases.

Research and Development Expense

Research and development expense for the first quarter of fiscal year 2023 was $109.7 million, an increase of $24.0 million, from $85.7 million in the first quarter of fiscal year 2022. The primary drivers were higher employee-related expenses,


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including additional headcount, amortization of acquisition intangibles, acquisition-related costs, stock compensation, variable compensation, product development and facilities-related costs.

Selling, General and Administrative Expense

Selling, general and administrative expense for the first quarter of fiscal year 2023 was $38.6 million, an increase of $3.5 million, from $35.1 million in the first quarter of fiscal year 2022, primarily due to higher employee-related expenses and variable compensation.

Interest Income

The Company reported interest income of $0.5 million and $1.0 million, for the three months ended June 25, 2022 and June 26, 2021, respectively. Interest income decreased in the current period due to lower yields on lower combined average cash, cash equivalents and marketable securities balances, compared to the prior period.

Interest Expense

The Company reported interest expense of $0.2 million and $0.3 million for the three months ended June 25, 2022 and June 26, 2021, respectively. Interest expense consists primarily of commitment fees associated with the Company's Revolving Credit Facility (see Note 9).

Other Income (Expense)

For the three months ended June 25, 2022 and June 26, 2021, the Company reported $0.5 million in other income and $0.2 million in other expense, respectively, primarily related to remeasurement on foreign currency denominated monetary assets and liabilities.

Income Taxes

Our provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items and any applicable credits.



The following table presents the provision for income taxes (in thousands) and
the effective tax rates:

                                  Three Months Ended
                               June 25,       June 26,
                                 2022           2021

Income before income taxes $ 55,087 $ 19,622 Provision for income taxes $ 15,380 $ 2,413 Effective tax rate

                27.9  %        12.3  %

Our income tax expense for the first quarter of fiscal year 2023 was $15.4 million compared to $2.4 million for the first quarter of fiscal year 2022, resulting in effective tax rates of 27.9% and 12.3%, respectively. Our effective tax rate for the first quarter of fiscal year 2023 increased significantly year over year and was higher than the federal statutory rate primarily due to a provision in the Tax Cuts and Jobs Act of 2017 (the "Act") whereby research and development expenditures incurred in tax years beginning after December 31, 2021 must be capitalized and amortized ratably over five or fifteen years for tax purposes, depending on the location in which the research activities are conducted. The resulting capitalization of research and experimental costs impacted the calculation of the Company's global intangible low-taxed income ("GILTI"), which is treated as a period cost, beginning in the first quarter of fiscal year 2023. Our effective tax rate for the first quarter of fiscal year 2022 was lower than the federal statutory rate primarily due to the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate.

Liquidity and Capital Resources

We require cash to fund our operating expenses and working capital requirements, including outlays for inventory, capital expenditures, share repurchases, and strategic acquisitions. Our principal sources of liquidity are cash on hand, cash


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generated from operations, cash generated from the sale and maturity of marketable securities, and available borrowings under our $300 million Revolving Credit Facility.

Cash from operating activities is net income adjusted for certain non-cash items and changes in working capital. Cash flow from operations was $74.4 million for the first three months of fiscal year 2023 versus cash used in operations of $26.8 million for the corresponding period of fiscal year 2022. The cash flow from operations during the first three months of fiscal year 2023 was related to the cash components of our net income and a $5.5 million favorable change in working capital, primarily as a result of a decrease in accounts receivables and increase in income taxes payable, partially offset by an increase in inventory and decrease in accounts payable and other accrued liabilities for the period. The cash flow used in operations during the corresponding period of fiscal year 2022 was related to the cash components of our net income and a $61.7 million unfavorable change in working capital, primarily as a result of increases in accounts receivable and inventories, as well as decreases in accounts payable and other accrued liabilities.

Net cash used in investing activities was $7.7 million during the first three months of fiscal year 2023 versus $16.7 million during the first three months of fiscal year 2022. The cash used in investing activities in the first three months of fiscal year 2023 was related to capital expenditures and technology investments of $7.2 million and net purchases of marketable securities of $0.5 million. The cash used in investing activities in the corresponding period in fiscal year 2022 was related to capital expenditures and technology investments of $11.9 million and net purchases of marketable securities of $4.8 million.

Net cash used in financing activities was $57.1 million during the first three months of fiscal year 2023 and was primarily associated with stock repurchases for the period of $56.4 million. The cash used in financing activities during the first three months of fiscal year 2022 of $13.5 million was primarily associated with stock repurchases during the period of $12.5 million.

Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, the Acquisition (discussed further in Note 8 - Acquisition of the Notes to the Consolidated Condensed Financial Statements) and potential future acquisitions of companies or technologies, commitments under the Capacity Reservation Agreement with GlobalFoundries (discussed further in Note 13 - Commitments and Contingencies of the Notes to the Consolidated Condensed Financial Statements), and the expansion of our sales and marketing activities. We believe our expected future cash earnings, existing cash, cash equivalents, investment balances, and available borrowings under our Revolving Credit Facility will be sufficient to meet our capital requirements through at least the next 12 months, although we could be required, or could elect, to seek additional funding prior to that time.

Revolving Credit Facility

On July 8, 2021, the Company entered into a second amended and restated credit agreement (the "Second Amended Credit Agreement") with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto. The Second Amended Credit Agreement provides for a $300 million senior secured revolving credit facility (the "Revolving Credit Facility"). The Revolving Credit Facility matures on July 8, 2026 (the "Maturity Date"). The Revolving Credit Facility is required to be guaranteed by all of Cirrus Logic's material domestic subsidiaries ("Subsidiary Guarantors"). The Revolving Credit Facility is secured by substantially all the assets of Cirrus Logic and any Subsidiary Guarantors, except for certain excluded assets.

Borrowings under the Revolving Credit Facility may, at Cirrus Logic's election, bear interest at either (a) a base rate plus the applicable margin ("Base Rate Loans") or (b) a LIBOR rate plus the applicable margin ("LIBOR Rate Loans"). The Applicable Margin ranges from 0% to 0.75% per annum for Base Rate Loans and 1.00% to 1.75% per annum for LIBOR Rate Loans based on the ratio of consolidated funded indebtedness to consolidated EBITDA for the most recently ended period of four consecutive fiscal quarters (the "Consolidated Leverage Ratio"). The Second Amended Credit Agreement further provides a method for determining an alternative rate of interest if the LIBOR Rate is no longer available or upon the occurrence of certain other events. A Commitment Fee accrues at a rate per annum ranging from 0.175% to 0.275% (based on the Consolidated Leverage Ratio) on the average daily unused portion of the commitment of the lenders.

The Second Amended Credit Agreement contains customary affirmative covenants, including, among others, covenants regarding the payment of taxes and other obligations, maintenance of insurance, reporting requirements, and compliance with applicable laws and regulations. Further, the Second Amended Credit Agreement contains customary negative covenants limiting the ability of Cirrus Logic or any Subsidiary to, among other things, incur debt, grant liens, make investments, effect certain fundamental changes, make certain asset dispositions, and make certain restricted payments. The Revolving Credit Facility also contains certain financial covenants providing that (a) the ratio of consolidated funded indebtedness (minus up to $200 million of unrestricted cash and cash equivalents available on such date) to consolidated


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EBITDA for the prior four consecutive quarters must not be greater than 3.00 to 1.00 (the "Consolidated Net Leverage Ratio") and (b) the ratio of consolidated EBITDA for the prior four consecutive quarters to consolidated interest expense paid or payable in cash for the prior four consecutive quarters must not be less than 3.00 to 1.00 (the "Consolidated Interest Coverage Ratio").

As of June 25, 2022, the Company had no amounts outstanding under the Revolving Credit Facility and was in compliance with all covenants under the Second Amended Credit Agreement.

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