CIRRUS LOGIC, INC. 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
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year ended
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. 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 2021 Annual Report on Form 10-K filed with the Commission on
Overview
The Company recently announced the acquisition of Lion Semiconductor, a leading
provider of proprietary fast-charging and power ICs, for
Impact of COVID-19
The Company remains committed to the safety and well-being of our employees, their families and our communities across the globe, while maintaining business continuity and continuing to provide outstanding support to our customers. At this time, the majority of our employees worldwide continue to work remotely and remain subject to travel restrictions, due to COVID-19. Despite these challenges, all teams across the organization remain highly productive and we currently anticipate that the Company will be able to continue to maintain a similar level of productivity for the foreseeable future. Although we have not experienced a significant reduction in our overall productivity through fiscal year 2022 to date, any increased or additional disruptions to our business operations due to these restrictions would likely impact our ability to continue to maintain current levels of productivity.
The COVID-19 pandemic is likely to continue to cause volatility and uncertainty in customer demand, worldwide economies and financial markets for some period of time. 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, although we are addressing capacity constraints in our supply chain as described above. The Company has not accessed its Credit
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Facility or raised capital in the public or private markets. Given our strong
net cash position and available borrowings under our
Critical Accounting Policies
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
During the three months ended
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 2022 and 2021 are both 52-week fiscal years.
The following table summarizes the results of our operations for the first three
months of fiscal years 2022 and 2021, respectively, as a percentage of net
sales. All percentage amounts were calculated using the underlying data in
thousands, unaudited:
Three Months Ended
June 26, June 27,
2021 2020
Net sales 100 % 100 %
Gross margin 50 % 53 %
Research and development 31 % 33 %
Selling, general and administrative 12 % 12 %
Restructuring costs - % - %
Income from operations 7 % 8 %
Interest income - % 1 %
Interest expense - % - %
Other income (expense) - % - %
Income before income taxes 7 % 9 %
Provision for income taxes 1 % 1 %
Net income 6 % 8 %
Net Sales
Net sales for the first quarter of fiscal year 2022 increased
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International sales, including sales to
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 2022 and 2021, our ten largest end customers represented approximately 90 percent and 91 percent of our net sales, respectively.
We had one end customer, Apple Inc., that purchased through multiple contract manufacturers and represented approximately 72 percent and 83 percent, of the Company's total net sales for the first quarters of fiscal years 2022 and 2021, respectively.
No other end customer or distributor represented more than 10 percent of net
sales for the three months ended
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 50.5 percent in the first quarter of fiscal year 2022, down from 52.6 percent in the first quarter of fiscal year 2021. The decrease was primarily driven by typical pricing reductions in excess of cost savings on certain components, a shift in product mix, and to a lesser extent, higher supply chain costs. We believe continued supply constraints and increased costs beginning in the fourth quarter of fiscal year 2022 will likely take us slightly below our long-term gross margin model of 50 percent in fiscal year 2023.
Research and Development Expense
Research and development expense for the first quarter of fiscal year 2022 was
Selling, General and Administrative Expense
Selling, general and administrative expense for the first quarter of fiscal year
2022 was
Restructuring Costs
During the fourth quarter of fiscal year 2020, the Company approved the MEMS
Restructuring, including discontinuing efforts relating to the MEMS microphone
product line. The Company recorded charges of approximately
Interest Income
The Company reported interest income of
Interest Expense
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--------------------------------------------------------------------------------Other Income (Expense)
For the three months ended
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 26 , June 27,
2021 2020
Income before income taxes
12.3 % 10.6 %
Our income tax expense for the first quarter of fiscal year 2022 was
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 generated from operations, cash generated from the sale and maturity of
marketable securities, and available borrowings under our
Cash used in or generated by operating activities is net income adjusted for
certain non-cash items and changes in working capital. Cash used in
operations was
Net cash used in investing activities was
Net cash used in financing activities was
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 Lion Semiconductor acquisition (discussed
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further in Note 16 - Subsequent Events of the Notes to the Consolidated
Condensed Financial Statements and Item 1A. Risk Factors below) and potential
future acquisitions of companies or technologies, commitments under the
On
Borrowings under the Credit Facility may, at our 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 0.50% per annum for Base Rate Loans and 1.25% to 2.00% per annum for LIBOR Rate Loans based on the Leverage Ratio (as defined below). A commitment fee accrues at a rate per annum ranging from 0.20% to 0.30% (based on the Leverage Ratio) on the average daily unused portion of the commitment of the lenders. The Credit Agreement contains certain financial covenants providing that (a) the ratio of consolidated funded indebtedness to consolidated EBITDA for the prior four fiscal quarters must not be greater than 3.00 to 1.00 (the "Leverage Ratio") and (b) the ratio of consolidated EBITDA for the prior four consecutive fiscal quarters to consolidated fixed charges (including amounts paid in cash for consolidated interest expenses, capital expenditures, scheduled principal payments of indebtedness, and income taxes) for the prior four consecutive fiscal quarters must not be less than 1.25 to 1.00 as of the end of each fiscal quarter. The Credit Agreement also contains negative covenants limiting the Company's or any Subsidiary's ability to, among other things, incur debt, grant liens, make investments, effect certain fundamental changes, make certain asset dispositions, and make certain restricted payments.
As of
See Note 16 - Subsequent Events of the Notes to the Consolidated Condensed Financial Statements for details on the Second Amended Credit Agreement related to the Revolving Credit Facility.
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