Cirrus Logic : Shareholder Letter Q1FY2022 (PDF)

Q1 FY22

Letter to Shareholders

July 28, 2021

July 28, 2021

Dear Shareholders,

Cirrus Logic delivered Q1 FY22 revenue of $277.3 million, with demand robust for components shipping in both smartphones and laptops. GAAP and non-GAAP earnings per share were $0.29 and $0.54, respectively. Our progress during the quarter included increasing penetration of our Android customers, ramping shipments with a leading laptop OEM, supporting the adoption of new content in anticipation of product launches in the latter half of the year and continuing the development of a number of new devices that are expected to fuel future revenue growth. In addition to these organic areas of progress, we are also excited to have recently acquired Lion Semiconductor, a leading provider of proprietary fast-charging and power ICs, for $335 million in cash. The acquisition adds further momentum to our strategy to drive growth through innovation in high-performancemixed-signal areas, including power, while also expanding our addressable market. With a strong product portfolio that is continuing to diversify and broaden, we believe Cirrus Logic is well- positioned for future success.

Figure A: Cirrus Logic Q1 FY22 Results

	GAAP	Adj.	Non-GAAP*
Revenue	$277.3		$277.3
Gross Profit	$139.9	$0.3	$140.2
Gross Margin	50.5%		50.6%
Operating Expense	$120.8	($17.7)	$103.1
Operating Income	$19.1	$18.0	$37.1
Operating Profit	6.9%		13.4%
Interest Income	$0.8		$0.8
Other Expense	($0.3)		($0.3)
Income Tax Expense	$2.4	$3.0	$5.4
Net Income	$17.2	$15.0	$32.2
Diluted EPS	$0.29	$0.25	$0.54

*Complete GAAP to Non-GAAP reconciliations available on page 13 $ millions, except EPS

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Revenue and Gross Margins

Revenue for the June quarter was $277.3 million, down six percent sequentially and up 14 percent year over year. The reduction in revenue on a sequential basis reflects a seasonal decline in smartphones ahead of new product introductions in the second half of the calendar year, which was partially offset by an increase in sales into laptops. The year-over-year increase was driven by higher smartphone volumes in Android, content gains in smartphones and an uptick in sales in laptops. This was offset somewhat by previously noted headwinds in wired headset codecs. In Q1 FY22, revenue derived from audio and high-performancemixed-signal products represented 78 percent and 22 percent of total revenue, respectively. One customer contributed 72 percent of total revenue during the quarter. Our relationship with our largest customer remains outstanding, with design activity continuing across a wide range of products. While we understand there is intense interest in this customer, in accordance with our policy, we do not discuss specifics about our business relationship.

Figure B: Cirrus Logic Revenue (M) Q3 FY20 to Q2 FY22

$600

$500		$486
		$450*
$400	$375	$347
$300	$279	$294	$277
		$243

$200

$100

$0

Q3/FY20

Q4/FY20

Q1/FY21

Q2/FY21

Q3/FY21

Q4/FY21

Q1/FY22

Q2/FY22

*Midpoint of guidance as of July 28, 2021

In the September quarter, we expect revenue to range from $430 million to $470 million, up 62 percent sequentially and up 30 percent year over year at the midpoint. Revenue guidance includes a partial quarter of contribution from Lion Semiconductor. The anticipated increase in revenue from the prior periods reflects higher unit volumes in smartphones and content gains in certain smartphones that are expected to launch later this year. Sales on a year-over-year basis are also

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being offset somewhat by previously noted headwinds in wired headset codecs which are expected to be behind us beginning Q3 FY22. In line with our previous comments, we continue to expect accelerated revenue growth for the full fiscal year driven by strong customer engagements and content gains in new products coming to market later in FY22.

GAAP gross margin in the June quarter was 50.5 percent, compared to 50.5 percent in Q4 FY21 and

1. percent in Q1 FY21. Non-GAAP gross margin in the quarter was 50.6 percent, compared to

1. percent in Q4 FY21 and 52.6 percent in Q1 FY21. The year-over-year decline is 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. In the September quarter, gross margin is expected to range from 50 percent to 52 percent. We believe continued supply constraints and increased costs beginning in Q4 FY22 will likely take us slightly below our long-term gross margin model of 50 percent in FY23.

Operating Profit, Earnings and Cash

Operating profit for Q1 FY22 was approximately 6.9 percent on a GAAP basis and 13.4 percent on a non-GAAP basis. GAAP operating expense was $120.8 million, down $2.6 million sequentially and up $12 million year over year. GAAP operating expense included $14.7 million in stock-based compensation and $3 million in amortization of acquired intangibles. Non-GAAP operating expense was $103.1 million, down $2.9 million sequentially and up $10.8 million year over year. The primary drivers of the changes in GAAP and non-GAAP operating expense are detailed below in order of significance in Figure C.

Figure C: Primary Drivers of Operating Expenses

↓	Q/Q	↑
Variable compensation
↑	Product Development	↑
↑	Professional Services	↑

*Excluded from non-GAAP operating expense

Y/Y

Employee-related expenses

Variable compensation

Stock-based compensation*

GAAP R&D and SG&A expenses for Q2 FY22 are expected to range from $135 million to $141 million, including roughly $17 million in stock-based compensation and $3 million in amortization of acquired intangibles. Operating expense guidance reflects higher variable compensation, costs associated with the expansion of our power-related products team, including $3.5M of non- recurring expenses and a partial quarter of expenses related to Lion Semiconductor. The

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combination of the power-related products team expansion and the acquisition added roughly 60 engineers to our Q2 headcount, which totaled 1,513 at the end of Q1. The sequential increase in stock-based compensation is primarily due to stock awards associated with this investment in power-related products.

Figure D: GAAP R&D and SG&A Expenses (M)/Headcount Q3 FY20 to Q2 FY22

$140										1,513
$130				1,466	1,480	1,474	1,481
1,441	1,443
$120
$110
$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
Q3 FY20	Q4 FY20	Q1 FY21	Q2 FY21	Q3 FY21	Q4 FY21	Q1 FY22	Q2 FY22
				R&D		SG&A		Expense*	Headcount

*Reflects midpoint of combined R&D and SG&A guidance as of July 28, 2021

GAAP earnings per share for the June quarter was $0.29, compared to $0.42 the prior quarter and $0.30 in Q1 FY21. Non-GAAP earnings per share for the June quarter was $0.54, versus $0.66 in Q4 FY21 and $0.53 in Q1 FY21.

Our ending cash and cash equivalents balance in the June quarter was $757.3 million, down from $810.6 million the prior quarter. The company's cash and cash equivalents balance for the June quarter does not reflect recent payments made for the $335 million acquisition of Lion Semiconductor and an expected $225 million payment associated with a Capacity Reservation and Wafer Supply Commitment Agreement with GlobalFoundries. The impact of these transactions will be reflected on the Q2 FY22 balance sheet. Cash used in operations for the quarter was approximately $26.8 million. In Q1 we utilized $12.5 million to repurchase 166,264 shares at an average price of $75.19, as we halted our repurchase activity during the period of due diligence relating to our acquisition of Lion Semiconductor. As of June 26, 2021, the company has $347.5

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