Cirrus Logic : Shareholder Letter Q3FY2022 (PDF)

Q3 FY22

Letter to Shareholders

January 31, 2022

January 31, 2022

Dear Shareholders,

In the December quarter, Cirrus Logic reported record revenue of $548.3 million, above the top end of our guidance, driven by significant contributions from increased high-performance mixed- signal content shipping into smartphones and strong overall demand for our products. GAAP and non-GAAP earnings per share were $2.16 and $2.54 respectively. These results reflect our continued momentum in FY22 and mark another milestone in the execution of our strategy to diversify our product and technology portfolio, with high-performancemixed-signal revenue making up 38 percent of total revenue in the quarter. While demand for components in recently- introduced smartphones drove the headline results, this quarter we also ramped shipments of boosted amplifiers and haptic drivers ahead of new product introductions in the coming months.

The company completed its annual strategic review in December, and we remain firm in our belief that further investment in high-performancemixed-signal solutions can expand our addressable market. 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 further market diversification. As we plan for the future, we aim to continue leveraging our extensive mixed-signal expertise and intellectual property portfolio towards long-term revenue growth and increased diversity in our business.

Figure A: Cirrus Logic Q3 FY22 Results

			GAAP	Adj.	Non-GAAP*
	Revenue		$548.3		$548.3
	Gross Profit		$289.5	$0.3	$289.8
	Gross Margin		52.8%		52.8%
	Operating Expense	$145.3	($29.8)	$115.5
	Operating Income		$144.2	$30.1	$174.3
	Operating Profit	26.3%		31.8%
	Interest Expense		($0.1)		($0.1)
	Other Expense	($0.1)		($0.1)
	Income Tax Expense		$16.4	$7.9	$24.3
	Net Income	$127.6	$22.2	$149.8
	Diluted EPS		$2.16	$0.38	$2.54

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

Q3 FY22 Letter to Shareholders

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Revenue and Gross Margins

Revenue for the December quarter was $548.3 million, up 18 percent sequentially and 13 percent year over year. The growth in revenue on a sequential basis reflects an increase in smartphone units from the prior quarter and, to a lesser extent, a favorable mix of smartphones with higher content. The year-over-year increase was driven by high-performancemixed-signal content gains in smartphones and, to a lesser extent, higher sales of fast-charging ICs in smartphones and audio products in laptops. This was partially offset by lower volumes of smartphone components on a year-over-year basis partly due to a later product launch in calendar 2020 versus 2021; as a result, our inventory build and initial volumes for this cycle began in the September quarter. In Q3 FY22, revenue derived from our audio and high-performancemixed-signal product lines represented 62 percent and 38 percent of total revenue, respectively. One customer contributed 82 percent of total revenue during the quarter. Our relationship with our largest customer remains outstanding, with design activity continuing across a wider range of products than any time in our past. 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) Q4 FY20 to Q4 FY22

$600

				$548
$500		$486		$466
				$420*
$400
		$347
$300	$279		$294	$277
$243

$200

$100

$0 Q4/FY20 Q1/FY21 Q2/FY21 Q3/FY21 Q4/FY21 Q1/FY22 Q2/FY22 Q3/FY22 Q4/FY22

	Audio		High-PerformanceMixed-Signal

*Midpoint of guidance as of January 31, 2022

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In the March quarter, we expect revenue to range from $400 million to $440 million, down 23 percent sequentially and up 43 percent year over year at the midpoint. We anticipate this sequential decline to be driven by a reduction in smartphone volumes following new ramps in the back half of the previous calendar year. This is partially offset by higher average selling prices on certain products and the anticipated launch of other flagship smartphones. On a year-over-year basis, the projected increase in sales reflects the continued benefit of high-performance mixed- signal content gains in smartphones, an increase in average selling prices on certain products and higher unit volumes.

Figure C: High-PerformanceMixed-Signal Revenue Contribution

High-performancemixed-signal solutions include camera controllers, haptics and sensing, fast-charging and power ICs

GAAP gross margin in the December quarter was 52.8 percent, compared to 50.5 percent in Q2 FY22 and 51.8 percent in Q3 FY21. Non-GAAP gross margin in the quarter was 52.8 percent, compared to 51.3 percent in Q2 FY22 and 51.8 percent in Q3 FY21. The sequential and year-over- year changes in gross margin reflect the phasing in of price increases across a number of our products in response to escalating costs within our supply chain. In the March quarter we expect gross margin to range between 51 percent and 53 percent due to anticipated shipments of inventory built prior to further increases in supply chain costs taking effect at the start of the calendar year. As we move into FY23, we expect these temporary effects to subside and for our gross margin to normalize around our long-term model of 50 percent.

Operating Profit, Earnings and Cash

Operating profit for Q3 FY22 was approximately 26.3 percent on a GAAP basis and 31.8 percent on a non-GAAP basis. GAAP operating expense was $145.3 million, up $5.1 million sequentially and $23.5 million year over year. GAAP operating expense included $17.6 million in stock-based compensation, $9.1 million in amortization of acquisition intangibles and $3.1 million in acquisition- related costs. Non-GAAP operating expense was $115.5 million, up $1.0 million sequentially and $9.7 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 D.

Q3 FY22 Letter to Shareholders

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Figure D: Primary Drivers of Operating Expenses

	Q/Q		Y/Y
↑		↑	Employee-related expenses, including costs
Amortization of acquisition intangibles*	associated with the expansion of our power-
			related products team
↑	Stock-based compensation*	↑	Amortization of acquisition intangibles*
		↑	Stock-based compensation*
		↑	Acquisition-related costs*
		↑	Variable compensation
		↑	Professional services
		↓	Product development

*Excluded from non-GAAP operating expense

GAAP R&D and SG&A expenses for Q4 FY22 are expected to range from $150 million to $156 million, including roughly $19 million in stock-based compensation, $8 million in amortization of acquired intangibles and $3 million in acquisition-related costs. The increase in operating expense reflects higher employee-related expenses and product development costs. Looking forward, as revenue grows, we envisage increasing R&D investment in order to address our most important strategic opportunities, through both reallocation of internal resources and additional recruitment, while continuing to gain increased leverage from our SG&A expense. The company's total headcount exiting Q3 was 1,587.

Figure E: GAAP R&D and SG&A Expenses (M)/Headcount Q4 FY20 to Q4 FY22

$160									1,513	1,592	1,587
	1,466	1,480	1,474	1,481
$150	1,443
$140
$130
$120
$110
$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
Q4 FY20	Q1 FY21	Q2 FY21	Q3 FY21	Q4 FY21	Q1 FY22	Q2 FY22	Q3 FY22	Q4 FY22
				R&D		SG&A		Expense*	Headcount
*Reflects midpoint of combined R&D and SG&A guidance as of January 31, 2022

Q3 FY22 Letter to Shareholders

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