Cirrus Logic : Shareholder Letter Q4FY2022 (PDF)

Q4 FY22

Letter to Shareholders

May 3, 2022

May 3, 2022

Dear Shareholders,

Cirrus Logic delivered record fourth quarter and full fiscal year revenue and EPS in FY22. Revenue of $1.78 billion was up 30 percent year-over-year driven by high-performance mixed-signal dollar content gains in smartphones. GAAP and non-GAAP operating profit for the full fiscal year were 20.6 percent and 26.5 percent, respectively. FY22 GAAP and non-GAAP EPS were $5.52 and $6.90, respectively. Q4 FY22 revenue was $490.0 million and GAAP and non-GAAP earnings per share were $1.64 and $2.01, respectively. Revenue for the quarter was substantially above the high end of guidance as component shipments into smartphones exceeded expectations.

In FY22, we made significant progress driving product diversification through our high-performance mixed-signal business, as we shipped our first-generation power conversion and control IC, broadened our power footprint with the addition of fast-charging solutions, and increased the attach rate of our camera controllers. In audio, we maintained our leadership position in smartphones while also expanding our presence in laptops. Moving forward, we expect to continue to leverage our expertise in mixed-signal design and advanced low-power signal processing to execute on our product roadmap and strategic vision to capitalize on growth opportunities in new applications and markets. Overall, our product diversification progress resulted in 67 percent of revenue being derived from audio and 33 percent of revenue from high-performance mixed-signal products for FY22.

Before we discuss the results in further detail, we would like to welcome two new executives to the Cirrus Logic leadership team. In March, Denise Grodé joined Cirrus Logic as chief human resources officer. Denise brings a proven track record of aligning human resources strategy with business objectives, and she is well-positioned to help us hire, develop, and manage the global talent we need to exceed our customer expectations and maximize our organizational effectiveness. We also recently welcomed Venk Nathamuni as our chief financial officer. With a deep knowledge of the semiconductor industry, Venk brings considerable experience in corporate finance and strategy, business development, M&A, and investor relations, and we believe he will be a great asset to Cirrus Logic as we continue to drive our business forward. We would also like to take this opportunity to thank Thurman Case for his outstanding dedication and commitment to Cirrus Logic over the past 21 years. We greatly appreciate his many contributions to our company's growth while also building a world-class finance organization during his tenure as CFO. We wish him all the best for the future.

Figure A: Cirrus Logic Q4 FY22 and FY22 Results

Revenue

$490.0

$490.0

Gross Margin 52.8%

52.9%

Operating Income $107.9

$28.0

$135.9

Income Tax Expense $11.5

$6.8

$18.3

Q4 FY22	GAAP	Adj.	Non-GAAP*	FY22	GAAP	Adj.	Non-GAAP*
Gross Profit	$258.7	$0.3	$259.0	Gross Profit	$923.6	$4.5	$928.1
Operating Expense*	$150.9	($27.8)	$123.1	Operating Expense*	$557.3	($101.1)	$456.2
Operating Profit	22.0%	27.7%	Operating Profit	20.6%	26.5%
Interest Expense	($0.1)	($0.1)	Interest Income	$0.6	$0.6
Other Income	$0.2	$0.2	Other Income	$1.7	$1.7
Net Income	$96.4	$21.3	$117.7	Net Income	$326.4	$81.8	$408.2

Revenue

$1,781.5

$1,781.5

Gross Margin 51.8%

52.1%

Operating Income $366.3

$105.6

$471.9

Income Tax Expense $42.3

$23.7

$66.0

Diluted EPS $1.64

$0.37

$2.01

Diluted EPS $5.52

$1.38

$6.90

*Complete GAAP to Non-GAAP reconciliations available on page 15 Numbers may not sum due to rounding $ millions, except EPS

Revenue and Gross Margins

Cirrus Logic reported revenue for FY22 of $1.78 billion, up 30 percent year over year. Growth was driven by high-performance mixed-signal content gains in smartphones and, to a lesser extent, sales of fast-charging ICs in smartphones as well as audio products in laptops. In FY22, revenue from the acquisition of Lion Semiconductor contributed $44.5 million, below our original expectations, due to weakness in the China smartphone market. Revenue for the March quarter was $490.0 million, down 11 percent sequentially but up 67 percent year over year. The decline in revenue on a sequential basis reflects a reduction in smartphone unit volumes and a shift in product mix to smartphones with less high-performance mixed-signal content. This was partially offset by higher ASPs. Growth in year-over-year sales was driven by an increase in smartphone units, high-performance mixed-signal content gains, higher ASPs and, to a lesser extent, higher sales of fast-charging ICs in smartphones as well as audio products in laptops. For both the full fiscal year and Q4 FY22, revenue derived from our audio and high-performance mixed-signal product lines represented 67 percent and 33 percent of total revenue, respectively. In FY22, high-performance mixed-signal revenue increased 124 percent year over year.

One customer contributed approximately 79 percent of total revenue in both FY22 and Q4 FY22.

Our relationship with our largest customer remains outstanding, with continued strong designactivity 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 this business.

Figure B: Cirrus Logic Revenue (M) Q1 FY21 to Q1 FY23

$600 $548

Q1/FY21

Q2/FY21

Q3/FY21

Q4/FY21

Q1/FY22

Q2/FY22

Q3/FY22

Q4/FY22

Q1/FY23

AudioHigh-Performance Mixed-Signal

*Midpoint of guidance as of May 3, 2022

In the June quarter, we expect revenue to range from $350 million to $390 million, down 24 percent sequentially but up 33 percent year over year at the midpoint. The forecasted sequential decline is largely due to an anticipated reduction in smartphone unit volumes. On a year-over-year basis, our expected revenue growth is primarily driven by anticipated increases in demand for certain components shipping in smartphones, and to a lesser extent, higher ASPs compared to the prior year.

Figure C: High-Performance Mixed-Signal Revenue Contribution FY19 - FY22

High-performance mixed-signal solutions include camera controllers, haptics and sensing, fast-charging and power conversion and control ICs

FY22 GAAP gross margin was 51.8 percent, roughly flat year over year compared to 51.7 percent in FY21. Non-GAAP gross margin for the full fiscal year was 52.1 percent, an increase of 40 basis points compared to 51.7 percent in the prior year. GAAP gross margin in the March quarter was 52.8 percent, compared to 52.8 percent in Q3 FY22 and 50.5 percent in Q4 FY21. Non-GAAP gross margin in the March quarter was 52.9 percent, compared to 52.8 percent in Q3 FY22 and 50.5 percent in Q4 FY21. On a sequential basis, gross margin was flat as higher supply chain costs offset the favorable impact of higher ASPs. The year-over-year change in gross margin reflects higher ASPs, which were partially offset by supply chain cost increases. Going forward, we expect gross margins to normalize around our long-term model of 50 percent as we ship inventory built at higher costs compared to Q4 FY22. As a result, in the June quarter, we expect gross margin to range from 49 percent to 51 percent.

Operating Profit, EPS, and Cash

For FY22, Cirrus Logic delivered GAAP operating profit of 20.6 percent, up 330 basis points compared to 17.3 percent in the prior year. Non-GAAP operating profit was 26.5 percent, an increase of 410 basis points compared to 22.4 percent in FY21. GAAP and non-GAAP operating expense for the full fiscal year was $557.3 million and $456.2 million, respectively. The year-over-year increase was primarily due to higher employee-related costs, amortization of acquired intangibles, variable compensation, and stock-based compensation. GAAP operating expense included $65.4 million in stock-based compensation, $27.0 million in amortization of acquired intangibles and $8.7 million in acquisition-related costs. GAAP and non-GAAP operating expense in FY21 was $470.1 million and $401.9 million, respectively. GAAP operating expense in FY21 included $55.9 million in stock-based compensation and $12.0 million in amortization of acquired intangibles.