Corrected Transcript

02-Feb-2023

Cirrus Logic, Inc. (CRUS)

Q3 2023 Earnings Call

Total Pages: 14

1-877-FACTSET www.callstreet.com

Copyright © 2001-2023 FactSet CallStreet, LLC

Cirrus Logic, Inc. (CRUS)

Corrected Transcript

Q3 2023 Earnings Call

02-Feb-2023

CORPORATE PARTICIPANTS

Chelsea Heffernan

Venkatesh R. Nathamuni

Vice President-Investor Relations, Cirrus Logic, Inc.

Chief Financial Officer, Cirrus Logic, Inc.

John Forsyth

President, Chief Executive Officer & Director, Cirrus Logic, Inc.

......................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Matthew D. Ramsay

Christopher Rolland

Analyst, Cowen and Company

Analyst, Susquehanna Financial Group LLLP

Tore Egil Svanberg

Raji Gill

Analyst, Stifel, Nicolaus & Co., Inc.

Analyst, Needham & Co. LLC

Blayne Curtis

Ananda Baruah

Analyst, Barclays Capital, Inc.

Analyst, Loop Capital Markets LLC

......................................................................................................................................................................................................................................................

MANAGEMENT DISCUSSION SECTION

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Third Quarter Fiscal Year 2023 Financial Results Q&A session. At this time, all participants are in a listen-only mode. After a brief statement, we will open up the call for questions from analysts. Instructions for queuing up will be provided at that time. As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the conference call over to Ms. Chelsea Heffernan, Vice President of Investor Relations. Ms. Heffernan, you may begin.

......................................................................................................................................................................................................................................................

Chelsea Heffernan

Vice President-Investor Relations, Cirrus Logic, Inc.

Thank you and good afternoon. Joining me on today's call is John Forsyth, Cirrus Logic's Chief Executive Officer; and Venk Nathamuni, Chief Financial Officer. Today, at approximately 4:00 PM Eastern Time, we announced our financial results for the third quarter fiscal year 2023. The Shareholder Letter discussing our financial results, the earnings press release, and the webcast of this Q&A session are all available at the company's Investor Relations website.

This call will feature questions from analysts covering our company. Additionally, the results and guidance we will discuss on this call will include non-GAAP financial measures that excludes certain items. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release and are all available on the company's Investor Relations website.

Please note that during this session, we may make projections, and other forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections. By providing

2

1-877-FACTSET www.callstreet.com

Copyright © 2001-2023 FactSet CallStreet, LLC

Cirrus Logic, Inc. (CRUS)

Corrected Transcript

Q3 2023 Earnings Call

02-Feb-2023

this information, the company expressly disclaims any obligation to update or revise any projections or forward- looking statements, whether as a result of new developments or otherwise.

Please refer to the press release and the Shareholder Letter issued today, which are available on the Cirrus Logic website and the latest Form 10-K, as well as other corporate filings registered with the Securities and Exchange Commission for additional discussion of Risk Factors that could cause actual results to differ materially from current expectations.

Now, I'd like to turn the call over to John.

......................................................................................................................................................................................................................................................

John Forsyth

President, Chief Executive Officer & Director, Cirrus Logic, Inc.

Thank you, Chelsea; and thank you, everyone, for joining today's call. As you've seen in the press release, Cirrus Logic delivered record revenue this quarter with sales of $590.6 million, driven by products shipping in smartphones. I'd like to express my sincere thanks to the entire Cirrus Logic team. as innovations, hard work and execution, and commitment to our customers made these results possible. And on behalf of all of us at Cirrus, I'd also like to communicate our gratitude to our customers and to all those who work with us throughout the supply chain, for their continued partnership and support.

In a moment, Venk is going to discuss the results in greater detail. But before we get on to that, I'd like to provide a progress update on the strategy driving our current momentum. As most of you know, the first pillar of that strategy is to maintain our leadership in smartphone audio. And during the past quarter, we saw a significant customer interest and traction across our portfolio of amplifiers and codecs in this market. We remain on track with the development of our next-generation22-nanometer smart codec which we taped out during the quarter, and with the development of our next-generation custom boosted amplifier. We expect to see both components introduced within the next couple of years.

These new products will deliver significant performance improvements over previous generations, enabling our customers to build even more compelling and power-efficient devices for their users. One aspect of our flagship amplifier and codec business that's not always fully visible to those outside the company is that these products are designed in a very thoughtful and feature-rich way in close collaboration with our customers, in order that they're able to run for numerous phone cycles following their initial introduction.

In fact, over time, we've seen the lifespan of codecs and amplifiers increase. And this means that in contrast to many components in the consumer smartphone market, we can anticipate multiple years of sales at high volumes from our next-generation audio products, providing the company with sustained revenue contribution, excellent long-term visibility and the opportunity to redeploy our highly skilled engineering teams on to innovations that target other products and markets. So this is why maintaining our long-term leadership in these product areas is foundational to our future growth.

The second key element of our growth strategy is to expand the reach of our audio components and technologies, especially into adjacent markets that we believe we can serve profitably by leveraging the intellectual property and innovations that we have developed for our smartphone products. One of those markets is laptops. And in spite of the current cyclical weakness in the PC space, we see laptops largely as a greenfield opportunity, where we continue to expect our addressable market to grow significantly over the coming years.

As evidence of this, in the last year alone, Cirrus Logic has been designed into more than 60 laptop models using existing audio products. And building on that momentum, during the last quarter we saw considerable design

3

1-877-FACTSET www.callstreet.com

Copyright © 2001-2023 FactSet CallStreet, LLC

Cirrus Logic, Inc. (CRUS)

Corrected Transcript

Q3 2023 Earnings Call

02-Feb-2023

activity around our new amplifier and codec products that have been specifically optimized for the laptop market. We expect the first platform utilizing these new products to begin shipping in the second half of fiscal year 2024.

The third pillar of our strategy is to leverage our world-classmixed-signal engineering expertise to build a growing footprint of products and intellectual property in, what we call, our high-performancemixed-signal product lines. The significance of this facet of our strategy is that, doing so expands our addressable market significantly beyond audio. And we believe that our considerable experience in mixed-signal product development and advanced process nodes, and in delivering high-performance data converters, high-precision sensing and advanced signal processing is highly relevant to a number of product domains.

The fact that we have already seen meaningful contributions from products in this category, highlights that our customers also increasingly see us more broadly as a world-classmixed-signal solution provider. And today, we have more activity within our high-performancemixed-signal R&D teams than ever before.

During the quarter, within those HPMS activities, we saw continued strong customer engagement in the camera space. It's worth noting that as a consequence of increased attach rates, higher ASPs and a more favorable mix over time, we've grown the total value of our camera products in each of the last three smartphone generations.

And we expect this trend to continue with our next-generation camera controller, shipping later this year. We also made excellent progress toward the introduction of a new HPMS component during the second half of this year, and we continue to see strong interest in our capabilities around battery and power.

Going forward, we believe there are further opportunities to grow our addressable market in the battery and power space, both within smartphones and beyond. And indeed, during the quarter we also taped out our first general market power product targeting laptops, which is designed to deliver more efficient power conversion in order to enable OEMs to create more powerful single fan and fanless laptop devices.

In summary, in the third quarter of fiscal 2023, we continue to execute on our strategic initiatives to diversify our product portfolio and broaden our addressable market into new application areas and end markets. With a solid pipeline of products expected to be introduced over the coming years and a deep commitment to investing in innovative technology, we believe Cirrus Logic is well positioned to drive growth and capture new opportunities in the coming years.

And with that, let me now turn the call over to Venk, to provide an overview of our financial results for the fiscal Q3 2023 as well as guidance for fiscal Q4.

......................................................................................................................................................................................................................................................

Venkatesh R. Nathamuni

Chief Financial Officer, Cirrus Logic, Inc.

Thank you, John; and good afternoon, everyone. I'll provide an overview of our financials. Starting with fiscal third quarter revenue was $590.6 million, which was an all-time record and represents the sixth consecutive quarter of record revenue for the corresponding fiscal period. Revenue was up 9% quarter-over-quarter and up 8% from a year ago. Our strong performance during the quarter resulted in revenue above the high end of our guidance range and was driven by demand for smartphones.

On a year-over-year basis, the revenue performance was driven by higher ASPs, which predominantly helped offset increased costs and, to a lesser extent, additional high-performancemixed-signal content in smartphones. I'd like to highlight the continued outstanding execution by the supply chain organization and the entire Cirrus team, in helping deliver these strong results, especially in light of heightened disruptions in the global supply chain during the December quarter.

4

1-877-FACTSET www.callstreet.com

Copyright © 2001-2023 FactSet CallStreet, LLC

Cirrus Logic, Inc. (CRUS)

Corrected Transcript

Q3 2023 Earnings Call

02-Feb-2023

Turning to gross margin. Non-GAAP gross profit in the quarter was $297 million, and non-GAAP gross margin was 50.3%. This was roughly in line with the mid-point of the guidance range we have provided. On a year-over- year basis, gross margin decreased due to an increase in supply chain costs and, to a lesser extent, a less favorable product mix.

Non-GAAP operating expenses in the quarter were $123.2 million, roughly flat sequentially. I'd note that operating expenses came in below the mid-point of our guidance range despite higher revenue, as higher product development costs and employee-related expenses were offset by lower variable compensation.

We intend to continue to invest strategically in new product development, as we see ongoing opportunities to increase our content; while at the same time, controlling discretionary spending. Non-GAAP operating income was $173.9 million in the third quarter or 29.4% of revenue. And finally, on the P&L, non-GAAP net income in the third quarter was $135.8 million or $2.40 per share.

Let me now turn to the balance sheet. Our balance sheet continues to remain strong, and we ended the third quarter of fiscal year 2023 with approximately $508 million in cash and cash equivalents. Our ending cash balance was up nearly $80 million from the prior quarter, primarily due to strong cash flow from operations, partially offset by stock repurchases during the quarter.

Specifically, we generated cash flow from operations of roughly $181 million during the December quarter, which is about 31% of revenue; thanks to the excellent execution and collections performance by the team. We continue to have no debt outstanding. And also, I'd note, we have $300 million undrawn on our revolver.

Inventory was $152.4 million, down from $164.6 million sequentially, and days of inventory was 47 days in Q3, down 8 days sequentially as we shipped product to support our customers' new product ramps. Looking ahead to Q4 fiscal 2023, we expect inventory to increase from the prior quarter, as we fulfill ongoing demand and manage inventory ahead of product ramps later in the calendar year.

Now, turning to cash flow. As I mentioned earlier, cash flow from operations was $181 million in the December quarter, and CapEx was roughly $8 million, resulting in free cash flow for the quarter of $173.3 million. Free cash flow margin for the December quarter was 29%, and for the 12-month period ending in the December quarter, free cash flow margin was 26%. On the share buyback front, in Q3, we utilized $50 million to repurchase approximately 713,000 shares of our common stock at an average price of $70.14. As of the end of Q3 fiscal year 2023, we had $536.1 million remaining in our share repurchase authorization. We expect to continue to return capital in the form of stock repurchases, which we believe will provide a long-term benefit to shareholders going forward.

And now on to the guidance. For the fiscal fourth quarter of 2023, we expect revenue in the range of $340 million to $400 million. We expect gross margin to range from 49% to 51%. Non-GAAP operating expense is expected to be flat sequentially in the range of $120 million to $126 million, as higher product development cost is offset by lower SG&A expense. We will continue to control discretionary spending, but invest strategically in product development to drive long-term growth.

On the tax front, as we have previously discussed, due largely to a tax tool effective from the start of our fiscal year 2023 that requires companies to capitalize and amortize R&D expenses rather than deduct them in the current year, we continue to expect our fiscal 2023 non-GAAP effective tax rate to be approximately 23% to 25%.

5

1-877-FACTSET www.callstreet.com

Copyright © 2001-2023 FactSet CallStreet, LLC

Attachments

  • Original Link
  • Original Document
  • Permalink

Disclaimer

Cirrus Logic Inc. published this content on 03 February 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 February 2023 08:19:01 UTC.