Q3 2020 Earnings Call
At this time all participants are no 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 reminder, this conference call is being recorded for replay purposes I would now like to turn the conference.
Over to Mr. Thurman case, Chief Financial Officer, Mr. case, you may begin.
Thank you and good afternoon.
Joining me on today's call is Jason Rhodes, Cirrus Logics, Chief Executive Officer.
John for sorry, the company's president.
And Chelsea Heffernan, our director of Investor Relations.
Today, we announced our financial results for the third quarter fiscal year 2020 at approximately four P.M. eastern.
The shareholder letter discussing our financial results the earnings press release, including a reconciliation of non-GAAP financial information to the most directly comparable GAAP information along with the webcast of this Q and a session.
Our all available with the company's Investor Relations website at Investor Dog Zero start calm.
This call will feature questions from the analysts covering our company.
As well as questions submitted to us via email at Investor Dot Relations at service Dot Com.
Please note the 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 this information the company undertakes no 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 issued today, which is available on the Cirrus logic website in the latest Form 10-K and 10-Q.
As well as other corporate filings made with the security and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations.
Now I'll turn the call over to Jason.
Thank you Thurman [noise].
Before we begin taking questions I'd like to make a few comments for a detailed account of our financial results. Please read the shareholder letter posted on our Investor Relations website.
Cirrus logic delivered Q3 520 revenue of 374.7 million, that's higher than anticipated volumes have boosted amplifiers haptic drivers and smart codecs shipping into smartphones drove revenue above guidance.
GAAP and non-GAAP earnings per share were $1.13 on $1.41 respectively.
During the quarter. The company was actively engaged with a variety of customers and development activities were robust across new and existing product categories.
Began sampling new devices separately devices and continued to execute on key strategic initiatives.
As we move forward through the next 12 to 18 months. We're excited to have a number of new products coming to market that we expect or expect to bolster our leadership position in audio and voice and establish a strong foothold with other signal processing components beyond these traditional demands.
Furthermore, we are pleased to announce that John foresight has been appointed president of Cirrus logic.
As president he is assuming a broader Roland day to day business operations, while leading the company is product development teams and continuing to drive product line strategies.
As Chief Executive Officer, I will oversee the long term growth and direction of the company.
Personal note I'm looking forward to working with John and his new role.
Before we begin the Q and I would also like to note that well we understand there is intense interest related to our largest customer in accordance with our policy, we do not discuss specifics about our business relationship.
Operator, we're now ready to take questions.
As a reminder to ask a question you knew press star one on your telephone to withdraw your question press the pound or hash key please standby will the compiled acuity roster.
Your first question comes from 27 Berg with Stifel. Your line is open.
Yes. Thank you.
Congratulations on the strong results on the college coach admissions to John on his promotion I was hoping you could address the consistent from 55 to 22 nanometer you know I don't know if you compare to share any timelines or the types of products now we'll be using that makes.
Generation node.
Yeah sure happy to Yeah. That's it's a we think 22 is gonna be a really great mixed signal node for us as as 55 has been.
Certainly not the case that everything we do would need to migrate to 22 nanometer going forward generally speaking you know, it's very different dynamic than.
Then a fully digital piece of silicon in that the analog componentry generally doesn't shrink anywhere near as much as the Moore's law curve would imply for digital so.
If you just took the same device and shrunk it from 55 to 22, you'd most likely make it more expensive. So there needs to number one be a reason for doing that which could be in our domain could be power could be silicon area or board space, but more often it's related to being able to embed a lot more digital signal processing content and the amount.
Not a lot of commentary about exactly what the first products would be in and so forth, but you can imagine that they were doing that because we want to embed a lot more D.S.P. capability as far as time line. You know that's that's still something that's a couple of years out you know we're excited about the new stuff that we've got going on this year, we've got further new content.
That were excited about for the following year and you know most likely to tune animator stuff would would be beyond that.
That's very helpful. Then and that's my follow up you know you make similar references into shareholder later too.
You know senior <unk> beyond the Lady and boys domain I I know you've talked a little about a little bit already about close to control that that any any other things that you know you're you're working on beyond the audio unvoiced domain.
Yeah, I mean, we've we've the only thing that would really talked about it's just kind of the half. <expletive> example of where we've taken our existing technology in Brighton that out beyond audio.
The the close the loop controller, we don't we definitely don't have anything further we want to say about that other than that that that continues to be on track. There are additional things beyond that that are in in in an entirely different domain again on audio nonvoice for handsets that were extremely excited about.
That would be in the air beyond So you know I think that's about as good a line up as I can ever remember us having and you know yeah continued.
Yeah, and as kind of the 22 now animator.
The answer to the 22, an animator question imply there's kind of.
The other good things in audio and voice as well as long term.
Mhm.
[noise]. Your next crashing comes <unk> <unk> <unk> with the Cat when your line is open.
Thank you very much good afternoon first off John Congrats well deserved. The thank you. The first thing I wanted to ask about I guess, Jason or John one of the things I saw that you mention in the shareholder letter was.
And it was in the discussion around around haptics and amps is a a portion too I think the top for.
Android, Oh, yams, and and I I know you guys had mentioned.
Significant traction with top three before is is there something to read into that that there's a an expansion I I know, Jason you described it as sort of singles and doubles with with.
Android from outside of Samsung in the past, but are are are things progressing there and I guess what are the leverage that you're you're or watch products are driving the expansion across oh yams, presumably in China. Thanks.
Well certainly the most traction we've had in in China's with the audio amps, followed by the <unk> device. There's devices. There's we've made good progress there. It is I would definitely still characterize it as a kind of model by model. Those accounts are are definitely more singles and doubles than they are home runs.
But you know and we've been ship and to the bulk of the top 10. So there's always some movement both with the you know with within the ranks of who composers. The top 10 for you guys move up a few guys move down as a little bit noisy, but we're doing doing quite well with the bulk of them. It's it's definitely not the same kind of.
Dynamic is we would have with with our larger customers for example, where there's kind of a a much more luck logical long-term kinda plan that we can March March two it's it's an area, where we need to be a lot more opportunistic but those parts part of the reason those parts are doing so well there is that they were architected, specifically to enable that kind of flexibility and.
Let our teams add neat new functions and and via software support and tools and and the of course tuning and so forth is is a critical element of a number of those devices. Both for audio acoustic kind of tuning as as well as have to kind of what's what's the feel of the device going to be so that's all been well received in China as a wide area customers they're there.
All kind of got their own a drummer that they're marching to and then of course, the the biggest guy in China's got its own Ah complexity to it obviously this past year.
Got it added thanks for that I guess as I follow up I wanted to to ask Thurman about about Outback. There's a a chart that you guys always putting the shareholder letter around had counting up academics like headcounts down I Dunno 102 hundred 5000, and 60 people over the last seven eight quarters.
There's some reallocation and restructuring around <unk> and a few moving parts, maybe I'm just talk about when <unk>. The medium term contrasting some of those actions versus like I haven't been talking about quite a bit of investment for new products going forward that'd be helpful. Thank you.
Mm.
Yeah with a reality you know we've reallocated those resources, but that is.
You know as Jason's noted, we haven't seen as many opportunities isn't quite some time. So we'll continue to invest in already.
When you start looking at S.G.N.A. that should mean should remain relatively flat for us a our infrastructure is good and and you don't see a lot of investment on there.
So in terms of you know how does it look on a year over year basis, when you're looking forward to next year. You know just in general we don't expect it to grow significantly because we're will still be catching up from the effects of what has happened over the.
Partial pieces of this year that will be reductions that'll show up for the entire your next year, so with that happening.
You won't see us just because we're hiring or or things like that to increase revenue or increase expenses on a quarter of recording basis significant.
I, just I would add to that we talked about them I was thinking a little bit last on the last call and this point. The the people that were we were wanting to redeploy on that have successfully been redeployed, which was a a big victory for the company I think the team did an awesome job of doing that the the folks that we moved dweller.
Disappointed did not follow up on the carry on following up on the microphones stuff they've moved onto one of these new these kind of neat new things. We were talking in response to Tories question and you know this is really tricky fancy mixed signal stuff, they're excited to be working on it. It's it's got a a very good prognosis of success and.
I think that was probably you know you never want to stop activities like that but the redeployment of a very large percentage of those folks is is is a a particular highlight in my opinion.
Your next question comes from a plane Curtis with Barclays. Your line is open.
Hey, guys. This is <unk> and and I want to pass my congratulations to John as well like the first just.
First just looking at the slide deck, you guys lay out a billion dollar Sam opportunity and 2024 for half drunk drivers in closed loop controllers.
Most of the time, particularly with this new clothes loop you start with the lead customer and that works its way down is the Andrew ecosystem and sometimes that presents challenges given you know the custom design work you do for some of those customers in particular, the big one can you talk about if you see opportunity elsewhere for products like the close the controller, and particularly where in the Android ecosystem.
<unk> target.
I mean that particular thing that we're developing we we you know we'll certainly keep our eyes on we we don't we that's not a primary focus so that investment it would be to trickle that down there are certainly there are many things that we sell that are you know the haptics for example, or audio amplifiers that are in fact.
Close with controllers that that obviously, we do see opportunity you know again that that particular levels take on a little bit of a life of its on that wasn't entirely intentional.
But that particular thing that we've been talking about ramping later this falls, it's not it's not really intended to be an Android thing at this time.
Okay, and then just almost same charges right above you you talk about the same for about a billion dollars for further Jason mobile opportunities, obviously part of that historically could've been those memes mikes what other areas are you targeting there just because a billion bucks is still a pretty big Sam there.
Yeah sure Yeah. That's another one of these areas that that we're we're not going to want to get too far ahead of our skis on but you know it's it's just yet another thing in a handset and on audio Nonvoice that directly leverage is our advanced mixed signal and and deem something like on a capabilities. So it's something we're really excited about and wish very much.
We could tell you more about it.
[noise]. Your next question comes from Christopher Roland with US go hunting you line is open.
[noise] he got congratulations [laughter], good report and <unk>.
[noise] talking about what's the haptics for a second here.
In the letter something for media consumption. So do we think about that is like vibrating remote or.
Something you know still with the handset and then I think you also mentioned gaming is that an opportunity for or something like tens of millions of units over the next 18 months or so or is this just really starting with a small volume <unk>. Thank you.
This is this is John let me take that.
So I think specifically what we're referring to there is the level of enrichment of the user experience that we can deliver through haptics beyond the simple button replacement. So it's when we talk about gaming and media consumption.
We're we're talking in the first instance, about about enhancing the smart phone experienced that can for sure extend beyond that but that's a that's the primary area that we're talking about to give examples of that we've seen customers very interested for example in in technologies, we've developed which.
<unk>, which provide a hectic feedback during playing video games, even if the the game develop it didn't necessarily incorporate those functions within their that products. The end user when they're playing the game still get a lot of you know tactile physical feedback through the device, which.
The experience said.
We can provide you know the small it's to enable that kind of functionality and and.
Add that that kind of richness to the user experience alongside the more traditional user haptics in terms of providing you know they the virtual bucking feedback and so on.
Okay, Great and then to the 22 now to meet her Kodak.
I know chasing you mention potentially more expensive silicon I I don't know if that was just the silicon if it only included analog.
Or or if that's an expectation for for digital and and perhaps you can talk about differences in A.S.P.'s and margins are versus your your 55 down to meet her I I know some time and these changes <unk> caught investors by surprise in the past are there any changes there.
In A.S.P.'s her margins thanks.
So yeah I generally you know there's always.
And flows from a margin perspective, I generally would I my usual answer on that as.
Not to think about node changes as as being margin drivers one way or the other they can be to a minor degree, but it shouldn't be a primary impact.
As they say you know if you took it are smart Kodak today and didn't change anything else about it other than moved from 55 to 22 that would that would generally make it more expensive.
On an eight from an A.S.P. basis.
Certainly, though the motivation to move it to 22 is to add additional the digital content as well. So so that that should also be an A.S.P. playing along around as well.
Your next question comes from Charlie Andrew send it with Dirty and company. Your line is open.
Yeah. Thanks for taking my questions might read some strong results and making got stuck down on the promotion as well.
Charlie.
Yeah. So I wanted to start with a you know Jason we've only got a few months left in the year for you guys and there's a lot of talk about content increased its owner, maybe if you had any big picture view on on fiscal 21 in terms of how that shapes up 100, new growth or or otherwise pull up.
Oh, yes, I do actually.
So as you know I mean, we don't we don't provide annual guidance. There's a lot of moving parts of course, it's it's harder probably impossible for us to know how they would they'd met out we would love to be able to do that but that said as some color on the moving pieces is probably probably helpful. For you and I'll just say here's some of those.
Probably forward looking statements that someone mentioned earlier.
So we we said last fall, we expected incremental new progress in here bowls, wearables tablets, and laptops, thus far or <unk> been seen in untethered ear buds out there from multiple different customers.
That's clearly a form factor that that everybody's excited about we're excited about it we think it's a great platform to build on a long run.
The rest of those new applications, meaning wearables tablets laptops those appear to be on track. So we should be able to benefit from those during the air and going forward.
A lot of that's completely new content from us.
And those are form factors that are getting a lot of attention as well. So we continue to expect to deliver new content into handsets. Later this year further opportunities we're kinda refer to that over the last couple of questions further opportunities over the next several years.
That said there are often puts and takes to the overall content story that we're not able to get into per per kind of obvious reasons. This this year is no exception to that.
We're very we're very pleased over all of their position and handsets I, just don't want anybody who interpret that as meaning that every individual element of our businesses up into the right.
Obviously, the largest driver of our revenue and revenue variability is handset volumes.
Which from other news sources, you know are obviously doing very well currently of course when new models are launched his yeah. It's one of those hard or impossible things for us to know how they'll actually do which makes it hard for us to call. The full year, but we currently have a very robust outlet there.
So and then all of that of course is against the backdrop of this corona virus issue trade wars, the overall economy and tons of other things that are out of our control and beyond our ability to forecast. So we take a conservative view of what will happen and plan Accordingly, and I think that's a good approach for investors as well, we do put a lot of thought by the way into our risk factors and we've.
Added one specifically related to things like the Corona virus. So I'll just add a reminder for investors to have a look at those.
Excellent. Thank you. So so much for all the color and then sort of for my follow up you've identified the the closed loop controller.
I'm going into a calendar 20, and then there's this other opportunities for it sounds like potentially to your after I Wonder if you know if there's nothing proper cadences as you move into these Jason seizes you know another one a year or is that just you know just how it looks just got thinking about your plan. This long term. Thanks.
I think that's just kind of how it how it fell out I mean it it it we would certainly and and those are incidentally both of his these kind of neat new things that we're talking about her platforms that we would expect to be very strategically important and things that we'll be able to continue to build around in the long run. So you maybe I mean this is actually just me speculating.
That's the kind of thing that we would expect to get onto a continuous improvement curve of you know being able to to a adapted modify 'em and improve kinda like we do with the audio codex or amplifiers, which is to say not every year, but the cool thing one of the many cool things about shipping into very high volume handsets is that you've got so much unit volume that you can.
Afford to revise the device is pretty frequently with such which let you add new value for customers and you know and kind of not always be on the same same part to the same customer ear and you're out which has got obviously some good dynamics to it from a pricing perspective.
Again, if you would like to ask a question that Prestart one on your telephone. Your next question comes from Adam Gonzalez would think of America. Your line is open.
Hi, guys. Thanks for taking my questioning congrats John and the promotion.
In in the opportunities that you'll do two beyond your core audio unvoiced Ah domain are these engagements broad based or more narrowly focused across your top you know one or two customers, let's say and then if we're to talk about it in terms of years of visibility into potential design wins, how far out do does your visibility extend at this point. Thanks.
So yeah, we're the that it's our current level of investment is is definitely heavily focused at the top tier of our of our customer of our customer base.
You know as far as visibility the the bulk of the bulk of our business. I think is it's probably one of the least well understood things or maybe maybe it's understood that not believed or something but.
When we do a custom pieces elegant for somebody were often working on things that are you know three years away.
From actually shipping for revenue and that's a that's a big investment by customers in us, there's a lot of back and forth and supervision and making sure everything is lined up and I was or dotted and teaser crossed and so forth.
It customers generally are actually pretty good about not wasting our time, but they're always very meticulous about not wasting their own time. So you know that it it's generally much the the bigger moving pieces for us are generally much more one at the design phase rather than the Shipman phase, which means we've got quite a lot of visibility.
Particular, sore and what I mean by that is you know we know we're working you know important things and you know we we sometimes know what they go into if it's a completely new form factor, sometimes we know exactly what it goes into but we don't actually know what end feature the customer's going to enable whether it especially with our devices, where there's a lot of program ability involved.
And then of course, we never know the customers marketing decisions that they're going to be able to make or you know promote more heavily or you know in this market or bundles or you know things like that that we don't always have that we don't have a any longterm visibility because they can change their mind you know on a much shorter time line then you know say.
A new audio Kodak, we come in if you're if you've designed your phone around and audio Kodak, we kind of know you're going to need one for example, and so forth. So yeah I would say, we've got great visibility in a big picture sense, there's definitely some moving pieces that that we often don't know until quite late in the game, but relative to most semiconductor companies I would say.
It's that's definitely a strength for us.
Right. That's that's really helpful color appreciate that and then my second question I noticed in your corporate presentation that I think you added a slide which put some context around the the market opportunities years resting and looks like you put it in the context of a 45 billion dollar mixed signal opportunity I'm, just hoping maybe if you can explain the rush.
Now mind doing that is it just a signal that there could be opportunities beyond the you know 1 billion energies and mobile that you you know identified across near term. Thanks.
<unk> that's exactly right. This is John here that that's exactly right and it's really just reflective of increasingly how we see a range of growth opportunities within the business, you'll see within that that picture that we're we're portraying there that we see no shortage of opportunities been growth.
We then audio and voice itself, but as we've.
As we've gone through the past few years, we've expanded a you know initially into haptics as a as a beyond audio application of of a core I.P.. We've made it clear that what we refer to as the closely control is kind of.
Again fits into that category of being leveraging a lot of our core advanced mixed signal capability into a new domain.
As Jason indicated you know we have reasonable line of sight of some some additional opportunities very much following the same patton, but again in in new domains.
Be all those we've we've spoken by previously and you can expect to see as continuing that progress I think subtly trying to as we move forward as we <unk> are increasingly seeing you know they they the opportunities around bringing.
Low power advanced low latency mixed signal signal processing to a variety of product types.
It was the case if you go back you know three or four years ago I think we were.
Fully occupied just serving the the audio demand in the market as the company's grow and as we've engaged with customers more broadly in new areas. You know that range of opportunities as has grown into other mixed signal area. So we see the there is being you know pretty pretty.
Significant opportunity to continue that progress and that evolution.
As we go forward in the coming yes.
[noise]. Your next question comes from Ari She's stream in with me to have your line is open.
[noise], Hi, sorry, I've taken a question for Roger guilt and my first question is about and see adoption in that aren't that aired headset market I can't kind of talking about while you're you've been saying that <unk> well you view this trend moving forward thinking.
Oh, well, we so we we do have headsets overall that Bluetooth headsets, specifically that ship with our and see the the <unk> that are out. There currently is still do not the the performance that we targeted.
When we originally developed R.N.C. was targeted it being the the absolutely pinnacle from a performance perspective, and the the issue with under their deer buds is you know you've really got to constrain battery life and so customers are are much more focused on what are they need to do to get the the useful battery life the product.
To be something sensible and so it's it's a pretty different approach to noise cancelling longerterm. We do think that's something of interest we've got some activities. There. We we see a a wide array of things that we can continue to focus on from content expansion in the untethered earbuds space I wouldn't say that that's the primary one of them.
It's it's potentially something we can work on overtime.
Gotcha.
Follow up what you've been seeing and gross margins and how do you expect <unk>, it's like kind of rough idea what did they helpful.
I mean, we we don't see a ton of a major drivers one way or the other there I'd just continue to model. It. The you know we got a quarter at a time. So that is what it is but I would just kind of take that as the middle of the fairway and and you know not be looking for a lot of of a excitement on that from.
Your next question comes from the Tories, having Berkeley.
Is open.
Yeah. Thank you just too quick follow ups first of all we talked about sort of you know opic's too.
Do you support the the the you know the opportunities in signal processing. The the what about candidates requirements. You know I owe you sort of fun with with what you have like now or or will there be some.
Some some new Catholic spend especially for pistol 21.
No I don't see this year, you know seen enough to in our cat bags, we don't spend a whole lot there might be some tools that will buy for certain groups that are working on certain things, but beyond that now you wouldn't expect a big tick in our in our capital expenditures.
Yeah. Another thing to just from a runrate perspective of our various businesses the amount of stuff was probably a little bit more cap x. intensive than the rest of it so that that piece obviously is.
Tell when for us from that perspective, but as usual, it's not I'm not a big driver. It's usually a really good opportunity. If we find areas, where if you do see our Catholics pick up but I would generally regard that as a good thing because that's us turn in cash into something that is hopefully a sustainable long-term advantage like the the.
Failure analysis and reliability lab.
That's that's <unk> last last question, then and you know correct my perception here, but it just sounds like you you sound a bit more certain about you know getting more traction in in the Wearables isn't that perception correct and it it's always been primarily poor boosted <unk> or something else.
We we kinda I I think we're you know I mean things <unk> again forward looking statements things can things can always always go wrong, but I mean plan a record we should have some good progress in Wearables something we're really excited about I don't want to get into a real specifically exactly what we're doing there, but you know things that are within our will house.
So yeah, that's definitely a clearly in an exciting segment of the market. That's that's getting getting hotter as time goes on and you know I think.
There's there's multiple cases, where I can point in the past, where you know whatever it is we might not be on the very first generation, but usually by the time. It gets real interesting. Then then we've trained or custom silicon deliver on time really excellent execution machine on the opportunity and and start picking these things off as they get get ready for prime time.
[noise] well good thinking.
Thanks for you.
[noise] again, if you'd like to ask a question oppressed I one on your telephone.
[laughter].
There are no further questions at this time, Oh, no tend to call back over to Chelsea have front end.
Thank you operate our daughter now like a shell questions I'll turn color.
Thank you Chelsea in summary, Q3, F.Y. 20, <unk> results exceeded guidance as we experienced higher than anticipated volumes for components shipping and smartphones during the quarter development activities across all are major product categories progressed and the company continued to execute on key strategic initiatives that we believe will fuel future growth.
With a compelling pipeline of products would address audio voice another signal processing applications, we believe cirrus logic as well position for a long term success.
If you have any questions that were not addressed you can submit them to us via the F.C.C.E.O. section of our Investor website like to think everyone for participating today Goodbye.
That's going to taste conference call you may now disconnect.
[laughter].
[laughter].