Q2 2021 Cirrus Logic Inc Earnings Call
Thanks Bye.
[music].
Ladies and gentlemen, this is the conference operator please.
Today's conference is scheduled to begin momentarily.
All that time your wife, and what can be placed Nicole. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by welcome to the Sars logic second quarter fiscal year 2021 financial results <unk> session.
At this time all participants are in listen only mode. After.
<unk> then we will open up the call for questions from analysts.
Instructions for queuing up will be provided at that time.
We might start this conference call is being recorded for replay purposes.
I would now like to turn the conference call over to Mr., Tommy Keith keeping up the all star sticky.
Got it.
Thank you and good afternoon, joining me on today's call is Jason, Rhode Cirrus Logics, Chief Executive Officer, John Foresight, the company's President and Chelsea Heffernan our.
Our director of Investor Relations.
Today, we announced our financial results for the second quarter fiscal year to date 2021, approximately four pm eastern.
The shareholder letter discussing our financial results earnings results press release, including a reconciliation of non-GAAP financial information to the most important directly comparable GAAP information along with the website at this Q and a session are all available on the company's Investor Relations website at Investor about Sears Dot com.
This call will feature questions from the analysts covering our company as well as questions submitted to have enough to your email and Investor relations at Sirius Dot com.
Please note that during this session, we didn't make projections and other forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections.
Hi, providing 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 shareholder letter issued today, which are available on the Cirrus logic website and the latest form 10-K and 10-Q as.
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.
To differ materially from current expectations.
On a personal note Jason.
And a heck of a ride and I really enjoyed art, it's been a great time working with you.
And I guess now for the last time.
I will turn the call over to Jason.
Thank you. So thank you to everyone I agree it's been a pleasure before I start I'll note that we are having significant technical definite difficulties with leader view.
If you're an analyst covering us and you could do us a favour maybe texting Chelsea.
A quick question, where we're having a very hard time figuring this all out but anyway that will at least try to be able to cover something here.
Oh some of your thoughts.
Anyway. Thank you Thurman before we begin to begin discussing our results I'd like to make a few comments on today's announcement that it will be stepping down as CEO on January onest.
Hi, John Cirrus logic after completing school, a 1995 and as the only company I've ever worked for it's been an incredible journey for me personally I'm proud of the company's transformation during my tenure.
Weve developed strong relationships with some of the best customers in the world delivered meaningful financial growth or is it as a result, and built incredible corporate culture that fosters innovation execution integrity and camaraderie promoting a fun work environment.
We're thrilled with our outlook going forward and I'm confident that John's passionate strategic vision and leadership skills, making the right person to lead Cirrus logic into a bright future I'm excited to continue to working to continue working with him and our new roles.
The company also announced that David <unk> will become chairman of the board of directors on January Onest, succeeding all shooting.
I'd like to take this opportunity to thank al for his outstanding stewardship as chairman of the board over the last eight years out.
ALS experience and expertise has been incredibly valuable and I'm thankful for the relationship we have built over the years.
A member of the board since 2015, David brings an extremely valuable and deep understanding of engineering and product design to our team believe his expertise will be extremely beneficial in his role as chair for the management team of technical leadership.
I look forward to his expanded role as our chairman.
I will now turn the call over to John.
Thank you Jason.
Before I comment on the results I would like to take a moment to thank Jason for everything he has done in his role as CEO of the company.
The Jason's leadership Cirrus logic is enjoyed exceptional business growth and has developed an outstanding corporate culture.
I count myself personally fortunate to be able to call, Jason leader and friend over the last six years and I look forward to our relationship continuing in our new roles.
I'd also like to say, how excited and honored I am to become the next CEO of Cirrus logic, we have a tremendously talented team across the company a proven track record of execution in advanced mixed signal products and a culture of delivering outstanding service to customers, who create the world's most innovative products.
And assuming this role my focus will continue to be on driving the strategic initiatives that will support our customers strengthen our leadership position in audio and expand our reach to new technology areas.
The focus on engineering excellence grading a great place to work for our employees and creating more value for our customers and shareholders. I believe the company is well positioned to drive growth and profitability in the coming years.
I'm looking forward to working closely with my leadership team our employees, the Cirrus logic board and with our customers as we can to continue to fulfill our vision of being the first choice in signal processing.
Turning next to the results Cirrus logic delivered Q2 F Y 21 revenue of $347.3 million, a strongest an anticipated orders for components shipping in small smartphones and to a lesser extent tablets and truly wireless headsets drove sales significantly above our expectations.
During the quarter, we made excellent progress in both our customer engagements and development activities. The number of smartphones wearables and tablets in which our product. She grew and we were particularly excited to see new content featured in several recently launched high volume products.
Additionally, despite the majority of our employees continuing to work remotely and the challenges that this situation presents both for them all as individuals and for US collectively the team in the September quarter, we made significant progress on several key development programs and completed the tape outs of multiple products that we expect to begin sampling to customers.
In the coming months without standing customer relationships increased product diversification and continued design innovation that broadens our addressable market.
Well, we are excited to leverage both near term and long term opportunities to create greater shareholder value.
Before we begin the Q today I'd also like to note that while 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.
I do like to ask a question press star in the number one on your telephone keypad well.
Well, possibly see Mexico, because today Boston.
And your first question comes from blends that back.
Yes, Thank you great quarter, congratulations to John and Jason English with Ti as well on.
Your next move and we're going to Miss your Greg humor and cynicism.
The first question is.
On the codec for Wearables.
I.
That's wonderful for wireless headsets.
My understanding is up until now your exposure to premium truly wireless had this has been on the more of the amplifier side. So is it safe to say that this is completely new new content for you.
Actually this is a first of all thank you Tory I should I should have said that thank you very much for the I think the best wishes that yet this is our first.
Specific smart codec designed.
To target truly wireless headsets, we did actually have a smart codec shipping into the wireless headsets.
Previously those wed parts, which were originally designed for a.
For a variety of applications they happened to get pickup picked up that truly wireless headsets. So now what we sell to our customers and what were expecting to have to see launch in the coming months.
Products that incorporate our off first.
First specifically focused petrini wireless smart codec.
So thats.
That's that's new content from that perspective, but it's very much building on the headway, we've made with the with the stuff from our existing catalog.
It doesn't make significant improvements in particular, bringing hybrid and see to.
That product category at extremely low low power consumption.
One point to note of course, almost by definition when we're talking about as much detail about about products for Aurora.
For our customers, we are not talking about custom products for our largest customer.
And sorry, just a follow up I'd like to think of as sarcasm, rather than Chris that cynicism and.
I look forward to that.
I look forward to seeing your guidance and I'm really I really am not actually going anywhere. So look forward to see I know you've done an absolute class actually appreciate it.
All right. Thank you for that and as my follow up question on the.
Next generation haptics it looks like you just you taping out now the second generation there with some enhanced capability. So just wondering if you could elaborate on what that means from a content perspective.
Whether it's for for smart.
Smartphones or or even for wearables.
Yeah, we we talked about the haptics.
Good.
When you have take spot in there, which is targeting smartphones, primarily although we believe that it may well find its it's used in other areas haptics is is something where we see interest.
Across the portable alone portable space.
The content addition, that's really an update to something we talked a little bit more about earlier in the year, where we're incorporating an analog frontend into that so that you have.
A dedicated haptics bought that does does the frontend data conversion as well as the driving of the actuator.
Whereas traditionally haptics drivers were separate from those parts are killing reduces the the park and reduces the board space required to install content wise for us the traditional haptics driver sits at about it very close to being amplified. So the ASP is is very amplifier ask.
The spot we'd be up in the 70, 75% kind of range.
It's worth pointing out that it's not.
Different architecture is we'll we'll look for different solutions. So.
We're very happy with that it feels that the product portfolio. It gives people a really nice high performance integrated solution will still be a roll forward. The haptics drivers without the integrated front end as well.
Very good and congratulations again with the strong results.
Thank you Terry Thanks for thanks.
And your next question comes from the Marty Cohen at Ramsey with Cowen.
<unk>.
Yes. Thank you very much good afternoon, everybody John obviously, congratulations on the new role and Jason I would just say that.
And then often as you build the engineering and the people culture. It serious overtime. So congratulations on the next role.
For me Mike My first question it looks like from from the outlook in the December quarter that.
Potentially the content for for the closed loop control or either in number of units per phone work or just a SP front apart might.
Might be a decent amount higher than than a lot of us externally had modeled and now that the devices are launched maybe you could talk a little bit more John.
Maybe I understand the sensitivity about the exact functionality but.
You could give them give us anything more about how that device being used I'm just the functionality of it units or ASP per phone that would be really helpful. And then I have a follow up thanks.
Yeah. Thanks, Thanks for the nice words, Matt.
When we talked about that that products previously.
We've given given the general guidance that.
You should think about that as being amplifier ask in.
On average the Runrate pair a pair of phones sold that obviously.
It is averaged across a bunch of different skews and design. So that there will be a maybe a different attach rate across that.
Theres different skews, but given that.
Firstly that that's our customers products and we don't want to get into the details of talking talking about those to you, but but also we don't know how many people are going to buy which which scale.
Well I.
I would I would just reiterate that I think about it as roughly an amplified that phone that we expected.
To see in terms of additional additional content value.
Yeah. We were you know again, that's a custom product we don't like to say a lot about what what our customers are doing with that we're testing products, but we're extremely excited about the opportunity in that space I think having a.
Having a first win.
In in that Kinda products. In particular is is just absolutely phenomenal in a in a part of the phone which is a.
Key competitive differentiator.
And to be starting on a on a kind of a new new jet and new road map from there is extremely exciting so.
As we said it it's enabling or various image when imaging related functions.
Sure, we can continue to grow and add value to that over time as well.
And I'd just yeah. Thanks again, Matt for the kind words and also I'd note I mean, it's fine detective work by various folks to note patent filings.
Things that the chip do but I will point out patents aren't.
Data sheets, and it's always possible for chips to do things that aren't him.
For a complete product, it's a chip to do things that are additional to what is in the past.
Uh huh.
Got it now and I appreciate the sensitivity around that.
Follow up I think lots of us had been doing work in the smartphone arena, noting.
The challenge is that the.
While ways facing right now and procuring their own kits and what that might mean for the industry in terms of.
Share shifts to the advantage of potentially your largest customer it obviously other folks in China I noted in the shareholder letter some some new content and wins with Shomi I'm I'm under John If you might talk about.
So oppo vivo and where your business might go with those folks if they potentially are beneficiaries of some of the challenges we're always facing thanks.
Yeah, I guess you know.
As always we we don't know how many people are going to start up and buy which which kind of follow but we are focused as ever on on winning all the the sockets, but we believe matter in the Android space that is chiefly around the boosted amplifiers.
As you know we had.
I had been building some good momentum with wild way it still represents a relatively small amount of revenue that the trajectory with.
With great I think yeah, we continue to.
Supply certain components too far away, where where we have a license but.
But but we're obviously also making a lot of headway things that kind of.
Reawakening, the Android market it kind of stalled in the earlier in the year with with coated but we've certainly seen to some degree a an uptick in demand from other smartphone customers, including Xiaomi, we mentioned in the letter.
Somewhat offsets that.
But that headwind with Wally.
All right. Thanks, very much guys I'll jump back in the queue.
Your next question comes from Charlie Understandably clear security.
Great. Thank you for taking my questions and congrats Jason on a really a tremendous Ronnie congrats.
John on the employment.
First question I want to ask about haptics you guys are really.
Oakley flushed out the portfolio here with a number of products I guess I'm curious if maybe you just step back and give us a bird's eye view of how you view penetration.
Haptics onto the end devices, how wide it spans in terms of.
Types of end markets you could cover with these products and then I've got a follow up.
Sure, Yes, well as you know our haptics.
History began with with our largest customer and we've we've as you say Phil that built out a pretty impressive portfolio of haptics focus devices.
Probably thing the general market along with.
Although we talk less about this but it's a key part of enabling that haptics.
This is a whole tool chain in a suite of algorithms and so on that simulate various various touch experiences.
To be end user.
In terms of penetration, it's still in the Android space is still kind of selectively.
And in the high end of the market, it's not it's not saturating the high end the flagship devices as yet I think over time, it would be a reasonable expectation that it does and that we see some trickle down into the mid tier I would say in general on haptics in the smartphones you you'd have to really care about the details of the user experience.
Which obviously the kind of customers that we generally focus on they do but it's it's not going to be in every device.
That said I think haptics is one of the categories, where we see meaningful interest from.
From OEM customers working on other kinds of devices that we've mentioned it in relation to Wearables we've had some.
Some notable wearable launches are deploying our haptic technology in recent months.
We see.
Exploration of haptics.
Dry the fund.
Are you seeing in automotive and laptops and other kinds of devices. So we think there's we think there's certainly a bread to the reach of haptics, which I should provide as good leverage on that IP downstream.
Great and then for my follow up you didn't mention the shareholder letter that you've now taped out to the first generation power conversion and control IC I wonder.
Similar to how you've sort of given us a view on the closed loop controller ASV, if you'd be willing to entertain some on that one and maybe just sort of thinking broadly about none.
No number per device. It was a lot sort of just a kind of a similar question delayed not asked about but goes too. Thanks.
Yeah, I think we're going to shy away from talking about ASP. We did we have said previously.
And I'd reiterate this that we think it it has the potential to be meaningfully bigger isn't that close he controller.
Content gain for us.
Yes, it's still a long way between now and where that actually comes to market.
As I've said previously we're targeting the back end of calendar 2001 to that.
There's a whole load of work to be done between now and then I plan to be relatively new in the gig so I'm I'm not going to jinx, it by saying too much about it.
But were extremely excited about what that.
That category of device can can mean for us.
Perfect. Thank you so much.
And your next question comes from Christopher Roland.
Okay.
Hey, guys congrats on a fantastic quarter, Jason I will definitely Miss my time on the road with you I can grab a.
And John Congrats as well a long way for Oh, we Scotsman so congrats.
Congratulations on the.
First question is.
Oh, I know you guys don't guide two quarters, and advancing and I'm not looking for that but many of your peers have suggested that March would be ahead of typical seasonality just given the late launch this year. So.
So I was wondering if you guys could maybe pockets out loud.
As to how you're thinking about March in terms of typical seasonality.
Yes, sure and thanks for the thanks for the nice words, there I appreciate it as well as my my countryman Bakken in Scotland.
Yes, so as you know, we just provide guidance for one quarter.
There are a whole bunch of things that could come to bear and impact our Q4, given the the uncertainty and volatility around the company my team situation and a kind of associated global economic disruption.
As well as.
Timing of shipments, it's not easy to read across from from what we're doing and what we're shipping to what's happening with our customers products in terms of sell through so I had you not expressing some caution around that.
So it is clear that several new products looked like they're off to a pretty incredible stuff and on the back and that will obviously.
We're obviously feeling bullish.
But if you take all of those factors into consideration I'd encourage people to be consistent with it for that.
Yeah, I'd just follow up on that and say that I too am very bullish on that sentiment.
But you know again, it's it's complicated we tend to be more conservative than our peers are.
We don't know anything different than what our peers do at this point. So it's always a work in progress. This time of year, you kind of never really know yet, but it certainly has johnson feels like an out of the park home run so far but you know if we were dial it up.
Our and our world for for our fiscal Q4.
We woke up in the morning, and consensus stayed where it was that would feel great because.
Because it's it's conservative and you know that that is kind of always where we want to be on the side of things, but they are your model. So would you like for them.
Understood and then perhaps you guys can talk about.
Sure. So there is opportunity for the closed loop control or in the Android in 21.
And the team there perhaps in the Android and in 22, you expect more traction there are you guys kind of.
And market, leading there and do you think it'll crossover into the Android.
Well, let me start with the last bit of that which is why we're not getting into the Phoenix space we have.
Talked about a custom product. We're we're working on in relation to power conversion I think on the last call. We also kind of outlined that while it's there isn't really something that exists like that today, what we're working on as part of what makes it incredibly exciting but.
But it also means that again when okay.
Give a whole lot of detail on what is it that is doing.
We have I would say across that and the close to control. The space. You know we have our guidance full of stuff to be doing so.
So when we talk about Sam for example, the way to think about that is that's where we're modeling what we can currently see ourselves being.
Being able to invest in to access and we haven't really.
Got spade detailed plans for how we would go and tilted the Android market for that.
For those products as yet.
Yes, Ben.
Entirely reflection of the fact that we have we have as I say, our arms full of work to do.
Just setting the opportunities in front of us today, and we will will.
Given that those have been incredibly high trigger.
Essentially inch a hit rate of of shipping and doing really well that remains where our focus is for now.
Oh.
Your next question comes from Blayne Curtis with Barclays.
Hi, good afternoon. Thanks.
My question, Congrats John and just Jason I'll, Miss you as well maybe a.
See when we can travel let me say there.
First question just on the Android side, I think I've done it this amount to be up on how low it gotten but it actually kind of popped up any color on that I know.
You lost the constant attempts on but it looks like its up and then any comment into December for Android as well just directionally.
I don't think we're going to breakout at eight commentary on Android for December I said, you know I feel to them to your point about beating is as up on it Blaine I mean, all feeling on Android. This year was there at least kind of three things going on which which counted as headwinds one of those covered obviously one was the fall.
The situation and one was our second largest customer having.
Having.
Product launch, which was was not one of the best stellar years old.
All of which you did create headwinds, but from that perspective arm of our underlying business. We've continued to win the sockets and we have more stuff in design now than I think we ever have had in the Android space.
Principally as I said centered around.
Around the boosted amplifiers.
Certainly it certainly been the case that if you step back from it it looks like.
There were a bunch of people kind of buying qualys market share if.
You know and building two or at least planning to go take some portion of that.
And on being aggressive on the back of it and wanting to produce devices that lead in one area. Another where we're benefiting obviously from audio being one of the things that they are investing into focus on that.
Thanks, and then I just want to get a gross margin you've done to you know the history of beating the height of the range probably.
Want to keep it that way, but just kind of curious.
In December if there was anything influencing the mix with if you want it to the point.
No I mean, nothing structurally has changed in the business.
Last year or so gross margins.
A lot of stuff that can affect the supply chain efficiency.
Product cycles product mix all of that stuff you know so even though we guided that range for Q.
Q3, and Q4 on a longer term basis, nothing's really changed on how we view. It we think that it's sustainable at 50% and will continue to try to maximize it and you are based on current visibility you know as we look into slide 22, we believe we can see a tick up in margins again.
Thanks.
Your next question comes from Nike Gill with Needham and company.
Yes. Thank you for taking my question and congrats John as well and good looks Jason.
Just a question on the truly what did your wireless.
But you can see what do you think is the kind of the next leg of growth in that market, what's going to be the next kind of product catalyst.
To drive attach rates.
In that market.
Thank you Richard I appreciate it.
Suddenly via an incredibly exciting category for us is less I would say, it's for sure exceeded our expectations over the past over the past year or two.
We are.
I mentioned earlier, we're just really on the precipice of launching the first device that.
For the general market that we have designed specifically for a truly wireless headsets and we have a roadmap that extends beyond that obviously as well, but that for sure is is introducing a lot more in the way of smart processing for that product category. It seems pretty clear to me that features like.
You know not just the noise cancellation, but a hearing augmentation.
The kind of personal sound amplification features that we talked about and that kinda small environmental listening. So it can be.
[noise] attenuating noise, but Dan.
Identifying if there's some acoustic feature the environment you should be aware off and so all of that stuff means packing more more processing in close to the the analog to digital boundary.
Obviously, we like that but for sure it feels like the default rate on that that product category as a whole is really high and just now customers have a lot of a lot of ideas a lot of stuff. They want to talk it was about a very aggressive shed you're live into racing on those products with with new innovation. So.
Yeah, I think we'll continue to see that growth of processing in the in the way that I talked about and hopefully we can serve some meaningful part of that.
Yes. Thank you for the John and just for my follow up looking into March and I know you guys are hesitant about talking about future quarters.
Obviously seasonality in March is typically.
It was down pretty pretty significantly historically speaking.
Any color in terms of whether that is going to be different. This time around is going to be changing patterns and given the delay.
In the product.
I see top customer.
Any kind of questions or color around.
Tori positioning ahead of that.
Any thoughts there would be helpful.
[noise] well, we'll certainly give a lot of color on that in January when we report.
As you know we don't have we don't guide ahead. So I appreciate it be useful.
Can you, perhaps if we did but in all honesty I, what I said earlier I.
I mean sincerely that there are a whole bunch of things the whole bunch of factors in terms of the big global economic volatility.
And you know that.
Various products still being relatively early in that.
Their cycle.
Which means that it would kind of be crazy to to speak confidently about what's going to happen in that space, even if we did that help.
So as I said like it really looks like that those new recently launched products. After a great start that certainly.
Incredibly compelling devices too.
To use and that seems to be that the reaction generally so that wouldn't that that certainly makes.
It makes us feel very bullish about the potential rendered the new products, but we will.
We will update you on January but have we feel that that quarter.
Hopefully that's a.
That thats going to be a solid as well.
As a reminder to ask a question.
You mean about why now on your.
Well that's on T. pod.
And our next question comes from Theresa.
Yes.
Just as a follow up and.
Excuse my ignorance on the technical side, but what exactly is hybrid active noise cancellation.
So yes sure. Thank you Terry so there.
Good.
You can have somebody going forwards noise cancellation, where you have the microphone outside the <unk>. They are facing the world outside the economics and then.
Calculating the assay noise that you generate on the back of that.
There is what's called feedback noise cancellation, where you have a microphone in the canal listening.
To what's going on in there and the effect of the noise.
The anti noise that you're generating.
There are plenty of devices out there and implementations of AMC, which have been either one or the other.
It takes a lot more processing to do both but that is what hybrid is there were frozen calls to each of those.
Those approaches.
Best performance overall, you will unsurprisingly find is.
A hybrid approach, which makes it makes use of both paths.
Great. Thanks for that and then on the on the Smart home.
The presentation, you talked about being a supplier to the top two smart home Oems.
No not exactly sure what that means.
No.
Yeah, the two of the highest share or what have you, but can you talk a bit more about your content. There is it primarily on the upside or do you have some smart codec exposure there as well.
Yes, so I think the on the smartphone side the volumes is still.
Pretty small we have a we have a mixture of content. That's a that's shipping in those devices historically.
Because we have low power.
Codecs feature low power voice wake capability, that's being an attractive feature for first time home devices.
And there are there were various smartphones smart home devices from those leading Oems, which which incorporate our.
Well correct, but the.
The.
You know what do you think about it from a from the point of view of our strategic focus.
We don't put a huge emphasis on that market because if something is mains power, it's plugged into a war.
And can make a lot of use of the cloud for signal processing.
And that's just don't quite know sweet spot, we can we can leverage our expertise.
To create more value elsewhere in a battery centric device.
She is doing more processing at the edge. So you know it's.
It's a it's certainly business, we like that it's not a major strategic focus.
Got it thank you.
As a reminder, lasky question I start you may never won.
Your telephone keypad.
And there are no further questions Telsey. Please go ahead.
Thank you operator, there are no additional questions I'll now turn the call back over to John.
Okay. Thank you.
So in summary, we are pleased with our results in the September quarter, as we experienced broad based demand for components across our portfolio, particularly those shipping in smartphones, which resulted in revenue significantly above our initial expectations.
With a solid pipeline of products coming to market over the next several years, a deep commitment to investing in innovative technology and a proven track record of execution. We believe cirrus logic is well positioned for growth in audio voice and other adjacent product domains.
I would also like to note that we will be participating in the Barclays Global Technology Media and Telecommunications conference on December 10th Please check our Investor Web site for the details.
If you have any questions that were not addressed on the call you can submit them to us by the ask the CEO section of our Investor website I'd.
I'd like to thank everyone for participating today goodbye.
[noise] [noise].
[music].
Yes.
[noise] [noise].