Q3 2021 Cirrus Logic Inc Earnings Call

And then.

And.

And then.

And then.

[music].

Ladies and gentlemen, thank you for standing by.

Welcome to the Cirrus logic third quarter fiscal year 2021 financial results Q&A session.

At this time all participants are in a listen only mode.

After a brief statement and we will open up the call for questions from analysts and <unk>.

<unk> for queuing up will be provided at that time.

As a reminder, and this conference call is being recorded for replay purposes, I would now like to turn the conference call over to Mr. Thurman case, Chief Financial Officer. Mr. Case, you may begin.

Thank you and good afternoon, and joining me on today's call is John and foresight Cirrus logic, as Chief Executive Officer, and Chelsea Heffernan, our director of Investor Relations.

Today, we announced our financial results for the third quarter of fiscal year 2021 at approximately four PM Easter and the.

And the shareholder letter discussing our financial results and earnings press release, including a reconciliation of non-GAAP financial information day.

Directly comparable GAAP information along with the webcast of this Q&A session are all available on the company's Investor Relations website at Investor <unk> Dot com.

This call will feature questions from the analysts covering our company as well as questions submitted to us via email at Investor Cirrus Dot com.

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 this information the company expressly disclaims any obligation to update or revise any projections.

Our 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.

And the latest form 10-K, and 10-Q as well as other corporate filings made 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'll turn the call over to John.

Thank you Kevin.

Cirrus logic delivered Q3, FY 'twenty, one revenue of $485 8 million.

Above the high end of our guidance as we experienced strong demand for certain products shipping and recently introduced smartphones.

During the quarter, we were especially pleased with customer evaluations and designing activity across our product lines.

We expect a variety of new and products utilizing a boosted amplifiers and truly wireless headsets smart codecs and haptics solutions to be introduced and the first half of this calendar year.

And reflecting on what is really an incredible set of results for the quarter I'd like to acknowledge and express our thanks to Jason, Rhode and to our shoe Leigh and we're of course, CEO and chair of the board of directors, respectively to the period and his leadership played such an instrumental role in building the company that we are to date.

And the December quarter. The company also completed our annual strategic review and we are truly excited about the three growth vectors that we believe will contribute to our long term success first we anticipate strengthening our position as the leading audio supplier and smartphones second we are focused on increasing sales of audio components and certain apps.

Patients beyond smartphones and third we are drawing on our extensive mixed signal engineering expertise to develop technology and new product areas that we believe will drive diversification beyond the audio domain.

And the last quarter, we took an important step along that path with the introduction of a closed loop controller product.

And then the last two earnings calls we have also signaled that we are currently investing heavily and our product and another new area relating to power that we are aiming to introduce later this calendar year.

While we won't go into details on those products I will report that our engineering progress continues to be really positive and we continue to be very excited about the journey, we're on with our customer.

With a rich portfolio of products available today, and a pipeline of innovative new components and development. We are optimistic about our ability to execute on this strategic plan and we believe that this will drive both revenue growth opportunities and product diversification and the coming years.

Before we begin the Q&A I'd also like to note that while we understand there is intense interest related to our largest customer and accordance with our policy, we do not discuss specifics about our business relationship.

Operator, we're now ready to take questions.

Thank you in order to ask a question you will need to press star one and your telephone if you wish to withdraw your question you May press the pound key.

Thank you. Your first question comes from the line of towards Van Berg from Stifel. Your line is open.

Yes, Thank you and congratulations on the results.

First question.

John could you calibrate a little bit your visibility right now obviously your largest customer didn't offer any and the public guidance.

But would you say you have the same visibility right now as you have in previous years or is it better or worse.

I think it's always difficult to read across from what we see happening with our own orders to what's happening with our customer products.

Given the fact that we shipped to contract manufacturers and in some cases module vendor.

Vendors.

And what we do see generally and some really strong demand so and in the macro sense, while we here and.

Very very positive and very bullish outlook from our largest customers.

We see reflected in our own order book.

And basically a time of a lot of a lot of capacity constraint and the supply chain.

And we certainly see that same pattern of demand exceeding supply.

It's definitely a quality problem to have but yes, I think the outlook is.

As for continued strength of the market.

Yes, I'll take your question and you mentioned this a little bit in your prepared remarks.

It does sound like the company is probably going to be a bit more aggressive targeting.

Non smartphone applications.

Now historically the company has always kind of viewed those and some good opportunities, but perhaps a bit more opportunistic should we think that this is going to be.

And a more concerted effort to really diversified into wearables laptops and so on.

We certainly think there are really good opportunities and that sorry.

That is something that we've been talking about and gradually turning up the volume on over the past over the past couple of years in the last year. We felt we passed a lot of meaningful milestones on getting into some key wearable products.

Some day tablet launches across customers and we want to keep that momentum going across those product categories.

And as we've indicated we believe other important product categories hold opportunity as well you mentioned laptops there from my perspective really when it's and it's.

It's something that is.

Battery constraint and battery dependent device really power constrained.

Sure.

And either haptics or audio or some other areas and mixed signal ex.

<unk> is required and I think it could be a very good fit for us so for sure as we've been able to grow and scale, our engineering capability over the past few years.

It is not for one second and we're taking our eye off the ball regarding smartphones you can see that that's kind of mission number one as I said to continue to lead the field day.

But yes, you will see us.

<unk> continued to make progress and these other categories.

Yes.

And your next question comes from the line of Ruben Roy from Benchmark Company. Your line is open.

Great. Thank you very much John if I could follow up on the supply chain.

The commentary around constraints et cetera.

The first question is would you say some of the constraints that either you're facing or maybe some other supply chain.

Participants are facing are.

And putting a cap on sort of your near term outlook.

Which could easily at around this year or are you able to supply everything.

To your customers.

Demand dictate that as you look to the March quarter.

Well look as and when it comes to our largest customers.

Largest selling products, obviously, a lot of the work we do there has a very long planning horizon. So we feel.

And in very good shape there.

When you step back and look at the kind of boom in demand across the broad.

Category of products that we sell into there is for sure and demand that exceeds.

Our ability and the supply chain and the ability to service that right now.

That could be because.

During calendar 'twenty customers had.

From some customers had a bleak outlook on the market and then and then kind of.

Got the wind back and the sales and the back ended the year.

Alright, it could simply be just.

Fleet and Eagle upside and so our guidance reflects what were able to capture of that we continue to work on the supply chain constraints.

To see how much of it we can grab.

But all of that is taken into account and our guidance for revenue.

Okay. That's helpful. Thank you John and then sort of.

And our level question around the growth vectors and the strategic planning et cetera that you've done some of these new products that you.

<unk> been talking about and are excited about.

And that's your basis is pretty excited about.

Appear to be custom products.

Slated for your largest customer what what would you say the roadmap looks like.

In terms of more general <unk>.

Product offerings, both for your traditional smartphone and markets, but also some of these and other markets that you're excited about and as you think about the next 12 to 18 months.

Yes, we totally very excited by the opportunities ahead of us when it comes to evaluating them and we look at the opportunity size above all else.

If that happens to be with one customer vessels and other but that's the kind of second order consideration to us.

Right now what we're focused on is executing.

<unk> against our current plan and.

Getting getting these.

First generation devices and new categories for us.

Lots of and loaded and help our company customers ramp successfully with with those products.

And the longer term there may be additional upside, but honestly the opportunity. We see ahead of us with our largest customers.

Sufficiently significant and meaningful.

We were very upbeat about.

About the future based on that.

Your next question comes from the line of Matt Ramsay from Cowen Your line is open.

Yes. Thank you very much good afternoon.

John I wanted to and there was a lot of and the shareholder letter and in your script as well about.

And the kinds of assets.

New domains and you.

You mentioned <unk>.

Tops and a few other things.

And I'm wondering if you might.

Talk a little bit about.

Is the company investing and is it important for you to consider things in and the automotive market.

And.

Pairing smartphones with audio and that domain is important also.

Tons of opportunities for Haptics, you would think and.

Okay.

Long design in cycles, and whatnot, but I just wonder if that's a market that.

Your view might be different than it would've been if we did talk about it two or three years ago, given the amount of disruption that's happening in that space and thank you.

Thanks Pat.

Yes.

It's an interesting area, we have some business and the automotive space and we continue to evaluate that as a major focus I would say, we steer towards areas where power constraints are really much more severe.

And so something that needs to be really thin carried around worn on the person.

And those kind of devices, where every micro amp accounts are the ones, where I think we can deliver the most.

Leverage from our engineering and message.

There are as you say certain areas of the automotive space that are taking off haptics being one of them.

And which we continue to look at it is not a major focus for US right now given all the opportunities in front of us and that more constraint power constrained device space that I mentioned.

Got it got it that makes sense.

And I guess and my second question and I guess.

And John.

And obviously feel free to chime in here, but.

I guess, one question that I've got a few times and the last 45 minutes hour or whatever since the numbers came out or.

The growth is I don't know, 30% or so on a year over year basis and December and your largest customer launch their flagship device a little bit later this year than it has and the path just from.

Calendar perspective, so to see the March quarter up 10% year over year or certainly declining on a relative basis I just wonder.

Anything else going on there or is it mostly just the supply constraints that you've talked about and I guess the second part of it is our U S.

As you affirmed the guidance are you guiding to supply you know you've secured and are going to try to do better than that or is there some sort of formula where you're calculating what youre supply might look like.

Yeah look our guidance takes everything into account and we see internally and externally. So that obviously includes incredibly strong protocol changes from our logic customers.

Very strong demand across the board and then also areas of our business that will be growing faster if we could secure more capacity than we currently have committed to this quarter.

So we then take a broadly conservative line and see that data and when we give guidance.

And I kind of reiterating I guess, just how optimistic we are on the on the outlook generally.

Given the strength of demand and what we have and the pipeline.

Yes.

And that's.

It may well be that we can grab more upside, but this is a.

Capacity constraints there.

So real.

But what we're basing our guidance on and I think as.

A very solid outlook.

And we can service.

Your next question comes from the line of Blayne Curtis from Barclays. Your line is open.

Guys. Thanks for taking my question and it's going to ask you on the Android side last quarter you wouldn't.

And think about some of the potentially from China and then it sounds like your Korean customer.

Had some earlier launches as well so and when I look at the December quarter, and it looked a little bit longer and just kind of curious.

December kind of played out and what you're expecting and then as you look at some March and I know you don't like the guide by segment, but any color on what you expect from Android you mentioned and the shareholder letter some new ramp with haptics and Budd. Thanks.

Thanks.

Yes, I think overall for Android, yes, we're very positive about but while we think we're going to see and this year. What we did talk about I mean, as you say play and we don't break it out.

By segment.

And when we did talk about.

And design and momentum, which has been really good and I think youll see those in.

Both.

Showing overall growth and Android, but also see us and more devices and more sockets. This year and Android as a result of that design momentum, which really accelerated over the past quarter.

And then maybe just a question for 30 minutes and you got on gross margin the guide.

51, I know you are kind of conservative here, but I'm just kind of curious if youre seeing anything and has come down from the beginning of the fiscal year from the end.

And 60 basis points.

And kind of curious any color as to the moving pieces there, whether it's the Android or a new product that would be helpful. Thanks.

Yes, we don't break it out that details on where the margins change, but I mean, we have.

Supply chain efficiencies and product mix product cycles and launches all have an effect on margin on any given quarter.

We're guiding.

Again, we're guiding to.

Range that we think is reasonable for our visibility at this time, but we would note that when.

And when we look into FY 'twenty two.

We would expect that.

Margins will trend slightly up as we move it across that.

Fiscal year.

Our next question comes from the line of Derek Soderberg from calling and Securities. Your line is open.

Yes. Thanks.

So I just wanted to start with John So there was some positive commentary and the shareholder letter around do and products, adding content.

And with the last few months of the fiscal year last year.

Wondering if you can provide a bird's eye view of fiscal 2022 as it relates to content increases and <unk>.

How that shapes up for growth for the year and then maybe some.

From moving parts and there and then I have a follow up.

Okay.

Well as you know we don't.

Guide for.

Beyond the current quarter, but Directionally I think you can you can read the tone and the body language here is that we've got so much going on in terms of new content and production and new stuff and development and we feel very upbeat.

And obviously the strength of demand is.

A factor and that but.

And if units were flat, we would still be feeling very upbeat given what we have on the content side. So in particular I think the main headline as we've talked about is.

And we have what we previously referred to as a power conversion and control.

We are planning to ramp and the backend of this calendar year.

That's something that we are both extremely excited about in terms of its introduction and the opportunity that that represents growth.

And landing.

New content and a new part of the.

Smartphone and system.

And then being able to.

Add value and incremental benefit to our customers and users over time based on that so that's really funnel from being in a new area of the system.

New <unk>.

Content with significant volume.

And we've indicated relative to the closed loop controller, which we've just ramped in the back half from FY <unk>.

Back half of calendar 'twenty realm.

Relatively speaking the new device will be meaningfully higher than that and.

Tons of value.

And that we have a number of <unk>.

Developments.

Ongoing and new product introductions were talking to lesser about the introduction of <unk>.

Device and using new headset smart codec.

And so truly wireless headsets and delivering it and see which we are which is currently shipping and so far the response to those the reception of those products as being really really positive growth.

And about the opportunities there.

And then sort of reading out.

And the whole lesser I'd, probably just.

And the whole range of categories, there, where I think we're making really good progress.

Yes.

As I said, the Android momentum and.

The smartphone space and it's great, but looking beyond that wearables tablets.

And the other categories beyond that represent.

Significant growth.

The growth opportunity for us where we have.

We have great devices.

Great.

And then I guess, where recent products released and these non audio adjacencies.

Tamara controllers and power control IC chip.

Year after that.

Should we view this cadence as sort of normal or is this more of an atypical product cadence and the shorter term I just wanted to see how you're thinking about the cadence longer term. Thanks.

Yes, that's a fair question I don't think Theres, a crisp answer to it when you look back at the cadence across all kinds of products that we ship into our largest customers absolutely. It's pretty variable there are periods. When you go through.

Our new introduction on a given device every couple of years there are periods when.

When it's longer than that so I wouldn't.

I actually Wouldnt hazard, a guess on that right now when it comes to the exact timing.

What we are sure about is that there is plenty of headroom for bringing more innovation to those categories.

And.

And just integrating more functionality, providing leveraging the integrated.

Signal processing that we have and those devices and.

And are continuing to add smart and value to our customers.

So if we can if we can execute.

As we have been doing and continue to take innovation to our customers and I'd expect that to be.

Good frequency of update and to those products and time.

Your next question comes from the line and Raj Bindra Gill from Needham and company. Your line is open.

Yes, Thank you and congrats on all the momentum.

Question on the non Apple business.

And sorry, non top customers. So if you look at the.

The year over year growth from from December of last year December of this year and seeing based on the math.

The non.

Non top customer the revenue was basically flat year over year.

So what's kind of your strength and kind of mid range audio amplifier truly wireless and other products just wondering how you're thinking about that that part of the business as we kind of ramp.

Throughout the year and going into and to fiscal years.

Yes, I think maybe drawing too much out of.

The past quarter on that front.

And I'd, maybe caution against that just given the.

A lot of the when you look at our Android business a lot of the Android market was hit pretty badly.

By Covid during calendar 'twenty for a variety of reasons.

Partly.

Regional partly.

And the.

Lack of having such a strong direct channel and so on.

So that was fairly there wasn't kind of overhang on that part of the market I think.

What we have seen though.

And this is what we described and the lessor is a lot of momentum on the design side.

And so the.

And the general demand for all products and.

Including our kind of state of the leading edge.

And this generation boost and emphasize.

Within that that part of our business is really significant and so we saw a lot of a lot of design momentum and the last quarter on that front, obviously that stuff that we will see bearing fruit through this calendar year.

And just for a follow up for your top customers.

Wondering if you could help me understand kind of the mix of the phone versus the non phone.

And without maybe quantifying it but just qualitatively.

The mix of revenue that you are getting outside of the outside of the phone and what are your thoughts on that going forward.

Yes, we don't break that out.

And obviously I'm sure you're expecting me to say that.

At least on the on the non phone side. The story there is being really positive I think last year, we had some very as I said earlier and Nicole we had some really good milestones that we passed and tons of getting.

Content into great, great new to us product categories, but.

And that will launch during July and calendar 'twenty.

But all of that obviously honestly is dwarfed by the amount of momentum on the phone side and.

And with the current generation in particular.

But still the story and on both sides is very very positive for us lots of progress.

Your next question comes from the line of basic Arya from Bank of America and your line is open.

Thanks for taking my question I'm curious what is the right Mexican from milestone we should track for center. So what would you do on the Android side, So if let's say Android.

Market goes up X percent this year.

And in terms of units how is your visibility in terms of growing with that market I think you outlined a number of.

Interesting content opportunities, but when do they actually start to show up and the market.

Well, we're obviously shipping today and and a whole range of Android smartphones, we tend to be focused on the upper half of the market. So the flagship tier and then the upper half of the mid tier.

Smartphones.

Sure.

Historically, there have been we have been very strong and some vendors.

Less well.

Populated and some of the other flagship phone vendors and we're seeking to.

And to maximize that over time, so suddenly one one leading indicator and point to us.

And as designing and.

The sockets and all.

And our amplifiers and we're in the flagship smartphones from from across the.

The Android OEM community.

Obviously once we get into those sockets, we look to iterate and grow the value and populate.

Although skus.

The team is appropriate.

Okay.

And.

I'm curious what is the right way to think about the second half of the year that you potentially have camera content, perhaps expanding and automotive and which and then the power control and content, which I think you described doesn't meaningfully.

Step up opportunity and that's coming only at the high end or do.

And do you think that also has a chance to show up and multiple models.

Yes look I think what we've said about that that and particular as long term, we regard that as being highly relevant across the tiers and across.

Skus so.

And that I think that.

Lots of devices likely to trend towards and attach rate of one.

How that looks on the first run out when we ramp and the back half of this year.

And that remains to be seen.

And then on the closed loop controller content.

Yes, I think we previously talked about.

<unk>.

And ASP of being roughly equivalent to an amplifier and there is general and guideline.

Just on that the blended ASP based on our site and attach rate again, just given the nature of the devices.

Shipped and we would expect to see that.

The blended ASP trend up over time as well.

Your next question comes from the line of Christopher Rolland from <unk>. Your line is open.

Hey, guys. Thanks for the question.

I guess first I'll ask kind of a big picture and then drill down a little bit.

And your letter you talked about the annual strategic review.

Perhaps John if you could talk about the topics that were kind of reviewed there.

But also maybe your couple biggest takeaway.

That you had from that review and in your kind of short Tenureship as CEO, thus far.

I hate to disappoint I think I'm going to tell you that I've told you everything and I'm going to say about the takeaways.

Yes, they're obviously every company does and strategic review there were times either it and it's.

And its comparatively painful there were times and do it where youre looking.

And we ask all the teams to come and pitch there.

And there are opportunities that they've identified the business growth.

And this is one of those occasions, where youre looking across that that list of stuff and scratching your head wondering how and if youre going to youre going to.

Select between them and staff.

The.

As many as we can.

So that that's what we've gone through over the past few months I think out of that.

There are three really clear.

Clear vectors, which I've talked about we feel that there is.

And really significant opportunity.

And to both continue.

Leadership from the smartphone space, and then build beyond that and build meaningful.

Revenue beyond audio and continue the trajectory that we believe we are on that.

Awesome, Thanks and.

And then my second question.

In the presentation. There was something that was new that was pretty cool.

And that was the HP and mixed signal beyond audio.

Breakout that you guys gave.

I guess, that's the camera controller and haptic, if theres anything else and Thats in there that would be great as well.

My question is really around this market.

Yes.

Would you say that the solidly holds.

Both rate and.

That you guys expect.

Above market trends.

For the next couple of years here.

Where do you think perhaps five years from now this 19% number could be for the company overall as you look at the various products and opportunity sets you have.

I'm not going to I'm not going to get drawn on that obviously, we have a we have a view on it it continues that trend that we've outlined and that slide.

Thanks for highlighting that because I think that tells us exactly the story of that.

I was communicated.

We believe that.

There is still there is still growth and our core audio business around smartphones those growth.

Taking those products and that IP into other product categories and some other device categories. And then there is really meaningful opportunity for us to continue to expand the areas, where we're applying our advanced mixed signal expertise. So that that you can see in the shareholder presentation.

Wait.

Where we illustrate that we are seeing the revenue from that other non audio.

Set of demand growing significantly over time, we expect that to be for sure.

I mean, who knows exactly what's going to happen with the market, but we believe the best way of growing our revenues and growing content.

And then.

Growing the content per phone.

And any underlying market growth is upside on that.

Your next question comes from the line of Rick Schafer from Oppenheimer. Your line is open.

Hi, there and come on for Rick.

And my question.

Quickly on this.

And the steel product.

Sounded like the ninth shareholder letter that.

Yes.

Just back.

On that technology.

And in Europe.

Perfect.

Are you guys capable of or you had kind of any early conversations from.

Other Oems or anybody else's interest net profit.

Right.

And you have to kind of roll that out.

Other providers over the course of time and I'm, just trying to get a sense of you know.

But potential demand for four.

On a rolling out and John.

Right.

Yes, that's not a focus for us right now.

Really.

Being very focused on executing and ramping with a customer for that.

We're not and the businesses.

Working.

Four years on a custom.

Product for somebody and then and then flipping it around to other customers.

We obviously invest a lot of engineering expertise and.

And IP and that and we will look to leverage that towards our biggest opportunities.

And im pretty confident that we're focused on those.

Okay, and then just quickly on the.

And the buyback authorization.

And you see that you guys.

The $350 million.

Is that any indication.

You guys plant on and kind of accelerating buybacks and anytime near term and are in that and explore.

And churn out.

And the sort of normal run rate buyback.

We'll look at over the course of time.

And for taking the questions.

Yes sure.

Well, our preferred use of cash remains M&A.

So absent.

Good acquisition opportunity.

Then we'll continue to look to return cash through share buyback on an opportunistic basis.

The what that authorization.

Reflex and represents really is just that we have historically high amount of cash on the balance sheet.

And we want to be and are positioned to deliveries that.

If the circumstances.

Dictate.

And again, if you'd like to ask a question press star one and your telephone.

A follow up question from the line of towards standard from Stifel. Your line is open.

Yes. Thank you two quick follow ups first of all Thurman inventory days are at 55 days.

I mean, that's not an all time low but it really is at the lower and if you look through history.

How should we feel about your ability to.

Net that number back up for the March quarter, I mean, obviously revenue is going to be down but.

I wanted to get a sense for your ability to build some inventory here this quarter.

Yes from our visibility, we're expecting inventory to increase by the end of the.

And of this quarter, how much there's a lot and environment right. So how much that will be but we do expect it to grow as we head into the first quarter of fiscal year 'twenty two.

Very good and then B.

The ASP range that you guys have for your products.

They tend to move around and I assume thats, because you keep penetrating new applications and especially at the sort of mid tier part of the smartphone market first of all is that the case and then second of all can you just clarify that asps.

Are tied to.

Anything not related to your largest customer mindsets ex tied to 13% of your business.

Okay.

Yes.

That's broadly.

Correct.

They moved from from quarter to quarter, if we if we update the presentation to reflect that.

Yes, typically it maybe because of the new product introduction or it may be a new category that we're.

Penetrating new tier.

And those those products and that don't.

Total the Asps that we talk about and don't reflect customer products.

Great. Thank you guys.

Thank you.

And again, if you'd like to ask a question and its star one and your telephone.

And there are no further questions at this time I turn the call back over to Chelsea Heffernan.

Thank you operator, there are no additional questions.

And that John.

Thank you.

So in summary, we're delighted with our results for the December quarter, as highest and anticipated demand for certain component shipping and smartphones drove revenue above guidance.

Continue to be amazed by what our team has been able to accomplish during the unusual and challenging circumstances over the past year and I believe that this dedication and talent combined with our innovative roadmap and the strength of our relationships with the leaders and the markets that we serve will position the company well to capitalize on the growing opportunities ahead of us.

If you have any questions that were not addressed you can submit them to us via the ask the CEO section of our Investor website I'd like to thank everyone for participating today Goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music], Inc.