Q4 2022 Cirrus Logic Inc Earnings Call
Our company. Additionally, the results and guidance, we will discuss on this call will include non-GAAP financial measures.
It may exclude certain items.
Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures.
<unk> in our earnings release and are all available on the company's Investor Relations website.
Please note that during this session, we may make projections and other forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections.
By providing 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.
Refer to the press release in the shareholder letter issued today, which are available on the Cirrus logic website and the latest 10-K for them as well as other corporate filings registered with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations.
I will now turn the call over to John .
Thank you Geoffrey.
First let me say welcome to bank, who is joining us for his first earnings call with Cirrus logic.
Any of you on the call today, No bank already and are aware of his considerable experience and background in the semiconductor industry.
We are suddenly all very excited about what he brings to the team here at stairs I'd also like to take this opportunity to thank so many case for his dedication and contribution to Cirrus logics growth and progress over the past 21 years.
As you've seen in the press release Cirrus logic delivered outstanding results with record revenue and earnings per share in fiscal Q4 and for the full fiscal year 2022.
Before we discuss the details of those results I'd like to take a moment to recap the three key pillars of the strategy driving the momentum and success that we are now seeing.
These are.
One maintaining our leadership position in smartphone audio by continuing to deliver world class products and outstanding execution to the strongest customers in the market.
To broadening sales of audio components in key profitable applications beyond smartphones.
And three leveraging our world class mixed signal engineering expertise in order to build a growing footprint of products outside of audio in the area, we call our high performance mixed signal product lines.
We believe this area will yield significant opportunities both within the smartphones and beyond.
We executed on this three pronged strategy very successfully in fiscal year 'twenty two delivering both strong results and we believe laying the foundation for further future growth.
In audio we maintained our leadership position in smartphones and grew laptop revenue compared to the prior year and high performance mixed signal, we shipped our first generation power conversion and control IC increase the attach rate of our camera controllers began shipping our latest generation haptic driver and a leading Android smartphone.
<unk> broadened our product portfolio with the addition of fast charging solutions.
Looking ahead, we're developing intellectual property and underlying advanced technologies today that not only pushed the boundaries of performance power latency in size, but are also important for the execution of our long term roadmap and all of these product areas with our growing investments around high performance mixed signal in areas such as power and charging we are.
To mystic about our ability to create greater shareholder value through product diversification and long term growth.
I would also like to touch briefly on the supply chain environment. We continue to experience significant constraints as demand continues to outstrip supply in our supply chain team has done a tremendous job of navigating these challenges, including those associated with the recent COVID-19 shutdowns in China.
Finally, I want to thank all of our employees and our partners for their significant contributions and achieving a record results.
And with that let me now turn the call to <unk> to provide an overview of our financial results for fiscal Q4 of 2022 as well as guidance for fiscal Q1 2023.
Thank you John .
First let me say, how excited I am to be part of it is logic.
Really look forward to supporting and helping shape the company's strategic vision.
And our plans for long term growth in both revenue and profitability.
I believe we have a great opportunity to drive compelling returns and shareholder value.
The Q4 was a record fourth quarter with stronger than expected results that drove record revenue and EPS for fiscal 'twenty two.
Fourth quarter revenue was $490 million.
Up 67% from a year ago for.
For the full year revenue was a record $1 78 billion.
A 30% increase from a year ago.
These outstanding results were driven by high performance mixed signal content gains in smartphones and to a lesser extent sales of fast charging Ics in smartphones as well as audio products and laptops.
non-GAAP gross profit in the quarter was $259 million or 52, 9% of revenue.
Gross margin was roughly flat sequentially.
But up 240 basis points year over year.
The year over year increase in gross margin was driven by higher asp's.
Were partially offset by supply chain cost increases.
Going forward, we expect gross margin to moderate towards our long term model and I'll cover this topic more in the guidance section.
non-GAAP operating expenses in the quarter were $123 million.
Up approximately $8 million sequentially.
The sequential increase was primarily due to higher employee expense.
And to a lesser extent an increase in product development costs.
For the full fiscal year non-GAAP operating expenses were $456 million.
Or 26% of revenue.
non-GAAP operating income was $136 million in the fourth quarter was 28% of revenue representing a record for the quarter.
Full quarter operating full year operating income was $472 million.
27% of revenue.
non-GAAP net income in the fourth quarter was $118 million or $2 <unk> per share.
Fiscal year 'twenty, two non-GAAP net income was $408 million.
Or $6 90 per share.
Let me now turn to the balance sheet.
Our balance sheet is strong and we ended fiscal year 'twenty, two with $444 million in cash and cash equivalents.
This was up roughly $173 million from the prior quarter due to strong cash flow generation.
We have no debt outstanding.
Inventory was $138 million down $10 million sequentially.
And days of inventory was 55 days in Q4 up three days sequentially.
Turning to the cash flow cash flow from operations was $258 million in the quarter.
And free cash flow for the quarter was $250 million and for the full year was $95 million as we used $277 million in cash for the Lion acquisition as well as $255 million for wafer purchase commitments.
We are pleased with the results of our capital return activities during the year.
We repurchased roughly $75 million of our common stock in fiscal Q4, and a total of $167 $5 million during the full fiscal year.
As of the end of fiscal year 'twenty, two we have $192 5 million.
Remaining in our current share repurchase authorization.
And now onto the guidance for.
For the first fiscal quarter of 2023, we expect revenue in the range of $350 million to $390 million.
On a year over year basis, our expected revenue growth is primarily driven by anticipated increases in demand for certain components shipping in smartphones and to a lesser extent higher asps compared to the prior year.
As I alluded to earlier, we expect gross margins to normalize around our long term model of 50%.
As we shipped inventory built at higher costs compared to Q4 fiscal 'twenty two.
As a result in the June quarter, we expect gross margin to range from 49% to 51%.
non-GAAP R&D and SG&A is expected to be flat sequentially in the range of $117 million to $123 million.
We anticipate a tight labor market in fiscal 2023 with associated inflationary pressures on wages.
On the tax front due primarily to a tax rule effective this year that requires companies to capitalize and amortize R&D expenses, rather than deduct them in the current year, we expect our fiscal 'twenty three non-GAAP effective tax rate to increase to approximately 23% to 25%.
However, we anticipate that under this rule our effective tax rate will decrease and may return to a normalized range in about five years as additional use of R&D expenses are amortized for tax purposes.
There appears to be strong legislative support for delaying or eliminating this rule, which we're watching closely.
I would note that without the impact of this rule, our non-GAAP effective tax rate would be in our more typical mid teens range.
In closing, we had an outstanding fiscal Q4 and fiscal year 2022.
Going forward, we will focus on the best opportunities to enable the company to continue to grow both revenue and profitability over the long term.
Finally, I want to thank chairman for his leadership and contributions to <unk> over the past two decades and for building a world class Finance organization.
And before we begin the Q&A I'd like to note that while we understand there is intense interest related to our largest customer in accordance with citizens a company policy, we will not discuss specifics about our business relationship.
With that let me turn the call to Chelsea to start the Q&A session.
Thanks. Thank you we will now start the Q&A portion of the call. Please limit yourself to a single question and one follow up operator, we are now ready to take questions.
Thank you Ms. Chelsea as a reminder to ask a question you will need to press star one on your telephone keypad.
Once again, we would like to remind the analysts to please limit yourself to one question to one question and one follow up.
We will pause for just a moment to compile the Q&A roster.
Our first question comes from the line of Torrey Svanberg Stifel.
Stifel Nicolaus <unk> company your line is open.
Yes. Thank you.
<unk> on the strong results in <unk> Bank.
Congratulations to you and look forward to working with you.
My first question is on seasonality. So we all know that this year the season, the seasonality is a little bit off, especially here in the first half of the year I was just hoping you can maybe talk a little bit about some of the puts and takes for the seasonality for the second half, obviously youre not going to give us annual guidance, but.
Given the seasonality was so weird here in the first half of this year, how do you expect it to trend in the second half.
Yeah. Thank you Terry this is John we've suddenly seen.
A very strong March quarter, and then as you can see very very strong guidance for the June quarter.
It's it's.
We're not going to guide further out at this point in it.
Difficult for us to provide much more color on that I think one of the big benefits of our business.
Is that we shipped multiple products into multiple generations of our customers' devices, but given that and given the fact that supply is still really running as hard as it can just catch up with demand.
For current generation devices almost by definition, our visibility is fairly limited.
Very good and as my follow up.
And you mentioned a little bit this in the shareholder letter the sound wire technology being a very important trend for your business I assume we're still very early days in Europe penetration into the laptop market, but I was hoping perhaps you could address that in a bit more detail.
Why does <unk> really do for the <unk>.
Market opportunity and then I assume as a follow up Youll also get perhaps some power products and the multiple as well.
Thank you Terry I guess the SaaS.
The opportunity that we referred to is specifically around laptop.
Computers.
And in particular, a shift that we anticipate there towards soundwalk connected boosted amplifiers and potentially some codec products with Sandler <unk>.
<unk> ability as well.
And evolution of the laptop architecture and is really what we've been shooting at in our approach to the laptop market that was the transition that we saw coming in the laptop space.
A couple of years ago believed was going to make laptops look more and more like smartphones architecturally.
And thereby gave us a great opportunity to leverage a lot of IP that we have deployed very successfully in audio in the smartphone space.
Where we where we've obviously got a leadership position and leverage that into the laptop market as a <unk>.
Relatively close adjacency.
His early days there. So we saw some good revenue in the laptop space driven by legacy products really as a result of the.
What's happened during Covid.
But the longer term strategic story for us is around new products boosted amplifiers based on sidewalks.
Codex and so on and that's really we're still as you say in early inning, that's really something we will.
Start to see more meaningful once we get out to FY 'twenty.
Thank you Tory look forward to working with you as well and.
Operator, we'll take the next question.
Our next question comes from the line of Matt Ramsay.
<unk> company. Please ask your question.
Hey, this is Josh buchalter on behalf of Matt Congratulations on the great results and guidance and thank you for taking my question.
I guess I just wanted to start with.
I guess the near term results in June guidance, you took a pretty conservative tone last quarter and included they've been a lot of moving parts, but things are coming in better than than you. Initially expected. Despite a choppy smartphone backdrop I guess I'm just wondering if we look back a couple of months what change, what's allowing you to much higher confidence in that June quarter.
As we sit here.
In May I guess versus.
A couple of months ago. Thank you.
Yeah, Thanks, Josh well when we guided the March quarter and provided that commentary on the June quarter, we anticipated a stronger than normal March quarter with a demand pause coming in June and that was based on everything that we could see and believed at the time.
As you can see from both the results for the March quarter and the June guidance that we're giving now demand is frankly continues to be stronger than we expected.
So the step down from March to June on a sequential basis is still largest than we would typically see based on normal seasonality, but really the story here is a very strong customer demand and our continuing efforts to fulfill that on the back of a very successful product cycle.
Understood. Thank you and then congratulations man.
Okay.
While on your respective transitions.
And you know, it's only been a few weeks, but anything you could share.
Your observation.
Our new role.
We would expect to focus in particular Sirius has quite a counterpart on the balance sheet and any initial thoughts there.
Best way to deploy that thank you.
Yes, Thank you, Josh and look forward to working with you as well so a great question. So in terms of what I've seen and obviously, it's been a couple of weeks.
But clearly set us has a tremendous track record of both technology and product innovation.
As well as operational excellence to basically meet and deliver on all the customer requirements.
<unk>.
That's demonstrated annually with the great success of the company has had not only with their marquee customer but across the board.
In terms of just expanding the market opportunity that the company has delivered over the last few years with the diversification into high performance mixed signal solutions and such.
And Im also you got to have a very good finance team.
I'm happy to be part of and as it relates to your question about what we see with regards to use of cash and so forth. As you pointed out we have a very strong balance sheet and the company has had a pretty good track record of generating significant amounts of cash flow on a consistent basis.
As it relates to how we look at the opportunities ahead, we still see quite a bit of opportunities to invest in R&D with a significant pipeline of opportunities that the company wants to pursue.
And we intend to do that.
Clearly we'll be very.
Focused on operational excellence and to the extent that we can have leverage on the SG&A side, we will deliver that.
And as it relates to just use of cash you've seen us be very frequent buyer of our stock and and also we have the flexibility to do opportunistic M&A and as it relates to M&A, we wanted to be disciplined.
Want to identify where the strategic fitness and ensure that we fill portfolio gaps on an absolute basis, but we'll be very focused on on the strategy. The strategy on the fit and ensure that we have.
Decent valuation for it as well so lots of things to do but overall in the company is in a great great position outstanding opportunities.
We still see ahead of us and lots of Optionality in terms of how we deploy the cash.
Thank you.
Your next Blayne Curtis Barclays. Please ask your question.
Good afternoon. This is Tom O'malley on for Blayne Curtis.
Are you guys doing.
Just wanted to.
The noise in the background, there I'm not sure about it.
I just wanted to ask the first question here normally pretty good.
I think some bread crumbs.
In the release it looks like you had mentioned that the next generation device further future performance at both convert and processing.
Could you just talk about what.
That product will be focused on I think you mentioned it.
Yes.
I'll take that.
Thank you.
Yes, Tom we had little.
Difficulty following the audio there, but I will.
Take a relative.
Hopefully get near the Mark.
It sounds like you were asking about some commentary we gave on our next generation camera controller device.
Yes.
That we.
We have.
In line for the second half.
Product launches this year, yes.
In evolutionary upper.
<unk> upgrade from existing camera control of devices.
As you know in that area, we have differential attach rate across skus.
Across generations, and then this maybe add a little to the complexity as well by being a seconds.
Very into the camera at closed loop controller in.
It will give us a.
A small bump in in blended ASP on the camera side I think the bigger picture as I have said is that I believe we have the ability to continue to grow the camera related content year on year for the foreseeable future as we continue to to support the customers' ambitions to deliver outstanding.
Outstanding user experience is that.
So.
Other than that I don't want to get into talking about our customers' products.
Thank you and forgive the feedback you are not sure.
Just one more.
That's been there's been talk about <unk>.
Yes.
Auto focused proliferating.
Both your largest customer.
Could you just talk about what that means.
Address that in any particular way.
Sure.
Could be another content increase for you.
Well in general there are certain camera features where we really want to enable our customers to continue pushing the performance envelope. So so we're concentrating very hard on that so when we take advantage of being on very.
Advanced geometries advanced process nodes for mixed signal it allows us to build.
More and faster processing into the camera controller chip that will basically as you know today. We're one of the things that we're doing is driving order focus one of the things we're doing is driving optical image stabilization.
And so more processing.
Faster processing translates into.
Into better performance for those features.
Thanks, Tom do you have a follow up.
That's all thank you guys.
Thank you Tom Thank you.
Our next question comes from the line of Christopher Rolland from Susquehanna. Your line is open.
Hey, guys. Thanks for the question.
And welcome Bank.
Aye.
I wanted to review your expectations for Cynosure result.
Or at least the guidance for the June quarter. I know you guys said it was units in your release.
But I guess I'm trying to understand what your expectations were and why such a difference for per genome.
It sounds like the seasonality in June is much more normal I would have expected. This why do you think that's going to be different.
Thanks.
Chris I think I have given that answer we base. Our we didn't guide that we gave we did give some commentary.
Given that at the time based on everything we could say, we could see which is obviously.
Based on all the all the interactions we have with our customer and the supply chain.
That we anticipated a demand pull is coming during the June quarter.
And so yes, as I said, while the step down between March and June is more than you would typically see between the March and June quarters on a sequential basis. It's obviously.
Still the case that we have we have a very strong June which is just.
Indicative of the underlying very strong demand that we're seeing.
Okay. Thanks, John and then.
Currently we have been looking at some paradigms recently.
And you guys have been making some progress in Android, which is great.
Just wondering if maybe you could give us some expectation for Android.
Perhaps for for this year or is this an inflection here in Android.
Maybe talk about your outlook.
Okay.
Yes, Thanks, we've been making good progress and Android both boosted amplifiers space, which is obviously.
Part of our.
Our strategy to maintain our smartphone audio leadership.
And in in Haptics, we have seen our latest generation haptics device come to market in an Android flagship very recently.
We don't break it out we don't break Android at and break out quarter by quarter, but I can give you a little color there fiscal 'twenty two was very strong certainly relative to your fiscal 'twenty, one and fiscal 'twenty.
So we have good momentum there I would also say it's been supply constrained.
And I would envisage that will be the case tool in fiscal 'twenty three.
I don't think thats been a change during.
During that timeframe.
Thanks, John .
Okay. Operator, we have time for one more question.
Our last question comes from the line of <unk> <unk> of Stifel. Please ask your follow up.
Yes.
Yes, I had a follow up on your power products you mentioned the.
The 22 nanometer process, obviously the 45.
That allows you to do more Programmability I was just wondering are you able to do program ability both in power IC and battery management or would be one or the other.
So just to fill it.
Pull apart a couple of threads there are in general as we go down the <unk>.
The nodes, we can pack in more digital processing thats appropriate for some of our products, it's more appropriate for some others.
Now our power products.
Our typically on 55 nanometer.
Or in the case of fast charging on.
Higher nodes.
But over time, we believe that.
There will be more digital control logic.
In the power products.
And that would be on that would cover battery management battery health.
Charging components and so on and that is I believe a reason why having investment in advanced.
Nodes for mixed signal that we have today.
And doing that kind of heavy lifting to get our power IP on those nodes.
Is going to pay dividends in the long run.
This conclude thanks, so there'll be other follow ups.
Thank you operator with that we will and Q&A session and I will turn the call back to John for his final remarks.
Chelsea.
In summary in the March quarter, Cirrus logic delivered record fourth quarter revenue and earnings per share driven by strong execution across our three strategic pillars, those being maintaining our leadership position in audio broadening sales of audio components in key profitable applications beyond smartphones and third applying our mixed signal expertise to expand.
And into new adjacent markets.
We're excited about the opportunities we see ahead and we thank you for your continued interest in Cirrus logic.
Before we close I'd also like to note that we will be participating in the Cowen Conference on June 1st in New York and the Stifel Conference on June seven in Boston, Please check our investor website for the details.
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.
This concludes today's conference call. Thank you again for participating you may now disconnect.
Goodbye.
[music].