Q2 2025 Cirrus Logic Inc Earnings Call
Ladies and gentlemen, thank you for standing by. Welcome to the Sirus Logic 2nd Quarter Fiscal Year 2025 Financial Results Q&A session. At this time, all participants are in a listen-only mode.
After a brief statement, we will open up the call for questions from analysts. Instructions for Q&A will be provided at that time. As a reminder, this conference call is being recorded for replay purposes.
I would now like to turn the conference call over to Miss Chelsea. I'm sorry. Chelsea Heffernan, Vice President of Investor Relations. Miss Heffernan, you may begin.
Chelsea Heffernan: Thank you and good afternoon, joining me on today's call is John Forsyth.
Chelsea Heffernan: Syraclojects, Chief Executive Officer and Ulf Habermann are interim chief financial officer.
Today, at approximately 4 p.m. Eastern Times, we announced our financial results for the second quarter of fiscal year 2025.
The Sherholder Letter discussing our financial results, the earnings press release and the webcast of this Q&A session are all available at the company's Industrial Relations website.
This call will feature questions from analysts covering or company.
Additionally, the results in guidance we will discuss on this call will include non-gap financial measures that may exclude certain items.
Reconciliation of these non-gap measures to their most directly comparable gap measures are included in our links release and are all available on the company's investor relations website.
Please note that during the session, we may make projections and other forward-looking statements that are subject to risks and uncertainties that make cause actual results to deformatarily from projections.
By providing the information that Anthony expressly disclaims any obligation to update or price any projections or further booking statements, whether as a result of new development score otherwise.
Please refer to the press release in the shareholder letter issued today, which are available on the company's website.
In the latest form 10K, as well as other corporate violins registered with the Securities and Exchange Commission. Additional discussion of risk factors that could cause actual results to deformaturately some current expectations.
Chelsea Heffernan: Now I'd like to turn the call over to John.
John Forsyth: Thank you Chelsea and welcome to everyone joining today's call.
John Forsyth: As you have seen in the press release, Siress Logic delivered record revenue and earnings per share for the September quarter. Revenue was $541.9 million near to the top end of our guidance range due to strong demand for product shipping into smartphones.
In a moment I'm going to hand the caller to Ulf to discuss the financial results for the Timbergorder in greater detail as well as our outlook for the Decembergorder. But before we get to that I'd like to make a few remarks regarding our recent progress.
Chelsea Heffernan: As many of you are aware, our long-term strategy for growing the company is based around three broad principles.
Chelsea Heffernan: First, maintaining leadership in our core flagship smart for an audio business.
Chelsea Heffernan: Second, continuing our expansion in areas of high performance mixed signal functionality in smartphones and third, leveraging those audio and high performance mixed signal capabilities to penetrate and grow in new markets.
In our flagship smart for an audio business, this past quarter we were particularly excited to begin shipping our next generation custom booster down profile.
and our first 22-nathamuni smart codec in recently launched smart phones.
The new amplifier provides significant power and efficiency improvements while the smart codec in addition to being a serious logic's first 22 nanometer product of any kind, delivers meaningful advances in audio and mixed signal processing capabilities.
Together, these components showcase years of engineering dedication and close collaboration with our customer.
Chelsea Heffernan: and they contribute meaningfully to the power efficiency and extraordinary audio quality of our customers' new products.
Chelsea Heffernan: We anticipate that both components will ship for multiple smartphone generations and in doing so providers with an enduring and substantial revenue stream in the years ahead.
Chelsea Heffernan: Looking beyond audio, we're enthusiastic about the potential to grow content in smartphones with our high performance mixed signal solutions.
Our progress in this area is evident in the continued success of our camera controller product line.
Chelsea Heffernan: Since the introduction of our first camera controller in Calon the year 2020, our camera content is continued to increase in value over time.
Chelsea Heffernan: With the recent smartphone launch, we are benefiting from a more favorable overall mix of smartphones on the market that include our camera controllers.
Chelsea Heffernan: We seek considerable potential to add further value in this area, as we identify more opportunities to enhance system performance and help enable advanced camera features.
Chelsea Heffernan: Beyond Camera Controllers, we also believe that advanced power, sensing, and battery-related technologies represent excellent opportunities for us, and we continue to invest in a number of R&D programs that are focused on these areas.
Chelsea Heffernan: We anticipate that the investments that we are making in this space today will contribute to product diversification and expand our footprint in these product categories in the future.
Chelsea Heffernan: The third element of our strategy is focused on expanding into new applications and markets outside of smartphones.
Chelsea Heffernan: In this area we continue to be excited about the opportunities we see in our laptop business.
Chelsea Heffernan: While we are still in the early stages of revenue contribution from our recently introduced laptop components, we will please with our progress during the September quarter.
That progress included securing our first high-volume mainstream design win with our latest PC codec, which combines cutting edge hardware with advanced algorithms for superior audio playback.
Chelsea Heffernan: We're also proud to ship our first power product designed specifically for laptops in multiple tier 1 customers' devices.
Chelsea Heffernan: Additionally, during the quarter, we saw the introduction of a new laptop from a top tier laptop OEM that exemplifies the breadth of our content opportunity in this market.
Chelsea Heffernan: in the Ditt features eight-series logic components.
Chelsea Heffernan: including a codec, multiple audio amplifiers and multiple power convertit ships.
Chelsea Heffernan: We anticipate many more customer product introductions in the laptop space in the coming months and are excited about the opportunity this market represents.
Ulf: and with that, let me now turn the call over to Ulf to provide an overview of our financial results as well as the outlook.
Ulf: Thank you, John, and good afternoon everyone. I will start with the summary of our financial results for our second quarter, fiscal 2025, and then provide guidance for Q3 at 525.
Chelsea Heffernan: In Q2F525, we delivered record revenue for the September quarter of $541.9 million, near the high end of our guidance range.
Chelsea Heffernan: On a sequential basis, revenue was up 45% due to higher uniboliums associated with new smartphone launches.
Chelsea Heffernan: On a year of year, VATS is sales route, 13% driven by higher smartphone, unifoliums, an increased revenue associated with next generation products.
Chelsea Heffernan: Also, as we indicated in Q1, F-25, in our shareholder letter, when comparing our September quarter to the equivalent quarter last year, we would note that an F-25 or September quarter begin and end it one week later.
Chelsea Heffernan: Therefore, it encompassed one week more of higher-volume production associated with typical seasonal product grams.
Chelsea Heffernan: Turning to Gross Prophet and Gross Margin.
Chelsea Heffernan: Non-Gap Drows Profit in the Quarter was $282.9 million and Non-Gap Drows Martin was 52.2%.
Chelsea Heffernan: On its sequential basis, the gross margin increase with 160 basis points was mostly driven by favorable product mix. The 90 basis point increase, year over year was largely to do favorable product mix.
Chelsea Heffernan: This was our set and part by higher supply chain cost.
Chelsea Heffernan: Now I'll turn to operating expenses.
Chelsea Heffernan: Non-Gap Operating Spence for the Second Quarter was $126.8 million.
Chelsea Heffernan: On its sequential basis, Ulf Exz is up $8.8 million, primarily due to higher airable compensation and product development cause.
Chelsea Heffernan: This was offset by a reduction in employee-related expenses.
Chelsea Heffernan: On a year over year basis operating expenses up $12, $1,3 million largely due to higher employee-related expenses, increased fairable compensation, and higher product development costs.
Speaker Change: Nathamuni, an offer rating income for the quarter, and was $156 to $2 million, for 28.8% of revenue.
Chelsea Heffernan: Turning now to taxes for this September quarter, a non-gap tax rate was 23.8% inline with our previous guidance.
Chelsea Heffernan: And lastly on the P&L, Nongapnet income was $125.3 million for resulting in a record earnings per share for the September quarter of $2.25 is the higher revenue and profitability flow through to the bottom line.
Chelsea Heffernan: Let me now turn to the balance sheet.
Chelsea Heffernan: Our balance sheet continues to be strong in the end of September quarter with $766 million in cash and investments.
Chelsea Heffernan: All right, I'm in Keshe and Investment Delans and it's down 30, 8 million dollars from the prior quarter primarily to the Keshe spent on share of reproaches it.
Chelsea Heffernan: Partially offset by cash generated from operations.
Chelsea Heffernan: We continue to have no debt outstanding and have $300 million on drone and our revolver.
Chelsea Heffernan: Our inventory balance at the end of the second quarter was $271.8 million, up from $232.6 million in key 1 FY25.
Chelsea Heffernan: Days of inventory were down slightly sequentially, and we ended the quarter with approximately 96 days of inventory.
Chelsea Heffernan: Looking ahead in 23 FY25, you can expect a slight increase in inventory dollars from the prior quarter.
Chelsea Heffernan: We would also note as we move through F525 and into F526, we expect inventory to increase as we continue to fulfill the demand and manage our wafer purchase commitments per long-term capacity agreement with global funders.
Chelsea Heffernan: Turning to Cash Flow.
Chelsea Heffernan: Cash will from operations was $8.2 million in its September quarter, and CapEx was roughly $2.7 million.
Chelsea Heffernan: Resolving a non-gap free catch will margin of roughly 1%.
Chelsea Heffernan: For the Trailing 12 Month Period, Cashflow from Operations was $579, $1,6 million and CapEx was roughly $30.4 million. This resulted in non-Gap Free Cashflow margin of roughly 29%.
Chelsea Heffernan: On the share by a background in Q2, we utilized $50 million to repurchase approximately $350,000 of our common stock at an average price of approximately $140.
Chelsea Heffernan: At the end of G2 F525, the company at 224.1 million dollars remaining in its share, repurchase authorization.
Chelsea Heffernan: We expect to continue to return capital in the former Stockford coaches, which we believe will provide a long-term benefit to shareholder's going forward.
Speaker Change: Now from 2 to games.
Speaker Change: For a treat, three of FY25, we expect revenue in the range of 480.
Speaker Change: Million Dollars did $540 million. I would like to take a moment to highlight a couple of factors influencing our revenue guys.
Speaker Change: First, when comparing our December quarter outlook to the equivalent quarter last year, guidance reflects one last week of revenue as F524 was a 53-week fiscal year.
Chelsea Heffernan: and second, as a result of the additional week last year, the timing of the end of our fiscal quarters in F525 is shifted.
Chelsea Heffernan: Therefore, this September quarter included one more week of higher volume production associated with typical seasonal product ramps.
Chelsea Heffernan: Moving on to Gross Margines.
Chelsea Heffernan: The Afros margin is expected to range from 51 to 53%.
Chelsea Heffernan: Non-Gap operating extends to expect a range from $124 million.
Chelsea Heffernan: The 1,000-hurt-30 million dollars. On a sequential and year-over-year basis, guidance reflects increases in product development costs, which are partially offset by lower variable compensation and a reduction in employer-lear-related expenses.
Chelsea Heffernan: will continue to control discretionary spending while investing strategically in product development to drive long-term growth.
Chelsea Heffernan: We expect our S525, non-GapTex3 to be approximately 22 to 24% and change from our previous guidance.
Chelsea Heffernan: This range is slightly higher than our FY24 tax rate, which was impacted by a favorable catch-up benefit related to updated IRS guidance on the R&D capitalization rule.
Chelsea Heffernan: In closing, we delivered outstanding results for this September quarter. We're pleased with the progress we have made this year. We made focus on executing our strategy that we believe will enable company to grow both revenue and profitability during the long term.
Chelsea Heffernan: Before we begin the Q&A, I would like to note that while we understand there is intense interest related to our largest customer in accordance with Sears Logic company policy, we will not discuss specifics about our business relationship.
Chelsea Heffernan: With that, let me now turn the call to Chelsea to start the Q&A session. Thanks, Ulf. We will now start the Q&A portion of the earnings call. Please limit yourself to a single question and one follow-up. Operator, we are now ready to take questions.
Speaker Change: The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to withdraw your question, simply press star 1 again.
Speaker Change: If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Your first question comes from the line of Christopher Rowland of Susquehanna. Your line is open.
Christopher Rowland: Hey guys, thanks for the question. So I do think I understand the extra week in September and the effect there, but but still this is
Speaker Change: for December, a larger than typical seasonal decline. I guess maybe you can talk about the inner play there.
Chelsea Heffernan: As we think about March, I know you don't want to guide a quarter ahead, but given that seasonality is all messed up for December, March is typically down high 20s.
Chelsea Heffernan: How should we think about that just given the messed up December? Thanks.
Speaker Change: Thanks Chris. I think the the various kind of moving pieces make sense on December but there's a bit of unpacking to do so so let me just do that and then circle around to the rest of your question.
Chelsea Heffernan: So, there are at least three factors when we look at the December year-on-year comps. So first, this September quarter that we're reporting had one more week of the higher volume production that is associated with the kind of peak ramp period for us.
Chelsea Heffernan: as a consequence of AIDS.
Chelsea Heffernan: coming later in the year because FY24 was a 53-week fiscal year for us. So that's one factor just meant there was, you know, a week of higher volume, higher value stuff in September than we would normally see.
Chelsea Heffernan: The second thing to think about when comparing year over year is that, of course, the December quarter in fiscal 24 was a 14-week quarter.
Chelsea Heffernan: so that that also influences the comps. Then a final point which I think I talked to on the last call is that in the December quarter
Chelsea Heffernan: Last year we saw more Android production.
Chelsea Heffernan: Than we would normally see in that period that was due to a large Android customer ramping
Chelsea Heffernan: their product earlier than they normally do.
Chelsea Heffernan: So there were various factors that contributed to a record-breaking December last year and then obviously...
Chelsea Heffernan: to the comps that we'll face this December.
Chelsea Heffernan: But I think when you look across the sequence...
Chelsea Heffernan: All of you obviously the quarter boundary is different as it relates to the ramp, but but the numbers taken together Kind of look look, you know fairly robust. So if you take
Chelsea Heffernan: The first three fiscal quarters of this year using the midpoint of our December guide Then that compares, you know, that's got slightly slightly up on the first three fiscal quarters of last last year
Chelsea Heffernan: for example. So, as you say, the seasonal picture is somewhat different, but more than anything that's a function of these factors that I've outlined.
Chelsea Heffernan: and the December quarters and the March quarters are the hardest to guide for us because they really depend on what the demand looks like as we go through the holiday period for the various key products that have been recently launched.
Chelsea Heffernan: So, as a consequence of that, you know, as you allude to, historically, there's been a fairly big spread of seasonality there. We've seen anything from down 11% to down 40%, I think, over the past several years, with probably an average shaking out around 30%.
Chelsea Heffernan: but we really have no no color to give on March at this point so I'll have to leave it there for now and obviously update you with much more detail when we get around to reporting the December quarter.
Speaker Change: Understood, John. Maybe the next one for Ulf.
Speaker Change: So, on the wafer obligations, I think they're like mid $500s and $24s. You get some relief next year, I think, high $300s.
Speaker Change: The inventory that you're building, that's, I imagine, on that 24 number, just as it's higher.
Speaker Change: As we move into next year, would you expect any inventory build or are we all out of the clear there on that side? And then, you know, anything else, any other pain points or things to think about on the way for obligations? Thanks.
Speaker Change: I mean, yeah, so we have to fulfill those wafer obligations as you stated, and you can see, you know, our minimum commitment schedules out there as well, in the case. But...
Speaker Change: Yeah, we expect to build inventory into early FI26 as well, but that's all inventory that we expect to sell long-term, right? That's all long-term selling products.
Speaker Change: that we're building in that wood blobble.
Speaker Change: Thank you. Your next question comes from the line of Taurus Vanburg of Stiefel. Your line is open.
Taurus Vanburg: Thank you very much. Thank you.
Taurus Vanburg: Yes, thank you.
Taurus Vanburg: So Jonah, I appreciate you can't talk a lot about your largest customer, but it is a bit of an unusual time where
Speaker Change: you know they're kind of updating their operating systems and their product cycles kind of on the go right so I'm just wondering if that has created any unusual linearity for you whether it's staging inventory or you know lead times.
Speaker Change: you know, because it is a bit unusual. So I'm just wondering if that has created anything unusual for you as a supplier.
Speaker Change: I think it's a little hard to judge that, Tariq. The biggest impact I think for us that shapes this
Speaker Change: As I referred to in my opening remarks, a more favorable mix regarding camera controllers. There was a lot of build over the past few months. Obviously, it's a significant amount of material and content which we've ramped there.
Speaker Change: but
Speaker Change: I think we're...
Speaker Change: still actually, you know, some very exciting features yet to be launched and we've yet to go into the holiday period, so I wouldn't want to call it more than that until we're on the other side of that period, sorry.
Speaker Change: Now that's fair. Just as a follow-up, and I'll use sort of what's happening in the in the laptop
Speaker Change: to try to understand what could potentially happen in the smartphone. I know it usually happens the other way around, but you did talk about selling in a new laptop now, basically a codec, amplifiers, and power conversion ICs. And I'm a little bit intrigued about the power conversion ICs.
Speaker Change: Is this something that, you know, you expect to expand on in the smartphone market in 2025?
Speaker Change: Maybe also just put it within context of all the product offerings that we have in the laptop space right now. We're shipping today audio codecs, amplifiers,
Speaker Change: haptics drivers and now in this quarter we began
Speaker Change: Shipping Power Conversion Chips as well. So those those four different product categories
Speaker Change: which we're really excited about. I think on a previous call, I highlighted when one of our customers launched a product with seven Cirrus Logic chips in it, which included haptics drivers, amplifiers, and a codec. It did not include power chips. So now I'm talking about eight, which includes...
Speaker Change: Kodak amplifiers and power chips, but no haptics. So hopefully one day we will be here talking to you about
Speaker Change: a laptop that contains all of these, but of course we are very excited about the range of opportunities that having all these products represents. The PowerChip itself...
Speaker Change: It has its origins in some of the IP that we acquired as part of the Lion semiconductor transaction a few years ago. It's a switch-cap DC-DC converter.
Speaker Change: with very, very high efficiency compared to incumbent legacy products and architectures for DC-DC conversion. What that really translates into is less power being lost through heat and less heat being generated.
Speaker Change: within the laptop and needing to be dissipated. So very attractive, both from the user perspective and the industrial design perspective. And that's really a big part of what got it on the Lunar Lake reference design.
Speaker Change: and that's driving some of these initial design ends that we've seen. It's not always necessarily a one-to-one attach rate. We've seen in that case that I talked about with the OEM that
Speaker Change: that
Speaker Change: launched a product with eight chips in it. There are three of our power conversion chips in there, and that represents a significant quantity of revenue and ASP for us.
Speaker Change: As to whether or not that kind of chip finds its way into smartphones, we do sell power-related products in smartphones today.
Speaker Change: Some one custom chip as you know.
Speaker Change: and in the general market. We are, by and large, focused on... I don't think we'll see quite this chip coming to smartphones. By and large, in the smartphone space, we're focused on
Speaker Change: A couple of things, really, really...
Speaker Change: and then in the general market we're typically focused on selling products that we have today given that the R&D dollars that we're deploying in the power space we feel are better deployed targeting the laptop market as we see that as being a larger overall opportunity for us.
Speaker Change: Your next question comes from the line of Thomas O'Malley of Barclays. Your line is open.
Thomas O'malley: Hey guys, thanks for taking my question. My first one is just on seasonality into the last fiscal quarter as well I know.
Thomas O'malley: you guys want to stay away from guiding there but just um if I take
Speaker Change: kind of the better end of the historical seasonality, kind of the down 11 in the March quarter, and I look at
Speaker Change: where that puts you as a business. Like you're still kind of growing.
Speaker Change: mid-single digits in fiscal year 25, so I don't think you've updated.
Speaker Change: really your expectations on the content side for this year. And I think that, you know, you had a couple of really nice upgrades there. So what would explain the difference, I guess, between the initial outlook of a strong content year and kind of that fiscal year, even at the best type of seasonality in March, not being up the kind of high single digits, low double digits?
Speaker Change: Well, we really just guide based on what we see, Tom. I'm not going to guide further out, but we really just base that on what we see in terms of backlog from our customers and our conversations throughout the supply chain.
Speaker Change: The ramp and the quality of the products that we've We brought to market on this cycle. And then of course we have a we have a more favorable mix in the camera space But yeah Well, we'll just have to see how that translates into results as we go forwards and get on the other side of the December quarter
Speaker Change: helpful and then on the on the PC side you had talked about tens of millions of dollars kind of exiting this year could you maybe talk about you know how that's been tracking so far and then as you look kind of into next year are you still in kind of the tens of millions of dollars range or do you think that you have more confidence kind of sitting here today versus you where you were you know three or six months ago on that
Speaker Change: Thank you.
Speaker Change: Thanks Tom. Well the phrase tens of billions obviously encompasses a fairly fairly broad range.
Speaker Change: My comment about this fiscal year was that we were tracking to, we were targeting low tens of millions. We're tracking to that, I'm very pleased to say.
Speaker Change: And we do think, you know, we're in the very early stages of seeing our kind of PC-focused products, this generation of products that we've developed across the different domains that I talked about. We're in the early stages of seeing them come to market now, but we are seeing them come to market. And I anticipate...
Speaker Change: early in the coming calendar year we'll see you know we'll see a really great range of product launches from customers incorporating more serious content so those will land in terms of revenue impact
Speaker Change: more in, they'll have more greater impact on fiscal 26 obviously so we'll give more color on that in due course as we get closer to fiscal 26 but so far it's it's certainly tracking with our expectations
Speaker Change: And the momentum we have is really exciting, so we're anticipating a meaningful step up in Fiscal 26 from where we've been tracking in Fiscal 25.
Speaker Change: And many others. Thank you. Thank you. Thank you. Thank you.
Speaker Change: Your last question comes from the line of Ananda Barua of Loop Capital. Your line is open.
Ananda Barua: Yeah, thanks guys for taking the question. Yeah, I guess just one for me, is there any context or useful way, any context you can provide or sort of useful way
Speaker Change: to think about as you think forward, you know, with...
Speaker Change: This is on the smartphone side.
Speaker Change: if the growth coming forward, and this is big picture, this is not, you know, next year, but it will be driven both from, I guess,
Speaker Change: the content side or the unit side, you know, more disproportionately. I guess really trying to think about where the bigger opportunity is.
Speaker Change: for the company. Thanks.
Speaker Change: if one is bigger than the other.
Speaker Change: Thank you, Amanda. Well, we run the company on the basis that we want to be able to grow and be positioned for growth.
Speaker Change: if units are flat. That's our objective. Obviously, if there's a unit's tailwind, so much the better. If there's a significant upgrade cycle because of features our customers are delivering, then that's great.
Speaker Change: But we want to be positioned well, even if smartphone units remain flat. And although that won't mean necessarily content additions...
Speaker Change: every year we do on a second cycle obviously get a tailwind because multiple generations of phones are on sale at any given time and and we get into the second cycle of new content
Speaker Change: but we also believe when we look forward...
Speaker Change: that there are significant opportunities for both incremental additions to sockets that we have today which add more value
Speaker Change: and for the capturing of new sockets that we haven't served before. And so when I talk about some of our R&D investments in those areas, and obviously some of that is, for example, cameras, some of that is.
Speaker Change: in the power space, and there are others beyond that, then that's the kind of thing I have in mind. So we do believe there are great opportunities out there.
Speaker Change: So I think the opportunity, even in a flat units world, remains very constructive for us over the long run.
Speaker Change: That's really, really useful context. I really appreciate it.
Speaker Change: Yeah, that's it for me. That's great. Thanks so much.
Speaker Change: And with that, we'll end the Q&A session and I will now turn the call back to John for his final remarks.
John Forsyth: Thank you, Chelsea.
John Forsyth: In summary, in Q2 Fiscal 25, SiriusLogic delivered record revenue and earnings per share for the September quarter and continued our solid progress in each of the three key areas of our long-term strategy.
John Forsyth: We remain very excited by the opportunities in front of us, and we thank you for your continued interest in our progress.
Speaker Change: I'd also like to thank all of our employees for their incredible dedication and commitment.
Speaker Change: Before we close I'd also like to note that we will be participating in Barclays 22nd annual global technology conference on December the 12th in San Francisco. Please check our investor website for the details on that.
Speaker Change: Finally, I'd like to thank everybody for participating today. Goodbye.
Speaker Change: This concludes today's conference call. You may now disconnect.
Speaker Change: [music]