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Cirrus Logic, Inc. (CRUS) Q3 2024 Earnings Call Transcript

Cirrus Logic, Inc. (CRUS)

Q3 2024 Earnings Conference Call

Company Participants

Chelsea Heffernan - VP, IR

John Forsyth - President and CEO

Venk Nathamuni - CFO

Conference Call Participants

Tore Svanberg - Stifel

Matt Ramsay - TD Cowen

Thomas O'Malley - Barclays

Christopher Rolland - Susquehanna Financial Group

Ananda Baruah - Loop Capital Markets

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Third Quarter Fiscal Year 2024 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 queuing up 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 Ms. Chelsea Heffernan, Vice President of Investor Relations. Ms. Heffernan, you may begin.

Chelsea Heffernan

Thank you, and good afternoon. Joining me on today's call is John Forsyth, Cirrus Logic’s President and Chief Executive Officer and Venk Nathamuni Chief Financial Officer. Today at approximately 4 p.m. Eastern Time, we announced our financial results for the third quarter of fiscal year 2024. A Shareholder Letter discussing our financial results, the company's earnings release, and the webcast of this Q&A session are all available at the company's Investor Relations website.

This call will feature questions from the analysts covering our company. Additionally, the results and guidance we discuss on this call will include non-GAAP financial measures that exclude certain items. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release, and they're 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.

Please refer to the press release in the shareholder letter issued today, which are available on the Cirrus Logic website and the latest Form 10-K 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.

John Forsyth

Thank you, Chelsea. And thank you everyone for joining our call today. As you've seen in the press release that Chelsea referred to, in the third quarter of fiscal year 2024, Cirrus Logic delivered record revenue of $619 million and record non-GAAP earnings per share of $2.89. In a moment, I'm going to hand the call over to Venk, to discuss these results in greater detail, but before we get on to that, I'd like to provide a quick update on the progress we've made in the last quarter regarding the long term growth strategy that I've outlined on prior calls.

As I've said previously, our first strategic priority is leadership in smartphone audio, where we are looking forward to introducing our next generation custom boosted amplifier, and our first 22-nanometer smart codec later this year. These new products will deliver significant performance improvements over prior generations, enabling our customers to build more compelling and power efficient devices for users.

In addition to preparing these products for launch, we're also continuing to win designs with Android customers, our next generation flagship smartphones. During the quarter, a key Android customer began shipping its latest flagship phones featuring Cirrus Logic audio amplifiers. And we also began ramping multiple components for the early 2024 launch of another leading Android flagship device.

Shifting to the second pillar of our strategy, we remain very enthusiastic about the potential to grow content in smartphones with our high performance mixed signal solutions. We view this product line as a substantial opportunity to not only expand our addressable market, but also to grow and diversify our revenue. Our progress in this area has been showcased with our camera controllers. Since the introduction of our first camera controller in calendar year 2020, we have launched three generations of these products, with each delivering enhanced performance functionality and most recently, in the fall of 2023 additional signal processing capability to enable new features.

The overall value of our camera content has increased over time. And we foresee this upward trend continuing in the future as we maintain our close engineering collaboration with our customer to further innovate in this area.

Beyond the camera, we also see significant potential to expand our addressable market with advanced power and battery related technologies. And today, we're actively engaged in a number of R&D programs focused on power and battery performance, which we believe can fuel future growth.

The third element of our strategy is our focus on expanding into new applications and markets beyond smartphones. In this area, we continue to be excited about the opportunities we see in the laptop business. Today, we are delivering content to each of the top five laptop OEMs and actively pursuing many future design opportunities. In January at CES 2024, we saw a leading laptop OEM introduced two flagship laptops featuring several of our amplifiers, multiple haptic drivers and a codec.

Moreover, in addition to our growing momentum in laptop audio, in the December quarter, we were pleased to have been awarded our first laptop power socket further expanding our laptop content opportunity. And yesterday, we were proud to announce our collaboration with Intel and Microsoft on a new PC reference design for Intel's upcoming Lunar Lake processor. This reference design includes our codec, amplifier and power converter products and will enable the creation of richer, more immersive audio experiences for laptops as well as extending battery life and enabling thinner, sleeker laptop designs.

Finally, we remain keen to deploy our products and technologies in further markets beyond smartphones and laptops. And in the December quarter, we began ramping production of two custom components for a newly introduced augmented reality computing device. With our commitment to product innovation and world-class execution, we believe we can continue to identify and capitalize on further opportunities in new applications and markets in ways that grow our business.

With this growing and diversifying portfolio of technologies and products, it's important that we actively invest in our supply chain in order both to develop new process technology that will meet the needs of future generations of products and in order to provide our customers with the assurance of supply and geographical diversity that is becoming increasingly important.

During the December quarter, we took delivery of and commenced validation of our first silicon from a new foundry partner. This development will serve to qualify both the process technology and core IP needed to enable the creation of next-generation power solutions and provides us with a path to delivering those products from fabrication facilities based in the United States. We believe that this initiative will help make our supply chain more resilient and competitive and help us meet our customers' needs for innovation and quality for many years to come.

In summary, we are pleased with our progress in the December quarter as we delivered record financial results and executed on many important areas of product development. With a commitment to great execution and to serving our customers in their mission to deliver the world's most innovative products, we are, today, investing in the product areas that we believe will enable the company to grow and diversify in the coming years.

And with that, let me now turn the call over to Venk to provide an overview of our financial results for our fiscal Q3 2024 as well as guidance for the fourth quarter.

Venk Nathamuni

Thank you, John, and good afternoon, everyone. I'll start with our fiscal third quarter results and then provide guidance for fiscal Q4. Thanks to outstanding execution from the entire Cirrus team, we delivered record revenue as well as record earnings per share for the fiscal third quarter.

Revenue was $619 million, which was significantly above our guidance range, as sales of components shipping and smartphones exceeded our expectations, driven by strength in orders from our largest customer. Shipments stayed strong throughout the quarter, including the first holiday week, and we also benefited from an additional week of revenue in the quarter associated with the 53-week fiscal year. As such, revenue was up 29% quarter-over-quarter and increased 5% year-over-year due to higher smartphone unit volumes.

Turning now to gross profit and margins. Non-GAAP gross profit in the quarter was $317.9 million, and non-GAAP gross margin was strong at 51.4%, driven by the higher revenue. On a sequential basis, gross margin was roughly flat, while on a year-over-year basis, gross margin increased by 110 basis points, reflecting lower supply chain costs mainly driven by the absence of wafer premiums and expedite fees as well as favorable inventory reserves. This was partially offset by a less favorable product mix.

Non-GAAP operating expenses in the quarter were $125.6 million, up $11.2 million sequentially. Non-GAAP operating expenses increased by 10% sequentially, but was substantially below the 29% quarter-over-quarter increase in revenue. The sequential increase was mostly due to higher employee-related costs including an extra week of salaries and benefits associated with a 53-week year as well as variable compensation. ...

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