Cirrus Logic, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended March 27, 2021 (52 weeks), with quarterly results for fiscal Q4 included. The filing was signed May 21, 2021. This is an annual report, not a standalone Q4 filing.
Business context
Cirrus Logic designs low-power mixed-signal chips, principally audio components and high-performance mixed-signal products such as haptic, sensing, camera-control and power-related components. It operates as a fabless semiconductor company and relies on third parties for wafer fabrication, assembly and testing. In Q4 FY2021, it recategorized product-line reporting as Audio and High-Performance Mixed-Signal; prior periods were retrospectively adjusted.
Financial performance
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Revenue | $1,369.2 million | $1,281.1 million | Up 6.9% |
| Gross profit / margin | $707.3 million / 51.7% | $674.2 million / 52.6% | Revenue rose; margin declined on product mix and pricing, partly offset by MEMS exit-related cost reductions |
| Operating income | $237.2 million | $173.5 million | Operating margin approximately 17.3%, versus 13.5% |
| Net income | $217.3 million | $159.5 million | Up 36%; includes a lower effective tax rate of 11.4%, versus 12.0% |
| Diluted EPS | $3.62 | $2.64 | Up approximately 37% |
| Cash from operations | $348.9 million | $295.8 million | Increase included a $33.2 million favorable working-capital change |
Audio revenue was $1,104.1 million, down slightly from $1,110.0 million. High-Performance Mixed-Signal revenue was $265.2 million, up 54.9%, primarily from smartphone content gains. FY2021 Q4 revenue was $293.5 million, gross profit $148.1 million and net income $25.3 million; FY2020 Q4 comparatives were $279.3 million, $146.2 million and $10.2 million, respectively.
At year-end, cash and cash equivalents were $442.2 million; short- and long-term marketable securities totaled $368.5 million. Current assets were $842.5 million and current liabilities $213.6 million. The company had no borrowings under its $300 million revolving facility and reported covenant compliance. The facility was due to mature July 12, 2021. Operating lease liabilities totaled $142.5 million and are separate from borrowings. Financing cash outflow was $121.2 million, including $110.0 million of share repurchases; the company repurchased approximately 0.5 million shares for $45.0 million in Q4.
Material changes versus prior period
- Revenue grew 6.9%, led by 54.9% growth in High-Performance Mixed-Signal products; Audio revenue decreased slightly amid wired-headset codec headwinds and lower Android smart-codec sales.
- Gross margin declined 0.9 percentage points to 51.7%, while operating income and net income increased substantially. Operating expenses fell, including lower R&D costs and minimal remaining MEMS restructuring charges.
- Operating cash flow increased to $348.9 million from $295.8 million. Cash and cash equivalents rose to $442.2 million from $292.1 million.
- Apple represented approximately 83% of FY2021 sales, up from 79% in FY2020. The ten largest end customers accounted for approximately 93% of sales.
Outlook, risks and unusual items
- Management said FY2022 revenue, gross-margin and operating-expense forecasting was difficult because of COVID-19 uncertainty and industry-wide supply constraints. It expected revenue growth to accelerate, citing customer engagement and new-product content gains, but anticipated gross-margin pressure from higher third-party manufacturing costs amid capacity constraints.
- Supply is a key risk: the company reported that constraints were limiting its ability to fully meet increased demand for some general-market products. Wafer commitments were $220.2 million, and qualifying alternate manufacturing sources can take six to twelve months.
- Customer concentration, particularly Apple dependence, creates exposure to order changes, pricing pressure, product transitions and loss of design wins. Customer orders are generally short-term and may be changed or cancelled with limited penalty.
- Other significant exposures include smartphone-market cycles, product concentration, competition and price erosion, export controls and China-related restrictions, international operations, cybersecurity, and the reliability of outsourced manufacturing. A license to serve Huawei was limited to specified products and end uses.
- The MEMS microphone product line was discontinued under a restructuring plan. The company recorded $21.9 million of charges in FY2020 and $0.4 million in FY2021; the restructuring was substantially complete in Q1 FY2021.
- Unrecognized tax benefits were $32.9 million; FY2017–FY2021 remained open to examination by major tax jurisdictions, and the FY2017–FY2019 U.S. federal returns were under IRS examination. Management did not believe pending legal matters were likely to have a material adverse effect.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Investor facts to verify
- Whether manufacturing capacity and costs developed as anticipated, and the resulting effect on shipments and gross margin.
- Whether FY2022 revenue growth accelerated as management expected, including the contribution and adoption of new products.
- Whether Apple concentration and the rising share of sales to that customer changed, and whether customer orders or pricing shifted.
- The status and terms of the revolving credit facility after its July 2021 maturity date.
- Resolution of IRS examinations and other tax uncertainties, and any material developments in export licensing or China-related restrictions.