Cirrus Logic, Inc. — Form 10-Q Summary
Business context and reporting period. This unaudited report covers the quarter ended September 25, 2021, the second quarter of Cirrus Logic’s fiscal 2022, and the first six months of that fiscal year. The company develops low-power, high-precision mixed-signal products and reports one operating segment, with revenue presented as Audio and High-Performance Mixed-Signal products.
Key financial metrics
| Metric | Quarter ended September 25, 2021 | Prior-year quarter | Six months ended September 25, 2021 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $465.9 million | $347.3 million | $743.1 million | $589.9 million |
| Gross profit / margin | $235.4 million / 50.5% | $180.2 million / 51.9% | $375.4 million / 50.5% | $307.7 million / 52.2% |
| Operating income / margin | $95.2 million / 20.4% | $64.2 million / 18.5% | $114.3 million / 15.4% | $82.8 million / 14.0% |
| Net income | $85.1 million | $59.5 million | $102.3 million | $77.7 million |
| Diluted EPS | $1.43 | $0.99 | $1.72 | $1.29 |
| Operating cash flow | Not separately presented for the quarter | $2.4 million | $42.1 million |
Quarterly sales rose 34%; six-month sales rose 26%. Quarterly Audio revenue increased to $300.8 million from $279.9 million, while High-Performance Mixed-Signal revenue increased to $165.1 million from $67.4 million. Management attributed growth mainly to smartphone content gains, higher smartphone volumes, laptop audio components, and partial-period Lion Semiconductor revenue.
At September 25, cash and cash equivalents were $386.7 million, with short- and long-term marketable securities of $75.9 million, totaling $462.6 million in cash and securities. Current assets were $949.1 million and current liabilities were $500.4 million. The company had no amounts drawn on its $300 million revolving credit facility, which matures in 2026, and reported covenant compliance. Lease liabilities and other obligations remain. Cash declined $55.4 million during the six months; operating cash flow was pressured by working-capital uses, including wafer prepayments and higher receivables, partly offset by increased payables.
Material changes and unusual items
- Lion acquisition: Cirrus completed its acquisition of Lion Semiconductor on July 20, 2021. Lion contributed $16.8 million of revenue after acquisition. Preliminary purchase accounting recorded $163.0 million of acquired intangibles and $150.3 million of goodwill; valuation estimates remain subject to change. Some merger consideration is contingent, and $25.4 million tied to employee retention is treated as compensation expense.
- Manufacturing capacity commitments: The company agreed to a GlobalFoundries capacity reservation and wafer supply arrangement for 2022–2026, with expected minimum wafer purchases of approximately $1.6 billion. The filing describes $255 million of short-term payments, including reservation fees and wafer prepayments, and records $195 million as long-term prepaid wafers. The agreement also entails quarterly purchase requirements and potential shortfall payments.
- Margins and expenses: Gross margin fell year over year, primarily due to acquisition-related inventory fair-value amortization, supply-chain costs, unfavorable mix, and higher reserves. R&D and SG&A expenses increased; restructuring charges were nil in the current quarter and six-month period.
- Capital returns: The company repurchased $52.5 million of stock during the first six months, including $40.0 million in the quarter. Approximately $307.5 million remained available under the $350 million 2021 authorization at quarter-end.
Outlook, commentary, and risks
Management said demand remained significantly above available capacity and that supply constraints were limiting its ability to meet demand. It expected ongoing supply constraints and higher costs could put fiscal 2023 gross margin slightly below its long-term model of 50%. The company expected Lion to contribute approximately $60 million of revenue before the end of fiscal 2022, with growth potential thereafter; this is an expectation, not a guarantee. Management stated that cash, expected cash generation, investments, and available revolver capacity should meet capital needs for at least the next 12 months.
Key risks include reliance on third-party manufacturers and constrained semiconductor capacity; the multiyear GlobalFoundries purchase commitments, prepayments, and possible supply shortfalls; and customer concentration. Apple represented approximately 80% of quarterly sales and 77% of six-month sales. Lion integration, employee retention, product development, and customer demand also affect anticipated acquisition benefits. COVID-related uncertainty and possible disruption to operations remain risks. Management reported no pending legal matter it believed would have a material adverse effect, while noting ordinary-course legal proceedings and inherent uncertainty.
Important facts for investors to verify
- Whether supply capacity improves enough to satisfy demand, and how supply costs affect gross margin and delivery schedules.
- The detailed GlobalFoundries agreement terms, including minimum purchases, shortfall exposure, prepayments, and the apparent difference in how payment components are described across the filing.
- Apple and other customer concentration, customer orders and pricing, and the sustainability of smartphone-related sales.
- Lion’s revenue contribution, integration progress, retention costs, and realization of the company’s stated revenue expectations.
- Working-capital trends and operating cash generation given the large wafer prepayment and receivables increase.
- Preliminary acquisition valuation changes, tax examination exposure, and the company’s ability to maintain liquidity and covenant compliance.