Cirrus Logic, Inc. — Form 10-Q summary
Business context and period. This quarterly report covers the three and nine months ended December 25, 2021 (fiscal Q3 and first nine months of FY2022), compared with the periods ended December 26, 2020. Cirrus Logic designs low-power mixed-signal products. It reports one operating segment, with revenue disclosed for Audio and High-Performance Mixed-Signal products.
Financial results
| Metric | Quarter | Nine months |
|---|---|---|
| Net sales | $548.3 million, up 13% | $1.291 billion, up 20.1% |
| Gross margin | 52.8%, versus 51.8% | 51.5%, versus 52.0% |
| Operating income | $144.2 million, versus $129.7 million | $258.5 million, versus $212.5 million |
| Net income | $127.6 million, versus $114.4 million | $229.9 million, versus $192.1 million |
| Diluted EPS | $2.16, versus $1.91 | $3.88, versus $3.20 |
| Operating cash flow | Not provided separately | $(133.5) million, versus $176.4 million provided |
Quarterly revenue growth reflected a $102.5 million increase in High-Performance Mixed-Signal sales, partly offset by a $40.0 million decline in Audio. Nine-month High-Performance Mixed-Signal sales rose $224.0 million, while Audio sales declined $8.2 million. For the quarter, operating margin was approximately 26% versus 27%; net margin was approximately 23% versus 24%.
Liquidity, debt, and balance sheet
At December 25, 2021, cash and cash equivalents were $195.1 million and marketable securities totaled $75.8 million, or approximately $271.0 million combined. Cash and cash equivalents plus marketable securities were approximately $810.6 million at March 27, 2021. The company had no borrowings under its $300 million revolving credit facility, which matures in 2026, and reported compliance with its covenants. Total assets were $2.068 billion and stockholders’ equity was $1.563 billion. The filing reports no funded debt outstanding under the facility.
Nine-month operating cash use was driven principally by working-capital changes, including a $195 million long-term wafer prepayment and increased accounts receivable and other assets. Investing cash use was $9.6 million, including the Lion acquisition, partly offset by net marketable-security sales. Financing cash use was $104.0 million, including $92.5 million of share repurchases.
Material changes, outlook, and risks
- Gross margin improved in the quarter as product price increases began to take effect against rising supply-chain costs. The nine-month margin declined due mainly to higher supply-chain costs, acquisition inventory fair-value amortization, and higher reserves.
- Cirrus acquired Lion Semiconductor on July 20, 2021, for approximately $280.5 million of consideration at acquisition, including cash acquired; preliminary purchase-price allocation recorded $163.0 million of intangibles and $150.3 million of goodwill. Lion contributed $30.9 million of revenue from acquisition through December 25. Management expected Lion to contribute approximately $60 million of revenue before the end of FY2022; this is an expectation, not a reported result.
- Management said demand was significantly above available capacity and that supply constraints limited its ability to meet demand. It expected cash, future cash generation, investments, and available revolver capacity to cover requirements for at least 12 months.
- The GlobalFoundries agreement covers wafer capacity and pricing for 2022–2026. Cirrus paid $60 million in non-refundable reservation fees and prepaid $195 million toward future wafer purchases; it expects to purchase at least approximately $1.6 billion of wafers under the agreement. Risks include excess inventory or shortfall payments if needs fall below commitments, supply shortfalls, and unfavorable economics if market wafer prices decline.
- Customer concentration is substantial: Apple represented approximately 82% of quarterly sales and 79% of nine-month sales. The top ten end customers accounted for approximately 93% in both periods. The company also cited competition for employees, supplier capacity constraints, and Lion integration and product-development risks.
- The company recorded $32.9 million of unrecognized tax benefits, plus $4.8 million of accrued interest and penalties. Fiscal 2017–2021 tax years remained open to examination; IRS examinations covered fiscal 2017–2019. Management said it had accrued adequate reserves. Management reported no pending legal matters it believed could have a material adverse effect, while noting ordinary-course legal actions.
Important facts for investors to verify
- Whether supply capacity improves enough to serve demand, and whether the GlobalFoundries commitments and prepayments generate expected supply and returns.
- Whether customer concentration, especially Apple’s, changes and how pricing pressure affects sales and margins.
- Whether Lion achieves the stated FY2022 revenue expectation and whether integration, retention, and new-product development proceed as planned.
- How operating cash flow and liquidity develop after the large wafer prepayments, acquisition, and share repurchases.
- Any changes in tax examinations, unrecognized tax benefits, or other contingencies.