Cirrus Logic, Inc. — FY2020 Form 10-K
Business and period: Cirrus Logic designs fabless mixed-signal semiconductor products, primarily for mobile and consumer applications. This annual report covers the fiscal year ended March 28, 2020; the fourth quarter ended that day. The company reports one operating segment and two product lines.
Financial results and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $1,281.1 million | $1,185.5 million |
| Gross margin | 52.6% | 50.4% |
| Operating income | $173.5 million | $100.8 million |
| Net income | $159.5 million | $90.0 million |
| Diluted EPS | $2.64 | $1.46 |
| Operating cash flow | $295.8 million | $206.7 million |
- FY2020 sales increased 8.1% year over year. Portable product sales rose to $1,146.9 million from $1,032.0 million; non-portable and other sales fell to $134.2 million from $153.5 million.
- At fiscal Q4, sales were $279.3 million and net income was $10.2 million, versus $240.4 million and $6.2 million, respectively, in FY2019 Q4.
- At year-end, cash and cash equivalents were $292.1 million and marketable securities totaled $305.6 million. Working capital was $491.6 million; total assets were $1,592.7 million and stockholders’ equity was $1,229.8 million.
- No borrowings were outstanding on the $300 million revolving credit facility; it matures July 12, 2021. The filing says the company was covenant-compliant and expects available resources to meet capital needs for at least 12 months.
Changes, outlook, and risks
- Sales growth was led by portable products, with content gains primarily in smartphones and demand for boosted amplifiers and haptic drivers. Management cited favorable product mix, cost reductions, lower reserves, and supply-chain efficiencies as contributors to the gross-margin improvement.
- In Q4, the company approved a restructuring that discontinued its MEMS microphone product-line efforts. It recorded $21.9 million in charges, including equipment disposal, intangible-asset impairment, exit, and personnel costs; completion was expected substantially by FY2021 Q1.
- Management provided no numerical FY2021 forecast, citing uncertainty from COVID-19 and its potential effects on the macroeconomic environment and smartphone volumes. It said FY2020 strategic initiatives positioned the company for growth in coming years.
- Customer concentration is significant: Apple represented approximately 79% of FY2020 sales, and the ten largest end customers represented 93%. Orders may be changed or canceled on short notice.
- COVID-19 could disrupt customer demand, employee operations, supply, and shipping. Other material risks include reliance on a limited number of customers and Asian manufacturing sources, trade and export restrictions (including China-related restrictions), competition, product development and yield risks, and inventory obsolescence.
- FY2020 included $21.9 million of restructuring costs; FY2019 included a $4.9 million gain on sale of property and a $13.8 million U.K. pension settlement loss. FY2020 effective tax rate was 12.0%, compared with 4.0% in FY2019.
Most important facts to verify
- Whether Apple-related demand, product content, and customer concentration remain at or near FY2020 levels.
- COVID-19’s subsequent impact on smartphone demand, customer orders, manufacturing capacity, and delivery lead times.
- Progress and any further costs associated with the MEMS restructuring, and the commercial prospects of new products and markets.
- Inventory valuation and demand assumptions: year-end inventory was $146.7 million, and inventory obsolescence estimates were identified as a critical audit matter.
- Tax exposures: $36.2 million of unrecognized tax benefits were recorded, and U.S. federal tax returns for FY2017–FY2019 were under examination.
- The company adopted lease accounting in FY2020, recognizing $141.3 million of right-of-use assets and $142.9 million of lease liabilities at year-end; consider this in comparing balance-sheet liabilities with prior periods.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting as of March 28, 2020.