CIRRUS LOGIC, INC. - 10-Q Filing Summary
Business Context and Reporting Period
This is a Quarterly Report on Form 10-Q for Cirrus Logic, Inc., covering the three and nine-month periods ended December 25, 2010. The company designs high-precision analog and mixed-signal integrated circuits (ICs) for audio and energy markets. As of January 21, 2011, there were 67,676,904 shares of common stock outstanding.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Dec 25, 2010 | 9 Months Ended Dec 25, 2010 |
|---|---|---|
| Net Sales | $95,625 | $278,138 |
| Gross Margin | $52,462 (54.9%) | $155,977 (56.1%) |
| Net Income | $24,621 | $73,097 |
| Diluted EPS | $0.34 | $1.02 |
| Cash from Operations (9mo) | $66,554 | |
| Cash & Equivalents (End of Period) | $28,491 | |
| Total Assets | $351,984 | |
| Total Liabilities | $53,314 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 47% ($30.4M) for the quarter and 76% ($119.7M) for the nine-month period compared to the prior year. Audio products drove the majority of this growth, with energy products also contributing significantly.
- Profitability: Net income surged 123% for the quarter and 305% for the nine-month period. Operating income increased from $10.9M to $23.1M (quarter) and from $17.1M to $69.7M (nine months).
- Expense Increases: R&D expenses rose 27% ($3.5M) and SG&A expenses rose 17.5% ($2.0M) for the quarter, primarily due to increased headcount and variable compensation tied to improved operating profits.
- One-Time Items: The nine-month period included a $4.0M benefit from a patent sale agreement and a $0.5M impairment loss on non-marketable securities. The prior year included a $2.7M litigation recovery benefit.
Outlook, Risks, and Unusual Items
- Customer Concentration: Apple Inc. represented approximately 54% of total sales for the quarter and 44% for the nine-month period. The top ten customers accounted for 67% of quarterly sales.
- Share Repurchases: The company completed the repurchase of 1.8 million shares for $22.8M in the quarter. A new $80M repurchase program was approved in November 2010, with $2.8M utilized as of the period end.
- Capital Expenditures: The company executed a contract for a new $30M headquarters facility in Austin, Texas, with construction expected to begin in the fourth quarter of fiscal 2011.
- Tax Position: The company recorded an income tax benefit (negative tax expense) due to the utilization of deferred tax assets, resulting in an effective tax benefit rate of 5.7% for the quarter.
- Litigation: The long-standing trade secret litigation with Silvaco Data Systems was finally resolved in the company's favor, resulting in a $113k cash recovery in the quarter.
Investor Verification Checklist
- Verify the sustainability of revenue growth given the high concentration of sales to Apple Inc. (54% of Q3 sales).
- Confirm the impact of the new $30M headquarters construction on future cash flows and capital expenditure budgets.
- Monitor the status of the $80M share repurchase program and its effect on share count and EPS.
- Review the assessment of deferred tax assets, as future profitability assumptions could alter the valuation allowance and net income.
- Assess the mix of Audio vs. Energy products to ensure margin stability as product lines evolve.