Cirrus Logic, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2023, three months ended June 25, 2022. This is the quarter referred to as 2022 Q1 in the request metadata. Comparisons are with the three months ended June 26, 2021. Cirrus Logic develops mixed-signal processing products and reports one operating segment.
Financial results
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Net sales | $393.6 million | $277.3 million | Up 42% |
| Gross profit / margin | $202.6 million / 51.5% | $139.9 million / 50.5% | Margin up 1.0 percentage point |
| Operating income / margin | $54.3 million / 13.8% | $19.1 million / 6.9% | Higher |
| Net income | $39.7 million | $17.2 million | Up 131% |
| Diluted EPS | $0.69 | $0.29 | Higher |
| Operating cash flow | $74.4 million | $(26.8) million | Improved |
Revenue growth reflected a $79.2 million increase in High-Performance Mixed-Signal products, primarily from smartphone content gains, and a $37.1 million increase in Audio products, primarily from higher average selling prices. Gross margin benefited from higher selling prices, which more than offset supply-chain cost increases. R&D expense rose to $109.7 million from $85.7 million; SG&A increased to $38.6 million from $35.1 million. The effective tax rate rose to 27.9% from 12.3%, primarily due to U.S. tax-law changes requiring capitalization and amortization of R&D expenditures and related GILTI effects.
Balance sheet, liquidity and capital allocation
- Cash and equivalents were $379.3 million; short- and long-term marketable securities totaled $74.4 million. Combined cash and marketable securities were approximately $453.7 million.
- Current assets were $861.0 million and current liabilities $252.6 million. Inventory increased to $174.4 million from $138.4 million at March 26, 2022.
- No borrowings were outstanding under the $300 million revolving credit facility; the company reported compliance with its covenants. Lease liabilities totaled approximately $173.3 million, current and non-current combined.
- Investing cash outflow was $7.7 million and financing cash outflow was $57.1 million, primarily reflecting $56.4 million of share repurchases. The company had $136.1 million remaining under its prior repurchase authorization at quarter-end; in July 2022, the board authorized an additional $500 million.
- Management said cash, expected future cash generation, investments and available credit were expected to meet capital needs for at least the next 12 months.
Business developments, outlook and risks
- Management said demand continued to exceed supply amid capacity constraints and described ongoing work with supply-chain partners to expand capacity. The filing provides no specific revenue or earnings guidance.
- The GlobalFoundries agreement covers wafer capacity and pricing for 2022–2026, includes quarterly purchase commitments subject to shortfall payments, a non-refundable $60 million reservation fee, and a $195 million wafer prepayment to be credited against purchases beginning in calendar Q3 2023.
- Customer concentration is substantial: Apple represented approximately 79% of sales, versus 72% in the prior-year quarter; the ten largest end customers represented 89%. Management warns that reduced orders, pricing pressure or loss of a major customer could materially affect sales and profitability.
- Management noted that COVID-19 and possible economic downturn, inflation and weaker consumer demand could adversely affect the business; it said COVID-19’s impact on demand, operating cash flow, capital spending and liquidity had been limited to date, and inflation had not materially affected results to date.
- The IRS issued a Revenue Agent’s Report asserting approximately $170.5 million of additional tax and $63.7 million of penalties, excluding interest, in transfer-pricing examinations for fiscal 2017–2019. Cirrus disputes the positions, intends to challenge them, and believes its reserves are adequate; an adverse outcome could materially affect future financial position, results or cash flows.
- Available-for-sale securities had $2.8 million of gross unrealized losses; management did not consider any investments impaired. The filing also reports $32.9 million of unrecognized tax benefits and $5.4 million of accrued interest and penalties, net of tax.
Important facts for investors to verify
- Whether sales growth and margin improvement persist, particularly given smartphone exposure, constrained supply and higher selling prices.
- Apple and broader customer concentration, customer pricing pressure, and the risk of order reductions or design changes.
- Inventory growth and execution of the GlobalFoundries capacity and purchase commitments, including potential shortfall payments.
- Progress and potential financial exposure from the IRS transfer-pricing dispute, including interest and penalties.
- Cash generation, repurchase pace and liquidity after the additional $500 million authorization, alongside the company’s stated 12-month funding outlook.