Cirrus Logic, Inc. — Form 10-Q Summary
Reporting period: Third quarter of fiscal 2021, ended December 26, 2020; comparable quarter ended December 28, 2019. Nine-month results cover the first three quarters of each fiscal year. Amounts below are in millions, except per-share data.
Financial performance
| Metric | Q3 FY2021 | Q3 FY2020 | 9M FY2021 | 9M FY2020 |
|---|---|---|---|---|
| Net sales | $485.8 | $374.7 | $1,075.7 | $1,001.8 |
| Gross profit / margin | $251.5 / 51.8% | $197.5 / 52.7% | $559.2 / 52.0% | $527.9 / 52.7% |
| Operating income / margin | $129.7 / 26.7% | $72.7 / 19.4% | $212.5 / 19.8% | $163.5 / 16.3% |
| Net income | $114.4 | $68.5 | $192.1 | $149.3 |
| Diluted EPS | $1.91 | $1.13 | $3.20 | $2.47 |
- Quarterly sales increased 30%, driven mainly by higher smartphone component volumes and, to a lesser extent, new content. Portable product sales rose $105.4 million; Non-Portable and Other sales rose $5.7 million.
- Nine-month sales increased 7%. Portable sales grew $76.7 million, partly offset by lower Non-Portable and Other sales and headwinds in wired headsets and Android smart codecs.
- Gross margin declined year over year in both periods, principally due to product mix and component price reductions. Operating income rose as revenue growth and lower operating expenses more than offset the margin decline.
- Q3 effective tax rate was 12.5%, versus 8.0%; the nine-month rate was 11.6% in both years. Current-period rates benefited from foreign income taxed below the U.S. statutory rate and stock-based compensation tax benefits, among other items.
Cash, liquidity and capital
- At December 26, 2020, cash and cash equivalents were $327.3 million and marketable securities totaled $369.8 million, for $697.1 million combined. Total assets were $1.83 billion; stockholders’ equity was $1.40 billion.
- Operating cash flow for the first nine months was $176.4 million, down from $246.5 million. Management attributed the decline principally to a $97.4 million unfavorable working-capital change, including increased receivables and lower income taxes payable.
- Investing cash use was $69.1 million, including net purchases of marketable securities and $13.0 million of capital expenditures and technology investments. Financing cash use was $72.1 million, including $65.0 million of share repurchases.
- No credit-facility borrowings were outstanding; the company reported covenant compliance. Its $300 million secured revolving facility was scheduled to mature July 12, 2021. The filing reports no other material debt balance.
- The company repurchased $65 million of shares in the first nine months under its existing authorization; approximately $55 million remained available at quarter-end. In January 2021, the board authorized an additional $350 million of repurchases.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided in the filing. Management said it expected to maintain a similar level of productivity for the foreseeable future and believed available cash, investments, expected cash generation and credit availability would meet capital requirements for at least 12 months.
- COVID-19 had caused remote-work and travel restrictions, but management reported limited effects to date on overall productivity, demand, operating cash flow and liquidity. The company cautioned that further disruption could affect productivity, supply, shipping, customer demand and results.
- Customer concentration is substantial: Apple represented approximately 87% of Q3 sales and 84% of nine-month sales, compared with 83% and 80% in the respective prior-year periods. The top ten end customers represented about 94% of sales in both current periods.
- Management identified semiconductor capacity constraints as limiting its ability to fully meet increased demand for some general-market products. Reliance on third-party manufacturers, limited alternate sourcing, pricing pressure and customer order changes could affect sales, costs and margins.
- The company discontinued its MEMS microphone product-line efforts. It recorded $0.4 million of restructuring charges in Q1 FY2021; the restructuring was substantially complete, with no further charges in Q2 or Q3.
- Other disclosed risks include ongoing COVID-19 uncertainty, cybersecurity exposure (including monitoring for potential effects of the SolarWinds vendor attack; no compromise had been identified to date), and the CEO transition effective January 1, 2021. The company also disclosed IRS examinations of fiscal 2017–2019 returns and $32.9 million of unrecognized tax benefits; management believed reserves were adequate. Management said no pending legal matter was then expected to have a material adverse effect, while noting litigation outcomes remain uncertain.
Important facts for investors to verify
- Whether the strong quarterly smartphone-related sales are sustained, given customer concentration and the lack of purchase minimums in many customer arrangements.
- Whether third-party manufacturing capacity constraints, component pricing and product mix affect future shipments and gross margins.
- How the revolving facility’s July 2021 maturity was addressed after the reporting date.
- Whether operating cash conversion improves as receivables and other working-capital movements normalize.
- Execution of the expanded share-repurchase authorization and the resulting effects on cash, share count and capital allocation.
- Developments in COVID-19 impacts, cybersecurity monitoring, the CEO transition and tax examinations.