Cirrus Logic, Inc. — Form 10-Q Summary
Reporting period: Second quarter of fiscal 2024, three months ended September 23, 2023; comparisons are with the quarter ended September 24, 2022. Fiscal 2024 is a 53-week year.
Financial performance
- Q2 revenue: $481.1 million, down 11% year over year. Audio revenue fell to $282.9 million from $337.8 million; HPMS revenue was $198.2 million versus $202.8 million.
- Q2 profitability: Gross profit was $246.6 million and gross margin was 51.3%, versus 50.2%. Operating income was $105.7 million, down from $116.2 million; net income was $75.4 million versus $87.2 million. Diluted EPS was $1.34 versus $1.52.
- First six months: Revenue was $798.1 million, down 15%; gross margin was 50.9% versus 50.7%. Operating income declined to $123.5 million from $170.5 million, net income to $91.0 million from $126.9 million, and diluted EPS to $1.61 from $2.20.
- Cash flow: Operating activities used $62.5 million in the first six months, versus generating $110.4 million a year earlier. The company attributed the outflow primarily to working-capital needs, including higher receivables and inventory and lower acquisition-related liabilities. Investing activities used $23.8 million; financing activities used $81.6 million, principally for share repurchases.
- Liquidity and debt: Cash and equivalents were $277.8 million; short- and long-term marketable securities totaled $74.7 million. Current assets were $1.097 billion and current liabilities were $201.2 million. No borrowings were outstanding under the $300 million revolving facility, and the company reported covenant compliance. Lease liabilities totaled about $155.9 million.
- Balance-sheet changes: Inventory increased to $328.9 million from $233.5 million at fiscal year-end; accounts receivable rose to $271.9 million from $150.5 million. Cash declined from $445.8 million. The company repurchased $79.1 million of shares in the first six months.
Business developments, outlook, and risks
- Management cited continued weakness in general-market sales and fewer components shipping in smartphones as drivers of lower revenue. Q2 audio revenue also reflected reduced smartphone component shipments.
- A new HPMS product planned for fall 2023 did not come to market as anticipated. The company recorded a 5% workforce reduction and $2.3 million of restructuring costs in the quarter. Management said associated wafer capacity could be reallocated to other products and that disposition of related wafers had no material financial impact.
- Management expects inventory to remain elevated during fiscal 2024 while balancing demand and wafer commitments. It believes expected cash earnings, cash and investments, and available facility borrowings will be sufficient for short- and long-term needs, but provides no specific revenue or earnings guidance in this filing.
- Customer concentration is significant: Apple represented approximately 88% of Q2 revenue and 86% of first-half revenue. The ten largest end customers represented 95% and 94%, respectively. Reduced orders, pricing pressure, or product-design changes at major customers could materially affect results.
- The company reported a $174 million remaining prepayment for future wafers and a long-term GlobalFoundries capacity agreement with purchase commitments and potential shortfall payments. It also began an 11-year Chandler, Arizona office lease, recognizing a $17 million lease liability.
- Tax contingency: The IRS proposed adjustments to fiscal 2017–2019 transfer-pricing positions asserting approximately $168.3 million of additional tax and $63.7 million of penalties, excluding interest. Cirrus disputes the positions, intends to challenge them, and says it believes adequate reserves have been recorded; an adverse outcome could be material. Unrecognized tax benefits were $32.9 million.
- Manufacturing concentration and geopolitical, natural-disaster, and supply-chain risks include reliance on foundries in Taiwan, Singapore, and Germany. The filing also notes potential disruption to development work with an Israel-headquartered supplier.
Investor verification checklist
- Track smartphone and general-market demand, particularly customer product launches and Apple’s share of revenue.
- Monitor inventory, receivables, operating cash flow, and wafer commitments for signs of working-capital pressure or excess supply.
- Assess progress and commercial timing for the delayed HPMS product and the use of reallocated wafer capacity.
- Follow the IRS transfer-pricing examination, potential exposure, and any changes to tax reserves.
- Review share repurchases against liquidity needs and the remaining approximately $422 million authorization.