CRUS Cirrus Logic Inc

Strong Demand for Portable Audio Products Drove Revenue Above Expectations

Cirrus Logic, Inc. (Nasdaq:CRUS), a leader in high-precision analog and digital signal processing products, today posted on its investor relations website at http://investor.cirrus.com the quarterly Shareholder Letter that contains the complete financial results for the third quarter of fiscal year 2017, which ended Dec. 24, 2016, as well as the company’s current business outlook.

“Cirrus Logic delivered outstanding revenue, operating profit and earnings per share growth in the December quarter as demand for certain portable audio products accelerated,” said Jason Rhode, president and chief executive officer. “The company is delighted to be on track to deliver our third consecutive year of more than 25 percent annual revenue growth. With a comprehensive portfolio of products and extensive roadmap we are well positioned for success in the coming years as demand for innovative audio and voice technology continues to increase.”

Reported Financial Results – Third Quarter FY17

• Revenue of $523 million;
• GAAP and non-GAAP gross margin of 48.8 percent;
• GAAP operating expenses of $109 million and non-GAAP operating expenses of $91.5 million; and
• GAAP diluted earnings per share of $1.83 and non-GAAP diluted earnings per share of $1.87.

A reconciliation of the non-GAAP charges is included in the tables accompanying this press release.

Business Outlook – Fourth Quarter FY17

• Revenue is expected to range between $300 million and $340 million;
• GAAP gross margin is expected to be between 48 percent and 50 percent; and
• Combined GAAP R&D and SG&A expenses are expected to range between $110 million and $116 million, which includes approximately $11 million in share-based compensation and $8 million in amortization of acquired intangibles.

Cirrus Logic will host a live Q&A session at 5 p.m. EST today to answer questions related to its financial results and business outlook. Participants may listen to the conference call on the Cirrus Logic website. Participants who would like to submit a question to be addressed during the call are requested to email investor.relations@cirrus.com. A replay of the webcast can be accessed on the Cirrus Logic website approximately two hours following its completion, or by calling (404) 537-3406, or toll-free at (855) 859-2056 (Access Code: 47722143).

Cirrus Logic, Inc.

Cirrus Logic is a leader in high performance, low-power ICs for audio and voice signal processing applications. Cirrus Logic’s products span the entire audio signal chain, from capture to playback, providing innovative products for the world’s top smartphones, tablets, digital headsets, wearables and emerging smart home applications. With headquarters in Austin, Texas, Cirrus Logic is recognized globally for its award-winning corporate culture. Check us out at www.cirrus.com.

Use of non-GAAP Financial Information

To supplement Cirrus Logic's financial statements presented on a GAAP basis, Cirrus has provided non-GAAP financial information, including gross margins, operating expenses, net income, operating profit and income, tax expenses and diluted earnings per share. A reconciliation of the adjustments to GAAP results is included in the tables below. Non-GAAP financial information is not meant as a substitute for GAAP results, but is included because management believes such information is useful to our investors for informational and comparative purposes. In addition, certain non-GAAP financial information is used internally by management to evaluate and manage the company. The non-GAAP financial information used by Cirrus Logic may differ from that used by other companies. These non-GAAP measures should be considered in addition to, and not as a substitute for, the results prepared in accordance with GAAP.

Safe Harbor Statement

Except for historical information contained herein, the matters set forth in this news release contain forward-looking statements, including future revenue growth opportunities and our estimates of fourth quarter fiscal year 2017 revenue, gross margin, combined research and development and selling, general and administrative expense levels, share-based compensation expense and amortization of acquired intangibles. In some cases, forward-looking statements are identified by words such as “expect,” “anticipate,” “target,” “project,” “believe,” “goals,” “opportunity,” “estimates,” “intend,” and variations of these types of words and similar expressions. In addition, any statements that refer to our plans, expectations, strategies or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are based on our current expectations, estimates and assumptions and are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include, but are not limited to, the following: the level of orders and shipments during the fourth quarter of fiscal year 2017, customer cancellations of orders, or the failure to place orders consistent with forecasts, along with the timing and success of new product ramps; and the risk factors listed in our Form 10-K for the year ended March 26, 2016, as amended, and in our other filings with the Securities and Exchange Commission, which are available at www.sec.gov. The foregoing information concerning our business outlook represents our outlook as of the date of this news release, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.

Cirrus Logic and Cirrus are registered trademarks of Cirrus Logic, Inc. All other company or product names noted herein may be trademarks of their respective holders.

Summary financial data follows:

                      CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (unaudited) (in thousands, except per share data)   Three Months Ended Nine Months Ended Dec. 24, Sep. 24, Dec. 26, Dec. 24, Dec. 26, 2016 2016 2015 2016 2015 Q3'17 Q2'17 Q3'16 Q3'17 Q3'16 Portable audio products $ 483,712 $ 383,410 $ 308,803 $ 1,083,190 $ 801,821 Non-portable audio and other products   39,317     45,209     39,060     127,886     135,431   Net sales   523,029     428,619     347,863     1,211,076     937,252   Cost of sales   267,877     216,920     182,952     617,540     497,666   Gross profit 255,152 211,699 164,911 593,536 439,586 Gross margin 48.8 % 49.4 % 47.4 % 49.0 % 46.9 %   Research and development 76,079 75,673 70,290 225,686 203,383 Selling, general and administrative 32,884 32,089 30,632 95,513 89,854 Patent agreement and other   -     -     78     -     (11,670 ) Total operating expenses   108,963     107,762     101,000     321,199     281,567     Income from operations 146,189 103,937 63,911 272,337 158,019   Interest expense, net (350 ) (1,003 ) (698 ) (2,042 ) (2,152 ) Other income (expense), net   (47 )   (261 )   (818 )   (161 )   (991 ) Income before income taxes 145,792 102,673 62,395 270,134 154,876 Provision for income taxes*   23,751     16,634     21,011     43,983     45,258   Net income* $ 122,041   $ 86,039   $ 41,384   $ 226,151   $ 109,618     Basic earnings per share*: $ 1.91 $ 1.37 $ 0.65 $ 3.59 $ 1.73 Diluted earnings per share*: $ 1.83 $ 1.30 $ 0.63 $ 3.41 $ 1.66   Weighted average number of shares: Basic 63,837 62,787 63,328 63,025 63,316 Diluted* 66,748 66,410 65,761 66,378 66,184

 

*Q2 FY17 results have been updated since our last quarterly report to reflect Cirrus Logic’s adoption of the Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The adoption of this new guidance impacted our previously reported quarterly results.  

Prepared in accordance with Generally Accepted Accounting Principles

  RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL INFORMATION (unaudited, in thousands, except per share data; not prepared in accordance with GAAP)   Non-GAAP financial information is not meant as a substitute for GAAP results, but is included because management believes such information is useful to our investors for informational and comparative purposes. In addition, certain non-GAAP financial information is used internally by management to evaluate and manage the company. As a note, the non-GAAP financial information used by Cirrus Logic may differ from that used by other companies. These non-GAAP measures should be considered in addition to, and not as a substitute for, the results prepared in accordance with GAAP.       Three Months Ended       Nine Months Ended Dec. 24,     Sep. 24,     Dec. 26, Dec. 24,     Dec. 26, 2016 2016 2015 2016 2015 Net Income Reconciliation Q3'17 Q2'17 Q3'16 Q3'17 Q3'16 GAAP Net Income* $ 122,041 $ 86,039 $ 41,384 $ 226,151 $ 109,618 Amortization of acquisition intangibles 8,308 8,326 8,634 24,997 23,908 Stock based compensation expense 9,471 9,925 7,761 28,706 24,720 Patent agreement and other - - 78 - (11,670 ) Acquisition-related items - (3,566 ) - (3,566 ) - Adjustment to income taxes*   (15,094 )   (12,251 )   (3,737 )   (34,191 )   (13,404 ) Non-GAAP Net Income $ 124,726   $ 88,473   $ 54,120   $ 242,097   $ 133,172     Earnings Per Share Reconciliation GAAP Diluted earnings per share* $ 1.83 $ 1.30 $ 0.63 $ 3.41 $ 1.66 Effect of Amortization of acquisition intangibles 0.13 0.12 0.13 0.38 0.36 Effect of Stock based compensation expense 0.14 0.15 0.12 0.43 0.37 Effect of Patent agreement and other - - - - (0.18 ) Effect of Acquisition-related items - (0.05 ) - (0.05 ) - Effect of Adjustment to income taxes*   (0.23 )   (0.19 )   (0.06 )   (0.52 )   (0.20 ) Non-GAAP Diluted earnings per share* $ 1.87   $ 1.33   $ 0.82   $ 3.65   $ 2.01     Operating Income Reconciliation GAAP Operating Income $ 146,189 $ 103,937 $ 63,911 $ 272,337 $ 158,019 GAAP Operating Profit 28 % 24 % 18 % 22 % 17 % Amortization of acquisition intangibles 8,308 8,326 8,634 24,997 23,908 Stock compensation expense - COGS 282 235 213 747 918 Stock compensation expense - R&D 5,078 4,905 4,183 15,199 12,177 Stock compensation expense - SG&A 4,111 4,785 3,365 12,760 11,625 Patent agreement and other - - 78 - (11,670 ) Acquisition-related items   -     (3,566 )   -     (3,566 )   -   Non-GAAP Operating Income $ 163,968   $ 118,622   $ 80,384   $ 322,474   $ 194,977   Non-GAAP Operating Profit 31 % 28 % 23 % 27 % 21 %   Operating Expense Reconciliation GAAP Operating Expenses $ 108,963 $ 107,762 $ 101,000 $ 321,199 $ 281,567 Amortization of acquisition intangibles (8,308 ) (8,326 ) (8,634 ) (24,997 ) (23,908 ) Stock compensation expense - R&D (5,078 ) (4,905 ) (4,183 ) (15,199 ) (12,177 ) Stock compensation expense - SG&A (4,111 ) (4,785 ) (3,365 ) (12,760 ) (11,625 ) Patent agreement and other - - (78 ) - 11,670 Acquisition-related items   -     3,566     -     3,566     -   Non-GAAP Operating Expenses $ 91,466   $ 93,312   $ 84,740   $ 271,809   $ 245,527     Gross Margin/Profit Reconciliation GAAP Gross Margin $ 255,152 $ 211,699 $ 164,911 $ 593,536 $ 439,586 GAAP Gross Profit 48.8 % 49.4 % 47.4 % 49.0 % 46.9 % Stock compensation expense - COGS   282     235     213     747     918   Non-GAAP Gross Margin $ 255,434   $ 211,934   $ 165,124   $ 594,283   $ 440,504   Non-GAAP Gross Profit 48.8 % 49.4 % 47.5 % 49.1 % 47.0 %   Effective Tax Rate Reconciliation GAAP Tax Expense* $ 23,751 $ 16,634 $ 21,011 $ 43,983 $ 45,258 GAAP Effective Tax Rate 16.3 % 16.2 % 33.7 % 16.3 % 29.2 % Adjustments to income taxes*   15,094     12,251     3,737     34,191     13,404   Non-GAAP Tax Expense $ 38,845   $ 28,885   $ 24,748   $ 78,174   $ 58,662   Non-GAAP Effective Tax Rate 23.7 % 24.6 % 31.4 % 24.4 % 30.6 %   Tax Impact to EPS Reconciliation GAAP Tax Expense* $ 0.36 $ 0.25 $ 0.32 $ 0.66 $ 0.68 Adjustments to income taxes*   0.23     0.19     0.06     0.52     0.20   Non-GAAP Tax Expense $ 0.59   $ 0.44   $ 0.38   $ 1.18   $ 0.88   *Q2 FY17 results have been updated since our last quarterly report to reflect Cirrus Logic’s adoption of the Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The adoption of this new guidance impacted our previously reported quarterly results.     CONSOLIDATED CONDENSED BALANCE SHEET unaudited; in thousands         Dec. 24,     Mar. 26,     Dec. 26, 2016 2016 2015 ASSETS Current assets Cash and cash equivalents $ 310,375 $ 168,793 $ 159,572 Marketable securities 72,342 60,582 67,148 Accounts receivable, net 246,630 88,532 127,754 Inventories 154,128 142,015 137,723 Deferred tax asset - - 19,404 Other current assets   41,747     46,207     37,982   Total current Assets 825,222 506,129 549,583   Long-term marketable securities - 20,631 22,327 Property and equipment, net 167,933 162,656 159,149 Intangibles, net 144,005 162,832 171,664 Goodwill 287,518 287,518 287,518 Deferred tax asset 34,737 25,772 27,581 Other assets   13,990     16,345     18,099   Total assets $ 1,473,405   $ 1,181,883   $ 1,235,921     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 154,930 $ 71,619 $ 114,483 Accrued salaries and benefits 33,122 21,239 22,438 Other accrued liabilities   24,687     35,266     36,301   Total current liabilities 212,739 128,124 177,384   Long-term debt 100,000 160,439 160,439 Other long-term liabilities 56,631 33,837 38,223   Stockholders' equity: Capital stock 1,247,191 1,203,496 1,198,547 Accumulated deficit (141,027 ) (344,345 ) (336,653 ) Accumulated other comprehensive income (loss)   (2,129 )   332     (2,019 ) Total stockholders' equity   1,104,035     859,483     859,875   Total liabilities and stockholders' equity $ 1,473,405   $ 1,181,883   $ 1,235,921   Prepared in accordance with Generally Accepted Accounting Principles

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Cirrus Logic, Inc.Investor Contact:Thurman K. Case, 512-851-4125Chief Financial OfficerInvestor.Relations@cirrus.com