Cirrus Logic Reports Q3 FY18 Revenue of $482.7 Million

Company Announces a $200 Million Share Repurchase Program

AUSTIN, Texas--()--Cirrus Logic, Inc. (Nasdaq:CRUS), a leader in high performance, low-power ICs for audio and voice signal processing applications, today posted on its website at http://investor.cirrus.com the quarterly Shareholder Letter that contains the complete financial results for the third quarter fiscal year 2018, which ended Dec. 30, 2017, as well as the company’s current business outlook.

Unanticipated weakness in smartphone demand that materialized in late December drove our Q3 results below expectations and further impacted our Q4 guidance,” said Jason Rhode, president and chief executive officer. “Despite these near-term challenges, our design position remains strong at our top customers and our wide range of new and existing products are expected to drive exciting opportunities in audio and voice applications across the smartphone, digital headset and smart home markets over the next several years.”

Reported Financial Results – Third Quarter FY18

  • Revenue of $482.7 million;
  • GAAP and non-GAAP gross margin of 48.7 percent and 48.8 percent, respectively;
  • GAAP operating expenses of $131.6 million and non-GAAP operating expenses of $107.9 million; and
  • GAAP diluted earnings per share of $0.52 and non-GAAP diluted earnings per share of $1.59.
  • Results include an additional week as approximately every 6 years our financial results are comprised of 53 weeks versus the typical 52 weeks.

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

Business Outlook – Fourth Quarter FY18

  • 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 $130 million and $136 million, which includes approximately $13 million in share-based compensation and $13 million in amortization of acquired intangibles.

Share Repurchase Authorization

The company also announced that its Board of Directors authorized the repurchase of up to an additional $200 million of the company's common stock, in addition to the $60.2 million remaining from the Board’s previous share repurchase authorization in October 2015. The repurchases will be funded from working capital and anticipated cash from operations and may occur from time to time depending on a variety of factors, including general market and economic conditions and other corporate considerations. The share repurchase program is designed to comply with all applicable securities laws and may be suspended or discontinued at any time without notice.

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 (416) 621-4642, or toll-free at (800) 585-8367 (Access Code: 3179607).

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.

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.

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 non-GAAP net income, diluted earnings per share, operating income, operating expenses, gross margin, tax expense and tax expense impact on 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 our statements about our future opportunities and estimates for the fourth quarter fiscal year 2018 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 2018, 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 25, 2017 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.

Summary financial data follows:

             
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(unaudited)
(in thousands, except per share data)
 
Three Months Ended Nine Months Ended
Dec. 30, Sep. 23, Dec. 24, Dec. 30, Dec. 24,
2017 2017 2016 2017 2016
Q3'18 Q2'18 Q3'17 Q3'18 Q3'17
Portable audio products $ 438,650 $ 381,761 $ 483,712 $ 1,101,099 $ 1,083,190
Non-portable audio and other products   44,091     43,776     39,317     127,914     127,886  
Net sales   482,741     425,537     523,029     1,229,013     1,211,076  
Cost of sales   247,653     214,255     267,877     620,927     617,540  
Gross profit 235,088 211,282 255,152 608,086 593,536
Gross margin 48.7 % 49.7 % 48.8 % 49.5 % 49.0 %
 
Research and development 96,978 90,353 76,079 270,888 225,686
Selling, general and administrative   34,604     30,041     32,884     95,504     95,513  
Total operating expenses   131,582     120,394     108,963     366,392     321,199  
 
Income from operations 103,506 90,888 146,189 241,694 272,337
 
Interest income (expense), net 912 725 (350 ) 2,231 (2,042 )
Other income (expense), net   322     (1,116 )   (47 )   (813 )   (161 )
Income before income taxes 104,740 90,497 145,792 243,112 270,134
Provision for income taxes   70,961     17,197     23,751     93,121     43,983  
Net income $ 33,779   $ 73,300   $ 122,041   $ 149,991   $ 226,151  
 
Basic earnings per share: $ 0.53 $ 1.16 $ 1.91 $ 2.36 $ 3.59
Diluted earnings per share: $ 0.52 $ 1.10 $ 1.83 $ 2.26 $ 3.41
 
Weighted average number of shares:
Basic 63,453 63,431 63,837 63,655 63,025
Diluted 65,557 66,360 66,748 66,377 66,378
 
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. 30, Sep. 23, Dec. 24, Dec. 30, Dec. 24,
2017 2017 2016 2017 2016
Net Income Reconciliation Q3'18 Q2'18 Q3'17 Q3'18 Q3'17
GAAP Net Income $ 33,779 $ 73,300 $ 122,041 $ 149,991 $ 226,151
Amortization of acquisition intangibles 11,600 11,600 8,308 34,800 24,997
Stock based compensation expense 12,512 12,292 9,471 36,207 28,706
Acquisition-related items - - - (4,048 ) (3,566 )
Adjustment to income taxes   46,273     (7,260 )   (15,094 )   31,756     (34,191 )
Non-GAAP Net Income $ 104,164   $ 89,932   $ 124,726   $ 248,706   $ 242,097  
 
Earnings Per Share Reconciliation
GAAP Diluted earnings per share $ 0.52 $ 1.10 $ 1.83 $ 2.26 $ 3.41
Effect of Amortization of acquisition intangibles 0.18 0.18 0.13 0.52 0.38
Effect of Stock based compensation expense 0.19 0.19 0.14 0.55 0.43
Effect of Acquisition-related items - - - (0.06 ) (0.05 )
Effect of Adjustment to income taxes   0.70     (0.11 )   (0.23 )   0.48     (0.52 )
Non-GAAP Diluted earnings per share $ 1.59   $ 1.36   $ 1.87   $ 3.75   $ 3.65  
 
Operating Income Reconciliation
GAAP Operating Income $ 103,506 $ 90,888 $ 146,189 $ 241,694 $ 272,337
GAAP Operating Profit 21 % 21 % 28 % 20 % 22 %
Amortization of acquisition intangibles 11,600 11,600 8,308 34,800 24,997
Stock compensation expense - COGS 386 328 282 1,052 747
Stock compensation expense - R&D 6,995 6,034 5,078 19,289 15,199
Stock compensation expense - SG&A 5,131 5,930 4,111 15,866 12,760
Acquisition-related items   -     -     -     (4,048 )   (3,566 )
Non-GAAP Operating Income $ 127,618   $ 114,780   $ 163,968   $ 308,653   $ 322,474  
Non-GAAP Operating Profit 26 % 27 % 31 % 25 % 27 %
 
Operating Expense Reconciliation
GAAP Operating Expenses $ 131,582 $ 120,394 $ 108,963 $ 366,392 $ 321,199
Amortization of acquisition intangibles (11,600 ) (11,600 ) (8,308 ) (34,800 ) (24,997 )
Stock compensation expense - R&D (6,995 ) (6,034 ) (5,078 ) (19,289 ) (15,199 )
Stock compensation expense - SG&A (5,131 ) (5,930 ) (4,111 ) (15,866 ) (12,760 )
Acquisition-related items   -     -     -     4,048     3,566  
Non-GAAP Operating Expenses $ 107,856   $ 96,830   $ 91,466   $ 300,485   $ 271,809  
 
Gross Margin/Profit Reconciliation
GAAP Gross Profit $ 235,088 $ 211,282 $ 255,152 $ 608,086 $ 593,536
GAAP Gross Margin 48.7 % 49.7 % 48.8 % 49.5 % 49.0 %
Stock compensation expense - COGS   386     328     282     1,052     747  
Non-GAAP Gross Profit $ 235,474   $ 211,610   $ 255,434   $ 609,138   $ 594,283  
Non-GAAP Gross Margin 48.8 % 49.7 % 48.8 % 49.6 % 49.1 %
 
Effective Tax Rate Reconciliation
GAAP Tax Expense $ 70,961 $ 17,197 $ 23,751 $ 93,121 $ 43,983
GAAP Effective Tax Rate 67.7 % 19.0 % 16.3 % 38.3 % 16.3 %
Adjustments to income taxes   (46,273 )   7,260     15,094     (31,756 )   34,191  
Non-GAAP Tax Expense $ 24,688   $ 24,457   $ 38,845   $ 61,365   $ 78,174  
Non-GAAP Effective Tax Rate 19.2 % 21.4 % 23.7 % 19.8 % 24.4 %
 
Tax Impact to EPS Reconciliation
GAAP Tax Expense $ 1.08 $ 0.26 $ 0.36 $ 1.40 $ 0.66
Adjustments to income taxes   (0.71 )   0.11     0.23     (0.48 )   0.52  
Non-GAAP Tax Expense $ 0.37   $ 0.37   $ 0.59   $ 0.92   $ 1.18  
 
Free Cash Flow Reconciliation
GAAP Cash Flow from Operations $ 132,314 $ 84,525 $ 208,046 $ 213,023 $ 244,893
Capital Expenditures   (14,296 )   (16,079 )   (11,438 )   (41,663 )   (35,300 )
Non-GAAP Free Cash Flow $ 118,018   $ 68,446   $ 196,608   $ 171,360   $ 209,593  
 

 
CONSOLIDATED CONDENSED BALANCE SHEET
unaudited; in thousands
       
Dec. 30, Mar. 25, Dec. 24,
2017 2017 2016
ASSETS
Current assets
Cash and cash equivalents $ 226,640 $ 351,166 $ 310,375
Marketable securities 12,822 99,813 72,342
Accounts receivable, net 217,619 119,974 246,630
Inventories 192,967 167,895 154,128
Other current assets   29,445     37,080     41,747  
Total current Assets 679,493 775,928 825,222
 
Long-term marketable securities 173,717 - -
Property and equipment, net 187,143 168,139 167,933
Intangibles, net 126,183 135,188 144,005
Goodwill 288,481 286,767 287,518
Deferred tax asset 16,467 32,841 34,737
Other assets   21,841     14,607     13,990  

Total assets

$ 1,493,325   $ 1,413,470   $ 1,473,405  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 116,274 $ 73,811 $ 154,930
Accrued salaries and benefits 29,543 40,190 33,122
Other accrued liabilities   29,903     30,074     24,687  
Total current liabilities 175,720 144,075 212,739
 
Long-term debt - 60,000 100,000
Other long-term liabilities 106,239 57,703 56,631
 
Stockholders' equity:
Capital stock 1,301,800 1,259,279 1,247,191
Accumulated deficit (92,402 ) (107,014 ) (141,027 )
Accumulated other comprehensive income (loss)   1,968     (573 )   (2,129 )
Total stockholders' equity   1,211,366     1,151,692     1,104,035  
Total liabilities and stockholders' equity $ 1,493,325   $ 1,413,470   $ 1,473,405  
 
Prepared in accordance with Generally Accepted Accounting Principles
 

Contacts

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

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