Cirrus Logic Inc 2027 Q1 Earnings Call

Thank you, Chelsea, and welcome to everyone joining today's call. As you've seen in the press release, Cirrus Logic reported record first quarter results for the June quarter, delivering revenue of $460 million, as well as GAAP and non-GAAP earnings per share of $1.47 and $1.84, respectively. In a few moments, I'll hand the call over to Jeff to discuss our financial results in detail, along with our outlook for the September quarter. Before we get to that, I'd like to provide an update on the progress we've been making across the key pillars of our strategy since our call in May. As I've outlined previously, our long-term strategy for growth is based around three principles. First, maintaining a strong leadership position in our flagship smartphone audio business.

Second, expanding the value and range of high-performance mixed signal, or HPMS, solutions with which we serve our customers in smartphones and related products. Third, leveraging our world-class expertise and IP in both the audio and high-performance mixed signal domains to grow and broaden our business in new markets. I want to say a few words now about each of these areas. In our flagship smartphone audio business, we saw continued strong demand for our custom-boosted amplifiers and smart codecs. Together, these components deliver exceptional audio performance and meaningful power and efficiency gains, and moreover, have benefited from an especially strong product cycle from our customer. While we continue to invest in innovations that will raise the bar of future audio solutions, we anticipate that these products will continue to ship for multiple future generations of customer products.

This provides the company with solid long-term visibility, sustained revenue contribution, and the ability to focus R&D resources on new applications that expand the reach of our business and serve our customers in new ways. Which brings me onto our second priority, expanding HPMS content in smartphones and related products at the edge. Our progress in the June quarter reinforced our confidence in the long-term opportunity to grow content across camera, battery, and power applications. In the camera area, our close engineering collaboration with our largest customer has spanned multiple generations of controllers to date, and today we are executing on a roadmap to deliver the next generation of camera products. In battery and power, our products integrate signal processing and control capability to get the most out of the system, in terms of both performance and efficiency, in a way that sets us apart from more traditional analog competitors.

These capabilities were central to winning the smart power IC for 3D sensing we discussed on our last call, the development of which continued on schedule during the quarter. We also saw further close collaboration with our customer on other power and battery products that we think can expand content over time. Across our core audio and HPMS business, we see a pipeline of opportunity over the next few years that is as strong as any we can remember. Beyond smartphones, we also made progress on our third strategic priority, expanding into new applications and markets. The PC market remains our largest near-term growth opportunity outside of smartphones, where we see potential for growth in volume and attach rates over time of both audio and HPMS content.

That said, our expectations for our PC business this fiscal year have come down since we spoke in May. I want to be clear about the reasons for that. Three distinct factors have contributed. First, the constrained supply of a key industry platform in which we have content. Second, memory and component shortages and the pricing pressure that comes with them, acting as a headwind for the broader PC market. Third, OEMs responding to these conditions by delaying some new model introductions and extending the life of existing platforms. Those new models generally represent both higher content per system for us and, in many cases, higher volume designs. Their delayed introduction pushes out some of the growth we would otherwise have seen in our PC business this year. I would characterize these factors as timing rather than anything fundamental.

Our customer engagement, design win momentum, and competitive standing all remain very encouraging. Our excitement about the opportunity for Cirrus in this space over the coming years is undiminished. In particular, as we partner with our PC OEM customers on AI-enabled PCs, we see considerable interest in our voice technology solutions. Today, the PC voice experience is often limited because running always-on wake word detection on the CPU or NPU drains battery life rapidly and introduces latency that adversely affects the user experience. Our latest low-power smart codec delivers wake word detection, noise reduction, audio buffering, and other voice features in a standalone device, keeping system power consumption extremely low until the user engages the conversational interface. Customer interest in this product was strong during the June quarter. We advanced engagements with multiple customers on designs for next calendar year.

Lastly, in this part of our business, during the quarter, several OEMs announced new PCs based on NVIDIA's RTX Spark platform. Products based on RTX Spark from several of our customers are expected to ship later this year with Cirrus Logic amplifiers and codecs on board. We're excited to be a part of this platform and see these launches as further examples of our PC portfolio broadening its reach, along with the benefits our customers experience in being able to use the same voice and audio subsystems across different platform architectures. In our wider general market business, we continued to engage a broad base of customers across the professional audio, automotive, industrial, and imaging end markets. A highlight this quarter was the tape-out of a new family of high-performance analog front-end components targeting smart meters. We anticipate sampling these in the September quarter.

These new products deliver higher accuracy voltage and current measurement for residential, commercial, and industrial applications. Their on-chip digital signal processing enables power quality analysis and fault detection while reducing our customers' overall system cost. We believe the underlying technology developed for these products can also extend beyond smart meters into a number of adjacent applications, including energy storage, data center DC metrology, EV charging, and grid monitoring. These smart meter products represent the latest example of how we can leverage our world-class mixed-signal IP into markets that can drive sustained and profitable long-term growth. They complement launches over the past two years of products in timing, professional audio, and industrial imaging segments. Each of these product families should enjoy lifespans and gross margins well above our corporate average, and so represent an attractive addition to the rest of our business while broadening our addressable market.

I would also like to note that we recently signed a new capacity reservation and wafer supply agreement with GlobalFoundries. This agreement builds on our longstanding partnership with GlobalFoundries and secures dedicated wafer capacity and pricing for calendar years 2027 and 2028, further supporting the broad range of opportunities we see ahead. In parallel to executing this agreement, we continue to collaborate with GlobalFoundries on next-generation process technologies and progressing towards manufacturing products on U.S. soil at their facility in Malta, N.Y. In summary, we're proud of our progress this quarter, during which we continued to execute on our strategy to be the chosen supplier for a range of critical audio and HPMS sockets in our core business, diversify our product portfolio, and drive growth in new applications and markets. We're excited about the opportunities ahead of us across all of these fronts.

That concludes the latest update on our long-term growth strategy. Let me now turn the call over to Jeff to provide an overview of our financial results as well as the outlook.

Thank you, John. Good afternoon, everyone. I'll now walk through our Q1 financial results and provide guidance for Q2. In Q1 fiscal 2027, we delivered record first quarter revenue of $460 million, which was in line with the midpoint of our guidance range. Revenue was up 2% sequentially and 13% year-over-year. The increase in revenue on a sequential and year-over-year basis reflects higher sales of components shipping into smartphones. On a year-over-year basis, sales were partially offset by previously anticipated pricing reductions. Turning to gross profit and gross margin. Non-GAAP gross profit in the June quarter was $242.1 million, and non-GAAP gross margin was 52.7%. On a sequential basis, the decrease in gross margin reflects previously anticipated pricing reductions, which were partially offset by cost reductions.

On a year-over-year basis, a slight increase in gross margin was largely due to a favorable product mix, which was partially offset by higher freight and supply chain costs. I'll turn to operating expenses. Our non-GAAP operating expense for the first quarter was $135.4 million. On a sequential basis, OpEx was up $9.3 million, primarily driven by higher employee-related expenses and, to a lesser extent, increased professional costs and product development expenses. This was partially offset by an increase in R&D incentives. On a year-over-year basis, operating expense was up $15.9 million, primarily due to higher employee-related costs, which is consistent with our previously communicated increase in R&D expense to support the range of opportunities we have across the business. To a lesser extent, operating expense also increased due to higher variable compensation, product development, and professional expenses.

Non-GAAP operating income for the quarter was $106.7 million, or 23.2% of revenue. Turning now to taxes. For the June quarter, our non-GAAP tax rate was 17.4%. Lastly on the P&L, non-GAAP net income was $96.1 million, resulting in a record June quarter earnings per share of $1.84. Let me now turn to the balance sheet. Our balance sheet continues to be strong, and we ended the June quarter with $1.2 billion in cash and investments. Our ending cash and investments balance was up $13.5 million from the prior quarter, as cash generated from operations was partially offset by share repurchases. We continue to have no debt outstanding. Inventory at the end of the first quarter was $262.7 million, up from $240.9 million in the prior quarter. Days of inventory were up sequentially, and we ended the quarter with approximately 110 days of inventory. Turning to cash flow. Cash flow from operations was $64.1 million in the June quarter, and CapEx was $15.5 million, resulting in non-GAAP free cash flow margin of 11%.

For the trailing 12-month period, cash flow from operations was $598.6 million, and CapEx was $27.6 million. This resulted in a non-GAAP free cash flow margin of 28%. On the share buybacks in Q1, we utilized $34.5 million to repurchase approximately 211,000 shares of our common stock at an average price of $163.43. At the end of Q1 fiscal 2027, the company had $239.6 million remaining on its share repurchase authorization. Subsequent to Q1 fiscal year 2027, the company utilized $50.5 million to repurchase approximately 359,000 shares at an average price of $140.53 under a Rule 10b5-1 trading plan. Now on to guidance. For Q2 fiscal 2027, we expect revenue in the range of $510 million-$570 million.