Cirrus Logic Inc (CRUS) 2010 Q1 法說會逐字稿

Welcome to the Cirrus Logic first quarter fiscal year 2010 financial result conference call. At this time, all participants are in a listen-only mode. Later we are will open up call for questions and instructions for queueing up will be provided at that time. As a reminder this conference call is being recorded for replay purposes. I will would like to turn the conference over to Mr. Thurman Case, Chief Financial Officer. Mr. Case, please begin.

Thank you and good afternoon, joining me on today's call is Jason Rhode, Cirrus Logic President and Chief Executive Officer.

Before we begin, you are reminded that during the course of this conference call, we will make projections and other forward- looking statements regarding, among other things, our estimates for our second quarter fiscal year 2010 revenues, gross margin levels combined R&D and SG&A expenses, amortization of inquire intangibles and share based compensation expense, as well as our estimates and assumptions regarding future demand for our products, and expected revenue and market share growth. These statements are predictions that are subject to risks and uncertainties that may cause actual results to differ materially from our projections. By providing you this information, we undertake no obligation to update or revise any projections or forward-looking statements whether as a result of new developments or otherwise.

Please refer to our press release issued today which is available on our website, our latest Form 10-K for fiscal year ending March 28, 2009, as well as our other filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from our current expectations. I also want to mention before we proceed that all financial numbers are prepared unless noted in accordance with Generally Accepted Accounting Principles. A reconciliation of the non- GAAP financial information provided in today's call to the most directly comparable GAAP information is included in today's press release, and on our website in the investors section. Non-GAAP financial information is not meant as a substitute for GAAP result, but is included because we believe such information is useful to our investors for informational and comparative purposes.

In addition, we use certain non-GAAP financial information internally to evaluate and manage operations. As a note, the non-GAAP financial information we use may differ from that used by other companies. These non-GAAP measures should be considered in addition to and not a substitute for the results prepared in accordance with GAAP.

Now I would like to discuss our result. Net revenue in the June quarter was $37.5 million, with sales of audio products generating $24.8 million and energy product sales generating $12.7 million. As you see in the tables we issued with our press release earlier, sales of audio product grew 13% year-over-year as we began ramping production in new design wins associated with our portable products as well as new designs featuring multichannel [Kodaks].

Revenue for our energy products was down year-over-year as demand for Energy Exploration products was impacted more heavily than we anticipated combined with general softness across various other industrial product lines. Historical revenue breakdowns by product category are available on our website.

Gross margin for our June quarter was 52%, down from 56% in the quarter a year ago and down from 55% in the March quarter. This decrease in gross margin is largely a result of the strong year-over-year growth we are seeing in our lower margin audio business, coupled with the continued significant decline in sales of our higher margin energy products. We expect to drive higher revenues in energy products in the long-term, while we continue to work to reduce costs in a ramping portable product line.

Total GAAP operating expenses for the June quarter were $19.8 million, compared to $24.2 in the previous quarter. Non- GAAP operating expenses were approximately $20.9 million for the quarter, compared to $20 million for the March quarter. As I stated earlier, reconciliations are available in our press release issued today as well as on our website. The increase in non-GAAP operating expenses is primarily a result of targeted expenditures such as the takeout of our new 65-nanometer audio DSP. We've expect expenses will remain at these levels due to additional new takeout coming in the fall and continued R&D investments. The loss from operations on a GAAP basis was approximately $250,000 while the non-GAAP loss from operations was $1.3 million.

We recorded GAAP net income for the quarter of 220,000, essentially $0.00 per share based on $65.3 million diluted shares. In the same quarter a year ago we reported net income on a GAAP basis of $2.1 million, or $0.03 per share based on 67.2 million diluted shares. On a non-GAAP basis, we recorded a net loss for the quarter of approximately $800,000 or $0.01 per share. In the June quarter a year ago we reported non-GAAP net income of $3.7 million, or $0.06 a share. We ended the June quarter with 484 employees, up from 479 employees at the end of March.

Moving to the balance sheet, we ended the March quarter with $14 million in net receivables, up from $10.8 million at the end of the March quarter. Our day sales outstanding remains consistent, and we've, as we've stated before, we will continue to actively manage our credit risk. Ending net inventory increased slightly to $20.2 million, up from $19.9 million in the March quarter, which represents a solid improvement in our inventory turns as we move into our second fiscal quarter. Our channel inventory was down 11% from the end of March. We ended the quarter with $122.4 million in total cash and marketable securities, an increase of $2.2 million from the $120.2 million at the end of March.

As you recall, we have a $20 million stock repurchase program approved. We've not completed any stock repurchases under this program to date. Capital expenditures for the June quarter were $500,000, compared to $2.3 million in the March quarter, depreciation and amortization expense in the June quarter was $2 million.

Now I'd like to turn the call over to Jason to discuss our business operations and guidance for the upcoming September quarter.

Thank you, Thurman. I'm pleased that Q1 saw strong year-over-year of sequential revenue growth from our audio products. Driven by high-volume shipments of new products for home, and portable audio applications. This growth however was offset by sharp declines in demand for energy exploration and overall weak demand for our energy products. Our portable product line continued to build momentum in Q1, shipping new products in the new applications such as media-centric mobile phones. This continued success in portable audio underscores our ability to identify exciting markets and successfully take market share and it serves as a blueprint for our success in the new energy control and audio DSP programs, both are first power factor correction IC and are new 65 nanometer audio DSP have achieved production worthy silicon and are currently sampling to key customers. We expect that these two new product lines will begin to contribute significant revenue next year.

Let me provide with you a brief update on our product, beginning with the energy category. These products include integrated circuits designed for a variety energy exploration, measurement and control applications. In the June quarter, revenue came in at $12.7 million, which is down by 42% compared to the June quarter a year ago. Demand for energetic exploration products was impacted more heavily than we anticipated such that seismic products were not a meaningful contributor to Q1 revenue. While we continue to serve this market for the long-term we don't anticipate an uptick in demand for energy exploration products in the foreseeable future.

In addition, we continue to anticipate general weakness across several of our industrial product lines due to overall market demand. Due to this -- despite this broad weakness, sales of our power meter products remain a bright spot with continued good momentum.

In energy control products, we're excited about upcoming launch of the first PFC chip. In the previous quarter we discussed these ICs were demonstrated to key customers after early positive lab results. Today, I'm proud to announce that we are sampling product worthy parts to key customers and we will be launching this product to our global sales team at our upcoming Worldwide Sales conference in September.

This is a market that has traditionally been dominated by analog solutions and is estimated to be about $400 million and growing. We believe that we bring unique digital signal processes technology to this market that will in able more efficient, smaller power supply products. Our chips eliminate the need for numerous passive components and make it easier to comply with the increasingly stringent Energy Star Standards. We anticipate that revenue from energy control products such as PFC will provide significant revenue opportunities starting next year.

Going forward, we believe that revenue from our energy product line has bottomed out and will remain around the current revenue levels in the near-term. Longer-term, we're excited about the revenue opportunities ahead of us as we focus on introducing new products this year for energy control applications.

Turning now to our audio products, which include integrated circuits that are used in a wide variety of consumer, portable, professional, and automotive audio applications. Revenue from these products contributed $24.8 million of our revenue for the June quarter, up 13% compared to the June quarter a year ago. Revenue from portable audio products was a continued highlight this past quarter.

As we are shipping in volume production, new products for media-centric Smart Phones, media players as well as a new portable gaming device from Japan launching this fall. We also continue to achieve strong and growing revenue contributions from new products that are designed in applications such as sound bars and other exciting home audio devices. Regarding automotive, this market remains weak. However, we have seen an uptick in demand recently and we continue to view this as a key component of our long-term plan.

Last quarter, we announced the takeout of our first 65 nanometer audio DSP, which is the most powerful audio processes in the world for home and automotive applications. I'm also pleased to note that due to outstanding engineering execution, we've obtain production worthy silicon on this product ahead of schedule.

We are currently sampling it to a key Japanese AVR manufacturer, and we look forward to engaging with more Tier 1 customers later this year. As we continue to focus on Japan, we believe we're making significant progress there as exemplified by our recent collaboration with a leading Japanese OEM on a custom mixed-signal IC program. With the growing demand for our products in portable and home audio, this quarter we expect accelerated year-over-year and sequential growth from audio products.

Now, let me review our guidance for the second quarter of fiscal year 2010. Our overall expectations are as follows -- Revenue is expected to range between $48 million and $52 million. Gross margin is expected to be between 50% and 52%, and combined R&D and SG&A expenses are expected to range from $22 million and $24 million, which includes approximately $2 million in share based compensation and amortization of acquisition related intangibles expenses. We continue to experience strong growing demand for our new portable and home audio products from a diversified base of Tier 1 customers. Highlighted by forecasted sequential growth of approximately 30 to 40% in the second quarter.

Cirrus Logic is positioned for long-term success with a strong balance sheet, outstanding engineering talent, and growing revenue from new products that can be found in -- inside some of hottest new consumer electronic devices in the world. We are proud that our first power factor correction device and our new 65 nanometer audio DSP are both already sampling with key customers. And we expect these new platforms to live up to the standards set by our growing portable audio business.

Our vision is to be the preferred supplier of digital and analog signal processing components for the audio and energy market. We don't intend to be the biggest supplier of these components, just is best. If Cirrus seems like a different company than it was a few years ago that's because it is. Over half of our employees have joined the company in the past two year, and we are hard at work developing must-have products for the best customers in the world. We believe our success in portable audio is just the tip of the iceberg and we are looking forward to more of the same.

Operator, we are now ready to take questions.

Thank you, sir. (Operator Instructions). We will begin the question and answer session. Our first question comes from the line of Vernon Essi with Needham & Company. Please go ahead.

Some good results here and great guidance. One of, wanted to dive into some of the comments you made about the energy side and it just, on a, so we understand from a go forward basis, were you discussing the flatness in the market as an overall commentary or just is seismic side of things?

No. Overall, the traditional business that we've been in in the energy space, we expect that's fairly well bottomed out. We don't see it recovering in a rapid fashion but we don't think it's going to continue to decline at this point either.

Let me ask the question. One of your larger peers discussed a lot of robustness in the industrial area, and wondering if there is any disconnect to be thought of there. I know you are heavily skewed towards the seismic area, but any color on some of the end markets that might help us understand that disconnect?

Yes. Our industrial business is - - it's fairly diverse collection of pretty specific businesses so seismic is one, we have a communications product line that is pretty, that is in that segment as well. The line of arm processors was pretty heavily industrial focused. That's in the product line as well, so it's kind of a it's a little bit of, well, it's a significant impact from market issues, but also a collection of product lines that we're not heavily investing in at the moment either. So I don't think if that happens.

And we should obviously expect the proper portions to, that is a percentage of sales to rise later this year and early next as your PFC solutions starts to hit the ground and ship, I suppose.

On a percent basis, whether it can keep up with audio in the short term, I'm not sure. But certainly we do expect good results from the PFC stuff. That has gotten a very positive reception from everybody we've shown it to. That's a fun, it's a fun situation as a marking person to be out talking to customers and show them a product like this and really have them give you an strong sense that this hits a strong name in the market.

Another question too, just on the current quarter, even into next, some things we've been hearing about are component shortages in the supply chain. Do you, was there any revenue you felt might have been recognized in the quarter had there not been any disruptions perhaps with your customers? Or was it pretty much as you expected.

No, we were good on that last quarter. There's always a couple things here and there, but nothing significant or out of the ordinary. Going forward, supply across the industry is tight, I think we went through a period where we had an over correction on the channel inventory as every level, which drove all the foundries to be 45% utilized or whatever in the January time frame, suddenly, everybody woke up and realized that at some point, they have to buy something again if they're going to want to build their products. So I think you've seen from most semiconductor companies and certainly the foundry announcements for the world, they are all quite busy at this point, whether that is now an over correction, I'm not sure. Again, but anyway, I would say from a capacity point of view, it's a bigger issue in Q2, maybe Q3 than it was in our fiscal Q1. We're certainly working hard to make sure that we keep up with all of our customers' demand.

And then finally, Thurman, just on R&D, obviously continuing to head upwards in terms of dollars, and you talked about (inaudible) some costs coming in, should we expect that to flatten out and perhaps even get, tread lower in dollar terms or should we be looking for that to just, going up sequentially through the course of 2009.

No, we think the levels that we're reaching this quarter are pretty much where we're going to be. We may still tread up a little on the R&D side, depending on the number of assets we may do, and what we investigate in on R&D spending, but not significantly.

I would model right in the range we gave you. And if we exceed that in, in a next couple of quarters or something, it might be because we have an extra tape out or two that we managed to pull in. Which in my view is a good expense to have.

All right. Thank you very much.

Thank you. Next question comes from the line of Christopher Longiaru with Sidoti & Company. Please go ahead.

Congratulations on the guidance.

Thanks.

Just wants to dive into the, to that a little bit more. It sounds like right now you are expecting the industrial side to stay, the energy measurements to stay flat, and most of the growth is from market share gains. I know you can't talk about the customers that you want, but maybe give us an idea of how many designer wins added into the market share gains and what you're up for and what's reasonable to expect to win.

I mean - - let's see, how do I answer that? In the portable business, we're doing pretty well on a design win by design win basis. I don't have a specific number to hand out, but the strategy of focusing on the Tier 1 accounts in every territory and in every application is working out pretty well that has the benefit of A, you focus on the big guys first, and B, the smaller guys tend to copy what the big guys are doing, so there's a certain amount of pi nash that goes with being in some of the higher running products. But literally in every territory we do business in, we're seeing design wins for the different products. It's a fair amount media player at this point. There's a hands full of other applications such as the portable gaming, navigation, things like that, and then the mobile phone stuff. We've got work to do to continue to broaden the mobile phone business as we go forward. That business tends tarrier a lot of hand holding.

And just to piggyback. Talking about regions. None of this is really from, I'm is from gains in Japan yet?

No, we have some new stuff we're shipping for designs in Japan.

So that is - - so the portable gaming is from, basically opening up that market a little more to Cirrus?

A little bit there, and we have what looked liking design wins in portable navigation, and as I said in the script, we are in the middle of a custom development with one of the best brand names in the business in Japan.

Is that shipping yet?

No. That to me says we're doing the right stuff in Japan.

Okay. Great, thanks, guys.

Thank you. (Operator Instructions). I'm showing no further questions. I'll send it over to management for closing comments.

I guess when you got up 30% plus, there's not a lot of questions, in any event, thank you, operator, and thanks for all of you joining us on the call today

Thank you, sir. Ladies and gentlemen, this does conclude today's conference call. If you want to listen to a replay of today's call please dial 303-590-330 or 1-800-406-7325 enter the passcode 4116122. Once again, both numbers are 303-490-3030 or 1-800- 406-7325 enter the passcode 4116122. Thank you for your participation you may now disconnect.