Cirrus Logic Inc (CRUS) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic fourth quarter and full FY15 financial results Q&A session.

(Operator Instructions)

As reminder this conference call is being recorded for replay purposes. I would now like to turn the conference call over to Mr. Thurman Case, Chief Financial Officer. Mr. Case, you may begin.

Thank you and good afternoon. Joining me on today's call is Jason Rhode, Cirrus Logic's President and Chief Executive Officer, and Chelsea Heffernan, our Manager of Investor Relations.

Today we announced our financial results for the fourth quarter and full FY15 at approximately 4 p.m. Eastern. The shareholder letter discussing our financial results, the earnings press release, including a reconciliation of non-GAAP financial information to the most directly comparable GAAP information, along with the webcast of this Q&A session are all available at the Company's investor relations website at www.investor.cirrus.com. This call will feature questions from analyst covering our Company as well as questions submitted to us via email at investor.relations@cirrus.com.

Please note that during this session we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections. By providing this information, the Company undertakes no obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Please refer to the press release issued today, which is available on the Cirrus Logic website and the latest form 10-K and 10-Q as well as other corporate filings made with the Security and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations.

Now I'd like to turn the call over to Jason Rhode, our President and Chief Executive Officer.

Thank you, Thurman. Before we begin taking questions I'd like to make a few comments. For a detailed account of our financial results, please read the shareholder letter posted on our Investor Relations website.

We are extremely pleased with Cirrus Logic's financial results for the March quarter and full FY15 as strong demand for portable audio products drove revenue above our expectations. In FY15 we are excited to have achieved our long-term targets of 15% organic revenue growth and 20% non-GAAP operating profit on revenue of $916.6 million. In Q4 we delivered revenue of $255.2 million.

FY15 was a transformative year for Cirrus Logic. In addition to exceeding our expectations for revenue growth, we transitioned to 55nm, broadened our product portfolio and strengthened our customer base through the acquisition of Wolfson Microelectronics in August of 2014. Further, during the quarter we accelerated production of our latest Smart Codec that is shipping with the largest OEM in the android space.

As we move into FY16, we are excited to continue ramping our new custom and general market products that target low-power audio and voice applications with an extensive strategic road map that includes sophisticated products intended for both flagship and mid-tier mobile devices. Our technical marketing, engineering and sales teams remain focused on delivering innovative new products and cross-selling components such as boosted amplifiers into existing customers. As the markets for audio and voice continue to evolve in the coming years, Cirrus Logic is leveraging its advanced technology, world-class engineering teams and solid relationships with many of the industry leaders to position the Company for future growth.

Before we begin the Q&A, I would also like to note that while we understand there is intense interest related to our largest customer, in accordance with our policy, we do not discuss specifics about our business relationship. Operator we are now ready to take questions.

(Operator Instructions)

Blayne Curtis of Barclays

Thanks for taking my question and great results, guys. Just in your letter you talked about a leveling of business with Q1 and Q2 but then you also referenced a significant buildup of inventory for kind of your typical seasonal December quarter. So just wanted to understand what you're really referencing there?

Yes. It's nothing we can get into the details on. It's just there's a lot of moving parts to it and the fiscal year is getting off to a stronger start than our historical seasonality would imply.

Obviously part of that is due to the -- due to a pretty strongly ramping product that we started shipping last quarter but there's a number of other factors involved. And so we just didn't want anybody to get too far ahead of themselves going forward.

But overall, that's all in the context of what we expect to be an outstanding FY16 with great year-over-year growth over the course of the year. But it's just a recognition that probably Q1 is weighted a little bit more heavily than historical trends might suggest.

Great. And then I don't know if you can answer this as well but in terms of shipping your 55nm part, do you expected to do that in the June quarter?

Let's see, it -- there's some possibility of that. I mean the real ramp that we're expecting is more traditional kind of support of the Christmas season type timeframe.

But I'll note that relative to the lot of the messaging that we had prior to the acquisition the UK team have been shipping 65nm for a good long while. Some of their new developments have transition to 55nm as well. 55nm, as you know, is an optical strength of 65nm.

So relative to our plans prior to the acquisition, a number of things have moved around a little bit relative to 55nm and 65nm and the timing thereof. But either way, we are already shipping the 65nm stuff in high-volume and we are well on track relative to our other the plans.

And then just finally you mentioned several growth drivers beyond this content gain this year. I was wondering if you could just kind of prioritize those. You mentioned amps. Is that the nearest-term opportunity and when would you have visibility whether you would get those gains? And then kind of if you can outline where you see your best opportunities during the next couple years.

Sure. Yes, I appreciate it.

I'm sure there's folks that would draw a parallel to calendar 2012. And the big difference is that we do have a number of other layers to our growth strategy at this point. The first, as you mentioned, is cross-selling our amplifiers, for example, with the Smart Codecs that we drive from the Wolfson acquisition.

So that's a good opportunity. You know you never count your chickens until they hatch. As far as the visibility is concerned, we like to be conservative on that front so we will keep you posted as things unfold.

But that's the kind of thing that if things go well for the time we started working at it, customers, conceivably in the space we are in, designer their products over the course of the year. And of course what we do is sticky so there's other factors involved in designing out somebody else that's in there and achieving the win for ourselves. But we do think our opportunities are very, very good there.

It's an area of significant investment for us. It's something that's grown significantly over the years that we've been in the amplifier market, which is just over the past handful of years.

So beyond that, we see great opportunities on a couple of different fronts that can really move the needle for us. One being to take the technology that we've developed in -- or primarily for flagship model phones and start to push that, in particular, voice functionality down into the mid-tier of devices, which is obviously a much higher volume segment. So we think by having a robust road map that targets specifically the different tiers of the phone market we can participate in that market at margins that are supportive of where we want the Company to be.

And on a related note, we also see good opportunity to take the business that we've developed in the very top couple of amp [set] manufactures a broaden that out to a number -- hopefully broaden that out and number 3 through 10 in, ideally, in order of importance. We are making good progress there as well.

And then finally in the very long term sense, we see a great opportunity to take the technology that we are perfecting in mobile today and migrate that out into other form factors, other applications, automotive, smart home, wearables, smart mobile accessories, we see a lot of good opportunity for that. Not a big opportunity, revenue wise, in the near term for us, but it's kind of that final leg of the stool in the terms of the growth strategy going forward.

Ruben Roy of Piper Jaffray

Thank you and congratulations as well for the great results and outlook. Jason, to follow-up on that discussion around growth drivers on the new products mentioned in the shareholder letter around the mid-tier market, it sounds like you'll have some relief to market over the next six months on the early end and extending out over the next 24 months.

First question on that, was some of this development customer driven -- customers requesting this type of product in the mid-tier android space? And then secondly, would you expect with some of those -- the products coming out over the six month time frame to generate revenues in this fiscal year?

Well we liked to not get too far ahead of ourselves in terms of talking about when things are going to ramp out in the future. The color on it would just be that that's something were working on. That's something we feel very good about.

It's -- everything we do is customer driven, whether it's specific to a customer or custom, which is obviously a fairly good bit of our revenue. Even in the case of general market products, we always work very closely with the targeted customers and make sure that we are targeting features that are really on point and things that they're looking real anxious to figure out how to implement in their product.

So the neat thing that we've developed with our Smart Codec platform is a very scalable solution. So what we sell in the flagship devices today you can see in our Investor Relations pitch, for example, you can see a pretty good caricature of what that looks like -- many cores, a lot of memory, very high performance, many channels of data conversion.

If the customer simply wanted to implement voice wake, for example, or voice command or some other subset of the functionality you find in a flagship device, we're developing products that are a subset that could implement a subset of those functions but are exactly instruction set compatible, use the same tools, use the same algorithms, whether they're third party algorithms, whether they're our own algorithms or whether it's stuff that the customer provided. And ideally it's a mix of all three of those things that we help bring together with our tools.

So that gives us a pretty good visibility about what customers want. We're making good progress on that initiative and we will certainly keep you posted as that get closer to being materialized in revenue.

Thanks for that, Jason. And as a follow-up for Thurman, on the OpEx, is this the right -- the Q1 guidance -- is it the right neighborhood to think of as a percentage of revenue as we lookout as you guys start to look at some of these broader initiatives?

Well not necessarily as a percentage of revenue because that'll change from quarter-to-quarter. But we would look at this OpEx rate as something that could still -- would still we would expect to grow around 2% on the R&D level on a quarter-over-quarter basis throughout the year. But SG&A would really remain relatively flat for the fiscal year.

Great. That's all I had. Thank you, guys

Thank you

Christopher Longiaru, Sidoti and Company.

Hey, guys. My congratulations -- great quarter, great guide.

Thanks, Chris

So my question has a little bit to do with -- so you have all these opportunities. Your revenues going up. Obviously the OpEx is going up. But can you -- are you talking about kind of choosing between which opportunities.

Can you comment on some of the other things that you had been working on like the LED market, for instance. Are those kind of on the back burner now or are they all set from an R&D perspective? Can you comment there?

Well at this point, as we indicated I think pretty close to a year ago, that we were having to shelf the LED stuff in light of the fact that our opportunities in audio were so much bigger and so much nearer and, frankly, more valuable to the Company. So it was a difficult step we had to make. So at relative to what burner LED is on, I would say it is not on a burner at this point.

We really can't come close to staffing all of the opportunities that we see in front of us, a big portion of which are software related. Tons of different algorithms, that we either need to work with third-parties to bring in house, we need to develop ourselves, customers require a lot of support.

There's a broad road map of products where we are clearly staffing the very best opportunities that we see in front of us and not just the merely good ones, which is a great position to be in. But we would definitely like to figure out how to do even more than we are already doing in the core space of audio that we serve. So at this point, people should definitely think about us as a mobile audio Company.

And then just in terms of your movement down, historically what you've done is it you've gotten onto boards and you've infiltrated those boards. And it seems like you're doing that with some other companies -- newer companies you have exposure to. Can you just talk about how many kind of new boards you're seeing now relatively and how that kind of plays into your longer-term strategy and all the opportunities you just talked about?

Well, yes. Sure.

So again, on the two trends, one being to move from the flagships down to the mid-tier and then also from the accounts that we serve in a big way today -- try to broaden that out to be a little more systematic in the accounts kind of number 3 through 10 of the mobile space. We've sold to a number of those accounts in the past, as had the UK team.

But I would say those opportunities in the past were fairly opportunistic. And so we'd really like to penetrate those accounts with something a lot more sticky like a Smart Codec and then start to broaden that out around the board with the amplifier products.

So I'll decline to throughout a number of boards because I think it probably -- there's some of them that matter a lot more than others, obviously. But I think we do pretty well at accounts number 1 and 2 and so we prioritize 3 through 10 sort of in the order that you would imagine. And I think we're making real good progress there.

Great. I'll jump out. Thanks again, guys

Thanks, Chris

(Operator Instructions)

Tore Svanberg, Stifel.

Hi, guys. It's Eric calling in for Tore. I'll also echo the congrats on the quarter in the guide.

Jason, you talked a little briefly about some of the things outside of handsets. And can you give us an update on progress in these other emerging areas, wearables, automotive? And when you start to see maybe a notable increase in revenues from the segments? I know these are longer-term opportunities but just trying to get a grasp of that.

Sure. There are -- as we say, they're out there. It's good to have opportunities in front of us for the technologies that we are shipping in high-volume and mobile and continuing to expect growth in mobile. In the near to midterm, we expect our growth opportunities to be driven and dominated by continued success in handsets.

But we've got a good presence really across the board in audio elsewhere. We're in a lot of great applications from internet of things to other devices. We have had an automotive business for many years.

But it is definitely something that we expect over the coming years to take that technology, target these other applications very specifically with more voice based. For example, voice wake we think is a -- or voice command is a great opportunity in really just about every avenue of audio you can imagine.

So it's not in the near-term. We've got plenty of opportunity to drive growth in the near term. That something that is out there a little further out on the horizon

Okay. Thanks.

And it looks like -- I think we talked about this last quarter -- this kind of the no more of the typical seasonality with now with the Wolfson acquisition. And it looks like that, again, is probably driving a lot of the growth into the June quarter. But then a little bit -- you're calling it a leveling in Q1 and Q2, which is into the September quarter.

I'm assuming there's a drop-off on the Wolfson side but then a kind of a pickup as we go into the second half, which is traditionally your stronger period as a standalone -- a former standalone Company. Is that the right way to think about it?

And then with Wolfson coming in at $54 million, almost $55 million, is this considered the high mark for them on a quarterly basis? I know you're not breaking out. But it is that considered something of a high watermark for them or is it continued growth into the June quarter?

Well, yes. No we're not breaking out. No, not at all.

We really just started ramping in the latter half of the January quarter. So another just a great, great job those guys did, knocked the cover off the ball and delivered a great product and supported a really heavy ramp extremely well. I was very pleased.

A lot of people worked very hard under tough conditions to make sure that we brought that one home. So no I wouldn't think that's a high watermark for them at all.

As far as the leveling of the quarters, all I can say, other than that Q1 is off to a great, is that there's just a number of factors involved that are kind of a lot of moving parts beneath the surface that it's not appropriate for us to get into. And that it is in the context of a fiscal year that we expect to be driven by really great growth in the face of new product introductions as we've highlighted in the past. So hopefully that's at least helpful a little bit.

Okay. Thanks. Maybe just one more for Thurman.

In the shareholder letter, and I think you touched upon it a little bit, you're going to be introducing over the next 6 months to 24 months of number of new devices, mostly on the general market products. Any change or expected change in your gross margin outlook or range that you are currently in?

No. I think the gross margins that we're seeing with the products that we're introducing are consistent with that mid-40s type of view in the long-term.

Thanks so much.

You bet.

(Operator Instructions)

John Vinh with Pacific Crest Securities.

Hi. Thanks for taking my question.

First question is on your microphones. I was wondering if you could just give us an update on how that's tracking and when we can start to think about meaningful revenue contributions from the microphone Wolfson opportunity.

Sure. I mean we're -- our overall revenue is at a pretty good run rate at this point and you got to sell a lot of microphones to move the needle at that revenue level. So the way I think I've indicated people should think about microphones for us today -- we're shipping them in high-volume. They are a relatively low ASP device.

So if you look around there's plenty of microphone suppliers. Typically the margins in that industry are not what we would be interested in. So our goal is to, as the only supplier that sells everything in the whole audio signal chain from microphones, Smart Codecs, amplifiers, all the software that stitches it together.

Our goal over the long run is to develop microphones in tandem with the Smart Codecs so that they work better together. They deliver better performance for our customers. They deliver a compelling bill of materials for them and also increase our share of it.

So that's the goal that we've got over the long term with our participation in microphones. That goal is a ways out. But we think the business that we have today is a very valuable stepping stone to getting to that point.

So we're shipping microphones in some great devices with some great companies. We think that the way we won those is by delivering a premium microphone, delivers great performance in a very small package. So we're off to a good start there.

We got a lot of good work to do to develop the capabilities to really embed a lot more smarts in the microphone to do optimal system partitioning between the Smart Codec and the multiple microphones that will ultimately be in these systems. But we think our opportunities for doing that are very good over the coming years and we are certainly staffing it appropriately to go capitalize on that opportunity.

Great. Thanks. And then my follow-up is it sounds like always-on is going to be a significant opportunity for you guys. Can you talk about what the incremental kind of ASP opportunity for you is for a customers who is ramping always-on capabilities?

Well, so they always -- so, again, what we sell is a Smart Codec. And at the end of the day, the price for one of our Smart Codecs is to -- well unless there is third-party software involved, for example, the price for our Smart Codec is essentially whatever we work out with the customer for the silicon.

Whatever software and software services and system integration that we can provide along with that is something that simply makes us more sticky. It makes the Smart Codec more valuable. And so we think that's a significant competitive advantage versus other more software-oriented suppliers.

Now the caveat to that, of course, is if one of our customers wants to run some third-party algorithm in concert with some of what we provide, then there is typically some sort of fee associated with that third-party IP. But obviously it's not my place to get into what different customers pay for what IP either.

So nevertheless the real meat of it is that always-on voice is a very valuable function. Our role in that is to enable our customer to implement it with extremely low power. And also, in a lot of cases, to try to augment that with functions such as our automatic speech recognition enhanced software so that the thing works better in noisy environments -- things like that.

So always-on voice is a great confluence of a bunch of things that Cirrus Logic does really, really well. So low-power signal processing, very low-power analog, potentially over time we can work in the microphones and make those work better with the Smart Codec in that environment, which we think will be a difficult strategy for anyone else to follow.

So it's a really neat feature that's unfolding in the market. I think we've yet to see the real true potential of what can be done there. But I think it's something that consumers will really value and that even mid-tier devices are going to want to latch onto once it becomes mainstream.

Got it. And let me squeeze in one more.

You talked about the leveling of revenues into Q1 and Q2. Can you talk about whether you expect to see sequential growth into the December quarter given the leveling effect in the first fiscal quarters at this point in time?

Well we're already pretty far out past what we, under normal course of things, like to guide. So we're not going to guide anything further other than I think if you do the math on the notion that we feel very good about year-over-year growth going forward through the year, that that kind of gets you where you need to be.

Great. Thanks, guys.

You bet.

(Operator Instructions)

And there are no further questions on the line. I will now turn the call over to Chelsea Heffernan.

Thank you, operator. We will conclude the call with a question we received via e-mail.

Can you discussed the opportunity to grow ASPs and cross sell components going forward?

Sure. Well certainly our opportunity to grow ASPs and cross sell components are closely related. So in some cases, we have the opportunity to -- for example, in the case of the Smart Codec, add memory, add more processors, add more analog IO, for example. That's a way to grow the ASP of that device.

But to grow the share of our bill of materials, for example, if we have a Smart Codec, if we can couple that with a boosted amplifier, make the two work better together, that's another way to grow the value that we're selling to a particular customer. And then further on down the road as we are successful in the microphone space, that's, again, an opportunity to grow a -- to cross sell devices and grow ASPs.

And it's interesting to note that a number of years down the road, many of these devices are talking about it's not one or two microphones, it's quite a array. So even though the devices themselves are, at the moment, fairly inexpensive, it can add up to a meaningful adder on the bill of materials going forward.

So we see great opportunity in all those areas. We've really never, in my career, all career's been in audio, I've never had the opportunity to serve a market where what we do already today is in such great demand across the board from a great suite of customers.

Great. Thanks, Jason. That was the final question so I'll turn the call back over to you for final remarks.

Thank you. In summary, FY15 was a great year for Cirrus Logic as we delivered strong revenue growth, achieved our long-term non-GAAP operating profit target at 20% and expanded our product portfolio.

We are even more excited about our outlook for the future. With an arsenal of innovative audio and voice products that we expect to ramp over the next year and solid relationships with key market leaders, the Company is poised for meaningful growth in FY16 team.

If you have any questions that were not addressed, you can submit them to us via the Ask the CEO section of our investor website. I'd like to thank everyone for participating today. Goodbye.

This concludes today's conference call. You may now disconnect.