Exhibit 99.2
1 April 25, 2013 Letter to Shareholders Q4 FY13 CIRRUS LOGIC, INC. 800 WEST SIXTH STREET, AUSTIN, TEXAS 78701
April 25, 2013 Dear
Shareholders, Q4 revenue increased 87 percent year-over-year and
declined 33 percent sequentially. Although gross margins for the quarter
were roughly 10 percentage points below our expectations due to a $20.7
million inventory reserve, we maintained GAAP and non-GAAP operating
profit of 16 percent and 19 percent, respectively. As fiscal year 2013
concludes, we are extremely pleased with our financial performance. On a
year-over-year basis, FY13 revenue grew 90 percent, our GAAP operating
profit increased 153 percent and earnings per share were up 55 percent.
Non-GAAP operating profit increased 141 percent year over year and
non-GAAP earnings per share were up 138 percent. We believe the
significant increase in both revenue and operating profit positions us
at the high end of our peers, validating our business model and
highlighting our ability to deliver profitability. While custom portable
audio products drove revenue growth in FY13, we are also encouraged by
the progress we made with our general market portable audio and LED
lighting products this past year. With one to two-year design cycles, we
are working on projects today that are expected to contribute to growth
over the next few years. We believe the innovation in portable audio
surrounding the audio and voice experience is in the early stages of
development. In LED lighting, while mass-market acceptance is several
years away, we are positioning ourselves today with key players and
helping to accelerate adoption by providing solutions that improve LED
light performance while also contributing to a lower bill of
materials. We believe Cirrus Logic is uniquely positioned in both of
these rapidly growing markets given our analog and mixed signal
technology expertise, culture of innovation and our ability to execute.
We remain excited about the opportunities for growth in audio and energy
over the long term by increasing content and adding additional features
for both custom and general market products. 2
Revenue and Gross Margins
Fiscal year 2013 revenue increased 90 percent year over year, fueled by
substantial growth in portable audio. Revenue for the fourth quarter
increased 87 percent year over year. As expected, revenue declined 33
percent sequentially, as demand in portable audio softened following
stronger than anticipated product shipments in late Q3. Although the
timing of revenue was weighted more towards the December quarter, total
revenue for the second half of FY13 remained relatively unchanged from
our expectations. Other audio revenue increased year over year and
sequentially, largely due to sales for automotive. Our relationship with
our largest customer remains outstanding and new design activity is
robust. While we understand there is intense interest in this customer,
in accordance with our policy, we do not discuss specifics about our
business relationship. Looking ahead to the June quarter, revenue is
expected to range from $150 to $170 million, up more than 50 percent
year over year and down more than 18 percent sequentially. As we have
mentioned in the past, accurately predicting our revenue more than one
quarter out can be challenging due to the cyclical nature of our
business. Therefore, we do not provide annual guidance. Nonetheless,
longer-term, we are engaged with new and innovative projects in both
audio and energy that we anticipate will drive additional revenue growth
in the years to come.3
Gross margins were
approximately 40.4 percent in Q4, below the company’s previous
expectations of 50 to 52 percent. During the quarter, we recorded a
total net inventory reserve of $23.3 million, including
approximately $20.7 million due to a decreased forecast for a high
volume product. The $20.7 million inventory reserve resulted in a
decrease in gross margin for the quarter of slightly more than 10
percentage points. Looking ahead to the June quarter, we expect gross
margin to range from 50 to 52 percent. Operating Profit and Earnings On
an annual basis, GAAP operating profit was 25 percent, up from 19
percent from the prior year. Non-GAAP operating profit was 28 percent,
up from 22 percent in FY12. In Q4, operating profit on a GAAP basis was
16 percent and 19 percent on a non-GAAP basis. Cirrus Logic is
differentiated by our ability to provide meaningful innovation and
engineering execution, both of which require a substantial investment in
R&D. As we move into FY14, we expect to continue investing in new R&D
projects and other areas such as Quality and our Supply Chain. This
investment is essential for future growth as we continue to innovate,
improve manufacturing processes and diversify our product
portfolio.During the quarter, our GAAP operating expenses were $49.8
million, which included approximately $5.4 million in share-based
compensation and $400 thousand in 4
other non-recurring
charges. Our total headcount in Q4 was 652, up from 637 the prior
quarter. The Q4 ending cash balance was approximately $237 million, up
$89 million sequentially. Cash flow from operations in Q4 was roughly
$130 million. During the quarter, we repurchased approximately 1.5
million shares of common stock at an average price of $26.09. As of
March 30, 2013, we have approximately $114 million remaining in our
share repurchase program. While we may continue to repurchase shares
opportunistically from time to time, we are also actively evaluating
alternative uses of cash that could enhance our market opportunities We
are pleased with our earnings growth in FY13, as GAAP EPS was $2.00, up
from $1.29 in FY12 and as non-GAAP EPS increased to $3.24 from $1.36
from the prior year. In Q4, GAAP EPS was $0.39, versus $0.75 the year
ago quarter and non-GAAP EPS was $0.59, up from $0.36. Taxes Our GAAP
tax expense during the quarter was $7.6 million, which includes $7
million of non-cash expense associated with our deferred tax asset. We
have approximately $81.6 million of deferred tax assets remaining on our
balance sheet. For FY14, we expect our effective quarterly cash tax rate
to be less than four percent, until we have utilized the remaining
deferred tax assets. At that time, our initial cash tax rate is expected
to be approximately 35 percent. Company Strategy FY13 was a year focused
on ramping new custom products and introducing general market portable
audio and energy products that we expect to drive revenue growth and
customer diversification longer-term. Cirrus Logic’s strategy is to
target tier-one customers 5
in growing markets who are
able to differentiate their products with our innovative technology. We
take pride in our ability to solve complex problems, while meeting
customer timelines and helping reduce overall product costs by
eliminating or integrating functionality and components into our chips.
This past quarter, momentum with our general market portable audio
products accelerated, as the value placed on the audio and voice
experience in mobile devices is increasing. Interest in voice interface
and content awareness features, which require ultra-low power and
intelligent signal processing, are key to the expansion of this market.
Building on Cirrus Logic’s core audio processing competencies, our low
power DSP is well positioned for this market and continues to gain
traction in applications that require small, efficient, low-power DSPs.
Our new low power general market analog-to-digital converter, which
significantly enhances the voice experience for multi-microphone
applications, began shipping in the March quarter. We are excited about
the opportunities with multi-microphone applications and continue to
receive positive feedback and strong customer interest from other
tier-one players. In LED lighting, this past year we launched new,
industry-leading products, developed meaningful relationships with
tier-one accounts and positioned Cirrus Logic as a key player in the LED
lighting market ahead of mass consumer adoption over the coming years.
There are several factors driving the adoption of LED lighting,
including the government mandated phasing out of incandescent bulbs,
environmental benefits (no mercury) and the lower cost of LEDs; however,
the retail price for LED light bulbs remains relatively high. In-line
with our strategy to help reduce the LED overall bill of materials, we
have launched our next-generation single-stage LED controller. This
product maintains best-in-class performance while reducing the
electronic bill of materials cost by 30 percent, versus our first
generation dual-stage LED controller. During the fourth quarter, we
expanded into more SKUs and are now shipping with two tier-one lighting
customers. We continued to see design activity with our new and existing
products into A-type, GU10, BR and PAR bulbs, and we are encouraged by
early 6
progress in the MR16
replacement market. Looking ahead into FY14, we expect revenue in LED
lighting to increase as we continue to be meaningfully engaged with key,
tier-one accounts and ship into more models with new and existing
customers.Summary and Guidance For the June quarter, we expect the
following results: Revenue to range between $150 million and $170
million;Gross margin to be between 50 percent and 52 percent; and
Combined R&D and SG&A expenses to range between $51 million and $55
million, including approximately $6 million in share-based compensation
expense. In summary, FY13 was a tremendous year for Cirrus Logic. We
experienced substantial growth in our revenue and operating profit,
significantly expanded our footprint in portable audio and launched our
new LED lighting products. We believe our financial results are
directly attributable to our business model and long-term focus on
pursuing our vision to be the first choice in high-performance analog
and mixed signal processing. Sincerely, Jason Rhode Thurman Case 7
President and Chief
Executive Officer Chief Financial Officer Conference Call Q&A
SessionCirrus 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.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: 32769785).Use of
Non-GAAP Measures This shareholder letter and its attachments include
references to non-GAAP financial information, including operating
expenses, net income, operating profit 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. 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. Safe Harbor Statement
Except for historical information contained herein, the matters set
forth in this news release contain forward-looking statements, including
our future growth expectations and our estimates of first quarter fiscal
year 2014 revenue, gross margin, combined research and development and
selling, general and administrative expense levels, and share-based
compensation expense. 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 8
to certain risks and
uncertainties that could cause actual results to differ materially.
These risks and uncertainties include, but are not limited to, the level
of orders and shipments during the first quarter of fiscal year 2014, as
well as customer cancellations of orders, or the failure to place orders
consistent with forecasts; and the risk factors listed in our Form 10-K
for the year ended March 31, 2012, 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: 9
