Exhibit 99.2
1 July 25, 2013 Letter to
Shareholders Q1 FY14 CIRRUS LOGIC, INC. 800 WEST SIXTH STREET, AUSTIN,
TEXAS 78701
July 25, 2013 Dear
Shareholders, We are pleased with our Q1 financial results, as we
delivered GAAP and non-GAAP operating profit of 20 percent and 24
percent, respectively, on revenue of $155.1 million. GAAP EPS in Q1 was
$0.31, versus $0.10 the year ago quarter and non-GAAP EPS was $0.56, up
from $0.22. During the quarter, we ramped shipments of new products and
added additional customers as we continue our efforts to expand our
custom and general market portfolio in portable audio and LED lighting.
In audio, we are seeing strong customer interest in our innovative
products designed to enhance the audio and voice experience for mobile
phones. We are presently selling products into several additional mobile
phone manufacturers and are in discussions with multiple others. Design
activity remains healthy in LED lighting, particularly with our new
single stage LED controller, as we continue to ramp with our existing
customers and engage other OEMs. We believe we are in the early stages
of a new wave of innovation in both the audio and energy markets. As the
manner in which we interact with our personal devices, homes, and
automobiles becomes more complex, the need to bridge the analog and
digital divide will remain essential. Cirrus Logic’s extensive analog
and digital signal processing experience, proven engineering execution
and substantial IP portfolio position the company to be a key innovator
and supplier in these markets. 2
3 Revenue and Gross Margins
Revenue for
the first quarter increased 57 percent year over year. As anticipated,
revenue declined 25 percent quarter over quarter, ahead of sequential
growth expected in the second half of the calendar year. This sequential
decline was driven primarily by portable audio, although this business
grew significantly on a year-over-year basis. Other audio product lines
experienced a modest increase. 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. In our energy business, revenue declined year over year
largely due to the sale of assets associated with Apex Precision Power.
On a sequential basis, energy revenue increased slightly overall, with
growth in LED lighting somewhat offset by softer sales in power meter
and seismic. In the September quarter, revenue is expected to range from
$170 to $190 million, down seven percent year over year at the midpoint
and up 16 percent quarter over Figure A: Cirrus Logic Revenue Q1 FY12 to
Q2 FY14 (M) Revenue *Midpoint of guidance as of July 25, 2013 Q1/FY12
Q2/FY12 Q3/FY12 Q4/FY12 Q1/FY13 Q2/FY13 Q3/FY13 Q4/FY13 Q1/FY14 Q2/FY14
$92 $102 $122 $111 $99 $194 $310 $207 $155 $180*
4 quarter, as we anticipate
broad-based sequential growth across several of our audio product lines
as well as the LED lighting and power meter product lines in our energy
division. Gross margins for the quarter were in line with our
expectations at approximately 51.2 percent. As we mentioned at the
Barclays Conference on May 23, our margins are transitioning to a
long-term model in the mid-40-percent range as our average selling
prices become closer aligned with our peer suppliers in the portable
electronics market. In the September quarter, we expect gross margin to
range from 46 to 48.Operating Profit andEarnings In the June quarter, we
remained focused on our operating profit as we invested in compelling
R&D projects while carefully managing our SG&A expenditures. Operating
profit on a GAAP basis in Q1 was 20 percent and 24 percent on a non-GAAP
basis. We believe these results position Cirrus Logic at the high end of
our peer group’s performance, highlighting our ability to efficiently
manage expenses while investing in critical R&D initiatives that we
expect to drive future growth opportunities. Our business model enables
ongoing innovation and engineering execution, which contribute to the
development of cutting edge products and exceptional support for both
new and existing customers. Additionally, we are increasing our
investment in technical marketing as we evaluate and identify future
product opportunities. Figure B: Cirrus Logic GAAP R&D and SG&A
Expenses/HeadcountQ1 FY12 to Q1 FY14 *Headcount reduction reflects sale
of Apex assets ($ millions, except headcount) - 5.0 10.0 15.0 20.0 25.0
30.0 35.0 40.0 45.0 50.0 Q1/ FY12 Q2/ FY12 Q3/ FY12 Q4/ FY12 Q1/ FY13
Q2/ FY13 Q3/ FY13 Q4/ FY13 Q1/ FY14 SG&A R&D 665 667 698 Headcount 644*
652 594 637 635 623 $M
5 GAAP operating expenses
in Q1 were $48 million, which included approximately $5.8 million in
share-based compensation. Operating expenses were below our expectation
primarily due to lower than anticipated employee expenditures and
product development costs. Q2 guidance for operating expense is $49
million to $53 million, including $7 million in share-based
compensation, reflecting an expected increase in R&D. Our total
headcount in Q1 was 665, up from 652 the prior quarter. The Q1 ending
cash balance was approximately $272 million, up $35 million
sequentially. Cash flow from operations in Q1 was roughly $37 million.
As of June 29, 2013 we have roughly $114 million remaining in our share
repurchase program announced in November 2012 and we expect to execute
on this program opportunistically from time to time. In addition, we
continue to actively evaluate all uses of cash, including potential
technology and business acquisitions that could enhance our market
opportunities. Taxes Our GAAP tax expense during the quarter was $11
million, which includes $10.2 million of non-cash expense associated
with our deferred tax asset. We have approximately $71.5 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 Cirrus Logic’s ability to leverage our core engineering
competencies in exciting markets where our innovative solutions are
valued and help differentiate our customers’ products has been a key
element of our success. It can take roughly a year to design a new IC
and due to the proprietary nature of our products it often takes another
year for our
6 customers to design our
chips into their products. Given these long design cycles, it is
important for our technical marketing and engineering teams to remain
focused on identifying and executing on long-term opportunities. Over
the past year we have concentrated on broadening our custom and general
market product portfolios in portable audio and LED lighting. We are
pleased with our continued progress in the June quarter as design
activity remained robust and we shipped products to new customers and
additional SKUs. We believe innovation in our target markets is in the
early stages and we continue to work with an expanding list of market
leaders in order to capitalize on our revenue growth opportunities.
While we are in the midst of a market shift toward more cost competitive
devices in the smartphone market, opportunities are abundant for
sophisticated analog and digital signal processing, as the value placed
on the audio and voice experience has grown considerably. Consumers are
eager to intelligently interact with their mobile devices from both a
voice interface and contextual awareness perspective. This requires an
ultra low power digital and analog signal-processing component that
enables devices to be always on and always ready to respond to commands.
Innovation in this area will be a key focus for us over the next few
years. During the quarter, shipments of our catalog analog-to-digital
converters continued to ramp in multiple handsets at a leading
manufacturer of high quality smartphones. Additionally, over the past
six months we have seen increased interest from OEMs in China as they
begin to target the mid-to-high end market with products offering
differentiated audio performance. Shipments of our LED controllers
continued to accelerate in Q1 as we expanded into more SKUs with
existing customers in Europe and the United States. Our primary
objective for LED lighting in 2013 is to further develop meaningful
relationships and add incremental design wins with key LED lighting
OEMs, ahead of material volume shipments in calendar year 2014-2015. We
are actively engaged with these OEMs and expect to have more bulbs on
the shelves over the next 12 months. Our engineers have developed a
product roadmap that maintains best-in-class dimming performance at a
competitive system cost, which will contribute to lower LED bulb price
points and widespread
7 consumer adoption.
Consequently, in April, we launched our single-stage LED controller,
which maintains exceptional performance while reducing the overall total
bill of materials. We are encouraged by the positive customer feedback
and initial design momentum with this product. Summary and Guidance For
the September quarter, we expect the following results: • Revenue to
range between $170 million and $190 million; • Gross margin to be
between 46 percent and 48 percent; and • Combined R&D and SG&A expenses
to range between $49 million and $53 million, including approximately $7
million in share-based compensation expense. In summary, we delivered
strong operating profit and EPS in Q1 as we invested in compelling R&D
projects and carefully managed our SG&A expenses. During the quarter, we
continued to gain traction in portable audio and LED lighting as we
added new customers and expanded into more SKUs. In FY14, we will
continue to invest in innovative products and strengthen important
customer relationships in both audio and energy that are expected to
drive revenue opportunities over the next few years. Sincerely, Jason
Rhode Thurman Case
8 President and Chief
Executive Officer Chief Financial OfficerConference Call Q&A Session
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.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: 99347958). 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 second 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
9 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 second 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 30, 2013, 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:
10 Jun. 29, Mar. 30, Jun.
30, 2013 2013 2012 Q1'14 Q4'13 Q1'13 Audio products 143,666 $ 196,098 $
80,747 $ Energy products 11,459 10,775 18,259 CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (unaudited) (in
thousands, except per share data) Three Months Ended Net revenue 155,125
206,873 99,006 Cost of sales 75,627 123,259 45,566 Gross Profit 79,498
83,614 53,440 Research and development 28,530 30,085 24,910 Selling,
general and administrative 19,198 19,724 18,059 Other expenses, net *
265 - - Total operating expenses 47,993 49,809 42,969 Operating income
31,505 33,805 10,471 Interest income, net 158 106 127 Other income
(expense), net (17) 14 (23) Income before income taxes 31,646 33,925
10,575 Provision (benefit) for income taxes 11,004 7,565 3,648 Net
income 20,642 $ 26,360 $ 6,927 $ Basic earnings per share: 0.33 $ 0.41 $
0.11 $ Diluted earnings per share: 0.31 $ 0.39 $ 0.10 $ Weighted average
number of shares: Basic 63,363 63,877 64,470 Diluted 66,188 67,138
68,529 * Other expenses, net may contain certain items such as
litigation expenses , proceeds from a patent agreement, restructuring
items, sales reorganizations, asset gains and impairments of
non-marketable securities. Prepared in accordance with Generally
Accepted Accounting Principles
11 Jun. 29, Mar. 30, Jun.
30, 2013 2013 2012 Net Income Reconciliation Q1'14 Q4'13 Q1'13 GAAP Net
Income 20,642 $ 26,360 $ 6,927 $ Amortization of acquisition intangibles
- - 353 Stock based compensation expense 5,774 5,734 4,173 Three Months
Ended 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. (not prepared in accordance with GAAP)
CIRRUS LOGIC, INC. RECONCILIATION BETWEEN GAAPAND NON-GAAPFINANCIAL
INFORMATION (unaudited, in thousands, except per share data)
International sales reorganization charges - 442 - Restructuring and
other costs (430) - - Patent settlements, net 695 - - Provision
(benefit) for income taxes 10,161 7,372 3,355 Non-GAAP Net Income 36,842
$ 39,908 $ 14,808 $ Earnings Per Share Reconciliation GAAP Diluted
earnings per share 0.31 $ 0.39 $ 0.10 $ Effect of Amortization of
acquisition intangibles - - 0.01 Effect of Stock based compensation
expense 0.09 0.09 0.06 Effect of International sales reorganization
charges - 0.01 - Effect of Patent settlements, net 0.01 - - Effect of
Provision (benefit) for income taxes 0.15 0.10 0.05 Non-GAAP Diluted
earnings per share 0.56 $ 0.59 $ 0.22 $ Operating Income Reconciliation
GAAP Operating Income 31,505 $ 33,805 $ 10,471 $ GAAP Operating Profit
20% 16% 11% Amortization of acquisition intangibles - - 353 Stock
compensation expense - COGS 6 296 118 Stock compensation expense - R&D
2,854 2,976 2,243 Stock compensation expense - SG&A 2,914 2,462 1,812
International sales reorganization charges - 442 - Restructuring and
other costs (430) - - Patent settlements, net 695 - - Non-GAAP Operating
Income 37,544 $ 39,981 $ 14,997 $ Non-GAAP Operating Profit 24% 19% 15%
Operating Expense Reconciliation GAAP Operating Expenses 47,993 $ 49,809
$ 42,969 $ Amortization of acquisition intangibles - - (353) Stock
compensation expense - R&D (2,854) (2,976) (2,243) Stock compensation
expense - SG&A (2,914) (2,462) (1,812) International sales
reorganization charges - (442) - Restructuring and other costs 430 - -
Patent settlements, net (695) - - Non-GAAP Operating Expenses 41,960 $
43,929 $ 38,561 $
12 CIRRUS LOGIC, INC. CONSOLIDATED CONDENSED BALANCE SHEET Jun. 29, Mar. 30, Jun. 30, 2013 2013 2012 (unaudited) (unaudited) ASSETS Current assets Cash and cash equivalents 67,170 $ 66,402 $ 84,312 $ Restricted investments - - - Marketable securities 165,540 105,235 82,359 Accounts receivable, net 63,642 69,289 49,262 Inventories 110,624 119,300 96,790 Deferred tax asset 54,774 64,937 53,139 Other current assets 20,810 19,371 14,574 Total Current Assets 482,560 444,534 380,436 Long-term marketable securities 39,408 64,910 - Property and equipment, net 99,169 100,623 85,337 Intangibles, net 4,714 4,650 18,457 Goodwill 6,027 6,027 6,027 (in thousands) Deferred tax asset 16,732 16,671 85,721 Other assets 11,289 13,932 9,300 Total Assets 659,899 $ 651,347 $ 585,278 $ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable 47,341 $ 60,827 $ 75,507 $ Accrued salaries and benefits 13,476 16,592 10,956 Other accrued liabilities 9,532 10,704 9,498 Deferred income on shipments to distributors 4,419 4,956 7,158 Total Current Liabilities 74,768 93,079 103,119 Other long-term obligations 9,706 10,094 4,159 Stockholders' equity: Capital stock 1,048,497 1,041,834 1,013,442 Accumulated deficit (472,180) (492,741) (534,682) Accumulated other comprehensive loss (892) (919) (760) Total Stockholders' Equity 575,425 548,174 478,000 Total Liabilities and Stockholders' Equity 659,899 $ 651,347 $ 585,278 $ Prepared in accordance with Generally Accepted Accounting Principles