Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic's Third Quarter Fiscal Year 2021 Financial Results Q&A Session. 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 John Forsyth, Cirrus Logic's Chief Executive Officer; and Chelsea Heffernan, our Director of Investor Relations. Today, we announced our financial results for the third quarter fiscal year 2021 at approximately 4:00 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 on the Company's Investor Relations website at investor.cirrus.com. This call will feature questions from the analysts covering our Company, as well as questions submitted to us via email at [email protected]. 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 expressly disclaims any 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 and the shareholder letter issued today, which are available on the Cirrus Logic website, and the latest Form 10-K and 10-Q as well as other corporate filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from the current expectations. Now I'll turn the call over to John.

Thank you, Thurman. Cirrus Logic delivered Q3 FY '21 revenue of $485.8 million, above the high end of guidance as we experienced strong demand for certain products shipping in recently introduced smartphones. During the quarter, we were especially pleased with customer evaluations and design-in activity across our product lines. We expect a variety of new end products utilizing our boosted amplifiers, truly wireless headset smart codecs, and haptic solutions to be introduced in the first half of this calendar year. In reflecting on what is really an incredible set of results for the quarter, I'd like to acknowledge and express our thanks to Jason Rhode and Al Schuele, who were, of course, CEO and Chair of the Board of Directors respectively for the period, and whose leadership played such an instrumental role in building the Company that we are today. In the December quarter, the Company also completed our annual strategic review and we are truly excited about the three growth vectors that we believe will contribute to our long-term success. First, we anticipate strengthening our position as the leading audio supplier in smartphones. Second, we are focused on increasing sales of audio components in certain applications beyond smartphones. And third, we are drawing on our extensive mixed-signal engineering expertise to develop technology in new product areas that we believe will drive diversification beyond the audio domain. In the last quarter, we took an important step along that path with the introduction of a closed-loop controller product. And in the last two earnings calls, we've also signaled that we are currently investing heavily in a product in another new area relating to power that we are aiming to introduce later this calendar year. While we won't go into details on those products, I will report that our engineering progress continues to be really positive and that we continue to be very excited about the journey we're on with our customer. With a rich portfolio of products available today and a pipeline of innovative new components in development, we are optimistic about our ability to execute on this strategic plan. And we believe that this will drive both revenue growth opportunities and product diversification in the coming years. Before we begin the Q&A, I'd 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're now ready to take questions.

And your first question comes from Tore Svanberg from Stifel. Your line is open.

Yes, thank you, and congratulations on the results. First question, John, could you calibrate a little bit your visibility right now? Obviously, your largest customer didn't offer any appropriate guidance. But would you say you have sort of the same visibility right now as you had in previous years, or is it better or worse?

I think it's always difficult to read across from what we see happening with our own orders to what's happening with our customer products, just given the fact that we ship to contract manufacturers and in some cases, module vendors. What we do see generally is really strong demand. So, in the macro sense, what we hear in the very positive and bullish outlook from our largest customers we see reflected in our own order book. It's obviously a time of a lot of capacity constraint in the supply chain, and we certainly see that same pattern of demand exceeding supply. It's definitely a quality problem to have. But yeah, I think the outlook is for continued strength of the market.

Second question, and you mentioned this a little bit in your prepared remarks, it does sound like the Company is probably going to be a bit more aggressive targeting non-smartphone applications. I mean, I know historically the Company has always kind of viewed those as opportunities but perhaps a bit more opportunistic. Should we think that this is going to be a more concerted effort to really diversify into wearables, laptops and so on?

We certainly think there are really good opportunities there, Tore. That is something that we've been talking about and gradually turning up the volume on over the past couple of years. In the last year, we felt we passed a lot of meaningful milestones on getting into some key wearable products, some big tablet launches across customers, and we want to keep that momentum going across those product categories. And as we've indicated, we believe other important product categories hold opportunity as well, you mentioned laptops there. From my perspective, really when it's something that is a battery-dependent device, really power constrained, where either haptics or audio or some other area of mixed signal expertise is required, then I think it could be a very good fit for us. So, for sure, as we've been able to grow and scale our engineering capability over the past few years, it's not for one second that we're taking our eye off the ball regarding smartphones. You can see that's kind of mission number one, as I said, to continue to lead the field there. But yes, you will see us, I think, continue to make progress in these other categories.

And your next question comes from the line of Ruben Roy from Benchmark Company. Your line is open.

John, if I could follow-up on the supply chain commentary around constraints, etc. The first question is, would you say some of the constraints that either you're facing or maybe some other supply chain participants are facing are putting a cap on sort of your near-term outlook, which could ease later on this year or are you able to supply everything to your customers as their demand dictates as you look to the March quarter?

Well, look, as when it comes to our largest customers and our largest selling products, obviously, a lot of the work we do there has a very long planning horizon, so we feel in very good shape there. When you step back and look at the kind of boom in demand across the broader category of products that we sell into, there is for sure demand that exceeds our ability and the supply chain's ability to service that right now. That could be because during calendar '20 customers had a - some customers had a bleak outlook on the market and then kind of got the wind back in their sails at the back end of the year, or it could simply be just completely new upside. So, our guidance reflects what we're able to capture of that, we continue to work on supply chain constraints to see how much of it we can grab. But all of that is taken into account in our guidance, Ruben.

Thank you, John. And then, sort of higher level question around the growth vectors and the strategic planning, etc. that you've done. Some of these new products that you've been talking about and are excited about, I think the investor base is pretty excited about appear to be custom products slated for your largest customer. What would you say the roadmap looks like in terms of more general product offerings, both for your traditional smartphone end markets but also some of these other markets that you're excited about as you think about the next 12 to 18 months?

Yes. We're certainly very excited by the opportunities ahead of us. When it comes to evaluating them, Ruben, we look at the opportunity size above all else. If that happens to be with one customer versus another, that's a kind of second-order consideration to us. Right now, what we're focused on is executing against our current plan and getting these first-generation devices in new categories for us locked and loaded, and helping our customers ramp successfully with those products. Longer term, there may be additional upside, but honestly the opportunity we see ahead of us with our largest customer is sufficiently significant and meaningful that we're very upbeat about the future based on that.

Your next question comes from the line of Matt Ramsay from Cowen. Your line is open.

Yes, thank you very much. Good afternoon. John, I wanted to - there was a lot in the shareholder letter and in your script as well about - the other guys have asked, new domains, and you mentioned laptops and a few other things. I wonder if you might talk a little bit about, is the Company investing and is it important for you to consider things in the automotive market just as pairing smartphones with audio and that domain is important also that there are tons of opportunities for haptics you would think and the long design-in cycles and whatnot. But I just wonder, if that's a market that your view might be different than it would have been if we did talk about it two, three years ago, given the amount of disruption that's happening in that space? Thank you.

Thanks, Matt. Yes, it's an interesting area. We have some business in the automotive space and we continue to evaluate that. As a major focus, I would say, we steer towards areas where the power constraints are really much more severe. So, something that needs to be really thin, carried around, worn on the person, those kinds of devices where every microamp counts are the ones where I think we can deliver the most leverage from our engineering advantage. There are, as you say, certain areas of the automotive space that are taking off, haptics being one of them, which we continue to look at. It's not a major focus for us right now given all the opportunities in front of us in that more power-constrained device space that I mentioned.

I guess my second question and I guess it's to Thurman or John, obviously, feel free to chime in here. But I guess the question that I've got a few times in the last 45 minutes, hour, or whatever since the numbers came out are, the growth is, I don't know, 30% or so on a year-over-year basis in December. Your largest customer launched their flagship device a little bit later this year than it has in the past, just from a calendar perspective. So, to see the March quarter up, I guess, 10% year-over-year, or certainly declining on a relative basis. I just wonder, anything else going on there? Or is it mostly just the supply constraints that you talked about? And I guess the second part of it is, are you - as you informed the guidance, are you guiding to supply you know you've secured and are going to try to do better than that? Or is there some sort of formula where you're calculating what you're supply might look like? Thanks.

Yes, look, our guidance takes everything into account that we see internally and externally. So that obviously includes incredibly strong product launches from our largest customers, very strong demand across the board and then also areas of our business that would be growing faster if we could secure more capacity than we currently have committed for this quarter. So, we then take a broadly conservative line through that data when we give guidance, while kind of reiterating, I guess, just how optimistic we are on the outlook generally given the strength of demand and what we have in the pipeline. Yeah, that's - it may well be that we can grab more upside, but this is a - the capacity constraints there are for sure real. But what we're basing our guidance on, I think is a very solid outlook of demand we can service.

Your next question comes from the line of Blayne Curtis from Barclays. Your line is open.

I just want to ask you on the Android side. Last quarter, you're enthusiastic about some of the potential from China. And then it sounds like your Korean customer had some earlier launches as well. So, when I look at December quarter, it looks a little bit flat. I'm just kind of curious how December kind of played out as you expected. And then as you look to March, I know you don't like to guide by segment. But any color on what you expect from Android? You mentioned in the shareholder letter some new ramps of haptics and buds? Thanks.

Yes. I think overall for Android, we're very positive about what we think we're going to see this year. What we did talk about, I mean, as you said Blayne, we don't break it out by segment. But we did talk about design-in momentum, which has been really good. And I think you'll see us in both - we're showing overall growth in Android, but also see us in more devices and more sockets this year in Android as a result of that design momentum, which really accelerated over the past quarter.

And then maybe just sort of a question for Thurman or one of you guys. But on gross margin, the guide at 51%. I know you always are kind of conservative here, but I'm just kind of curious if you're seeing anything? It has come down from the beginning of the fiscal year to the end 160 basis points. I'm just kind of curious, any color as to the moving pieces there, whether it's the Android or new products? That would be helpful. Thanks.

Yes. We don't break it out that details on where the margins change. But I mean, we have supply chain efficiencies and product mix, product cycles and launches, all have an effect on margin on any given quarter. We're guiding - again we're guiding to a range that we think is reasonable for our visibility at this time. But we would note that when we look into FY '22, we would expect that margins will trend slightly up as we move across that fiscal year.

Your next question comes from the line of Derek Soderberg from Colliers Securities. Your line is open.

Yes, thanks. So I just wanted to start with John. Saw some positive commentary in the shareholder letter around new end products adding content. With the last few months of the fiscal year, last year, I was wondering if you can provide a bird's-eye view of fiscal 2022 as it relates to content increases and how that shapes up for growth for the year? And then maybe some moving parts in there? And then I have a follow-up.

Well, as you know, we don't guide for beyond the current quarter. But directionally, I think you can read the tone and body language here is that, we've got so much going on in terms of new content introduction and new stuff in development that we feel very upbeat. And obviously, the strength of demand is a factor in that. But if units were flat, we would still be feeling very upbeat given what we have on the content side. So, in particular, I think the main headline, as we talked about, is that we have what we previously referred to as a power conversion and control device that we are planning to ramp in the back end of this calendar year. That's something that we are both extremely excited about. In terms of its introduction and the opportunity that that represents for us in landing new content in a new part of the smartphone system, and then being able to add value and incremental benefit to our customers and users over time based on that. So that's really exciting for us being in a new area of the system, new content with significant value that we've indicated relative to the closed-loop controller, which we've just ramped in the back half of FY - back half of calendar '20. Relatively speaking, the new device will be meaningfully higher than that in terms of value. Beyond that, we have a number of developments ongoing and new product introductions. We're talking the latter about the introduction of devices using new headset smart codec, designed for truly wireless headsets, and delivering ANC, which we are - which is currently shipping. And so far, the response to those, the reception of those products has been really positive. We're excited about the opportunities there. And then, sort of reading out the whole letter, I'd probably just refer you to the whole range of categories there where I think we're making really good progress. As I said, the Android momentum in the smartphone space is great. But looking beyond that wearables, tablets and other categories beyond that represent significant growth opportunity for us where we have great devices.

And then I guess with recent products released in these non-audio adjacencies, the camera controllers and power control IC chip a year after that. Should we view this cadence as sort of normal or is this more of an atypical product cadence in the shorter term? I just want to see how you're thinking about the cadence longer term? Thanks.

Yes, that's a fair question. I don't think there is a crisp answer to it. When you look back at the cadence across all kinds of products that we ship into our largest customers, actually it's pretty variable. There are periods when you go through a new introduction on a given device every couple of years, there are periods when it's longer than that. So I wouldn't - I actually wouldn't hesitate to guess on that right now when it comes to the exact timing. What we are sure about is that there is plenty of headroom for bringing more innovation to those categories, and just integrating more functionality, providing - leveraging the integrated signal processing that we have in those devices and kind of continuing to add smarts and value to our customer. So, if we can execute as we have been doing and continue to make take innovation to our customers, then I'd expect there to be a good frequency of update to those products in time.

Your next question comes from the line of Rajvindra Gill from Needham & Company. Your line is open.

Yes, thank you, and congrats on all the momentum. A question on the non-Apple business - sorry, the new non-top customer. So if you look at the year-over-year growth from December of last year to December of this year, it seems, based on the math, that the non-top customer, the revenue was basically flat year-over-year. So - which is kind of your strength in kind of mid-range audio amplifier and truly wireless and other products. Just wondering how are you thinking about that - that part of the business as we kind of ramp throughout the year and going into subsequent years?

Yes, I think may be drawing too much out of the past quarter on that front, I'd maybe caution against that just given that a lot of the - when you look at our Android business, a lot of the Android market was hit pretty badly by COVID during calendar '20 for a variety reasons, partly regional, partly the lack of having such a strong direct channel and so on. So, that was fairly - there was a kind of overhang on that part of the market. I think what we have seen though and this is what we described in the letter is a lot of momentum on the design side. And so the general demand for our products and including our kind of state-of-the-art leading-edge latest generation boost and amplifiers within that part of our business is really significant. And so we saw a lot of design momentum in the last quarter on that front. Obviously, that's stuff that we will see bearing through this calendar year.

And just for a follow-up. For your top customer, just wondering if you could help me understand kind of the mix of the phone versus the non-phone, without maybe quantifying it, but just qualitatively, the mix of revenue that you're getting outside of the phone and what are your thoughts on that going forward?

Yes, we don't break that out. Obviously, I'm sure you're expecting me to say that. At least on the non-phone side, the story there has been really positive over the past year. We had, like, some very - as I said earlier in the call, we had some really good milestones that we passed in terms of getting content into great new to us product categories that were launched during calendar '20. But all of that, obviously, honestly, is dwarfed by the amount of momentum on the phone side in the past quarter and with the current generation in particular. But still, the story on both sides is very positive for us, lots of progress.

Your next question comes from the line of Vivek Arya from Bank of America. Your line is open.

Thanks for taking my question. I'm curious, what is the right metric or milestone we should track for Cirrus or hold you to on the Android side. So if, let's say, Android market goes up X percent this year in terms of units, how is your visibility in terms of growing with that market? I think you outlined a number of interesting content opportunities. But when do they actually start to show up in the model?

Well, we're obviously shipping today in a whole range of Android smartphones. We tend to be focused on the upper half of the market, so the flagship tier and then the upper half of the mid-tier smartphones. Historically, there have been - we've been very strong in some vendors, less well populated in some of the other flagship phone vendors and we're seeking to maximize that over time. So, certainly one leading indicator I'd point to is design-in and the sockets - power amplifiers are in the flagship smartphones from across the Android OEM community. Then obviously, once we get into those sockets, we look to iterate, grow the value and populate other SKUs and other tiers as appropriate.

And I'm curious what is the right way to think about the second half of the year that you potentially have camera content perhaps expanding in all models and then the power control content, which I think you described as a meaningful step-up opportunity, that coming only at the high end or do you think that also has a chance to show up in multiple models?

Yes. Look, I think what we've said about that in particular is long-term, we regard that as being highly relevant across the tiers and across SKUs. So that - I think that latter device is likely to trend towards an attach rate of one. How that looks on the first run out when we ramp in the back half of this year, that remains to be seen. And then on the closed-loop controller content, yes, I think we previously talked about taking an ASP of being roughly equivalent to an amplifier there as your general guideline based on that's a blended ASP based on a certain attach rates. Again, just given the nature of the devices that that shipped in, we'd expect to see that blended ASP trend up over time, as well.

Your next question comes from the line of Christopher Rolland from SIG. Your line is open.

I guess, first I'll ask kind of a big picture and then drill down a little bit. So, in your letter you talked about the annual strategic review. Perhaps, John, if you could talk about the topics that were kind of reviewed there. But also maybe your couple biggest takeaway that you had from that review and in your kind of short tenure ship as CEO thus far?

I hate to disappoint. I think I'm going to tell you that I've told you everything I'm going to say about the takeaways. But, look, yeah, there - obviously, every company does a strategic review. There are times you do it, and it's comparatively painful. There are times you do it, where you're looking - we ask all the teams to come pitch their ideas and their opportunities, but they've identified for business growth. And this is one of those occasions where you're looking across that list of stuff and scratching your head, wondering how you're going to select between them and staff as many as you can. So, that's what we've gone through over the past few months. I think, out of that, there are three really clear vectors which I've talked about. We feel that there is really significant opportunity to both continue our leadership in the smartphone space, and then build beyond that and build meaningful revenue beyond audio and continue the trajectory that we believe we are on that.

Awesome, thanks. And, so my second question, in the presentation, there was something that was new that was pretty cool, and that was the HP mixed signal beyond audio breakdown that you guys gave. And I guess that's the camera controller and haptics. If there's anything else I missed in there, that would be great as well. But my question is really around this market. Would you say that this solidly holds a growth rate that you guys expect above market trend for the next couple of years here? Where do you think perhaps five years from now this 19% number could be for the Company overall as you look at the various products and opportunity sets you have?

I'm not going to get drawn on that. Obviously, we have a view on it; it continues that trend that we've outlined in that slide. Thanks for highlighting that because I think that tells exactly the story that I was communicating. We believe that there is still growth in our core audio business around smartphones, there is growth taking those products and that IP into other product categories, into other device categories. And then, there is really meaningful opportunity for us to continue to expand the areas where we are applying our advanced mixed signal expertise. So that you can see in the shareholder presentation, where we illustrate that we see the revenue from that other non-audio set of domains growing significantly over time. We expect that to be, for sure - I mean, who knows exactly what's going to happen with the market. But we believe the best way of growing our revenues is growing content. And then growing the content per phone and obviously, any underlying market growth is upside on that.

Your next question comes from the line of Rick Schafer from Oppenheimer. Your line is open.

This is Andy Hummel on for Rick. Thanks for taking my question. Just quickly on the CLC product. It sounded like in the shareholder letter, you were looking back on that technology as a whole in your largest customer. But are you guys capable of - or have you had kind of any early conversations with other OEMs, or anybody else that's interested in that product to kind of roll that out to other providers over the course of time? And I'm just trying to get a sense of the potential demand for that product rolling out even beyond your largest customer?

That's not a focus for us right now. We really are being very focused on executing and ramping with our customers with that. We're not in the business of working for years on a custom product for somebody and then - to other customers. We obviously invest a lot of engineering expertise and IP in that. And we'll look to leverage that towards our biggest opportunities. But I'm pretty confident that we're focused on those.

And then just quickly on the buyback authorization, and I see the guys the $350 million. Is that any indication of you guys planning on kind of accelerating buybacks any time near-term or is it just kind of an extension of your sort of normal run rate buyback that you plan to look at over the course of time? Thanks for taking my question.

Well, our preferred use of cash remains M&A. So, absent a good acquisition opportunity, then we'll continue to look to return cash through share buyback on an opportunistic basis. What that authorization reflects and represents really is just that we have historically high amount of cash on the balance sheet, and we want to be in a position to leverage that if the circumstances dictate.

We have a follow-up question from Tore Svanberg from Stifel. Your line is open.

Yes, thank you. Two quick follow-ups. First of all, Thurman, inventory days are at 55 days. I mean, that's not an all-time low. But it really is at the lower end, if you look through history. How should we feel about your ability to get that number back up for the March quarter? I mean, obviously, revenue is going to be down, but just want to get a sense for your ability to build some inventory here this quarter?

Yes. From our visibility, we're expecting inventory to increase by the end of this quarter. How much? There's a lot in the environment, right? So, how much that will be that we do expect it to grow as we head into the first quarter of fiscal year '22.

Very good. And then the ASP ranges that you guys have for your products, they tend to move around and I assume that's because you keep penetrating new applications and especially, the sort of mid-tier part of the smartphone market. First of all, is that the case? And then second of all, can you just clarify that these ASPs are tied to editing not related to your largest customer, right? So it's tied to 30% of your business?

Yes, that's broadly correct, Tore. When they move from quarter-to-quarter, if we update the presentation to reflect that, that's - yeah, typically, it may be because of the new product introduction or may be new category that we're penetrating or a new tier. And those products in there don't reflect - the ASPs that we talk about in there don't reflect customer products.

And there are no further questions at this time. I turn the call back over to Chelsea Heffernan.

Thank you, Operator. There are no additional questions. So I'll turn the call back to John.

Thank you. Well, in summary, we are delighted with our results for the December quarter as higher-than-anticipated demand for certain components shipping in smartphones drove revenue above guidance. We continue to be amazed by what our team has been able to accomplish during the unusual and challenging circumstances of the past year. And I believe that this dedication and talent combined with our innovative roadmap and the strength of our relationships with the leaders in the markets that we serve will position the Company well to capitalize on the growing opportunities ahead of us. 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.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.