Earnings Call Transcript - CRUS Q3 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Third Quarter Fiscal Year 2023 Financial Results Q&A session. At this time, all participants are in a listen-only mode. After a brief statement, we will open up the call for questions from analysts; instructions for queuing up will be provided at that time. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference call over to Ms. Chelsea Heffernan, Vice President of Investor Relations. Ms. Heffernan, you may begin.

Chelsea Heffernan, Vice President of Investor Relations

Thank you, and good afternoon. Joining me on today’s call is John Forsyth, Cirrus Logic’s Chief Executive Officer; and Venk Nathamuni, Chief Financial Officer. Today, at approximately 4:00 P.M. Eastern Time, we announced our financial results for the third quarter fiscal year 2023. The shareholder letter discussing our financial results, the earnings press release and the webcast of this Q&A session are all available at the company’s Investor Relations website. This call will feature questions from analysts covering our company. Additionally, the results and guidance we will discuss on this call will include non-GAAP financial measures that exclude certain items. Reconciliation of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release and are all available on the company’s Investor Relations website. 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 as well as other corporate filings registered with the Securities 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 John.

John Forsyth, CEO

Thank you, Chelsea, and thank you, everyone, for joining today’s call. As you’ve seen in the press release, Cirrus Logic delivered record revenue this quarter with sales of $590.6 million driven by products shipping in smartphones. I’d like to express my sincere thanks to the entire Cirrus Logic team, whose innovations, hard work, execution, and commitment to our customers made these results possible. On behalf of all of us at Cirrus, I’d also like to communicate our gratitude to our customers and to all those who work with us throughout the supply chain for their continued partnership and support. In a moment, Venk is going to discuss the results in greater detail. But before we get on to that, I’d like to provide a progress update on the strategy driving our current momentum. As most of you know, the first pillar of that strategy is to maintain our leadership in smartphone audio. During the past quarter, we saw significant customer interest and traction across our portfolio of amplifiers and codecs in this market. We remain on track with the development of our next-generation 22-nanometer smart codec, which we taped out during the quarter, and with the development of our next-generation custom boosted amplifier. We expect to see both components introduced within the next couple of years. These new products will deliver significant performance improvements over previous generations, enabling our customers to build even more compelling and power-efficient devices for their users. One aspect of our flagship amplifier and codec business that’s not always fully visible to those outside the company is that these products are designed in a very thoughtful and feature-rich way in close collaboration with our customers to ensure that they can run for numerous phone cycles following their initial introduction. In fact, over time, we’ve seen the lifespan of codecs and amplifiers increase. This means that in contrast to many components in the consumer smartphone market, we can anticipate multiple years of sales at high volumes from our next-generation audio products, providing the company with sustained revenue contribution, excellent long-term visibility, and the opportunity to redeploy our highly skilled engineering teams onto innovations that target other products and markets. This is why maintaining our long-term leadership in these product areas is foundational to our future growth. The second key element of our growth strategy is to expand the reach of our audio components and technologies, especially into adjacent markets that we believe we can serve profitably by leveraging the intellectual property and innovations that we have developed for our smartphone products. One such market is laptops. Despite the current cyclical weakness in the PC space, we view laptops as a significant growth opportunity, where we continue to expect our addressable market to grow substantially over the coming years. As evidence of this, in the last year alone, Cirrus Logic has been designed into more than 60 laptop models using existing audio products. Building on that momentum, during the last quarter, we saw considerable design activity around our new amplifier and codec products that have been specifically optimized for the laptop market. We expect the first platform utilizing these new products to begin shipping in the second half of fiscal year 2024. The third pillar of our strategy is to leverage our world-class mixed-signal engineering expertise to build a growing footprint of products and intellectual property in what we call our high-performance mixed-signal product lines. This aspect of our strategy significantly expands our addressable market beyond audio. We believe our considerable experience in mixed-signal product development, advanced process nodes, and in delivering high-performance data converters, high-precision sensing, and advanced signal processing is highly relevant to a number of product domains. The fact that we have already seen meaningful contributions from products in this category highlights that our customers increasingly see us as a world-class mixed-signal solution provider. Today, we have more activity within our high-performance mixed-signal R&D teams than ever before. During the quarter, within those HPMS activities, we saw continued strong customer engagement in the camera space. It’s worth noting that due to increased attach rates, higher ASPs, and a more favorable mix over time, we have grown the total value of our camera products in each of the last three smartphone generations. We expect this trend to continue with our next-generation camera controller, which will be shipping later this year. We also made excellent progress toward the introduction of a new HPMS component during the second half of this year, and we continue to see strong interest in our capabilities surrounding battery and power. Looking ahead, we believe there are further opportunities to grow our addressable market in the battery and power space, both within smartphones and beyond. During the quarter, we also taped out our first general market power product targeting laptops, designed to deliver more efficient power conversion to enable OEMs to create more powerful single fan and fanless laptop devices. In summary, in the third quarter of fiscal 2023, we continue to execute on our strategic initiatives to diversify our product portfolio and broaden our addressable market into new application areas and end markets. With a solid pipeline of products expected to be introduced over the coming years and a deep commitment to investing in innovative technology, we believe Cirrus Logic is well-positioned to drive growth and capture new opportunities in the coming years. Now let me turn the call over to Venk to provide an overview of our financial results for fiscal Q3 2023 as well as guidance for fiscal Q4.

Venk Nathamuni, CFO

Thank you, John, and good afternoon, everyone. I’ll provide an overview of our financials. Starting with fiscal third quarter revenue of $590.6 million, which was an all-time record and represents the sixth consecutive quarter of record revenue for the corresponding fiscal period. Revenue was up 9% quarter-over-quarter and up 8% from a year ago. Our strong performance during the quarter resulted in revenue above the high end of our guidance range and was driven by demand for smartphones. On a year-over-year basis, the revenue performance was driven by higher ASPs, which predominantly helped offset increased costs, and to a lesser extent, additional high-performance mixed-signal content in smartphones. I’d like to highlight the continued outstanding execution from the supply chain organization and the entire Cirrus team in helping deliver these strong results, especially in light of heightened disruptions in the global supply chain during the December quarter. Turning to gross margin, non-GAAP gross profit in the quarter was $297 million, and non-GAAP gross margin was 50.3%. This was roughly in line with the midpoint of the guidance range we have provided. On a year-over-year basis, gross margin decreased due to an increase in supply chain costs and, to a lesser extent, a less favorable product mix. Non-GAAP operating expenses in the quarter were $123.2 million, roughly flat sequentially. I’d note that operating expenses came in below the midpoint of our guidance range despite higher revenue, as higher product development costs and employee-related expenses were offset by lower variable compensation. We intend to continue to invest strategically in new product development as we see ongoing opportunities to increase our content while controlling discretionary spending. Non-GAAP operating income was $173.9 million in the third quarter or 29.4% of revenue. Finally, on the P&L, non-GAAP net income in the third quarter was $135.8 million or $2.40 per share. Let me now turn to the balance sheet. Our balance sheet continues to remain strong, and we ended the third quarter of fiscal year 2023 with approximately $508 million in cash and cash equivalents. Our ending cash balance was up nearly $80 million from the prior quarter, primarily due to strong cash flow from operations, partially offset by stock repurchases during the quarter. Specifically, we generated cash flow from operations of roughly $181 million during the December quarter, which is about 31% of revenue, thanks to the excellent execution and collections performance by the team. We continue to have no debt outstanding, and also, I’d note, we have $300 million undrawn on our revolver. Inventory was $152.4 million, down from $164.6 million sequentially, and days of inventory was 47 days in Q3, down 8 days sequentially as we shipped product to support our customers’ new product ramps. Looking ahead to Q4 fiscal 2023, we expect inventory to increase from the prior quarter as we fulfill ongoing demand and manage inventory ahead of product ramps later in the calendar year. Now turning to cash flow. As I mentioned earlier, cash flow from operations was $181 million in the December quarter, and CapEx was roughly $8 million, resulting in free cash flow for the quarter of $173.3 million. Free cash flow margin for the December quarter was 29%, and for the 12-month period ending in the December quarter, free cash flow margin was 26%. On the share buyback front, in Q3, we utilized $50 million to repurchase approximately 713,000 shares of our common stock at an average price of $70.14. As of the end of Q3 fiscal year 2023, we had $536.1 million remaining in our share repurchase authorization. We expect to continue to return capital in the form of stock repurchases, which we believe will provide a long-term benefit to shareholders going forward. And now on to the guidance. For the fiscal fourth quarter of 2023, we expect revenue in the range of $340 million to $400 million. We expect gross margin to range from 49% to 51%. Non-GAAP operating expenses are expected to be flat sequentially in the range of $120 million to $126 million, as higher product development costs are offset by lower SG&A expense. We will continue to control discretionary spending but will invest strategically in product development to drive long-term growth. On the tax front, as we have previously discussed, due largely to a tax tool effective from the start of our fiscal year 2023 that requires companies to capitalize and amortize R&D expenses rather than deduct them in the current year. We continue to expect our fiscal 2023 non-GAAP effective tax rate to be approximately 23% to 25%. We maintain our expectation that under this rule, our effective tax rate will decrease and may return to a normalized range in about five years as additional years of R&D expenses are amortized for tax purposes, absent any changes to the legislation. I’d note that without the impact of this rule, our non-GAAP effective tax rate would be in our more typical mid-teens range. In closing, we had a strong Q3 fiscal year 2023 as we executed well to deliver these results. Going forward, we will continue to focus on the best opportunities to enable the company to grow both revenue and profitability over the long term. Before we begin the Q&A session, I’d like to note that while we understand there is intense interest related to our largest customer, in accordance with Cirrus Logic company policy, we will not discuss specifics about our business relationship. With that, let me now turn the call to Chelsea to start the Q&A session.

Chelsea Heffernan, Vice President of Investor Relations

Thanks, Venk. We will now start the Q&A portion of the earnings call. Please limit yourself to a single question and one follow-up. Operator, we are now ready to take questions.

Operator, Operator

Thank you. Your first question today comes from Matt Ramsay with Cowen and Company. Your line is now open.

Matt Ramsay, Analyst

Thank you very much. Good afternoon, guys. I guess for my first question, Venk maybe this is for you. I wanted to talk a little bit about seasonality. Obviously, the results in the December quarter were really strong, and I think the guidance is sort of in line on a revenue basis for March, but that’s down, I don’t know, 25%, give or take, on a sequential basis, which is maybe a bit more than typical seasonality. Or maybe you could just clarify what typical seasonality might be at this point in the cycle. But how do we kind of think about seasonality into June? There have been years where June was down sharply. There have been years where June was up sharply. I’m just trying to figure out how to characterize that because we’re in a bit of an interesting period from an inventory perspective all the way around in the smartphone space. Thank you.

Venk Nathamuni, CFO

Yes. Thanks for the question, Matt. Let me start and then if John wants to add to it. So as you pointed out, typical seasonality is no longer the case, especially given what’s happened in the last couple of years with the pandemic. But having said that, as you pointed out, we had a pretty strong Q3 fiscal 2023, driven by the smartphone volumes. But I would say that looking ahead, we have taken into account the demand signals that we have as we provide guidance for the March quarter. One thing to note is that in the prior year March quarter, we did have the benefit of the product launch, which we do not expect in this upcoming quarter. We took that into consideration along with all the other general market signals and have factored that into our guidance. Now as it relates to the June quarter, we’re only giving guidance one quarter at a time, and we’ll deal with that at the next quarter’s earnings call.

Matt Ramsay, Analyst

Thanks for that, Venk. Fair enough. John, I was encouraged in your script that you talked about the tape out of the 22-nanometer codec and the significant progress on the next generation of boosted amplifiers, which I think lines up pretty well for some consistent content expansion and new content for the company overall. And then on the flip side, you talked about the length of time in which your design wins stay relevant with your customer and then talk about multiple years of revenue when you win something. I’m just trying to put those two things together in terms of how the current generation of those products has been shipping for a while, and you’re going to have new generations coming. So how are you thinking about the potential for ASP resets or content expansion in dollar terms as those products launch generally, understanding you can’t be super specific given the customer.

John Forsyth, CEO

Yes. Thanks, Matt. I’m not going to get into detail on the ASP front, but these are really big developments. If you look at that codec development, for example, not only is it a really heavy lift to get all that IP onto the 22-nanometer, we undertook a serious investment in the test chip in that process, which will be the best part of five years before that product comes to market. It’s a very significant investment. That chip is going to be phenomenal in terms of power consumption efficiency and what it does for our customers in terms of enabling system design, flexibility, and performance. It’s a big leap forward and can be the platform for a long time. So in line with that, yes, we’d expect some ASP uptick as we get to the launch of that. Similarly, with the boosted amplifiers, our goal when we approach a product like that is not only to improve the product intrinsically but also to save some cost and board space for our customers by integrating components around it on the board. With our new boosted amplifier, we’re doing exactly that. We’re reducing the component count that sits around the amplifier, which gives our customers a real benefit. When you can deliver a benefit like that that results in cost savings for the customer, it should also result in an ASP increase for us as well.

Operator, Operator

Your next question comes from the line of Tore Svanberg with Stifel. Your line is now open.

Tore Svanberg, Analyst

Yes, thank you and congratulations on the record results. Maybe to follow on that same topic: the 22-nanometer smart codec again and the boosted amp. You did say you expect it within the next couple of years. I mean, could you maybe be a little bit more granular? I mean, is this something that we should expect within the next two years, next three years? Or is this sort of like within the next five years?

John Forsyth, CEO

Yes. And thank you for the nice comment, Tore. By a couple, we mean two, so we’re old school on the definition of a couple. We talked about the 22-nanometer codec being in design in the fall of last year. When we talk about the actual product being in design, that’s typically a couple, meaning two years out from the actual introduction in the market.

Tore Svanberg, Analyst

Excellent. And then on the topic of the laptop market, you talked about 60 new models that you got designed into last year, I believe that was probably from your – I wouldn’t call them legacy products, but you did talk about some new laptop specific products, right? So those design wins are still on the come. And if that’s the case, would those also tend to carry higher ASPs?

John Forsyth, CEO

Yes, that’s a great question. You’re exactly right. To clarify that, those 60-plus design wins that I referred to are based on products which we had developed prior to targeting the laptop market as an expansion of our audio addressable market. We’ve been doing well with the existing product portfolio. However, you can improve on that and optimize the battery architectures we see in a variety of laptops. I’ve talked about the sound wire interface being a feature that’s coming over the horizon there. We have these new generation products addressing those needs, and our older products will continue to run in parallel. They still perform well and are highly relevant. Yes, we anticipate some ASP increase as we see the introduction of those new boosted amplifiers in particular.

Operator, Operator

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

Blayne Curtis, Analyst

Hey, good afternoon. Thanks for taking my questions. I had two. Just going back to Matt’s question, I think just analyzing December, if you could just talk about the upside. I think the shutdowns were kind of happening, right, as you guided, so you probably added some conservatism. So that with the beat, what we’re seeing, I mean, obviously, you have content gains and you may not track that customer, but they’re down year-over-year. I think they missed a bit on the quarter and guide. So I guess that’s the question we’re going to get a lot is how do you beat when your customer is down, but it might be the wrong measure because you add some conservatism. So just can you explain to me a little bit more? That would be helpful.

John Forsyth, CEO

Yes, sure, Blayne. We guide with all the information we have at the time, so it’s our best estimate of where we’re going to land. When you think about December, especially given our largest customer, you’ll forgive me if I haven’t fully passed all of Tim and Lucas' comments yet, but the big picture is, number one, it’s not always easy to true up our shipments with customer shipments. From our perspective, demand signals from our customers throughout the quarter were strong and sustained, which included requests for expedites and drop shipping—a lot of material. The kind of things customers ask for if they really need it. So, that’s what we saw from the demand side. I think other things worth keeping in mind in analyzing our results: first, we were on the second cycle following significant content expansion with the power conversion control chip that came in the previous generation, so we get a tailwind effect from that. Secondly, because our content tilts higher towards the higher-end devices, any mix bias towards the premium models would benefit us, and the demand signals we saw and what we were shipping were consistent with that.

Blayne Curtis, Analyst

Thanks. And then, John, my second question, I just wanted to ask, in your shareholder letter, you talked about shipping the Gen 2 camera controller. You did a good job explaining the new codecs and amps, so I was wondering if you could do the same there as we’re trying to handicap maybe the content boost from that. Could you explain the different geometry—like different functionality? Any color there to help us grasp on what the content uplift would be?

John Forsyth, CEO

Yes. It’s a significant feature enhancement. I think the biggest challenge for you and for us regarding the camera controller content is when you take into account the differing attach rates across skews within a generation, differing attach rates across generations, and the different products from us with different ASPs. That gets very, very difficult to analyze. So we’ve tended to talk in terms of blended ASP, just the total value of the camera content, beginning back three generations ago where we indicated it was in line with an amplifier. Then we saw a step up that was about $0.20-ish from there. We then saw something similar beyond that. As we go into the next cycle, we’ll see another incremental step up. The benefits we get from higher value content like this indeed elongate over the years because they will cascade down through the models and then run through subsequent generations as well.

Venk Nathamuni, CFO

If I could just add to what John said, as we talked about the amplifiers and other products where we have good visibility, we’re in a similar position with the camera controllers, having gone through multiple generations. There’s a lot of partnership with the customer to develop those products, and there is excitement and visibility around this moving forward.

Operator, Operator

Your next question comes from the line of Christopher Rolland with Susquehanna. Your line is now open.

Christopher Rolland, Analyst

Hey guys. Thanks for the question and congrats on December. As I look at December, your revenue at your largest customer was fantastic. If you exclude that and look at revenues from others, it was perhaps a little lower than I had expected and maybe the lowest we’ve seen in a while. Could you address that? Is it just because you were catering to the needs and demands from your largest customer that you couldn’t necessarily fulfill the other customers? Or does that really reflect true demand in the December quarter from other customers? Thanks.

John Forsyth, CEO

Yes. Thanks, Chris. I’ll give a comment and invite Venk to add any additional color if you’d like. I think previous comments I’ve made about our approach in a supply-constrained environment probably set the stage for what you’ve observed, which is that when we are supply constrained, we absolutely don’t want to leave a customer in the lurch. So it tends to be granularity of a socket. We bid for a socket or we don’t, and if we’re not confident we can supply it, we’re not going to bid for it. Winding back multiple quarters before fiscal Q3 when we were bidding for these sockets, we were deep in the supply-constrained environment, and that really limited what we targeted, especially within the Android space. Yes, that resulted in our revenue. I think it’s a great revenue story overall, but it tilted a little towards our largest customer for obvious reasons, and we benefit in terms of the total content value quite significantly with each of those devices sold.

Venk Nathamuni, CFO

Just to add to what John said, if you think about the business we sell outside our largest customer, it’s a combination of what we sell into some of the other smartphone vendors in Android, but also there’s a general market product portfolio that we sell into typical analog type functionality. As you can imagine, we alluded to this on the previous call; the general market did see some softness, and that’s part of why we saw the mix between the top customer and the rest of the business. We expect that to continue, and that’s part of our guidance for the March quarter.

Christopher Rolland, Analyst

Okay. That’s very helpful. I guess, just a quick follow-up on that one. Should we expect a catch-up from other customers in March? Secondly, regarding supply that you mentioned, can you talk about how comfortable you are now, particularly as we see some supply slack from others around foundry? Are you much more comfortable there? Will you enter into larger WSAs given this dynamic or just kind of play it by ear? Just anything around your supply situation and strategy would be great.

John Forsyth, CEO

Sure. On the former, I would stop short of talking about any catch-up with other customers. We’re excited about the sockets we’re in, for sure. Given the macro uncertainty, it’s hard to say how that’s likely to play out. On the supply side, we have for sure seen some easing up in certain areas, which has been beneficial and certainly helped us plan to meet some of the commitments and content growth we see ahead. But in some key areas of our business, especially around our high voltage products, we are still supply constrained in terms of absolute wafers and capacity for certain technologies that new forthcoming HPMS products from us depend upon. To that extent, we still see as we look forward through the coming quarters that we have a lot of work to do on the supply side to meet potential demands.

Operator, Operator

Your next question comes from the line of Raji Gill with Needham & Company. Your line is now open.

Raji Gill, Analyst

Yes. Thank you and congrats on really good results. Just a question outside of the smartphone market, particularly around the laptop traction that you’re seeing. I think in the past you talked about the content for laptops estimated to start around $1.50 between the audio amps and the haptic drivers and the codecs. I’m wondering how you’re seeing both the unit penetration and kind of ASP mix within that market. You also talked about the opportunity to utilize your fast charging IP on both sides of the battery. I think this is an important part of the story, the diversification story outside of mobile. So just any thoughts on that market as you progress there?

John Forsyth, CEO

Yes. Thanks, Raji. And thanks for the nice comment. I think the way to think about the overall opportunity in the PC market or laptop market for us, which is where we’re really focused within PCs, is the SAM growth over the coming years, which we anticipate getting to over $1 billion by 2026. That’s going to be fueled by both an expansion of the audio SAM and the HPMS SAM. The HPMS SAM includes both haptics and power devices you referred to. We see good opportunity there. We mentioned in the letter that we taped out our first laptop-focused power part during the quarter. It’s very early days for that; we expect to see the impact in calendar 2024. We’re very excited about that. On the audio side, that makes up the bulk of the SAM growth, so about two-thirds of that $1 billion plus SAM is audio and about one-third HPMS. The audio side represents a more immediate opportunity, given where we are with products, where we’ve got existing products and new generation products, and the fact there is immediate demand for significant improvement in laptop audio. When you hear laptops incorporating our technologies, they blow the competition away. I know that anybody who has used a laptop for audio in the past five years will say that’s a low bar to clear, but it’s a game changer what we can deliver in audio in that category. We see that as being the bulk of the opportunity in the immediate term.

Raji Gill, Analyst

Yes, I appreciate that. And for my follow-up: in terms of seasonality, I know that’s difficult to articulate given the volatility in the industry the last couple of years. However, when you’re looking at your March guidance of down roughly 30%, 37% sequentially at the midpoint, how do we think about that seasonality relative to historical patterns? Typically, March is down roughly around 30% and then June is also a little bit soft, and then you have a big ramp in September and December. Given that more supply is coming, we have a product cycle, how would you characterize the shape of the seasonality this year as it stands today?

John Forsyth, CEO

Yes, thanks for the question, Raji. And thanks for your nice comments earlier. With the performance we had in the December quarter, we came in at the high end of the guidance range just driven by smartphone content gains and overall unit volumes. For the March quarter, as I mentioned in response to a previous question, we do see it’s not typical seasonality, especially in the last couple of years. We took into account that unit volumes will be down sequentially. Another thing that played into our guidance for the March quarter is in the prior year, we didn’t have the benefit of the product launch from last year. That accounts for a bit of the guidance decline from the previous year. The second aspect is also the general market product line, which is highly correlated with the macro, and we wanted to consider that as we provided guidance. It’s a combination of those things. We’re looking beyond the March quarter, but it’s too early to tell how the macro will behave. We’ll provide that guidance at the next quarter’s earnings call.

Chelsea Heffernan, Vice President of Investor Relations

Operator, this will be our last question.

Operator, Operator

Your final question today comes from the line of Ananda Baruah from Loop Capital. Your line is now open.

Ananda Baruah, Analyst

Hey guys. Appreciate you taking the question. Thanks so much. Just two quick ones if I could. Could you talk to what you see as the inventory environment to the extent you have visibility across the business? And then I have a quick follow-up. Thanks.

Venk Nathamuni, CFO

Yes, so I think John mentioned this earlier, Ananda, which is the signals we received from our customers as we shipped into the December quarter suggest significant demand for the products. The overall performance for December quarter shows that we benefited from the smartphone unit volumes. Looking ahead into March quarter, we accounted for a sequential decline in units, coupled with the macro impact related mainly to the non-smartphone business I mentioned earlier. It’s a combination of these factors. Everything we’ve seen suggests that we are shipping to demand. Having said that, we don’t have perfect visibility into the customer’s inventory, but signals from our customers suggest we are aligned with demand signals.

Ananda Baruah, Analyst

Okay, thanks for clearing that up. That’s really good context. Thanks, Venk. And then, Venk, this one’s actually for you as well. For a follow-up, what factors will influence gross margin as we move forward here, the pushes and pulls? And that’s it for me. Thanks.

Venk Nathamuni, CFO

Yes, so regarding gross margin, as we reported this quarter, we came in pretty close to the midpoint of our guidance range, probably 30 basis points higher. The way to think about our long-term gross margin is optimizing between revenue growth and profitability. Over the long haul, we certainly want to stick with the 49% to 51%. Over time, as the product mix changes between how much we ship into smartphones versus the general market, we’ll experience some inter-quarter variations in gross margin. However, we want to target the 49% to 51% range long-term to ensure continued robust revenue growth while maintaining profitability at current levels. We hope to expand operating margin over time as we improve R&D efficiencies and control discretionary spending.

Operator, Operator

I would now like to turn the call back over to Chelsea Heffernan.

Chelsea Heffernan, Vice President of Investor Relations

Thank you, operator. With that, we will end the Q&A session. I’ll turn the call to John for final remarks.

John Forsyth, CEO

Thank you, Chelsea. In summary, in the December quarter, Cirrus Logic delivered record revenue with strong execution across our three areas of strategic focus. Number one, continuing our leadership in smartphone audio. Number two, broadening sales of audio components and key profitable applications beyond smartphones. And thirdly, applying our mixed-signal expertise to expand into new adjacent high-performance mixed-signal markets. We’re more excited than ever about the opportunities we see in front of us, and we’d like to thank you all for your continued interest in Cirrus Logic. Before we close, I’d also like to note that we will be participating in the Susquehanna Conference on March the second in New York. Please check our investor website for details. If you have any questions that were not addressed on this call, you can submit them to us via the Ask the CEO section of our investor website. Thank you for participating today. Goodbye.

Operator, Operator

This concludes today’s call. Thank you for attending. You may now disconnect.