Cirrus Logic, Inc. (CRUS)

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Cirrus Logic Inc. (CRUS)

F2Q10 Earnings Call

October 20, 2009; 10:30 pm ET


Thurman Case - Chief Financial Officer

Jason Rhode - President & Chief Executive Officer


Vernon Essi - Needham & Co

Adam Benjamin - Jeffries

Rick Schafer - Oppenheimer

Christopher Longiaru - Sidoti & Co.

Tore Svanberg - Thomas Weisel Partners



Welcome to the Cirrus Logic second quarter fiscal year 2010 financial results conference call. At this time all participants are in a listen-only mode. Later we will open up the call for questions. 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 over to Mr. Thurman Case, Chief Financial Officer. Please go ahead.

Thurman Case

Thank you and good morning. Joining me on today’s call is Jason Rhode, Cirrus Logic’s President and Chief Executive Officer. Before we begin, I would like to remind you that during the course of this conference call, we will make projections and other forward-looking statements regarding among other things, estimates for next quarter’s revenues, gross margin levels, combined R&D and SG&A expenses amortization of acquired intangibles and share-based compensation expense, as well as other estimates and assumptions regarding future demand for products and expected revenue and market share growth.

These statements are predictions that are subject to risks and uncertainties that may cause actual results to differ materially from projections. By providing this information the company undertakes no obligation to update or revise any projections or forward-looking statements whether as a result of new developments or otherwise.

Please refer to the press release issued today which is available on the Cirrus website, 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 current expectations.

All financial numbers are prepared unless noted in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial information provided in today’s call to the most directly comparable GAAP information is included in today’s press release and on the company’s website in the Investor section.

Non-GAAP financial information is not meant as a substitute for GAAP results, but is included because management believes such information is useful to investors for informational and comparative purposes. In addition management uses certain non-GAAP financial information internally to evaluate and manage operations. As a note, the non-GAAP financial information the company uses 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.

Now I’d like to discuss our results. Net revenue for the September quarter was $55.7 million; audio products contributed $41.3 million in revenue. This product group includes chips used in a variety of devices such as home theatre systems, portable media players, smart phones, media-centric computers, and car audio amplifiers.

As you see in the tables we issued with our press release today, sales of audio products grew 35% year-over-year and are up sequentially 67% from the June quarter as we began ramping production for a number of new design winds associated with our portable products and our multichannel CODECs.

Sales of energy products were $14.4 million; this product group includes chips design for a variety of energy measurement and energy control applications. Revenue for our energy products was down 36% year-over-year, mainly due to a large decrease in sales of our energy exploration products from a year ago. However, sales in energy products were up sequentially 13% due to a broad increase across several product lines. Historical revenue breakdowns by product category are available on our website.

Gross margin for the September quarter was 52%, down from 56% in the quarter a year ago and flat compared to the previous quarter. We think this is a significant accomplishment, as we have seen a large change in our product mix from a year ago as we have replaced record sales of our higher margin energy exploration products with lower margin audio products.

Seasonally, sales of audio products have grown from 66% of total revenue in the June quarter to 74% this quarter and we believe our margins are a clear indication that our efforts to control product costs are working. We believe that gross margins have stabilized at these levels and expect to see improvements moving forward.

Total GAAP operating expenses for the September quarter were $22.5 million compared to $19.8 million in the previous quarter. Non-GAAP operating expenses were approximately $22.4 million for the quarter compared to $20.9 million for the June quarter.

As I stated earlier, reconciliations are available on our press release issued today as well as on our website. The increase in non-GAAP operating expense is primarily associated with higher employee expenses and product development costs. We don’t expect to see continued significant increases in our operating expenses and we are focused on managing our expenditures.

Income from operations on a GAAP basis was approximately $6.4 million and income from operations on a non-GAAP basis was $6.7 million. We recorded GAAP net income for the quarter at $6.8 million or $0.10 per share based on $65.5 million diluted shares. In the same quarter a year ago we reported net income on a GAAP basis of $6.4 million or $0.10 per share based on 65.3 million diluted shares.

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