Cirrus Logic(CRUS) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The company's financial statements for the period ended December 26, 2020, reflect significant growth in total assets to $1.83 billion, with third-quarter net sales increasing 30% year-over-year to $485.8 million and net income reaching $114.4 million, alongside $176.4 million in operating cash flow for the nine-month period Consolidated Condensed Balance Sheets As of December 26, 2020, total assets increased to $1.83 billion from $1.59 billion, driven by growth in cash, receivables, and marketable securities, while total liabilities rose to $425.3 million and stockholders' equity grew to $1.40 billion Consolidated Condensed Balance Sheet Highlights (in thousands) | Account | December 26, 2020 (unaudited) | March 28, 2020 | | :--- | :--- | :--- | | Total current assets | $803,544 | $650,196 | | Accounts receivable, net | $244,803 | $153,998 | | Total assets | $1,825,629 | $1,592,677 | | Total current liabilities | $184,855 | $158,637 | | Total liabilities | $425,272 | $362,898 | | Total stockholders' equity | $1,400,357 | $1,229,779 | Consolidated Condensed Statements of Income For the third quarter ended December 26, 2020, net sales increased 29.7% year-over-year to $485.8 million, with net income reaching $114.4 million, while nine-month net sales rose 7.4% to $1.08 billion and net income increased to $192.1 million Statement of Income Highlights (in thousands, except per share data) | Metric | Q3 FY2021 (ended Dec 26, 2020) | Q3 FY2020 (ended Dec 28, 2019) | 9 Months FY2021 (ended Dec 26, 2020) | 9 Months FY2020 (ended Dec 28, 2019) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $485,795 | $374,668 | $1,075,693 | $1,001,833 | | Gross profit | $251,500 | $197,505 | $559,182 | $527,932 | | Income from operations | $129,650 | $72,679 | $212,478 | $163,499 | | Net income | $114,368 | $68,512 | $192,063 | $149,340 | | Diluted EPS | $1.91 | $1.13 | $3.20 | $2.47 | Consolidated Condensed Statements of Cash Flows For the nine months ended December 26, 2020, net cash generated by operating activities decreased to $176.4 million from $246.5 million, primarily due to working capital changes, with $69.1 million used in investing and $72.1 million in financing activities, including $65.0 million in stock repurchases Cash Flow Summary (Nine Months Ended, in thousands) | Activity | December 26, 2020 | December 28, 2019 | | :--- | :--- | :--- | | Net cash generated by operating activities | $176,442 | $246,547 | | Net cash used in investing activities | ($69,134) | ($50,319) | | Net cash used in financing activities | ($72,133) | ($70,099) | | Net increase in cash and cash equivalents | $35,175 | $126,129 | Notes to Consolidated Condensed Financial Statements Key notes to the financial statements detail revenue disaggregation, restructuring activities, income tax provisions, and shareholder equity changes, highlighting that 98% of revenue is from non-U.S. customers, an 11.6% effective tax rate, and $65 million in stock repurchases, with an additional $350 million repurchase authorization in January 2021 - Revenue from non-U.S. customers, primarily in Asia, accounted for approximately 98% of total net sales for the nine months ended December 26, 2020[47][48] - The company's single reportable segment generates revenue from two product lines: Portable Products and Non-Portable and Other Products. Portable Products revenue was $973.9 million for the first nine months of FY2021[68][69] - During the nine months ended December 26, 2020, the company repurchased 0.9 million shares for $65 million. As of that date, approximately $55 million remained available under the 2019 repurchase program[67] - In January 2021, the Board of Directors authorized an additional $350 million for the company's common stock repurchase program[70] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 30% year-over-year Q3 revenue growth to increased smartphone component volumes, noting a slight gross margin decrease to 51.8% due to product mix, while maintaining strong liquidity with a $300 million credit facility, and highlighting 87% revenue concentration from Apple Inc - Net sales for Q3 FY2021 increased by 30% YoY to $485.8 million, primarily driven by significant growth in unit volumes for components shipping in smartphones[88] - One end customer, Apple Inc., accounted for approximately 87% of total net sales for the third quarter of fiscal year 2021, up from 83% in the prior-year quarter[91] - Gross margin for Q3 FY2021 was 51.8%, down from 52.7% in Q3 FY2020, mainly due to a shift in product mix and typical pricing reductions[93] - The company believes its existing cash, future cash earnings, and available borrowings under its $300 million credit facility will be sufficient to meet capital requirements for at least the next 12 months[106] Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from interest rates on debt securities and currency fluctuations on non-functional currency assets and liabilities, which it mitigates using foreign currency forward contracts - The company is exposed to market risks from interest rates, currency movements on non-functional currency assets and liabilities, and market factors affecting its marketable securities[110] - The company uses foreign currency forward contracts to manage exposure to exchange risk on certain non-functional currency balance sheet exposures, with gains and losses recognized currently in earnings[110] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 26, 2020, with no material changes to internal control over financial reporting during the quarter - The company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 26, 2020[112] - No changes in internal control over financial reporting occurred during the quarter ended December 26, 2020, that materially affected, or are reasonably likely to materially affect, the company's internal controls[112] PART II - OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings in the normal course of business, but management does not anticipate any material adverse effects on its financial condition or operations from pending matters - Management does not believe that there are any pending legal matters that could potentially have a material adverse effect on the company's business, financial condition, results of operations, or cash flows[65] Risk Factors The company highlights key risks including the ongoing impact of the COVID-19 pandemic, heavy dependence on a limited number of customers like Apple Inc., reliance on third-party manufacturing facing capacity constraints, challenges in attracting and retaining personnel, risks from the recent CEO transition, and system security risks such as the SolarWinds cyberattack - The COVID-19 pandemic poses risks to business operations, customer demand, and supply chain continuity, potentially heightening other existing risks[115][116] - A single customer, Apple Inc., represented 87% of net sales in Q3 FY2021, creating significant risk related to customer concentration, pricing pressure, and potential loss of business[119] - The company relies on third-party manufacturers and is subject to industry-wide capacity constraints, which are currently limiting its ability to fully satisfy demand for some products[124][127] - The company faces risks related to attracting and retaining qualified personnel, particularly technical staff, due to intense competition and potential changes in immigration laws in the U.S. and U.K[129][130] - A successful leadership transition for the new CEO, appointed effective January 1, 2021, is critical to avoid disruption to business and relationships with customers and employees[131][132] - The company faces significant cybersecurity risks, highlighted by the recent SolarWinds cyberattack, which could compromise proprietary data, disrupt operations, and damage its reputation[133][134] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 FY2021, the company repurchased 459,000 shares of common stock for $35 million under its share repurchase program, with $55 million remaining available under the January 2019 authorization as of December 26, 2020 Share Repurchase Activity (Q3 FY2021) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 25 - Nov 21, 2020 | 386,000 | $76.12 | | Nov 22 - Dec 26, 2020 | 73,000 | $76.78 | | Total Q3 | 459,000 | $76.22 | - As of December 26, 2020, approximately $55 million remained available for repurchase under the $200 million program authorized in January 2019[139]