Cirrus Logic (NASDAQ:CRUS) Q3 2022 Earnings Call

0:01 Ladies and gentlemen, thank you for standing by. Welcome to the Furious Logic third quarter fiscal year 2022 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 over to Mr. Chairman 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 Vice President of Investor Relations.

0:55 Today, we announced our financial results for the third quarter fiscal year 2022 at approximately 4 p.m. 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 a webcast of this Q&A session are all available on the company's investor relations website at investor.ceros.com. This call will feature questions from the analysts covering our company, as well as questions submitted to us via email at investor at Cirrus.com. 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.

1:48 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 made with the Security and Exchange Commission, for additional discussions of risk factors that could cause actual results to differ materially from current expectations. Now I'll turn the call over to John. Thank you, Kevin. Cirrus Logic reported record revenue of $548.3 million in the December quarter, above the top end of our guidance, driven by significant contributions from increased high-performance mixed signal content shipping into smartphones and strong overall demand for our products.

2:43 These results reflect our continued momentum in fiscal year 2022 and mark another milestone in the execution of our strategy to diversify our product and technology portfolio. High-performance mixed signal products contributed 38% of total revenue in the quarter, with the most significant areas of growth coming from increased shipments of camera controller content and our power conversion and control IC. We were also encouraged by progress in other areas of our business. In fast charging, while we've seen some impacts from the comparative softness in parts of the China smartphone market towards the end of the calendar year, we continue to see OEMs heavily promote fast charging as a differentiating feature. And we taped out two new components during the quarter that were expected to go into production in the first half of the fiscal year.

3:30 In our audio product lines, design activity for components shipping in flagship and mid-tier Android smartphones was robust. and we're excited about new devices utilizing our products that will be introduced in the first half of the calendar year. We also continue to see positive momentum with audio in laptops. Most of our laptop revenue in the past year has been driven by codec shipments. However, in the December quarter, we also began initial shipments of our first boosted amplifiers in this device category. Again, marking great progress by the team towards one of our strategic objectives. Looking forward, we're excited by the opportunities to expand our addressable market and drive diversification in the coming years through both our audio business and, in particular, our high-performance mix signal business. With this in mind, today we are funding strategic developments in new technologies in a range of areas, including sensing, power, and battery systems.

4:22 These investments target both opportunities for incremental content in products where we ship today and opportunities in new applications and markets. While our high-performance mixed signal product line represents 33% of our year-to-date sales in fiscal year 22, we anticipate that this can expand to at least half of our revenue in the future, even as we continue to consolidate and build on our audio leadership. We are very encouraged overall by the traction we are gaining with our high-performance mixed signal solutions and remain optimistic that there are meaningful opportunities for further growth and product diversification ahead. Before we begin the Q&A, I would like to note, as always, 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.

5:08 Operator, we're now ready to take questions. Thank you, sir. As a reminder, to ask a question, you will need to press star 1 on your telephone keypad. Again, that is star 1 to ask a question. And if your question has been answered, you may press the pound key to withdraw yourself from the queue. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Tore Svanberg from Steeple. Your line is open. Yes, thank you, and congratulations on the record results. My first question is on the guidance, which is better than seasonal.

5:56 You made some references to better ASPs, but is that the main difference, the better ASPs, or are there other things contributing to the above seasonal guidance? Thanks, sorry. The main drivers of both the guidance and the results we're reporting are units and content increases with price adjustments also being a component. But as regards looking out to the March quarter, the guidance is mostly driven by the strength of demand for our products and our customers' products and us working to... to meet that demand. So in fact, when we look at the March quarter, it doesn't look like a typical seasonal quarter, a seasonal step down from December to March.

6:52 It looks very strong. We're actually pulling material into the current quarter wherever we can in order to try to meet customer demand. And so our expectation as we go beyond that, when we get into the June quarter, we're not guiding the June quarter just now, but we expect this easel pattern between the March quarter and the June quarter to be more typical of what we'd expect between the December and the March quarters. But the principal driver for the strong guidance and the strong results is units and the content gains, which we've talked about previously. Very good. And as a follow-up, you obviously expect iPhone Mix Signal to continue with a very strong momentum. And you mentioned fencing, power and battery management as the three areas you are continuing to invest in. Just to give us some perspective, what kind of ending are we in as far as those three new product offerings or those two technologies becoming a more material part of the business going forward?

7:57 I think the potential is really great. We're still in the early innings. On the power side, we are in the second quarter of shipping V1, our first power product, and then obviously we've got fast-charging products, most of which were really designed before the line acquisition was complete, either shipping or coming out, but we have a lot more in both of those areas that we believe we can do. In addition, if we look at the camera controller content, which is also an important contributor to the high-performance mixed signal, again, that's an area where we saw some year-on-year content increase through additional attach rate in the current cycle, but where we anticipate sustained year-on-year growth both through attach rate and through feature enhancement. And so when we look at our roadmaps for performance, whether it's the sensing, power, battery-related technologies, camera controllers and so on, all the moving pieces in the high-performance mixed signal space, we have a lot of projects that are either underway or we've got slated for the future there.

9:08 Our next question comes from the line of Matt Ramsey from Kalman. Your line is open. Thank you very much. Congrats. Good afternoon, guys. I'm going to ask a couple of questions that are kind of interrelated to kick things off, and they're around ASPs and gross margin. You guys had taken the gross margin range down a couple of quarters ago and are coming in well above that, which is great to see. So I guess for John and for Thurman, how sustainable do you think these margin levels are into the next fiscal year? and I guess related to that, Tori touched a little bit on this ASP comment that was made in a couple places in the shareholder letter.

9:54 One big thematic in semis right now is input costs going up and the ability of companies to pass those input costs on to the customer base and I think there was an investor assumption that given your concentration with your largest customer that might be difficult for you guys but come judging from the margins, it looks like that is in fact happening. So if you could discuss those two dynamics in relation to gross margin, that would be helpful. Thank you. Thanks, Matt, and thanks for the nice words there. I'd characterize our gross margin outlook as cautiously improved relative to my comments a couple of quarters back, but I would also encourage you and other folks not to extrapolate from the immediate quarters guidance. There are some transient effects here, and we expect the gross margin outlook Our gross margin to normalize around 50 as we look to the new fiscal year.

10:45 So that's the right place to be modeling, I think. And what's going on there is we have some price increases, price adjustments across a range of our products. But we've also absorbed a lot of cost increases over the past year and have some new cost increases kicking in, which kicked in at the start of this calendar year. And these things don't true up perfectly in terms of timing. So in March quarter, we have some sales, which are going to be of inventory that was built on a slightly lower cost base. It inflates the gross margin a little for a period, but then we expect that to normalize around 50, I guess. So, regarding your broader question on pricing, clearly I think we've communicated in the past few calls that rising costs have been a feature of our business over the past year. We have absorbed a lot of that everywhere we can, really. At the same time, our customers rely on us for innovation and value our partnership.

11:50 And so across a range of products and across our customer base, we've worked very closely with customers to – to find ways of solving that. Clearly, we're still absorbing costs, hence my comments about normalizing around 50%, but we do feel on a better footing than we did a couple of quarters ago. Thanks, John, for all the details there. As a follow-up, I... Appreciate the investments that are being made in the non-audio parts of the business, and that's going to be a disproportionate piece of growth going forward. I think you guys have been very clear on that. There's been new opportunities that have come up in non-smartphone markets. You mentioned laptops and a few others. I wonder, John, if you might offer some similar commentary about how you think the growth might be spread for your company going forward in the smartphone arena versus in other verticals.

12:45 Thank you. In particular, around the audio area, Matt, are you asking? Just in general, smartphone growth going forward versus outside. Yep. Okay, well, clearly when we add new content in the smartphone space, which we've done and we're intent on doing again, we see revenue jump in a way that's hard to match with any other market. So to that extent, smartphones are going to continue to dominate our revenue for the time being, but we do see encouraging signs in other markets, both in audio and in high-performance mixed signal space. The high-performance mixed signal space, I think, is more...

13:33 One of potential, we have both technologies in the charging path and the discharging path around the battery, which are very innovative. We're looking to leverage those into new product categories. I think that's not going to deliver immediately, but it's something we're very excited about and we believe gives us a really good basis for going and attacking new markets. There's no shortage of batteries to go try to take that innovation to. And then on the audio side, we have seen some significant growth over the past year in the laptop space. If you look back to the previous year, I think fiscal 21, our total laptop revenue was very, very small. It was in the region of $5 million.

14:21 And we weren't really focused on that. We communicated that we saw that as an area to grow audio. For the full fiscal year 22, that's probably going to be more around $40 million. I think, you know, depending on what happens in the VC market, we probably shouldn't expect too much growth around that in fiscal 23. But looking further out, we continue to believe that the laptop market has really good content opportunities for us. That's audio based around codecs, boosted amplifiers, and then potential for haptic content and power and charging content beyond that. Our next question comes from the line of Blaine Curtis from Barclays. Your line is open.

15:07 Thanks for taking my question and nice results. John, I just want to go back to Tori's first question. I want to make sure I heard it right. The thought, in the letter you talked about March, I think you said the offsetting factors were pricing and I think flagship smartphone brands, but then it seems like to your answer you were talking more about just how ongoing demand and supply chain is catching up, but then So I wanted to clarify that, and I guess I just want to make sure I heard you right on June. I thought you said maybe given the strength in March, June could be more, the sequential would be more like the March sequential, but I just wanted to make sure if you could just reiterate what you said in terms of June, that would be helpful to me. Yeah, thanks, Blaine. When we had this call relating to the previous quarter, I think there were a lot of open questions about what was going to happen to demand and what seasonality looked like as we went into the March quarter, just given the fact that everybody knew products were struggling to keep up with demand. So I think from our perspective, this guidance shows that we have our answer. The March quarter is much stronger looking from where we are today than normal.

16:19 That reflects the fact that we're still playing catch up with demand, and we are, wherever possible, pulling content in, so pulling our material into the quarter in order to meet customer demand. And I think the likely... Outlook beyond the March quarter is that we see that March to June quarter transition look much more like the December to March quarter normally looks like because clearly these numbers and our guidance for March are higher than we typically expect. Thanks. And then maybe just a follow-up to that, I was curious, you mentioned You know, some weakness in the Android handset market.

17:06 Just kind of curious, that was late December. I was curious in the outlook for March and June whether that outlook's any better. And, you know, obviously you have a lot of content. You talk about some tape outs, which is just respective on what you're seeing for the kind of the non-iOS markets for you for March and June. Thank you. Yeah, I don't have a read yet on demand for new products that haven't been launched. However, we're excited about Android products, in particular flagship smartphones that are going to be launched in the first quarter of this year. So, you know, certainly the signs around those are positive. So we're upbeat and optimistic about the opportunity there. I think it's worth pointing out that where we, given our coverage of the smartphone market and the overall picture, if we are seeing any weakness in Android, it quite often is translated into strength in iOS, which obviously works out well for our revenues as well.

18:13 Our next question comes from the line of Ruben Roy from West Park Capital. Please ask your question. Yes, thank you. John, I want to start just talking about some of the new product areas and the investments that you're talking about. If we put fast charging kind of on one side and think about some of the other high-performance mixed signal solutions that you guys have been working on, whether it's camera control or power products, How should we think about the investments there? Are you guys looking to broaden sort of a catalog or merchant type of product family around these areas that you've mentioned, whether it's sensing, battery power, et cetera? Or are you still kind of going down the road of sort of custom solutions for specific platforms and customers?

19:07 Thanks, Ruben. You're absolutely right. Our strategy is kind of three-part. First of all, maintain our leadership in smartphone audio. Secondly, broadening sales in audio beyond the smartphone in profitable segments where we can. And then, thirdly, expand into adjacent product areas in the high-performance mixed signal space. So we talk about battery, sensing, haptics, power, camera controllers as parts of that. Our view of that is that it's going to be a mixture of custom silicon and broader market silicon. That's certainly our goal. I think over time it will see us build out in both of those areas, and we're excited about the potential for that to take us into new markets as well as grow incremental content in places where we're shipping today.

20:07 Okay, so just as a follow-up to that, maybe we could bring Thurman in to the discussion, and just kind of thinking about your comments on significant engineering investments, et cetera. You did grow R&D pretty nicely this fiscal year, it looks like, based on your guidance. Obviously, we put the line, so I'm going to get back to you. Thank you very much. There really is a pretty good size of that that's payroll taxes and medical funding and things that only happen in the March quarter.

20:58 So that was an uptick on that. If you look at, we also, some of that was a good piece of that was product development. We've always said that product development expenses can move around with takeouts and other investments, and it can go up and down quarter over quarter. So at least that expense is not specifically associated with a run rate. So if you look into Q1, again, looking forward at least one quarter, we're not really guiding that, but when you take a look at what that will come in at, it'll be lower than the Q4 results or the March results and probably a touch higher than what we saw maybe earlier in the year. And that can kind of give you a gauge at that point You really need to look at R&D. We'll continue to invest. There will be different investments on that, not only reallocating resources, but also investing in new resources.

21:55 And so you should really pretty much scale that to revenue, like we've talked about historically, whatever revenue numbers you're looking at, you can scale that. And then SG&A will just continue to leverage that and keep that You know, growing very slightly or as close to flat as possible. Yeah, and Ruben, if I could circle back and maybe add a little additional color, we managed to add significantly to our R&D headcount in the past year, which was really driven by the opportunities in high-performance mixed signal that we saw in front of us. So we're generally pretty thoughtful about that kind of stuff. If we see concrete opportunities, then we'll want to staff and get ahead of that.

22:45 And we continue to add to our overall mixed signal talent, but in addition, as we've Given our strength in the audio space and our abundance of IP and products there, we also have the capability to redirect some of those resources to the new growth areas as well. Our next question comes from the line of David Williams from the Benchmark Company. Please ask your question. Hey, good afternoon. Congrats on the quarter, and thanks for letting me ask a question. Just wanted to kind of see if you think about maybe your non-major customer and where that revenue growth has been. It was up sequentially monitoring, but up fairly large on the year-over-year basis. Just kind of think about how do you think we should maybe model that on normalized expectation for revenues outside of that, your core customer. What kind of growth rates would you expect to see just kind of given some of the newer platforms and newer products you have coming online?

23:52 Sorry, can you just clarify your question there, David? Are you asking about growth rate for business outside of our largest customer? Yes, that's great. Just how do you think that can trend over time? Okay, well, we're obviously guiding for March right now, and I've tried to give some additional color regarding the June quarter, but I'm not giving guidance beyond that. However, what I have indicated and what we've spoken to in the letter is Thank you very much. You know, we're delighted to grow our business meaningfully, whether that's with our largest customer or beyond.

24:55 I think there are opportunities to do both in the coming years. We're not going to get ahead of ourselves and predict exactly what that's going to look like, but there's a lot of reasons to be optimistic about that. And then maybe last for me, just on the constraints, supply constraints, whether there's anything maybe that can be quantified what was left on the table maybe for the quarter or any place in particular that's seen significance for supply constraints? Well, of course, our guidance always takes into account the availability of supply to us. So that was true as we guided for the December quarter. It's true regarding our guidance for the March quarter. We undoubtedly could have shipped more if we'd been able to obtain more wafers for the quarter. Most of that obviously would be in the areas of our business where we do less long-range planning.

25:52 So when we're thinking about our business with our largest customers, that tends to be something where we put a lot of effort into long-range planning and capacity agreements and so on. So it's more on the side of opportunistic business. There was still some degree of revenue that we would have been able to obtain if we'd had more wafers. Most of that, and I'm sure we're not alone in that case, you know, most of the semi-industry has seen that over the past year or so. Most of that demand has been fairly resilient. The unmet demand has been fairly resilient as we've gone through the quarters. So as wafer supply frees up, you know, we're hopefully able to take advantage of some of that.

26:41 Our next question comes from the line of Christopher Rowland from FIG. Please ask your questions. Hey guys, thanks for the question. I guess in the shareholder letter, you guys talked about taping out two new fast charging parts. I think these are Lion parts or iterations of. And maybe you can talk about how these ones are different. Do they have new features or is there a new process tech or what's going on there? And then Talk about maybe broadening for this product set of fast chargers for Lion outside of just your Chinese customers today. Thanks.

27:29 Yeah, thank you. These products focus on higher charging rates, so the overall competitive driving performance for us in the fast charging market is the charging rate in the amount of power that you're able to put into the battery and the efficiency of the product. So we have an extremely efficient architecture. We believe it's class leading and we have been steadily increasing the charging rates at which we're Thank you very much. We can see that transitioning higher to 120,180 watts and beyond over time.

28:27 So our product rollout, without getting into the minutiae of specific products that haven't been featured in announced devices yet, our devices are focused on driving those charging rates higher. And then you asked about the opportunity for those products to extend beyond smartphones. That's a big part of what we're excited about with the Lion team. So absolutely today there's good business and a lot of customer engagement around the smartphone-focused products, but we believe that, for example, in the laptop space there's meaningful opportunities for this charging technology to get a foothold in the coming years and then for us to extend it to other markets for battery-centric devices beyond that.

29:17 Okay, thank you, John. Actually, the second part of my question was not beyond smartphones but beyond China. But I did actually have a second question, and that was I just wanted to understand the guidance here. So seasonal, I just went back for the last 10 years, into March is negative 32% on average. And you were saying June would have some effects like that. So I just want to make sure everyone understood you. Is that the kind of seasonality that we're talking about from the March into the June quarter? Because we already have March down, I think, you know, 23% or something like that. Or are you guys talking about the combination of March and June equating to something closer to that 32% seasonality that I had?

30:13 Yeah, so that would really be, when we talk about that, we're talking about just the transition from March to June. Again, the strong results that we had in December, we're not adding those pieces together. And really, we're giving you that information because we're just trying to give an indication of where the June quarter could be based on how we see the March quarter and how strong we are. Our next question comes from the line of Rajvindra Jill from Needham & Company. Your line is open.

30:59 Yes, yes, thanks and congrats on the momentum. Yeah, just to follow up again on the seasonality question, as a previous speaker, The question was asked that the March is typically down 33% from December to March. And in the March quarter, you're getting down 23%, so that's roughly maybe 10 points above seasonal. So it basically implies a pretty massive pull-in into the March quarter. would be the kind of overwhelming reason for the upside in the March quarter as opposed to perhaps content gains or units if that rate. So I just want to get a sense of how we're thinking about, you know, the moving pieces. June, I appreciate you giving commentary there.

31:52 And do we get to some sort of also normal patterns in the September, December quarter? I think one thing is when you look at the December, it's an all-time record revenue for us. And so it's coming from a very high base. When you look at what we cited for the March quarter, yeah, it's down 20%. In addition to that, you have to look at the whole picture that we're looking at, which is spring strong demand in December, continued strong demand through the March quarter. We've kind of given that commentary that regardless of what it looks like between December and March, we are saying that we think it could be more similar. We're not giving you an exact number, but on average, we know where it was. So, I mean, that's basically the commentary.

32:54 Yeah, okay. And, you know, just a picture, John, it seems like Sears wants to expand the dollar content in smartphones beyond audio, starting first with your top customer and then moving to the Android market. I know there's a lot of focus from some folks about kind of moving, diversifying away from smartphones, but it seems to me that priority number one is to increase the dollar content in smartphones beyond just providing audio and then kind of branching outside of your top customer and kind of replicating that scenario in the Android market. So I wanted to maybe dig into that a little bit in terms of where you see some of the key technologies, the agencies beyond core audio, kind of the low-hanging fruit where you can see that dollar content.

33:49 And is there kind of an estimated kind of dollar content that you have in mind, an aspirational goal per phone that you're looking at? We certainly see an opportunity to drive content for a phone up meaningfully, in particular driven by the high-performance mixed signal space. So that has been in our sights from a strategic perspective as an immediate adjacency. So we're well-established selling into key customers in the smartphone space today. We have great relationships there. We have a reputation for formidable execution, and we've long demonstrated that in audio, and now we've demonstrated that in high-performance mixed signal, first with the camera controller content, and more recently with the power conversion and control content. So we want to continue expanding that strategy to build out more high-performance mixed signal content in the phone space, and in the process, develop IP and products that we believe can take us into other markets.

35:00 Our next question comes from the line of Ananda Varula from Loop Capital. Your line is open. Hey, yeah. Good afternoon, guys. Thanks for taking the question. And congrats on the good execution and the strong results. Two quick ones, if I could. Go through the shareholder letter. In the letter, you mentioned mixed signal revenues reaching 50% of revenues at some point. I was wondering if there's any useful context for us to sort of think about timeframe, you know, anything at all with regards to that comment. Then I have a quick follow-up. We're not going to put an exact time frame on it, but we have broken it out so that you have the growth rate there and you're able to see that progress over time.

35:53 On the recent run rate, that's a very significant step up to being around a third of our revenue in the year to date, and that's obviously a very meaningful step up from previous years. We're going to hopefully continue that momentum and I would anticipate that, you know, within the foreseeable future that becomes half of our revenue. Awesome. That's super helpful. And then the other is actually from the shoulder letter as well. It's more of a clarification question. You talked of share gain in Nick's signal and was just wondering if there's any context you could provide around those share gains. And that just doesn't make sense. Specifically in the share games, in mixed signal, we increased our camera controller content and displaced some camera control content from other vendors in the process.

36:54 That increased the overall blended ASP of our camera control content shipping in the current smartphone cycle. and then in addition to that, we introduced our power conversion and control IC. So in the first case, the camera control content increased to broadly a blended ASP of around 70 cents or 70 and change per device and then the power conversion and control content, we've indicated you should model it around a dollar. Our next question comes from the line of Vivek Arya from VOFA Securities. Please ask your question.

37:41 Thanks for taking my questions. I had two. The first one, I'm still very confused about the June quarter outlook because if I use that 30%-ish or so down sequential, that suggests year-on-year sales would be basically flat or only modestly up. even though you have, you know, your lion contribution in the mix. So, John, how do we reconcile your optimism around unit and content growth with guidance that seemingly, I know June is still some ways out, so things could change. And I realize, you know, you tend to be conservative. But am I, you know, understanding the trends the right way that you're essentially guiding to flattish year-on-year sales in June? Yes, that's right. I mean, if you look at the midpoint of guidance and you do the calculation, and again, what we're seeing is a complete shift. This is not reflecting a normal seasonality that is generally pretty much of a set pattern, although we do see a decrease in the March quarter.

38:51 It's from a higher base. And we do, at this point in time, based on our visibility, we're not trying to give you very specific guidance. We're trying to give you directional guidance on where, on the expectations of a very close March and June quarter in revenue is not what we expect. We expect a significant step down or quite a bit of a step down. I mean, we're not getting into details and not telling you what's driving that or not driving it. We're trying to give some color on where we expect it. By the way, whatever we're talking about in that first quarter of next year has no way changed our internal thoughts in terms of what our overall revenue will be for the year.

39:47 And for my follow-up, I just wanted to revisit gross margins. I think you mentioned that gross margins could come back to the 50% or so level. Does that happen from June? You know, does it happen at a later period? And I think in the past, there was a suggestion that margins could even dip below 50%. Is that no longer the case? So just wanted to get some views on how we should be thinking about the gross margins for the next several quarters. Thank you. Yeah, Vivek, I referred earlier to the fact that there's some transient effects going on with the gross margin as different costs and pricing get phased in.

40:34 So the gross margin in our guidance for the current quarter is pretty high. We expect that to normalize back to 50 or around 50. I think that will happen pretty quickly as this – as these new prices and new costs get baked in. So relative to previous guidance that we could dip below 50, I think at this point, you know, our overall outlook is cautiously improved relative to that. So I think modeling 50 is a good place to be. We have a follow-up question coming from the line of Tori Vanberg from CTOs. Please ask your question.

41:24 Yeah, just two quick follow-ups. Thank you. First of all, you mentioned the strategic review in December, and I understand the emphasis on high-performance mixed signal and, you know, how that should drive more sustainable growth and so on and so forth, but you haven't really talked about what that means financially. I know in the past you've targeted sort of 20% plus operating margin But, you know, should we think about this strategy potentially driving, you know, more operating leverage than that, you know, perhaps getting operating margins as high as what you're going to do here in the fiscal 2022 year, which is about 25%? That's our longer-term goal, Terry, yes. We believe that we have A really, really solid foundation of current core audio business and great growth and opportunities in high-performance mixed signal.

42:15 That's obviously driving a lot of growth in the current fiscal year. So if you take the midpoint of our guidance that we've issued here, that would have us at somewhere around 25% growth for the full fiscal year. and we believe that we've got opportunities ahead of us to continue driving that growth in the coming years. I've indicated elsewhere and you've seen in our capacity, waste of capacity agreements and so on that we're upbeat about that and so our expectation and our goal is that As we grow revenues, we will be able to drive increased leverage from R&D and SG&A and work on the operating margin over time.

43:04 Very good. Thank you. And the last question that I had was you mentioned gaming in the shareholder letter. I think you may have made some references in the past too, but what exact content are you getting in gaming applications at this point? We have a mixture of audio and haptic content in gaming devices. The particular gaming product that we have in mind there is it's not public that we're in it yet, but it's imminent. And, you know, in both the gaming and the AR, VR spaces, we continue to be seeing design wins with a huge amount of volume attached to those as yet.

43:49 But we're obviously excited about opportunities that those might present for the long term. Excellent. Thank you. Our next question comes from the line of Derek Soderberg from Collier Securities. Your line is open. Hey, guys. Thanks for taking my questions. I want to start with audio and particularly audio content in handsets. It looks like audio revenue as a whole has been sort of flattish for the first three quarters here compared to last year. It seems like laptops and some other areas are growing nicely. Are some of your handset customers reducing audio content at all?

44:34 Have you seen any change in audio attach rates in handsets maybe relative to a year ago? I don't think we've seen meaningful change in attach rates there, Derek. We have obviously had to pass on some opportunities just given wafer supply limitations. A fair amount of our general market business, especially around audio, tends to have somewhat shorter planning horizons, and that means that there are certain opportunities we've not been able to target, which likely would have represented incremental audio revenues. So We've been very careful about choosing sockets where we feel we have the most value, the most differentiated product, and bring the most benefit to the customers within the constraints of the supply environment.

45:30 As you noted, as part of that audio mix, we've continued to perform solidly in Android, but but have also added into that meaningful revenue in the past year from laptop audio as well. And that's an area where you heard in my earlier comments with the addition of boosted amplifiers or the first boosted amplifier design into laptops in the December quarter, we continue to see some long-term opportunity for us to diversify our audio revenues as well. Got it. And as my follow-up, you just mentioned opportunities in AR, some designs there. You know, I think there's been some talk around some of those devices coming to market over the next year or so. Wondering how you feel about potential Contino's devices for both audio and mixed signal. And I guess if those devices eventually replace handsets, do you think that, you know, these AR wearables would be sort of more or less likely to have additional serious content than handsets.

46:36 Just trying to frame that opportunity for you guys. Thanks. Yeah, I think we're very excited about the potential, but very moderate in our expectations over the near and midterm. It's something that we want to be a part of for the long term where we've got customers with exciting visions around AR and VR. So To date, we've been in a number of AR and VR headsets. In most cases, that's really been where customers have picked up kind of off-the-shelf products. We have more recently developed some dedicated AR and VR content. We anticipate that volumes around those are going to be fairly small to begin with, but I think for the long term, it's a great area to be a part of.

47:34 We have a follow-up question coming from the line of Christopher Rowland of SIG. Your line is open. Hi, guys. Sorry to come back to the June guide again, but Thurman, I just want to make sure I understand. Are you saying, or maybe you should elaborate maybe a little bit more on the September guidance I would assume that you guys are expecting for stronger than typical seasonal for September or maybe put another way, is there any reason to think that that September number would be meaningfully different year over year or meaningfully down year over year? Thanks. Oh, you mean September of our next fiscal year?

48:21 No. I think what we're saying is that We still feel good about our opportunities to grow revenue as we go into the year. We're really just making a statement on the June week. And so, I mean, I think to keep that in context, we're not really getting any further out than that. But we are, again, we're optimistic on our ability to grow revenue. So I'm trying to, you know, we're just trying to... Go ahead and indicate something that is really unseasonable that we see can affect our results over a couple. Sure, sure. It just looks like it's a change in seasonality to your point.

49:09 And then just another quick follow-up while I have you. The gaming AR, VR content and maybe the pipeline that you guys have, is this around haptics? Is this around amps? Is this around the audio chain? You know, where are you guys getting the most traction? I'm not going to comment on anything that's not released there, Chris, if you understand that. But in the space where products have already been launched, we've typically been in the audio domain. I think going forward we can be more diverse than that. Thanks, guys. We have another follow-up coming from the line of Matt Ramsey of Collin.

49:59 Please ask your questions. Thank you very much, guys, for letting me back in and indulging another question. The things that I'm getting from investors right now, just to re-clarify, still trying to square the circle a little bit with the guidance and the comments, Thurman, that you made that the outlook for the next fiscal year that you guys are planning for haven't changed. Could you guys just clarify that there's no – New content changes or socket changes that you guys are trying to message that this is just a timing issue on pulling of revenue versus a typical June quarter? Thanks. Well, I think the other thing that you have to understand is that, okay, this year we had a significant step up in content that was driving revenue this year. And although when we go and look into revenue next year, we will get more benefits of the content increases we saw this year. But from a product cycle, we're not talking about another step up in terms of content gains coming into the next year, which has some effect on all of that.

51:09 And again, even with that statement, we are optimistic about our ability to grow revenue. Yeah, I think maybe I'll... Add a bit more kind of general color than that. I mean, I think at one level, really, all we're trying to say here is we have a significantly stronger March quarter than we normally do, which looks like it will, as I said, take us to, based on the midpoint of guidance, to somewhere around 25% growth for the full fiscal year. One of the drivers for the strength of that March quarter is increased content and revenue, obviously. One of the drivers for the strength of the March quarter is the fact that some key customers are still working extremely hard to meet the demand for successful products. So as a consequence of that, there is More pressure than we would normally see in the March quarter to get every piece of material on deck.

52:14 Some of that is reflected in our activities to try to bring in and expedite more material from outer quarters to try to accelerate the rate at which our customers can meet demand. Our expectation on the back of that would be that There will be more of a step down between the March quarter and the June quarter than we would normally see because we're seeing a comparatively strong March quarter here. Got it. Thanks, guys. Appreciate it. We have another follow-up coming from the line of Blaine Curtis of Barclays. Please ask your questions.

53:01 Hey, guys. Well, I was going to ask. I think you just answered that one. I was going to ask again, but I guess maybe a way to pivot this discussion, I know it's wicked early and you guys don't typically even guide out two quarters, but we've not had eight or nine questions on it and it sucks down a ton, so is there any way, John, that maybe you can give a perspective on fiscal 23? I mean, it's just getting to the point here where I think there's a lot of discussion about what June is. You're still very confident on where your content story is, but... To be honest, I'm not really fully understanding the context here because you have a customer that just told you they're still working themselves to catch up. They're maybe launching another low-end phone with higher cons that should help you.

53:50 There's some reasons why seasonality might be better. I'm just trying to understand, I guess, what you're seeing or are you just estimating what could be for June? But I know you probably don't want to answer that part, so maybe could I just pivot the question, and is there anything you can tell us about fiscal 23? You know, obviously we don't provide guidance out there, but, you know, some column might be helpful. I mean, I think in the current fiscal year, our growth is largely being propelled by significant content gains in new strategic areas, hence the really significant year-on-year revenue growth. As we look into the immediate coming cycle in fiscal 23, I think more of the growth story will be units driven, obviously, with the tailwinds of the second cycle of our new power product kicking in and continued progress on camera controllers.

54:47 I've indicated that we expect to be able to continue to grow the contribution in that space year over year over the next few cycles. and then beyond fiscal 23 we obviously are currently engaged in meaningful new product development that we believe is going to drive further incremental content and growth and you've seen our signals associated with that. So I think fiscal 23 looks strong to us from where we are and we continue to work on Once again, as a reminder, if you have questions, please press star 1.

55:59 We have a follow-up question coming from the line of Vivek Arya from VOFA Securities. Please ask your question. Thanks for the follow-up. Just curious, how much is Lion Semi contributing in fiscal 22, and how should we think about that contribution in fiscal 23? We're not breaking out the guidance as we go forward. Vivek, we previously indicated that we expect Lion to contribute in the region of $60 million during the fiscal year between deal close and the end of the fiscal year. The current run rate looks a little soft relative to that, but we've got a great deal of customer engagement and opportunity.

56:55 So, you know, we'll see how that goes in the end of the year. And then beyond that, as we go into fiscal 23 and beyond, we have a lot of products and a lot of design momentum around the line charging products. So we're upbeat about that. Okay. and just the last one, OPEX intensity. I know, Thurman, you're given some puts and takes around. Is there a way to think about OPEX in terms of OPEX as a percentage of sales? For example, in the last calendar year, it was just under 28% or so. Is that the right level or can you be above or below that kind of OPEX intensity going forward? I think from a percent of revenue to We believe that OpEx will become over a longer period of time as revenue grows.

57:54 And as we've talked about, we will continue to invest in what we need to invest in in R&D. We have already done that. We'll also be reallocating or allocating resources to key projects as we can internally and manage our expenses Accordingly, so if you ask in the longer term, we expect that we'd be able to come in, you know, that that may be a lower number somewhere down the line. But right now, yes, it falls into that particular area. And we certainly believe that SG&A, you know, will be leveraged in order to have that equity start looking to be a lower percentage of revenue also.

58:42 There are no further questions at this time. I will now turn the call over back to Ms. Chelsea Heffernan for additional remarks. Thank you, operator. There are no additional comments, so I'll turn the call back to you, John. Thanks, Chelsea. So, in summary, in the December quarter, Cirrus Logic delivered record revenue, saw a strong design momentum across our portfolio, and made significant progress in expanding our high-performance mixed signal businesses. Our world-class engineering capabilities and our extensive intellectual property portfolio have enabled us to develop and deliver key new technologies and expand into adjacent product categories, particularly in power conversion, battery management, and fast charging. With a consistent track record of execution and a compelling product roadmap, we're excited by the opportunities ahead of us to drive further diversification and growth in the coming years.

59:34 Before we close, I'd also like to note that we'll be participating in the Morgan Stanley Conference on March the 7th. Please see our investor website for the details. If you have any questions that were not addressed today, 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. Thank you again for your participation. This concludes today's conference call. You may now disconnect.