Thurman Case - Chief Financial Officer Jason Rhode - President and CEO Chelsea Heffernan - Manager, Investor Relations.

Erik Rasmussen - Stifel Chris Hemmelgarn - Barclays Shannon Richter - Feltl and Co. Christopher Longiaru - Sidoti & Company Tom Sepenzis - Northland Capital Management Tore Svanberg - Stifel.

Good afternoon. My name is Chris, and I will be your conference operator today. Welcome to the Cirrus Logic Second Quarter Fiscal Year 2015 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 call over to Mr. Thurman Case, Chief Financial Officer. Mr. Case, you may begin..

Thank you and good afternoon. Joining me on today's call is Jason Rhode, Cirrus Logic's President and Chief Executive Officer; and Chelsea Heffernan, Manager of Investor Relations. Today, we announced our financial results for the second quarter fiscal year 2015 at approximately 4 p.m. Eastern Time.

The shareholder letter discussing our financial results, the earnings press release, including a reconciliation of non-GAAP financial information to the most directly comparable GAAP information, along with the webcast of this Q&A session, are all available at the company’s Investor Relations website at investor.cirrus.com.

This call will feature questions from the analysts covering our company, as well as questions submitted to us via e-mail at investor.relations@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.

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 Logic website in 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.

Now, I'd like to turn the call over to Jason Rhode, our President and Chief Executive Officer.

Jason?.

Thank you, Thurman. Before we begin taking questions, I'd like to make a few comments. For a detailed account of our financial results, please read the shareholder letter posted on our Investor Relations website.

Q2 was an outstanding quarter for Cirrus Logic, as we delivered revenue of $210.2, which included approximately 5 weeks of contribution from the Wolfson acquisition. GAAP EPS for the September quarter was $0.01 and non-GAAP EPS was $0.68. GAAP results reflect $32.3 million in acquisition-related charges.

On a standalone basis, Cirrus Logic generated $197.2 million in revenue, exceeding expectations as strong demand for portable audio products was fueled by shipments ramping in several new flagship smartphones.

The strategic rationale for the acquisition was primarily driven by the fundamental value of Wolfson’s technology, skilled engineering teams and the potential for the combined company to capitalize on additional opportunities.

The acquisition accelerate Cirrus Logic’s strategic roadmap, further strengths our technology portfolio with the addition of MEMS microphones, advanced DSP technology and extensive software capabilities, particularly in the Android ecosystem and expands our development capacity and customer base.

As the only IC supplier, our solution is spans for complete audio signal chain from capture to playback, Cirrus Logic is now well-positioned as a market leader with the broad portfolio of customer and general market products shipping in many Tier 1 flagship devices today, including five of the top 10 global smartphone OEMS.

The combined company is leveraging our unparalleled expertise and analog and mixed signal technology, comprehensive software capabilities and world-class engineering teams to drive continued innovation in a rapidly changing audio market.

As the value placed on audio and voice technology continues to increase, there is an opportunity to drive revenue growth over the next several years through the addition of new customers and expanding content with existing customers.

Before we begin the Q&A, I would also like to note that while we understand there is intense interest related to our largest customer, in accordance with our policy, we do not discuss specifics about our business relationship. Operator, we’re now ready to take questions..

Thank you. (Operator Instructions) Your first question is from Tore Svanberg with Stifel. Your line is open..

Yeah. Hi, guys. This is Erik calling in for Tore. I wanted to get to your current quarter. It looks like your largest customer 73%.

So and you’d mentioned a lot of traction in with other OEMs? Is it safe to assume that that number was around approaching double-digit $10 million or and was that in line with your expectations?.

I’m sorry. I’m not 100% sure I understand the question.

So I want to make sure I understood right the question?.

Sure. Yeah.

So your largest customer was 73%, you kind of breaking out your business now portable and non-portable, and if we look at that, I’m assuming your largest customer goes into the portable bucket and that was about $153 million or $154 million, and your portable audio was $164 million? Should we assume that that the traction you were talking about with other customers several flagship platforms, did that approach the double-digit amount in the quarter in revenue?.

It’s a little more complicated than that because the portable versus non-portable isn’t really split by customers, because for example, computers would be in non-portable..

Okay. But safe to assume you had nice growth with these other platforms, exclusive of Wolfson..

Okay. Yeah. We’re seeing very good things out of some of the other folks in mobile space.

I would characterize that business has a little bit more typical of the analog and mixed signal market, where, especially, the cell phone market and the Chinese market is a lot more opportunistic and others, you’re going to win one model and then not win the next model necessarily.

It’s now -- it’s difficult to create a dynasty in that market no one intended. But we’re very comfortable with how we’re doing there. We see a lot of demand for the ability to differentiate in these -- in some of these smaller accounts.

A lot of times there are opportunities to differentiate as part of the core chips that are very limited and so they're looking to things like louder speaker or karaoke functions or very high signal-to-noise ratio performance. For example, sometimes to the surprising extent we’re seeing that start to drive demand in some of these other accounts.

So we’re really optimistic about what future holds for us..

Thank you.

And then on your -- based on your Q4 outlook, can you comment on what was some of the specific areas where -- maybe elaborate where -- with the negative factor, market factors are, that’s causing the steep declines in their business?.

So for the December quarter, I mean, I don’t think its surprise to anyone that over the last six months the outlook for, lets call it the high-end of the Android handset space is significantly more muted than people would have expected three or certainly six months ago. So, I think, that’s a large part of it.

I think that the Wolfson team had done and now as part of Cirrus continues to do a great job of winning the designs that they expected to win. And then there are kind of secondary factors that indicate how much -- determine how much revenue will get off of that are, obviously, how successful are those models in the end market.

And then, ultimately, in some cases where a handset manufacturer might have multiple designs for the same handset. It’s a question of how much of that split do we get versus some other solutions and that is unfortunately neither those two things are in our control. So, like I say, I think the U.K.

team had done a great job of winning the designs that they said they were going to win and positioning us very well to continue to do that in the future. And also strategically try to address at least the split within each model that we do get, trying to hopefully steer as much of it our way as possible when there is a lever for us to pull on that..

Okay. Thank you. That's helpful. And then maybe just finally one last question and I’ll jump back in the queue. It sounds like you’re not going to be hitting your accretion target for this quarter. You’ve seen a kind of a step up in R&D. But when do you expect this deal to get accretive.

I know you're facing some kind of revenue headwinds there as well so any help would be appreciated?.

Yeah, well we -- I mean, we only guide out for the current quarter. And I really, I think longer term and after the December quarter the right way to model the company is one -- there is one company with revenue breakout that we've given.

Certainly the reasons for the short-term lack of accretion largely as we’ve gone into previously that is related to the revenue and high end of the android space. It’s not -- our crystal ball is not so good as to be able to call the revenue further out of the way as we give guidance further out. So it’s really matter of when the revenue shows up.

But the right way to think about company is as one company going forward. We’ve already merged R&D. We moved different programs around so things -- as separate companies might have got done in the U.K. We’re looking at having some of those done in Austin, some of the things that we were doing in Austin are already being done in the U.K.

So it gets to a point where the waters in terms of what would it have been in terms of accretion on a stand-alone basis start to not have as much meaning as it might have otherwise.

So our goal, the reason we did the acquisition as we think it positions us to grow faster the combined company in the long term better than we would have been able to do as two stand-alone companies. And I think that’s the thing you ought to be looking for as far as the proof point of whether the acquisition was worthwhile in the long run..

Thank you. Good luck..

Thanks..

Your next question is from Blayne Curtis with Barclays. Your line is open..

Hi, this is Chris on for Blayne. Just wonder, if you could comment a little more on kind of the gross margin direction that you guys are seeing.

Exactly what’s driving it lower, just have a general impacts there?.

Yeah. Sure. I mean, first, so there is not any confusion on it. In the guidance, we have given there is approximately 200 basis points worth of impact to the GAAP number based on fair value write-up of the inventory we acquired from Wolfson. So that’s really more of an accounting item than it is anything meaningful relative to the business.

And then the December quarter, of course, is our seasonally largest quarter of portable audio, portable runs lower on average than the rest of the product lines of the company.

So the fact that in our largest quarter of portable were remaining consistent with the long-term guidance that we’ve given of mid 40s, I think is actually really good news there because it’s a pretty remarkable step-up in portable loan from the September to December quarter..

That’s really helpful. Thanks. I also just continue language seeing you guys are shipping smart CODECs today. I was just curious if those are some of the 55 nanometer products you’ve been working on.

And if you could comment at all, just about how that launches going in those new products and where are they shipping today if they are and when do you expect them to start shipping if they are not?.

Sure. I mean, that’s part of a -- it's a little bit of Symantec’s when we say smart CODEC or the Wolfson team previously referred to as audio hubs, what we mean is the DSP that’s integrated with CODEC. The U.K. team is shipping a variety of those products today in 65 nanometer, 55 is basically an optical shrink of that.

We expect from the Cirrus side of things to start shipping some of the 55 nanometer stuff that we have developed in calendar ‘15 and the U.K. team to continue to develop -- continue to ship their 65 and then going forward start shipping 55 in ‘15 as well.

So now whether we’ve -- we've certainly shifted a lot of other products historically that one could categorize the smart codec as well as I suppose but they are more in a category that we don’t talk about so much and so..

Thanks very much and congrats on a good quarter..

Thanks. Appreciate it..

(Operator Instructions) Your next question is from Jeff Schreiner with Feltl and Co. Your line is open..

Yeah. This is Shannon Richter for Jeff Schreiner. Just a couple questions here.

When giving the guidance forward for December, can you break out what part of that would be Wolfson revenue?.

Yeah. We are not breaking that out at this time. We’ll report on that at the end of the quarter..

Okay..

I would characterize it though as kind of a rough guidance that we’ve given in the shareholder letter though. Certainly it’s more muted than what we expected to see when we did the acquisition.

We are very comfortable with the strategic rationale for the acquisition and as we talk about with one of the previous questions, the high end of the Android space is probably a little bit more restrained at this point than what it was expected to do three or six months ago.

But the teams doing what they needed to do to continue to grow that business, win the sockets. And the good news again is we are doing pretty well with already five of the top 10 smartphone manufacturers there and certainly within the smartphone space. Sometimes if one of them is not doing so well it’s because another one is doing really well.

And since we are positioned pretty well with a wide variety of them, that actually works out to be net-net good news overall for the company..

Thank you for the clarity on that. And then just final question.

Can you give us -- give me remaining deferred tax assets?.

Well, at this time, basically the way we are speaking to it is that we expect that the deferred tax assets and the tax credits will be basically completely depleted by the end of this year. And again, we expect our effective tax rate to be about 4% or less in the next couple of quarters..

Perfect. Thank you so much..

Your next question is from Christopher Longiaru from Sidoti & Company. Your line is open..

Hey guys. My congrats on the good quarter..

Thanks, Chris..

So, I jumped in late, so I apologize for asking something.

Again, I’m curios as to how the audio products that you are moving into and you are gaining more and more traction there compare relatively from a gross margin perspective on the majority of what you are selling now?.

We think that portable market, the reason that we came up with our long-term outlook of being in the mid-40s, we think that’s a reasonable place for portable audio business to sit. That’s a reasonable place for things that are shipping in high volume in the handsets to sit.

And thankfully, we’ve got a pretty efficient business model that actually works out well and ties into our long-term goal of 20% operating. So we want to grow revenue and we want to do it in a way that is supportive of our 20% operating margin target.

We think that the gross margins that we are seeing on the new stuff that we are developing is largely supportive of that goal and so we are pretty pleased with that..

Okay. And so basically as you move forward and you infiltrate this market, your long-term model looks excluding, obviously the acquisition-related costs, looks pretty similar to what you are doing right now from a gross margin perspective..

Right. Yeah, we feel very comfortable with that mid-40%..

Okay. And my other question has to do with, so I know you don’t want to give guidance on this too far out.

But have you made the decisions on what you’re going to move to Wolfson and what you are going to move from Wolfson to Cirrus at this point? Are you still working through those decisions?.

Well, that’s -- I mean, that’s always a work-in-progress. We’ve got two very similar teams with remarkably complementary skill sets. The Cirrus team has really made a name for ourselves in executing silicon in a way that is pretty much unparalleled than our portion of this space as far as I can tell.

And so we are obviously trying to move that methodology over onto the -- into the U.K. side. The U.K. team was clearly ahead in terms of software capabilities, particularly in the Android space.

We are trying to utilize that wherever we can across the company in terms of what chips are getting developed, where I think is well understood inside the company now, what things have been moved around a little bit, but they will definitely go through a period of a time where it’s a little bit of an optimization exercise of where do we have engineers feeing up versus what’s the next grade program that we can staff and then kind of matching those resources up with the next grade program.

So it will be a little bit of a work-in-progress for a while, but I think thematically it’s largely settled out. And I will take the opportunity to give a shot out to the teams that were involved. This is an area where acquisitions can go very side ways and companies getting these culture wars.

And I think because we came into this acquisition with almost the exact same vision for where we wanted our audio products to go and what our roadmap look like that we got to skip that whole stuff that is usually a big contentious or can be a big contentious issue.

And the team has really got right to work and just since the goal was shared, all we needed to do is rationalize the two plans to achieve the goal.

And they have made remarkable progress in much shorter amount of time than I would have expected it to take and they are already up and running and making good progress and keeping our customers happy which is obviously ultimately the big goal. So I am really, really pleased with how all of that has gone..

Okay. And my last question is a lot of talk rightfully so about your audio business, portable audio business. There has been a lot of work on the LED front and we haven’t really heard much of an update there.

Can you give us an update as to where that is and what your expectations are at this point for that business?.

I think we kind of positioned this over the last couple of calls that there are certainly good opportunities in that market. We developed some remarkable technologies that solve real problems.

We are selling the products, but strategically the way we had to look at it back in the spring, there wasn’t any means possible where we could staff all of our opportunities as a company.

And so the one of the more challenging aspects of managing this kind of company is that we are required to staff our best opportunities and not opportunities that are merely good. And even post the Wolfson acquisition, both companies separately neither of us could figure out how to get everything done in audio that we wanted to do.

And it turns out even with the efficiencies post the acquisition this is just such a remarkable time in the audio and voice space that even combining the two teams and taking advantage of the R&D efficiencies that there are gains we don’t have to duplicate each others product lines. We can put the team on things that are additive and parallel.

We’re still not able to satisfy everything that we want to go do an audio. And the audio opportunities are just significantly larger, significantly nearer term and much more in our real house than what we’re looking at in LED. So we’re interested in that technology. We’re still selling the products.

We’re keeping an eye on whether there are other ways to monetize it, whether there is any kind of change in landscape. But for now, you should think about us as an audio company that’s certainly where our best opportunities lie..

Great. I’ll jump back with that. Thank you guys..

Thanks Chris..

Your next question is from Tom Sepenzis with Northland Capital Management. Your line is open..

Hi guys. Thanks for taking my question.

Can you give us any kind of guidance in terms of other income and your interest expense moving forward?.

On interest expense, we would expect that over the next couple of quarters to be $200 million and $1.5 million a quarter that will reduce further as we go into the next year, if we paid -- as we paid down the debt facility..

And other income?.

Well, interest expense -- interest income and the other income is going to be very small, since we do not have large cash balance..

So the $12 million in the September quarter is mainly one-time event?.

Yes..

Great. Thank you. And then you mentioned the tax rate for the next couple of quarters is about 4%.

Do you have any idea what that might be looking out a year?.

If you look at the -- looking into FY '16, we would really expect combined corporate tax rate at somewhere along the line of 30% average for the year. It’s going to be a little higher at the beginning of the year, first couple of quarters for the fiscal year and the little bit lower on the second half of the fiscal year.

And really as we begin to generate more revenue and income offshore when you look at the FY ‘17 and beyond we would expect that tax rate to lower further..

Thank you.

And can you talk a little bit about the non-portable segment and exactly what is in there now with the combined company?.

Sure. There is a bit detail on that in the letter but with things like computer, automotive, and home-theater, obviously the -- some of the legacy business from years ago, lighting. power meters, seismic, stuff like that.

So it’s -- but the audio portion of that is probably the most -- in the short term is probably the most interesting of it that -- and we’ll try to provide a little bit of color. As we’re talking about what is and isn’t doing well but that felt like that was a better way to breakout the revenue on the way that was more useful..

No .No, thank you, I appreciate it. Congratulations on the quarter..

Thanks. We appreciate it..

(Operator Instructions) You’ve an additional question from the line of Tore Svanberg with Stifel. Your line is open..

Yeah, thanks for taking my follow-up here. I know you mentioned in this shareholder letter and automotive is one of those targeted areas, variable as well, sounds like variable is highlighted little bit more. But it seems to be a lot of buzz in automotive around hands at OEMs going after the automotive market.

Want to get your thoughts on that especially as it relates to systems like your largest customers, car play and how you see automotive opportunity for Cirrus?.

I appreciate the question.

You mentioned the two categories, wearables and automotive that I think are the most direct beneficiaries of all the investment we're making in the handsets space, because handsets are neat in that such a have volume market, there is so much demand for new features and they get refreshed pretty much every year if not more frequently.

So they can really get a lot of cycles learning and perfect these technologies and they also are largely self-contained. But those exact same technologies, whether it’s always on voice or voice wake or improving the signal to noise environment so the speech recognition works better or any number of different technologies.

Those are things that play directly into wearables and automotive. In automotive, I think it’s pretty much everyone of us has had the experience of taking the latest cutting edge smartphone and putting it in a fairly new late model car.

Both of which work perfectly fine on their own and having a fairly disappointing audio or voice experience as a result to putting the two together. That’s something that we’d really like to see addressed.

It’s a great place for a lot of the technologies that we can bring to bear to all come together whether it’s noise cancellation, noise suppression, voice wake, always on voice. We see a home for a lot of those functions in automotive.

And I think the other nice property that it’s got going for it much like in handsets frankly is that some of these features that used to be reserved for the very high end of the market, there is so much demand for them and frankly the customers that really use them are not necessarily at the highest end of the user base.

And so these features are migrating not only to new customers, but they're migrating down each customer’s product line into the mid-tier and lower end models.

So we see in markets like automotive and smartphone where things have some potential in terms of overall units to grow, we see the opportunity for audio and voice to grow more rapidly than that as the features move down the product lines.

So we’re just -- we’re very bullish on the long-term opportunities for the kinds of things that we’re very good at to really gain traction in all those spaces..

Thank you very much for that. Good luck. Thank you..

Thanks. Appreciate it..

(Operator Instructions) There are no further questions at this time. I’ll now turn the call over to Miss Heffernan..

Thank you, Operator. The questions submitted via e-mail this afternoon were answered during the Q&A. I will now turn the call back to Jason..

Thank you, Chelsea. In summary, Q2 was a great quarter for Cirrus Logic, as we delivered a strong sequential revenue growth and closed the acquisition of Wolfson.

With a broad range of solutions spanning the audio signal chain from capture to playback, an innovative strategic roadmap, and a commitment to accelerating R&D investment in compelling programs we believe we are well-positioned to drive future growth opportunities.

We would also like to note we will be attending the NASDAQ OMX Investor Program in London on December 3rd and 4th and the Barclays Technology Conference in San Francisco on December 9th. 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 would like to thank everyone for participating today. Good bye..

This concludes today’s conference call. You may now disconnect..