Jason Rhode – President & CEO Thurman Case - CFO

Vernon Essi - Needham & Company Christopher Longiaru – Sidoti & Company

Thank you and good afternoon. Joining me on today's call is Jason Rhode, Cirrus Logic's President and Chief Executive Officer.

Before we begin, you are reminded that during the course of this conference call, we will make projections and other forward-looking statements regarding and among other things, our estimates for our second quarter fiscal year 2010 revenues, gross margin levels, combined R&D and SG&A expenses, amortization of acquired intangibles and share-based compensation expense, as well as our estimates and assumptions regarding future demand for our 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 our projections.

By providing this information, we undertake no obligation to update or revise any projections or forward-looking statements whether as a result of new developments or otherwise. Please refer to our press release issued today which is available on our website, our latest Form 10-K for the fiscal year ending March 28, 2009, as well as our other filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from our current expectations.

I also want to mention before we proceed that 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 in our website in the Investor section.

Non-GAAP financial information is not meant as a substitute for GAAP results, but is included because we believe such information is useful to our investors for informational and comparative purposes. In addition, we use certain non-GAAP financial information internally to evaluate and manage our operations.

As a note, the non-GAAP financial information we use 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 in the June quarter was $37.5 million with sales of audio products generating $24.8 million and energy product sales generating $12.7 million. As you see in the tables we issued with our press release earlier, sales of audio products grew 13% year over year as we began ramping production in new design wins associated with our portable products as well as new designs featuring our multi channel CODECS.

Revenue for our energy products was down year over year as demand for our energy exploration products was more heavily than we anticipated combined with general softness across various other industrial product lines. Historical revenue break downs by product category are available on our website.

Gross margin for our June quarter was 52%, down from 56% in the quarter a year ago and down from 55% in the March quarter. This decrease in gross margin is largely the result of the strong year over year we are seeing in our lower margin audio business coupled with the continued significant in sales of our higher margin energy products.

We expect to driver higher revenues in energy products in the long-term while we continue to work to reduce costs in our ramping portable product line. Total GAAP operating expenses for the June quarter were $19.8 million compared to $24.2 million in the previous quarter.

Non-GAAP operating expenses were approximately $20.9 million for the quarter compared to $20 million for the March quarter. As I stated earlier reconciliations are available in our press release issued today as well as on our website.

The increase in non-GAAP operating expenses is primarily a result of targeted expenditures such as the tape out of our new 65-nm audio DSP. We expect that expenses will remain at these levels due to additional new tape outs coming in the fall and continued R&D investments.

The loss from operations on a GAAP basis was approximately $250,000 while the non-GAAP loss from operations was $1.3 million. We recorded GAAP net income for the quarter of $220,000 essentially zero cents per share based on 65.3 million diluted shares.

In the same quarter a year ago we reported net income on a GAAP basis of $2.1 million or $0.03 per share based on 67.2 million diluted shares. On a non-GAAP basis we recorded a net loss for the quarter of approximately $800,000 or $0.01 per share.

In the June quarter a year ago we reported non-GAAP net income of $3.7 million or $0.06 per share. We ended the June quarter with 484 employees, up from 479 employees at the end of March.

Moving to our balance sheet we ended the [March] quarter with $14 million in net receivables up from $10.8 million at the end of the March quarter. Our days sales outstanding remains consistent and as we have stated before we will continue to actively manage our credit risk.

Ending net inventory increased slightly to $20.2 million, up from $19.9 million in the March quarter which represents a solid improvement in our inventory turns as we move into our second fiscal quarter. Our channel inventory was down 11% from the end of March.

We ended the quarter with $122.4 million in total cash and marketable securities, an increase of $2.2 million from the $120.2 million at the end of March. As you recall we have a $20 million stock repurchase program approved.

We have not completed any stock repurchases under this program to date. Capital expenditures for the June quarter were $500,000 compared to $2.3 million in the March quarter.

Depreciation and amortization expense in the June quarter was $2 million. And now I’d like to turn the call over to Jason to discuss our business operations and guidance for the upcoming September quarter.

Thank you Thurman, I’m pleased that Q1 saw strong year over year and sequential revenue growth from our audio products driven by high volume shipments of new products for home and portable audio applications. This growth however was offset by sharp declines in demand for energy exploration and overall weak demand for our energy products.

Our portable product line continued to build momentum in Q1 shipping new products into new applications such as media-centric’s mobile phones. This continued success in portable audio underscores our ability to identify exciting markets and successfully take market share and it serves as a blueprint for our success in our new energy control and audio DSP programs.

Both our first power factor correction IC and our new 65-nm audio DSP have achieved production worthy silicon and are currently sampling to key customers. We expect that these two new product lines will begin to contribute significant revenue next year.

Let me provide you with a brief update on our products beginning with the energy category. These products include integrated circuits designed for a variety of energy exploration, measurement, and control applications.

In the June quarter revenue came in at $12.7 million which is down by 42% compared to the June quarter a year ago. Demand for energy exploration products was impacted more heavily than we anticipated such that seismic products were not a meaningful contributor to Q1 revenue.

While we continue to serve this market for the long-term we don’t anticipate an up tick in demand for energy exploration products in the foreseeable future. In addition we continue to anticipate general weakness across several of our industrial product lines due to overall market demand.

Despite this broad weakness sales of our power meter products remain a bright spot with continued good momentum. In energy control products we’re excited about the upcoming launch of our first PFC chip.

In the previous quarter we discussed that these ICs were demonstrated to key customers after early positive lab results. Today I’m proud to announce that we’re sampling production worthy parts to key customers and we’ll be launching this product to our global sales team at our upcoming worldwide sales conference in September.

This is a market that has traditionally been dominated by analog solutions and is estimated to be about $400 million and growing. We believe that we bring unique digital signal processing technology to this market that will enable more efficient smaller power supply products.

Our chips also eliminate the need for numerous passive components and make it easier to comply with the increasingly stringent Energy Star standards. We anticipate that revenue from energy control products such as PFC will provide significant revenue opportunities starting next year.

Going forward we believe that revenue from our energy product line has bottomed out and will remain around the current revenue levels in the near-term. Longer-term we’re excited about the revenue opportunities ahead of us as we focus on introducing new products this year for energy control applications.

Turning now to our audio products, which include integrated circuits that are used in a wide variety of consumer, portable, professional, and automotive audio applications. Revenue from these products contributed $24.8 million of our revenue for the June quarter, up 13% compared to the June quarter a year ago.

Revenue from portable audio products was a continued highlight this past quarter as we are shipping in volume production new products for media-centric smart phones, media players as well as a new portable gaming device from Japan launching this fall. We also continue to achieve strong and growing revenue contributions from new products that are designed in applications such as sound bars and other exciting home audio devices.

Regarding automotive, this market remains weak however we have seen an up tick in demand recently and we continue to view this as a key component of our long-term business plan. Last quarter we announced the tape out of our first 65-nm audio DSP which is the most powerful audio processor in the world for home and automotive audio applications.

I’m also pleased to note that due to outstanding engineering execution we obtained production worthy silicon on this product ahead of schedule. We are currently sampling it to a key Japanese AVR manufacturer and we look forward to engaging with more Tier 1 customers later this year.

As we continue to focus on Japan we believe we’re making significant progress there as exemplified by our recent collaboration with a leading Japanese OEM on a custom mixed signal IC program. With the growing demand for our products in portable and home audio this quarter we expect accelerated year over year and sequential growth from audio products.

Now let me review our guidance for the second quarter of fiscal year 2010. Our overall expectations are as follows, revenue is expected to range between $48 and $52 million; gross margin is expected to be between 50% and 52%; and combined R&D and SG&A expenses are expected to range between $22 and $24 million which includes approximately $2 million in share based compensation and amortization of acquisition related intangibles expenses.

We continue to experience strong growing demand for our new portable and home audio products from a diversified base of Tier 1 customers, highlighted by forecasted sequential growth of approximately 30% to 40% in the second quarter. Cirrus Logic is positioned for long-term success with a strong balance sheet, outstanding engineering talent, and growing revenue from new products that can be found inside some of the hottest new consumer electronic devices in the world.

We are product that our first power factor correction device and our new 65-nm audio DSP are both already sampling with key customers and we expect these new platforms to live up to the standard set by our growing portable audio business. Our vision is to be the preferred supplier of digital and analog signal processing components for the audio and energy markets.

We don’t intend to be the biggest supplier of these components, just the best. If Cirrus seems like a different company than it was a few years ago, that’s because it is.

Over half of our employees have joined the company in the past two years and we are hard at work developing must have products for the best customers in the world. We believe our success in portable audio is just the tip of the iceberg and we’re looking forward to more of the same.

We are now ready to take questions.

Some good results here and great guidance, I wanted to dive into some of the comments you made about the energy side and just on a, just so we understand from a go forward basis, were you [inaudible] the flatness in the market as an overall commentary or just the seismic side of things.

No, overall the traditional business that we’ve been in in the energy space we expect that that’s fairly well bottomed out, we don’t see it recovering in a rapid fashion but we don’t think its going to continue to decline at this point either.

One of your larger peers today discussed a lot of robustness in the industrial area and wondering if there is any disconnect to be thought of there. I know you are heavily skewed towards the seismic area but any color on some of the end markets that might help us understand that disconnect.

Well yes, our industrial business is a fairly diverse collection of pretty specific businesses so seismic is one. We have a communications product line that is pretty long in the tooth that is in that segment as well for example, the line of ARM processors was pretty heavily industrial focused.

That’s in that product line as well. So it’s a little bit, it’s a significant impact from market issues but its also a collection of product lines that we’re not heavily investing in at the moment either.

And then we should obviously expect the proportions to, that is a percent of sales to rise later this year and early next as your PFC solutions start to hit the ground and ship I suppose.

On a percent basis whether it can keep up with audio in the short-term I’m not sure but certainly we do expect good results from the PFC stuff. That has gotten a very positive reception from everybody we’ve shown it to.

Its been, that’s a fun situation as a marketing person to be out talking to customers and showing them a product like this and really have them, you really get a strong sense that this hits a strong need in the market. So its cool.

Just on the current quarter maybe even into next, some other things we’ve been hearing about are component shortages in the supply chain, do you, was there any revenue that you felt might have been recognized in the quarter had there not been any disruptions perhaps with your customers or was it pretty much as you expected.

No, we were good on that last quarter. There’s always a couple of little things here and there but nothing significant or out of the ordinary.

Going forward supply across the industry is tight. I think we went through a period where we had an over correction on the channel inventory at pretty much every level which drove all the foundries to be 45% utilized or whatever back in the January timeframe.

Suddenly everybody woke up and realized that at some point they’re going to have to buy something again if they’re going to want to build their products and so I think you’ve seen from most semiconductor companies and certainly the foundry announcements for the world, they’re all quite busy at this point, whether that is now an over correction I’m not sure. But anyway I would say that from a capacity point of view it’s a bigger issue in Q2 and maybe Q3 than it was in our fiscal Q1.

We’re certainly working hard to make sure that we keep up with all of our customers’ demand.

And just on R&D obviously continuing to head upwards in terms of dollars and you talked about [mask] sets and some other costs that are coming in, should we expect that to flatten out and perhaps even tread a little bit lower in dollar terms or should we be looking for that to just going up sequentially through the course of 2009.

No we think that the levels that we’re reaching this quarter are pretty much where we’re going to be. We may still tread up a little bit on the R&D side depending on the number of [mask] sets we may do and what we invest in on R&D expending but not significantly.

To be specific I’d model right in the middle of the range that we gave you. And if we exceed that in the next couple of quarters or something it might be because we’ve got an extra tape out or two that we managed to pull in, but we’re, which in my view is a good kind of expense to have.

Congratulations on the guidance, just want to dive into that a little bit more, it sounds like right now you’re expecting the industrial side to stay, the energy measurement side to stay flat, and most of this growth is coming from really market share gains. I know you can’t talk about maybe the customers that you want but maybe you can give us an idea of how many design wins added into those market share gains and what you’re up for and what’s reasonable to expect to win.

Well, let’s see how do I answer that, its in the portable business we’re doing pretty well on a design win by design win basis. I don’t have a specific number to hand out but our strategy of focusing on the Tier 1 accounts in every territory and in every application is working out pretty well.

That has the benefit of (a) you focus on the big guys first and then (b) the smaller guys tend to copy what the big guys are doing. So there’s a certain amount of panache that goes with being in some of the higher running products out there and we’re seeing some of that.

But literally in every territory we do business in we’re seeing design wins for these different products. It’s a fair amount of media player at this point there’s a handful of other applications such as the portable gaming, navigation, things like that.

And then as I mentioned of course there’s the mobile phone stuff. We’ve got work to do to continue to broaden the mobile phone business as we go forward.

That business tends to require a fair amount of hand-holding.

And just kind of piggybacking on that just talking about regions, none of this is really from I’m guessing is from games in Japan yet.

No we’ve got some new stuff we’re shipping for designs in Japan.

Okay so that is starting, okay so the portable gaming is from basically opening up that market a little more to Cirrus.

Yes, a little bit there and then we’ve got what looked like some design wins in portable navigation stuff coming from there. We’ve got as I mentioned in the script we’re in the middle of a custom development with one of the best brand names in the business in Japan.

So is that shipping yet or—

No, we’re in the middle of development, but that to me says we’re doing the right stuff in Japan.

All right I guess when you guide up 30% plus there’s not a lot of questions. In any event thanks for all of you who joined us on the call today.