# CIRRUS LOGIC, INC. (CRUS) FY 2025 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CIRRUS LOGIC, INC.'s 10-K for fiscal year 2025.

SEC filing source: https://www.sec.gov/Archives/edgar/data/772406/000077240625000014/crus-20250329.htm
Accession: 0000772406-25-000014
Filing date: 2025-05-23
Report date: 2025-03-29
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/CRUS/
All MD&A years: /company/CRUS/mda/
Previous year: /company/CRUS/mda/fy2024/ (FY 2024)
Next year: /company/CRUS/mda/fy2026/ (FY 2026)

ITEM 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Please read the following discussion in conjunction with our audited historical consolidated financial statements and notes thereto, which are included elsewhere in this Form 10-K. Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. Actual results could differ materially because of the factors discussed in Part I, Item 1A. “Risk Factors” of this Form 10-K and elsewhere in this report, as well as in the documents we file with the SEC, including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Critical Accounting Estimates

Our discussion and analysis of the Company’s financial condition and results of operations are based upon the consolidated financial statements included in this report, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts. We evaluate the estimates on an on-going basis. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Our accounting policies are more fully described in Note 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in Item 8.

The Company considers the following accounting policies to involve the highest degree of judgment in the preparation of the consolidated financial statements:

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value on a first-in, first-out basis. Cost is computed using standard costs, which approximate actual cost. The Company writes down inventories to net realizable value based on forecasted customer unit demand while taking into account product release schedules and product life cycles. The Company also reviews and writes down inventory, as appropriate, based on the age and condition of the inventory. Actual demand and market conditions may be different from those projected by management, which could have a material effect on our operating results and financial position.

Uncertain Tax Positions

The calculation of our tax liabilities involves assessing uncertainties with respect to the application of complex tax rules. Uncertain tax positions must meet a more likely than not threshold to be recognized in the financial statements and the tax benefits recognized are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon final settlement. The ultimate settlement of uncertain tax positions may differ from our estimates, which could result in the recognition of a tax benefit or an additional charge to the income tax provision in the relevant period. See Note 17 — Income Taxes of the Notes to Consolidated Financial Statements contained in Item 8 for additional details.

Recently Issued Accounting Pronouncements

For a discussion of recently issued accounting pronouncements, refer to Note 2 - Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements.

Overview

Cirrus Logic develops low-power, high-precision mixed-signal processing solutions for a broad range of customers. We track operating results in one reportable segment, but report revenue performance by product line: Audio and HPMS products. In fiscal year 2025, the Company made good progress executing on strategic initiatives. In our flagship smartphone audio business we began shipping the latest-generation of our boosted amplifier and first 22-nanometer smart codec. We also expanded our HPMS content in smartphones as we benefited from increased unit shipments of our camera controllers and broadened our footprint with our general market haptic components.

Additionally, we made considerable progress leveraging our investments in Audio and HPMS into new applications and markets. Our achievements in the laptop market, which is our most immediate growth opportunity, included securing our first high-volume mainstream design win with our latest PC codec, increasing our direct engagement with PC OEMs, and further expanding our presence in leading reference designs. During fiscal year 2025, we also made advancements with our general market business where we have been selectively developing new components that offer sustained differentiation.

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Fiscal year 2025 net sales of $1.90 billion represented an increase over fiscal year 2024 net sales of $1.79 billion. Audio product line sales of $1.14 billion in fiscal year 2025 increased 5 percent from fiscal year 2024 sales of $1.08 billion. The most significant drivers of the increase were sales associated with our latest-generation products and higher smartphone volumes, partially offset by weakness in general market sales versus the prior fiscal year. HPMS product line sales of $758.9 million represented an 8 percent increase from fiscal year 2024 sales of $705.0 million, largely attributable to higher content in smartphones and sales associated with latest-generation products, partially offset by lower general market sales.

Overall, gross margin for fiscal year 2025 was 52.5 percent. The increase in gross margin for fiscal year 2025 reflects a more favorable product mix. This was partially offset by unfavorable inventory reserve expense and higher supply chain costs. The Company’s number of employees increased from 1,625 as of March 30, 2024 to 1,660 as of March 29, 2025. The Company achieved net income of $331.5 million in fiscal year 2025, which included an income tax provision in the amount of $113.4 million.

Results of Operations

A discussion regarding our financial condition and results of operations for fiscal year 2025 compared to fiscal year 2024 is presented below. A discussion regarding our financial condition and results of operations for fiscal year 2024, which was a 53-week fiscal year, compared to fiscal year 2023 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended March 30, 2024, filed with the SEC on May 24, 2024.

The following table summarizes the results of our operations for each of the past three fiscal years as a percentage of net sales. All percentage amounts were calculated using the underlying data, in thousands:

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[[/GREPCENT_TABLE]]

Net Sales

We report sales in two product line categories: Audio products and HPMS products. Our sales by product line are shown in the table below (in thousands).

[[GREPCENT_TABLE]]
[["","","Fiscal Years Ended"],["","","March 29, 2025","","March 30, 2024","","March 25, 2023"],["Audio Products","","$","1,137,157","","","$","1,083,939","","","$","1,172,007"],["HPMS Products","","758,920","","","704,951","","","725,610"],["","","$","1,896,077","","","$","1,788,890","","","$","1,897,617"]]
[[/GREPCENT_TABLE]]

Net sales for fiscal year 2025 increased by 6 percent, to $1.90 billion from $1.79 billion in fiscal year 2024. Audio product sales increased $53.2 million, or 5 percent in fiscal year 2025. The most significant drivers of the increase were sales associated with our latest-generation products and higher smartphone volumes, offset by weakness in general market sales versus the prior fiscal year. The increase in net sales also reflects a $54.0 million increase in HPMS product sales, or 8 percent, from fiscal year 2024 sales of $705.0 million, primarily due to higher content in smartphones and sales associated with latest-generation products, partially offset by lower general market sales.

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International sales, including sales to U.S.-based end customers that manufacture products through contract manufacturers or plants located overseas, were approximately $1.9 billion in 2025 and $1.8 billion in each of fiscal years 2024 and 2023, representing 99 percent, 99 percent, and 97 percent of net sales in fiscal year 2025, 2024, and 2023, respectively. Our sales are denominated primarily in U.S. dollars.

Gross Margin

Overall gross margin of 52.5 percent for fiscal year 2025 increased from fiscal year 2024 gross margin of 51.2 percent. The increase reflects a more favorable product mix. This was partially offset by unfavorable inventory reserve expense and higher supply chain costs, compared to fiscal year 2024. Changes in excess and obsolete inventory charges, including scrapped inventory, and sales of product written down in prior periods did not have a material impact on margin in fiscal year 2025.

Research and Development Expenses

Fiscal year 2025 research and development expenses of $434.7 million reflect an increase of $8.2 million, or 2 percent, from fiscal year 2024. The increase was attributable to increased employee-related, variable compensation, and facilities-related costs, offset by decreased stock-based compensation, and acquisition-related costs, in addition to increased R&D incentives versus fiscal year 2024. See Note 2 - Summary of Significant Accounting Policies - Government Assistance of the Notes to Consolidated Financial Statements in Item 8 for additional details relating to R&D incentives.

Selling, General and Administrative Expenses

Fiscal year 2025 selling, general and administrative expenses of $151.0 million reflect an increase of $6.8 million, or 5 percent, compared to fiscal year 2024. The increase was primarily attributable to increased employee-related and variable compensation costs in fiscal year 2025.

Restructuring

In fiscal year 2024, the Company recorded $2.0 million in net costs primarily related to a workforce reduction action taken in the second quarter of fiscal year 2024.

Interest Income

Interest income in fiscal years 2025 and 2024 was $34.0 million and $21.5 million, respectively. The increase in interest income in fiscal year 2025 versus prior year was a function of higher yields on higher combined average cash, cash equivalent, and marketable securities balances throughout the year.

Interest Expense

The Company reported interest expense of $0.9 million and $0.9 million for fiscal years 2025 and 2024, respectively, primarily as a result of commitment fees under the Revolving Credit Facility, described in Note 8 of the Notes to Consolidated Financial Statements in Item 8.

Other Income (Expense)

In fiscal years 2025 and 2024, the Company reported $1.5 million and $(0.1) million, respectively, in other income (expense), related to remeasurement on foreign currency denominated monetary assets and liabilities and other non-operating income and expenses.

Provision for Income Taxes

We recorded income tax expense of $113.4 million in fiscal year 2025 on pre-tax income of $444.9 million, yielding an effective tax rate of 25.5 percent. We recorded income tax expense of $89.4 million in fiscal year 2024 on pre-tax income of $363.9 million, yielding an effective tax rate of 24.6 percent.

Our effective tax rates in fiscal years 2025 and 2024 were higher than the U.S. statutory rate of 21.0 percent, primarily due to U.S. tax paid on our foreign earnings resulting from an increase in global intangible low-taxed income (GILTI), which is treated as a period cost, and a reduction in foreign tax credits. GILTI is unfavorably impacted by a provision in the Tax Cuts and Jobs Act of 2017 that requires research and development expenditures incurred starting in fiscal year 2023 to be capitalized and amortized ratably over five or fifteen years depending on the location in which the research activities are conducted. In addition, U.S. tax rules introduced in fiscal year 2023 related to refundable tax credits, including R&D expenditure credits available to us in the United Kingdom, reduce the amount of foreign tax credits available to offset GILTI.

The Organization for Economic Cooperation and Development has announced an Inclusive Framework on Base Erosion and Profit Shifting, including Pillar Two Model Rules for a global minimum tax that call for the taxation of large multinational

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corporations at a minimum rate of 15%. Certain jurisdictions in which we operate, including the United Kingdom, have enacted Pillar Two legislation. There was no material impact on our consolidated financial statements in fiscal year 2025.

For additional discussion about our income taxes, see Note 17 - Income Taxes of the Notes to Consolidated Financial Statements in Item 8.

Liquidity and Capital Resources

Operating Activities

In fiscal year 2025, cash flow from operations was $444.4 million. Operating cash flow during fiscal year 2025 was related to the cash components of our net income and a $23.4 million unfavorable change in working capital. The unfavorable change in working capital was driven primarily by increases in inventory and accounts receivable, partially offset by prepaid wafer usage (related to the Capacity Reservation Agreement). In fiscal year 2024, cash flow from operations was $421.7 million. Operating cash flow during fiscal year 2024 was related to the cash components of our net income and an $18.4 million favorable change in working capital, primarily driven by prepaid wafer usage (related to the Capacity Reservation Agreement), decreases in other assets and increased income taxes payable, partially offset by decreased accounts payable and acquisition-related liabilities, as well as increases in accounts receivable.

Investing Activities

In fiscal year 2025, the Company used $124.3 million in cash for investing activities primarily related to $95.5 million in net purchases of marketable securities and capital expenditures and technology investments of $28.8 million. In fiscal year 2024, the Company used $163.0 million in cash for investing activities primarily related to $124.7 million in net purchases of marketable securities and capital expenditures and technology investments of $38.3 million.

Financing Activities

In fiscal years 2025 and 2024, the Company used $283.2 million and $201.7 million, respectively, related to financing activities. In fiscal years 2025 and 2024, the Company utilized approximately $261.0 million and $186.0 million, respectively, in cash to repurchase and retire portions of its outstanding common stock. See Note 15 - Stockholders' Equity of the Notes to Consolidated Financial Statements in Item 8 for a description of our share repurchase authorization.

Revolving Credit Facility

On July 8, 2021, the Company entered into a second amended and restated credit agreement (the “Second Amended Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto. The Second Amended Credit Agreement provides for a $300 million senior secured revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility matures on July 8, 2026 (the “Maturity Date”). The Revolving Credit Facility is required to be guaranteed by all of Cirrus Logic’s material domestic subsidiaries (the "Subsidiary Guarantors"). The Revolving Credit Facility is secured by substantially all the assets of Cirrus Logic and any Subsidiary Guarantors, except for certain excluded assets.

On March 20, 2023, the Company, entered into the First Amendment (the "Amendment") to its Second Amended Credit Agreement, with the lending institutions party thereto and Wells Fargo Bank, National Association, as administrative agent. The Amendment updates the benchmark interest rate provisions to replace the London interbank offered rate ("LIBOR") with the forward-looking secured overnight financing rate ("Term SOFR"), for the purposes of calculating interest under the terms of the Second Amended Credit Agreement.

As of March 29, 2025, the Company had no amounts outstanding under the Revolving Credit Facility and was in compliance with all covenants under the Second Amended Credit Agreement.  

See Note 8 — Revolving Credit Facility of the Notes to Consolidated Financial Statements in Item 8 for additional information including material terms and related covenants.

Capital Requirements

Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, and potential future acquisitions of companies or technologies, commitments under the Capacity Reservation Agreement with GlobalFoundries (discussed further in Note 13 - Commitments and Contingencies of the Notes to the Consolidated Financial Statements and Item 1A. Risk Factors) and the expansion of our sales and marketing activities. We believe our expected future cash earnings, existing cash, cash equivalents, investment balances, and available borrowings under our Revolving Credit Facility will be sufficient to meet our capital requirements both domestically and internationally, in the short-term (i.e. the next 12 months) and in the long-term, although we could be required, or could elect, to seek additional funding prior to that time. As of March 29, 2025, the Company did not

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have any off-balance-sheet arrangements, that were reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Cash Obligations

In our business activities, we incur certain commitments to make future payments under contracts such as debt agreements, purchase orders, operating leases and other long-term contracts.  See Note 8 - Revolving Credit Facility, Note 10 - Leases and Note 13 - Commitments and Contingencies, of the notes to the Consolidated Financial Statements in Item 8, for additional information related to these contractual obligations.