Cirrus Logic, Inc. Aktie

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic First Quarter Fiscal Year 2027 Financial Results Q&A session. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the conference call over to Ms. Chelsea Heffernan, Vice President of Investor Relations. Ms. Heffernan, you may begin.

Thank you, and good afternoon. Joining me on today's call is John Forsyth, Cirrus Logic's Chief Executive Officer; and Jeff Woolard, our Chief Financial Officer. Today, at approximately 4:00 p.m. Eastern Time, we announced our financial results for the first quarter fiscal year 2027. The shareholder letter discussing our financial results, the earnings press release and the webcast of this Q&A session are all available at the company's Investor Relations website. This call will feature questions from the analysts covering our company.

Additionally, the results and guidance we will discuss on this call will include non-GAAP financial measures that exclude certain items. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release and are all available on the company's Investor Relations website.

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 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 registered 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 John.

Thank you, Chelsea, and welcome to everyone joining today's call. As you've seen in the press release, Cirrus Logic reported record first quarter results for the June quarter, delivering revenue of $460 million as well as GAAP and non-GAAP earnings per share of $1.47 and $1.84, respectively. In a few moments, I'll hand the call over to Jeff to discuss our financial results in detail, along with our outlook for the September quarter.

Before we get to that, I'd like to provide an update on the progress we have been making across the key pillars of our strategy since our call in May. As I've outlined previously, our long-term strategy for growth is based around 3 principles. First, maintaining a strong leadership position in our flagship smartphone audio business. Second, expanding the value and range of high-performance mixed signal or HPMS solutions with which we serve our customers in smartphones and related products. And third, leveraging our world-class expertise and IP in both the audio and high-performance mixed-signal domains to grow and broaden our business in new markets.

I want to say a few words now about each of these areas. In our flagship smartphone audio business, we saw continued strong demand for our custom boosted amplifiers and smart codecs. Together, these components deliver exceptional audio performance and meaningful power and efficiency gains and moreover, have benefited from an especially strong product cycle from our customer. While we continue to invest in innovations that will raise the bar of future audio solutions, we anticipate that these products will continue to shift from multiple future generations of customer products. This provides the company with solid long-term visibility, sustained revenue contribution and the ability to focus R&D resources on new applications that expand the reach of our business and serve our customers in new ways.

Which brings me on to our second priority, expanding HPMS content in smartphones and related products at the edge. Our progress in the June quarter reinforced our confidence in the long-term opportunity to grow content across camera, battery and power applications. In the camera area, our close engineering collaboration with our largest customer has spanned multiple generations of controllers to date. And today, we are executing on a road map to deliver the next generation of camera products.

In battery and power, our products integrate signal processing and control capability to get the most out of the system in terms of both performance and efficiency in a way that sets us apart from more traditional analog competitors. These capabilities were central to winning the smart power IC for 3D sensing we discussed on our last call, the development of which continued on schedule during the quarter. We also saw further close collaboration with our customer on other power and battery products that we think can expand content over time. Across our core audio and HPMS business, we see a pipeline of opportunity over the next few years that is as strong as any we can remember.

Beyond smartphones, we also made progress on our third strategic priority, expanding into new applications and markets. The PC market remains our largest near-term growth opportunity outside of smartphones, where we see potential for growth in volume and attach rates over time of both audio and HPMS content. That said, our expectations for our PC business this fiscal year have come down since we spoke in May, and I want to be clear about the reasons for that.

Three distinct factors have contributed. First, the constrained supply of a key industry platform in which we have content. Second, memory and component shortages and the pricing pressure that comes with them, acting as a headwind for the broader PC market. And third, OEMs responding to these conditions by delaying some new model introductions and extending the life of existing platforms. Those new models generally represent both higher content per system for us and in many cases, higher volume designs. So their delayed introduction pushes out some of the growth we would otherwise have seen in our PC business this year.

I would characterize these factors as timing rather than anything fundamental. Our customer engagement, design win momentum and competitive standing all remain very encouraging, and our excitement about the opportunity for Cirrus in this space over the coming years is undiminished.

In particular, as we partner with our PC OEM customers on AI-enabled PCs, we see considerable interest in our voice technology solutions. Today, the PC voice experience is often limited because running always-on wake word detection on the CPU or NPU drains battery life rapidly and introduces latency that adversely affects the user experience.

Our latest low-power smart codec delivers wake word detection, noise reduction, audio buffering and other voice features in a stand-alone device, keeping system power consumption extremely low until the user engages the conversational interface. Customer interest in this product was strong during the June quarter, and we advanced engagements with multiple customers on designs for next calendar year.

Lastly, in this part of our business, during the quarter, several OEMs announced new PCs based on NVIDIA's RTX Spark platform. Products based on RTX Spark from several of our customers are expected to ship later this year with Cirrus Logic amplifiers and codecs on board. We're excited to be a part of this platform and see these launches as further examples of our PC portfolio broadening its reach, along with the benefits our customers experience in being able to use the same voice and audio subsystems across different platform architectures.

In our wider general market business, we continue to engage a broad base of customers across the professional audio, automotive, industrial and imaging end markets. A highlight this quarter was the tape-out of a new family of high-performance analog front-end components targeting smart meters. We anticipate sampling these in the September quarter. These new products deliver higher accuracy voltage and current measurement for residential, commercial and industrial applications and their on-chip digital signal processing enables power quality analysis and fault detection while reducing our customers' overall system cost.

We believe the underlying technology developed for these products can also expand beyond smart meters into a number of adjacent applications, including energy storage, data center DC metrology, EV charging and grid monitoring. These smart meter products represent the latest example of how we can leverage our world-class mixed-signal IP into markets that can drive sustained and profitable long-term growth. They complement launches over the past 2 years of products in timing, professional audio and industrial imaging segments. Each of these product families should enjoy lifespans and gross margins well above our corporate average and so represent an attractive addition to the rest of our business while broadening our addressable market.

Finally, I would also like to note that we recently signed a new capacity reservation and wafer supply agreement with GlobalFoundries. This agreement builds on our long-standing partnership with GlobalFoundries and secures dedicated wafer capacity and pricing for calendar years 2027 and 2028, further supporting the broad range of opportunities we see ahead. In parallel to executing this agreement, we continue to collaborate with GlobalFoundries on next-generation process technologies and progressing towards manufacturing products on U.S. soil at their facility in Malta, New York.

In summary, we're proud of our progress this quarter during which we continue to execute on our strategy to be the chosen supplier for a range of critical audio and HPMS sockets in our core business, diversify our product portfolio and drive growth in new applications and markets. We are excited about the opportunities ahead of us across all of these fronts.

And that concludes the latest update on our long-term growth strategy. So let me now turn the call over to Jeff to provide an overview of our financial results as well as the outlook.

Thank you, John. Good afternoon, everyone. I'll now walk through our Q1 financial results and provide guidance for Q2. In Q1 fiscal 2027, we delivered record first quarter revenue of $460 million, which was in line with the midpoint of our guidance range. Revenue was up 2% sequentially and 13% year-over-year. The increase in revenue on a sequential and year-over-year basis reflects higher sales of components shipping into smartphones. On a year-over-year basis, sales were partially offset by previously anticipated pricing reductions.

Turning to gross profit and gross margin. Non-GAAP gross profit in the June quarter was $242.1 million and non-GAAP gross margin was 52.7%. On a sequential basis, the decrease in gross margin reflects previously anticipated pricing reductions, which were partially offset by cost reductions. On a year-over-year basis, a slight increase in gross margin was largely due to a favorable product mix, which was partially offset by higher freight and supply chain costs.

Now I'll turn to operating expenses. Our non-GAAP operating expense for the first quarter was $135.4 million. On a sequential basis, OpEx was up $9.3 million, primarily driven by higher employee-related expenses and to a lesser extent, increased professional costs and product development expenses. This was partially offset by an increase in R&D incentives. On a year-over-year basis, operating expense was up $15.9 million, primarily due to higher employee-related costs, which is consistent with our previously communicated increase in R&D expense to support the range of opportunities we have across the business. To a lesser extent, operating expense also increased due to higher variable compensation, product development and professional expenses. Non-GAAP operating income for the quarter was $106.7 million or 23.2% of revenue.

Turning now to taxes. For the June quarter, our non-GAAP tax rate was 17.4%. And lastly, on the P&L, non-GAAP net income was $96.1 million, resulting in a record June quarter earnings per share of $1.84.

Let me now turn to the balance sheet. Our balance sheet continues to be strong, and we ended the June quarter with $1.2 billion in cash and investments. Our ending cash and investments balance was up $13.5 million from the prior quarter as cash generated from operations was partially offset by share repurchases. We continue to have no debt outstanding. Inventory at the end of the first quarter was $262.7 million, up from $240.9 million in the prior quarter. Days of inventory were up sequentially, and we ended the quarter with approximately 110 days of inventory.

Turning to cash flow. Cash flow from operations was $64.1 million in the June quarter and CapEx was $15.5 million, resulting in non-GAAP free cash flow margin of 11%. For the trailing 12-month period, cash flow from operations was $598.6 million and CapEx was $27.6 million. This resulted in a non-GAAP free cash flow margin of 28%. On the share buybacks, in Q1, we utilized $34.5 million to repurchase approximately 211,000 shares of our common stock at an average price of $163.43. At the end of Q1 fiscal 2027, the company had $239.6 million remaining on its share repurchase authorization. Subsequent to Q1 fiscal year '27, the company utilized $50.5 million to repurchase approximately 359,000 shares at an average price of $140.53 under a Rule 10b5-1 trading plan.

Now on to guidance. For Q2 fiscal 2027, we expect revenue in the range of $510 million to $570 million. GAAP gross margin is expected to range from 52% to 54%. In Q2, we expect gross margin to see a temporary benefit from wafers purchased under prior agreements with GlobalFoundries at favorable pricing. We expect this tranche to largely sell through in Q2, after which gross margin should normalize. Non-GAAP operating expense is expected to range from $140 million to $146 million. Additionally, as we indicated last quarter, given the breadth of opportunities ahead of us, we expect our full year fiscal 2027 operating expenses to increase as we invest in R&D. The fiscal 2027 non-GAAP effective tax rate is expected to range from 16% to 18%.

In closing, we delivered solid results for the June quarter. We remain focused on executing our strategy to drive long-term growth across our business and deliver shareholder value. Before we begin the Q&A, I would like to note that while we understand there is intense interest related to our largest customer, in accordance with Cirrus Logic company policy, we will not discuss specifics about our business relationship.

With that, let me now turn the call over to Chelsea to start the Q&A session.

Thanks, Jeff. We will now start the Q&A portion of our earnings call. [Operator Instructions] Operator, we are now ready to take questions.

[Operator Instructions] Your first question comes from the line of Christopher Rolland with Susquehanna.

It seems like seasonality might be already a little bit different than it has been in the past. I don't know if you're able to talk about that, but also kind of the outlook for perhaps even a year on how seasonality might be different from all the years past when we try to model Cirrus revenue.

Yes. Thanks for the question. This is Jeff. Yes, when we gave guidance for this quarter, we made a note that seasonality looks different than it had historically. And we came in right at the midpoint of guidance. And as you recall, that was up. So our Q1 results the results that hit guidance were significantly higher than what the historical average would be. And we gave a peak into the rest of the year that seasonality would be much tighter. The quarters would be a lot tighter together than historical, and you're seeing that with our results and our guide that, yes, it is different this year and the quarters are a lot tighter from a historical perspective.

Excellent. And then secondly, in your letter, you talked about this high-performance analog front end. I think the initial application is smart meters, but you had other applications as well, data center metrology, energy storage, EV charging, grid monitoring. Can you talk about this early socket, how meaningful you think it could be and the opportunity for Cirrus here in a larger framework, perhaps even including a TAM, how do you see the total market for this product?

Well, I'll give a little more color, Chris, for sure. The specific initial target for this IP is in the smart meter segment, as we said. And that's really reflective of the fact that there's a combination of the rising energy demand that we're all familiar with, the increased strain on grid infrastructure and changing regulatory requirements that's creating a need for meaningfully more accurate energy monitoring across residential, commercial, industrial applications and so on.

And we have very, very high precision sensing and power IP that we think can differentiate us in that space. And these products are really our first example or first test of that hypothesis. We certainly think that the combination of our advanced analog and our ability to integrate digital with it is something that can work to our advantage because we can do not only higher precision sensing, but also integrate things like power quality monitoring, fault detection and indeed integrate other parts of the system into our die. So we're obviously still in the early innings, both of these products and leveraging this kind of IP into the broader market.

These particular products, I think I mentioned in my prepared remarks, we're going to be -- we expect to be sampling them widely in the third quarter and the fourth quarter this year. So that will include the top OEMs in the smart metering space. We're currently tracking to an expectation of going to market in calendar '28. And we do think there are other applications potentially for this IP elsewhere in the power space. You mentioned some of them there. And yes, those are all things that we're actively exploring. I think it's a little premature for us to put a TAM or a SAM on that, but we're excited about where this can go.

And I guess I'd highlight that I think this is another example of the ways in which we're able to leverage some of the high-performance mixed signal expertise that we obviously develop in the work we do in our core business into other markets with comparatively small amounts of incremental R&D investment. So as this moves forward and obviously, we explore some of those other potential market segments for this IP, we will keep you updated.

Your next question comes from the line of Tom O'Malley with Barclays.

This is Kyle Bleustein for Tom O'Malley. I think you mentioned earlier that you're seeing some of the strongest pipeline in the high-performance mixed-signal segment for Cirrus and company history. Can you maybe expand here on what you're targeting, where you are in design cycles and just how big of an opportunity this could be for you guys?

Yes. Thank you. I did make that remark in the script. I think I said it was as good as we can remember, which obviously sounds like it could be taken as an off-the-cuff expression. But in reality, we've had highly qualified lawyers of both the human and synthetic variety review that. And we're very upbeat about the potential we have in our core business across the high-performance mixed signal space. And that's really reflective of stuff that our shareholders and the Street is familiar with. So we have a very rich pipeline and road map around the camera space, for example.

And earlier this year, we saw the announcement relating to a socket for smart power and sensing. And in addition to that, we have a number of other programs which are in active development. We actually alluded to some of them in the last shareholder letter as well. So over the past year, we've delivered silicon to our customer for power products. One of those is now shipping in tablets. Another is for an accessory product is yet to hit the market, but again, pushes the boundaries of performance and innovation and is another example of us kind of breaking new ground, winning new sockets in the power space.

So added to that, there are a number of other programs that we're working on across phone and non-phone sockets, which we think give us a great setup over the next few years. So we'll obviously give more color about the magnitude and impact of those as we get closer to them. But we think the multiyear setup around that part of our core business is very, very positive right now.

And for my follow-up, I just wanted to ask on the gross margin. I think you came in better than your guidance originally for June. So just wondering on some of the moving pieces there. When we think about it long term, are you seeing any pressures either from your largest customer, given what's going on in memory or just on input costs across the ecosystem?

Yes. Thanks for the question. We continue to maintain our long-term gross margin outlook. We realize there's a lot of discussion out there about input costs in the supply chain. And we continue to monitor those dynamics closely.

I think it's important to note what has shown up in our actuals, a lot of those costs have been agreed upon for quite some time. So they're coming through as predicted. We did note, we did have this next -- the quarter we're guiding. We do think there is sort of a onetime quarter benefit where some previously agreed wafers will sell through this quarter, and that's a temporary tailwind to gross margin. But we'll continue to monitor input costs. We'll aggressively work on cost reductions, and we'll look at targeted price increases as warranted.

Your next question comes from the line of Cam Tierney with Stifel.

This is Cam on for Tore Svanberg at Stifel. So I just want to start kind of high level, I guess. But -- so it seems like your largest customer is increasingly taking more of the silicon in-house in adjacent areas while also collaborating with you guys on a new power stock as you just discussed.

I'm just kind of curious, like how do you think about where that boundary sits between where they want to design something internally versus where a merchant partner would add more value? And I appreciate you probably can't get into too many specifics, but just kind of high level, would love to hear that.

Yes. Thanks, Cam. It's a recurring question, and it's useful to be able to talk to it. We have, I think, a very clear idea of where we offer unique value and innovation, and we focus on that. And it's really at the analog digital boundary. And so when the products has a requirement for very high precision in the analog domain, very tight control loops, incredible power efficiency, very low latency, that's absolutely our wheelhouse. And we tend not to go after sockets that don't look like that. And our goal is to be the best in the world at sockets like that. And I think that's really reflected in the kind of products we bring to market.

I would struggle to recall the last time we brought anything to market that wasn't absolutely category-leading in terms of performance in those areas at the time we brought it to market.

So we're very focused on serving our customer as well as possible in those particular niches, if you like. And obviously, our customer -- our largest customer has 1.1 million problems to solve to execute on their ambitions, and we like to think we take a bunch of those off the table for them that they don't need to worry about.

I would also say that one of the other aspects to our business that is well understood by us, but isn't always immediately obvious from the outside is that you really have to invest on a very long-term basis in innovation, particularly to succeed with our largest customer. To have a remarkably low tolerance for power point. You really need to invest in developing very high-performance silicon before you can even have a conversation with them about winning a socket. And of course, that takes a certain amount of patience from investors. It takes a lot of determination from your engineers, but it then pays off over the long term. And that's very much our approach.

So you referenced the power products that I was talking about a few minutes ago. I think we've been talking about and I've been talking about that as an area of investment around the battery for quite some time. And now we're increasingly seeing that bear fruit.

Awesome. And for my follow-up, I just wanted to ask a little bit about -- it seems like the CapEx kind of stepped up a bit this quarter. I'm curious what's going on there, if you guys can provide some color on that.

Yes. Thanks for the question. So I would say from a CapEx perspective, we kind of think about this in 2 ways. If you think about it from just the run rate of us operating the business, I would say our CapEx is roughly in line when you think about product and product development cycles. But there is a new element of CapEx, and that is we are investing in testers for our OSATs, and that is new. So rather than having the OSATs by that, we have done some purchases and we're planning purchases for this year.

And the reason for that is, one, it just gives us some greater flexibility in the supply chain environment and us actually owning that CapEx actually provides a better financial return for the company. And so that is new. I think that is more of a '27. We'll see what happens after that, but that has been a change in what we've done from CapEx.

Your next question comes from the line of Rick Schafer with Oppenheimer & Co.

This is Trevor Bowers on for Rick Schafer. I wanted to ask a question about the balance sheet. It looks pretty strong, $1.2 billion in cash, no debt. How would you rank the best uses of cash? And what are your thoughts on the dividend?

Our capital allocation priorities remain unchanged. We want to make sure all of the organic opportunities are funded. And as John said, and there are a very broad range of opportunities we have, and that's the reason we've increased some of our R&D investments.

The second priority is M&A and our third priority is buybacks. So those stay consistent. We realize the balance sheet is very healthy, and we're very comfortable with that position because we believe it does give us more options and more flexibility in those first 2 priorities. And we'll go to buybacks third. But at the moment, we are not in the near term considering a dividend.

And I'll just add one comment there as we spoke a little bit about this on our last call about that expansion to R&D, which is really reflective of the pipeline of opportunity that we have in front of us right now. If you look back over the past several years, you'll see we've got a really outstanding track record of discipline on the OpEx side. Think our headcount has been more or less flat for the last 10, 12 quarters. Until this quarter, you'll see in the shareholder letter, it's taken a step up. The vast majority of those increased heads are engineering related, and we'll see some continuation of that, as Jeff said, but that's very much reflecting the high confidence we have in the opportunities that are on the docket right now.

Okay. Great. And for my follow-up, I wanted to ask about Android. Is there anything noteworthy on the content front with Android, either in China or Korea?

We don't put a huge amount of emphasis or investment in Android for a number of reasons. We think there are just simply better and more durable growth opportunities for the company elsewhere. We obviously have business in Android with multiple customers. That's been a long-running contributor, but over time, a smaller and smaller fraction of our overall income. And we expect that trend to continue. And the reason for that, as I said, is we think there are both more attractive long-term markets and ones where from a competitive position, there are -- there isn't a kind of geopolitical overhang and it's less likely to be a kind of cost-oriented bloodbath.

So when we're investing -- I mean, I talked earlier about some of the industrial investment we've been making. We've obviously been investing in growing in the PC market as well. And we see a number of other exciting areas in front of us. We certainly think there's going to be an expansion in AI-related consumer end products, and we expect to see OEMs bring devices over the next year and beyond to market with our content in them. We think all of those kind of categories are really more exciting long term for growth and SAM expansion than Android.

And with that, we'll end the Q&A session, and I'll turn the call back over to John for final remarks.

Thank you, Chelsea. So in summary, Cirrus Logic delivered record first quarter results. We also continue to make solid progress across each pillar of our long-term strategy. And based on the expanding collaboration with our largest customer in our core business and the advances we are making in our new markets, we're very excited about what lies ahead of us.

I'd like to thank you for your continued interest in our progress and all of our employees around the world for their dedication to innovation and to supporting our customers' success.

Before we close, I'd also like to note that we will be participating in the KeyBanc Technology Leadership Forum on August 11. Please check our investor website for details. And I'd like to thank everyone for participating today. Goodbye.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Fourth Quarter and Full Fiscal Year 2026 Financial Results Q&A Session. [Operator Instructions] After a brief statement, we will open up the call for questions from analysts. Instructions for queuing 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 call over to Ms. Chelsea Heffernan, Vice President of Investor Relations. Ms. Heffernan, you may begin.

Thank you, and good afternoon. Joining me on today's call is John Forsyth, Cirrus Logic's Chief Executive Officer; and Jeff Woolard, our Chief Financial Officer. Today, at approximately 4:00 p.m. Eastern Time, we announced our financial results for the fourth quarter and full fiscal year 2026. The shareholder letter discussing our financial results, the earnings press release and the webcast of this Q&A session are all available at the company's Investor Relations website.

This call will feature questions from the analysts covering our company. Additionally, the results and guidance we will discuss on this call will include non-GAAP financial measures that exclude certain items. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release and are all available on the company's Investor Relations website.

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 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 registered with the Securities and Exchange Commission for additional discussion of our risk factors that could cause actual results to differ materially from current expectations.

Now I'd like to turn the call over to John.

Thank you, Chelsea. Good afternoon, everyone, and thank you for joining today's call. As you have seen in the press release, in the March quarter, Cirrus Logic delivered revenue of $448.5 million, above the midpoint of our guidance range. For the full fiscal year 2026, Cirrus Logic delivered record revenue of $2 billion, up 5% from the prior year, driven by demand for components shipping into smartphones as well as higher PC sales.

We're also pleased to have delivered record GAAP and non-GAAP earnings per share for the full fiscal year. In a moment, I'll hand the call over to Jeff to walk us through the financial results for the March quarter and the full fiscal year in greater detail. Before I do that, I'd like to take a few minutes to highlight just some of the many accomplishments across our business over the past year.

As many of you are aware, our long-term strategy for growth at Cirrus is based on 3 principles. First, we aim to maintain a strong leadership position in our core flagship smartphone audio business. Second, we seek to expand the value and range of high-performance mixed-signal content with which we serve our customers in smartphones and similar products. And third, we aim to leverage our world-class expertise and IP in both audio and high-performance mixed signal to grow and broaden our business in new markets.

In FY '26, we made significant progress in each of these areas. In our flagship smartphone audio business, we continued to see robust demand for our latest generation custom-boosted amplifier and 22-nanometer smart codec, both of which are designed to deliver meaningful system-level improvements and exceptional performance. As a consequence of their advanced design, we expect these products to enjoy extended life cycles and to ship for a significantly longer period than is typical for consumer products, thus providing solid long-term visibility and sustained revenue contribution. This, in turn, enables the company to deploy our R&D resources in new areas that can drive further innovation and growth.

In our high-performance mixed-signal business, our goal is to expand the range and value of advanced products with which we serve our customers. And here, we also made exciting progress in FY '26. Customer demand for our camera controllers remain strong, and engagement with our customer around our road map for future camera controllers was equally robust. These products continue to enhance a central part of the smartphone experience. And today, we are actively designing the next generation of components and technologies that will bring advanced functionality and differentiation to the camera performance of future smartphones.

We are also very pleased with our accomplishments in advanced battery and power applications, where we validated new technologies and intellectual property in silicon and demonstrated our ability to enhance battery performance, health and longevity as well as to improve efficiency for application-specific power management solutions.

Moreover, our goal of expanding HPMS content in smartphones has frequently been advanced by demonstrating our capabilities in components designed for other end products. And in the past year, we were excited to deliver new high-performance power solutions for both accessory and tablet devices. While we continue to pursue multiple opportunities in power, our progress in this area was exemplified by a recent announcement from our largest customer that highlights our collaboration on a solution to support Face ID implementations in future products. This reflects a 2-decade engineering partnership that has been built on exceptional execution, continuous innovation and trust. It also marks an exciting new application space for Cirrus Logic, and we are presently in the design phase of our first product in this area, a smart power IC for 3D sensing that integrates high-efficiency power delivery, precision current drive and programmable control.

The third pillar of our strategy is to leverage our audio and high-performance mixed-signal expertise in new applications and markets outside of smartphones. In PCs, we delivered strong year-over-year revenue growth in FY '26, largely driven by share gains across all PC segments. We introduced new amplifiers and codecs that address a wider range of platforms, including mainstream and AI-enabled PCs.

Looking ahead, we believe voice will be a critical enabler for agentic interaction across many different types of edge device, including PCs, and we will continue to leverage our expertise and intellectual property in this area to deliver significant enhancements to the AI user experience. Design momentum across our PC portfolio is very robust, and we expect increased adoption of SDCA and higher content per device to contribute to further strong growth in our PC business in FY '27.

Beyond PCs, we made meaningful progress expanding our general market product portfolio in FY '26 and are encouraged by the momentum we are building in this area of our business. We introduced multiple new product families that target a broad range of customers across the professional audio, automotive, industrial and imaging end markets. Our progress included continuing to ramp production of our ultra high-performance audio ADCs, DACs and codec both professional audio and automotive applications, sampling our latest family of prosumer high-performance audio converters and launching a new series of industrial imaging components designed for high-precision scanning systems.

Finally, over the past year, we made great progress both in driving the geographic diversification of our supply chain and advancing the process technologies that help us deliver exceptional performance in our products. This included joining our largest customer's American manufacturing program where we are working with both our customer and GlobalFoundries to develop new process technologies and working towards manufacturing products for the first time at the GlobalFoundries facility in Malta, New York.

To summarize our progress over the past year, we continued our track record of consistent execution as we delivered record financial results, broadened our engagement with our largest customer and advanced our plan to drive application and market diversification. As we look ahead, we see the strongest pipeline of opportunities in front of us in recent history.

Accordingly, to capitalize on these opportunities, we plan to increase our R&D investment throughout fiscal '27. Cirrus has a strong record of operational discipline, and we have previously made it clear to shareholders that we'll accelerate R&D investment where we have high confidence in the long-term benefits to the business of doing so. We believe these investments will generate substantial returns over time and that they will continue to drive shareholder value creation well into the future.

And with that, let me now turn the call over to Jeff to provide an overview of our financial results for the fourth quarter and for the full fiscal year 2026 as well as the outlook for the first quarter of fiscal 2027.

Thank you, John. Good afternoon, everyone. I'll start with a summary of our financial results for fiscal Q4 and full fiscal year 2026, then provide guidance for our Q1 fiscal year 2027.

Revenue in Q4 fiscal year 2026 was $448.5 million, which was above the midpoint of our guidance range. On a sequential basis, revenue was down 23% due to lower smartphone unit volumes. On a year-over-year basis, revenue was up 6%, driven primarily by strong demand for components shipping into smartphones. This was partially offset by pricing reductions and, to a lesser extent, lower general market sales. Fiscal year 2026 was a record $2 billion, up 5% from a year ago. This increase was driven by demand for components shipping into smartphones as well as higher component sales into PCs.

Turning to gross profit and gross margin. Non-GAAP gross profit in the March quarter was $237.9 million, and non-GAAP gross margin was 53%. On a year-over-year basis, the decline in gross margin is primarily due to higher freight expenses. Non-GAAP gross profit for the fiscal year 2026 was $1.1 billion, and non-GAAP gross margin was 52.8%. The year-over-year increase in gross margin reflects a more favorable product mix.

Now I'll turn to operating expenses. Non-GAAP operating expenses for the fourth quarter were $126.1 million. On a sequential basis, OpEx was down $6.9 million, primarily due to lower variable compensation and employee-related expenses. On a year-over-year basis, operating expense was up $6.1 million mostly due to higher employee-related expenses. This was partially offset by a reduction in product development costs, primarily associated with the timing of new products. Non-GAAP operating income for the quarter was $111.8 million or 24.9% of revenue. For fiscal year 2026, non-GAAP operating expense was $506.4 million, up $12.3 million, primarily due to an increase in employee-related expenses. Non-GAAP operating income for the fiscal year 2026 was $548.8 million. As a result, fiscal year 2026 operating margin came in at 27.5%, up from 26.5% in the prior year.

Turning now to taxes. For the March quarter, our non-GAAP tax rate was 16%. For fiscal year 2026, non-GAAP effective tax rate was 16.4%. And lastly, on the P&L, non-GAAP net income in the fourth quarter was $102.3 million or $1.95 per share. For fiscal year 2026, non-GAAP net income was $489.3 million, resulting in record earnings per share of $9.26, up from $7.54 in fiscal year 2025.

Now let's turn to the balance sheet. Our balance sheet continues to remain strong, and we ended fiscal year 2026 with approximately $1.2 billion in cash and investments. Our ending cash and investments balance was up $319 million from the prior year, primarily from cash from operations, which was partially offset by share repurchases. We continue to have no debt outstanding.

Inventory balance at the end of the fourth quarter was $240.9 million, up from $189.5 million in Q3 fiscal year 2026, and we ended the quarter with 104 days of inventory.

Turning to cash flow. Cash flow from operations was $151.4 million in the March quarter, and CapEx was $2.4 million, resulting in a non-GAAP free cash flow margin for the quarter of approximately 33%. For fiscal year 2026, the cash flow from operations was $650.6 million and CapEx was $14.8 million. This resulted in a non-GAAP free cash flow margin of 32%.

On share buybacks, in Q4, we utilized $70 million to repurchase 491,000 shares of our common stock at an average price of $142.54. During fiscal year 2026, we returned $280 million of cash to shareholders as we repurchased 2.5 million shares at an average price of $113.91. At the end of Q4 fiscal year 2026, the company had $274.1 million remaining on its share repurchase authorization.

Now on to guidance. For Q1 fiscal year 2027, we expect revenue in the range of $430 million to $490 million, up 3% sequentially and 13% year-over-year at the midpoint. We expect gross margin to range from 51% to 53%. Non-GAAP operating expense is expected to range from $132 million to $138 million, up sequentially, largely due to increases in R&D. As John previously mentioned, given the breadth of opportunities ahead of us, we expect fiscal year 2027 operating expenses to increase. We expect our fiscal year 2027 non-GAAP tax rate to be approximately 16% to 18%.

In closing, we delivered record financial results and made significant progress executing on our strategy to drive application and market diversification.

Before we begin the Q&A, I would like to note that while we understand there is intense interest related to our largest customer, in accordance with Cirrus Logic company policy, we will not discuss specifics about our business relationship. With that, let me now turn the call to Chelsea to start the Q&A session.

Thanks, Jeff. We will now start the Q&A portion of the earnings call. [Operator Instructions]

[Operator Instructions] Your first question comes from Christopher Rolland of Susquehanna. Please go ahead.

This is Yash on for Christopher Rolland. I know you guys guide 1 quarter at a time, but I would love any color around how you think about seasonality and any puts and takes to consider as we get into the fall quarter?

Yes, thanks. So as you noticed from our guide, the guidance for June is a little stronger than the typical average for this quarter. We believe that reflects the continued strength of our customers' current products, along with some of the dynamics that we've talked about regarding a greater proportion of our content being ramped a little earlier than in the past. And yes, we do only guide 1 quarter. But we think that those dynamics likely contribute to a smaller delta between the June and September quarters than what we've seen in the past.

Perfect. And then my second question is around the PC opportunity. So you called out higher PC sales. And I was wondering how large that business was in fiscal '26? I would love to know how that opportunity is progressing and if you had any expectations for fiscal year '27.

Yes. Thank you. So as you know, we don't break it out formally, but we do like to give some color to give our investors a sense of the momentum that we're building there. So we showed strong growth in fiscal '26 and exited the year with really good momentum, meaning we expect to see continued strong growth in fiscal '27, and we continue to be excited about the long-term contribution that this can make to our business.

One of the things I've said before is that for us to go after a new market, we need to believe it can become a 10% business for us, and that continues to be the case for PC.

So if I wind the clock back a little, as you know, we did low tens of millions in fiscal '25. And then that grew into the 40s in fiscal '26. And we, as I said, exited the year with really, really good momentum across our customer base. So we are shipping in the top 6 laptop vendors. And the indicators that we take as good kind of signals about the direction of travel for us and the momentum were all very positive as we exited the year.

And just to give you a bit more color on those. One of the indicators, for example, is the number of designs which are shifting from a legacy audio interface called HDA to the new audio interface called SDCA. We've talked about that transition in the past and how significant it is for us. We tend to stand a very good chance of winning SDCA-related designs. And if we look back in time, in fiscal '25, SDCA was still at a very early stage. And most of the market was HDA, most of our revenue was HDA as well. But in fiscal '26, we actually saw that pass an inflection point. SDCA revenue tripled so that it became almost 60% of our total PC revenue. And in FY '27, we expect that transition to continue. And we would expect, based on what we see, that the figure would be closer to 80% of our revenue being driven by SDCA-related designs. So that transition is well underway now. And it's great for us because we believe we have the strongest portfolio of SDCA audio and voice products. And it's great for consumers because it delivers a significantly better audio and voice experience.

One of the other good indicators that we look to and we've talked about in the past is our penetration of the mainstream tier of devices. That's really critical for driving volume and is an important part of our growth strategy. And again, that's an area where, if we look back over the past couple of years, that's been a relatively small proportion of our revenue. In fiscal '27, we would expect that more of our -- more than half of our revenue will likely come from mainstream devices. So we feel we're building a lot of momentum, and we're very pleased with the traction we've got across our customer base and excited about where it can go in the future.

Your next question comes from the line of Tom O'Malley with Barclays.

I wanted to ask on the smart power IC, which you talked about in the commentary in the shareholder letter and then you also saw in the Apple announcement. Can you talk about the timing that it takes to traditionally ramp up a part like this? And then maybe a little bit of a technical deep dive on exactly what it's doing? Obviously, you can't share specifics. But with a chip like this, is this just gating power to a certain functionality? Is it something to do with the camera as well? Anything that you can give there would be super helpful.

Yes. Thanks for the question, Tom. Obviously, we are limited. I know you know this and what we can say about a custom product that is being made for a customer product that hasn't yet been announced and is not on the market. To answer the first part of your question, from where we are at in the design stage today, I would say that we're looking at a couple of years before that gets introduced. That's not speaking to our customers' plans, but just based on where we are at. And as to its functions, I think we are limited in what we can say there, but what I would highlight is it's a really good example of something that we do well.

First of all, as you know, we've been investing in certain areas of power where we believe we can bring innovation to the customer. But alongside that, we have the ability to provide very, very high-performance power analog circuits combined with digital. So this is a highly programmable device which will bring functionality and performance to that subsystem which hasn't been there before, which is a really good kind of example of what we are good at bringing to our customers by virtue of the investments that we make in advanced node mixed-signal IP.

Great. And then as a follow-up, maybe sticking on the same side of the business to some extent, on the camera controllers, there's some commentary here as well. I know you talked about that a lot, but you've seen proliferation at your largest customer over the last several generations as that continues to move from camera to camera and then content per camera is going up. Is your commentary looking to call out anything particular, an inflection point in that market? Or is it just kind of describing the ongoing penetration that you're seeing over the next couple of years?

You are picking up on something there that we would like our investors to understand for sure, which is that we are in design of next-generation components today. That's a development that happened during the past few months. And beyond that, we have a very rich road map of IP. So because there is a differential attach rate across different SKUs and then obviously, many different SKUs and multiple generations that are sold of our customer products at any one time, the impact of new content, it tends to be more linear than big step functions. But suffice to say, we've got great stuff coming down the track and an incredibly close and collaborative relationship with our customer around the road map there. So yes, we did want to call that out that we see that as being an area where we believe we can continue to grow content and deliver more value to our customers and capture more value ourselves.

[Operator Instructions] Your next question comes from Rick Schafer of Oppenheimer & Co.

This is Wei Mok on the line for Rick. Congrats on the results. My first question is on the PC market. It looks like there's strong momentum in PC in fiscal year '26. And in the past, you talked about this business potentially doubling again in fiscal year '27. But in light of all the industry-wide memory shortages, forecast for PC units have come down. So just wondering if you maintain that view given talks of all these memory concerns? How do you see the PC business operating this year?

Yes. Thanks for the question. I don't think I actually have talked about fiscal '27 previously and set expectations around that. We certainly -- that is until about 5 minutes ago. We certainly do feel that we're exiting fiscal '26 with great momentum across the customer base and a lot of product in design with those customers. So for sure, we believe we can deliver strong growth in fiscal '27. And we believe we can do that even in an environment where there is some pullback in the PC market. I'm sure you're aware of the same commentary that we're aware of that's out there in the wild about what might or might not happen with the PC market.

I wouldn't say we see lots of signals of that within our customer base. I think it's worth keeping in mind that we tend to be serving the largest OEMs in the PC world. So they're probably better positioned to secure memory and so on. And we tend to be skewed towards the upper tiers of their devices, which, again, I think, are potentially better insulated from some of what you're talking about. I think it's possible that we do see some pullback in the PC market overall over the course of the year, but that doesn't change our perspective that we believe we can continue to deliver strong growth in fiscal '27.

Got it. Great. As for my follow-up, you guys highlighted a closer collaboration with GlobalFoundries at the Malta, New York fab. And I believe they have 12-nanometer, 14-nanometer process. So can you talk about some of the products you see can best utilize this fab? And what are some of the opportunities you can leverage of this collaboration?

Sure. We have a close collaboration with GlobalFoundries going back many years, and that has served us and GlobalFoundries, I think, extremely well over the years. It is focused on process technologies for our high-voltage products, for example, amplifiers and power conversion and control chips. So those would not tend to be on the geometries that you just referred to. They, for example, would be centered typically around 55 nanometer. But I guess for us, as we look forward, we have a collaboration with Global that is focused on delivering the next generation of process technologies relative to what we've been using up until now for our high-voltage products. And those technologies and that process development will deliver higher performance, greater power efficiency, greater cost effectiveness for our customers. And that's something that we're very excited about bringing up in Malta as well because we know our customers want to have access to semiconductors fabricated in the U.S.

So for us, the high-voltage products today are obviously, as I said, amplifiers, haptics drivers, power conversion and control chips. We saw a press release over the past quarter from our largest customer, which referenced a product for the Face ID subsystem, which could be fabricated at that facility. And as I've indicated in the prepared remarks, we believe there are still many other opportunities for us around the power space that could also potentially be fabricated in the U.S. using this process that we're collaborating with GlobalFoundries.

Your next question comes from the line of Tore Svanberg of Stifel.

Yes. And congrats on the strong results. I wanted to come back to the new power product and just trying to understand a little bit more what this means longer term. I mean is this a beginning of more content, more opportunities? I'm just thinking about sort of when you got into the camera controller space, right, and there was a starting point, and then eventually, you were able to expand more content there. So any more visibility you could share with us, not just on the timing of this particular product ramp, but perhaps beyond this initial use case?

Thank you, Tore. I guess the truth is we don't have a lot to say about that right now, but I think your observation is very fair, and it's a good reflection of the way we work with our customers. In most of the products that we've delivered, we have then iterated on those products to deliver more value to integrate more of the components that sit around us on the board, which is something we're very, very well positioned to do by virtue of the processes we're on and our approach to design. And so I think we've done that very successfully in really literally every other domain where we've served that customer.

I think when we launched the new generation audio amplifier in the fall of calendar '24, we indicated that, that represented an ASP uplift for us but a lower system cost to our customer. And the way we achieved that was by integrating stuff around us as well, of course, as delivering higher performance. So this is definitely a very exciting new area for us, and we're thrilled to be serving the customer in a new part of the system. The first mission, obviously, is to execute flawlessly on the first product. But beyond that, we will look very hard at how we can deliver more value there and potentially iterate and expand from there.

I would also highlight, though, that this is a great reflection of a lot of the work we've been doing, investing in power over the past few years and that a lot of that investment led to us being very well positioned to win this socket and that we continue to believe there are other power sockets out there where we could bring innovation to the customer as well.

Very good. And as my follow-up and on your general market product portfolio, you listed a few new products in your shareholder letter. What are some of the milestones that we should be looking for here? I mean are you eventually going to tell us that it's become 10% of your revenues? Because obviously, these are longer time to revenue product cycles and so on and so forth. So any guidance on what to look out for, for milestones there would be really helpful.

Yes. I think we'll certainly give that some thought on the milestone front. I would say your characterization is absolutely right. These kind of products are long lifestyle -- sorry, long life cycle products that are going to be very solid contributors to us for the long term and typically have significantly higher margins than our corporate average. But no single one of them moves the needle that much for us in the space of 1 year.

But I think the way to think about this for you and our investors is that over the years, we've built a really formidable portfolio of IP. And when we have been entirely focused on serving our largest customer and not going far beyond that, then we haven't had the ability in the past to leverage that IP into other segments. But this -- the products that we announced that you referred to, so we recently announced a new scanning and imaging products, but that came on the back of other announcements we've made around prosumer audio, around timing products and so on. And they all fall into the same category of leveraging some very advanced IP we have, being comparatively economical investments and addressing segments where the profitability is great, and those products will continue to run for a very long time.

So when we look at the aggregate, we're by no means done in that space, I should say. And when we look at the aggregate of that over time, it gives us a really, really nice addition to the business, and we expect that part of the business to grow.

Yes, I think I'd just add, Tore, while it does take time, we are continuing to invest in this area because we think there are more opportunities so we will continue to broaden out that portfolio. And while it does take time, the products we have launched, we have been very positively received by customers, and we're very encouraged by the opportunities.

Okay. Well, with that, we'll turn the call back over to John for his final remarks.

Thank you, Chelsea. In summary, we are very proud to have delivered record financial results for the fiscal year 2026 while also making excellent progress on our strategy to drive application and market diversification.

I'd like to thank everyone who is a part of the Cirrus team worldwide for the amazing level of execution and customer focus that has delivered these results. And I'd also like to express our gratitude to all of our customers for the trust and support they place in Cirrus Logic. We're very excited about the opportunities ahead, and we believe the company is well positioned to drive further future growth and value creation. Finally, thank you all for participating today. Goodbye.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Third Quarter Fiscal Year 2026 Financial Results Q&A session. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference call over to Ms. Chelsea Heffernan, Vice President of Investor Relations. Ms. Heffernan, you may begin.

Thank you, and good afternoon. Joining me on today's call is John Forsyth, Cirrus Logic's Chief Executive Officer; and Jeff Woolard, our Chief Financial Officer. Today, at approximately 4:00 p.m. Eastern Time, we announced our financial results for the third quarter fiscal year 2026. The shareholder letter discussing our financial results, the earnings press release and the webcast of this Q&A session are all available at the company's Investor Relations website.

This call will feature questions from the analysts covering our company. Additionally, the results and guidance we will discuss on this call will include non-GAAP financial measures that exclude certain items. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release and are all available on the company's Investor Relations website.

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 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 registered 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 John.

Thank you, Chelsea, and welcome to everyone joining today's call. As you've seen in the press release, Cirrus Logic reported outstanding results for the December quarter, delivering revenue of $580.6 million, above the top end of our guidance range. This was driven by stronger-than-anticipated demand for components shipping into smartphones and a favorable mix of end devices.

We are also proud to have delivered record GAAP and non-GAAP earnings per share in the third quarter. In a few moments, I'll hand the call over to Jeff to discuss the financial results for the December quarter in detail, along with our outlook for the March quarter.

Before we get to that, I'd like to provide an update on the recent progress we have been making across the key pillars of our strategy. As I have outlined previously, our long-term strategy for growth at Cirrus is based around 3 principles. First, we seek to maintain a strong leadership position in our core flagship smartphone audio business. Second, we aim to expand the value and range of high-performance mixed-signal solutions with which we serve our customers in smartphones and similar products. And third, we aim to leverage our world-class expertise and IP in both audio and high-performance mixed signal to grow and broaden our business in new markets.

I want to say a few words now about the progress we've made in the past quarter in each of these areas. In our flagship smartphone audio business, we saw very strong demand for our latest generation custom-boosted amplifier and 22-nanometer smart codec. These products are based on innovative new architectures that are designed to enable system-level improvements with each new smartphone generation, extending our product life cycles while also providing longer-term visibility and sustained revenue contribution.

In our high-performance mixed-signal business, customer engagement around our camera controller road map remained strong during the December quarter. We are actively developing next-generation camera products that will deliver enhanced features, improved performance and greater system efficiency, and we are excited about the opportunities in this space for the future. We also continue to invest R&D dollars in IP and capabilities around advanced battery and power applications, where we believe there is both opportunity to enhance existing content and grow content further. Across a range of areas, we see considerable opportunity to expand our value in smartphones with HPMS solutions, and believe this will be an important driver for shareholder value creation in the coming years.

Our third strategic priority is to leverage our audio and high-performance mixed-signal expertise into new applications and markets outside of smartphones. We've made great progress here, particularly in PCs, where we continue to build momentum. Our progress in the December quarter included ramping the first shipments of our latest generation amplifier and codec in mainstream PC platforms ahead of new customer product launches, an important milestone as we focus on expanding our footprint in higher-volume mainstream PCs and capturing a larger share of our serviceable addressable market.

During the quarter, we also sampled a new component designed to enable and enhance the use of voice as an interface for future AI-enabled PCs. And we were pleased to see strong interest in this product from several leading OEMs and PC platform vendors.

Finally, we were excited to see multiple new customer products introduced at the Consumer Electronics Show in January that use a variety of our amplifiers, codecs and haptic drivers. These product launches included our first win with a new customer in their high-end laptop platform that features up to 6 Cirrus Logic amplifiers and our latest generation codec, setting a new standard for the audio experiences end users can expect from PCs.

While we are very pleased with our achievements in PCs, the company also continued to gain momentum in other applications within our general market business. A growing number of our new general market components span the professional audio, automotive, industrial and imaging end markets. Leveraging our world-class IP, these products typically enjoy long product life cycles and gross margins that are well above our corporate average and hence, act as a strong complement to the rest of our business.

In the December quarter, we began sampling a new prosumer audio product family that will expand our addressable market by delivering solutions that span additional tiers and categories of products. This builds upon our portfolio of class-leading components that already service many of these markets today, particularly in professional audio and prosumer applications.

Further, we also announced a new series of automotive haptic components that are designed to consistently deliver a range of tactile responses in real time for applications across a wide range of in-cabin interfaces. Although we are in the early stages of participation in the automotive haptic market, we believe this represents an important growth opportunity for Cirrus Logic.

In summary, we are proud of our progress this past quarter as we continue to execute on our strategy to diversify our product portfolio and drive growth in new applications and markets.

And that concludes the latest update on our long-term growth strategy. So let me now turn the call over to Jeff to provide an overview of our financial results as well as the outlook.

Thank you, John. Good afternoon, everyone. I'll now walk through our Q3 financial results and provide guidance for Q4. In Q3 fiscal 2026, we delivered revenue of $580.6 million, which was above the top end of our guidance range, driven by demand for components shipping into smartphones and a favorable mix of end devices. On a sequential basis, revenue was up 4% due to higher smartphone unit volumes, partially offset by a decline in general market sales. On a year-over-year basis, sales were also up 4%, primarily driven by higher smartphone unit volumes. This was partially offset by previously anticipated pricing reductions and lower general market sales.

Turning to gross profit and gross margin. Non-GAAP gross profit in the December quarter was $308.2 million and non-GAAP gross margin was 53.1%. On a sequential basis, the 60 basis point increase in gross margin reflects the benefit of a reduction in inventory reserves and to a lesser extent, supply chain efficiencies. On a year-over-year basis, the 50 basis point decrease in gross margin was largely due to the impact of previously anticipated pricing reductions, which were mostly offset by cost reductions.

Now I'll turn to operating expenses. Our non-GAAP operating expense for the third quarter was $133 million. On a sequential basis, OpEx was up $5.3 million, primarily due to higher employee-related expenses. This was partially offset by lower product development costs, largely associated with the timing of tape-outs. On a year-over-year basis, operating expense was up $3.8 million, primarily due to higher employee-related expenses and to a lesser extent, professional expenses. This was partially offset by a decrease in product development costs associated with lower wafer and tape-out expenses. Non-GAAP operating income for the quarter was $175.1 million or 30.2% of revenue.

Turning now to taxes. For the December quarter, our non-GAAP tax rate was 15.1%, which incorporates the impact of the One Big Beautiful Bill Act. And lastly, on the P&L, non-GAAP net income was $156.7 million, resulting in record earnings per share for the December quarter of $2.97.

Let me now turn to the balance sheet. Our balance sheet continues to be strong, and we ended the December quarter with $1.08 billion in cash and investments. Our ending cash and investments balance was up $185.9 million from the prior quarter as cash generated from operations was partially offset by share repurchases. We continue to have no debt outstanding. Inventory at the end of the third quarter was $189.5 million, down from $236.4 million in the prior quarter. Days of inventory were down sequentially, and we ended the quarter with approximately 63 days of inventory.

Turning to cash flow. Cash flow from operations was $290.8 million in the December quarter, and CapEx was $5.2 million, resulting in a non-GAAP free cash flow margin of 49%. For the trailing 12-month period, cash flow from operations was $629.6 million and CapEx was $21.6 million. This resulted in non-GAAP free cash flow margin of 31%. On the share buybacks, in Q3, we utilized $70 million to repurchase approximately 591,000 shares of our common stock at an average price of $118.33. At the end of Q3 fiscal 2026, the company had $344.1 million remaining on its share repurchase authorization.

Now on to guidance. For Q4 fiscal 2026, we expect revenue in the range of $410 million to $470 million. GAAP gross margin is expected to range from 51% to 53%. Non-GAAP operating expense is expected to range from $124 million to $130 million. The fiscal year 2026 non-GAAP effective tax rate is expected to range from 16% to 18%.

In closing, we delivered strong results for the December quarter. We remain focused on executing our strategy to drive long-term growth across our business and deliver shareholder value.

Before we begin the Q&A, I would like to note that while we understand there is intense interest related to our largest customer, in accordance with Cirrus Logic company policy, we will not discuss specifics about our business relationship.

With that, let me turn the call over to Chelsea to start the Q&A session.

Thanks, Jeff. We will now start the Q&A portion of our earnings call. [Operator Instructions] Operator, we are now ready to take questions.

[Operator Instructions] Your first question comes from the line of Tore Svanberg with Stifel.

Congrats on the record earnings and especially those impressive cash flows. First question is you came in $50 million higher for this quarter. You're guiding quite a bit better than seasonal for the March quarter. So I was hoping you could just add a little bit more color on what's going on. I mean, I understand, obviously, your largest customer and the higher mix. But any more color you could share with us because those are pretty big beats.

Yes. Sorry, it's Jeff. I think from a seasonality perspective, it does still look like from Q3 to Q4 in the range of where we've been historically transitioning between those 2 quarters. I think the color commentary is really while the seasonal shape is the same, we just were further away from the peak than we thought when we gave guidance last quarter. So I think the peak of units and a favorable mix is really the story there. It really is just we were not -- we just didn't call the peak, and we were a little further away from the top than we thought.

Sounds good. And as my follow-up for you, John, you mentioned some interest in the voice as an interface for AI. I mean I assume that's primarily in the notebook market, but perhaps there's some interest in other applications as well. And when should we expect the company to start seeing revenues from a technology like that?

Yes. Thanks, Tore. In the first instance, yes, I was referring to, in particular, a product that we've been sampling to DC OEMs, which is focused on really significantly enhancing the voice interface for interaction with conversational agents and AI through their laptops. So that's something that today is obviously pretty limited. We believe we can bring a lot in terms of new features and performance improvements to that. We started sampling the first product targeting the PC market, which is aiming to do that for customers. And the interest has been really strong. That obviously gives us the opportunity to grow the value of some of the products that we ship into the PC space.

Specifically, when you look at that voice product, it's a codec with a lot of smart voice features and processing capability on it. That could represent anywhere up to something of the order of double the value of the preceding generation of codec when you look at it from an ASP perspective. It also has a potential, I think, to be just stickier and obviously have a direct impact on the user experience. So we're excited about that in the PC space.

Sampling it right now means that that's really going to be something that we see in calendar '27 and '28. It's obviously part of a road map of products that we're working on and looking at around that area. And yes, to your broader point, although that's something which specifically I was referring to in the context of the PC market, I think those are features which are going to be relevant elsewhere as well. And one of the areas where we've had some great engagement with customers is around AI devices that we're anticipating coming to market over the next couple of years. And I think, again, that's a place where over time, we'd like to be bringing voice and voice-enabling features.

Your next question comes from the line of David Williams with StoneX. Sorry, just one moment here. Your next question actually comes from Christopher Rolland with Susquehanna International Group.

This is Dylan Ollivier on for Chris. Congrats on the great result. So for my first question, it seems so from your shareholder letter, it seems like your -- the revenue at your largest customer represented a higher percentage of your mix at 94%. So this would imply that your revenue outside of this flagship declined pretty significantly quarter-over-quarter. I was wondering if you had any color on what sort of caused that decline? And if you anticipate it to remain at that run rate or tick back up?

Thanks, Dylan. I'll start it off here, and Jeff can chime in if he has additional commentary. But yes, definitely, this is an area we'd like to add color on. Partly, of course, that proportion of our revenue is very high because of the strength of the product launch from our largest customer. But there have been some other temporary factors that have acted as headwinds in our general market business, which we're mostly through now, but I think are worth calling out for our investor community.

One of those, when you look at the strategic shift that we made away from focusing on Android a few years back, that obviously has led to a decline over time in our Android revenues. That's the single biggest contributor to the year-over-year decline from our general market revenue perspective there. There is another factor, which is that we have a long tail of products. There's a rather large number of products, which are -- which address automotive, industrial, prosumer, imaging segments where the products themselves are 10-plus years old, and typically based on old process nodes in many cases, in facilities which are no longer going to be functioning. So a number of those have been coming to the -- their end of life, which resulted in customers ordering ahead, giving us some sales momentum, but ultimately, that gets unwound as those products are end of life.

Now we've been -- in parallel to all that, of course, we've been strategically investing in new growth markets like the PC market and in new product families in the past few years that will more than make up for those headwinds. So that's all the PC opportunity that I've talked about, other opportunities in AI devices that I alluded to. And then these products, which we've been announcing periodically and sampling to customers and beginning to ramp around pro audio, imaging, timing and so on. So I think the positive thing is that where we're at now between FY '26 and FY '27, that -- those are the points where a lot of those new products are starting to shift. And so when we look out over the next few years, we have a very healthy growth ramp for our general market business, which, of course, includes the PC space, but goes well beyond that as well.

Yes. I think -- the only thing I'd add is we're still very pleased with where we're at from a PC perspective and how we're growing there per our plans and think there is a lot of runway for us to continue to grow that business. And the product that we've refreshed that John mentioned, while early, we're very pleased with the customer traction we're getting and the design wins we're getting. I think, again, there's a lot of room to grow there. And it's just against those headwinds, but we're very pleased with the progress in those segments.

Yes. That's helpful. And that's actually a nice segue for my next question because I wanted to pivot to the PC opportunity. So first of all, I mean, you addressed it a little bit, but I was wondering if you had any color on how you're tracking to what you've previously said for your revenue opportunity in PCs in fiscal '26, and to see if you had any expectations for fiscal '27?

Yes. I think it's a little early to put something on the scoreboard for fiscal '27, and we'll see how the next quarter goes. But I previously said that we expected PC revenue in fiscal '26 to roughly double from the low tens of millions that we saw in fiscal '25. And I think that continues to be our ballpark expectation there. I think we'll exit the fiscal year with very good growth momentum into fiscal '27. So I don't want to put a number on that yet, but we're feeling very good about the momentum that we've got across the customer base there. And that's really -- that optimism is driven by what we see when we look at key indicators around the PC space. So firstly, we're shipping with the top 6 PC vendors at this point -- or laptop vendors, I should say. And then we also look at penetration of the mainstream category or mainstream tier. I've highlighted that as being important. In fiscal '27, we expect that our -- the revenue driven by mainstream platforms will roughly double for us. That will be a very significant proportion of the overall revenue that we see from this PC space.

And then another indicator that is a really good kind of leading indicator for our market penetration, I think, is the adoption of the SDCA interface, the SoundWire Device Class Audio. Because coming into this year, SDCA represented only about 15% to 20% of the overall PC market. By the end of this calendar year, we expect that to be closer to 50%, and that will continue to increase. And in those SDCA slots, we've been winning to date somewhere of the order of 75% of the sockets. So certainly, even if that figure gets diluted a bit as it goes more across the portfolio, it indicates how well positioned we are to take advantage of the SDCA opportunity. So we see that transition underway now at scale. And that's also visible in the sheer number of programs that we're active in, in the PC space.

If you look back to fiscal '25, we had 19 SDCA programs that came to market. In fiscal '27, there'll be over 60. So when we look across those indicators and the momentum that we're exiting the fiscal year with, we feel really good about the opportunity and what's ahead of us there.

Your next question comes from the line of David Williams with StoneX.

Congrats on the really solid results here. And I guess maybe first, just kind of thinking about the guidance where you guys are. Are you seeing any major supply constraints that could have impacted either the quarter or the outlook?

We don't currently see any supply constraints. I think things are tighter in the industry. And so we'll continue to manage that. We do have the benefits. A lot of our products are -- have a fairly long life. So if we need to shuffle things around to make sure we can manage that capacity on both sides, we're able to do that. But right now, there's no constraints.

Okay. Great. And then maybe a little bit longer term, but just thinking about the automotive opportunity, it sounds like the zonal architectures and just the increased haptics maybe in the in-cabin would be a big opportunity. Is there a way to kind of think about when you could start seeing the revenue real contribution from that? And then how do you think that market plays out over the next 2 to 3 years in terms of dollar content for Cirrus?

One of the things you're alluding to there, I think, is that during the quarter, we announced the family of haptic products that deliver high-definition haptic experiences for automotive. So that's part of a range of products that are either in development or announced or sampling to customers for the automotive space, covering timing, audio, haptics, telematics and some other areas where we believe we can innovate and really bring some highly differentiated solutions to market.

I haven't put a time frame or a revenue target for us out there publicly yet in the automotive market. But I'd say a couple of things. One is that we think there's a really healthy SAM when you look across those areas that I talked about. We're in '26 today. If you look out to '29, we think the SAM is, for our products, is certainly north of $800 million.

And the other thing I'd say is just a general philosophical and strategic point about how we approach going after new markets. We have to be able to see multiple pathways to our participation in a new market becoming at least a 10% business for us over time. So we -- anything that we're going after and talking about, then you can be sure that we've got various ideas and grounds for belief that we can ultimately build that into a 10% business.

[Operator Instructions] Your next question comes from the line of Gary Mobley with Loop Capital.

This is Alek on for Gary. My question for you is, how should we think about your seasonality in fiscal '27, given your biggest customer staggered product launch across the high end and low end of the models?

Well, we're only giving guidance for the next quarter. But at this point in time, when we look at the long-term forecast signals we have, we don't see anything that significantly changes our historic seasonality.

Got it. And just as a quick follow-up, do you -- how do you view the rising cost of your largest customer? And how does that influence negotiations -- how does that influence component price negotiations for you?

I'm going to assume you're referring to the much talked about increase in memory pricing there and what the knock-on effect might be for us. I think it comes down to this. Look, I've highlighted previously that we've been in a normalized pricing environment for some time now. So that means we've been working collaboratively with our customers on pricing over the past several quarters and we'll continue to do so. That's really a standard part of our business.

Actually, on a year-over-year basis, as you've seen in the shareholder letter, the 50 basis points that gross margin contracted by was largely due to pricing reductions, anticipated pricing reductions, which are obviously greater than that, but we have to work very hard to offset those pricing reductions with cost reductions and efficiencies in our supply chain and so on.

I guess I'd also -- so we're very much in the kind of normal pricing environment where I would say some of our larger customers are not exactly known for being gentle in pricing negotiations no matter what's happening with commodity prices. So this is very much business as usual for us. I think over time, as we look forward, we anticipate we'll see further pricing adjustments to our products. We'll continue to work on the supply chain to drive cost improvements that will help maintain gross margin. And the effects of that will continue to be reflected in our guidance as they have been today.

There are no further questions at this time. I will now turn the call back to Chelsea Heffernan.

Thank you, operator. With that, we will end the Q&A session, and I will now turn the call back to John for his final remarks.

Thank you, Chelsea. In summary, Cirrus Logic delivered outstanding results for the December quarter, driven by strong demand for smartphones. We're extremely pleased with our progress on each pillar of our long-term strategy and remain focused on executing our technology road map to drive profitable growth across our business and to deliver long-term shareholder value. I'd like to thank everyone for participating today. Thank you. Good bye.

This concludes today's call. Thank you for attending. You may now disconnect.

All right. Welcome back, everyone. I'm Tom O'Malley, semi and semi-cap analyst here at Barclays. Very pleased to have Cirrus Logic with us. We've got John Forsyth, CEO; and Jeff Woolard, the CFO. Thank you being here.

Thank you. Thanks for having us.

So forgive me, but I must ask the question that is floating around on everyone's minds. At this time. You've got this big spending trend in AI, right? And today, it's very data center focused, right? $3 trillion plus in announced data center spend. You've got companies that are very data center-centric that are addressing this first. And they're doing that through retimers, cabling, memory, et cetera. But over time, the idea is that you're moving away from data center-centric compute and potentially to the edge. The edge seems like a place in which Cirrus can play a lot more effectively. Correct me if I'm wrong, one.

And two, where do you see yourself potentially intersecting this trend kind of longer term?

Yes. So first of all, yes, like I think we're very much at the edge. I believe that AI will become more and more of a thing of the edge. I don't think it's quite that yet and the kind of boundaries between what takes place at the edge versus the data center is not completely clear.

But at a high level, I would say a couple of things. Firstly, anything that squeezes power and space is favorable to us. And what I mean by that is you can be doing a lot more intensive compute at the edge, just going to put a lot of pressure on the power consumption of the device. You're going to want bigger batteries, you're going to need to have more memory in there.

And 2 things that we do extremely well, create very, very power-efficient chips. So we can help the system optimize for that level of power consumption. And also by the standards of our peer companies, we tend to produce chips that are not overly more power-efficient, but they're also in smaller packages. So again, we can be a part of the design solution for devices doing AI at the edge.

The other thing I'd say is that I really believe, however AI at the edge ends up being used, a lot of it will be done through voice. And so whether it's on the input side, the output side around voice or in fact, when it comes to the image path as well, we are part of the basic I/O of the device. And we have a lot of voice-enabling IP great amount of history in delivering enablers for the voice interface.

And I think that's the natural mode for using a lot of AI functionality is the conversational interface in the end. So I think that creates great opportunities for us in devices that you see as in today, whether that's phones or PCs but also in new categories of AI devices that we're going to see in the coming years.

That's perfectly lead-in. So I saw an announcement around auto earlier this week. Obviously, in the midst of all this, I would be better to have you fill me in on the details here. But it seems like when you think about voice at the edge, auto is the perfect place to kind of see that intersection because a lot of times, at least today, your hands are busy, right? So why is this an interesting future path for you guys? And how real is that in terms of revenue contribution in the near term?

Well, thanks for highlighting the announcement this week. We announced some automotive haptics product this week. We didn't say anything about voice and AI in the car this week, but that is something that we think a lot about as well.

I'll begin with that because the car actually brings lots of really interesting audio and acoustic challenges, whether that's noise cancellation or isolation and having different audio zones for different people in the car, all of whom are potentially speaking to each other or speaking to the AI and so on. So lots of really interesting challenges for us in that space. And I think you'll see more from us in that area as we go forward.

This week, and I think this is very complementary to that. We announced a family of automotive haptic pots. And that's really us kind of signaling our entry into automotive haptics, where I think it's fair to say the end user experience up until now has been really disappointing. So much so that as you probably know, auto makers have received a fair amount of pushback from consumers on the transition away from traditional buttons and so on.

And that's -- not purely because consumers don't want to use buttons on the screen. It's partly because the actual experience and the feedback is so poor, and it can be hard to determine whether you pressed it properly. Sometimes it's laggy which is an absolute killer for any kind of haptic experience. So we've obviously been leaders in haptics in the consumer device space and cell phones and so on for a long time now.

In my opinion, it's not really an exaggeration to say that automotive haptics is somewhere around 20 years behind the haptics experience in consumer devices today. And we want to do our part to help address that. So the products we announced earlier this week are bringing a kind of cutting-edge haptic experience to auto cabins, which means highly responsive, stuff that really feels like you're genuinely clicking on something stuff where the click experience adapts to the speed to the road conditions and so on. So you'll always get a really great user experience that we've been delivering on other products.

So auto supply chain is very different than consumer supply chains. Can you talk about the certifications first that you need to get into automotive-grade products. That takes a long period of time. Where are you in that certification process? And then two, design in cycles 3 years -- 2 to 3 years. If you're on to these products today, should we be thinking kind of the '27 -- like '27, '28 time frame for revenue?

Well, I think, as you mentioned, the auto does take a long time, even in the quick design cycle. So we're still a ways off from where we'll start giving color commentary on that. But as John said, we think there are a lot of exciting opportunities for us there. We're actively investing in pursuing those and feel good about where we're at, but it will take some time for it to materially show up.

Helpful...

But to be clear, the products we announced are auto-qualified. And this is a public announcement. It doesn't mean we've just started working on the -- these products have been in some fantastic demonstration platforms which have been going around OEMs and Tier 1 integrators for quite some time now.

Can you explain the difference to me? Obviously, you use an amplifier to do the haptics in smartphone from a design perspective, is there a major difference in the automotive ecosystem. I would assume there needs to be reliability around being qualified in auto?

So you have reliability and quality considerations with the temperature ranges and so on. But it's also aspects like the user experience, like, as I said, being able to have a system that adapts to -- that adapts the feel of the click to the speed or the road conditions and so on. So actually delivering stuff at an algorithmic level, not just the chip level that really makes it fit for purpose in the car.

So another area that you've been diversifying the business is on the PC side. You had a reference design with Intel, which is proliferating, which is helpful for your suite of products. Looking into next year, I think you've talked about tens of millions, and that's growing substantially into next year as well. Remind us what the 2026 outlook looks like there?

But then you've got this other dynamic PCs actually sound better next year. OEMs are kind of talking low single-digit growth. But then there's this counterbalance that's associated with memory, where there's a fear around consumer devices of potentially slower sales given guys can't get memory. How do you balance that all out for what you're thinking about the PC business?

Well, First of all, what I'd say is that for us, we're starting from a small base, it's all growth. I mean the overall units picture affects us much less than many of the other guys right now because we're going -- we're growing quite significantly within the PC space.

Yes. And I think just to give you color on the outlook. Yes, in fiscal '25, which ended in March for us, we said low tens of millions of dollars revenue and that we expected that to double in fiscal '26, which we're tracking to. And then that we would anticipate coming out of fiscal '26 with still a very good growth momentum as we go into FY '27. And we'll give more of an update on that as we go forward. But I think you can see now in the market, some of the transition taking place that we think is very favorable to us.

So one of the factors that is driving our adoption in the PC market is the transition from a legacy interface called HDA, the high-definition audio interface to a new audio architecture called SDCA. And that transition has been kind of slowly underway for a couple of years now. It's gathering momentum. We estimate that somewhere between 15% and 20% of laptops today are using SDCA. That's ultimately -- that's going to be practically 100%, and that transition is going to complete over the next over the next 2 or 3 years.

Today, out of those 15% to 20% where people have migrated to SDCA, we estimate that 75% of those products are using Cirrus silicon. So that's a big driver for adoption of our content.

Super helpful. Okay. We saved the fun for last, so smartphone side. So I think going into this year, particularly with your largest customer, but just generally in the model, you talked about front-end weighted cycle. And I think that there are multiple reasons for that, just given your camera controller content, given what you saw from like a tariff perspective this year, it just seems like to be safe, people were building a little bit earlier.

And I think if you look at the trajectory that you guys saw, it really has mirrored that so far. Just a broader question. Like if you look at this cycle on a unit perspective and a content perspective versus kind of where you sat when you first started talking in the March, April, May, June time frame, anything materially different? Or is that largely tracked to kind of what you thought?

I think it's largely tracked to what we thought. I mean, as we pointed out in some of the other calls, so the shape was a little different. But I think largely pretty close to where we thought at the beginning of the year.

And then others have referenced older generations of phones? Or just like have you seen any of those trends as well? Like we've heard from other companies, RF providers in general that they've seen a mix of legacy phones, last year's phone or the year before on still selling a little bit better. Is that something you guys are seeing?

Those previous generations are still selling, but I think that's generally -- roughly with where we thought we would be.

Okay. And then just checking in, we get this question a lot as well. last generation, you talked about, the 22-nanometer more codec, some of the AMS as well. The cadence there has been every 5 or 6 generations. Is that still the right way to kind of think about the updates on those? Any reason why you would push that forward faster?

There's a little bit of a balancing act to be done between getting on with other things, getting leverage out of the very substantial investments that we made to bring those products to market versus not allowing there to be any room for somebody to come in sniping for those sockets.

So the way we approach that is we have a fairly steady ongoing dialogue with our customer about what features an IP will be valued and useful when it comes to making the next generation without needing to put a tenant which year that's going to be in.

And so our working assumption is something along the lines of what you said. The last generation of codec [ and apps ] were shipping for 5 years and 6 years when they were superseded, but to be clear, they continue to shift. And in fact, were in the mid-price device that was launched earlier this year.

So they still have some runway ahead of them as well and lifespan of 1 of these devices could easily be 7, 8 years, I think. They're designed with that in mind. So something like the codec typically has a lot of capability that isn't necessarily all exploited fully in the first product cycle that's incorporating that codec. This is one of the things that people don't always appreciate about our largest customer is, a, how much thought goes into that, like planning ahead so that the silicon doesn't need to constantly be turn.

But secondly, also just how that -- how atypical that is of the consumer electronics business. It really doesn't look like consumer when you step back from it and say, well, these parts are going to run for 7 years. We can say with a reasonably high degree of certainty, how many hundreds of millions of them we're going to need each year. And that's an extremely strong and stable part of our business.

But I think -- so you would expect us to always have some innovation and research going on what the next generation of those products look like, the bulk of the R&D resource is actually available for us to target at other new areas where we want to develop novel IP and expand our content.

So it almost helps you in the middle of those cycles where you're like this is pretty secure at this point. And in time, we can allocate elsewhere. And as we get a little bit closer to a period of time, which you know you need to upgrade then redirect dollars?

Exactly.

Okay. Camera controllers is an area where you definitely see content proliferation across devices. I know in the lowest version of the phone, you have as little as 1 and then the highest version of the phone. I believe it's 4. So a vast array of different content per device.

How do you see that content moving on a go-forward basis? Is it kind of top-down or bottom-up meaning like. You have the Pro Max, which has the largest met of camera controllers. Is the pro quickly to follow and then your base model relatively to follow or do you see kind of like the lowest volume phones kind of going up to scale.

Obviously, it's associated with image stabilization and cameras, whatever moves first. Where do you see that content waterfall going?

So we're doing a few things, order focus, image stabilization and some other elements of mechanical control within the camera system. And then closely aligned to each of those functions is a bunch of digital processing to kind of figure out what the corrective actions are for stabilization, for example.

That's -- in all of those areas, I think we see opportunity to continue to expand the feature set and increase the performance of the devices. So if you look back to the first generation that we introduced, which is in 5 years ago in the 2020 cycle. The current generation of devices have something like 6x the amount of processing those first channel devices did, all of which translates into a superior user experience for the camera.

I think from the kind of go-forward perspective, I would anticipate it probably following a similar pattern to what's happened in the past, which is we see features introduced in the kind of pro level devices. That is the area with not only the greatest attach rate, but also the latest and greatest camera controllers from us. And then we see a pretty reliable waterfall down year after year.

There have been cases where between those 2 Pro level devices, the content is different. Actually, right now, as you're saying, yes, it's equaled up. But one of the challenges we have talking about this area is people often ask the question, we get it a fair amount is, aren't we done on the camera? Like isn't it good enough?

And the short answer is no. It's not good enough. It can always be better. It can be meaningfully better. And then people say, well, like, how like what's going to happen? You say, well, I can't tell you that. But there are a lot of things in our road map and within the plans of our customers that are going to continue to drive the camera experience. to be significantly better than where it is today. And so we plan to be a part of that.

I know you can't talk about your largest customer, but we can talk a little bit about design schematics and where you've seen increased content in the past. So rumors around potential foldable phone in 2026. Two things that strike me when I think about foldable phones is you've got more beachfront area when you are thinking about handling device that's bigger, that calls to me like something that would require potentially more speakers.

And then two, if you're looking at a larger phone in general, perhaps you have something related to power that may increase. You guys haven't talked about content increases for this year. But generally, in the past, has device size changed anything in terms of the content that's required from an amplification perspective?

Not really or not necessarily, I would say, we've been in a number of -- I'm not saying anything about unannounced products with other customers of ours, we've been in a number of foldable products. Many of them have exactly the same hardware configuration or almost identical. Some of them are slightly different. But there's a number of ways of skinning that gap.

Yes. On the power conversion control side, it's been an area where people have been focused for continued development. I think there was a start and we've been kind of waiting for the follow-on there.

When you think about like the technology and what sort of enablement that you can offer for smartphone, I think many people have run to, you talked about this like high-power non-plug-in devices, if you add processing power, it seems like a perfect fit for more power conversion and control in general.

What kind of transition needs to occur in smartphones or what kind of technology do you need to solve in order to see that increased content there?

I think we -- I've been pretty transparent. I think that we're interested in developing innovative and differentiated IP around the battery. We think that's a good opportunity where we can improve system performance, improve power efficiency and potentially mitigate some of the factors that affect and accelerate battery aging.

And so we've been working on a number of IP areas in that space around the battery. As you've said, we have one product shipping today. which I think is in its fourth year of shipping. So hugely successful from a revenue point of view, but at the same time, still V1. So we have, as you would expect, an active dialogue with our customer about how that platform evolves and what other areas we can contribute in.

I'm not going to put a time frame on like how that translates into revenue for us. But we remain really optimistic that, that is a space where we have some very compelling differentiated IP and we hope to see that in products.

This year was a year where you didn't have the big content uplift, but you had a waterfall of content effect, which helped you kind of offset. As investors look forward, is there a way for us to mark to market? You've done a good job in the past of kind of highlighting to us as early as you humanly can, when you would see content uplift you have more of that waterfall that's going to exist over time. But where should investors be focused from a content perspective, not just at the largest customer, but across your content portfolio over the next couple of years?

Well, I think the areas -- with our largest customer, I think you've got the phone products, obviously, within the phone products, I think it's pretty clear as the -- we just had a big refresh of audio. Camera continues to be a really healthy space, which has kind of shown pretty steady growth since we first introduced camera products, and we continue to expect that to be the case in the future.

And then you've got power and other stuff. And so I appreciate it from an investor perspective, that's probably the most opaque. But we believe there are good opportunities there that will bear fruit in good time. There are, of course, I think, really good opportunities outside of the phone. And then in our across our broader customer base, I think there are a number of interesting things happening.

One, of course, we mentioned PC. From a revenue and growth point of view, I think it's worth pointing out that one of the most significant things in penetrating the PC market is getting into the mainstream devices because the volumes of those are so much larger than the kind of flagship devices when we enter the market.

So to give you a sense of that, and by mainstream, we typically are referring to devices that are kind of between $800 and $1,000 in both the consumer and the enterprise space. If you go back to when we first started talking about the PC in fiscal '24, the total amount of revenue from mainstream devices was -- it was effectively 0, it rounds to to 0. In fiscal '26, approximately 50% of our PC-related revenue is going to be driven by mainstream products.

So it's a huge growth trajectory that we're on there. And that's very exciting because I think when we're -- we're in those products, we can continue to expand the content over time. And then beyond that, something I would throw out as an exciting category for us is AI-enabled devices because I think the -- I don't know that anybody has like kind of split the atom there yet, we'd like exactly what -- what that device what those AI devices are going to look like, but there's a lot of people trying and there's a lot of really interesting innovation potential there. we think that voice is going to play a big thought in that. And so we see that space as being a really exciting category that we should be participating.

And not to mention, I think you mentioned with the camera controller, a 6x of performance generation over generation, I would imagine that you also are going to get paid V2, V3, V4 of other sockets as well. You've talked about being V1 control, you would imagine that there is probably some waterfall there as well over time.

I would hope so. Yes.

Okay. Pivoting a little bit to the M&A side, capital return side. clearly, announcing new wins and new chipsets into auto is a diversification direction of the business. But in terms of organic versus inorganic, activity.

Do you feel like at this point with the cash balance that you have, which is quite nice that you would go out and need to do any sort of bolt-on acquisition that would kind of take you further down that road?

Yes. We're excited about our growth opportunities in some of the non-phone segments, and we've talked about some of those. So certainly, we look for M&A opportunities that will help us accelerate in those different segments. Looking for places we can have some true value creation and also leverage what we think is a really great IP asset to help us accelerate in some of these segments.

And then capital returns, investing in the business, you guys have always been very consistent on that. But in terms of your ability to maybe buy back share, any kind of outlook on your priorities?

Well, our capital allocation strategy remains unchanged. We want to make sure all of our organic opportunities are funded and that we will look for inorganic opportunities to accelerate that growth and buybacks will be third. We do still have over $400 million left on our buyback authorization. And we'll look at that. We look at it on a quarter-by-quarter basis to see what does the environment look like? What are our opportunities look like?

As we go into next year, where should investors get excited about Cirrus Logic. Clearly, there's diversification effort, which is always exciting. But where should we be paying attention here as the year turns?

Yes. I think the reason I highlighted that leading indicator of SDCA penetration in laptop in the PC market as a whole is I think like that's a very good tailwind for us as we go forward. And then I think you're going to continue to see more from us in terms of products for the PC space, automotive. And of course, we continue to work on expanding our content at our largest customer.

Very helpful. Thank you very much, guys, for joining us, and happy holiday season. Hope to see you in the new year.

Happy holidays.

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Second Quarter Fiscal Year 2026 Financial Results Q&A Session.

[Operator Instructions]

As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the conference call over to Ms. Chelsea Heffernan, Vice President of Investor Relations. Ms. Heffernan, you may begin.

Thank you, and good afternoon. Joining me on today's call is John Forsyth, Cirrus Logic's Chief Executive Officer; and Jeff Woolard, our Chief Financial Officer. Today, at approximately 4:00 p.m. Eastern Time, we announced our financial results for the second quarter of fiscal '26. The shareholder letter discussing our financial results, the earnings press release and the webcast of this Q&A session are all available at the company's Investor Relations website. This call will feature questions from the analysts covering our company.

Additionally, the results and guidance we will discuss on this call will include non-GAAP financial measures that exclude certain items. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release and are all available on the company's Investor Relations website.

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 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 shareholder letter issued today, which are available on the Cirrus Logic website and the latest Form 10-K as well as other corporate filings registered 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 John.

Thank you, Chelsea, and welcome to everyone joining today's call. As you've seen in the press release, Cirrus Logic delivered record September quarter revenue of $561 million, towards the top end of our guidance range driven by demand for components shipping into smartphones. In a few moments, I'll hand the call over to Jeff to discuss the financial results for the September quarter in detail, along with our outlook for the December quarter.

Before we get to that, I'd like to make a few comments about the recent progress we have been making across key areas of our business. As we have outlined previously, our long-term strategy for growth at Cirrus is based around 3 principles. First, we seek to maintain a strong leadership position in our core flagship smartphone audio business. Second, we aim to expand the value and range of high-performance mixed-signal solutions with which we serve our customers in smartphones and similar products. And third, we aim to leverage our world-class expertise and IP in both audio and high-performance mixed signal to grow and broaden our business in new markets.

I want to say a few words now about the progress we've made in the past quarter in each of these areas. In our flagship smartphone audio business, during the quarter, we experienced strong demand for our latest generation custom-boosted amplifier and first 22-nanometer smart codec. These products introduced in the fall last year, represent years of engineering effort and a deep and collaborative relationship with our customer. We are proud of the crucial role they play in enhancing the power efficiency and exceptional audio quality of our customers' latest products.

I think it is also worth highlighting a characteristic of this area of our business that isn't always apparent to those outside of the company. While we ship custom products into many consumer end devices, much of our custom silicon business offers returns over a significantly longer period than is typical of consumer products. For example, these latest generation audio components that I've referred to superseded a codec and amplifiers that have been shipping in high-volume flagship phones for 5 and 6 years, respectively. We consider this longevity a significant strength of our business as it provides solid long-term visibility and sustained revenue contribution, along with the ability to leverage our R&D resources in new areas that can drive further innovation and growth.

Outside of our custom audio solutions, we also continue to serve a number of customers in the Android ecosystem. This past quarter, a leading Android OEM introduced its latest flagship smartphone featuring 2 Cirrus Logic boosted amplifiers and a haptic driver. While the majority of our general market R&D investments are focused on developing products for new markets beyond smartphones, we continue to engage with customers on next-generation flagship smartphone products and expect additional designs from various customers to come to market in the future.

Looking beyond audio, we continue to diversify our revenue and expand our smartphone content with high-performance mixed-signal solutions. Customer engagement around our camera controllers remains strong, and we were excited to see this technology stand out as a key differentiator in the latest generation of devices. Today, we are engaged on a number of projects that we believe will bring even more feature and performance enhancements to this area in the future.

Moreover, we also have several R&D programs that are focused on battery performance and health, and we continue to believe these areas represent an excellent opportunity for our mixed-signal expertise to bring innovation and value to our customers. Our third strategic priority is to leverage our audio and high-performance mixed-signal expertise into new applications and markets outside of smartphones. We're making excellent progress here, especially in the PC market, where we are focused on continuing to grow our share across customers and product tiers. During the quarter, we saw strong design activity across our PC portfolio and expect a range of consumer and commercial laptops featuring our components to come to market over the next year as the adoption of SoundWire device class audio accelerates. After establishing early success in high-end laptops, we are now expanding into mainstream programs to reach higher volume opportunities and capture a larger share of the addressable market.

Building on our recent wins in mainstream commercial laptops, this quarter, we were particularly excited to secure our first mainstream consumer design, which is expected to ship next year. This success demonstrates the excellent progress we are making in our long-term strategy to grow beyond smartphones and positions us well for the continued momentum in the broader PC space. Additionally, we are excited about the long-term opportunity that voice represents as a natural way to interact with AI-enabled PCs, and we increasingly see PC OEMs turning to voice as a means to enhance their products. In this area, we are able to leverage our audio and voice expertise, which has been developed and refined in the smartphone market over many years to develop PC-specific products that deliver enhanced voice capabilities and performance, enabling features such as voice wake for AI applications even while the device is in an ultra-low power standby state. Our first product featuring this technology is expected to sample to customers in the December quarter.

Finally, in the PC space, we have in the last quarter, deepened and expanded our engagement across multiple PC platform vendors in order to accelerate our customers' time to market. We believe that our ability to provide consistent audio architectures and advanced features across multiple PC platforms is a great benefit to OEMs. Overall, we are very encouraged by the traction we are seeing in PCs and believe there is a meaningful opportunity ahead for us to grow in this market.

Beyond PCs, we are also seeing strong interest in our general market products, which serve a wide range of customers across professional audio, automotive, industrial and imaging end markets. These products typically have long life cycles and gross margins well above our corporate average and moreover, can frequently leverage the world-class low-power IP that we have developed in other areas of our business. Our progress in this space was exemplified during the quarter in several areas. First, we gained design momentum with prosumer and automotive customers on all 14 variants of our latest generation ADCs, DACs and ultra-high performance audio codecs and expect new end products utilizing these components to come to market over the next 12 months.

Second, we had increased engagement with automotive and professional audio customers on our latest timing product family, which began shipping last quarter. And third, we are now sampling a family of high-performance analog front-end components targeting imaging applications, and the initial response has been positive. We are proud of our execution to date in these areas, and we'll continue to expand our product portfolios in order to drive profitable growth opportunities in these segments.

And that concludes the latest progress update on our long-term growth strategy. So let me now turn the call over to Jeff to provide an overview of our financial results as well as the outlook.

Thank you, John. Good afternoon, everyone. I'll now walk through our Q2 financial performance and provide guidance for Q3, including tax updates. In Q2 fiscal 2026, we delivered revenue of $561 million, which was toward the top end of our guidance range, driven by demand for components shipping into smartphones. On a sequential basis, revenue was up 38% due to higher smartphone unit volumes. On a year-over-year basis, sales were up 4%, primarily driven by higher smartphone unit volumes and sales associated with our latest generation products.

Turning to gross profit and gross margin. Non-GAAP gross profit in the September quarter was $294.7 million and non-GAAP gross margin was 52.5%. On a year-over-year basis, the increase in gross margin was largely due to a more favorable product mix. This was partially offset by higher inventory reserves.

Now I'll turn to operating expenses. Our non-GAAP operating expense for the second quarter was $127.7 million, coming in below the low end of our guidance range. This was due to lower product development costs, mostly driven by shifts in project time lines. Employee-related expenses were also lower than expected. On a sequential basis, OpEx was up $8.2 million, primarily due to higher variable compensation, product development costs, mostly due to tape-outs and facilities-related costs. This was partially offset by a reduction in employee-related expenses.

On a year-over-year basis, operating expense was up $0.9 million, primarily due to an increase in employee-related expenses, which are mostly related to annual merit increases. This was partially offset by lower product development costs. Non-GAAP operating income for the quarter was $167 million or 29.8% of revenue.

Turning now to taxes. During Q2, we recorded the favorable tax impact of the One Big Beautiful Bill Act, which reinstated immediate expensing of domestic R&D. This change was retroactive to the start of fiscal year '26 and contributed to our lower non-GAAP tax rate of 14.6% for the quarter. And lastly, on the P&L, non-GAAP net income was $150 million, resulting in an earnings per share for the September quarter of $2.83.

Let me now turn to the balance sheet. Our balance sheet continues to be strong, and we ended the September quarter with $896 million in cash and investments. Our ending cash and investments balance was up $48.3 million from the prior quarter as cash generated from operations was partially offset by share repurchases. We continue to have no debt outstanding. Inventory at the end of the second quarter was $236.4 million, down from $279 million in the prior quarter. Days of inventory were down sequentially, and we ended the quarter with approximately 81 days of inventory. Looking ahead, in Q3 fiscal 2026, we expect inventory to decrease slightly quarter-over-quarter.

Turning to cash flow. Cash flow from operations was $92.2 million in the September quarter and CapEx was $4.5 million, resulting in non-GAAP free cash flow margin of 16%. For the trailing 12-month period, cash flow from operations was $557.3 million and CapEx was $23.1 million. This resulted in a non-GAAP free cash flow margin of 27%. On the share buybacks, in Q2, we utilized $40 million to repurchase approximately 362,000 shares of our common stock at an average price of $110.55. At the end of Q2 fiscal 2026, the company had $414.1 million remaining on its share repurchase authorization.

Now on to guidance. For Q3 fiscal 2026, we expect revenue in the range of $500 million to $560 million. Gross margin is expected to range from 51% to 53%. Non-GAAP operating expense is expected to range from $128 million to $134 million. The fiscal year non-GAAP effective tax rate is expected to range from approximately 16% to 18%.

In closing, we delivered strong results for the September quarter. We remain focused on executing to our strategy and delivering long-term value to shareholders. Before we begin Q&A, I would like to note that while we understand there is intense interest related to our largest customer in accordance with Cirrus Logic company policy, we will not discuss specifics about our business relationship.

With that, let me turn the call to Chelsea to start the Q&A session.

Thanks, Jeff. We will now start the Q&A portion of the call. Operator, we are now ready to take questions.

[Operator Instructions]

Your first question comes from the line of Tore Svanberg with Stifel.

Congratulations on the results. I know you can't obviously talk specifically about your largest customers' business. But this year has been quite unusual from a seasonality perspective. So I was just wondering if you could share any thoughts with us on seasonality going forward. I mean, 2026 potentially be sort of back to normal? Again, anything you could share with us would be really helpful.

Yes, Tore, this is Jeff. I think if you recall, we talked about last quarter, a change in the seasonality shape of our business, primarily driven by the camera content becoming a bigger portion of the total revenue, which shifts a little earlier as well as, as we talked about some pull-ins at the last quarter call. I think if you look at our results this quarter and our guidance for next quarter, that story remains the same that the shape is a little bit pushed into the first half versus what has been traditionally, and that's driven by just camera content being a greater piece.

While we did give some insight last quarter, our view for the year because we thought it was important for everyone to understand that change. That has played out between our results and our guidance. And at this point, we are only giving guidance for the next quarter, but we don't see anything from here out that would change historically what that seasonality looks like for the rest of the fiscal year.

Great. That's very helpful. And as my follow-up for you, John, in the shareholder letter, you stated again, there's potential opportunities on the power/battery side in the smartphone market. Any updates there? Again, I know you can't talk about specific design wins, but clearly, battery management is becoming quite crucial for next-generation smartphones. So any updates there would be helpful.

Yes, that continues to be an area that we're excited about. And as you know, we've been investing in for some time. We do think that we have some really compelling IP in that space. And I think we've seen some validation of that from the comments reflected back to us from customers when we've been sharing silicon with them and details on what we've been developing. We've got a number of irons in the fire there. And as you alluded to, the majority of those are related to those areas around the battery where we think we can make a difference to power efficiency as a whole to system performance as batteries go through their life cycle, both on a daily basis and a long-term basis and to battery health, long term as well.

So we don't have anything to say today concretely about design wins and how that's going to get commercialized, but we continue to believe that we've got some very valuable IP, and we are obviously itching to get that out into the market.

The next question comes from David Williams with The Benchmark Company.

Maybe first just on the OpEx side, you kind of mentioned that it was lower in this quarter for some pushouts. And it looks like some of that's kind of coming into the third quarter. Is it fair to assume that all of the OpEx expected in the second quarter is pushed into that third quarter? Or is there anything else maybe funny going on that we should be thinking about there?

No, I think that's a reasonable take. We are pretty disciplined in our OpEx. And what we saw, we did obviously come in below the guide and some of that was just delays in our spending, not necessarily delays in execution. So that product development cost can be a little lumpy. It's not a miss because it wasn't low because of execution. Some expenses that we had planned, we were just actually able to avoid. And so that came also drove our results, OpEx results being below guide. So a lot of that is just a timing issue. So we will continue to stay disciplined on that.

But that being said, it was a push. But if we see other opportunities that we think have. We have high confidence in to create value, we will be comfortable increasing that in the future.

Okay. Good. And then maybe just on the non-flagship customer, your largest customer revenue, that contribution in the quarter was maybe a little bit lower than we had anticipated. But just trying to get a sense of the progress in the general markets and in that computing space, how we should think about that revenue trending maybe through this year? And just generally, what that growth trajectory should look like outside of your largest customer?

Yes. I think on the picture for this quarter, in particular, there are a number of things going on there. And I think the softness in the Android space is certainly part of it, and that's been widely reported. We don't invest a huge amount in Android as a strategic business area for us, but it still remains a valuable contributor. So to some extent, we saw some impact from that. And then when we look to the rest of our general market business, certainly, the biggest kind of growth area that we see there right now is the PC, as you alluded to. And we're continuing to track the way we expected there or broadly in line with that. We're still kind of early in the ramp for that as regards the business it can become for us in the future.

But we've passed a number of really, really excellent milestones this year and then in this past quarter as well, which kind of indicate the great progress we're making there, and we continue to be very excited about what's going on in the PC space. I think one of the things we called out in the shareholder letter that's a particular highlight is the win in mainstream consumer laptop because those mainstream devices, as I've highlighted previously, they really deliver so many more units than the devices in the flagship and premium tiers. And so a big part of our objective is to penetrate down through the tiers and be well penetrated in both the commercial and the consumer mainstream segment and then obviously expand to as much content in those devices as we can get.

This year, earlier in the year, we reported that we won our first mainstream commercial laptop and then we've now added to that with success in the consumer space. So I think that proves we can do it, and that's going to be one of multiple drivers that help us continue to accelerate in the PC space.

Your next question comes from Christopher Rolland with Susquehanna.

This is Dylan Ollivier on for Chris Rolland. So for my first question, so last quarter, you said that you didn't have any material changes to your smartphone unit outlook for the year despite your better results. Would you now have any changes to your unit outlook? Or are units still tracking in line?

Yes. I'm going to stick with sort of that previous answer of -- we obviously had a good quarter here driven by smartphone units, and we explained the shape between the last quarter -- last 2 quarters. And we're only guiding for the next quarter, but we see -- at this point, we think seasonality looks like it historically has. We don't see anything to change our view on the upcoming seasonality.

Great. So secondly, I'd love to hear more about these new products that you talked about that you're developing for AI PCs. So does this expand your SAM? And when can we expect revenue here? Are you getting a lot of initial interest from customers?

Yes. Actually, that's an area which I think has become much more significant in our modeling of our PC SAM more recently rather than -- or at least compared to when we set off down the road of getting into the PC market. The interest across our customer base in voice-related features is really pretty significant as a major enabler for AI. So I mean, I think if you step back just for a second to look at all the drivers, which are currently kind of accelerating our momentum in the PC space. There's one I alluded to in the previous answer, which is just our penetration down through product tiers to get into higher volume segments. There's another factor which we alluded to in the shareholder letter, which is the propagation of the SoundWire device class audio interface and standard. So we're seeing that increasingly propagate across designs that generally is something that's favorable to us, and that's something that we've designed to and that we can deliver a lot of features around.

Then as we also mentioned in the prepared remarks, we've also been expanding our support across multiple PC platform vendors. So again, that's kind of expanding our reach and the number of devices that our products can get into and the number of reference designs that enable our customers to pick up our silicon and create products around very rapidly. And then the fourth of these drivers would really be the voice features that we see coming over the horizon. And that's been a more recent topic of conversation with OEMs, but it's a significant one, and it's one where our IP is really best-in-class.

We're able to provide significantly better voice and audio capture, noise reduction, voice cleanup, voice detection, speaker detection and so on. And then you combine that with our low-power codec technologies, we can enable features like waking up the entire system, being able to speak to the system even when it's in an ultra-low power standby state and so on.

So this is -- I mean, this is all part of the SAM that we model out in the investor presentation out into the future that we think can continue to be really significant for us in the PC space. But I think given where we're at and the IP we have in the voice area, in particular, I would expect us to really benefit from that. Specifically in the last quarter, we started sampling the first device specifically focused on enabling those features to customers. So it will be a while before those start showing up in end products, but we have a great road map around those features in particular.

Thanks, Dylan. And with that, we will end the Q&A session. I will now turn the call back to John for his final remarks.

Thank you, Chelsea. In summary, Cirrus Logic delivered record revenue for the September quarter while also continuing to make excellent progress on each pillar of our long-term strategy. I'd like to extend my appreciation to all of our employees worldwide for the hard work and commitment to excellence that has delivered these results. And I'd like to thank our customers for their trust and support.

We're excited about the opportunities ahead for Cirrus, and we thank you for your continued interest in the company. Before we close, I'd also like to note that we will be participating in the Barclays Global Technology Conference on December 11. Please check our investor website for the details. Thank you, everyone, for participating in our call today. Goodbye.

This concludes today's conference call. Thank you for joining. You may now disconnect.