Cirrus Logic, Inc. (CRUS) Q4 2008 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic fourth quarter fiscal year 2008 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will open the call for questions. Instructions for queuing up will be provided at that time. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Thurman Case, Chief Financial Officer. Mr. Case, you may begin.

Thank you and good afternoon. Joining me on today's call is Jason Rhode, Cirrus Logic's President and Chief Executive Officer. Before we begin, you are reminded that during the course of this conference call, we will make projections and other forward-looking statements regarding, among other things, our estimates for our first quarter fiscal year 2009 revenues, gross margin levels, operating expenses, amortization of acquired intangibles, cash balance and share-based compensation expense, as well as our estimates and assumptions regarding our future revenue growth, profitability, and average share count. These statements are predictions that are subject to risks and uncertainties that may cause actual results to differ materially from our projections. By providing this information, we undertake no obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Please refer to our press release issued today which is available on our web site at cirrus.com, our latest Form 10-K for the fiscal year ending March 31, 2007, as well as our other filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from our current expectations. I also want to mention before we proceed that all financial numbers are prepared unless noted in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial information provided in today's call to the most directly comparable GAAP information is included in our financial statements and on our web site in the Investors section. Non-GAAP financial information is not meant as a substitute for GAAP results but is included because we believe such information is useful to our investors for informational and comparative purposes. In addition, we use certain non-GAAP financial information internally to evaluate and manage our operations. As of note, the non-GAAP financial information we use may differ from that used by other companies. These non-GAAP measures should be considered in addition to and not as a substitute for the results prepared in accordance with GAAP. Before we move on to discuss our results for the March quarter, I want to mention that our quarterly results were impacted by charges associated with the previously disclosed closing of Caretta Integrated Circuits in Shanghai, China. As I discuss the quarterly results, I will address these charges as well as the related quarterly costs from this business. With that in mind let's discuss our results, starting with revenue. Net revenue in the March quarter was $44.8 million, up 3% from $43.7 million in the quarter a year ago and down seasonally from $48.9 million in the December quarter. Revenue was impacted by overall weak seasonal demand in consumer electronics and overall softness in the consumer segment. As a result, sales terms during the quarter were lower than expected, particularly in the second half of the quarter as various customers worked to lower their existing inventory levels. Audio products contributed $22.3 million in revenue, compared to $24.5 million a year ago and down seasonally from $27.3 million in the December quarter. Industrial products generated $22.5 million, up from $19.2 million in the quarter a year ago and up from $21.6 million in the December quarter. Historical revenue breakdowns are also available on our web site for these product categories. We continue to have a diversified and deep customer base with no OEM customers representing more than 10% of revenue, while one distributor Avnet represented 31% of our revenue during the quarter. Gross margin for the March quarter was 55% compared to 56% in the December quarter and 60% a year ago. Our gross margin was impacted by the write off of approximately $900,000 in inventory related to the Caretta operations. Excluding this write-off, gross margins on a non-GAAP basis were 57%. Total GAAP operating expenses were $37.7 million, compared to $26.1 million for the previous quarter. The increase in GAAP expenses was driven primarily by significant one-type charges related to the closing of Caretta, as well as other charges. These include $12.1 million in restructuring charges associated primarily with the closure of Caretta, $400,000 in operational charges related to Caretta, $1 million in stock-based compensation expense, $1 million in facility-related charges, $400,000 charge for the amortization of intangibles related to acquisitions, and $100,000 in legal costs related to the recently closed Securities and Exchange Commission's investigation into our historical stock option practices. Non-GAAP operating expenses, excluding these items, was $22.7 million for the quarter, versus $24.4 million in the previous quarter. We recorded a net loss on a GAAP basis for the quarter of $13.7 million or $0.16 per share. Excluding the charges previously mentioned and an additional $3 million in deferred tax asset charges, non-GAAP net income for the quarter was $5.2 million or $0.06 per share based on 85.6 million diluted shares. Interest income for the fourth fiscal quarter was $2.4 million, down from $2.9 million in the previous quarter. The decrease in interest is due to a lower cash balance as a result of our stock buyback program. We ended the March quarter with 473 employees, compared to 548 at the end of the December quarter, which includes significant hiring in support of new product development. Moving now to the balance sheet, we ended the March quarter with $22.7 million in net receivables, down slightly from $23 million at the end of the December quarter. Ending net inventory increased by $2.5 million in the March quarter to $22.5 million. The increased inventory levels were due primarily to inventory builds related to some of our higher running products. We ended the quarter with $187 million in total cash and marketable securities, a decrease of $65 million from $252 million at the end of December. The decrease in our cash balance is a direct result of the execution of our previously announced stock buyback program. During the quarter, we repurchased and retired approximately 13.3 million shares at a total cost of $71.1 million, as we ended the quarter with 75.9 million shares outstanding. I'd also like to update you with our progress since the end of the quarter, as the repurchase program was completed on April 28, 2008 with a total of 24.5 million shares repurchased at an average price of $6.11 per share. With the program complete, we expect total cash and marketable securities to be approximately $100 million at the end of the June quarter. For the purpose of calculating our average quarterly share count for earnings per share, we used a daily weighted average resulting in 85.6 million shares outstanding. We expect our average outstanding share count to decrease to approximately 72 million shares at the end of the first fiscal quarter and decreasing again to approximately 68 million shares at the end of the second fiscal quarter, as the full impact of the lower share count is realized. Capital expenditures for the March quarter were $2.4 million compared to $400,000 in the December quarter. Depreciation and amortization expense in the March quarter was flat at $2.3 million. Now, I'd like to turn the call over to Jason to discuss our business operations and guidance for the upcoming June quarter.

Thank you, Thurman. Since I became CEO in May of last year, we set out on a plan to build a stronger, more fundamentally sound company and become the supplier-of-choice for tier-one customers in markets we serve. We had a long to-do list and one of the first priorities was to strengthen the senior leadership team, which we've done with the addition of Scott Anderson, VP and General Manager of the Mixed-Signal Audio Division and Tim Turk, Vice President of Worldwide Sales. We set out to improve our sales organization in Japan and we've done this through the addition of several key new hires. The leadership team developed a strategic plan which ties to our long-term objective of 15% year-over-year revenue growth and 20% operating margins. From this plan, emerged several strategic initiatives, such as new programs in energy management to support our long-term growth objectives. Also, as part of this plan, we exited from product lines that are no longer aligned to these objectives, such as Caretta and we bolstered the Industrial Product Division through the acquisition of Apex Microtechnology and its leading position in high-power products. To align the leadership team's performance to key financial milestones, we developed a bonus program that is tied directly to achieving revenue growth and profit goals. Our recently competed stock buyback program underscores our confidence in our plan. Internally and of great importance to me personally, we committed ourselves to making Cirrus a great company to work for and we've developed a strong vision, mission and core values, aligning all of our employees with our long-term objectives and success. Clearly, Cirrus Logic is a much different company today. We've made significant improvements throughout the company but, of course, there's still more work to be done. Our vision is to be the first choice supplier of analog and digital processing components for audio and energy-related industrial markets. In portable products, this is already happening, as we achieved significant market share growth in FY '08 and we expect additional gains to drive our growth in FY '09. We're focusing on improving our financial results in FY '09, including keeping operating expenses flat, even as we invest in new growth programs. With these numerous and significant actions taken in FY '08, Cirrus Logic is fundamentally stronger overall and we're looking forward to a growth year in FY '09. I'd like now to provide a brief update on our products, beginning with the industrial category. These products include integrated circuits designed for a variety of utility metering, high power, precision measurement, energy exploration and communications applications as well as our line of ARM processors. In the future, we will be primarily focused on the energy-related products within this category. Revenue from industrial products in the March quarter came in at $22.5 million, up 18% compared to $19.2 million in the March quarter one year ago. We continue to achieve success in energy measurement applications and we are currently ramping volume production with Itron, the worldwide leader in digital utility meters. Also in the June quarter, we will sample additional innovative products and more new solutions are planned for later this fiscal year. As part of our strategic plan, we're shifting our investment towards other energy-related applications, in which our analog and digital signal processing solutions will provide value to key customers and drive long-term growth. Let me now turn to our audio products. Components in this category include data converters, class D amplification products, audio processors, and interface circuits, products that are used in a wide variety of consumer, portable, professional and automotive audio applications. This product category contributed $22.3 million of our March quarter revenue, down 9% compared to $24.5 million in the March quarter a year ago. As portable products become a more significant contributor to our overall revenue, going forward, you can expect greater seasonality as products in this category typically have a much stronger demand in our second and third fiscal quarters. Our continued success in growing revenue and market share from portable products is the highlight of FY '08. Portable products include ICs for such applications as portable media, gaming and navigation devices. We began investing heavily in this product line several years ago, which led to initial success with tier-one customers. And today, we're shipping to multiple leading customers that are generating strong growing revenues. In FY '08, we met our goal of $11 million in sales from the this product line or about 5% market share and the momentum generated by this initial success has strengthened our expectation for continued growth in FY '09. We'll be very disappointed if we do not continue to make significant progress in growing our market share this fiscal year. We are growing our market share in portable products because we have focused our engineering efforts to deliver innovative products that our customers value. This success in growing revenue in portable products underscores our ability to enter new markets and gain share and serves as a model for our other product lines, in which we commit resources to drive growth. We are optimistic about our opportunity for revenue growth this year across multiple other applications including automotive, home theater systems and digital television. We are also aggressively targeting new audio product categories such as sound bars, which are good opportunities for both our mixed signal and our audio DSP products. Sound bars are sleek audio speaker products that are often sold as companion products for flat panel TVs. In automotive applications where we provide IC solutions for card audio amplifiers, head units, and telematic applications, revenue from this product line helps to offset some of the cyclical nature of the consumer audio market. Our opportunities in this segment continue to grow. As an example, the Ford Sync telematic system is using one of our audio codecs and we continue to have strong acceptance for our products from other leading manufacturers such as Bose and Harmon-Kardon. Overall, despite our expectation for a relatively weak consumer market this year, we expect that in FY '09 our revenue will grow, particularly beginning this fall when we begin volume production for multiple key customers. Now, let me review our guidance for the first quarter of fiscal year 2009. Our overall expectations are as follows: Revenue is expected to range between $42 million and $45 million. Gross margin is expected to be between 55% and 57%. Combined R&D and SG&A expenses are expected to range between $24 million and $25 million, which includes approximately $2 million in share-based compensation and amortization of acquisition-related intangibles expense. To recap, we undertook a number of actions in FY '08 to make Cirrus Logic fundamentally stronger and strategically aligned for growth this year. Our vision is to become the first choice supplier of analog and digital signal processing components of audio and energy-related industrial markets. We are focusing on improving our financial results in FY '09, including keeping operating expenses flat and we are investing in new programs that we expect to drive long-term growth. Now let's take your questions.

Thank you. (Operator instructions) Our first question will come from the line of Heidi Poon with Thomas Weisel Partners. Please go ahead. Heidi Poon – Thomas Weisel Partners: Hi, guys. First off, I'd just like to ask if you could give us some more color on the fiscal Q1 guidance by segment please?

That's the level that we break out for our guidance going forward. Heidi Poon – Thomas Weisel Partners: In terms of audio versus industrial?

I don't think we've intended to break that out by quarter. We haven't done that in the past for the guidance. We do that, looking backwards. The color that I can put on that is, as we've said, really starting late last fall, industrial really stabilized and that's really what we expect it to do. We do have some new things that are exciting and growing within industrial like the Itron products that we talked about. But, that's not the real rapid growth kind of a thing that consumer or portable in particular can do. So what we're really looking for from industrial is really slow and steady as she goes and the growth that we're expecting in the second half is expected to come from the audio product line. Heidi Poon – Thomas Weisel Partners: Great. In terms of the multiple tier-one wins, do you have good visibility in terms of the ramp in the second half right now? Is that already in the backlog, for instance?

In some cases, yes; in some cases, we wouldn't expect to have backlog quite yet. But, yes, we've good visibility about what our customers expect to happen. So I think that's about as good as it gets in this climate. Heidi Poon – Thomas Weisel Partners: Great. In terms of mix of products, in terms of gross margin, do you anticipate as you ramp more of these consumer products for you to maybe going to the lower end of the gross margin target like towards 55 versus the higher end like what you did this quarter?

Yes, that's the expectation and the goal that we're setting for our operations folks and broadly through the company is that as we grow and as we achieve some success in the portable area and that becomes a bigger and bigger part of the company, we'd like to keep the overall gross margin above 55. That's not a cake walk, but it's certainly something that we believe can be done. Heidi Poon – Thomas Weisel Partners: Great. So with that, do you anticipate operating margin to trend towards 15%? I know that's your long-term target, but do you have more of a short-term target?

Yes, our long-term target for operating margins is actually 20. But, we certainly expect to make significant progress towards that goal this year. Exactly where we'll end the fiscal year up remains to be seen. Certainly we'll make some substantial progress on that goal this year. I'll be disappointed overall if it's – well, my expectation is that it will be well north of 10 anyway. Heidi Poon – Thomas Weisel Partners: Great. Thank you.

Thank you. Our next question will come from the line of Jay Srivatsa with Roth Capital Partners. Please go ahead. Jay Srivatsa – Roth Capital Partners: Thanks for taking my question. Jason, you mentioned in terms of gross margins for the June quarter, if the industrial products are stabilized and audio is going to be slightly weaker, wouldn't you expect the gross margins to be better sequentially in the June quarter?

It's going to be in that range. I mean it's 55% to 57%. Yes, certainly, I don't remember where the exact decimal point came out. I don't remember where the exact decimal point came out this particular quarter and where it will shake out next quarter, but I doubt it will be all that different. The profile of the products is pretty close, 10%. Jay Srivatsa – Roth Capital Partners: That helps. And then in terms of the audio, portable audio space, I'm sure all of us have seen the big announcement from your competitor, not being in the next generation of portable players from a big consumer electronics company. Where are things at in terms of the design cycle there? Is that something that is going to get decided soon or have the decisions been made or can you kind of speak to that, give us a little bit more clarity on that?

No, not really. We really don't talk about the details of any individual customers in particular in the portable segment. In general related to design wins across the board, it just doesn't make one's life favorable really. But there's generally, I mean, I think everybody understands the cycle in portable that it's very much a Christmas-driven product, with minor other stuff going on through the rest of the year. So as we said in the script, we would expect any growth that's coming from portable to really be driven by things that ramp in the second half of the year, so certainly the obvious, August, September time frame. Jay Srivatsa – Roth Capital Partners: Okay.

As Heidi asked a second ago, the earlier ones in there, we've already got backlog for some folks, we've got other folks that typically launch later and we've got expectations, discussions and all that, we wouldn't expect backlog yet. So we've got good confidence in where that's going. We've got good confidence that we're well aligned with our customers. In the portable space, really our challenge is just making sure that we keep working on the margins and we get that stuff pointed in the right direction, work the supply chain to make sure that we don't have any hitches as we experience a pretty significant ramp for that product line. Jay Srivatsa – Roth Capital Partners: Okay. In terms of the TV side, I know you had a product earlier this year with the Dolby volume and stuff. Where are things at in terms of some of those products rolling out? Do you expect any material contribution in the second half of this year on that?

Yes, that's still our expectation. And it's kind of a funny market. You're kind of waiting a little bit, nobody's yet really (inaudible) TVs all that well and that will be something for the Dolby folks and the other folks in that category to go be successful in. But the good news for us is, it's starting to happen. You're certainly seeing the real flagship products from tier-one manufacturers to come out with features like Dolby volume and that's typically how that cycle works, is once the flagship guys announce that they're adopting something, then everybody else scrambles to adopt it in a hurry. That's really where the big volume is and those are the folks that we're engaged with, with the Dolby programs. So we expect big things from that launch. The product is up and running. We actually did have – we didn't call it out in the script, but we did ship pretty significant dollar amount of some of our new DSPs for the first time this last quarter, which is something our DSP folks are real proud of, I'm real proud of. They've done a great job and it's another product line where we invested resources. We came out with new products. We've got new tools and some very good opportunities going forward. So I still remain real bullish in that area. Jay Srivatsa – Roth Capital Partners: Okay. And then last question for Thurman, what is the interest income should we be modeling for the June quarter, given the stock buyback?

I'm sorry, could you say that again? Jay Srivatsa – Roth Capital Partners: Interest income, what should be the interest income we model for, for the June quarter?

It's probably going to be rolling around $2 million a quarter, for this quarter, and it will go up slightly as we increase the cash levels. Jay Srivatsa – Roth Capital Partners: Very good. Thank you.

Thank you. Our next question will come from the line of Rick Schafer with Oppenheimer. Please go ahead. Rick Schafer – Oppenheimer: Yes, thanks. Just a follow-up question on the portable audio side. I mean, you guys obviously, as was mentioned, you've seen a lot of great design activity there. Can you just walk us through real quick again what you guys are doing different versus competition to win the business there? And then maybe just talk about that market a little bit, what you're seeing in terms of typical dollar content in that portable audio space and like what pricing looks like right now?

Sure. Well, I'll start at the back half of your question and then if I forget something before I get to the first part, remind me. Rick Schafer – Oppenheimer: Okay.

We've said that really kind of pricing on the – for portable stuff is on the order of $1. There's a pretty reasonable swing to that, depending on the volume and depending on which exact part you're talking about. But I'd say it's on the order of $1 with extremes ranging from somewhere in the $0.70, $0.75 range to $1.25 in reasonable quantities. It's a range because, A, we've got everything from a very basic portable codec all the way through a part that's got all sorts of bells and whistles and class D amplifier for speaker drivers and things like that on it. So, it's kind of a broad range of products that fall into that umbrella. The innovation that we are using to drive our market share for one, we focus on system costs. There's a lot of talk about component costs and mashing of teeth over that concept. But really, the game played well in the analog space is driving your customers' system cost down while trying to keep as big a piece of the pie for yourself. And so, to do that, we do things like our parts have an integrated charge pump so we drive our own negative supply which eliminates the DC coupling capacitors for the headphones, the class D integrated speaker driver on the 42L 52s, another area where there's significant innovation. And two, as markets mature like audio has done, what really drives the value in a product for a customer is how hard does the guy have to work to design it in. I mean, there's 100 different ways you can make an MP3 player and probably 30 of them are actually reasonably viable, and the guy that wins or the guy that wins consistently is the one that shows up with a part that the engineer doesn't have to scratch his head for a month of Sundays to design in, and just sort of works, it bolts up to the applications processor nicely, takes some components off the board. And we've been in the business for a very long time, we've got a great team of applications engineers that help with that process and it's really kind of a holistic sales approach. Rick Schafer – Oppenheimer: Okay. And then, just on the pricing front, is pricing there pretty similar to what you're seeing in the rest of your consumer type businesses or …

For the consumer stuff, that's probably – that's above the rest of the MSA product line in ASP slightly. Obviously, it's below the DSP product line. Rick Schafer – Oppenheimer: I was talking about pricing pressure.

Yes, I'd say, in fact, if anything it's probably a little – different customers vary, but broadly speaking, it's probably somewhat less competitive simply because there's actually some innovation in there and our approach to it takes components off the board and things like that. I'd say less competitive. Probably the most competitive area I would say would be component DA converter product line, areas like that where it's pretty cutthroat. You've got to go after it. But, the neat thing for us, we've been in this space for a long time, we've got great partners in the industry. I'd put our cost structure up against anybody. I think we do a very good job on that side. Something for continuous improvement, of course, but that's the name of the game. You can't be in the consumer business and whine too much about price pressure. That's life. Rick Schafer – Oppenheimer: Right. And then just last one on audio, anyway. The portable audio stuff, it sounds like your fastest growth business this year. Can you give us a range, a ballpark, something, how big a business it can be for you by the end of the year?

Well, yes, the issue for us is our growth is coming from market share gains. The question is there's so much – the sky is falling about what's the overall market going to do. Has everybody bought every MP3 player they're ever going to buy? It's a little bit hard for us to figure out exactly what the overall market is going to do. So, I feel real confident that regardless of what the portable market size itself is, we grow both in dollars and in percent. But, it's hard to put a real number on that. Rick Schafer – Oppenheimer: Okay. But, thinking of it in the 5% of 10% of sales range is probably not …

I would be disappointed if it's not higher than that. Rick Schafer – Oppenheimer: Okay. And then just a quick one on seismic, I know you talked about energy and some of your focus there on the industrial side. I think you guys used to say seismic kind of ran on a three year cycle. I know you talked about calendar '07 being sort of a trough year. Are you seeing that business come back? I guess do you expect to see some growth there in the second half of this year, calendar year?

If you can figure the cycle out in that space, I'd appreciate a note. What it really – at the end of the day, what our demand amounts to is something akin to a first derivative of the exploration market. So, exploration heats up. Everybody's got to outfit their fleets and their land based systems, just scramble for more land crews to go run this stuff. And so, you get a big spike in demand initially, things scale back off and then settle down to a stable level. And in prior cycles, we frankly would have expected it to drop off already. But in prior cycles, oil didn't appear to be doing what it's doing right now. And I think that pressure for exploration is pretty relentless and people are having to look in more and more hard to get to and unusual places, and then there's the angle that – I don't think the overall industry has quite figured out exactly yet which is the overall impact of China doing their own oil exploration in a meaningful way. So, all of that nets out to I think a market that is very acyclical to probably what it would have looked like over the past 15 or 20 years. But, our expectation for it is like I say, to be pretty steady as she goes for the course of this year. Rick Schafer – Oppenheimer: Okay. All right, thanks a lot.

Thank you. Our next question will come from the line of Adam Benjamin with Jefferies. Please go ahead. Adam Benjamin – Jefferies: Thanks, guys. You had a nice quarter in the industrial business. It was up sequentially pretty nicely. You previously talked about that business kind of being flat year-over-year in fiscal '09, based on what you did in fiscal '08, you would have to see a fair step down in that business as you move throughout the year off the 22.5 you just did in the quarter. Can you talk a little bit about that, is that still your expectation for flat for the year?

Yes, let's see. How do I want to characterize that? We are feeling reasonably good about it being flattish in the – yes, what does flat mean relative to is actually a pretty good way to characterize that. The problem is, if I put out a projection for Q3 or Q4 of this year, I'll be honest, it's a pretty big swag, right? So we don't anticipate any major changes in that business. We saw – we've seen in the $20 million to $22 million range for the past little while. So it's flat in that range but if I said I could pin it down more precisely than that for you, I'm guessing by the time we get to the back half of the year, which I'd just as soon not do. Adam Benjamin – Jefferies: Okay. But just to translate that, you're thinking any given quarter, anywhere between 20 and 22 a quarter. That's fair?

As good a guess as any, yes. Adam Benjamin – Jefferies: Okay. On the portable side, you guys are ramping pretty nicely there. You previously talked as well about probably doubling that business up from the 11 you just did. At this point, do you care to up that estimate, on do you feel pretty comfortable with the double?

I'm going to stand on I'll be disappointed with if we don't double. Adam Benjamin – Jefferies: That's fair. And then as you look out on the margin on that business, I mean, your biggest competitor sees margins in the mid-to high 40s. Obviously, this becomes a bigger chunk of your revenue, especially as you move into September and December, the seasonal periods for the ramp. It will have an impact on your overall margin that is material enough. How should we be thinking about modeling that business, is it in line with that competitor in the 45 to high 40s margin?

Let's see. I don't keep track of our competitors. I can't remember who you would be talking about. But anyway, the – let's see, how do I answer this without giving what I don't want to give out? As we've said overall, our goal is to try to keep, as the ramp occurs, we are trying to keep our overall margins above 55 and we believe that's a difficult but achievable goal. So, that gives you kind of one set of numbers on it. It's certainly below the overall audio margins, but not as much as folks would have you believe, I suppose. Adam Benjamin – Jefferies: Right. And if you were to do better than your expectation of a double in the portable audio, that could bring the margin below the 55 in the back half of the year?

Yes. And I would put that – I mean, it's conceivable. Our goal like I say is to keep it up there anyway. I guess I would frame that as that would be a nice problem to have. Adam Benjamin – Jefferies: Okay. And last question, just Thurman, a follow-up on the interest, I think you said you would have about $100 million in cash at the end of June. With interest rates where they are, we are seeing this with a lot of companies, 3.5% on that, that's about $3.5 million of interest for the year, about $900,000 a quarter. I think you said $2 million, so I'm just trying to reconcile that.

Well, we had higher cash rates, cash levels during the quarter, beginning of this quarter because we just finished a buyback on April 28. Adam Benjamin – Jefferies: Right, for the first month. But, in other two months, you would have much lower cash balance as you finished the buyback, correct?

Yes, but we're not that much lower, so – I mean, you can take a range between at the bottom end of $1.8 million to $2 million, I mean, it's going to be in that range. Adam Benjamin – Jefferies: I would like to know how you guys are investing that money, but obviously a lot better than I am. But so going forward, you can expect it to go down off that $1.8 million to $2 million, say, in the September and December quarters.

Yes. Adam Benjamin – Jefferies: And that number is closer to $1 million at that point?

That will start running in the $1 million to $1.2 million range, depending how much we generate and hold on and how much we are spending. Adam Benjamin – Jefferies: All right. Great, that's all I have guys. Thanks.

Thank you. Our next question will come from the line of Tayyib Shah with Longbow Research. Please go ahead. Tayyib Shah – Longbow Research: Hi, guys. Jason, can you talk about the audio business? In this quarter, was there any particular application that was weaker than the rest of the audio market? Was there any segment where you saw any inventory build-up?

No, I mean, it's really largely – it's pretty broad on the just general consumer stuff. I think it was pretty tough Christmas for a fair number of retailers. They ended up with a bunch of inventory that backs your customers up and then there you go. That certainly impacted portable, it impacted a broad range of stuff, so it's hard to put a tremendous amount of color on it. Tayyib Shah – Longbow Research: Okay. And then with the inventory write-off, it looks like the Caretta products, the revenue associated from those is also coming down quite rapidly. Is that the right way to look at it, and if so, would you expect some headwind from Caretta products for your overall revenue?

Yes, their revenue from our Caretta products is expected to be zero. Tayyib Shah – Longbow Research: Okay. So I mean, that's already happened, right?

Yes, I think that was in the details. We did on the order of – yes, on the order of 200,000, something like that last quarter. That's not a big impact one way or the other. The bottom line with Caretta is just that didn't fit in well with our strategy going forward. It wasn't going especially well and we have got so many other better opportunities going forward for investment that will drive significant growth and certainly a better operating profit structure that it wasn't prudent to continue chasing that. Tayyib Shah – Longbow Research: Okay. And then in the portable space, as you build a relationship with some of the major OEMs there, are you going to have to start increasing your R&D spending as well so that you can better service these customers in the back half of this year?

Well, the bulk of what we're trying to do is retarget our R&D spending such that we are spending on the things that are consistent with our strategic plan, obviously portable is pretty much at the top of that list. I'd be happy to – well-qualified design engineers we are hiring as fast as we can find, which unfortunately is – we're not minting them rapidly in this country. So that's a bit of a challenge for us. But, yes, we'd be happy to hire some R&D guys. And then, in that context, we're trying to keep the overall expense flat. Ideally, I would run a higher mix of R&D than SG&A, and so we've got work to do in that regard. Tayyib Shah – Longbow Research: Okay. And the major OEMs in the portable space, are they consolidating their supplier base for the chips that you're supplying or are there multiple suppliers shipping into the next generation platforms at these OEMs?

Let's see. I don't know how to answer that question, Tayyib. I mean there's multiple people that go after the portable market and it's a dynamic industry. I wouldn't characterize it as any kind of – I wouldn't characterize it as consolidation. It's going to be a competitive industry and just something we have to keep duking it out. Tayyib Shah – Longbow Research: I guess another way to ask the question is when you win a big account, are you winning close to 100% of that account for next year or are there other suppliers also shipping into the same account with you?

It varies depending on which customer, so hard to answer that question without (inaudible) that I really can't go down. Tayyib Shah – Longbow Research: Okay, thank you.

You bet.

Thank you. (Operator instructions) Our next question will come from the line of Ian Gilson with Zacks Investment Research. Please go ahead. Ian Gilson – Zacks Investment Research: Good afternoon, gentlemen. Could you give us an idea of the book-to-bill ratio for the fourth quarter?

Yes, that's just under 1, a little bit under 1, which – I mean, it's pretty much consistent with what you would expect from our results and our guidance. Ian Gilson – Zacks Investment Research: Okay. On the seismic side, doesn't the activity depend to a certain extent on the number of rigs that are out there in the market and do you have a feel for that?

I don't have a number to put in front of you today, but yes absolutely, our industrial folks keep track of all that and it's a tricky business to forecast because it is so lumpy for one. The orders tend to come in some pretty big discrete chunks relative to the overall revenue. And then as I say, we are for sure important part of the food chain there. Our products are valued and they are a pretty suggest portion of the overall spend on the system. But we are definitely the tail wagging the dog on that. This is driven first by demand for data and then by ability to put fleets and land systems in place to supply the data and then by components. So, trying to get a sense of what our demand is going to be by paying attention to any one factor in that chain is really pretty tricky. So, we just have to work closely with our customers. We quote fairly long lead times on that so that we've got plenty of room to work with. Ian Gilson – Zacks Investment Research: Thank you very much.

You bet.

Thank you. Gentlemen, at this time we have no additional questions in the queue and I would like to turn the presentation back to you for any closing remarks.

All right, thanks for all your questions and for your interest in Cirrus Logic. Before we sign off, I want to point out that we will be presenting at the JPMorgan Annual Tech Conference on May 21 in Boston. Thank you once again for participating in the call.

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