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Cirrus Logic, Inc. (NASDAQ:CRUS)

F2Q 2014 Earnings Conference Call

October 29, 2013 5:00 PM ET

Executives

Thurman K. Case – Vice President of Finance, Treasurer, and Chief Financial Officer

Jason P. Rhode – President and Chief Executive Officer

Chelsea Heffernan – Senior Investor Relations Analyst

Analysts

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Jeff A. Schreiner – Feltl & Co.

Vernon P. Essi – Needham & Co. LLC

Christopher J. Longiaru – Sidoti & Co. LLC

Blayne Curtis – Barclays Capital, Inc.

Erik P. Rasmussen – Stifel, Nicolaus & Co., Inc.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Second Quarter Fiscal Year 2014 Financial Results Q&A Session.

At this time, all participants are in a listen-only mode. After a brief statement, we will open up the call for questions from analysts. Instructions for queuing up will be provided at that time. As a reminder, this conference call is being recorded for replay purposes.

I would like to turn the call over to Mr. Thurman Case, Chief Financial Officer. Mr. Case, you may begin.

Thurman K. Case

Thank you and good afternoon. Joining me on today’s call is Jason Rhode, Cirrus Logic’s President and Chief Executive Officer; and Chelsea Heffernan, our Investor Relations Manager. Today, we announced our financial results for the second quarter fiscal year 2014 at approximately 4:00 P.M. Eastern.

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

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

Please note that during this session, we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections. By providing this information, the company undertakes no obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise.

Please refer to the press release issued today, which is available on the Cirrus Logic website, the latest Form 10-K and 10-Q, as well as other corporate filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations.

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

Jason P. Rhode

Thank you, Thurman. Before we begin taking questions, I’d like to highlight a few of the things we discussed in our shareholder letter. Strong demand for our portable audio products drove revenue in Q2 above our expectations at $190.7 million resulting in an operating profit of 27% GAAP and 30% non-GAAP.

Design activity with our custom, semi-custom, and catalog products gained momentum as we added additional customers and skews across several of our product segments.

We continued to generate cash in Q2, exiting the quarter with approximately $309 million in cash or $4.57 per share. Cirrus Logic’s strategy of providing innovative products to leading OEMs has driven significant revenue and earnings growth over the past five years.

To accelerate our strategy in portable audio, on October 1, we acquired Acoustic Technologies, a leader in embedded firmware voice processing technology. With a strong technology portfolio and a team of approximately 30 highly qualified audio and acoustic engineers, the acquisition increases our value proposition by combining our best-in-class audio components with sophisticated voice processing technology, including noise reduction, echo cancellation, and voice enhancement.

I’d like to take a moment to recognize, for the third year in a row, Cirrus Logic was named by the Great Place to Work Institute as one of the 50 best small and medium workplaces in America. We worked hard over the years to develop and maintain a strong corporate culture, and we believe this unique culture is a fundamental component of our success and contributes to our ability to recruit and retain talented engineers.

Also I’d just like to note that while we understand there is intense interest related to our largest customer, in accordance with our policy, we did not discuss specifics about our business relationship.

Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

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

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Yes, thank you. I was hoping you could talk a little bit about your current visibility, and I know you can’t talk about your largest customer in a meaningful way, but if you can just give some parameters so we can feel comfortable with your current guidance, and also if have any thoughts about the upcoming March quarter?

Jason P. Rhode

Well, I mean relative to the current quarter, I would say that visibility is quite the same as normal. We typically come into the quarter with a good deal of backlog, that’s one factor that we consider. Obviously, we get forecasts and outlooks and dialog with our various customers about what things are looking like, supply constraints, et cetera. And so, our guidance is reflective of our best estimate of what that might be.

We certainly don’t have a crystal ball in this industry, especially that extends out from the December quarter into the March quarter just because there are so many variables that can be applied, holiday inventory who knows, and so our job is to make sure we’re well positioned with inventory and everything else to be able to take care of our customers regardless of what the January quarter brings. But with regards to the current quarter, I would say nothing unusual there in terms of our visibility and as it relates to our guidance.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Very good, and as a follow-up question, I’m not sort of asking for any near-term guidance here, but if we sort of look this transition from audio to voice, could you maybe talk about where we are in that process? I mean do you have any meaningful exposure to voice today or is there something more to come in the future years?

Thurman K. Case

Well, we certainly have meaningful exposure to voice in some of the products that we don’t talk about so much. Really in the phone, all of the voice in any form that uses our stuff, typically the voice and audio all go through our products in some fashion or another. Obviously, we’re trying to add additional capabilities to that as we've done over the past couple of years in the form of – for example noise cancellation, which we ship in high volume. That is actually one of the most difficult problems in all of audio signal processing is acoustic noise cancellation, so we’re very proud to have that one under our belts.

And then the Acoustic Tech guys, one of the neat things about their technology is, they are already shipping it with a number of customers. Now, it’s to date been a firmware algorithm that they are licensing to folks, and we think the combination of that technology with our world class IC design and components that we provide kind of make a combination that can cause that business to be meaningfully larger in the long run. So, in a number of different forms, we are already shipping voice processing today, and it’s a vector that is very important to us as we go forward.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Very good and just last question maybe to Thurman, Thurman could you talk a little bit about what your inventory plans are for the December quarter?

Thurman K. Case

Well, we’re really expecting that inventory. We ended it around $91 million for this quarter and that was down a bit. We’re really seeing our inventory staying either flat or slightly down from where we are at the end of this quarter in December.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Good. great quarter, thank you.

Jason P. Rhode

Thanks, Tore.

Operator

Our next question comes from Jeff Schreiner with Feltl and Company. Your line is open.

Jeff A. Schreiner – Feltl & Co.

Yes, thanks for taking my question. Jason, could you help us understand the difference between a semi-custom and a custom design win that you’ve referenced in the shareholder letter?

Jason P. Rhode

Sure, actually that’s a good question, and we’ve put that in there as a little bit there – there is typically a fair amount of nuance when we develop a custom product for somebody, it maybe shades of gray from an investor perspective, but for example we do a number of different arrangements when we do a custom product for somebody. It could be 100% custom for somebody either maybe they pay us (inaudible) or the customer is just big enough that we’re happy to have the opportunity to do it for them.

But we also sometimes entertain other options, for example a customer that’s really – that is smaller but has some key insights into the market. They want a product that’s exactly the way that they want it and only what they want, and then that information exchange of, hey here’s what we want is traded off or we can sell that device to other customers as well. That would be an example of something that we would call semi-custom.

One customer specified it in detail, and we certainly hope to sell that to them and then we additionally sell it other customers as well. Fair amount of our automotive business for example has been developed that way.

Jeff A. Schreiner – Feltl & Co.

Okay. And then can you talk about – you referenced in the shareholder letter as well a customer win, but also you seem to be referencing around that commentary in different paragraphs, some expansion into China. Can you talk a little bit about the expansion into China and maybe what the opportunity could be if that is in fact where the design win occurred?

Jason P. Rhode

Well, so just kind of – to kind of recap it for you a little bit. We have seen over the past year, I would say an emergence of opportunity in a number of the portable audio and cell phone in particular guys in China as their businesses have grown and their product lines have diversified out to include higher-end offerings.

We’ve knockdown a number of design wins in that area that we are excited about. The opportunities are not as large in the near-term as some of the existing design wins that we’ve got obviously, but the neat thing about them is the expense to support them, scales commensurately as well because they are typically with devices that we’ve already got in our catalog where you can see on the website for example.

So it’s really, to-date -- I don’t believe to-date we’ve done semi-custom or custom work for anyone in China, typically that for us requires a customer that’s willing to work multiple years out in the future and think really, really long-term where as thus far the business in China that I have referred in mobile phones has been more supportive with the devices in our catalog.

But nonetheless in other product lines, automotive for example, power meter is another area we’ve done custom and semi-custom devices in the past. Those are areas that we continue to invest in and see progress with our products in the market place.

Jeff A. Schreiner – Feltl & Co.

Final question from me, when will Acoustic be accretive and how will it contribute to revenues, and can you give us a final purchase price?

Thurman K. Case

We really haven’t disclosed any of the financials associated with that. It obviously is baked into our guidance. It’s not a huge acquisition. I would think of it much more as a technology acquisition, but nonetheless it did come with some revenue and more importantly came with the technology and the technologists that make it fly. So it was not an expensive shop, and I think of it more as a technology acquisition.

Jeff A. Schreiner – Feltl & Co.

Thank you for your time.

Jason P. Rhode

You bet.

Operator

Our next question comes from Vernon Essi with Needham & Co. Your lines is open.

Vernon P. Essi – Needham & Co. LLC

Thank you very much for taking my question. I’m wondering just to go back to I think Tore’s earlier question, Thurman, housekeeping point here, if we were to look at that inventory reserve and back that out for the quarter, would your gross margin have been in the original guided range pretty much more or less?

Thurman K. Case

Yes. They would have been within the guidance that we originally gave.

Vernon P. Essi – Needham & Co. LLC

Okay. Thank you. And then just moving into bigger picture questions, more switching gears to you Jason, congrats on the Acoustic Technologies acquisition, obviously a lot of activity going on in sort of the noise cancellation area as well as the microphone side of things. And of course, recently ADI is planning at least to spin out that business or sell it to (inaudible), I was just worrying if you can go through sort of the differences there. Obviously your solution is tied close to the microphone. Do you see there being a domain expertise advantage one way or the other, and walk us through kind of the pros and cons of trying to go towards an integrated solution.

Jason P. Rhode

I guess, I am not 100% sure what you are asking there.

Vernon P. Essi – Needham & Co. LLC

The issue – I guess let me just explain like this, if you look at sort of where ATI was the idea was they have this MIMs microphone solution and of course there is other one that are out there in the market. And we will hear more about them probably next year. There is a thought process that the analog front end could be sort of incorporated to be more closely made into that. And your solutions I think you’ve proven at least on the audio amp front that you don’t need to necessarily you can take that signal and process it on your on very effectively. I am just wondering if that at the customer level has really made any difference. And how people are looking at these solutions?

Jason P. Rhode

Well, it’s certainly a technology trend over the long term to keep our eyes on that be in digital mikes. The bulk of the mikes that are shipped out there today are analog. We work with both and the way we see it the key part of the value proposition in the long run is really more the signal processing that goes with that whole audio change starting at the microphone and ending with the speaker. But there is a lot of opportunities in between those two things.

And that’s really where the sweet spot of the value we add is in some that is the nature of the game in any sort of analog and mixed signal market is that in any given year, some fraction of what you do goes into different device and some fraction of the IP that used to be provided by others comes back out under the analog domain.

So we see it as overall we see an expanding opportunity for the technology that we ship and we work with everybody out there that makes microphones but typically we see them historically has been a little bit more of a commodity type of product rather than a real design type device. So something we certainly got our eye on it that provides a good opportunity for us to look at that later we will do that.

Vernon P. Essi – Needham & Co. LLC

Okay. And then just moving over to LED, congrats on the incremental customer there and I think it might be an understatement just based on a probably missionary [indiscernible] to get newer customers on board. Should we look at this as being perhaps with the next one be a quicker timeline between first and second win from second to third or is it sort of still this day kind of long process of hide and seeing?

Jason P. Rhode

Yes, I mean I think LED provides a tremendous opportunity. It’s a great opportunity for our technology. We have got good products, we feel like we’ve got the best performance in the industry. That market remains very traditional entity mile wide type of businesses just because it’s so fragmented. There is a small number of players who ship a ton of light bulbs but each one of those designed with, it’s really more space ware, a big name brand, their volume is made up of shipment of a really large number of SKUs and each one of those are design wins.

We’ve got to go get individually. So perhaps it’s an exercise in having the best product, having it be easy to design in, having great collateral those with it, having a team that knows how to promote it and so that we can go after that market efficiently, because it is quite different than the – a lot of your market were. It is a small number of design wins that make up the bulk of the revenue.

So I think our progress there is good. I think there is a lot of new products going to market over the next while that we’ve done a good job of getting designed into, but it is definitely a business of base hits and we are just trying to position ourselves to take advantage of the benefits that our technology brings.

Vernon P. Essi – Needham & Co. LLC

Okay. And then just digging that I went up further, you would characterize in the market as you said fragmented, I mean it hasn’t really, the long tail still is very much alive and well. It’s an operative sort of head developing with a lot of high volume runners that you feel are taking the marketplace strongest, hold very much of an entity wide as characterized it?

Jason P. Rhode

Yes, I think it’s still very much an entity wide. There are obviously the bigger, some opportunities that are bigger than others and we think we are well positioned over the long-term to do well in those accounts. But it’s a relatively low ASP kind of the product. It is a business where we need to aggregate up a bunch of volume from a lot of design wins to really have a turn into the business that we want to see.

Vernon P. Essi – Needham & Co. LLC

Okay. All right, thanks for taking the question. Thank you.

Jason P. Rhode

Sure. Thanks, Ron.

Operator

(Operator Instructions) Our next question comes from Christopher Longiaru with Sidoti & Co. Your line is open.

Christopher J. Longiaru – Sidoti & Co. LLC

Hey guys, congrats on the results.

Jason P. Rhode

Thanks Chris.

Christopher J. Longiaru – Sidoti & Co. LLC

My question has to do with these new customers. So typically with your larger customers you have kind of an ongoing engineering relationship and your visibility tends to be pretty good relatively. With these new customers and these catalog parts, can you talk a little bit about how your visibility is different and how you are managing that business differently?

Jason P. Rhode

Sure. Well, I think it’s more typical of the semiconductor industry in general or more typical at least with the analog mixed signal space in general. I mean certainly when we do a custom device for somebody, obviously we get lot more visibility in a lot longer term kind of stability I guess need to say out of that which is a great thing. But frankly it’s not the easiest thing to find the customers they’re big enough to warrant a custom development all the time. And so we have to maintain a portfolio of competitive catalog products, so that we can go after some of these other guys and it’s number one. It’s good business.

And number two, it’s a good way to keep our eyes on the horizon and make sure there is not something coming out of nowhere that’s going to surprise us down the road. So in terms of support, we’ve been in that type of business for longer than I’ve been in the company. So there is nothing really new there, but it is new that there is more opportunities in portable audio that fall into that category than are worth chasing after.

Christopher J. Longiaru – Sidoti & Co. LLC

And then just switching over on the LED front, I’m sure you know there were some announcements from different entities. Walmart has got a whole line of LED bulbs coming out there, around $10. Given your expectations for how is that, the price coming down that much, is it effecting you, can you comment just on relative expectations for the LED business going out into the next couple of quarters?

Jason P. Rhode

Yes, I mean like I said earlier, our focus is around trying to unearth as many opportunities as we can find and try to win as many of them as possible and then separately from that the market opportunity, I think you’re right in that. I think $10 is a pretty significant kind of price threshold, I mean we tend to think in black and white. It’s definitely shades of grey, but there is no question that I think the notion of a consumer doing an ROI calculation to figure out if they should buy a $30 lightbulb or not, it’s kind of ridiculous. I mean what you’re going to do, make sure the lightbulbs don’t convey when you sold the house. The idea is silly.

The prices need to get down in that $10 and $5 range. And the other interesting dynamic that we’ve seen is there’s not really a lot of point in a utility or a municipality, for example subsidizing a $30 lighbulb by $5.5 because those really make it I think the difference. But if you get down in the $15 and $10 range, then we do start to see subsidies kick in because they can move the needle on consumer behavior.

It’s interesting because it’s certainly one of the most interesting market dynamics that I have ever got to participate in. In that we’ve got a lot of players that are well established in the lighting market, but certainly they’re fast with marketing challenge of marketing a highly differentiated, very technical product that is anything better committed commodity from a performance perspective and that’s mixed with new entrants and folks have come out from a much higher tech point of view. It’s been kind of a remarkable confluence of folks that might ultimately be our customers, jacking in full position in the marketplace and then moving it to where it will ultimately end up being.

So it’s been an interesting thing to participate in. We’ve continued to see it is as a good opportunity for Cirrus. We think again our technology is positioned extremely well and it is, but as you can imagine and as we have no illusions going on in the first place it will definitely be a price competitive industry, just on accounted share volume.

So we need to unlike a lot of markets that we participate in where our chip fits into a well defined system in a lightbulb, typically the LED lighting chip defines the whole system. It’s often the only IC in the lightbulb coupled with a small number of power devices and some magnetics et cetera. And, so in that it’s a very different marketing challenge because our chip essentially defines what a customers building materials is, the electronic raw building materials for the components.

So it’s definitely an area that is very involved from a product promotion to customer’s point of view, technical capabilities of the devices, what parts did they pair with, how do those price fall in different markets. There is a lot of really interesting market dynamics there and again we like the opportunity in the long run.

Christopher J. Longiaru – Sidoti & Co. LLC

Okay, great. I’ll jump back. Thank you, guys.

Jason P. Rhode

Thanks Chris.

Operator

Our next question comes from Blayne Curtis with Barclays. Your line is opened.

Blayne Curtis – Barclays Capital, Inc.

Good afternoon guys. Maybe just going back to the first question on seasonality, last year your business was down about 30%. I think we’ve heard from other suppliers it seems like a fairly normal year. I know you had some better visibility last year. So I was wondering if you could just comment, I know it’s hard and it depends on sell through, but given what you have today if you had any sort of more granular thoughts on Q1 seasonality.

Jason P. Rhode

Yes, I really don’t. It depends on so many different things that I’m not going to get ahead of myself and try to prognosticate what consumers are going to do this Christmas and what’s going to launch in all of that good stuff. I feel given all the dynamics involved I feel pretty good when we’re able to be closing existing quarter in the current quarter. So this one in particular it’s just there are so many variables in it and that’s why we typically only give the current quarter’s guidance.

Blayne Curtis – Barclays Capital, Inc.

Got you.

Jason P. Rhode

From a bigger picture point of view, we feel very good about where we’re at. We’re doing all the right things in terms of when a design is maintained in our presence in with our customers. Obviously I get it that what any one particular quarter might be as of intense interest to the investment community, but it’s not how we manage the business. We need to be doing our extensive long run now because that’s the part that we’ve got any control over. So that’s where our focus is.

Blayne Curtis – Barclays Capital, Inc.

Got you. And then maybe one for Thurman, the benefit in the September quarter from the written-off inventory, is that all of the written-off inventory has now been sold or is there still more reserves?

Thurman K. Case

We’re not breaking all of that up. We still have inventory reserves, I mean the numbers. You can kind of do the numbers from what we originally talked about, has been the reserve that we took in the beginning and back into the numbers where it is now. So there is still some left. We don’t expect a lot of that to move up in future, but there is still some left on the books.

Blayne Curtis – Barclays Capital, Inc.

And this maybe a dumb question, but is there any benefit in the December quarter?

Thurman K. Case

It’s not going to be of any significance.

Blayne Curtis – Barclays Capital, Inc.

Got you. And a final question…

Jason P. Rhode

Blayne, just to put it a different way, everything that we know about is baked into the guidance.

Blayne Curtis – Barclays Capital, Inc.

Okay. And then just on the Acoustic acquisition, I mean there’s 30 employees and it’s been around for a while. Is there anyway that you can – I know you don’t give exact revenue number, but is it insignificant like a few million or is there a greater revenue base there, can you just kind of broad strove that would be helpful?

Jason P. Rhode

Obviously the greater revenue base, there would probably be some regulation where we had to tell you about it.

Blayne Curtis – Barclays Capital, Inc.

We do, do $700 million a year. So the materiality…

Jason P. Rhode

I suppose it’s a fair point. Yes, I mean there is a variety of reasons we don’t get into the details of it. It’s not a giant number or we’d say that much and it’s, the outlook for is baked into the quarter. So, but I again I would think about it more as a technology thing. They do have good technology that ship into the number of people, but our goal is really to monetize that by combining that with our devices over the long run.

We are certainly going to monetize their existing business with existing customers to that extent possible. Actually one of the neat things about the acquisition was that there was really a perfect combination of our customer base and that they had customers that we don’t currently have. We had customers that they don’t currently have and then we had an overlap of customers that we’re jointly doing business with, which gave us good visibility into the kind of people that we’re on the technology that they had.

So we think that what they are doing can pull through some of our hardware. We think what we’re doing hardware wise can pull through some of their software in new accounts and we think we can grow the business that we are already jointly in over the long-term. So I mean it really doesn’t wind up a whole lot better than that when you look at these things.

Blayne Curtis – Barclays Capital, Inc.

Okay. Thanks, Jason.

Jason P. Rhode

Sure. Thanks, Blayne.

Operator

(Operator Instructions) Our next question comes from Erik Rasmussen with Stifel. Your line is open.

Erik P. Rasmussen – Stifel, Nicolaus & Co., Inc.

Great. Thanks. Maybe if we can switch gears. Automotive has been kind of a bright spot, an area of focus for you guys. As you look to diversify your signal processing capabilities, can you just give us any color on where you are at with automotive and comment on where you are with some of the other areas such as home applications, set-top box, DVDs?

Jason P. Rhode

Yes. So automotive is just a fantastic market for audio and the automotive itself has grown and the infotainment packages in automotive are getting more elaborate and propagating down the product line quite rapidly.

So it’s not a huge percentage of our business today, but it’s an area we’ve been investing in, typically in the past what we’ve been a part of is really more of what’s referred to as a DSP amp. So for example, it might be an upgrade option from various different companies, you will buy the car and maybe you choose the upgrade package to get the fancy audio system and there is a box somewhere under the driver seat or in the trunk or one of its discuss some of other devices in it. That’s a good business for us. We have invested in it. We’d like to see that grow.

Longer term, I think both in automotive and in the home, a lot of the technologies that we’ve developed and are continuing to develop for portable audio are going to find their maturity in the mobile space, just because it’s a nice self contained system, but as they do, some of these technologies are very applicable to automotive and home.

So for example, the beam forming technology that we have got with Acoustic Tech as we blow that down into a simple hardware product that is kind of what the same marketing is kind of a whole product that it’s easy for customer design and without having to wrestle with the software provider, hardware provider et cetera, et cetera.

As we blow that down to a simple hardware product, we’d like to see for example, beam informing echo cancellation, other kinds of voice technologies propagate their way into applications such as automotive or home audio where they can have a lot of value once they have [indiscernible] in the mobile proving ground.

So this kind of some of the stuff that we see happening in automotive in longer term, in the short term meant a great business for us and we are certainly investing in it.

Erik P. Rasmussen – Stifel, Nicolaus & Co., Inc.

Thank you for that. Maybe just one last one on your DTA, any update or progress of reducing your tax liability once those DTAs are fully depleted? I know you’ve talked about that in the past, but just want to see where – if you have any update? Thanks.

Thurman K. Case

We really don’t – it’s something we continue to investigate, we are looking on a lot of option. Obviously, we would really like to get our tax exposure as well as possible, but at the same time, the key balance for us is making sure that we don’t impact the abilities that we have developed, this Company has been number one and support our customers as well.

That’s obviously the highest priority for us and a lot of the easier things, lot of the lower hanging fruits, it used to be available, lot of the countries that aiming for sort of thing have changed their rules or made it more difficult or more restrictive to start that kind of operation.

So we are still looking at it. For now, you should just kind of model basic tax rate and if we make any further progress on that and that will be a upside.

Operator

Thank you. We show no more questions at this time. I will turn it back over to Chelsea Heffernan.

Chelsea Heffernan

Thank you, operator. We will conclude the call with questions that we have received via e-mail this afternoon. The majority of the questions were addressed during the Q&A session, however several questions were not asked.

The first question, in the June quarter, Cirrus did not repurchase shares due to certain restrictions, can you provide more color as to what is considered meaningful and [indiscernible] share repurchases?

Jason P. Rhode

It’s a good thing when we got a lot. I wish there were a more of bright-line test for what was material and what wasn’t but it ends up being a discussion between the Board, Thurman, our Legal Counsel has to – do we, are we aware of anything, we haven’t disclosed in our earnings call that a shareholder would find material and certainly at some threshold, we just decided there’s enough information flowing around that we haven’t been able to put out and that causes us to decide to sit on the sidelines on the repurchase.

Obviously we were able to get back in the market in August and repurchase some shares. We see that as a very good way to return cash to shareholders. We’ve taken off a pretty significant percentage of shares of the Company. Just even in the past year let alone if you rewind the clock back to, say 2008 we have another $100 million or so remaining on the existing operation and it’s something that we continue to expect to execute on from time to time depended on market conditions.

Chelsea Heffernan

Great. The next question, what is your long-term operating profit model and how should we think about it on a quarterly basis?

Jason P. Rhode

Our expectation, as we’ve highlighted in the Investor Presentation and other places, our expectations over the long-term to be able to maintain an operating profit in the 20% range. Obviously we’re in a seasonal business. Things vary quarter-on-quarter from a revenue perspective and it’s not prudent to manage a company of this sort manage the expenses on a quarter-to-quarter basis, just because it tends to be things like, say people and it takes a very long time to build up the expertise that we’ve buildup and to serve the markets that we serve.

So by nature we have to manage our expenses from long-term perspective. So you can certainly expect to see variation in this quarter-by-quarter depending on what the revenue is doing, some quarters like for example, this past quarter we expect to be well in advance of that model and other quarters just by nature of things if we’re averaging 20, other ones will be lower than that. So our expectation though in the long-term on average is right around 20%.

Chelsea Heffernan

Thanks, Jason. The final question today, we have several investors submit questions regarding the class action losses. Can you please provide an update?

Jason P. Rhode

Unfortunately we can’t comment on ongoing litigation, but we are optimistic about the outcome of that lawsuit and we expect to continue to vigorously defend the Company.

Chelsea Heffernan

Great.

Jason P. Rhode

In summary, we are pleased with our Q2 revenue, operating profit and earnings per share. During the quarter, we continue to ramp our custom and general-market portable audio products. We added new customers and we expanded into more SKUs with existing customers in both audio and energy.

In keeping with our business model we will continue to make strategic R&D investments in markets such as waste processing and LED lighting where our signal processing expertise and ability to deliver innovative, cutting-edge products are expected to contribute to future growth opportunities.

As many of you may have noticed, we revamped our Investor website in late July. We recently added four new videos, which I would like to encourage you to check out. I’d also like to note we will be attending the Goldman Sachs Conference on November 14 in New York City and the NASDAQ Conference in London on December 3 and 4. We hope to see some of you there.

If you have any questions that were not addressed, you can submit them to us via the Ask The CEO section of our Investor website. I’d like to thank everyone for participating today. Good bye.

Operator

Ladies and gentlemen, thanks for participating in today’s program. This concludes the program. You may all disconnect.

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