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Cirrus Logic Inc. (CRUS - Snapshot Report) reported second quarter 2013 adjusted earnings of 71 cents per share, which surpassed the Zacks Consensus Estimate of 66 cents. The adjusted or non-GAAP earnings per share exclude amortization of acquisition-related intangible assets, but include stock-based compensation expense. The quarter’s earnings surged 154.2% from the year-ago level.

Revenue

Total revenue for the second quarter jumped 90.7% from the year-ago quarter to $193.8 million. This was well above the Zacks Consensus Estimate of $180.0 million, boosted by higher sales of Apple Inc.’s (AAPL - Analyst Report) iPhone 5, which had a solid backlog in the preceding quarter. Apple happens to be Cirrus’ prime customer (for Audio products) with 62.0% share of 2012 revenues. Ramp of new products launches have also supported the revenue growth.

Segment wise, Audio Product revenue increased 112.6% year over year to $177.9 million while Energy product revenue came in at $15.9 million, down 11.5% year over year.

Operating Results

Reported gross margin in the quarter was 51.7%, down from 53.5% in the year-ago quarter as a result of higher costs.

Operating margin was 26.0% versus 17.6% in the year-ago quarter. The company’s total operating expenses increased 36.3% on a year-over-year basis. Higher operating expenses were mainly due to 49.7% and 20.5% year-over-year increases in research and development (R&D) and selling, general and administrative (SG&A) expenses, respectively.

Net income on a GAAP basis was $35.4 million or 51 cents per diluted share compared with $11.2 million or 17 cents in the year-ago quarter.

Excluding the amortization of acquisition-related intangible assets but including stock-based compensation expense, non-GAAP net income for the second quarter was $49.3 million or 71 cents per diluted share compared with $18.8 million or 28 cents in the year-ago quarter.

Balance Sheet

Cash and short-term investments were $134.6 million versus $166.7 million in the previous quarter. The company has no long-term debt.

Outlook

Management has provided an upbeat outlook for the third quarter. Revenue is expected to be within the range of $270.0–$300.0 million, with gross margin in the 50.0–52.0% range and operating expenses in the range of $49.0–$52.0 million.

The Zacks Consensus Estimates for third quarter and fiscal 2013 are pegged at 89 cents and $2.37 per share, respectively.

Our Take

Cirrus posted a stellar second quarter with the top and bottom lines comprehensively beating the Zacks Consensus Estimates. Expecting the momentum to persist, Cirrus provided an upbeat third quarter guidance, which was enough to encourage investors.

We are also positive about the strong demand for its analog and mixed-signal integrated circuits for audio products.

Though stiff competition from the likes of Texas Instruments Inc. (TXN - Analyst Report), STMicroelectronics (STM - Snapshot Report), ON Semiconductor (ONNN - Analyst Report) and Maxim Integrated Products (MXIM - Analyst Report) are concerns, strong correlation with Apple and better-than-expected guidance leads to a Zacks #1 Rank, implying a short term “Strong Buy” rating.

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