Q1 2020 Earnings Call
I would like to turn the conference over to Chase inside head of Investor Relations. Please go ahead.
Thank you Brad and getting good morning. Thank you for joining us today on Synaptics first quarter. Despite 2020 conference call. My name is Jason sorry, I'm, the head of Investor Relations, It's an uptick.
With me on todays call or Michael Wilson, our President and CEO , Dan Butler or CFO and so we'll also very senior Vice President and general manager of our I O T Division.
This call is also being broadcast live over the web and can be accessed from the Investor Relations section of our company's website at Synaptics Dot com.
In addition to a supplemental slide presentation. We have also posted a copy of these prepared remarks on our Investor Relations website supplementary slides have also been furnished as an exhibit to our current report on form 8-K filed with the FCC earlier today and add additional color on our financial results.
In addition to the company's GAAP results management will also provide supplementary results and the non-GAAP basis, which excludes share based compensation.
Position related costs and certain other non cash for non recurring recurring items. Please refer to the press release issued after market close today for a detailed reconciliation to GAAP and non-GAAP results.
Additionally, we would like to remind you that during the course of this conference call Synaptics will make forward looking statements forward looking statements give our current expectations and projections relating to our financial conditions results of operations plans objectives future performance in business, Although synaptics believes our estimates and assumptions to be reasonable.
There are subject to a number of risks and uncertainties beyond our control I may prove to be inaccurate.
Synaptics cautions that actual results may differ materially from any future performance adjusting the company's forward looking statements. We refer you to the company's currents periodic reports with the FCC, including the Synaptics Form 10-K for the fiscal year ended June 29 2019.
Important risk factors that could cause actual results could differ materially from those contained in any forward looking statements synaptics expressly disclaims any obligation to update this forward looking information I will now turn the call over to Mike.
Thanks, Jason and I'd like to wait welcome everybody today's call.
We got a little bit ahead of ourselves earlier today. So I hope we maintained a decent audience for actual discussions.
Certainly I'm happy to be speaking used for the first time since I joined in August .
Excited for the future Synaptics, given a wide array of leadership technology.
With the addition of Dean bottlers, our new CFO , we have a strong leadership team in place to continue to drive the corporate transformation. The company began earlier this year and to become a stronger more profitable company long Charles.
Let me start with a quick recap of our financial performance this past quarter.
We had numerous highly successful product launches with many of our tier one OEM customers.
Happy to report that revenue gross profit an awfully profitability all exceeded our forecast from just three months ago.
When he was 340 million exceeded the high end of our range.
Our gross margins were also better as the only actions we've begun.
In focusing on higher margin products and began to show results.
As a first time in over five years that we've achieved non-GAAP operating gross margins of over 40%.
Better opex controls, but more discipline spend and more selective product investments also resulted in operating expenses that were lower than expected.
As a result, non-GAAP net income increased more than 200% sequentially, just $41 million a non-GAAP EPS of $1.22 cents is a great start to our fiscal year and I believe we are putting the pieces together to drive this type of strong performance more.
Consistently going forward.
As part of our corporate transformation I see an opportunity for us to better align our operations by breaking down internal silos and improve efficiencies.
By removing redundancy and streamlining our operations, we should be able to further improve our overall corporate profitability and performance.
Undergoing a full review of our product portfolio and look to further invest in areas, where our strong technology and he will deliver higher margins gross long term for the company as well as reduce investments in areas that are more commoditized.
Well, we provide some insights and updates to our mobile and PC businesses.
In mobile.
And changes to focus on the higher gross margin premium segments. So the market.
Which continue to shift towards flexible OLED displays to enable some of the most advanced designs in the industry.
We continue to win with our advanced touch controller IC is playing in OLED smartphones. The cheer one mobile Oems due to our superior performance and differentiating features.
Our solutions are enabling exceptional touch performance in a new generation of phones with displays that fold and bad.
We continue to win major designs with our display drivers across both OLED and LCD.
One example of our success in mobile is with the recently launched flagship Android phone by a leading Chinese OEM that leverages, our most advanced touch controller IC, So unmatched OLED touch screen performance.
It's enabled the world's first active pen capability on flexible OLED display powered by a single chip dual why octa solution that eliminates the need for two or three chip alternatives, we acquire more real estate and are more expensive.
Same phone is paired with our premium OLED flexible display driver IC.
Jumping to our PC business Adaptix continues to remain the market share leader for both touch pads and secure fingerprint sensors.
Numerous new design wins across all the OEM leaders, including Dell HP and Lenovo.
I wanted to take this opportunity to make clear.
We remain committed to this business as we look to extend our leadership, while continuing to innovate and differentiate.
With that let me turn off the call over to sleep and have him give you an update on the I.T. business. So.
Thank you, Michael but I don't see business continues to build upon our strong relationships with some of the world's largest Oems. We saw several successful launches of new products powered by a variety solutions from some of the world's leading consumer electronics companies and yet even more excited about what's in the pipeline for plenty twice.
We are building a strong franchise at all about edge computing SSD products and this quarter, a leading us such provider.
Launched a new spot speaker and the new smart device five mesh router solution.
Both of which pack one teta all performance using our fourth quarter associates with an integrated neural network accelerate.
The value proposition for the consumer is that these new generation products with AI at the edge was delivered much better performance and speed with lower latency by learning and processing commands location.
This is getting a neighborhood three to 10 times improvement in performance as compared to the previous generation product.
We have a strong pipeline of new products, ranging from our sound bars to Fiveg gateways and media streams that are being introduced at Harvard Oems and service providers globally, using our edge AI computing.
These new products building upon our expertise in its technology that offers a combination of voice video and computer vision AI capabilities.
Hi, incorporating more to far proprietary software form with intelligence into these solutions, we will enable better performance with greater personalization and customization.
And have seen privacy and security deliver a more seamless user experience.
Consumer a multitude of connected devices that will become more pervasive in our lives.
This includes that Isaac who also announced a new Fiveg home router, featuring Synaptics Barfield was DSP and integrated Alexa wake what technology.
For our high speed Wired connectivity franchise, you made a small acquisition in the space last quarter that will significantly expand our time longer.
We are seeing it opportunities at high speed wired connectivity freezing meaningfully over the next few years and we'll continue to invest in this key aid.
But our digital audio I still see solutions for headphones, we launched in box with leading Korean Oems the newest black sheep handset last quarter.
Yes, first flagship shipping with the U.S. type C wide headset.
We had excited by this opportunity and continue to invest in that sense getting roadmap as we see more leaving Android smartphone Oems looking to make us be type C wide headsets standards for the upcoming flaccid pets.
Lastly, let me touch upon out also business you had excited about the long term opportunity with our leading technologies and capabilities, enabling touch screens and are very pleased to have design wins at six major Oems across Europe , North America, Japan and China.
Many of these Oems are planning to transition the majority of the future display systems.
Simpler and low cost integrated solution platform, using cdti, and you're winning the majority of sockets.
With that I'll turn the call back over to Michael Michael.
Thanks for the uptick.
Before I turn the call over to Dean to discuss the financials I'd just like to say that I'm really excited about the opportunity ahead for synaptics.
Since I've been onboard I've been really impressed by the strong team we have in place our broad portfolio technology, and IP and the great customers and partners we have today.
We still have a lot of work ahead of us as we continue town the path of transformation, but I'm confident we have the building blocks in place to drive synaptics to become an even stronger company built on differentiated and sustainable franchises generate better profitability long shot.
Now, let me turn the call over to Dean to review, our first quarter financials and provide our outlook.
Thanks, Michael and Hello to everyone on the phone before I get started just like to say, it's an honor for me to join snap Synaptics and excited to be start such a great company.
Revenue for the first quarter fiscal 2020, 340 million was approximately 3% above our high end guidance range.
Up 15% from the preceding quarter down 19% from the same quarter last fiscal year.
Our revenue beat for the quarter, primarily reflects a better than expected demand from wallet.
Two customers above 10% of revenue at 12% and 12%.
For the September quarter, our GAAP gross margin was 37.1%, which includes 15.4 million of intangible asset amortization 700000 of share based compensation costs and 1.2 million partial reversal of a previously accrued lost on supply our commitment.
Yes.
GAAP operating expenses in the September quarter, 123 million, which includes share based compensation of 10.5 million.
Intangible amortization of 2.9 billion.
Restructuring expenses of 6.6 million.
Retention program toss up 3.8 million.
And a 3.7 million charge related to an acquisition of a technology startup company.
In the quarter, we accrued a GAAP tax benefit.
4.9 million.
GAAP net income for the quarter was 4 million or net income of 12 cents per diluted share.
On the non-GAAP basis, our September September quarter, non-GAAP gross margin was 41.5%, which was above the high end of our guidance Rand and primarily reflects an overall better product mix.
The September quarter non-GAAP operating expenses were below the low end up our guidance range at 95.5 million and down 5.6 million from the preceding quarter.
Hi, narrowly reflecting the benefit of the restructuring we announced in the June quarter and prudent expense management.
Our non-GAAP tax rate was 12%.
non-GAAP net income for September quarter was 41 million or $1.22 per diluted share.
And 8% decline year over year, compared with 44.6 million or $1.24 cents per diluted share in the first quarter fiscal 2019.
Now turning to our balance sheet.
We ended the quarter with approximately 351 million of cash on hand.
An increase of 23 million from the prior quarter.
The increase in cash for the quarter was primarily driven by cash flow from operations of 47 million, which was partially offset by 17 million up cash used in our share repurchase program.
For the purchase of 556000 shares.
Receivables at the end of the September quarter were 232 million and Dsos dropped to 61 days.
Flapping and more evenly loaded quarter relative to prior quarters.
Inventories were 138 million and inventory days were 63 days down from 75 days in the prior quarter.
Capital expenditures for the quarter were 5 million and depreciation was 7.2 million.
Now, let me discuss our outlook.
Based on our backlog entering the December quarter of approximately 265 million.
Subsequent bookings customer forecasts products, selling and sell through timing patterns as well as expected product mix. We are anticipating revenue for the December quarter to be in the range of 345 to 365 million.
We expect the revenue next them, our mobile I LG and PC products do you see approximately 54%, 25% and 21% respectively.
While our fiscal Q1 results and our fiscal two Q2 revenue outlook are stronger than what we expected three months ago.
It remains too early to determine whether that's near term strength is due to better end demand or simply orders ahead of the expected tariff increases in December .
There remains significant macro uncertainty given the rapidly changing trade environment.
So we believe it as Britain.
We maintain our full year revenue guidance.
Down 10% to 20% as compared to our full year fiscal 2019 revenue.
I will now provide gap outlook bar December quarter, and follow what non gap outlet.
We expect our GAAP gross margins.
To range from 38% to 40%.
We expect our GAAP operating expenses in the range of 121 to 126 million, which includes non cash charges for intangible amortization.
Stock based compensation.
And we also expect to accrue restructuring tops and retention related costs.
Finally, we expect our GAAP tax rate.
The 2020 to be in the range of 15% to 20% for the fiscal year.
I will now provide non gap outlet for our December quarter.
We expect non-GAAP gross margin in the December quarter to be between 40.5 and 42.5%.
And anticipate this is our second quarter consecutively, what non-GAAP gross margins above 40%.
We expect non-GAAP operating expenses in the in the December quarter to be in the range of 90 to 93 million.
I continue to evaluate our portfolio and spend I believe there could be additional cost savings longer term, what's a more disciplined resource allocation.
We anticipate that our non-GAAP tax rate for fiscal 2020 to continue to be in the range of 11% to 13%.
non-GAAP net income per diluted share for the December quarter is anticipated to be in the range of $1.35 to $1.55 per ship.
This wraps up our prepared comments I'd now like to turn the call over to the operator just starts acuity session.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using speakerphone. Please make sure. Your mute function is turned off for a longer signal to reach <unk> equipment again press star one to ask a question well pause for just a moment to allow everyone an opportunity to signal for questions.
The first question will come from Charlie Anderson with Dougherty <unk> Company. Please go ahead your question.
Yeah. Thanks for taking my questions and welcome to come I couldn't D N and congrats on a good start.
What did just start on Michael's if this is your first call maybe because it's sort of articulate.
What were some of the the reasons that you are attracted to snap backs in the first place and then as you've had a few months under your belt and Youve assess the operations, where do you see some of that most had room for improvement either operationally and financially and then I've got a follow up.
Yes, good question.
Certainly some of the drivers coming here I thought the company was was potentially under appreciated and I thought there was opportunity to drive shareholder value and we still got a lot of work to do but the early returns or are certainly encouraging.
Also a lot of the technology that the company's engaged with I have past experience with wood cotton competing and snapped against Snapfix on touched products on it on what was the old Marvell business on set top box products. So there was a lot of familiarity with the business than certainly belief that I could help there.
Company near term in terms of.
Some of the marketing and sales activity so.
Certainly seems to be some opportunity to drive some shareholder value and and certainly familiarity with the products was worried the key motivating factors.
Okay, Great and then on gross margin I thought it was interesting you have a similar mix and September by end market that you had in June but yet the gross margins are up over 200 basis points I Wonder if maybe you guys could articulate what was going on there maybe between you know what didnt segments in terms of products that helped enhance the margin and.
We look forward to maybe a higher margin profile overtime, what are some of the politics or go to sort of care you on your way there. Thanks so much.
I think as Dean spoke.
On the mobile products, although the overall revenue Max was was very similar within within the segments within the mobile segment.
In particular, our mix was better it was more toward the high end products the more margin favorable products and as I said in my comments as we go forward, it's gonna be our intention to focus more on those products and try to maintain consistency on the gross margin line, which is I think exactly what deed read out so.
Although you're right on the macro mix within each of the sub segments you had some moving pieces and those moving pieces led to the favorability and then maybe I'd just add Charlie that.
Yeah as you can see in our guidance for this quarter. We actually believe this is a sustainable kind of margin position for us going forward.
Perfect. Thanks much guys.
Thank you for the question as a reminder, that star walked into the queue. Next question will come from Anthony Stoss with Craig Hallum. Please go ahead.
Oh, my congrats as well I'm walking Michael in Dean.
No. We didn't want he will elaborate or whether you thought your strength and walk away with tariff related but can you tell if you're taking share away and then maybe for Dean in terms of your December quarter Guide, you expect or all the divisions to be up sequentially or whether it be water or more down. Thank you.
Yeah, Let me start with the first part.
You know relative to taking share again, I think it's more mixed related.
As we talked about we had design wins on the high end of their line and I think that led to both revenue and margin favorability at Wawa.
Wawa is a customer as we continue to see strength then as we look forward, but you know, whether we're taking share or just improving our mix to walk away.
He said remains to be seeing.
Yeah, and as far as it comes for your second question.
So what we kinda expect is that our PC business is relatively flat.
We think our our mobile business should do well, we also believe our I O T business relatively flat.
Got it any.
Any unusual competitor pricing I mean, given the gross margins are strong, especially in the p. or excuse me in the mobile Friday, the pass an epic or feel a lot of pressure. There is it just the transition to OLED or any thoughts on the competitive environment would be helpful. Thanks.
Yeah, I think it's it's really mix related certainly where should we continue to see pressure at.
The low end of the market.
That that is very much true on your your comments to that effect still are there I think what we've done is shifted our attention more to high in handsets and had some success, there, which really was that the gross margin tailwind.
Got it nice job guys. Thank you.
Thank you for the question. The next question will come from Roger Gill with Needham and company. Please go ahead.
Yes, Thank you and I got my congrats and welcome as well.
The commentary around keeping you know the annual guidance down 10% to 20% year over year seems seems prudent to me, but I just wanted to get a sense of.
The impact on a quarter by quarter basis, if you assume that it's going to be a pretty big drop off in March.
And not really.
Small pickup in June .
So it seems like a lot of orders might have been pulled in and so I'm trying to balance between the pull in versus.
You know your competitive position had walked away you know your your share gains at wallet because indicate a pretty big drop off in March and small recovery in June .
[noise], yes, as you might imagine and then the visibility on the dynamics being placed out there and the global trade War with you know.
And well heeled pre tariff kinda action, it's difficult for us to assess so so we would.
Kind of be cautious on on that.
I would I'd really say you know if you look at kind of typical seasonality for US you know first half is is generally.
Our high watermark if you.
Follow a typical seasonality, we would typically be down a little bit from here you are looking out to the second half of the year.
Which would put you back in the range of where we kinda anticipated full year versus 29 team.
Okay and in terms of the gross margin you know the gross margin at 41.5% based on a mix of.
54% mobile we've ever since.
We want person P.C.S.
The mobile the margin improvement is really related to a positive mix shift within mobile.
So I want to get a sense back to my earlier point of how sustainable that that.
Mix shift within mobile to higher end products are wallet is and are there plans to kinda improve the I don't see margins or improve the mix of bio tea.
Which is obviously very high margin business you know as we go forward when you look at kind of the strategic plan going forward.
Yeah, I mean, I think your read is right that at the margin mix.
It's something that we believe is sustainable we we're really focusing a lot more on on high end wins and trying to put more wood behind the arrow.
So.
We've got reasonable traction as you likely know it to the three major handset Oems.
At the high and then I think that's that's helped the margin mix.
I think with respect to the Aiotv business, it's a huge area of focus for US I think you know we like our prospects there both in the automotive segment and in Ed, Yes, So see and I think we have good design win traction in both segments, but as you know the semiconductor parent takes time.
For those design wins to materialize and in our revenue line in our gross margin lives. So we're very focused on it I think that we're trying to drive sales in both of those segments, but it's going to take some time to see pull through.
And last question from recently also there seems to be some good traction on the a wired digital headsets, which are you actually see oh.
Products, one to get a sense.
You guys moving into also wireless untethered.
Ear buds and competing with you know serious and others.
And how you know how would you rank your kind of noise cancellation technology.
In that particular market.
Great got should Rajiv.
Yes, we continue to lead.
In the U.S. B type C. Ted a wired headsets and.
As I said earlier that it's become a franchise for us and and the true wireless and wireless is moving forward and.
We have a robust road map in place and you know I don't have a lot to shared with you today, but.
You know just be looking out for it I'm very excited about our technology. If you come to see yes, you'll be able to see some off our grade demos that already and see a noise cancellation I believe you have mark leading solutions.
Thank you.
Thank you for the question. The next question will come from beach ever catch with Mizuho. Please go ahead with your question.
Yeah, Hi, thanks.
Mike Indian there congratulations here.
Just on the T. say, they're selling or is there.
Looking for that to be growing up flat for the fiscal year versus the overall business, let's say being that don't integrity.
BJ. So we spoke at the last call and <unk> will be working said that he is going to grow in the double digit.
The low teens for the year fiscal 19 to fiscal 20 and been holding to that.
In India would be business, yes, I won't be too. Thank you Michael.
Got it does that.
Oh go ahead.
Yes, Thanks, now I know that ABS.
And you look at that when it shipments you mentioned single chip that drives lower part or on your footprint smaller footprint, one person don't feel well it or if it down nicely is good thing would be well it a exiting this year and they seem to good though first half of next year.
That's helpful calculate I don't know if I have that at the tip of my fingers BJ I mean, I again, it's a focus area for us, but how the actual numbers break down I don't know.
Got it and last question I know you mentioned and this predictions for the pull in did yet or is it mix on why we are going up as you go in December December quarter.
So as we enter into the December quarter, our hallway mix is is not going up and so what I would say on wawa is.
Yeah, we think we've taken a conservative view, it's worthwhile ads, which are here in our December quarter, and we're really comfortable on how we've modeled it into our outlook.
Got it thanks.
No no changes yeah, there's no change in the overall exposure that's right.
Great. Thank you.
Thank you as a quick reminder, if you have a question to the star wants it to the Q. The next question will come from Christopher Roland with Susquehanna International Group. Please go ahead of your question.
Hey, guys. Thanks for the question Minot and great quarter here and Michael a welcome aboard.
I guess the first one is for you Michael I'm just.
Talking about kinda, how you're thinking about synaptics there longer term road map that kinda strategic future. The you see for Synaptics and I think some of the <unk>. The bigger questions are a are you going to continue to focus on the consumer or might you tried to move into other areas.
Are there some tech tuck ins that that you think you need to help fill out that road map and then lastly, I'd say sort of an overarching theme here for Synaptics of old at least a is that the Taiwanese guy seem to cut and paste Synaptics technology.
Almost like their gunning for you guys.
Any early thoughts on how you can break this cycle, Hi Inn and differentiate.
Okay, Chris there were no. Thanks for that could the question look.
And everybody's everybody said, the same thing and congratulated us on the quarter quarter was relatively good we've got a lot of work to do I think that we see opportunity. We you know we still think that there's there's room to grow this business on both the topline and on our.
So while it was better than we forecast I would say that we still have a lot of opportunity here at the company and it goes to what you're just second part of your question which is.
Where where do we see the roadmap going I think.
We're in the process of evaluating that Dean is kicking off a full portfolio review, we're going to embark on that this quarter and really look at where we are from a technology standpoint, and try to figure out where we do place our beds.
What I can tell you in response to me the last part of your question certainly the Taiwanese our our competitors Chinese or competitors at the low end to the market.
We generally want to be avoiding that pieces of business I think in the past there has been an atmosphere of grow the topline.
Almost at all costs and not worry about gross margin and bottom line profitability I think deane, so legal and myself.
Definitely altered that culture, we want to be very disciplined in topline growth.
And grow profitably grow profitably with good gross margins. So while we don't have a clear answer yet on which technologies are gonna be building blocks in which arms.
We know that took the theme is changed substantially from the past administration.
Excellent. Thank you and then perhaps just getting in to the weeds little bit more.
Maybe a little bit more detail on wall way you know why that was so much stronger there is it just to unit single or are you really taking share across the <unk>. The walk away line, what do they like about the Synaptics products and do you think that the share that you're taking is it.
Is durable thanks.
Yeah, I mean, maybe maybe part of it was dean alluded to it during during his comments around first half versus second half. Yeah. We we I think took a fairly conservative view going into the quarter as to how the walkaway numbers would shape up and.
We did better than expected, so I wasn't necessarily share gains or anything like that was probably a relatively conservative view their forecasts trying to be prudent well on tariffs and other macro problems.
Our view is they there so their sales were far better than expected and we got dragged along with that.
I don't know Christopher that answered the question.
Yeah, I know that that's great. Thanks, a lot looking forward to working with you guys.
He is well thank you.
Thank you. The next question will come from Brett Simpson with Arete Research. Please go ahead your question.
Yeah. Thanks, very much Michael if you wanted to ask I mean I appreciate your still undergoing a full portfolio review and you're you're relatively new to the business, but maybe you can you share with us from a high level. What are the it is where you think synaptics has you know a real opportunity to transform the most I mean looking at the.
The the IP and the skill sets in the resources today, what are you most excited about what what this is done thus far thanks.
I would say two things are true Brett one I think that our touch products both in mobile and PC are our world class and I think that in the past, we didnt emphasized that enough I think that we have opportunity in touch.
To take share.
And again, I think focusing on high end and lead leading technology I think that's a big opportunity for us.
I think the second Big thing is this neural network that so Leila has talked about in the past.
There are two aspects to that one is we have intelligence built into our audio solutions and it's a little spoke to we do intend to.
Moving into the true wireless area of the market and use and take advantage of some of the neural network in there for wake words, and simple commands that would be computed locally on the headset.
And then secondly that say very same technology is is in our edge as to seize that we've talked about in the past, but we really want to use that to differentiate I think that.
In the past our customers are using that neural network and they're doing more of the differentiation. Our intention going forward is gonna be apply our own software resources to exercise neural network and actually delivered more differentiation to our customers.
Right and maybe just a quick follow up on the mobile business specifically.
When you look at that that book of business today, how much of that mobile business would you say is below the threshold of margin that you think is acceptable to the future Synaptics I'm, just trying to get a sense for.
No what portion of mobile I'll really is maybe more of the commodity yen versus where you think is is is really sort of you know acceptable margins for going forward. Thanks.
Yeah, I would say izzadeen so.
That that is something we absolutely take a look at internally, but we don't break that out externally as Mike alluded to that should be going through a portfolio review to make sure that youre aligning our go forward strategy to the highest you know shareholder value creation.
Okay. Thanks very much.
Thanks, Brett.
Thank you there no further questions at this time I'll now turn the call over to CEO Michael Halston.
I want to thank everybody for spending time with us. This afternoon I appreciate the questions any attention and we look forward to speaking you again next quarter.
Thank you ladies and gentlemen. This concludes today's event you may now disconnect your lines.
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