Q3 2020 Earnings Call
And certain other noncash or occurring or nonreoccurring items. Please refer to the press release issued after market close today for detailed reconciliation of gap and non-GAAP results.
Additionally, we would like to remind you that during the course of this conference call.
This will make forward looking statements forward looking statements give our current expectations and projections relating to our financial conditions result of operations plans objectives future performance in business, including our expectations regarding the potential impacts on our business of the.
Covert 19 pandemic, although semantics believes our estimates and assumptions to be reasonable bare subject to a number of risk.
He needs beyond our control and it proved to be inaccurate. So metrics cautions that actual results me different materially from any future performance suggested in the company's forward looking statements. We refer you to the company's current and periodic reports filed with the S.C.C., including the <unk> for fiscal year and that.
29 2019.
For important risk factors that could cause actual results are different material away from those contain at any forward looking statements synaptics expressly to squeeze any obligation to update the sport looking information now before we get started that I'd like to remind you. We are still planning on hosting or analysts say on June 4th discussing more details about our long term strategy and.
Gets with you at that time, I will be sending out more detail. Shortly I will now trying to call over to Michael.
Okay.
I'd like to welcome everyone they call.
D speaking with all of these today for a solid core despite the ongoing global uncertainty of covert 19.
During much of the March quarter, the supply channel to China was largely at a standstill quarantine.
The pandemic spread throughout the globe in such a couple weeks.
Differences in past 12 product portfolio.
A P.C. related businesses are benefiting from increased number of people working from home.
<unk> weakness part of our I.R.T. business as discretionary spending for consumer electronics automotive decline.
A mobile businesses in line with our expectations during the March corridor.
Despite these challenges are third quarter, rather there was largely in line with the low level large occasions, while our continuing focus on higher value added solutions and higher margin products.
Stronger gross margins and better than expected profitability for the company.
I'm also police were able to close the divestiture of our mobile L.C.D.T.D.I. business last month.
Now how much stronger p. at all and balance sheet, which enable us to further improve our long term profitability, while allowing us to invest well differentiated products further increasing gross margins.
You will provide more details on financial performance later in the call.
Before I provide enough pay tour business I would like to share with you my thoughts on how the global pandemic is affecting us what we are being addressed those challenges.
First off the health and safety of our employees as a top priority and we can she needs to take steps and implemented measures to safeguard them.
I'm extremely pleased by their focus and execution.
These uncertain times and thank them for their vacation.
They said earlier from a business standpoint, we've seen some areas that are faring better than others and the short term or seen strong continues engagement with our customers across the board.
We've been able to adapt.
Can you just deliver on our commitments to our customers from insuring that we execute on a various road maps to effectively managing our supply chain.
You see the supply chain normalizing and face minimal disruptions at this point.
When you put it came in place to look at contingency plans in the event.
A global pandemic and global economic conditions decline further and consider how we are positioned to deal with that.
Our intention is to continue to invest in stay engaged with our customers well. This as conditions return to normal our customer engagements increasing pipeline of new products and design ones will enable our growth long term.
That was me update you want our business.
In the mobile market our customers have launched several highly anticipated handsets in the past couple of months without display drivers as well as with a on cell flexible Oh, let touch controllers, including the law way P. 40 pro and pro plus phones.
Introducing several new single chip touch solutions that integrate abroad suite of high end capabilities and differentiation for all on cell flexible.
Place.
Includes delivering the fastest touch report rates in the industry.
As well as integrating faced attacks inside touch features to enable infinity displays and support for active pets.
As production and availability of on cell festival of panels continues to grow our design momentum is accelerating and you're confident in maintaining our leadership position.
Susan current schedule hold our flexible old touch solution should be designed into at least 10 more flagship to mid range phones by the end of this calendar year.
Separately or large handset customer launch their highly anticipated low end L.C.D. smartphone last month, using R.D.D.I.C. and there's been well received in the market.
In our team following the successful launch of a versatile vs 600, smart edge a family of S.S.S.C.'s, we were seeing strong customer attraction and design activity across multiple markets, including service provider set top boxes and retail O.T.T.V. screening.
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Thing is the entertainment hub of smart homes set top boxes are getting smarter with the addition of our powerful purpose built S.S.C.'s uniquely combine C.P.U.
N.P.U.N.G.P. you on a single platform integrating audio video computervision than they are.
Our customers are finding new ways to integrate our neural network accelerators and we'd kill voice enabled devices with premiums Soundbars and high performance video, including Soundbars cameras and starts place.
We have a strong we have strong partnerships with our ecosystem partners to drive significant designing an activity and wins with service providers across Europe Asia, and the Americas, along with numerous consumer electronics companies.
You have a solid relationship <unk> road map in this space and you'll see initial product will out over the course of the next 12 months.
We also excited about a new video interface products that have recently taped out.
Those icees support H.T., My 2.1 and are optimized to drive up to eight k. screens.
Designs will be in commercial docks travel box and ultra portable dongle accessories and these products are targeted to be at retail by the end of the year.
In addition.
Are existing multi stream video products continued to see strong demand that growing volumes due to the increase of work from home.
And we're seeing arrives in new design activity.
The increasing work from home activity continues to benefit a P.C. related businesses.
Mentioned is accelerating.
Enterprises are are putting more of their employees was upgraded laptops.
In addition, consumers are upgrading their laptops to enable video applications and students are also moved into a remote learning.
As a result sales of our touch pads fingerprint sensors and high speed wireless connectivity for docking stations are increasing sharply.
All the strength in our P.C. related business is lost in the laundry than they previously anticipated. We don't expect this frame to be sustainable.
[noise] overall I'm pleased by our execution and our teams concerning focus.
Undoubtedly they'll still be uncertainty and volatility in the coming months to cope with 19.
Our focus remains or what we can control.
Will continue to be there to support engage with our customers and we will continue to invest in our portfolio solutions that will drive operating results even in an uncertain environment.
Element turn the color of the Dean to review, our third quarter financials and provider outlook.
Michael and good afternoon to everyone I'll start with review of our financial results for recently completed caught her.
Provide our current outlook for fiscal keyboard.
Revenue for the third quarter of fiscal 2020 of 328 million was slightly below the lower end of our previous previous guidance range.
Down 16% from the proceeding quarter and down to present from the same quarter last fiscal year.
Our revenue was negatively impacted by customer production delays driven by supply chain constraints do the global effort to slow the spread of covert 19.
During the quarter, we had to customers above 10% of revenue at 21% and 13%.
For the March quarter are gap gross margin was 41.3%.
Which includes 8.1 million, an intangible asset amortization, an 800000 of sharebased compensation costs.
Gap operating expenses and the March quarter were 116.6 million, which includes shared based compensation of 17.1 million.
<unk> amortization of 2.9 million.
Restructuring expenses at 6.3 million and a retention program cost of 3.2 million.
We accrued gap tax expense and the quarter of 10.2 million wringing, our year to date gap tax rate to 36.3%.
Gap net income for the quarter was 5 million or net income of 14 cents per diluted share.
A non gap basis.
March quarter non gap gross margin of 44.1% was 10 basis points.
Of the high end of our guidance range and primarily reflects ongoing cost savings initiatives.
The March quarter, non gap operating expenses or below the low end of our guidance range at 86.7 million and down 2.5 million from the proceeding quarter.
Primarily reflecting the benefit of restructuring activities and operating expense savings.
During the work from home restrictions due to cope with 19.
Are non gas tax rate for the quarter and year to date period was 12%.
<unk> net income for the quarter was 52.3 million or $1.49 cents per diluted share.
An increase of 80 per cent year over year as we continue to focus on improved bottom line results as compared with 29 million or 83 cents per diluted share in a third quarter of fiscal 2019.
Now turning to our balance sheet.
We ended the quarter with approximately 472 Marianne of cash on hand, and increase or 47 million from a prayer quarter.
Really driven by cash flow from operations.
Opportunistically repurchase 257000 shares for 13.2 million, an average price $51.09 early in the market downturn before quickly changing to a cash conservation node once it became obvious that covert 19 impact.
And the last much longer than initially thought.
Receivables.
March work, three 238 million and Dsos, where 65 days.
Inventories were 96 million an inventory days were 47.
Capital expenditures for the quarter or 3.5 million and appreciation with 6.6 million.
Before I turned around guidance, let route.
And you have a couple of close quarter and transactions that will drive our ability to execute our long term plans to opportunistically invest and grow business.
On April 2nd we do down 100 million on our revolver, leaving an additional 100 million available to US. We believe it was prudent to put this cash on their balance sheet to ensure it will be available when needed.
Will provide greater flexibility for operations and these uncertain times.
On April 16th we close the divestiture of our mobile L.P.D.T.D.B.I. product line and received approximately 139 million from the buyer.
Are adjusted cash balance that includes these two host quarter events. In addition to the 472 million cash balance at the end of the quarter, It's 711 million.
Disposition dust well to capitalize on potential opportunities.
Choir businesses or product line that will fit into our longer term growth and gross margin strategy.
Let me also highlight the historical impact on our P.N.L.
I'm the mobile P.D.B.I. divestiture that we reference in our filing with the F.B.C. on April 15th.
In the first half a fiscal 2020.
That's generated sales of 131 million or an average of about 65 million per quarter.
Excluding the effect from this divestiture.
Avenue and the Jews quarter at the midpoint of our range is expected to be approximately flat sequentially.
Which is slightly better than typical seasonality.
I also see a meaningful improvement in gross margins an operating expenses in the June Porter as a result of the sale.
It is also incorporated into our guidance today.
In addition, taking into consideration increasing uncertainty and the impact of covered 19.
Continues to have on our end market and our consumer demand.
Yeah, broadening our revenue guidance range for the June or 30 million from 20 million range. We provided in the last couple of course.
Now, let me provide our outlook for the fourth quarter.
Based on our backlog entering the June quarter of approximately 240 million.
<unk>, okay customer forecasts products L.N. itself through finding patterns.
As well as expected product neck.
We anticipate our total revenue for the Jews quarter it'd be in the range of 260 million the 290 million.
We expect the revenue Mick from our mobile I.O.G.N.P.P. product.
45%, 23% and 32% respectively.
<unk> continuum near term spring and R.P.C. related sales.
Inline mobile business.
And offsetting weakness in I.O.T.
Now I will provide gap outlook park in order and follow with non gap outlet.
We expect a gap gross margin to be in the range of 41.5% for 44%.
We expect our gap operating expenses to be in the range of $110 million to $115 million.
Which includes charges for intangible amortization Socrates compensation.
We also expect to approve restructuring costs and retention related costs.
We expect their gap pass rate for fiscal 2020 to be in the range of 20% to 25% or the full fiscal year.
Well now provide non gap outlook for our dream for.
We expect non gap gross margins and the <unk> between 45 and 47%.
Reflecting the positive impact of the device divestiture of our low margin G.D.I. product line.
We expect non gap operating expenses in the gym quarter to be in the range of 83 million.
86 million also reflecting the positive impact from the divestiture of R.T.D.I. product line.
We anticipate that are non gap that great for fiscal 2020 to continue to be in the range of 11, 13%.
Are non gap net income per diluted share for the Jupiter is anticipated it'd be in the range.
Five cents $1.25 cents per diluted share.
This wraps up are prepared remarks.
And now turned to call over to the opera <unk> operator.
Thank you.
To ask a question.
Are one on your telephone keypad.
The speaker phone make sure your immune function is turned off.
<unk>.
At a star what to ask a question.
<unk> so much for a lot everyone an opportunity to second off.
I first question comes on Rachi guilt with to meet him in company.
Yeah, Thank you and congratulate the divestiture, a P.D.D. or the <unk> that's true business.
If we look at the the guidance. It implies you know I O.T. business is gonna be down about 12% sequentially.
In the mobile business, obviously, but the the I.R.T. business. There's a lot of its consumer focused wondering if you could describe the impact of cold in on on I.F.T. is that hurt.
Demand for consumers with two products in the retail stores or installation at the home in any color there would be helpful.
Yeah right yeah.
No or I.T. businesses kind of a a basket of different products and it had various effects on various different things, but generally speaking the negative impacts has been on.
Are in home devices.
Whether those are speakers or or you know some some of the some of the video device as we've seen some impact on and I think that's largely due to [noise] consumer spending patterns.
In our our customers push out orders.
I don't know is that that demand come back in so we see some return to normality, but you know that's been that's been a real impact on the on the <unk> the.
The other thing I would maybe add rising as you know <unk> business include an automotive business that we have a record of there and.
No different from several others that sort of have a closer to automotive that the challenging at this point.
And for that on the mobile lives in.
If you add the approximately 65 million quarter, you know back to the mold business.
It it would imply that <unk> rowing sequentially.
Just wanted to get a sense of the attraction in mobile going into the gym corner.
What have you seen to China is that Mark is what have you seen that in top customer in terms of design pipeline in the funnel.
No.
Yeah.
Yeah, I mean, I think that you're you're characterizing that position the sort of at the overall.
Finishing well right yet.
General.
Oh, we we kind of have an unusual situation, which is that we picked up some nice design momentum on our on cell types products and that.
Led to kind of any any unusual tailwind in that sector, we've done very well with the Chinese handset makers.
We think we're gonna continue to do well as I said I've you know if schedules whole, we expect to see about 10 more.
Major.
Bones split to our our on soft touch solution. So that's been a nice tailwind.
You know coupled with that I mean, we still dot dot a meaningful presence in our display driver product area.
And.
We've had we've seen the new launch of the.
Some lower end L.C.D. phones, and that's been good for our business. So.
Generally feel good about mobile and as we look out I think you're going to see continued shift.
Toward touch and maybe away from D.D.I.C., but we feel really good about our position in in <unk>.
And just let US question for me on the gross margin you know fantastic job on on really moving the margins up through the best <unk>, 46%.
For June as you could look forward what are some of the puts and takes too on the margin line now that we've completed it.
Sure.
The driver.
They you know where.
Sort of really focus on this one you're driving or you know these being spent automatic on I joined the company that being a a big emphasis.
<unk>, we're certainly not done I mean, we we continue to work this area.
With fairly aggressive you know trying to do cost reduction, where we can but also really focusing on.
The high value products that are in a portfolio and making sure some of those.
<unk>.
So as we focus on margin Nixon and cost going forward I think that should continue to improve.
<unk>.
And once again.
Ask a question.
Our next question from Christopher Girl went with that's Gonna International.
And I stayed would have.
Thanks for taking our question Tonight.
Maybe you can start by helping next frame. These 10, new ones that you have had the onset flexible all that pets are there a practicing or margin differences between these ramping displays versus your old <unk> similar to what you'd want on the path.
Against Guy as compared to previous so let's touch wins is that is that the question yeah stay on on cell versus the previous to that touch ones that you have it is the stain or their pricing differences in marking differences can you explain that.
Yeah, there's the there in line from both the margin in A.S.P. perspective, with with prior touch type prior touch when it's.
Mmm got it and then on the I.R.T. flag, if he very confident in the smart <unk> and your tracks make it made there are you currently is getting a lot of revenue from that product or should we get things about this is really a ramp up in the next month and how big and that's kind of product grants for Ya.
Yeah, just to clarify these a set of products that we announce back in January yeah. So it's a brand new classes product Blessed we're certainly thing a lot of interest from the customer base and we think they're very promising but the answer your question no today, there there's no revenue as as our our new product.
Great. Thank you and then I think my last question, it's gotta be about the P.C. strength for next quarter and it doesn't sound like in a ton of confidence isn't going to hang around the on their next quarter.
It is they're designing women can behind that as well.
The work from home trend that that person, yet and as bad faith in people go back to where the the P.C. market will kind of go back to normal for him.
Yeah, I mean, you know I I think our design when pipeline is probably as strong as it's been both in fingerprint and on our core touch pad business. So I think.
Ah the comments are more to do it.
A recent surge in P.C. buying due to work from home that part of that we don't think is particularly sustainable you know we've had a good run in the P.C. business. If you follow this over.
Last few quarters, there's been good strength I think starting with.
Ship from consumer to commercial <unk> commercial is where we have more exposure and I think commercial picked up traction toward the end of last year and then this quarter I think it was more around.
Work from home, but are unusually high I revenue levels I think from the P.C. business or what we are characterizing as.
Difficult to sustain our our share of position in the market I think is very much sustainable.
Right.
And if the parents fair enough. Good question about this time I would like to trying to contact kept Michael Perl fend for any additional costs far mark.
I'd like to thank all of you for joining US today, we look forward to seeing you at least virtually at our upcoming investor confidence during the quarter as well as our analysts day on June 9th Thank you.
It does concluded it we can keep your participation you may not that's fine.
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