Q1 2022 Synaptics Inc Earnings Call
Kitty and thank you for standing by what comes to the Synoptics, Inc. First larger fiscal year 20, twenty-two financial results conference call.
At this time all participants are you know listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should you great assistance during the conference be spread start then zero on your attached tones polyphone.
As a reminder, this conference call is being recorded.
I would now like to have the conference over to your host Mister <unk>, Charles Shaw head of Investor Relations, Mr. Shaw, who may now begin.
Thank you.
Thank you.
First quarter physical 2022.
My name is <unk>.
With me on two days called Michael.
N C O.
Our Chief Financial Officer.
Also being.
And can be accessed.
From the.
Section of the company's website.
Dot com.
In addition to a supplemental.
Presentation.
A copy of these prepared remarks.
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I've also been.
As it exited.
On form 8-K.
Today.
Additional color.
The results.
To the company's GAAP results management will also provide supplementary.
Which excludes compensation acquisition cost.
Non-cash.
Non-recurring items please.
Please refer to the press release issued after Mark.
Today for a detailed reconsolidation gap and non-GAAP results.
Who would like to remind you that during the course of this conference call Synaptics will make forward looking statements.
While we're looking statements give our current expectation and projections.
A natural condition results of operation plan objectives, future performance and visit including our expectations regarding the potential impact on our business of the COVID-19, pandemic and the supply chain disruption and component shortages currently affecting the global semiconductor industry.
Although synaptic belief estimate that assumptions to be reasonable.
Subject to a number of risks and uncertainties beyond our control.
Proved to be inaccurate does that makes cautions that actual results may differ materially from any future performance suggested in the company's forward looking statements.
The company's current and periodic reports filed with the SEC, including our most recent annual report on Form 10-K.
What are the risk factors that could cause the actual results to differ materially from those contingent any forward looking statements and.
Synaptics explicitly expressly disclaims any obligation to update this forward looking information.
Now turn the call over to Michael.
Sponge all.
I'd like to welcome everyone to today's call.
Had a great start to our fiscal year 2022, and I'm pleased with what we were able to achieve in the last three months.
Revenue for the September quarter was above the mid point of our guidance driven by continued growth in our Iot products.
Our mix of Iot revenue improved again, resulting in record gap and non-GAAP gross margin.
Higher revenue and gross margin in turn drove or non-GAAP operating margin of non-GAAP EPS to record levels in the quarter.
Two factors are contributing to the success.
First we are working with tier one customers, whose products are generally exceeding market expectations.
In our existing customer base, we've been able to cross sell multiple product lines, increasing our content improve.
Improve our mix and shipped asp's upward by delivering higher performance and more integrated solutions.
Again of doubling revenues again over the next 18 months.
In our video interface products, we continue to see strong demand for our premium docking solutions.
<unk> stations have experienced a market inflection driven both by replication of the opposite up at home and by flexible workplace configurations.
According to <unk> the Tam for commercial Docs is expected to increase again in 2022.
In addition, we've been successful in increasing content in our documents stations. For example, we have a design win at a top OEM customer that combines both our traditional display port technology with display link.
Our expansion into the protocol adapter and converter market is starting to bear fruit with more than 25 design wins. Our next generation device in this area Spider is now in production at multiple customers and was also selected for use on industry, leading GPU and CPU reference.
<unk> Proto.
Protocol adapters and converters are an incremental market for us that we estimate to be up to 80 million addressable units.
Another example of our ability to expand our Tam and market reach utilizing our core technology as our success in taking our highest and mobile display drivers and applying them to the virtual reality market.
While a small part of our automotive revenue mix today, we expect TDI products to be a more meaningful percentage in the coming quarters, giving us confidence that we can meet or exceed our stated revenue goal.
Moving on to our edge AI processors, our recently announced audio smart family of products is a highly integrated single chip solution with AI enabled noise cancellation algorithms.
We are already in preproduction for this premium headset solution, which also reduces systems cost by integrating multiple previously external components.
More importantly, it significantly reduces power consumption, enabling extended battery life.
Our shipping audio products have seen a boost with the advent of Microsoft teams and zoom certifications here, we enjoy a performance advantage and have been able to gain significant share in professional grade wired headsets used in video conferencing.
Coupled with our strong presence in gaming headsets as well as the addition of DSP G. We should continue to see strength in this part of the portfolio.
In addition, our dedicated AI focused katana platform is beginning to show early positive signs with our first production customer taking full advantage of the capabilities of this platform now shipping.
The case as we increased our revenue sequentially in the September quarter.
Almost all leading Chinese and Korean Android handset manufacturers are now shipping or touch technology on their flexible OLED panels.
Our second generation controller, which significantly advanced his performance in high noise environments started shipping earlier this year and is now the product of choice, particularly in China.
Our new high end flexible OLED display driver qualifications are progressing well and we continue to expect these wins to hit production in calendar 2022.
Before I conclude let me give you all a quick update on our supply chain status.
Overall, the supply situation is still very tight with constraints across our full product portfolio.
The current strengths are most prevalent in our Iot products, where we are winning and expanding our market share quickly, adding pressure to an already difficult environment.
We are working with our partners and and select places have been able to garner some incremental supply, though we expect broad challenges to continue through all of calendar 2022.
To conclude I'm extremely pleased with the progress we've made in positioning the company for sustained growth.
I am very happy with the strength of our portfolio and the opportunities that lie ahead of us to grow our business. We continue to be positive on the potential opportunities. The cup that a combined synaptics plus DSP group will have.
And happy to report that remain on track to close the pending merger by the end of the calendar year.
Now, let me turn the call over to Dean to review, our first quarter financial results and provide our outlook.
Thanks, Michael and good afternoon to everyone.
Before I begin I would like to go over the reporting change of our virtual reality focus products.
This set of market leading products has been purpose built from our core technology.
And until now was historically classified as part of our mobile products grouping.
The emerging broke through a reality market has been rapidly growing and is poised for long term secular growth, which is unrelated to mobile phones.
Up 19% sequentially in the September quarter as several of our design wins began shipping.
During the quarter, we had two customers greater than 10% of revenue at 12% and 11%.
For the September quarter, our GAAP gross margin was a company record at 53, 2%.
Which includes $16 9 million of intangible asset amortization and $1 million of share based compensation costs.
GAAP operating expenses in the September quarter were 137, 5 million, which includes share based compensation of $34 6 million acquisition related costs of $10 6 million, consisting of intangibles amortization and transaction costs.
Amortization of prepaid development costs of $2 5 million and restructuring related costs of $1 4 million.
Our GAAP tax expense was $5 9 million for the quarter.
In the September quarter, we had a GAAP net income of $40 2 million or GAAP net income of 99 cents per.
Per diluted share.
Now turning to our non-GAAP results are.
Our September quarter, non-GAAP gross margin of 58% was a company record.
And at the high end of our guidance range, reflecting our continued strong mix as we prioritize our highest value products to customers.
September quarter non-GAAP operating expenses were slightly below the midpoint of our guidance at $88 4 million and up $2 2 million from the preceding quarter as we invest into our engineering capabilities, while balancing responsible spending levels.
And as a result, our non-GAAP operating margin of 34, 2% in the quarter was the highest on record at Synaptics.
Our non-GAAP tax expense was $14 8 million for the quarter.
We had non-GAAP net income in the September quarter of $108 7 million, which is an increase of 26% from the prior quarter and an increase of 63% from the same quarter a year ago.
Non-GAAP EPS per diluted share was $2 68.
As our focus on profitable growth continues to drive positive earnings for our shareholders.
Now turning to the balance sheet.
We ended the quarter with $347 million of cash on hand.
Decrease of $489 million from the preceding quarter as we paid down $506 million of our convertible notes, bringing the outstanding balance to zero.
Cash flow from operations was $58 million during the quarter.
Receivables at the end of the September quarter were $270 million and days of sales outstanding were 65 days up slightly from 63 days last quarter.
Our days of inventory was 51 down from 53 last quarter and ending inventories were 89 million. However.
However, inventory remains below our desired level due to continued supply constraints.
Capital expenditures for the quarter were $4 7 million and depreciation was $5 2 million.
Before I provide the outlook for our December quarter, I'd like to remind everyone that our guidance excludes any impact from our pending <unk> acquisition.
We expect our GAAP gross margin for the December quarter to be in the range of 54% to 55%.
We expect our GAAP operating expenses in the December quarter to be in the range of $134 million to $141 million, which includes acquisition related charges for.
Tangibles and transaction costs prepaid development cost amortization share based compensation and restructuring costs.
We expect our fiscal 2022, GAAP tax rate to be approximately 20% to 25%.
Finally, our GAAP net income per share for the December quarter is expected to be in the range of $1 25 to $1 65.
Now the non-GAAP outlook for our December quarter.
We expect our non-GAAP gross margin momentum to continue into the December quarter.
We expect non-GAAP gross margin in the range of 58, 5% to 59, 5% as we continued to prioritize and deliver to an increasingly positive mix, while navigating the supply constraints and changing input prices.
We expect our non-GAAP operating expenses in the December quarter to be in the range of 90 million to $93 million as we continue investing into the engineering growth drivers of our business, which further our long term revenue trajectory.
We expect our non-GAAP net interest expense to be approximately $4 million in the December quarter.
When might you have an integrated connectivity plus Iot platform. Thanks.
Yeah.
The first question is around the demand obviously, it it's very very strong.
Our backlog is certainly significantly outpacing our ability to ship.
We don't have any long term contracts that guarantee any supply, but we've been really working very well with our key foundry partner. This is one of the areas that we've seen outsized supply relative to what we projected we really have had some some good support from our foundry.
<unk>.
On an Iot platform of course, our long term goal that we talked about with the merger with DSP group is to try to create an edge AI enabled platform where we.
Wi Fi or Bluetooth is combined with compute a processor at the edge of the network.
And that's something we're very much on track to do and we haven't announced any specific platforms. There, but that's certainly part of our long term plan.
Our development remains very much on pace.
Got it thanks for the color and just a quick follow up.
Thinking about this breakout for for quite a while before there's been a lot of news around this this particular segment. So it's.
Kind of a fortunate coincidence.
We had developed products specific for this market a long time back in we really.
As I said in the prepared remarks have very specific technology that.
Focus is the I mean, you have a display that's right in front of your face and you have to have very specific technology that creates a focal point for that.
Just never really talked about it because it wasn't particularly meaningful revenue.
It's become something a little bit more meaningful than we see really really good growth prospects as we look out in the future.
The other things thats happening in that market <unk>, you've got a more dense OLED displays youre getting into teekay by <unk> by <unk>, which are really really difficult to do from a display driver standpoint, and then also new display types micro OLED we.
Expect that to be coming online.
On certain goggles.
Some cases, many Ellie E and we've actually invested in those product areas. So we think we've got a pretty outsized lead on both the core technology dimension, but then as we look out in the future different display types and different different kind of content. So.
We feel pretty good about it maybe dean can take us through the breakout yeah.
Roger we actually tried to make everybody's lives simple in our supplementary deck on our Investor Relations site, we actually have a table that gives the.
The reconciliation, but just to give you some quick numbers.
In fiscal 2020, this was about $12 million for the year, so sort of $4 million a quarter.
That's grown pretty significantly over the course of the last year and a half.
Demand as well our core.
Customers and wi-fi, Bluetooth combos, which are video processing high bandwidth types of applications. They are often looking to connect controls to the same platform and that control mechanism may well come through and eight or 215 for protocol.
So we think it gives us a pretty nice differentiator, even in our core markets and keeps us ahead of competition.
Thanks, Congrats again.
Thanks Roger.
Your next question comes from the line of Carl Hey come in off calling your line is open.
Yes. Thank you.
Two questions. If I may last quarter, Dean you stated that 90% of your expected fiscal 2022 revenue.
Was supported by backlog.
But since then it sounds like you've received greater wafer allocation from your foundry partner for.
For this loosely broadcom asset and.
You also indicated that your order backlog for December is above the height of guy so clearly much much better.
My My question is does that does that 90% order backlog anchoring physical 22 does that never move higher from here.
If you could just talk about the perhaps proliferating order backlog you have.
Not just the Wi Fi, but but across Iot.
That.
That supports the.
Not just the December quarter Guy, but also perhaps this was going to that'd be very helpful.
Carl you're you're remembering correctly, so really we've had continued momentum as you might imagine.
Our backlog coverage of what we said last quarter at 90% has has gone higher from here in this quarter.
We have been signaling tourist supply chain for quite some time.
We're winning in the marketplace, our momentum is growing with customers and therefore, we've slowly been trying to improve our supply.
Alignment, but clearly the customer demand continues to outstrip the supply capabilities. So there's there's still a gap for us to catch up but we are certainly still 90% or better Carl.
Very helpful.
Brought back in your mobile business.
Could you talk about if any of the recent demand weakness in Asia market in the Asia handset market as reported by some of the deals would be impacting your business in the near term and if so how should we think about it.
Yeah, I mean I.
The overriding pull for US is the number of design wins so.
The biggest thing that's happened for US is the shift in the Android marketplace to flexible OLED displays.
That shift has happened we've been able to gain share and frankly gain revenue. So I think that that's our big headlines certainly there's underneath I think there is some churn in that market. There is all sorts of rumors about.
Supply.
Constraints, and then drops in markets like India, but our long pole is really the dominant one and that is the fact that we're winning in that market. We're gaining share. So some of the under noise noise is less apparent to us and it might be to somebody else who's got flat or is it more balanced.
Position.
Thank you as a follow up with you about the auto revenue impact from the 100 million.
Yes.
You talked about PD.
A small part of our mix pretty could you briefly go like products and technologies that are driving your design wins today and how do you see them grow okay. Thank you.
Yeah, our primary business.
Business today is really discrete display drivers we have a bit of.
Discrete touch, but our mix is.
Dominated today by discrete display drivers over time that TDI piece is really what's growing I mean, our design win traction is very predominantly on TDI that represents content gain for us because youre able to pull his touch circuit in.
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