Synaptics Incorporated

Good day and thank you for standing by. Welcome to the Synaptics Inc. Third Quarter Fiscal Year 2022 Financial Results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I will now hand the conference over to your first speaker today, Munjal Shah. Sir, you may begin.

Thank you, Peter. Good afternoon, and thank you for joining us today on Synaptic's third quarter fiscal 2022 conference call. My name is Munjal Shah, and I am the head of investor relations. With me on today's call are Michael Halston, our president and CEO, and Dean Butler, our CFO. This call is being broadcast live over the web and can be accessed from the investor relations section of the company's website at Synaptics.com. In addition to a supplemental slide presentation, we have also posted a copy of these prepared remarks on our investor relations website. The supplementary slides have also been furnished as an exhibit to our current report on Form 8-K filed with the SEC earlier today and add additional color on our financial results. In addition to the company's GAAP results, management will also provide supplementary results on a non-GAAP basis, which excludes share-based compensation, acquisition-related costs, and certain other non-cash or recurring or non-recurring items. Please refer to the press release issued after the market closed today for a detailed reconciliation of GAAP and non-GAAP results, which can be accessed from the investor relations section of the company's website at Synaptics.com. 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 related to our financial condition, results of operations, plans, objectives, future performance, and business, 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 Synaptics believes our estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainty beyond our control and may prove to be inaccurate. Synaptics cautions that actual results may differ materially from any future performance suggested in the company's forward-looking statement. We refer you to the company's current and periodic reports filed with the SEC, including our most recent annual report on Form 10-K, for important risk factors that could cause actual reserves to differ materially from those contained in any forward-looking statement. Synaptics expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Michael.

Thanks, Manjal, and I'd like to welcome everyone to today's call. We reported another excellent quarter, with revenue above the midpoint of our guidance range due largely to strength in our IoT products. Our results showcase that our diverse portfolio constructed over the last few years can weather challenges in one or more product groups. Higher revenue and a record IoT mix led to record profitability in the quarter with non-GAAP gross margin above 60% for the first time in the company's history. We delivered record non-GAAP operating margin and our non-GAAP EPS was above the high end of our guidance range. I am particularly proud of our IoT product group, which accounted for 64% of our total revenue and grew 99% year-over-year. This quarter, we overcame some well-documented headwinds. First, as many have reported, Chinese handset sell-through was weaker than expected. Although we haven't seen any erosion in our share position, we experienced weaker than expected revenue across our Chinese customer base. In addition, our narrow exposure to a North American handset maker caused underperformance against our initial expectations, which will also continue into ensuing quarters. That customer, once a significant portion of our total revenue, now represents only a mid-single digit percentage. Outside the mobile handset area, We are seeing some softness in PC sales. We believe our business has sustainability due to our overweighted exposure to commercial skews, but we are forecasting a modestly down year for overall PC units. In spite of all these challenges, we continue to report strong revenue growth and record gross margins and earnings. Why? Our strategy to diversify our portfolio has paid off in spades. We are a stronger company with a more diversified portfolio and customer base. We have a series of growth drivers in our IoT product offering that continue to do well, more than offsetting choppiness in mobile or PC. These growth drivers are Wi-Fi and Bluetooth combo chips, display drivers in virtual reality headsets, TDI circuits and automotive, and our family of video interface products. All four of these areas of our portfolio are growing faster than the company overall, and we view each as a sustainable franchise. The first of our growth drivers is wireless connectivity, which continues to have the best overall trajectory as we continue to win new designs and ramp at new customers. We've shown particular strength in Wi-Fi 6E combo chips in video applications, primarily in over-the-top and traditional operator set-top boxes. In these applications, customers value our differentiated ability to sustain high bandwidth in challenging multipath environments. In addition, we've been able to cross-sell our combos into both traditional synaptics platforms as well as new DSP group sockets, such as video conferencing systems. Our GPS solutions are performing well, particularly in wearables. Our triple combo wireless device is being sampled, and we are engaged with early customers that want to take advantage of a single chip that features Wi-Fi 6E, Bluetooth, and Zigbee thread protocols. To support the momentum in this business, we are accelerating our own engineering capability. While we've already taped out two organic devices, we are adding more engineering talent to deliver the product roadmap we have in place. As such, we announced the opening of our wireless research and development center in France, expanding our presence in Europe and leveraging a strong base of local analog and RF expertise. Combined with the talent from our DSP group acquisition and some additional hiring, we feel like we're in position to develop leading edge wireless products purpose-built for the IoT market. The second of our growth drivers is display drivers that are specifically designed for virtual reality headsets. As this market grows, Synaptics will benefit given our incredibly high market share. Our traction is across geographies as we have market leadership that designs shipping in almost all major platforms. In particular, we are doing well with OEMs in China that have gaming and entertainment content suited for these headsets and whose early sales results have been impressive. We are the clear technology leader for virtual reality displays and offer solutions that enhance the user experience by increasing pixel density at the focal point of the eye. Our market-leading roadmap supports higher precision displays, and we expect that we'll continue to win as the technology evolves. We are seeing strong design win activity, giving us confidence for the back half of the calendar year and beyond. TDI circuits for automotive displays is another growth driver for Synaptics. As we have reported before, Automotive panels are in the early innings of migrating from discrete touch and display ICs to an integrated TDDI. Our share of TDDI continues to be high, and as the market continues to move rapidly in this direction, we see significant top-line benefit. This quarter, we had multiple designs ramping across all the geographies which will become more evident in the second half as new cars are launched. As with our other growth drivers, we have a leading roadmap of TDDI solutions that we expect will enable us to maintain our leadership as automotive display sizes increase. Our fourth significant driver of both top and bottom line growth is our family of video interface products, which have traditionally been applied to docking stations. The docking station market continues to do incredibly well beyond the initial remote work demand, driven by an entire workplace and technology refresh cycle. In fact, Dell, who has a significant market share lead, just announced three new docking stations featuring four of our devices. While docking has been our historical area of strength, our video interface products are finding their way into a whole host of new devices. First, we are continuing to see traction for our wireless docking, bringing with it expanded Synaptics content. Second, we are applying our products to smart monitors. Finally, customers are using our technology in a host of video conferencing designs. All of this is fueling growth in the core of our video interface products. However, Beyond that core, we have opened a new frontier with a set of products for protocol adapters and converters, which is a completely new opportunity for us. Several ODMs have introduced products using our technology, and we have design wins at multiple OEM customers that could launch in the second half of the calendar year. All told, driven by the incredible diversity of offerings, our video interface product group is one that we expect to grow significantly into the foreseeable future. While these four areas drive a significant portion of our IoT growth, we are doing well across the portfolio. A couple other areas to touch on include our low-power process technology with AI and machine learning capability. Last month, at the TinyML Summit, we demonstrated how our ultra-low-power Katana and DBM10L SOCs with neural network engines can be used in both machine vision and natural speech processing. We've applied the device to occupancy counting, sound event detection, keyword spotting, and meter reading. We are working with and have design wins with leading OEMs for low-power AGI applications and see a significant long-term TAM potential in this new market. We are moving our video processors outside the core operator set-top box market and into new areas where we have additional content to sell, such as video conferencing systems, security platforms, and smart monitors. Finally, we just announced our entry into a totally new market, introducing a single chip that combines inductive, capacitive, ambient, and hall effect sensors in a single device. This opens a large TAM as it can be applied to TWS headsets, gaming controllers, VR headsets, automotive, and fitness products. After our first full quarter with DSP Group, we've been pleasantly surprised by the business. The ULE products have been robust and have presented a multitude of cross-selling opportunities, including some video processors that can drive security panels. The UCC products are also performing better than expected, and we have been able to cross-sell wireless and video interface products into enterprise voice-over IP customers. Finally, demand for cordless products remains surprisingly strong, and we have been able to engage a set of totally new customers with our entire product portfolio. Let me move on to our PC product group. Our latest touchpad solution is seeing good traction with top OEMs designing it into notebooks that will be introduced in the second half of calendar 2022. We win because OEMs like our best-in-class performance that features the highest level of NIST security. Additionally, we are engaged with OEMs as they transition to larger haptic force pads and expect a resultant ASP lift. Our biometric fingerprint solutions are seeing increased attach rates due to the need for the simple one-touch authentication. As stated earlier, we expect the PC TAM to be flat to down in the next year, but we will continue to do well due to a focus on performance, which is of particular importance to commercial SKUs, increased content per box, and a gradual mix to higher ASPs. Finally, mobile is now only about 17% of company revenue. Our new high-end flexible OLED display driver is starting to gain traction and we expect a more material ramp in the second half of calendar 2022. This is a new opportunity for us where we have limited share today. We continue to do well with our touch technology in China. As new handset models go to production featuring high-end flexible OLED displays, we would expect to do well, particularly as we continue to introduce solutions with better performance and more advanced features. And lastly, on supply chain, our results and guidance take into account the recent lockdowns in China. While the aforementioned areas of softness have created limited supply headroom in some areas of our business, In the fast-growing areas of our portfolio, we are still seeing supply chain challenges. Generally, we expect to see gaps in demand throughout the calendar year and beyond. To conclude, Q3 was yet another record financial quarter for the company. As a result of the continuing shift to IoT, we are seeing improving gross margins and earnings. We have four differentiated growth drivers that we believe will continue to deliver higher-than-average top-line growth. While we're very happy with the portfolio that stands today, we will continue to look to add pieces that we feel improve our go-forward prospects. Now let me turn the call over to Dean to review our third quarter financial results and provide our outlook.