Synaptics Incorporated

1st quarter fiscal year 2023 financial results conference call. 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 1. That star 1 1 on your telephone, you will then hear an automated message confirming that your hand is raised. Please be advised that today's conference is being recorded. And without further ado, I'll hand the conference over to your first speaker today, Manjal Shah, Vice President and Head of Investor Relations at Synaptics. Please go ahead, Manjal.

Thanks, Eric. Good afternoon, and thank you for joining us today on Synaptics' first quarter fiscal 2023 conference call. My name is Manjal, and I'm 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 also 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 the supplemental site presentation, we have also posted a copy of the prepared remarks on our investor relations website. 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 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 relating to our financial condition, results of operation, plans, objectives, future performance, and business. Although Synaptics believes our estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainties 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 statements. 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 would cause actual results 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. I'd like to welcome everyone to today's call. We had solid results in our first fiscal quarter. Revenue increased 20% year over year and was slightly below the midpoint of our guidance due to weaker than anticipated sales in the PCs. We maintained our profitability levels with GAAP and non-GAAP gross margin above the high end of our guidance, benefiting from continued positive product mix in IoT. We delivered solid non-GAAP operating margin, and our non-GAAP EPS was above the high end of our guidance range. Before providing our business update, let me highlight the macroeconomic challenges we are facing primarily due to a decline in global consumer spending. Never in my 30-year career have I seen such an abrupt change in the demand environment with customers moving from shortage positions to excess inventory in the span of a few months. Given these macro uncertainties, customers are struggling to build confidence in their own forecasts and are instead focusing on depleting inventories. The challenges are most acute in our PC and smartphone businesses and in areas of the IoT portfolio that have consumer-facing customers, such as virtual reality headsets, wireless, and broadband operators. A large portion of the slowdown in IoT is due to an accumulation of inventory that we believe will correct over the next two to three quarters. The slowdown in our PC business is a combination of customers working through inventory and a reset of the TAM as we exit the pandemic. Meanwhile, our smartphone business has been affected by selling patterns greatly impacted by continued lockdowns and economic concerns in China. Despite the macroeconomic headwinds, we grew our IoT business 67% year-over-year in the September quarter, and had results in line with our prior guidance. Our automotive products perform well, and the long-term growth drivers for our automotive products continue to be promising. The shift to electric vehicles, larger screen sizes, and increased adoption of integrated infotainment are all tailwinds for us. We have a strong pipeline of design winds with nearly all major OEMs for center information displays, and are gaining traction as the market conversion happens from discrete chipsets to our integrated solution. With increasing screen sizes, an additional semiconductor device is required to control timing between two or more TGDI devices. As these come online, our dollar content increases significantly. Our video interface products continue to see tremendous new design activity as our customers develop new applications such as wireless docking. At the upcoming CES, we will be showcasing our wireless docking solution, and we expect one or two marquee customers to have a similar product in their booths. In core docking applications, we are benefiting from growth, growing attach rates, and continue to win refreshed products. Our protocol adapter business is also gaining traction, having won two new Intel reference design platforms. Finally, we continue to successfully move into new applications such as network displays, smart monitors, and conferencing systems. In wireless, our opportunities and design wins are increasing. Our large customers such as Amazon and Google are releasing new smart home products based on our technology. We continue to benefit from the transition to Wi-Fi 6 and 6E in IoT devices, which is ongoing and still in its infancy. Customers are choosing Synaptic's solution for better power efficiency and higher throughput. We are shipping our wireless devices in Samsung's Matter-enabled Smart Home Hub, highlighting our competitive strength in the next generation of products. Our wireless products for the security market are also gaining traction. The product ramps at ADT, which were launched last quarter, are doing very well. This quarter, we're proud to share that our focus on supporting the home security market has resulted in additional new wins with Verisure, Vivint, and others. Wireless connectivity is the right long-term secular opportunity for Synaptics and has become the glue that pulls together multiple pieces of our portfolio. Finally, we continue to see more opportunities to cross-sell multiple technologies into different platforms across our customer base. For example, we are cross-selling our audio processors with video transport technology for docking applications. In UCC, two of the largest customers have introduced new Voice over IP phones utilizing two to five different devices from us. We have many opportunities like this in our near-term sales funnel and we continue to believe the ability to cross-sell will be a growth driver for Synaptics. Let me move to our two non-IoT product groups. Despite the recent near-term volatility in the PC market, we see a path to demand stabilization during the upcoming calendar year. After several years, our customers are now looking to innovate this platform to improve user experience. Certainly, the use of haptics and force in the touchpads is driving additional content opportunity. Long term, we expect increasing video conferencing performance expectations on the laptop to unlock voice and video opportunity for us. In our smallest business, mobile, we had forecasted a sequential decline in the September quarter, and the customer pull was weaker than we originally predicted, with an acute demand issue in China. As we look into the December quarter, we have several new handset launches that will likely drive marginal incremental demand, but we do not believe the underlying trends in the market have changed. Now let me update you on the EMSA acquisition we announced last week. We acquired a small Israel-based team of engineers focused on algorithms for computer vision. The first application is for presence detection in PCs, and the solution is already shipping at an existing Synaptics Tier 1 customer. We will offer the solution to additional PC customers, but also expect to sell into different areas, such as automotive and smart home applications. Before I conclude, let me share our perspective on our plans to navigate through this environment. Our customers have become cautious and there is inventory of varying degree in several pockets of the market. We are seeing requests for push outs and cancellations of previously placed orders, and we are working with customers to find a mutually beneficial solution. Our visibility into the macro issues is limited and unclear, but we believe the current quarter already reflects a material change in our business. Assuming there is no further economic deterioration, We believe the magnitude of change going forward will likely be small, with the recovery and growth to resume in the second half of calendar 2023. During this period, we plan to stay true to our capital allocation priorities. We'll manage our expenses and prioritize money toward growth areas of the portfolio, such as wireless and automotive. We will shift our inorganic focus to smaller, accretive tuck-in acquisitions that seem to be coming on the market. With excess profits, we will continue our plan to buy back shares and pay down debt. By continuing to reshape our portfolio and focusing on internal execution, we expect to emerge from the current downturn as a stronger growth-driven company. Now let me turn over the call to Dean to review our first quarter financial results and provide an outlook.