Synaptics Incorporated

Good day, and thank you for standing by. Welcome to the Synaptics, Inc. Fourth Quarter Fiscal Year 2023 Financial Results Conference Call. 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 this session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Munjal Shah, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you for joining us today on Synaptic's fourth quarter fiscal 2023 conference call. My name is Munjal Shah, and I'm the Head of Investor Relations. With me on today's call are Michael Holston, 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 a supplemental slide presentation, we have also posted a copy of these 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 close today for detailed reconciliation of GAAP and non-GAAP results, which can be accessed from the investor relations 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 and quarterly report on Form 10-Q for important risk factors that could 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 completed a difficult fiscal year where excess inventory led to top line revenue challenges. The good news is that we believe revenue has hit bottom. We can clearly measure inventory reductions in the channel and are seeing far fewer push out requests. While some area of our business are quarters away from a pronounced upturn, we are starting to see a return to normalcy in others, specifically PC and mobile. During the quarter, we opportunistically shifted our capital allocation to share buybacks and repurchased approximately 1 million shares, adding to the 1 million shares purchased earlier in the fiscal year, totaling out to be about 5% of our shares outstanding. Before providing our normal quarterly update, let me highlight the key aspects of our recently announced agreement with Broadcom. Most important, we get critical Wi-Fi 7 technology as part of the transaction. which represents a 30% ASP uplift over Wi-Fi 6. It enables us to accelerate the high-performance part of our Wi-Fi Bluetooth combo roadmap, allowing us to sample Wi-Fi 7 products by the end of 2024. The agreement not only stretches our lead in high-performance Wi-Fi for IoT applications, but also allows us to focus our internal resources on the more critical, low-power, broad-market part of the roadmap. In addition, the transaction gives us Bluetooth 6.0 and Bluetooth Enterprise, two important pieces that were on our technology roadmap. Finally, it gives us some market-leading devices to sell into our field of use, a critical Bluetooth chip for enterprise headsets, a Bluetooth standalone device that opens new markets for us, and lastly, a Wi-Fi 6E device that complements our existing high-performance IoT portfolio. As part of the agreement, we extend the exclusivity of our license to IoT markets by an additional three years. Coupled with our internal efforts, this new deal gives me additional confidence that we can achieve our $1 billion wireless revenue target. Moving to the June quarter, revenue was slightly above the midpoint of our guidance range with our IoT products beating our prior forecast. The mix within IoT continued to shift away from enterprise applications resulting in gross margin at the low end of the guide. We maintained our spending discipline and delivered non-GAAP EPS above the midpoint of the guidance range. As stated earlier, we made meaningful progress lowering customer and distributor inventories in the June quarter. We continued to undership end demand, but still believe it will take the remainder of the calendar year for channel inventories to return to normal levels. Dean will talk about gross margins in his remarks, but we believe those two will return to our long-term target of 57% as our product mix shifts back to IoT. Finally, we initiated targeted headcount reductions to ensure that we don't exceed our stated $100 million per quarter non-GAAP operating expense target while giving ourselves room to continue to hire into key investment areas. On the product front, we've started a journey to expand our existing processor portfolio into more deeply embedded applications. We have a few design wins now in this area, leveraging both existing software and hardware, differentiating with our AI capabilities. With limited investment, we believe we can unlock opportunities outside our traditional operator space in applications such as video conferencing, high-end smart appliances, point of sale terminals, factory automation, and security solutions. We will also leverage work being done in human presence detection to introduce a chip that can serve as the basis for an M55 based processing device that has advanced AI features. While we begin some critical future product advancements, we are winning at present in both our traditional operator base with multimedia products, as well as in headset customers. Panasonic's recently announced True Wireless earbuds feature two of our audio processing devices that offer our most advanced ANC and ENC algorithms. In wireless, we continue to burn inventory at our key module partner and signed a one-time deal with a large customer to scrap parts in order to see order flow again. As we begin to work our way out of the inventory challenges, we continue to enjoy sales success winning new customers on both our high-performance Wi-Fi Bluetooth combos and GPS product lines. We have a number of design wins at key customers such as Cisco, Google, Honeywell, VeriShare, and are building market share in the security, smart speaker, action camera, and wearable segments. Beside the traction we are seeing with our direct customers, We are also making progress in adding new module partners to extend our market reach. We believe our wireless business has bottomed and should return to growth in the next quarter or so. Automotive continues to be an area of relative strength with stable demand. Our pipeline continues to grow with new TDDI-based design wins for central information displays at Toyota, General Motors, Daimler, Volkswagen, and Porsche. While our design wind momentum and competitive position is strong in this market, we are experiencing pricing pressure for future designs. We plan to navigate this environment by focusing on introducing value-added enhanced solutions. In that vein, we are making progress with our smart bridge product, which has vastly superior performance, particularly around local dimming. and can save OEM customers between $10 and $15 on their bill of materials. Our enterprise sector has been a double-edged sword. While we were winning new designs at a remarkable clip, we were also experiencing significant inventory challenges. This quarter, we introduced our Carrera platform for enterprise docking stations. I'm pleased to report that we already have 10 different designs kicking off at the world's two largest docking station customers. In addition, our first wireless dock will be available for retail purchase later this month. We continue to do well in enterprise telephony, adding video conferencing and Wi-Fi to a couple of platforms that have recently gone to production. Unfortunately, this area of our business has been subject to inventory accumulation, and while we were able to reduce levels in the channel, full recovery is somewhat dependent on corporate spending budgets. Moving to PCs, We are seeing demand recover with the June quarter marking the bottom. Customer inventories have come down to normal levels, but overall PC sales are somewhat muted, particularly in the enterprise notebooks where we have outsized exposure. We're using the lull in the market to build share in our core fingerprint and touchpad technologies, while also introducing our leading human presence solution to more platforms and more customers. This feature extends notebook battery life by 20% or more, So we are optimistic that it will gain traction and we'll be sampling a new device later this year. In addition, we believe the advent of larger force-enabled touchpads where we have a performance and technology lead represents an opportunity for us to capture substantially higher ASPs and increase share. In mobile, the China Android market is stabilizing with channel inventory for our touch solutions returning to normal levels and our shipments are now more aligned with end demand. We are benefiting from a larger TAM as more phones switch to flexible OLED technology which requires our high-precision solution. We also continue to build momentum at Samsung with our first flagship phone launching a week or so ago, the Z Flip 5. This phone features two of our touch chips. We expect to build share with this customer during the next year. Core mobile strength is offset by the decline of our legacy DDIC business, which will continue to asymptote to zero over the next two years or so. To conclude, the business performed as we had anticipated in Q4, and our expectations for a gradual recovery going into 2024 remain. We remain enthusiastic about our wireless opportunity, particularly in light of the new agreement with Broadcom. We are increasing our processor opportunity by moving our high-end products into adjacent markets and by introducing a mid-tier solution that features a complex neural network and targets low-power applications. While the enterprise market is experiencing abnormally high inventory levels, we continue to be excited about the complete platforms we are introducing with numerous synaptic semiconductors. I'm looking forward to seeing you all at our Investor Day on September 7th in New York, where we plan to update the investment community on our strategy to accelerate the IoT portfolio, provide insights in our investments, and highlight our future growth opportunities. Now let me turn the call over to Dean for a review of our fourth quarter financial results and first quarter outlook.