Synaptics Incorporated

Good day and thank you for standing by. Welcome to the Synaptics Inc. Second Quarter Fiscal Year 2024 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 the session, please press star 1-1 on your telephone and wait for your name to be announced. 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, Investor Relations.

Thank you, Josh. Good afternoon, and thank you for joining us today on Synaptic's second quarter fiscal 2024 conference call. My name is Munjal Shah, and I'm 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 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 posted a copy of these prepared remarks on our investor relations website. In addition to the company's GAAP results, management will 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 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 everybody to today's call. Synaptics delivered earnings that were largely in line with expectations, a small achievement in a period marked by industry-wide uncertainty, reduced overall demand, and an accumulation of inventory. We recognized these issues about a year ago and took actions to align ourselves to the market environment. While that resulted in significantly lower top-line revenue, we intend to use the downturn to position ourselves for the future by investing in our core IoT products. In fact, we can now see a path to sustained growth in core IoT, particularly in wireless. We continue to believe we're at the bottom of our cycle and do not foresee further decreases from this point forward. However, the shape and timing of the recovery remains uncertain. Turning to the December quarter, revenue was slightly above the midpoint of our guidance range and flat compared to the prior three months. Our gross margins were at the midpoint of our guidance, despite an unfavorable product mix, headlined by mobile performing better than initially forecast. Our spending was lower than we originally expected, resulting in non-GAAP EPS toward the high end of the guidance range. For the past few quarters, we've been consciously working down inventory throughout our supply chain. As a result, in our PC, wireless, and mobile product areas, Stocking levels are at or very near historic norms. On the other hand, we still have some work to do in enterprise where inventories are moving slower than expected. We continue to attribute this to a slowdown in enterprise IT spending, which has impacted higher margin areas of our business, such as docking stations, enterprise telephony, and high-end headsets. As we outlined last fall, we're focusing our investments in core IoT, which contains our wireless and processor products. We're seeing the first signs of success in our wireless area with the normalization of channel inventory. We now expect to see consistent sequential revenue growth in wireless, starting with the nearly 20% growth reflected in our March guidance. While processors will be a longer road to measurable success, we're coming off a CES where we had increased customer engagement around both our general-purpose low-end MCUs and higher-end MPUs, both of which feature AI engines which enable customers to deploy their own computer vision use cases. Our wireless success is driven first by a return to normal inventory levels and a resumption of shipments to existing customers, but should be further bolstered by new design wins. For example, our lead module partner has begun shipping our first wireless automotive design win for in-car infotainment systems. While initially hesitant about automotive as an end market for core IoT products, we're getting pulled into customer engagements and see perhaps more opportunity than we thought. Our wireless sales funnel continues to increase, and we have new wins for our high performance products in audio equipment, consumer security, and action cameras. On the product front, our new, cost-effective, high-performance, one-by-one device, the 43711, is enjoying initial success in home appliances, smart speakers, industrial-qualified modules, and security cameras. We remain on track to sample both the first Wi-Fi 7 device for IoT applications and our first broad-market chip by the fourth quarter of 2024. In addition, we have ramped our second module partner, one that we discussed on the last call, and they have already begun taking product from us and are shipping pre-production quantities to their customers. In core IoT processors, we recently announced our Astra platform. Astra encompasses a family of processors ranging from high-end MCUs to octa-core embedded MPUs. The platform also offers a full-featured software toolkit designed with the intent to simplify AI adoption in various IoT devices. It accepts commonly used customer frameworks to speed developers' AI integration in IoT products. At CES, there was tremendous interest in Astra, particularly from customers and partners that want to deploy simple AI use cases at the edge of the network rather than relying on models running in the data center. We are extending our customer reach beyond our core processing customers and into deeply embedded applications such as appliances, industrial, and video conferencing. Nearer term, our processor products are seeing traction in our traditional operator space, and we expect those wins to translate to revenue in fiscal year 2025. As stated earlier, our enterprise products have been largely characterized by persistent inventory and weaker than expected IT spending. As we look at the different products that compose enterprise, two are worthy of further discussion. In our historic touchpad and fingerprint devices for client PCs, we have worked through customer and channel inventories and believe we are shipping on par with end demand. While the notebook PC market has normalized, predicted growth has yet to materialize. There is some optimism around both a four-year COVID refresh and AIPC's driving market increases in the second half of the calendar year. We have yet to see anything that would indicate strong resurgence, but continue to control what we can by driving share, particularly at the high end of the market. The second area to touch on is our user presence detection technology. Some of you were able to see this in action at CES and its potential for ease of use, privacy, and power savings. We are set to deliver our first chip for this application, which is specifically designed to drive our differentiated suite of AI algorithms at extremely low power levels. With both the tuned device and the latest set of algorithms, we expect to increase share at our current lead customer, penetrate additional PCOMs, and drive the application into accessory devices. Automotive products are continuing to do reasonably well as the transition from discrete touch and legacy DDICs to TDI plays out. Adoption of TDI-based solutions is still a tailwind, but we're seeing a sharper fall off in legacy DDIC products than initially forecast. Our aggregate automotive revenue will likely be choppy as the two curves cross over in the next couple of quarters. We continue to do well with our TDI products, having recently won at multiple OEMs, including new models at Toyota and Porsche. Although early in the design cycle, our new SmartBridge product is central to our automotive strategy, adding a second product to the portfolio, giving us additional differentiation and delivering system cost savings, while also helping defend our TDDI position. Our mobile products had a strong quarter driven by improved demand across our Chinese customer base, as well as the ramp of our new design win for the Samsung Galaxy S24. With the GS24 win, we solidified our leadership position in touch controllers for the high-end Android handset market. As we look into the future, we see opportunities to maintain our differentiation at the high end. Customers are looking to introduce new displays that are even thinner, driving higher signal-to-noise ratios which our precision analog circuits can resolve. In addition, we are seeing opportunities for our touch products in areas outside handsets, such as gaming. In general, we believe our mobile inventories have normalized, and we expect our shipments to line and track end market demand. As we said last quarter, our business has hit the bottom of the cycle and continues to stabilize. To a large extent, inventory has now cleared and we believe some of our businesses are at or near steady state. However, enterprise spending has been significantly reduced, which presents a new impediment to our higher margin products, keeping our overall top line revenue flat and margins below our outlined targets. Near term, we will see puts and takes in enterprise and automotive before it returns to steady state and tracks to sustained growth. The good news story was our core IoT business, led by our wireless product line, which will increase nearly 20% quarter-on-quarter and should show sustained growth from this point forward. Overall, we're still confident in the long-term targets we outlined in our analyst day in September. Now, let me turn the call over to Dean for a review of our second quarter financial results and third quarter outlook.