Synaptics Incorporated

Good day and thank you for standing by. Welcome to the Synaptics Inc Third Quarter Fiscal Year 2025 Financial Results webcast and 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 you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today. Manjal Shah, Head of Investor Relations. Please go ahead.

Good afternoon and thank you for joining us today on Synaptics Third Quarter Fiscal Year 2025 conference call. My name is Manjal Shah and I'm Head of Investor Relations. With me on today's call are Ken Rizvi, our Interim CEO and Chief Financial Officer, Satish Ganesan, our SVP Intelligence Sensing Division and Chief Strategy Officer, Venkat Kodawati, SVP Wireless, and Vikram Gupta, SVP of IoT Processors and Chief Product Officer. 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 copy of our earnings press release detailing our quarterly results, a supplemental slide presentation and a copy of these prepared remarks have been posted on our Investor Relations website. Today's discussion of financial results is presented on a gap basis along with supplementary results on a non-gap basis which excludes share-based compensation, acquisition relationships, related costs, and certain other non-cash or recurring or non-recurring items. Please refer to our earnings press release for a reconciliation of the most directly comparable gap financial measures to the non-gap financial measures presented. As a reminder, the matters we are discussing today in our prepared remarks, in our supplemental material, and in response to your questions may contain forward-looking statements. These forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance, and business. Although Synaptics believes the estimates and assumptions underlying these forward-looking statements to be reasonable, they are subject to a number of risks and uncertainties beyond our control. Synaptics cautions that actual results may differ materially from any future performance suggested in the company's forward-looking statements. Therefore, we refer you to the current and periodic reports filed with 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. Except as required by law, Synaptics expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Ken.

Ken Kuchnoor, CEO, Synaptics Thanks, Manjal. I'd like to welcome everyone to today's call. I have the pleasure of Vikram, Venkat, and Satish joining our call today. We delivered another strong quarter in March, with revenues increasing 12 percent -over-year to $267 million, slightly above the midpoint of our guidance range. Non-GAAP gross margin came in at 53.5 percent, in line with the midpoint of our guidance, and non-GAAP EPS grew 70 percent -over-year to 90 cents, exceeding the midpoint of our guidance. Our core IoT product sales increased 43 percent -over-year to $68 million, fueled by strong momentum across both our wireless and processor products. This growth reflects improving demand trends, the ramp of new design wins, and a clearing of prior inventories. Before we dive into the details of the quarter, I want to take a moment to address the global trade environment. At present, the direct impact of existing and proposed tariff policies to Synaptics is minimal. We will continue to monitor potential indirect impacts from supply chain realignments and changes in end demand. While the broader implications of these indirect effects remain uncertain, based on our current lead times and order activity, we currently do not see unusual activity that would suggest a material pull-in or push-out due to tariffs impacting our near-term financial performance. Over the last couple of quarters, we have seen encouraging trends across business. The improvement in demand that started prior to the announced tariff changes has continued. Orders are steadily increasing, our backlog is growing, and customer and channel inventories remain lean. That said, we continue to operate with agility and discipline in the face of an evolving macroeconomic landscape. We remain closely aligned with our customers to meet their needs, and our focus is firmly on the areas within our control. We are executing to our technology roadmap and growth initiatives, deepening relationships across our customer and partner ecosystem, and maintaining a disciplined approach to costs. Through technology innovation, -to-market expansion, and operational excellence, we are positioning Synaptics for long-term success. Now let me turn to some highlights in each of our product areas. In wireless, we expanded our Vero's connectivity portfolio with the launch of our first broad market device. As previously highlighted, this cost-effective solution for embedded edge IoT applications opens an incremental $3 billion in serviceable market opportunity for Synaptics. Our die size is significantly smaller than our high-performance solutions, reducing system costs by up to 50% and consuming up to 50% less power while still delivering top-level performance. In addition to opening a new SAM for embedded IoT connectivity solutions, we remain committed to maintaining our leadership performance in high-performance connectivity. We have launched our first Wi-Fi 7 device for IoT applications. Our solution is designed to deliver up to two times higher throughput, greater transmit efficiency, and improved load balancing for greater reliability and reduced latency compared to prior Wi-Fi generations. These enhancements make Wi-Fi 7 ideally suited for any real-time and video-intensive applications such as ultra-high definition video streaming, interactive gaming, immersive AR-VR, security monitoring, and home and automotive entertainment. Synaptics chips have been purpose-built for low power, ultra-low latency, and reliable long-range performance. We expect initial adoption in high-bandwidth applications with broader proliferation into other IoT devices over time. This quarter also marked important advancements in our second core IoT growth vector, processors. Last month at Embedded World in Germany, we extended our AI-native Astra platform with the launch of the SR Series high-performance adaptive MCUs. These products feature a novel tiering approach to dynamically manage power depending on inference requirements. The SR Series MCUs feature a compact form factor design that helps minimize cost, power consumption, and footprint enabling integration across a wide range of edge IoT applications. We see traction from customers across end markets including consumer, automotive, and industrial. In addition, our ecosystem investments are beginning to deliver results. ODM partners are building solutions and use cases on our Astra platform and are actively collaborating with OEMs to bring AI-enabled products to market. We are building on this momentum by investing in our -to-market initiatives and adding to our business development and sales teams to drive growth in the edge AI IoT. In the year since launching our Astra platform, we have made significant progress. Our product development efforts, design wins, and customer engagements are on track. Turning to enterprise and automotive, our PC products perform slightly better than typical seasonality in the March quarter, reflecting continued market share gains. While we are not factoring in a PC refresh cycle in our expectations, the key drivers such as an aging installed base, Windows 10 end of life, and the rise of AI PCs remain in play. We see opportunities for growth from share gains and higher content. Our user presence detection solution continues to ramp with our lead customer, and we have expanded our engagement through design wins for next generation AI PCs built on Nvidia platforms. Additionally, we are seeing traction in expanding this technology into new and adjacent categories. In automotive, we continue to navigate near-term challenges and sluggish demand. Longer term, we expect to benefit from the adoption of OLED screens as well as our innovative bridge technologies to drive growth as customers prioritize system level cost savings in next generation platforms. In mobile touch, our primary focus is on the high-end Android smartphone market. We continue to drive innovation with the introduction of next generation touch controllers featuring a differentiated multi-frequency architecture designed for foldable OLED phones. This new architecture offers low power consumption and low latency, enabling thinner and larger panels while incorporating enhanced sensing and filtering capabilities to overcome display noise. It also offers continuous time sensing for more flexible and cost-effective touch integration. We are currently engaged with multiple OEMs and LCMs and expect the first product based on this technology to launch in calendar Q3. The Android smartphone market has carried strong momentum into 2025, helped in part by China economic subsidies and a mixed shift to premium phones. Now, let me review our third quarter financial results in fourth quarter outlook. I will focus my remarks on our non-GAAP results, which are reconciled to GAAP financial measures in the earnings release tables found in the investor relations section of our website. Revenue for fiscal Q3 was $266.6 million, above the midpoint of our guidance with sequential and -over-year improvement in core IoT products. Q3 revenues were up 12% on a -over-year basis and flat sequentially. Revenue mix in the third quarter was as follows. 25% core IoT, 58% enterprise and automotive, and 17% mobile products. Core IoT product revenues increased 43% -over-year and 11% sequentially. Enterprise and automotive product revenues improved 14% -over-year and were down 3% sequentially, mainly due to continued softness in automotive. Mobile product revenues were down 4% sequentially and 18% -over-year as product shipments to a large customer reached end of life. Third quarter non-GAAP gross margin was .5% in line with the midpoint of our guidance. Third quarter non-GAAP operating expense was $101 million in line with the midpoint of our guidance range. Our non-GAAP operating margin was 15.6%, up approximately 270 basis points on a -over-year basis and down 170 basis points sequentially. The sequential decline was mainly due to an increase in operating expenses related to our Broadcom transaction as well as incremental variable expenses. Non-GAAP net income in Q3 was $35.3 million and non-GAAP EPS per diluted share came in above the midpoint of our guidance at 90 cents per share, an increase of 70% on a -over-year basis. Now let me turn to the ballot sheet. We ended the quarter with approximately $421.4 million in cash, cash equivalents and short-term investments, down approximately $174.7 million from the prior quarter. Cash flow from operations was $74 million. During the quarter we spent $198 million on the Broadcom transaction. In addition, we returned $37.9 million in capital through share repurchases, purchasing approximately 546,000 shares. In this fiscal year, we have returned approximately $128 million to shareholders through the repurchase of about 1.8 million shares, or nearly 5% of our total shares outstanding. Capital expenditures was $5.4 million and depreciation for the quarter was $7.2 million. Receivables at the end of March were $132 million and days of sales outstanding were 45 days, down from 49 days last quarter. Our ending inventory balance was $132.9 million, which increased by $13.4 million from the previous quarter. The calculated days of inventory on our balance sheet were 96 days. Now turning to our fourth quarter, 2025, guidance. Broader macroeconomic conditions remain uncertain, influenced by tariff policies and the global trade environment. While the direct impact of tariffs on our financials has been immaterial, the potential indirect impact on future demand and supply chain remains unclear. Based on our current view of the environment, we expect June quarter revenues to be approximately $280 million at the midpoint, plus or minus $15 million. Our guidance for the fourth quarter reflects an expected revenue mix from Core IoT, Enterprise and Automotive, and mobile touch products of approximately 30%, 54%, and 16% respectively. We expect non-GAAP gross margin to be .5% at the midpoint, plus or minus 1%. Non-GAAP operating expenses in the June quarter are expected to be $103 million at the midpoint of our guidance, plus or minus $2 million. We expect non-GAAP net interest and other expenses to be approximately $1 million in the fourth quarter, and our non-GAAP tax rate to be in the range of 13% to 15%. Non-GAAP net income per diluted share is anticipated to be $1 per share at the midpoint, plus or minus $0.20, on an estimated $39.3 million fully diluted shares. To conclude, we delivered a strong quarter and successfully introduced several innovative and differentiated products. We continue to monitor and adjust to the evolving macroeconomic and geopolitical landscape. Our design win momentum remains robust, with key programs progressing through the funnel. We're seeing encouraging signs of market share gains and content expansion across our franchise markets. And overall, we remain focused on disciplined execution, strengthening our competitive position, and driving long-term shareholder value. This wraps up our prepared remarks. I'd like to turn the call over to the operator to start the Q&A session.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we compile the Q&A roster. Thank you. We will now go to our first question. And your first question comes from a line of Quinn Bolton from Needham & Company. Please go ahead.

Hi guys, Nick on for Quinn. Thanks for taking our questions. Could you expand on what drove the strength in core IoT and in both the quarter and the guide? And I guess specifically for June, how much of that strength is coming from either the Wi-Fi 7 ramps that you've talked about previously, or the and or the Broadcom and Pixel related ramp? I know that the Pixel ramp is expected to be pretty strong in June as well. Thank you.

Hey, Nick. It's Ken Rizvi. Thanks for the question. Thanks for the support. So if you look at the core IoT business, a lot of that was driven by our wireless growth. It's a couple of factors. One, we continue to see pretty strong demand from our existing product and portfolio. You highlighted Wi-Fi 7. That's really towards the tail end of this calendar year and really a 2026 driver of the business. And then as we look at the Broadcom acquisition, as we talked before in our previous earnings call, our anticipation was that would add about 10 million a quarter plus or minus. There's some puts and takes in any given quarter. And if you recall in our previous quarter, we were expecting something like five million dollars. And in our guide, you can assume it was closer to that that 10 million plus type of run rate.

Oh, thank you. And then previously you've talked about your human presence detection win with Dell and you talked about it again in the prepared comments. Now, I believe Lenovo was able to switch from a competing FPGA based solution to a Microsoft based software only solution. So kind of two questions. Do you see incremental opportunities to win versus FPGA based solutions with that UPD? And on the other side, do you see rising competition from this software only based solution in that application? Thanks.

Yeah, sure. Good. Good. Good question. And I'll also turn it over to Vikram here is with us. But if you look at our UPD or HPD portfolio, what we've said before is with one of the large OEMs, we have essentially swept most of the skews, if not all of the skews there and are penetrating one of the other OEMs. So we have two of the three large OEMs and continue to proliferate that technology and that platform relative to FPGAs out there. We have a much lower cost, much more power efficient die, which is helpful for these types of applications and also enables our customers to develop some unique software capabilities that really enhance the user experience there. In terms of the software piece, I don't know, Vikram, if you had a comment on that.

The only thing I would add about the software based solution is that we are pushing the boundaries of the technology with this dedicated chip that we have. And we have a pretty strong roadmap of software features that we're enabling on using the power of that asset. And we expect that we'll be able to continue to push the feature set forward much faster than what others can keep up with regards to a pure software-based solution. And we're already seeing the effects in terms of the share that we're gaining at the OEMs that Ken mentioned. So we feel very confident about our roadmap in that regard.

Thank

you very much.

Thanks, Nick.

Thank you. Your next question comes from the line of Chris Sankar from TD Cowan. Please go ahead.

Yeah, thanks for taking my question. Ken, the first question I had is, given all the tariff-related macro concerns, you kind of said that it doesn't have any much impact yet. I'm kind of curious, have you seen any translation into how your order book or linearity is trending in June? And if you can extrapolate how to think about beyond June if you have any view into September or beyond.

Sure, Krish. Hey, thanks for the question. So if you look, Juan, if you look at our Q3 results, I mean, excellent results, really strong performance across the board here. I have the three GMs and the entire Synaptics team really did a good job to execute in our most recent quarter. And if you look at the guide, we have very good visibility into our June guidance, right? And so the backlog levels entering the quarter, the overall bookings are very healthy. If we look even into September, I would say the starting backlog and the bookings rates are all healthy. I would say the only item which is news over the last quarter and it is impacting everybody is the uncertainty around tariffs and what that could mean to end demand. I think that's the question that we're looking out as we look beyond the horizon. But if you look over the last couple of quarters, one of the things that I've highlighted, not only the backlog and the bookings, but if we look at the inventory levels through the DISTE channel, those still remain very lean. So I think all of the fundamentals are there. And the only question that we have, along with other semiconductor suppliers, is what is that potential impact of tariffs to end demand? And so we're just continuing to monitor that. We're working with our customers, continue to work with our suppliers. But I would say into the horizon, meaning as we think about our June quarter and how things are progressing even into the September quarter, things are looking very healthy.

Thanks for that, Ken. And then as a quick follow-up, you kind of mentioned in the March quarter you saw better than seasonal enterprise PC products because of share gains. And you talked about photo share gains and maybe higher content. Ken, can you talk a little bit about where are those share gains coming from and how to think about it going forward both on the share gain and the higher content side?

Sure. And I'll probably have Satish answer this as well. But if you looked on the PC side, we've done a great job this year overall in terms of working with the three largest OEMs in terms of Dell, HP, and Lenovo. With one of those players, we have gained actually a reasonable amount of share as we progressed based on not only the innovation that we delivered to them, but the quality and the cost of our solutions. And so we're still looking to further that as we think about 26 and beyond.

Satish? Yeah, just to add on to what Ken said, the innovations that Ken is talking about, you know, we talk about AI a lot. So we introduce a lot of AI elements into our touchpads and fingerprints and such. And that helped us gain share with all these customers. And we expect to continue that trend going forward.

Got it. Thank you, folks. Thank you.

Thank you. Your next question comes from the line of Christopher Rowland from Susquehanna. Please go ahead.

Hi, guys. Thanks for the question. Just maybe a quick clarification to start. Ken, did you reconfirm the $10 million a quarter increase through the year in the model? Did I hear that?

No, what I did say, Chris, is a couple things. One is, you know, in this quarter, super strong results in our most recent quarter. If you look at the guide, also, I think a good trajectory, guiding to $280 million at the midpoint. And if you look at the fundamentals, so what are those fundamentals? The backlog, the booking rates, all of those are trending in the right direction, even as we look into our September quarter. All good signs. I think the only thing that is different right now versus, let's say, three months ago is the uncertainty around the tariffs and what that could mean to end demand. If you look at the fundamentals, however, the business is performing very well. The fundamentals are very healthy. We look at the inventory and the channel, very healthy, very lean. So all of those things are goodness in terms of the overall business. But we have to also be cognizant of the fact that there is a lot of uncertainty around tariffs. We have not seen any impact to our business thus far, but we just need to continue to monitor that.

Okay. And so if not for these tariffs, are we still on track for the $10, less than the $10, above the $10 per quarter? Like, how would you size that up?

Yeah, I won't give any specifics. Even last quarter we provided as a framework. And you can see that both our most recent results here, Chris, and even into the June quarter are very healthy, right? We went from $267 here in our most recent quarter to guiding to $280 at the midpoint in our June quarter. So a very good trajectory. I think across the board, the businesses are performing well. I would say the only area of headwinds that we've highlighted over the last couple quarters and still with us today is around the automotive space.

Excellent. And perhaps if you could talk about the Broadcom acquisition, where we stand. And I think you said $40 million of annualized revenue from the sale. Are you able to add any additional to that? Are you seeing any additional uptake, particularly on the mobile side? And yeah, if you have any other kind of design wins or traction there, I would love to hear about it as well.

Yeah, I mean, now that all of that is embedded into our core IoT business, Chris, I would say if you step back and look at the acquisition and look at the assets and really the people that joined us as a result of that acquisition, it's a fantastic transaction for Synaptics. It opens up a lot of doors in the long term in terms of SAM expansion. When we think about AR, VR, when we think about smartphones, when we think about consumer audio, these are all areas that are a new SAM potential for us. And we would expect to prosecute those over the next three to five years.

Thanks and congrats.

Thank you. Your next question comes from the line of Kevin Cassidy from Rosenblatt Securities. Please go ahead.

Yeah, thanks for taking my question. And I'll also say congratulations on the continued momentum. Just the Wi-Fi 7 low power and for IoT applications. Can you give us a description of what's happening in the competitive landscape? Is there anyone else that's targeting the IoT market like this or are they all just taking the standard Wi-Fi 7 and adding it on to and just trying to sell it to IoT companies?

Yeah, let me turn it over to our expert or GM, Zankat here. He can answer some of the specifics.

Yeah, I think on the competitive landscape, I mean, we are the first one to introduce Wi-Fi 7 to IoT market. And we are focused on some of the video applications to start with, but using very low power. I think we are advanced process node. We are using advanced process node to bring down the power and also using some signal processing techniques to make the overall power consumption much lower than anybody out there. So I think I cannot comment exactly where the competition stands, but we stand much better than anybody else out there. That's all I can say at this point.

Okay, great. Sounds good. And then just with the, you know, on your Astra platform with the introduction of DeepSeq and other optimized LLMs. Have you seen an increase in demand based on those or I guess what's the drivers in that market?

Yeah, I would say so one overall and I'll turn it over to Vikram here. But if you look at the pipeline of activity, it continues to grow and the interest level continues to grow. And how I would think about DeepSeq and others is it brings down the overall cost of compute, which means that compute at the edge can be even further proliferated and these applications at the edge become more important, which really fits where we're targeting our solutions in our ICs. And Vikram, you want to add to that?

Yeah, I mean, so with DeepSeq, they've just shown that, you know, you can run advanced models, you know, in a format that's suitable for the edge and that just plays to our advantage. And your specific question about have you seen any uptake around our solutions because of it? Absolutely in certain geos, there is definitely more interest on trying to move AI to the edge faster and we are having a number of different engagements across a variety of applications.

Okay, sounds great. Thanks.

Thanks, Kevin.

Thank you. Your next question comes from the line of Peter Peng from JP Morgan. Please go ahead.

Hey

guys,

good job on the quarter and guide and thanks for taking my question. You know, just wondering, when would we expect more of a synchronized growth in your end markets? So if I look at just the quarter, even the guide, a lot of this is driven by your core outtie. So maybe we look at in the back half of the year, would we expect, you know, the growth to be continued to be led by quality or do you see some enterprise or perhaps your mobile start, you know, stop contributing to the sequential growth?

I still think as we said, we guide only one quarter ahead, Peter, but I would say the core outtie business and product lines did well here in our March quarter. And if you look at the guide, we're expecting nice sequential growth and year over year growth into the June quarter. And even if you just look holistically at the core outtie business, I think we've now grown five consecutive quarters sequentially. June would mark the sixth sequential quarter of growth. So really nice momentum in that overall business and product line. If you look at the other areas like enterprise and automotive, I would say on the enterprise and automotive side with both PCs and some of the peripherals and video interface and like, we are doing very well. I would say the one thing that we've highlighted that's continued into our March results and part of our June guide is that we're still seeing automotive very sluggish, right? And in terms of the demand profile, we'll see how that plays out for the rest of this calendar year, but that in my mind will continue to remain fairly sluggish. And even with that, we're seeing nice growth trends in our June quarter relative to our March quarter. And then on the mobile side, we're finally through that large customer and the end of life there with the teams done a great job in terms of really targeting the high end Android market. We talked about it in our formal presentation about the fact that we are continuing to innovate, especially with this multi-frequency touch device here. And in that space, customers come to us because we are the leaders on the technology front. And so I would say if you think about that business long term, I think we have a good starting point from here. And over the next three to five years, we're going to continue to grow it.

Got it. Thanks. And then just on your broad market, historically, you guys have pretty concentrated customers. And now we're going to the broad markets where there's a long tail of customers, I guess, in terms of just getting the marketing and sales and working with the right distribution. Where are you in that stage?

Yeah, I would say we're in the still in the early innings of our go to market strategy. If you look, we have done a fantastic job over time in terms of the larger and larger scale customers in terms of developing those one on one relationships for, let's say, our top 20 or so customers. One of the things that we have highlighted over the last three or four months is investments on the go to market side, both on the business development front in terms of adding a team and resources there. Also, all of the collateral that goes along with servicing a larger account profile. And we'll continue to make those investments here. So as you think about not only the rest of our fiscal 25, but as we head into fiscal 2026, we'll continue to make those investments on the go to market engine because that's going to produce some fruit on a long term basis for us. And Dan,

I was just going to say that the other aspect is that the investment in our partners is actually also paying off. You indicated in your remarks, Ken, about how some of the audience you're working with are working with OEMs. And there have been some really exciting opportunities that have come up through that. And so we will continue to invest in the partner network as well.

Thank you. That concludes the Q&A session. And this also concludes today's conference call. Thank you for participating. You may now disconnect.