Good day, and thank you for standing by. Welcome to the Synaptics Incorporated Fourth Quarter Fiscal Year 2021 Financial Result. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Steve Turoni [ph]. Please go ahead.

Good afternoon and thank you for joining us today on Synaptics' fourth quarter fiscal 2021 conference call. With me on today's call are Michael Hurlston, 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. 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 to 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 nonrecurring items. Please refer to the press release issued after market close today for a detailed reconciliation of GAAP and non-GAAP results. 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 operations, plans, objectives, future performance and business, including our expectations regarding the potential impacts on our business of the COVID-19 pandemic and related 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 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 our most recent quarterly report 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.

Great job, Steve. And welcome everyone to today's call. We had an exceptionally strong end to our fiscal year 2021, and I'm pleased with the continued execution of our strategy of IoT diversification and profitable growth. Revenue for the June quarter was higher than the midpoint of our prior guidance and was significantly above normal seasonal trends driven by our intentional shift toward a diversified portfolio and customer base. As IoT growth continued, profitability remained strong resulting in another record quarter for both GAAP and non-GAAP gross margins. Our non-GAAP net income and EPS exceeded the high end of our guidance range, a result of our structural portfolio improvements coupled with disciplined spending. Our non-GAAP operating margin was greater than 30% in the quarter as we continue to improve upon our efficient financial model. One of the key pillars of our successful transformation strategy has been the pivot of our focus from the mobile market to IoT. We now have a broad range of market-leading products for IoT encompassing automotive, audio, video, docking and wireless applications. As a result, our IoT business has grown significantly with revenue in this category now contributing more than 50% of our quarterly sales. Meanwhile our mobile products which once comprised in excess of 80% of our total revenue now represent approximately 25% of our quarterly sales. While the development of touch and display driver technologies will continue to be important our goal will be to operate Mobile at 20% to 25% of our revenue mix. A second, but equally important pillar of our strategy is to build and grow our portfolio with high-value market-leading products. We continue to believe that gross margin provides the best correlation to product value. Over the past 24 months, our non-GAAP gross margins have increased by more than 1,800…

Thanks, Michael, and good afternoon to everyone. I'll start with a review of our financial results for our recently completed fiscal year and recent quarter, then provide our current outlook for our fiscal Q1. For the full year fiscal 2021, net revenue of $1.34 billion was flat to the prior year of $1.33 billion. During the year, our mobile products declined as previously discussed, driven by our large North American OEM, which was offset by significant growth in our focused IoT products and our PC products, which both grew double-digits compared to the prior year. Gross margin for the company's products continued to expand with GAAP gross margin for fiscal year 2021 of 45.6% and compared to 40.7% in the prior year and non-GAAP gross margin of 53.6% compared to 43.7% in the prior year as we concentrated on the delivery of higher-value products to our customer base. GAAP net income for the recently completed fiscal year was $79.6 million or $2.08 per diluted share, compared to the prior year of $118.8 million or $3.41 per diluted share. Non-GAAP net income for the recently completed fiscal year was a record, $316.4 million or $8.26 per diluted share, compared to the prior year of $207.2 million or $5.95 per diluted share, a 53% year-over-year improvement. Revenue for the recently completed June quarter was $328 million slightly above the midpoint of our guidance. Revenue was up 1% sequentially, which is significantly better than our typical seasonality, which reflects an increased diversification of our business and end markets; and up 18% year-over-year with our IoT products delivering significant growth from both new and existing customers. IoT continues to be our largest product group accounting for 50% of the revenue in the quarter while PC accounted for 26% and Mobile accounted for 24%. Our…

Thank you. [Operator Instructions] Your first question comes from the line of Raji Gill from Needham & Company. Your line is open.

Congratulations on great results. Michael, I was wondering, if you could provide a little more clarity on the growth that you're seeing in IoT. In your guidance, as you mentioned in your prepared remarks, the IoT business is going to grow 65% on a year-over-year basis after phenomenal growth the year before and significantly faster than market. Wondering kind of what's driving the growth rate in terms of specific end markets? What's driving it in terms from a technological perspective? Any clarity there that that's leading to that phenomenal growth in IoT?

Hey, Raji, first of all, thanks for the question, and thanks for the continued support. I would draw your attention to technology areas. I think the wireless, as we said, has just continued to really outperform. That's across all three technologies: Wi-Fi, Bluetooth and GPS. GPS doesn't get much attention, but we've done really, really well with that technology, as we said, and particularly in the wearables market. The other technical area that also encompasses, the end market that we haven't talked about is automotive. The automotive market has been hot. We said in the prepared remarks that, we're actually well ahead of plan there. We expect to hit $100 million run rate this year in automotive, which historically has been a small contributor for us. So we really like that business and I think that's really fueling those two areas in particular Raji fueling a lot of growth for us. And its growth that we see I think continued and being sustainable for quite some period of time.

Great. So auto is considered part of the IoT group. And so that's adding to the strong expectations.

Yes,. that's right Raj.

Okay. Great. So just -- and Dean on the gross margin -- so the gross margin guidance again fantastic gross margin guidance of 57.5% growing sequentially. Is this mainly due to mix shift? And when we're looking out over the next several quarters, the fact that you are pretty much at your long-term gross margin target or have surpassed it actually are there other levers that you intend to push whether that's fab consolidation I mean with your outsourced partners, or is there other considerations that you're thinking about in terms of margins?

Yes. I mean, certainly, we're really excited that we have gotten to and now slightly surpassed our model. The margins are largely due to mix and Michael talked about it in his prepared remarks, but we've also been talking over the last two years that we do intend to you sell our high market value products first and lead with those leading products first. And that mix and sort of mix within our own mentality here has sort of driven us a long way. There are other things I think we can do sort of longer term. Part of that has to do with our focus on introducing new products that are designed for higher gross margins. We've continued to talk about consolidating our supply chain partners. I would say with a lot of the supply constraints right now that's probably not a near-term opportunity but we do seek to be more strategic and more meaningful to our supply partners longer term which we think results in better economics for both parties down the road.

Yes. I mean Raji just to add some color to what Dean said I think that it has largely been driven by mix as you theorized in your question. What we haven't done in terms of opportunity is really design for cost. Dean and I have played the hand that we got when we arrived other than the acquisitions that we've added but we now have products that are starting to get design win traction of customers that are better from a cost basis that we actually went out and designed these products with cost in mind. So I think that's going to be a lever that you're going to see play out. It's masked a bit at the moment because we are seeing cost increases from the supply chain. So our attention to detail on design for cost when we actually see that it'll be hard to tell because as I say it's a little bit mass at the moment. But we do have a huge attention now on die size on manufacturing costs et cetera.

Very good. Congrats again.

Yes. Thanks, Raji.

Thank you. Your next question comes from the line of Anthony Stoss from Craig-Hallum. Your line is open.

My congrats as well. I'm curious just again fantastic gross margins 57.5%. With the component shortages, how much did that hold back your gross margins from being even better than 57.5% in the quarter? And then Michael for you I'd love to hear a little bit more on the Chromebook space opportunity, how much content it is and just how big of opportunity it might be? And then I have a follow-up for Dean after that.

Tony thanks for the questions. One on how much has been a holdback in the current quarter really because of supply constraints. Honestly I would say there's not necessarily a holdback here. I mean if anything we're actually conscious of the -- more conscious given our limited supply availability on the value delivering to customers. So we do look to make sure that we're prioritizing where we can our highest-value products and where we can make the biggest impact to our customers and their needs. So I wouldn't call it a holdback.

Yes. And Tony on the Chrome book that -- we're really coming off a very, very small base in Chromebook. I think there's a lot of noise in the Chromebook marketplace at the moment because it was red hot last year now it seems to be tailing off some, but we're coming off a position of almost no presence. We didn't have any of our products qualified on Chromebook and we focused on that. We talked I think in the previous call about some design wins in that area, so we're upping our market share there. You're talking about a couple of bucks per Chromebook, but we're trying to consolidate share there a bit where we're at nothing today and trying to move up somewhat significantly on the share vector over the course of the year. So hopefully that addressed your question.

It does. And then just lastly as a follow-up I'm curious on your philosophical ideas on you have excess demand right now so you're shipping your highest gross margin products. Do you either raise prices on your lower gross margin products, or would you ultimately even just walk away from some of that lowest gross margin going forward?

Yes great question. And it's something that we toy with. I mean we're in pretty competitive markets as it is. So our ability to go in and raise prices is challenged. Now it's not to say that in certain cases we have been able to do that passing on some of the very significant cost increases, we've seen to our customers. But as Dean said I think what has if there's any benefit in the supply crunch it's been this idea of prioritizing our most strategic customers and those that are giving us the highest value. So from a mix perspective a mix within the mix when we look at what we have available to ship we're obviously prioritizing the products and the customers that deliver the highest gross margin.

Okay. Great color guys. Thank you.

Thank you.

Thank you. Your next question comes from the line of Chris Rolland from Susquehanna. Your line is now open.

Hi guys. Thanks for the question. I guess first of all if you could get a little bit more into the supply bottlenecks are they all the same? Is this bumping? Are there things that are more specific to your product line? How much of this is kitting issues or customers' own specific problems? Just any more details there would be great.

Yes Chris. I mean I think the headline is obviously wafer starts. That's where our biggest bottleneck is, is getting starts from the foundry partners. There are constraints elsewhere. We have isolated constraints in as you said in bumping in packaging in the back end. But certainly, the long pull for us is wafer starts. If we're able to solve that there are still constraints in the back end so it's not a perfect world but it's significantly better. We are seeing also now challenges around kitting. As you mentioned we've seen some movement in our backlog as our end customers are more or less able to source the entire kit. And it makes it very, very challenging for us to really predict where we need to supply. Tony asked the question a minute ago about kind of the mix in higher and lower value products. We definitely have some challenges trying to predict in the end which customers are able to deliver the kit and which ones aren't.

Yes. The only other thing I would say Chris is, where we are experiencing the highest growth I mean this is sort of our IoT business and we've talked about WiFi really doing well that's probably putting the most pressure on the supply chain.

Great. Also I noticed you guys raised your internal inventories in the quarter. I'm wondering if that's to prepare for a seasonal run a bit what's traditionally been your largest customer there. Do you have visibility into finally what your content looks like there? And separately you've now surpassed -- well you're at your long-term gross margin target and you've well surpassed your op margin target. So are we going to get an update there? And where might those numbers go?

Yes. So first on the inventory question Chris. Yes, so inventory is up a little bit, quarter-on-quarter. It's a few specific products. I wouldn't characterize it as sort of a broad ability to improve our inventory. Although supply chain is sort of marginally improved in certain areas, it is to support a couple of specific customers and the backlog that we have sort of prepped with them. It is not to support our traditionally largest North American customer, just to clarify. And then maybe on the long-term model and surpassing around gross margin then I'll hand it to Michael on your other question. So right now, we're actually not planning to update our long-term target at this point. I think, it's actually a comfortable sort of range to be running the company. Obviously, we're going to push for every bit of dollar improvement in margins that we can. But I think at the high level, we're sort of operating the company in a construct that is very reasonable and very sustainable. And then, Michael, I don't know if you want to answer about the...

Yes, let me talk about the large North American customer. I mean I think that, we definitely have visibility into what it is. I think we talked a little bit about it on the last call in that, we don't expect any touch business from them on a go-forward basis. In general, in Dean's remarks, he talked about Mobile sort of hitting a bottom in the last quarter and now building out of that. And what that signals really is that, certainly with the large North American customer, we've gone through the entire transition. We've transitioned our LCD display driver to a point, where we think that's kind of at its asymptote. Our touch business obviously, we had a big spike last year. But in the back half of the year, we didn't see a lot of business on that and we don't expect any going forward. So I think that with that particular customer, we're at a steady state. We feel good about that. And as Dean said in his remarks, in mobile in general, we see upside as we continue to prosecute wins in our touch controllers for Korea and for China, and then a further out opportunity that we talked about in OLED display drivers in next calendar year.

Great. Thanks, Michael.

Thank you. Your next question comes from the line of Kevin Cassidy from Rosenblatt Securities. Your line is now open.

Thank you. And congratulations on the great results. I'm just wondering, if you could discuss any changes in the set-top box design activity particularly considering the FTC settlement with your -- one of your competitors?

Yes. Hi Kevin. We really haven't seen any meaningful change in the environment. I think that Broadcom went in and settled that case out very quickly. We definitely have talked about design wins in that business and we think that we have reasonable level of traction in the market, but that level of traction really wasn't affected one way or the other by the Broadcom announcement, Broadcom and the squabble with the FTC.

Okay. Great. Thanks. And maybe if you could just -- you mentioned at the edge AI applications, maybe could you just give a couple of examples of what the AI function is doing in the device?

Yes. Where we're trying to apply -- there's a lot of action in voice and that would be like in the Alexa device for example, executing simple voice commands at the edge, rather than sending a "Hey Alexa" back to the data center and cluttering the data center up with a bunch of "Hey Alexas." What we're trying to do is a unique angle and that's actually video rather than voice. Voice, there's really strong players in that area. We're actually taking a different event and trying to solve some video-related problems. A good example of that is people counting. So now a lot of folks, retailers, store owners want to know, how many people are in a store whether it's to monitor foot traffic or to kind of keep track of how many people and what the social distancing is within a shop, they want to know, how many folks are in their particular space. And our Low Power Edge AI application is able to do that, able to do that calculation there real time. So there's a real time low latency, low-cost way to do it rather than sending things back to the data center. So our take on this market is more around video envision and it is around voice. And we think that we've got the right ecosystem and the right set of partners to enable us. This is not a today market. I mean this is going to be something that's going to take a couple of years to play out but it's an investment area for us and it's one in which we're probably the largest player that's got a real entry in this area.

Okay. Great. Thanks.

Thank you for your question.

Thank you. Your next question comes from the line of Karl Ackerman from Cowen. Your line is open.

Yes. Thank you, gentlemen, Two questions if I may. Just in IoT, many of your peers have noted supply constraints across WiFi and Bluetooth products. Yes, your performance for this quarter and your implied outlook does indicate you're performing better. I guess how much of the sequential improvement you're guiding to in IoT is coming from access to more substrate supply and perhaps how much may be driven by brand-new design ramps that often see larger order builds in initial quarters of a ramp?

Yes. I mean we are – Dean said, it just a minute ago in response to another question. This is probably our most challenging supply area. I mean the numbers frankly could be quite a bit better than they are if we had unlimited access to supply. And that is driven by the fact that we're winning in the market. We're getting a lot of new design wins across video applications, wearables. It really runs the gamut for us. But because this is a new business to us, we didn't forecast the wafer starts. And as a result, we're coming off a zero base. And the way the foundries are working is they start you at your baseline from the previous year and you go up from there. So this is absolutely our most supply-constrained area as Dean alluded to. Karl, we could be doing quite a bit better, as I said, if we had unlimited access to supply in the wireless arena.

That's very helpful. I guess a two-part question for my last one if I may just to follow up on that comment. Given the rapid increase in automotive revenue, could you discuss whether those design wins are locked in for the duration of the vehicle platforms? And then secondarily, could you discuss whether the design win that you're seeing at your Korean customer, your third one is broadening from flagships to mid-range offerings and whether you have visibility into multigenerational designs? Thank you.

Yes. Let me start with automotive. I mean I think just like any provider in automotive, once you get in, you're pretty much locked in for the duration of the design. So certainly our visibility is a longer visibility in that business than in any other businesses that we participate. And we feel good about the sustainability of each of the design wins that we talked about in the prepared remarks. We've been able to win in that market by uniquely combining touch and display solutions. And that combination is a differentiated combination that's given us a nice technical advantage with the auto OEMs and then the LCMs that make the displays for the cars. The second part of your question was around Korea. Where I'd say we are there is sort of sub-flagship, and to your point then dropping down into more mass market types of phones. So we certainly haven't cracked the very, very highest end of that yet and that's not unusual because we're not yet a proven supplier. We've just started production as we said in the prepared remarks. So we feel pretty good about our ability to prosecute more with that customer and that runs from high to low. And even as we scale down because they're pushing flexible OLED down in their SKU stack, we haven't seen degradation in gross margin even as that – those products have come down into sub-flagship and lower types of SKUs.

Very helpful. Thank you.

Thanks, Karl.

Thank you. [Operator Instructions] Your next question comes from the line of Ambrish Srivastava of BMO. Your line is now open.

Hi. Thank you very much. I just wanted to come back to the gross margin guys. Last quarter you are pretty articulated many times when you were asked about the margin level. And the dynamics seem to be the IoT business is continuing to do better. So I'm just struggling of why, should they not be a six handle very soon to the margin profile, because IoT should continue to grow in absolute dollars. So is it just your nature being conservative as you have been and you have over-delivered not only on the gross margin front, but on many fronts. So just kind of help us understand, the level of conservatism on the margin side, because the dynamics seem to be just exactly in favor of what happened -- what has been going on for the last several quarters.

Yeah. Good question, Ambrish. So I think in general sort of what's been happening is we've been on this two-year journey of delivering higher value products to the marketplace. Generally speaking, this IoT set of products are higher valued in the market. And as that continues to grow our margins continue to expand like you rightly pointed out. But I would say there's, two factors. One, in the near-term we continue to deliver to higher IoT growth rates, which continue to push up our gross margin mix. Here in the near-term that continues. As we're guiding into the September quarter, we're guiding again a strong IoT, again a strong gross margin. So I think here in that near-term you would continue to see the strength. But I would just remind you sort of longer-term it's not an IoT only business. So we do intend to grow all three product areas of our portfolio. And we think there's, organic growth opportunities within all three. And what we're doing is, striking a balance to continue to grow gross margin in its aggregate, but then also move the top line forward and therefore dropping everything to the bottom-line. So as all three buckets continue to move forward and find that balance, you're sort of finding this high 50s sort of balancing act, if that makes sense Ambrish.

Yeah. It does. I had a follow-up on the visibility. If I heard it correctly, you said you have a 90% booked for the full year. Is that, what you said, Dean?

Yeah. That's what we said. We have 90% or better booked for the full year. That's right.

How would you compare that with -- you have obviously been there a couple of years but just in terms of what normal visibility would be? And then, more importantly, we're hearing about long-term agreements from so many companies just because there isn't enough supply. How much of that would you consider or characterize for us is covered by call it non-cancelable or long-term agreements? Thank you.

Yeah. So I think there are several parts in that one, first around, visibility. We have much longer visibility close to four quarters than we typically would. Typically the business would have more like one to two quarters of visibility. And sort of with the extended lead times that we've asked customers to give us additional visibility. And of course, extended lead times from our suppliers, right has sort of forced everyone to play nicely. And sort of have a combined set of trajectories that everybody is forecasting. We have engaged a subset of our suppliers in longer-term agreements, really at the behest of our customers on getting the supply, they see the design win ramps that they need. We've collaborated with our customers to actually enter into secured supply on their behalf. And then, the other one around your backlog and cancellability et cetera, a good amount of our backlog comes with some sort of limitation around a customer's ability to cancel or reschedule. So not only is there are some limitation around what customers are sort of allowed to do contractually, but also everyone's clamoring and actually trying to get accelerated supply where we can. So we feel pretty good about the coverage and the visibility that we have.

Great thanks. Thanks for all the details guys.

Yeah. Thanks, Ambrish.

Thank you. There are no further questions. You may continue.

I would like to thank all of you for joining us today. We look forward to speaking to you at our upcoming investor conferences during the quarter. Thanks a lot.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.