Synaptics Inc (SYNA) 2006 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Synaptics first quarter 2006 conference call. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded today, Thursday, October 20, 2005. I would now like to turn the conference over to Jennifer Jarman with the Blueshirt Group. Please go ahead.

Thank you, Rob. Good afternoon, and thank you for joining us today on Synaptics first quarter conference call. 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 www.synaptics.com. With me on today’s call are Francis Lee, President and Chief Executive Officer, and Russ Knittel, Chief Financial Officer.

We would like to remind you that during the course of this conference call, Synaptics will make forward-looking statements, including predictions and estimates that involve a number of risks and uncertainties. Actual results may differ materially from any future performance suggested in the Company’s forward-looking statements. We refer you to the Company’s SEC filings, including form 10K for the fiscal year ended June 30, 2005, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. We expressly disclaim any obligation to update this forward-looking information.

Now, I’d like to turn the call over to Francis Lee. Francis?

Thanks, Jennifer. Thanks, everyone, for joining us on the call today.

Revenue for the first quarter was $51.7 million, in line with our expectation and up 36% compared to the same quarter of last year. Excluding the impact of non-cash share-based compensation, non-GAAP net income was up 81% year over year to $8.1 million, resulting in non-GAAP earnings per share of $0.29. During the September quarter, revenue from PC applications grew 6% sequentially. As anticipated, strong demand for our solutions in PC-based applications was offset by lower demand in portable music player applications. Accordingly, revenue from non-PC applications was down 34% sequentially and represented approximately 27% of total revenue.

Now, I’d like to make a few comments about the progress we have made in our markets over the past three months. Logitech announced the new MX 5000 Laser keyboard with a Synaptics-enabled media control center. The center, located on the left side of the keyboard, controls zoom and volume functions as well as media controls, such as play, pause, fast forward, rewind and stop. We continue to see a strong interest in our solution for PC peripherals, specifically in the area of wireless keyboards, mics and remote controls. We feel our technology offers unique functionality and industrial design capabilities to this market and expect to update you on our activity over the next three to six months.

In the [local] market, last quarter we announced our new two-mode product concept that utilizes a LuxPad illuminated TouchPad technology to provide a two-mode TouchPad for cursor navigation and multimedia controls. We are pleased to announce that we have secured design with this innovative interface solution and expect to be able to update you on the specifics of this design within the next few months.

In the portable music player category, Philips recently announced a [inaudible] GoGear 1630 Micro Jukebox and the 30GB GoGear 6330 Jukebox. Both devices incorporate custom light touch scrolling and selection solutions that navigate through play lists and menus and the control play back function. In addition, NEC recently announced under the Packard Bell brand in Europe the 20GB and 30GB 500 MP3 players, which also used Synaptics in the solution to control photo and music management and navigation. We are encouraged by the continuing interest in our solutions for portable digital entertainment devices as we continue to expand our customer base in this growth market. We expect to update you regarding additional design wins in the next three to six months.

On the cell phone front, the Samsung SCHS310 phone, which utilizes Synaptics’ MobileTouch solution, have been well received in Korea and has exceeded expectations in the local target market. We continue to be encouraged by the response to our technology and the strong design activity in the mobile space. We expect to see incremental revenue from new designs in this market within this fiscal year.

Now, I would like to turn to a few recent corporate developments. In the March quarter, we announced that our board of directors authorized the repurchase up to $40 million of our common stock. We’ve completed the program during the quarter as we purchased approximately 1.2 million additional shares at an average price of $16.12. That brings the total number of shares repurchased to 2.3 million. I am pleased to announce that the board has authorized an additional $40 million to be used to buy back the Company’s common stock. Again, this reflects our focus on stockholder value and our confidence in Synaptics’ future prospects as well as our ability to generate positive cash flow from a scalable business model.

Also on a positive note, we have recently added Jeff Buchanan as a member of our board of directors, bringing the total number of directors to six. Jeff is a principal at [Echo] Advisors, a corporate consulting and advisory firm, and brings to us his knowledge and experience either serving as or having served as a board member or executive officer with other publicly traded companies. We are pleased to have Jeff join the board and feel his background and expertise will serve Synaptics well.

I would now like to make a few comments regarding the general business environment. Our backlog entering the December quarter was approximately $19 million, down from $25.4 million entering the September quarter. We believe this reduced level reflects caution among OEM customers with regards to placing orders based on potential concerns related to consumer spending in the fourth calendar quarter. We remain cautiously optimistic about overall demand trends during the holiday quarter and continue to monitor the potential impact of macro economic factors on our markets. As in the past, we’re well positioned [inaudible] dynamic order patterns. Moreover, Synaptics continues to differentiate itself as a total solution provider with a proven track record of being able to meet our customers’ needs.

I would now turn the call over to Russ, who will review our detailed financial results for the first quarter and provide guidance on our near-term outlook.

Thanks, Francis. As announced previously, during the first quarter of fiscal 2006, we adopted FAS123R on a modified perspective basis. FAS123R requires us to include the theoretical grant date fair value of both employee stock options and employee stock purchase plan shares as expense in our income statement. However, since share-based compensation expense does not represent a use of cash, during this presentation, in addition to GAAP results, I will also provide supplementary results on a non-GAAP basis, excluding the compensation expense and tax effects associated with expensing stock options on our employee stock purchase plan. We believe this supplemental information is helpful to the shareholders and the investment community in providing transparency and historical comparability of our core operating results over multiple reporting periods.

Revenue for our first fiscal quarter of 2006 was $51.7 million, an increase of approximately 36% compared with $38.1 million in the same period last year, reflecting the combination of approximately 48% growth in PC revenue and 12% growth from non-PC applications. Sequentially, revenue was in line with our expectations and decreased 9% compared to $56.8 million in the preceding quarter, as revenue from PC applications grew approximately 6% but was offset by a 34% decline in non-PC applications, primarily reflecting reduced demand from the hard disk drive MP3 player market. As a result, revenue from non-PC applications represented 27% of revenue, down from 38% in the prior quarter. Within the notebook market, we saw increasing demand for single-pointing solutions while revenue from dual-pointing solutions declined by approximately 18% sequentially, representing roughly 15% of revenue compared to approximately 17% in the June quarter.

Gross margin for the quarter, including the impact of FAS123R, was 45.8%. Non-GAAP gross margins was 46.1% compared to 46.2% in the June quarter.

Total operating expenses for the quarter were $15 million, including non-cash, share-based compensation charges of $3.1 million. Excluding the impact of FAS123R in the September quarter and the $3.8 million one-time payment related to patent licensing in the June quarter, non-GAAP operating expenses for the September quarter were essentially unchanged from the preceding quarter at $11.9 million. This was lower than we’d expected, primarily reflecting timing of our recruiting initiatives and lower than anticipated relocation, consulting, and compliance-related expenses.

Turning to specific line items, R&D expenses were $8.3 million, including $1.3 million on non-cash, share-based compensation. Non-GAAP R&D expenses were $7 million, up approximately 7% from $6.5 million in the preceding quarter, primarily reflecting higher development project expenses and increased head count.

SG&A costs were $6.7 million, including $1.8 of non-cash, share-based compensation. On a non-GAAP basis, SG&A was $4.9 million, down 8% from $5.3 million in the preceding quarter.

Total employee head count at the end of September was 224 compared with 219 at the end of June. Going forward, we expect our head count will continue to increase as we are actively recruiting to staff both our internal and external initiatives.

Net interest income was $1.1 million, essentially unchanged from the prior quarter, and our effective tax rate for the quarter was 43.3%. On a non-GAAP basis, the effective tax rate was 37.6%.

Net income for the quarter was $5.5 million, or $0.20 per diluted share. Non-GAAP net income, which excludes $3.3 million non-cash, share-based compensation charges and the associated tax benefit of $690,000, was $8.1 million, or $0.29 per diluted share. This compares to non-GAAP net income of $4.5 million, or $0.16 per diluted share, in the same period last year and $12.2 million, or $0.41 per diluted share, in the preceding quarter, which included the favorable impact of the $3.8 million one-time payment I referred to earlier.

Now, for a few comments on our balance sheet. We ended the September quarter with total cash and short-term investments of $219.8 million, down from $228.9 million at the end of the June quarter. This decrease primarily reflects the impact of our stock repurchase program. Our cash flow from operations was $10 for the quarter, and stock option exercises and purchases under our employee stock purchase plan contributed $1.2 million. Significant cash outflows for the quarter included $18.8 million used to repurchase our common stock and approximately $1.7 million in capital expenditures, of which $1.3 million was associated with our new headquarters. Capital depreciation for the quarter was $377,000.

Receivables at the end of September were $32.9 million compared to $33.8 million at the end of June. DSOs at the end of the quarter were 57 days compared with 54 days at the end of the prior quarter.

Inventories at the end of September were $7.1 million compared with $7.7 million at the end of June. Inventory turns in the September quarter were 16 times, unchanged from the prior quarter.

I would like to make a few comments regarding our near-term business outlook. As Francis noted earlier, our backlog entering the December quarter was approximately $19 million, down from the $25.4 million level we had entering the September quarter. We believe this is an indication of caution on the part of OEMs as they closely monitor the economic climate and consumer sentiment leading into the holiday season. Based on our current visibility, we anticipate revenue in the December quarter to be $46 to $50 million, which is at the high end of the range we provided on our last earnings call. This outlook anticipates continued strength in notebooks, weighted towards the consumer side, and continued declines in revenue from the MP3 market.

For the December quarter, we expect the impact of FAS123R on both gross margins and operating expenses to be similar to the September quarter. Based on our reduced backlog level and anticipated increased turns business, we are targeting non-GAAP gross margin to be in the 45.5% to 46% range, and we expect non-GAAP operating expenses in the December quarter to be up sequentially, primarily reflecting our ongoing staffing initiatives. Non-GAAP net income per diluted share for the December quarter is expected to be in the range of $0.23 to $0.27.

Looking beyond the December quarter, based on current design wins, design activity levels and the pipeline of identified opportunities, our view regarding revenue for fiscal 2006 is unchanged from our last earnings call, when we indicated that fiscal 2006 revenue may be off as much as 10% from fiscal 2005’s record levels.

In closing, despite both customer and competitive dynamics in the portable digital music player market, we are pleased with our recent design wins and the continued expansion of our customer base in this market. Assuming consumer spending levels do not shift dramatically over the near term, we look forward to a strong holiday season in our core PC-based business and continue to be encouraged by strong design activity in the portable digital entertainment and cell phone markets.

That concludes our formal remarks, and we’ll now turn the call over to the operator to start the question and answer session.

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question comes from Joel Wagonfeld with First Albany. Please go ahead.

Thank you. Nice quarter. Two questions. One, are you concerned at all about the recent comments from Cypress that they’re aggressively going to be going after expansion with their PSoC solution, which is what they have in the video iPod? Then, secondly, you recently at a presentation, I believe, reiterated your long-term operating margin target of 14% to 16%, but you’ve been well above that for quite some time now. I’m wondering; should we think of that as moving up now on kind of a longer-term basis? Thanks.

Thank you, Joel. I think your first comment regarding the Cypress PSoC solution-- Obviously, we respect all competition, and we’re not taking Cypress lightly. But, we really believe in strategy in terms of offering a total integrated solutions with all the pieces of the technology together, we believe that we will prevail in the areas that we have selected to compete in. As far as the operating model is concerned, we have no updates in terms of changing the model. That model fits well and has worked well for us so far. Obviously, last fiscal year, we had an exceptional year, given the fact that we grew our revenues significantly as well as executed given the opportunities in the market. There’s really no plan in sight in terms of adjusting the models, Joel.

And, Joel, remember; today we’re still benefiting from pretty good growth at the top line. Revenues year over year are up 36%, and the impact of that is reflected in the fact that our current operating margin levels are a little above that target range that we have on a long-term basis.

Thanks very much.

Thank you. Our next question comes from Rob Stone with SG Cowen. Please go ahead.

I wonder if you could just give us an update on the number of shipping models you have in the music player space these days.

Last quarter, we were shipping into six different OEMs.

And, in your guidance for the December quarter, you’re contemplating shipping with how many OEMs?

We don’t provide guidance by segment or product category.

Okay. Well, I guess what I’m trying to compute is-- You mentioned a couple of design wins. I guess Francis did. Those were already shipping in the September quarter?

We expect to see revenue from those two most recent design wins in the December quarter. Yes.

Okay. And, in the handset space, so far it’s one that’s been in revenue?

That’s correct, Rob.

Okay. A housekeeping question, Russ, on-- You mentioned that CapEx was a little lower for the new facility than you were expecting. Can you comment on what you think it will be on a full-year basis?

Well, actually, this was kind of the tail end of what we’d already spent. I think on the last call I said I think we spent about $2.5 million on the new facilities, and this was the last portion of that. So, facilities are done. We’ve moved into the space, and I wouldn’t expect that we’ll be spending any more capital on the facilities itself.

So, do you have a fiscal full-year CapEx figure in mind that you’d care to mention?

Well, typically, excluding these one-time occurrences, we generally spend somewhere between $1 and $2 million of CapEx. So, if you exclude that for the first quarter - the building facilities - I guess we spent about $.5 million. I would guess for this year somewhere around $1.5 to $2 million.

Okay. Thank you.

Thank you. Our next question comes from Chris Kinkade with America’s Growth Capital. Please go ahead.

Hi. It’s Chris Kinkade. How are you doing? Just wondering; can you quantify what sort of unit growth you experienced in the notebook market in Q1, and then, also, what sort of unit growth expectations just for the overall notebook market are embedded in your Q2 guidance?

Our notebook unit shipments were up in double digits in the first quarter, and the strength in notebooks seems to be pretty apparent. Certainly for this calendar year, it appears that the industry analysts following this space are moving their targets up for this full calendar year.

Okay. And, then, also, just wondering; at this point, are you shipping at all in any hard drive based iPod units?

As you know, we were participating in the mini and the full version white iPod. To the extent that those are still available in the market during the quarter, we were certainly shipping into those.

Okay. So, it’s fair to assume the iPod video is not using your interface?

We can confirm that the most recent product launches announced do not include Synaptics’ solutions.

Okay. Thank you.

Thank you. Our next question comes from Andrew Neff with Bear Stearns. Please go ahead.

Yes. Hi. This is actually Ted Chung. Just a follow up on that question. Do you have in your guidance for the December quarter any revenue contribution from Apple?

Ted, we don’t provide guidance by customer.

Okay. Okay. Great. Thank you.

Thank you. Our next question comes from Martin McCagney with [Trend Peaks] Capital. Please go ahead.

Great. Thanks a lot. Nice quarter, guys. I wanted to ask you a bit on your visibility here in December versus past quarters. Typically, do you do more turns in the December quarter than normal, or is this kind of a reduced--? Should we look at this as a reduced visibility level?

Well, I wouldn’t say that there’s a typical for any of our quarters. The visibility we have is kind of a reflection of what the business environment looks like at any point in time. If I characterize the current quarter relative to the same period last year - so comparing the December ’04 quarter to December ’05 - we certainly have much less visibility this year than we did last year. I think going into the December quarter last year, our backlog was in excess of $39 million as compared to the $19 million we have entering the December quarter of 2005.

Got you. Okay. I mean, do you-- I’m just trying to get a sense for the variables on the quarter. It’s probably mostly just dependent on how quickly the notebooks sell through and if they come back for more mid quarter?

Again, our view of the way the December quarter’s going to, I think, pan out is primarily a reflection of how strong consumers show up in the notebook space. I think on the margin, corporate demand in notebooks could be a net positive. But, we think the overall quarter will depend largely on consumer spending.

Okay. Great. Thanks, guys.

Thank you. Our next question comes from Derrick Wagner with Jeffries & Company. Please go ahead.

Yes. Just confirming two figures. The CapEx was $1.7 million for Q1, and including that building, I guess the estimates would be for something like $2.8 to $3.3 in CapEx for the year? And, then, D&A for the quarter was $377,000? Are those figures right?

Depreciation for the quarter was $377,000; and, yes, the math you did there on capital expenditures is close.

Okay. No amortization; right?

No amortization of--?

Anything. I mean total D&A is $377,000?

Total capital depreciation is $377,000 in the last quarter.

Yes. Okay. And amortization? Is there any amortization?

On top of the $377,000? No.

Okay. Thank you.

Ladies and gentlemen, at this time, we have no further questions. I would like to turn the conference back to management for any concluding comments.

Thank you for being on the call with us today, and we look forward to updating you again next quarter. Bye bye.

Ladies and gentlemen, that does conclude this Synaptics first quarter 2006 conference. [OPERATOR INSTRUCTIONS] Thank you, again, for your participation in today’s conference, and you may now disconnect.