Good day, and welcome to the Synaptics Third Quarter Fiscal 2020 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jason Tsai. Please go ahead.
Thank you. Good afternoon, and thanks for joining us today on Finapic's Q3 fiscal 2020 conference call. My name is Jason Tsai. I'm the Head of Investor Relations. 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 our Investor Relations section of the company's website at fanatics.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 ks filed with the SEC earlier today and add additional color on 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 non recurring 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 conditions, results of operations, plans, objectives, future performance and business, including our expectations regarding the potential impacts on our business of the COVID-nineteen pandemic. 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 the Synaptics Form 10 ks for the fiscal year ended June 29, 2019.
For important risk factors that could cause actual results to differ materially from those contained in any forward looking statements. Synaptics expressly disclaims any obligation to update this forward looking information. Now before we get started, I'd like to remind you that we are still planning on hosting our Analyst Day on June 9, and we look forward to discussing more details about our long term strategy and targets with you at that time. I will be sending out more details shortly. I will now turn the call over to Michael.
Thanks, Jason, and I'd like to welcome everyone to today's call. I'm pleased to be speaking with all of you again today and look for a solid quarter despite the ongoing global uncertainty with COVID-nineteen. During much of the March quarter, the supply chain in China was largely at a standstill due to the quarantine. As the pandemic spread throughout the globe in subsequent weeks, we have seen differing impacts to our product portfolio. While our PC related businesses are benefiting from the increased number of people working from home, we are seeing weakness in part of our IoT business as discretionary spending for consumer electronics and automotive declined meaningfully.
Our mobile business was in line with our expectations during the March quarter. Despite these challenges, our Q3 revenue was largely in line with the low end of our expectations, while our continuing focus on higher value added solutions margin products drove stronger gross margins and better than expected profitability for the company. I'm also pleased that we're able to close the divestiture of our mobile LCD TDI business last month. We now have a much stronger P and L and balance sheet, which should enable us to further improve our long term profitability, while allowing us to invest in more differentiated products, further increasing gross margins. Dean will provide more details on our financial performance later in the call.
Before I provide an update to our business, I would like to share with you my thoughts on how the global pandemic is affecting us and what we are doing to address those challenges. First off, the health and safety of our employees is our top priority and we continue to take steps and implement measures to safeguard them. I'm extremely pleased by their focus and execution in these uncertain times and thank them for their dedication. As I said earlier, from a business standpoint, we have seen some areas that are faring better than others in the short term and we're seeing strong continued engagement with our customers across the board. We've been able to adapt and continue to deliver on our commitments to customers from ensuring that we execute on our various roadmaps to effectively managing our supply chain.
We see the supply chain normalizing and face minimal disruptions at this point. We have put a team in place to look at contingency plans in the events that the global pandemic and global economic conditions decline further and consider how we are positioned to deal with that. Our intention is to continue to invest and stay engaged with our customers through all of this and as conditions return to normal, our customer engagements, increasing pipeline of new products and design wins will enable our growth long term. Now let me update you on our business. In the mobile market, our customers have launched several highly anticipated handsets in the past couple of months with our display drivers as well as with our on sell flexible OLED touch controllers, including the Huawei P40 Pro and Pro Plus phones.
Are introducing several new single chip touch solutions that integrate a broad suite of high end capabilities and differentiation for all on sale flexible OLED displays. This includes delivering the fastest touch report rates in the industry as well as integrating face detect and side touch features to enable infinity displays and support for active pens. As production and availability of on cell flexible OLED panels continues to grow, our design momentum is accelerating and we are confident in maintaining our leadership position. Assuming current schedules hold, our flexible OLED touch solution should be designed into at least 10 more flagship to midrange phones by the end of this calendar year. Separately, our large handset customer launched their highly anticipated low end LCD smartphone last month using our DDIC and has been well received in the market.
In IoT, following the successful of our versatile VS600 Smart Edge AI family of SoCs, we are seeing strong customer traction and design activity across multiple markets, including service provider set top boxes and retail OTT streaming products. Serving as the entertainment hub of smart homes, set top boxes are getting smarter with the addition of our powerful purpose built SoCs that uniquely combine a CPU, NPU and GPU on a single platform integrating audio, video, computer vision and AI. Our customers are finding new ways to integrate our neural network accelerators and retail voice enabled devices with premium sound bars and high performance video, including soundbars, cameras and smart displays. We have strong partnerships with Americas along with numerous consumer electronics companies. We have a solid relationship solid roadmap in this space and we'll see initial product rollouts over the course of the next 12 months.
We are also excited about our new video interface products that have recently Designs will be in commercial docks, travel docks and ultra portable dongle accessories and these products are targeted to be at retail by the end of the year. In addition, our existing multi stream video products continue to see strong demand with growing volumes due to the increase of work from home and we're seeing a rise in new design activity. The increase in work from home activity continues to benefit our PC related businesses and momentum is accelerating. Enterprises are outputting more of their employees with upgraded laptops. In addition, consumers are upgrading their to enable video applications and students are also moving to remote learning.
As a result, sales of our touch pads, fingerprint sensors and high speed wired connectivity for docking stations are increasing sharply. While the strength in our PC related business is lasting longer than we previously anticipated, we don't expect this strength to be sustainable. Overall, I'm pleased by our execution and our team's continuing focus. Undoubtedly, there will still be support and engage with our customers and we will continue to invest in our portfolio of solutions that will drive operating results even in an uncertain environment. Now let me turn the call over to Dean to review our Q3 financials and provide our outlook.
Thanks, Michael, and good afternoon to everyone. I'll start with a review of our financial results for our recently completed quarter, then provide our current outlook for our fiscal Q4. Revenue for the Q3 of fiscal 2020 of $328,000,000 was slightly below the low end of our previous guidance range, down 16% from the preceding quarter and down 2% from the same quarter last fiscal year. Our revenue was negatively impacted by customer production delays driven by supply chain constraints due to global effort to slow the spread of COVID-nineteen. During the quarter, we had 2 customers above 10% of revenue at 21% 13%.
For the March quarter, our GAAP gross margin was 41.3%, which includes $8,100,000 of intangible asset amortization and $800,000 of share based compensation costs. GAAP operating expenses in the March quarter were 100 and $16,600,000 which includes share based compensation of $17,100,000 intangibles amortization of $2,900,000 restructuring expenses of $6,300,000 and a retention program cost of $3,200,000 We accrued GAAP tax expense in the quarter of $10,200,000 bringing our year to date GAAP tax rate to 36.3 percent. GAAP net income for the quarter was $5,000,000 or net income of $0.14 per diluted share. On a non GAAP basis, our March quarter non GAAP gross margin of 44.1% was 10 basis points above the high end of our guidance range and primarily reflects ongoing cost savings initiatives. The March quarter non GAAP operating expenses were below the low end of our guidance range at $86,700,000 and down $2,500,000 from the preceding quarter, primarily reflecting the benefit of restructuring activities and operating expense savings during the work from home restrictions due to COVID-nineteen.
Our non GAAP tax rate for the quarter year to date period was 12%. Non GAAP net income for the quarter was $52,300,000 or $1.49 per diluted share, an increase of 80% year over year as we continue to focus on improved bottom line results as compared with $29,000,000 or $0.83 per diluted share in the Q3 of fiscal 2019. Now turning to our balance sheet. We ended the quarter with approximately $472,000,000 of cash on hand, an increase of $47,000,000 from the prior quarter, primarily driven by cash flow from operations. We opportunistically repurchased 257,000 shares for $13,200,000 an average price of $51.09 early in the market downturn before quickly changing to a cash conservation mode once it became obvious that COVID-nineteen impact was going to last much longer than initially thought.
Receivables in March were $238,000,000 and DSOs were 65 days. Inventories were $96,000,000 and inventory days were 47. Capital expenditures for the quarter were $3,500,000 and depreciation was $6,600,000 dollars Before I turn to our guidance, let me remind you of a couple of post quarter end transactions that will drive our ability to execute our long term plans to opportunistically invest and grow the business. On April 2, we drew down $100,000,000 on our revolver, leaving an additional $100,000,000 available to us. We believe it was prudent to put this cash on our balance sheet to ensure it will be available when needed and will provide greater flexibility for our operations in these uncertain times.
On April 16, we closed the divestiture of our mobile LCD GDBI product line and received approximately $139,000,000 from the buyer. Our adjusted cash balance that includes these 2 post quarter events in addition to the $472,000,000 cash balance at the end of the quarter is $711,000,000 This positions us well to capitalize on potential opportunities to acquire businesses or product lines that will fit into our longer term growth and gross margin strategies. Let me also highlight the historical impact on our P and L from the mobile PBBI divestiture that we referenced in our filing with the SEC on April 16. In the first half of fiscal twenty twenty, this business generated sales of $131,000,000 or an average of about $65,000,000 per quarter. Excluding the effect from this divestiture, our revenue in the June quarter at the midpoint of our range is expected to be approximately flat sequentially, which is slightly better than typical seasonality.
We will also see a meaningful improvement in gross margins and operating expenses in the June quarter as a result of this sale. It is also incorporated into our guidance today. In addition, taking into consideration the increasing uncertainty and the impact of COVID-nineteen that continues to have on our end market and our consumer demand, we are broadening our revenue guidance range for the June quarter to $30,000,000 up from $20,000,000 range we provided in the last couple of quarters. Now let me provide our outlook for the Q4. Based on our backlog entering the June quarter of approximately $240,000,000 subsequent bookings, customer forecasts, product sell in and sell through timing patterns as well as expected product mix, we anticipate our total revenue for the June quarter to be in the range of $260,000,000 to $290,000,000 We expect the revenue mix from our mobile, IoT and PC products to be 45%, 23% and 32%, respectively, reflecting continued near term strength in our PC related sales, in line mobile business and offsetting weakness in IoT.
Now I'll provide GAAP outlook for our June quarter and follow with non GAAP outlook. We expect our GAAP gross margins to be in the range of 41.5 percent to 44%. We expect our GAAP operating expenses to be in the range of $110,000,000 to $116,000,000 which includes charges for intangible amortization, stock based compensation, and we also expect to improve restructuring costs and retention related costs. We expect our GAAP tax rate for fiscal 2020 to be in the range of 20% to 25% for the full fiscal year. I will now provide non GAAP outlook for our June quarter.
We expect non GAAP gross margins in the June quarter to be between 45% 47%, reflecting the positive impact of the divestiture of our low margin TDDI product line. We expect non GAAP operating expenses in the June quarter to be in the range of $83,000,000 to $86,000,000 also reflecting the positive impact from the divestiture of our TDDI product line. We anticipate that our non GAAP for fiscal 2020 to continue to be in the range of 11% to 13%. Our non GAAP net income per diluted share for the June quarter is anticipated to be in the range of $0.85 to $1.25 per diluted share. This wraps up our prepared remarks.
So I'd like to now turn the call over to the operator to start the Q and A session. Operator?
Thank Our first question comes from Rajeev Gill with Needham and Company.
Yes, thank you and congrats on the divestiture of TDDI, the success of the divestiture of that business.
If we look at
the guidance, it implies IoT business is going to be down about 12% sequentially. I understand the mobile business, obviously. But the IoT business, since a lot of it's consumer focused, wondering if you could describe the impact of COVID on IoT. Has that hurt demand for consumer IoT products in the retail stores or installation at the home? Any color there would be
helpful. Yes, Raji. As you know, our IoT business is kind of a basket of different products and it's had various effects on various different things. But generally speaking, the negative impact has been on our in home devices, whether those are speakers or some of the video devices we've seen some impact on. And I think that's largely due to consumer spending patterns.
We've seen our customers push out orders. I don't know if that demand comes back until we see some return to normalcy, but that's been the real impact on the IoT business. The other thing I
would maybe add, Rajiv, is, as you know, our IoT business includes an automotive business that we have reported there and no different from several others that sort of have closure to automotive that's challenging at this point.
Thanks for that. And then just on the mobile business, if you add the approximately $65,000,000 quarter back to the mobile business, It would imply that the mobile business is kind of growing sequentially. Just wanted to get a sense of the traction in mobile going into the June quarter. What have you seen in the China handset market? What have you seen as your top customer in terms of the design pipeline in the funnel?
Any thoughts there would be helpful.
Yes. I mean, I think that you're characterizing the position, the sort of the overall position well, Raji. In general, we kind of have an unusual situation, which is that we picked up some nice design momentum on our on sell touch products and that's led to kind of an unusual tailwind in that sector. We've done very well with the Chinese handset makers. We think we're going to continue to do well.
As I said, if schedules hold, we expect to see about 10 more major phones split to our on cell touch solution. So that's been a nice tailwind. Coupled with that, I mean, we still got a meaningful presence in our display driver product area. And we've seen the new launch of the some lower end LCD phones and that's been good for our business. So we generally feel good about mobile and as we look out, I think you're going to see continued shift toward touch and maybe away from DDIC.
But we feel really good about our position in on sell touch.
And just last question for me on
the gross margin. Fantastic job on really moving what are some of the puts and takes to on the margin line now that we've completed the divestiture, the drivers.
Yes. So Roger, I would say
we're sort of really focused on this one, driving forward as we've seen since sort of Michael and I joined the company that being a big emphasis. We're certainly not done. I mean, we continue to work this area. We're fairly aggressive on trying to pursue cost reductions where we can, but also really focusing on the high value products that are in the portfolio and making sure sort of those sort of able to shine the light. So as we focus on margin mix and cost going forward, I think that should continue to improve.
Thank you.
We'll take our next question from Christopher Rolland with Susquehanna International Group.
Hi, it's David Hadley on behalf of Chris Rolland. Thanks for taking our questions tonight. Maybe you can start by helping us frame these 10 new wins that you have for the on cell flexible OLED touch. Are there any pricing or margin differences between these ramping displays versus your old OLED Touch wins? Or is this similar to what you've won in the past?
Against as compared to all previous OLED touch wins, is that the question?
Yes. On sell versus the previous other touch wins. Are you have are these the same or are there pricing differences and margin differences? Can you explain that?
Yes. They're in line from both a margin and ASP perspective with prior touch wins.
Got it. And then on the IoT side, you seem very confident in the Smart Edge AI SoCs and the traction that you made there. Are you currently seeing a lot of revenue from that product? Or should we be thinking about this as really a ramp over the next 12 months? And how big can this kind of product grow for you?
Yes. Just to clarify, so these are a set of products that we announced back in January at CES. So it's a brand new class of product for us. We're certainly seeing a lot of interest from the customer base and we think they're very promising. But to answer your question, no, today there's no revenue.
These are new products. Great. Thank you. And then I think my last question would probably be about the PC strength for next quarter. And it doesn't sound like you have a ton of kind of things that's going to hang around beyond the next quarter or so.
But is there design and momentum behind that as well? Or is it really just a work from home trend that's pushing it? And as that fades in, people go back to work, the PC market will kind of go back to normal for you?
Yes. I mean, I think our design win pipeline is probably as strong as it's been both in fingerprint and on our core touchpad business. So I think the comments are more to do with the recent surge in PC buying due to work from home. And that part of it, we don't think is particularly sustainable. We've had a good run-in the PC business.
If you followed us over the last few quarters, there's been good strength. I think starting with a shift from consumer to commercial, commercial is where we have more exposure. And I think commercial picked up traction toward the end of last year. And then this quarter, I think it was more around work from home. But our unusually high revenue levels, I think, from the PC business are what we are characterizing as difficult to sustain.
Our share, our position in the market, I think is very much sustainable.
Great. Thank you.
And it appears there are no further questions at this time. I'd like to turn the conference back to Michael Hurlston for any additional or closing remarks.
I'd like to thank all of you for joining us today. We look forward to seeing you at least virtually at our upcoming investor conference during the quarter as well as our Analyst Day on June 9. Thank you.
That does conclude today's conference. We thank you for your participation. You may now disconnect.