Good day, everyone, and welcome to the Synaptics' 4th Quarter Fiscal Year 2019 Conference Call. A reminder that today's call is being recorded. And now it's my pleasure to turn the conference over to Jason Tsai. Jason?
Good afternoon, and thank you for joining us today on Synaptics' Q4 fiscal 2019 conference call. My name is Jason Tsai, and I'm the Head of Investor Relations at Synaptics. With me on today's call are Kermit Nolan, our Interim CFO and Chief Accounting Officer and Saleel Alsarey, Senior Vice President and General Manager of our IoT division, Corporate Marketing and Investor Relations. This call is also being broadcast live over the web and can be accessed from our Investor Relations section of the website at synaptics.com. In addition to a supplemental slide presentation, we have posted a copy of these prepared remarks on our Investor Relations website.
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 condition, results of operation, plans, objectives, future performance and business.
Although Synaptics believes our estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate. Synaptics cautions that actual results may differ materially from any future performance suggested in the company's forward looking statements. We refer you to the company's current and periodic reports filed with the SEC, including the Synaptics Form 10 ks for the fiscal year ended June 30, 2018, were 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. I will now turn the call over to Saleel Alsarey.
Saleel?
Thanks, Jason, and I'd like to welcome everyone to today's call. I'm happy to be speaking to you today on behalf of Board and our Executive Leadership Committee. As I'm sure you saw earlier this week, we announced the appointment of Michael Hurlston as our new President and CEO, and he's expected to start August 19. He'll join Synaptics' Board on the date of his appointment. We are happy to welcome Michael as he brings with him a wealth of experience in semiconductors, especially in markets that we are focused on and has a strong track record in delivering results.
I believe that Michael will be a great cultural fit for the company and look forward to his leadership in driving the transformation and the next wave of growth for the company. Now, we will first provide an update on our business and our corporate transformation, and then Kermit will discuss our financial results and outlook. Fiscal year 2019 was a challenging time for Synaptics due to increased macro and geopolitical uncertainty as well as management transitions that drove short term weaknesses in our business. Despite these challenges, we kicked off our new fiscal year laser focused on transforming into a stronger, more profitable company for the long term. We talked about on our last earnings call, corporate transformation initiatives we kicked off focuses on driving innovation, unlocking the untapped potential within our extensive product portfolio of technologies and expertise, and aligning the business to a better profitability long term.
We have identified the investment areas for higher profitability and growth. These include edge computing SoCs for consumer IoT in the smart home, fingerprint sensors and TDDI for automotive, OLED display and touch for mobile devices, audio SoCs for wired and true wireless headsets, and high speed wired connectivity for PC peripherals and VR. We are now executing on the transformation to deliver a stronger company with more diversified growth, higher margins and stronger profitability. For these focus areas, we are developing differentiated solutions that encompass more software, more firmware and more intelligent. We are doing this in collaboration with our customers by aligning our roadmaps and continuing to be an essential part for their long term product development.
Based on these actions, we are beginning to deliver better margins, highlighted by our 2nd consecutive quarter with gross margin about 39%. In addition, we have a more diversified revenue mix with IoT now accounting for 30% of our revenue and mobile accounting for just 50% in Q1 fiscal 2020, down from over 60% for most of fiscal 2019. Our people are the key to our company's success and our ability to compete long term. In this area, we restructured and reduced headcount, aligning our work with our strategic direction. Further, we kicked off retention program to retain key engineering and management personnel to ensure continuity through this transformation.
These necessary and strategic actions are helping to establish a strong foundation for the future and our planned growth. Now let me share with you some recent business highlights. Synaptics remains focused on innovating in the IoT business. We have a strong pipeline on wings and confident it will grow double digit in fiscal year trend. Leading our innovation is the Edge Computing SoC portfolio that targets consumer IoT in the smart home.
We are building a strong franchise around Smart Edge AI solutions that leverage our voice and video centric software and firmware capabilities, enabling our customers to quickly integrate their IP and accelerate time to market. Additional investments in this area will combine our latest CPU, NPU and GPU for enhanced computer vision capabilities, significantly expanding AI functionality at the edge. We are seeing tremendous interest from OEMs developing a new generation of media streamers and global service providers seeking to monetize on smart home product. As we highlighted last quarter, we started shipping Smart Edge AI Audio Smart SoCs and we are now expecting a major customer to begin selling their products in retail starting next quarter. We are also now engaging with other hardware makers and kicked off several new designs based on these SoCs to embed voice capabilities into their consumer devices like soundbars, TVs, mesh and Wi Fi routers and media streamers.
We expect to see these customer products at retail over the next few quarters. Jumping to audio headset SoCs, we are building on our success with 2 of the world's top 3 smartphone OEMs with a new design win for a highly anticipated flagship phone that is expected to ship in every box at retail starting this quarter. Additional investments in this area leverage our advanced software and firmware capabilities, such as hybrid active noise cancellation, unique playback processing and cutting edge voice pickup technology. These technology innovations enrich the audio experience, expecting to drive greater adoption of our solutions and continued strong growth for us in next generation wired and wireless headsets. The mobile business, we are focusing on higher gross margins, premium segments of the market.
We continue to win OLED touch and display designs across major smartphone OEMs due to our superior performance and features. LCD based smartphones will remain a vital part of the smartphone makers' portfolio for the next few years. Through well established OEMs and display manufacturer relationships, we see ongoing development, LCD based handsets are encouraged by the opportunity to support their transition to OLED. As the industry prepares for the transition to 5 gs, we are also partnering with display and smartphone OEMs to deliver high performance OLED and LCD screens that leverage the higher bandwidth networks with better display and resolution to give consumers a meaningful improvement in performance with faster 5 gs network. Moving to our automotive business, we are energized about the long term opportunity and we are investing in fingerprint sensors and CTDI solution.
With regard to fingerprint, we received approval for start of production from our lead OEM customer and expect to see our 1st automotive fingerprint solution in 2020 model year cars. Our TDDI solutions have been well received by OEMs, Tier 1s and display manufacturers worldwide. We exited fiscal year 2019 with TDDI design wins at 6 major OEMs across Europe, North America, Japan and China. Many of these OEMs are planning to transition all their future display systems to a full in cell platform using TDDI. Additionally, we are in active discussions with several additional OEM Tier 1s that is centered around migration to TDDI for conventional touchscreen.
We expect to have another successful year of design ins with automotive TDDI product in FY 2020, and we are committed to this market long term. Trend is expected to continue as TDDI offers significant cost and optical performance advantages to car manufacturers. As a part of our effort to enable this industry transition, Synaptics is expanding our product portfolio in FY 2020. Within our PC business, Synaptics remains a major market share leader for both touchpads as well as secure fingerprint authentication. Growth in fingerprint for PC is highlighted with new designs at all the major PC makers, including HP, Dell and Lenovo.
We are a trusted leader in secure biometrics and pleased to partner with these industry leaders. As you can see in these highlights, we are making progress in our transformation. We've identified the right investment areas and executing to our strategy. Our margins are improving, our business and customers are becoming more diversified, and we are well underway in our transformation journey to become a stronger, more profitable company. With that, Kermit will now discuss our results and outlook.
Thanks, Salil, and hello, everyone. Synaptics revenue for fiscal 2019 of $1,470,000,000 was down 10% from last fiscal year. For our 4th quarter, revenue of $295,000,000 was down 12% sequentially and 24% year over year, slightly below our guidance range and reflects the impact of our customer Huawei being placed on the entity list and accounting for more than 20,000,000 impact in the quarter. While we can ship solutions to Huawei without limitation, their ability to produce phones for certain markets has been adversely impacted by the restrictions on access to certain U. S.-based technologies as well as their ability to source other components.
Revenue in the June quarter from mobile, IoT and PC products was approximately 54%, 26 and 20%, respectively. We had 2 customers above 10% of revenue at 18% 16%. For the June quarter, our GAAP gross margin was 30.6%, which includes $15,400,000 of intangible asset amortization, dollars 700,000 of share based compensation costs and the accrual of a $9,000,000 charge for a loss on a supplier commitment agreement, which was an arrangement intended to secure a minimum supply commitment from a vendor through the end of calendar 2020. As demand is no longer projected to achieve the minimum commitments required, we have accrued an estimated loss under the supply agreement. GAAP operating expenses in the June quarter were 123 $700,000 which includes share based compensation of $9,600,000 acquisition related costs of $3,200,000 consisting of intangibles amortization and transitory post acquisition compensation program costs, restructuring expenses of $7,300,000 and retention program costs of 2,500,000 dollars As part of our corporate transformation, we initiated a restructuring in June, which we anticipate will result in annualized operating expense savings exiting fiscal 2020 of approximately $40,000,000 from reduced headcount, outside support and project costs.
Also as part of our overall plan and to ensure operational continuity and support as we transition the company through senior level management and product focus changes, we entered into retention arrangements certain key engineering and management employees. The cost of the retention arrangement is expected to be approximately 23,000,000 dollars and will be accrued over the 18 month period ending November 2020. Our GAAP tax rate was negative 1% for fiscal 2019. In the June quarter, we had a GAAP net loss of $46,200,000 or a loss of $1.35 per diluted share. And for fiscal 2019, GAAP net loss was $22,900,000 or a loss of $0.66 per diluted share.
On a non GAAP basis, our June quarter non GAAP gross margin of 39.1% was above the high end of our guidance range and primarily reflects a better product mix. June quarter non GAAP operating expenses were below the low end of our guidance range at $101,100,000 and up $1,900,000 from the preceding quarter. Fiscal 2019, our non GAAP tax rate was 12%. Non GAAP net income for the June quarter was $13,200,000 or $0.38 per diluted share, a 63% decline year over year compared with $35,700,000 or $1 per diluted share Q4 of fiscal 2018. Non GAAP net income for fiscal 2019 was $141,200,000
or 4
flat compared to $141,400,000 last fiscal year. Turning to our balance sheet. We ended the quarter with approximately $328,000,000 of cash, an increase of $4,000,000 from last quarter. The increase in cash for the quarter was primarily driven by cash flow from operations of $43,000,000 which was partially offset by $41,000,000 of cash used in our share repurchase program for the purchase of 1,440,000 shares. Year over year cash increased by $27,000,000 which was primarily driven by cash flow from operations of $154,000,000 partially offset by $119,000,000 used in our share repurchase program for the purchase of 3,290,000 shares over 9% of our beginning shares outstanding, reflecting our ongoing commitment to generating shareholder value.
As mentioned in the earnings release, we repurchased an additional 556,000 shares in July, increased the repurchase authorization by 100,000,000 and extended the expiration date to July 2021. Receivables at the end of June were 230,000,000 dollars and DSOs were 70 days reflecting a back end loaded quarter. Inventories were $159,000,000 and inventory turns were $5,000,000 Capital expenditures for the year were $24,000,000 and depreciation was 36,000,000 dollars Now I will make a few comments regarding our quarterly outlook. Based on our backlog of approximately $277,000,000 entering the September subsequent bookings, customer forecasts, product sell in and sell through timing patterns, as well as expected product mix, we anticipate revenue for the September quarter to be in the range of $300,000,000 to $330,000,000 We expect the revenue mix from mobile IoT and PC products to be 50%, 30% 20%, respectively. This guidance reflects a double digit sequential increase in our IoT business, a small sequential increase in our PC business and our mobile business remaining flat due to ongoing uncertainty with Huawei.
Excluding this effect, our mobile business would be showing strong sequential growth. We'll now provide GAAP outlook data for our September quarter and we'll follow with non GAAP outlook data. We anticipate the stock based compensation charge in the Q1 to be in the range of $15,000,000 to $16,000,000 In addition, September quarter GAAP expenses will include non cash charges of approximately $18,000,000 related to intangibles amortization, of which approximately $15,000,000 will be reflected in cost of sales. We also expect to recruit restructuring costs of $6,000,000 to $7,000,000 and retention costs of $4,000,000 in the Q1. Finally, we expect our GAAP tax rate for fiscal 2020 to be in the range of 10% to 15% for the fiscal year.
I will now provide non GAAP outlook data for our September quarter. Taking into account our overall revenue mix, we expect non GAAP gross margin in the September quarter to be between 39% 41%, anticipated to be our 3rd consecutive quarter with gross margin above 39%. We expect non GAAP operating expenses in the September quarter to be in the range of $96,000,000 to $99,000,000 We anticipate our non GAAP long term tax rate for fiscal 2020 to be in the range of 11% to 13%. Non GAAP net income per diluted share for the September quarter is anticipated to be in the range of $0.60 to $0.90 per share. Now I'd like to discuss our outlook for fiscal 2020.
As a result of our shifting of investments, driven by our new strategic direction and business model, we anticipate non GAAP gross margins to improve to 39% to 41% for fiscal 2020, with the midpoint representing a key short term milestone in our corporate transformation. We anticipate that revenue from IoT will increase by a low teens percentage, PC will be essentially flat and mobile will be down significantly due to increasing macroeconomic uncertainties related to the current U. S.-China trade tension and our high end LCD mobile customers' long term product shift to OLED. For fiscal 2020, revenue will decline approximately 10% to 20% year over year. We look forward to updating you as the year progresses.
With that, I will now turn the call over to Saleel to wrap up our prepared remarks. Saleel?
Thanks, Kermit. In summary, we are excited by the opportunities that lie ahead for us as we start our new fiscal year. Our investments in differentiated higher margin products have already begun to pay dividends and we expect that our focus on priorities and investments aligned to our corporate strategy will further improve our performance longer term. With that, I'll now turn the call over to the operator to start the
Q and A session.
Thank you. And to the audience yes, thank you. And we'll go first to Rajeev Gill at Needham.
Yes. Thanks for taking my questions.
A question on the fiscal year 2020 outlook. You had mentioned that mobile is going to be down significantly due to China issues and then a shift at your top customer from LCD to OLED. Wanted to get a sense in terms of if you could elaborate further on the macro China front. How are you being affected by that? I mean, are you seeing just overall lower Chinese handset units?
If we take if we separate Huawei, what about the other kind of the overall handset market in China? And I guess the shift to OLED, which is at your top customer, what is your position at OLED competitively going forward?
Good question. As for Huawei, we obviously do anticipate that will be down. And with respect to our other China customers, depending on the products, we also anticipate that would be down somewhat too. So overall, we're anticipating that our TDDI and DDIC products will be down. Obviously, the DDIC tied more to that one particular key customer.
In terms of OLED. Yes.
Hey, Rajiv, this is Salil. How are you? Let me answer your OLED question at our just generically. So the non Korean OLED market this year is about 60,000,000 to 80,000,000 units doubling from last year. And the industry analysts are expecting non core OLED to increase even faster next year.
And as I've said in the past, as we've said in the past, we are well positioned to grow as the Chinese vendors like BOE and Tianma come online. And we are working very closely with them as we go forward. And we continue to lead the market for high end OLED display drivers, and we don't expect that to change. And as for our biggest customer, we usually do not comment on that.
Okay. I understand. If I just do the math on the overall revenue outlook of down 10% to 20%, it's going to imply that the mobile business is going to be down well over 30%. So can you give us a sense of what percentage of sales is Huawei?
It's probably about
10%. And it's good to see that the margins are kind of stabilizing and kind of recovering. Can you talk a little bit about well, actually, let me just shift to the OpEx. So I think you had mentioned that exiting fiscal year 2020 that there will be a reduction of $40,000,000 Could you elaborate on that? What's kind of the $40,000,000 off fiscal year 2019?
And what will be the overall OpEx profile on a go forward basis exiting fiscal year 2020?
Sure, sure. The forecast, obviously, we had a focused effort to reduce costs, largely driven by our corporate transformation initiatives. So those costs were primarily headcount costs, outside support and project costs. And a lot of this is transitioning throughout the fiscal year. But by the end of the fiscal year, we anticipate that the annualized savings would be approximately $40,000,000 And we at the same time, we also saw some of those benefits in our Q4, but very little.
And we'll go next to Christopher Rolland at Susquehanna.
Hey guys, it's David Haberle on behalf of Chris Rolland. Thanks for taking our question. I guess to start out, I guess congratulations on your guidance next quarter at the 40% midpoint for gross margins. It's really come a long way over the past couple of years. As we think about next year in your guide of kind of 39% to 41% for the year and given the transformation the business is ongoing and going under right now, It seems a bit like it could grow throughout the year.
Do you think that's a conservative target or is this just the revenue being down hurting gross margins?
So it really probably is the revenue being down that's going to affect gross margin combined with the product mix within each of the product lines. That's my view anyway of why the margins would be in that 39% to 41% range.
Got it. And then housekeeping on the gross margins as well. The impact from the loss on supply commitments, can you share any detail as to what product that was related to? And then do you expect this to continue going forward? Or was this an accrual for the total loss that was all taken in the June quarter?
This was an accrual for the total loss all taken in the June quarter. It had to do with mobile products.
Got it. And then for my final one, as I look at your back log in the September guidance, it was a pretty high percentage higher than normal of your total revenue that you're guiding to. Is there anything unusual you're seeing in order patterns or customer behavior that is leading to kind of a cautious approach there?
It's really there's a lot of uncertainty as it relates to Huawei from our perspective, especially given the impact we saw last quarter in Q4. You could argue that it's conservative, but I think it's also reasonable in light of the current macroeconomic conditions, China U. S. Trade war, the fact that Huawei seems to be effectively a bargaining chip within that trade war.
Great. Thank you.
And we'll move next to Charlie Anderson at Dougherty and Company.
Yes, thanks for taking my questions. Good afternoon. There were a fair amount of comments on the script about automotive. I think you guys mentioned both TDDI and fingerprint sensors. I wonder in some of the design wins that you're getting, if you could speak to how much dollar content per car that could be, if you have any thoughts on the adoption of fingerprint sensors over time within automotive.
I imagine it's pretty much nil today. And then I've got a follow-up. Thanks.
Hey, Charlie. Salil here. How are you? So on the automotive side, specifically, Charlie, depending on the number of screens, the dollar content is double digit dollars. So it's quite substantial.
We have said earlier that the first cars with fingerprint 2020 will be in the market 2020. So we're seeing that and we're seeing tremendous amount of interest and really adoption of this going on. So we feel really good about it. So being in production is going to be wonderful and then we are the ones that are the go to company to make that happen. And the TDDI, as I told you, is getting more and more designed in and more and more cars have multiple screens and we are working very closely with most of the automotive guys to enable their solutions.
Great. Thank you for that, Salil. And then there was also you guys went through the investment areas and I think one that was sort of new to me was the high speed wired connectivity for PCs peripherals and VR. So I wonder if you could expand on that at all. Thanks.
So, Charlie, that's a part of our IoT portfolio and it's as I said in the last call, it's Synaptics has had tremendous technologies in house, right? And this is one of the nuggets that as a part of my last few months of looking at the IoT portfolio, this we've had this business. Every dock that you buy right now needs a high speed connectivity device and we've had this interface technology in house. And what's happening in the future is most of these PCs, laptops, even the tablets only have the USB connector left. So you have to buy one of these solutions either as a dongle or integrating a dock.
So we are extremely well positioned. And the reason this is a very exciting space is because it's got lots of analog content like high speed SerDes involved and therefore it's hard for people to jump in. So that's where we are at today. Where we are taking into the future, VR requires high speed wired connectivity. And we already spoke, I think, in the last call, but I'm seeing tremendous traction with our DDIC plus our high speed wire connectivity.
And I'm telling you, we're getting double digit dollars as a bomb with like 3 and 4 chips designed into some of these VR headsets. It's early days in the VR market, but as we position ourselves for longer term growth, is the kind of space we want to be in.
Perfect. Okay. Thanks so much.
Yes.
And we have no additional questions at this time. So that will conclude today's conference. Once again, I would like to thank everyone for joining us. You may now disconnect. Please have a good evening.