Synaptics Incorporated — Fiscal 2022 First-Quarter 10-Q Summary
Business context and reporting period
Synaptics develops and sells custom semiconductor solutions for Internet of Things (IoT), personal computing (PC), and Mobile applications. The filing covers the 13 weeks ended September 25, 2021, compared with the 13 weeks ended September 26, 2020. The company operates as one reportable segment and primarily outsources manufacturing.
Financial performance and liquidity
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $372.7 million | $328.4 million | 13.5% increase |
| Gross profit | $198.1 million | $134.5 million | 47.3% increase |
| Gross margin | 53.2% | 41.0% | 1,220 basis-point increase |
| Operating income | $60.6 million | $6.0 million | $54.6 million increase |
| Operating margin | 16.3% | 1.8% | 14.5 percentage-point increase |
| Net income (loss) | $40.2 million | $(2.8) million | Improved by $43.0 million |
| Diluted EPS | $0.99 | $(0.08) | Improved |
| Operating cash flow | $58.3 million | $6.5 million | Increase of $51.8 million |
Revenue mix was $205.7 million from IoT applications, $88.6 million from PC applications, and $78.4 million from Mobile applications. IoT represented 55.2% of revenue, PC 23.8%, and Mobile 21.0%.
Cash and cash equivalents were $347.3 million at September 25, 2021, down from $836.3 million at June 26, 2021. The decline primarily reflected the $505.6 million cash redemption of convertible notes, $27.7 million of payroll taxes on equity-award deliveries, and a $16.6 million refundable vendor deposit. Accounts receivable was $269.7 million and inventory was $88.7 million.
Total debt consisted primarily of $394.5 million of net 4.0% senior notes due 2029. The $250 million revolving credit facility had no outstanding balance. The company reported compliance with its debt covenants. Gross liquidity included cash of $347.3 million and unused revolving capacity, subject to covenant and other conditions.
Material changes versus the prior comparable period
- Revenue increased 13.5%, driven by IoT and PC growth, partially offset by a substantial decline in Mobile revenue.
- IoT revenue increased 70.4% to $205.7 million, benefiting from higher unit volumes and average selling prices and from the inclusion of a larger period of the DisplayLink and Broadcom acquisitions.
- PC revenue increased 10.1% to $88.6 million, primarily due to product mix and higher average selling prices.
- Mobile revenue declined 38.4% to $78.4 million, reflecting a 34.2% decline in units and a 6.3% decrease in average selling prices.
- Gross margin benefited from favorable product mix, higher average selling prices, product cost reductions, and a $9.8 million reduction in inventory fair-value adjustments related to the DisplayLink acquisition.
- Operating expenses increased to $137.5 million from $128.5 million. Research and development and selling, general, and administrative expenses increased primarily because of higher share-based compensation and personnel costs.
- The company incurred a $8.1 million loss on redemption of its convertible notes. The $525 million principal amount was redeemed on August 4, 2021, with $505.6 million paid in cash and approximately 3.5 million treasury shares delivered for additional settlement amounts.
- First-quarter fiscal 2022 restructuring costs were $1.4 million, compared with $5.6 million in the prior-year period.
Outlook, commentary, risks, and unusual items
Management stated that existing cash, expected operating cash flows, available credit, and other financing sources should be sufficient for working capital, acquisitions, and debt service for at least the next 12 months. The filing does not provide specific quarterly or annual revenue or earnings guidance.
On August 30, 2021, Synaptics agreed to acquire DSP Group for $22.00 per share. The transaction was expected to close in the second quarter of fiscal 2022, subject to stockholder approval and other closing conditions. The company obtained a commitment for $600.0 million of incremental debt financing and intended to use a combination of cash and debt.
Management reported no significant COVID-19-related disruption to date but noted that renewed outbreaks, vaccine-resistant variants, and changing restrictions could adversely affect operations. Other key risks include semiconductor supply-chain disruptions and component shortages, dependence on third-party manufacturers and limited suppliers, customer concentration, cyclicality in Mobile and PC markets, product acceptance, intellectual-property claims, and execution of acquisitions.
The company had $210.3 million of purchase obligations and other commitments, including inventory purchase obligations, and $41.2 million of future minimum operating lease payments. Gross unrecognized tax benefits were $23.4 million, with possible changes over the next 12 months ranging from a $1.1 million decrease to a $2.5 million increase. The filing states that there were no material changes to previously disclosed risk factors or internal control effectiveness.
Important facts for investors to verify
- Whether the DSP Group acquisition closed on the expected timetable and the amount and terms of debt ultimately incurred.
- Whether IoT growth and the expanded product portfolio offset continuing weakness or volatility in Mobile revenue.
- The sustainability of the 53.2% gross margin after acquisition-related inventory adjustments and product-mix benefits normalize.
- Cash generation after the convertible-note redemption and the funding requirements for acquisitions, inventory commitments, and share-based compensation tax payments.
- Compliance with the senior notes and revolving-credit covenants, particularly after any DSP Group-related borrowing.
- Exposure to semiconductor supply constraints, capacity commitments, customer concentration, and potential intellectual-property litigation.
- The financial impact and completion status of the fiscal 2022 restructuring program.