Synaptics Incorporated Fiscal 2021 Form 10-K Summary
Reporting period: Fiscal year ended June 26, 2021, compared primarily with fiscal year ended June 27, 2020. The request metadata identifies “2020 Q4,” but the supplied filing is Synaptics’ fiscal 2021 annual report filed August 20, 2021.
Business Context
Synaptics develops fabless semiconductor solutions for Internet of Things (IoT), personal computing (PC), and mobile applications. Products include wireless connectivity, audio and video SoCs, edge-AI solutions, touchpads, touch controllers, display drivers, video interfaces, and fingerprint sensors. International sales represented more than 98% of revenue, with substantial exposure to customers and manufacturing partners in Asia.
Fiscal 2021 included the DisplayLink acquisition, acquired for adjusted consideration of approximately $444.0 million, and the Broadcom wireless connectivity business acquisition for approximately $250.0 million in cash. The acquired businesses contributed approximately $110.0 million and $100.4 million of revenue, respectively, during the periods included in fiscal 2021.
Key Financial Metrics
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Net revenue | $1,339.6 million | $1,333.9 million | Up 0.4% |
| Gross margin | $611.2 million; 45.6% | $543.1 million; 40.7% | Up 490 basis points |
| Operating income | $147.0 million; 11.0% | $68.9 million; 5.2% | Up 113.4% |
| Income before taxes | $120.1 million | $159.4 million | Down 24.7% |
| Net income | $79.6 million | $118.8 million | Down 33.0% |
| Diluted earnings per share | $2.08 | $3.41 | Down |
| Cash flow from operations | $319.2 million | $221.8 million | Up $97.4 million |
| Capital expenditures | $21.1 million | $16.3 million | Up $4.8 million |
| Cash and cash equivalents | $836.3 million | $763.4 million | Up $72.9 million |
Revenue Mix and Material Changes
| Market | Fiscal 2021 Revenue | Fiscal 2020 Revenue | Year-over-year change |
|---|---|---|---|
| IoT | $580.9 million; 43.3% | $317.6 million; 23.8% | Up 82.9% |
| PC | $354.7 million; 26.5% | $317.4 million; 23.8% | Up 11.8% |
| Mobile | $404.0 million; 30.2% | $698.9 million; 52.4% | Down 42.2% |
- IoT growth reflected a 26% increase in units sold and a 45.2% increase in average selling prices, including contributions from the Broadcom wireless connectivity business and DisplayLink.
- PC revenue increased due to a 9.3% increase in units sold and a 2.3% increase in average selling prices.
- Mobile revenue declined primarily because the LCD mobile TDDI product line was divested in the fourth quarter of fiscal 2020.
- Gross margin improved because of favorable product mix and product cost reductions, partly offset by $37.6 million of additional acquired-intangible amortization and $26.0 million of DisplayLink inventory fair-value adjustments.
- Operating income benefited from higher gross margin, lower restructuring costs, and a $34.2 million gain on the sale of audio technology assets. Net income nevertheless declined because fiscal 2020 included a $105.1 million gain on the sale of the LCD mobile TDDI product line, while fiscal 2021 had higher interest expense and equity investment losses.
Cash Flow, Liquidity, Debt, and Capital Allocation
- Operating cash flow was $319.2 million, compared with $221.8 million in fiscal 2020. Working-capital benefits included a $53.1 million inventory reduction and a $32.2 million increase in accounts payable, partly offset by a $25.9 million increase in accounts receivable.
- Investing cash flow was negative $522.6 million, primarily reflecting $626.5 million for acquisitions, $21.1 million of capital expenditures, and a $5.0 million investment in Eta Compute, partly offset by $95.8 million of investment-sale proceeds and $34.2 million from the audio-asset sale.
- Financing cash flow was positive $274.1 million, including $400.0 million of new debt proceeds, partly offset by repayment of $100.0 million of revolving-credit borrowings, $19.4 million of convertible-note redemptions, and $28.2 million of payroll-tax payments on equity awards.
- The company issued $400.0 million of 4.0% senior notes due June 2029. Net debt presented on the balance sheet included $394.4 million of long-term debt and $487.1 million of current convertible notes, net of discounts and issuance costs.
- The $250.0 million revolving credit facility had no outstanding balance at June 26, 2021. The company was in compliance with its debt covenants, including a maximum leverage ratio of 3.75 to 1.00 and minimum interest coverage ratio of 3.50 to 1.00.
- The $525.0 million convertible notes were called for redemption on August 4, 2021. Subsequent to fiscal year-end, Synaptics paid $505.6 million in cash and issued approximately 3.5 million treasury shares for the settlement, resulting in an approximately $8.1 million loss.
- No cash dividends have been declared or paid. At fiscal year-end, $177.4 million remained available under the share-repurchase authorization; the authorization was increased to $577.4 million in August 2021.
- Management stated that cash, expected operating cash flow, and available revolving-credit capacity should be sufficient for working capital, debt service, and other requirements for at least the next 12 months.
Guidance, Outlook, Risks, and Unusual Items
- No specific fiscal 2022 revenue or earnings guidance is provided in the supplied filing.
- Management was cautiously optimistic that the most significant COVID-19 impact had passed, while warning that vaccine-resistant variants could renew business disruption. The company reported no significant COVID-19-related material impact through fiscal year-end.
- Global semiconductor supply constraints and capacity shortages materially limited the company’s ability to satisfy customer demand and constrained potential revenue growth. Long-term capacity and pricing agreements may create inventory write-down risk if end-market demand declines.
- Major customer concentration is significant: three direct customers represented approximately 22%, 17%, and 11% of fiscal 2021 revenue. Customer purchase orders generally may be delayed, reduced, or canceled subject to contractual limitations.
- Other principal risks include intense competition and pricing pressure, rapid technological change, dependence on Asian suppliers and contract manufacturers, international trade restrictions and tariffs, foreign-currency exposure, intellectual-property litigation, cybersecurity and privacy obligations, tax uncertainties, acquisition integration, and environmental liabilities associated with the former Conexant site.
- Fiscal 2021 included $7.4 million of restructuring costs, $110.1 million of acquired-intangible amortization, a $9.1 million equity investment loss including a $7.7 million impairment charge related to OXi, and the $34.2 million audio-technology gain.
- As of fiscal year-end, contractual obligations totaled approximately $1.215 billion, including $1.033 billion of long-term debt obligations, $37.7 million of lease payments, $136.1 million of purchase obligations and other commitments, and $8.1 million of transition-tax payments. A subsequent supply commitment was estimated at approximately $111.0 million over three years.
- KPMG reported unqualified opinions on the consolidated financial statements and internal control over financial reporting. The critical audit matters were inventory valuation and losses on inventory purchase obligations, and valuation of acquired intangible assets.
Facts Investors Should Verify
- Reconcile the fiscal 2021 revenue growth and earnings decline, particularly the effect of the prior-year $105.1 million divestiture gain and fiscal 2021 acquisition-related amortization and inventory adjustments.
- Assess whether IoT and PC growth can offset the structural reduction in mobile revenue following the TDDI divestiture.
- Review the post-year-end settlement of the convertible notes, including the $505.6 million cash payment, approximately 3.5 million shares issued, and resulting effect on leverage and diluted share count.
- Evaluate supply-chain capacity, inventory purchase commitments, supplier concentration, and the potential for future inventory write-downs.
- Monitor customer concentration, especially the three customers representing approximately 50% of fiscal 2021 revenue in aggregate.
- Assess acquisition integration, the carrying values of $570.0 million of goodwill and $301.5 million of acquired intangibles, and future amortization of approximately $99.0 million in fiscal 2022.
- Confirm compliance with debt covenants and the company’s liquidity after debt repayment, acquisition spending, repurchases, and other capital allocation decisions.