Synaptics(SYNA) - 2024 Q1 - Quarterly Report

Part I. Financial Information Condensed Consolidated Financial Statements (Unaudited) Synaptics reported a significant 47.0% revenue decline to $237.7 million, leading to a $55.6 million net loss for the quarter Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | Sep 30, 2023 | June 24, 2023 | | :--- | :--- | :--- | | Total Assets | $2,548.7 | $2,611.4 | | Cash and cash equivalents | $801.3 | $924.7 | | Inventories, net | $131.7 | $137.2 | | Goodwill | $816.4 | $816.4 | | Total Liabilities | $1,344.4 | $1,368.0 | | Long-term debt | $969.6 | $972.0 | | Total Stockholders' Equity | $1,204.3 | $1,243.4 | Quarterly Performance Comparison (in millions, except per share data) | Metric | Q1 FY2024 (ended Sep 30, 2023) | Q1 FY2023 (ended Sep 24, 2022) | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $237.7 | $448.1 | (47.0%) | | Gross Margin | $107.1 | $255.7 | (58.1%) | | Operating (Loss) Income | $(35.2) | $112.0 | (131.4%) | | Net (Loss) Income | $(55.6) | $64.6 | (186.1%) | | Diluted (Loss) Income per Share | $(1.43) | $1.59 | (189.9%) | Cash Flow Summary (in millions) | Cash Flow Activity | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 24, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $45.4 | $78.5 | | Net cash provided by (used in) investing activities | $(150.1) | $2.3 | | Net cash used in financing activities | $(18.1) | $(35.0) | | Net (decrease) in cash and cash equivalents | $(123.4) | $43.8 | - A significant use of cash in investing activities was a $116.5 million advance payment on intangible assets and a $13.5 million purchase of intangible assets from Broadcom[19][34] Net Revenue by New Product Category (in millions) | Product Category | Q1 FY2024 (ended Sep 30, 2023) | Q1 FY2023 (ended Sep 24, 2022) | | :--- | :--- | :--- | | Enterprise and Automotive | $154.8 | $294.5 | | Core IoT | $38.5 | $113.4 | | Mobile | $44.4 | $40.2 | | Total | $237.7 | $448.1 | - Effective in Q1 FY2024, the company changed its revenue product categories to Core IoT, Enterprise and Automotive, and Mobile product applications to align with its strategic focus[98] - During the quarter, the company paid $130.0 million to Broadcom to extend an exclusivity period and license technology. Of this, $13.5 million was recorded as an intangible asset and $116.5 million as a prepayment[24][34][35] - Total debt outstanding as of September 2023 was approximately $975.6 million, comprising $395.8 million in Senior Notes and $579.8 million under the Term Loan Facility[46] - A restructuring plan was initiated in Q1 FY2024 to focus on key growth initiatives and reduce costs, resulting in $8.0 million in charges for the quarter, primarily for severance[104][105] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 47.0% revenue decline to broad demand reduction and inventory consumption, impacting gross margin and cash due to a $130.0 million intangible asset payment Revenue by Product Application (in millions) | Product Application | Three Months Ended Sep 2023 | Three Months Ended Sep 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Enterprise and Automotive | $154.8 | $294.5 | $(139.7) | (47.4%) | | Core IoT | $38.5 | $113.4 | $(74.9) | (66.0%) | | Mobile | $44.4 | $40.2 | $4.2 | 10.4% | | Net revenue | $237.7 | $448.1 | $(210.4) | (47.0%) | - The company is experiencing a broad reduction in demand as customers and channel partners consume their accumulated inventories, with the slowdown expected to potentially extend beyond 2024[124] - The war in Israel presents a risk due to the company's office and employees in the region, with some employees activated for military duty, which could affect project timing[126][201] - Gross margin decreased by 1,200 basis points YoY to 45.1%, primarily due to an increase in the excess obsolescence reserve and a decline in average sales prices, partially offset by revenue from an IP license[130] - Cash and cash equivalents decreased by $123.4 million to $801.3 million, mainly due to a $130.0 million prepayment for intangible assets paid to Broadcom[139] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its Term Loan Facility, with a 100 basis point change impacting quarterly interest expense by approximately $1.5 million - The company is exposed to market risk from adverse changes in interest rates on its outstanding Term Loan Facility[157] - A hypothetical 100 basis point increase or decrease in the interest rate would change the quarterly interest expense by approximately $1.5 million[158] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[160] - No material changes were made to the company's internal control over financial reporting during the quarter[162] Part II. Other Information Legal Proceedings The company is involved in various legal proceedings, but management expects no material adverse effect on its financial condition or operations - The company states that ongoing legal proceedings from the ordinary course of business are not expected to have a material adverse impact[164] Risk Factors The company faces significant risks including customer dependence, supply chain vulnerabilities, geopolitical impacts, substantial indebtedness, and regulatory changes - Market & Customer Risks: The company depends on solutions for Core IoT, Enterprise, Automotive, and Mobile markets and relies on a limited number of large customers. Sales to two customers accounted for 29% of net revenue in Q1 FY2024[166][167] - Supply Chain Risks: The company depends on third-party contract manufacturers and semiconductor fabricators, primarily in Asia, and faces risks of shortages of components and materials[187][191] - Operational & Geopolitical Risks: The company has employees in Israel, and the ongoing war could disrupt operations due to office closures or employee absence for military service. A number of employees have been activated for military duty[200][201] - Financial & Debt Risks: The company's indebtedness could adversely affect its financial condition. The Credit Agreement and Senior Notes contain restrictive covenants that may limit operating and financial flexibility[231][233] - Acquisition Risks: The company assumed environmental liabilities from the 2017 acquisition of Conexant Systems, including remediation costs for a former property, and is at risk for future related claims[229] Unregistered Sales of Equity Securities and Use of Proceeds Synaptics did not repurchase common stock during the quarter, with $893.9 million remaining authorized under its stock repurchase program until July 2025 - The company did not repurchase any shares of its common stock during the quarter ended September 2023[242] - As of September 2023, $893.9 million remained available for repurchase under the company's stock repurchase program[242] Exhibits This section lists key exhibits filed with the Form 10-Q, including corporate documents, credit agreement amendments, and CEO/CFO certifications - Filed exhibits include amendments to the company's credit agreement and equity compensation plan, along with required CEO and CFO certifications[247]