Q4 2008 Synaptics Incorporated Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Synaptics' Fourth Quarter and Fiscal 2008 Conference Call. (Operator Instructions). As a reminder this conference is being recorded today, Thursday, July 31, 2008. I would now like to turn the conference over to Mr. Alex Wellins of the Blueshirt Group. Please go ahead, sir.

ALEX WELLINS, IR, THE BLUESHIRT GROUP: Good afternoon and thanks for joining us on Synaptics' Fourth Quarter and Fiscal 2008 Conference Call today. This call is also being broadcast live over the web and can be accessed from the Investor Relations section of the Company's website at Synaptics.com.

With me on today's call are Francis Lee, Company's Chief Executive Officer, and Russ Knittel, Synaptics' Chief Financial Officer.

We'd like to remind you that during the course of this conference call, Synaptics will make forward-looking statements, including predictions and estimates that involve a number of risks and uncertainties. Actual results may differ materially from any future performance suggested in the Company's forward-looking statements. We refer you to the Company's SEC filings, including Form 10-K for the fiscal year ended June 30, 2007, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. We expressly disclaim any obligation to update this forward-looking information.

With that said, I'll turn the call over to Francis Lee. Francis?

FRANCIS LEE, PRESIDENT AND CEO, SYNAPTICS, INC.: Thanks, Alex, and thanks, everyone, for joining us on the call today. Before I provide an overview of our record annual result, I'd like to make you aware of two important developments also mentioned in our press release this afternoon. Specifically, we are pleased to announce that our Board of Directors have approved a 3-for-2 stock split as well as the authorization of the repurchase of up to additional $80 million in common stock under our stock with purchase plan.

These actions further underscore our confidence in Synaptics' future and demonstrates our ongoing commitment to enhancing long-term shareholder value.

Now a few comments on our operating results. Our strong fourth quarter performance capped off a record year for Synaptics in both revenue and non-GAAP profit. Our results reflect continuous flawless execution by the Synaptics team, and I'm very proud and appreciative of our employees' efforts and grateful to all of those who contribute to our success in fiscal 2008.

Revenues for fiscal 2008 were $361.1 million, an increase of approximately 35% over the prior fiscal year. Non-GAAP net income for fiscal '08 grew almost 37% to $51.4 million or $1.96 per diluted share, compared with $1.31 per diluted share for fiscal '07, a 15% increase.

During fiscal '08, revenue from PC applications grew approximately 21% and represent approximately 76% of total revenue. We maintained our leadership in our notebook market and benefited from ongoing adoption of our multimedia control modules in notebook and increased demand for our PC peripheral application.

Revenue from non-PC applications grew approximately 118% in fiscal '08 and represented 24% of total revenue. This is up from 15% of total revenue in fiscal '07. This robust growth primarily reflects our progress in diversifying our revenue mix based on our growing traction in a mobile phone market

On that note, I'm pleased to report that revenue from mobile phone applications was approximately 13% of total revenue for the year. Much of this success is being driven by strong interest in our ClearTouch solution. We continue to build a momentum for comparative-base innovative solutions within the cell phone market.

I will now turn the call over to Russ for a detailed discussion regarding our fourth quarter results.

RUSS KNITTEL, CFO, SYNAPTICS, INC.: Thanks, Francis. In addition to our GAAP results, I'll also provide supplementary results on a non-GAAP basis, which excludes non-cash share-based compensation costs and other temporary impairment charges related to our investments and auction rate security.

Revenue of $96.9 million for the fourth fiscal quarter was above the high end of our guidance and was up 23% sequentially and 35% over the comparable period last year resulting in our second highest quarterly revenue to date. Revenue mix from PC and non-PC applications was approximately 68% and 32% respectively.

Relative to our expectations going in to the fourth quarter, our turns business was highly skewed towards mobile phone applications resulting in lower-than-expected revenue from PC applications. As a result, our year-over-year growth from PC-based revenue was approximately 3% while our non-PC revenue grew approximately 3.9 times.

As we've discussed in the past, our performance within specific accounts and vertical markets may vary on a quarter-to-quarter basis due to a combination of normal design win fluctuations, the product lifecycles of our customers' products and the way we prioritize our resources to try to optimize the opportunities available. Based on these same dynamics, we anticipate that increased demand for PC applications will be a key driver of revenue growth in the current quarter.

The attach rate of notebooks for multimedia controls in the fourth quarter was approximately 37%. This likely represents a peak as we have been the clear market leader for these applications. But as other entrants compete for this business, customers are looking to add additional sources of supply.

During the fourth quarter, revenue from non-PC applications grew $23.3 million year over year, representing approximately 92% of total revenue growth. This growth was driven by a significant increase of demand in mobile phone applications, which represented approximately 31% of total revenue in the quarter.

Our non-GAAP gross margin, which excludes non-cash share-based compensation charges, was 40.2% compared with 41.3% in the March quarter. This is in line with our expectations and was primarily a function of our overall product mix.

Total headcount at the end of June was 420, an increase of 28 employees compared to the end of the March quarter. During fiscal 2008 we increased our headcount by approximately 35%, which follows a 23% increase in fiscal 2007.

Total operating expenses were approximately $28.2 million in the fourth fiscal quarter, which includes non-cash share-based compensation charges of $4.7 million. This compares with operating expenses of $25.7 million in the preceding quarter, which included non-cash share-based compensation charges of $4.5 million. The increase primarily reflects higher compensation costs related to our recruiting initiatives, product development related costs, IT infrastructure costs and legal fees related to …