Market Overview

Semtech Announces Second Quarter of Fiscal Year 2019 Results

Share:

Semtech Corporation (NASDAQ:SMTC), a leading supplier of high
performance analog, mixed-signal semiconductors and advanced algorithms,
today reported unaudited financial results for its second quarter of
fiscal year 2019, which ended July 29, 2018. Net sales computed in
accordance with U.S. generally accepted accounting principles ("GAAP"),
increased 25% sequentially and 7% over the prior year's period to $163.2
million.

Highlights for the Second Fiscal Quarter 2019

  • Record quarterly net sales of LoRa-related products
  • Record quarterly channel point-of-sale (POS) results
  • Record Design wins of approximately $184 million
  • Repurchased 495,609 shares for approximately $24 million
  • Cash flow from operations increased 41% Q/Q to $49.3 million or 30% of
    net sales

Results on a GAAP basis for the Second Fiscal Quarter 2019

  • Net sales were $163.2 million
  • Gross margin was 61.3%
  • SG&A expense was $33.5 million
  • R&D expense was $28.1 million
  • Net income was $25.2 million or $0.37 per diluted share

To facilitate a complete understanding of comparable financial
performance between periods, the Company also presents performance
results that exclude certain non-cash items and items that are not
considered reflective of the Company's core results over time. The
Company's non-GAAP financial measures exclude certain items and are
described below under "Non-GAAP Financial Measures."

Results on a Non-GAAP Basis for the Second Fiscal Quarter 2019 (see
the list of non-GAAP items and the reconciliation of these to the most
relevant GAAP items set forth in the tables below):

  • Non-GAAP gross margin was 61.5%
  • Non-GAAP SG&A expense was $28.2 million
  • Non-GAAP R&D expense was $25.1 million
  • Non-GAAP operating margin was 28.9%
  • Non-GAAP net income was $37.6 million or $0.55 per diluted share

Mohan Maheswaran, Semtech's President and Chief Executive Officer,
stated: "We are pleased to deliver another quarter that exceeded our
expectations as we saw healthy growth from the IoT, Mobile and Data
center markets. Our Growth Engines, led by LoRa's global adoption,
continue to position the Company well for future growth. Bookings and
design wins remained strong and we entered our third fiscal quarter with
record starting backlog."

GAAP Third Fiscal Quarter 2019 Outlook

  • Net sales are expected to be in the range of $168.0 million to $178.0
    million
  • Gross margin is expected to be in the range of 61.0% to 62.0%
  • SG&A expense is expected to be in the range of $38.2 million to $39.2
    million
  • R&D expense is expected to be in the range of $28.0 million to $29.0
    million
  • Intangible amortization expense is expected to be approximately $6.5
    million
  • Interest and other expense is expected to be approximately $2.0 million
  • Effective tax rate is expected to be in the range of 19% to 21%
  • Earnings per diluted share are expected to be in the range of $0.33 to
    $0.39
  • Fully-diluted share count is expected to be approximately 68.5 million
    shares
  • Share-based compensation is expected to be approximately $12.1
    million, categorized as follows: $0.4 million cost of sales, $2.5
    million R&D and $9.2 million SG&A
  • Capital expenditures are expected to be approximately $9.0 million
  • Depreciation expense is expected to be approximately $5.9 million

Non-GAAP Third Fiscal Quarter 2019 Outlook (see the list of
non-GAAP items and the reconciliation of these to the most comparable
GAAP measures set forth in the tables below)

  • Non-GAAP gross margin is expected to be in the range of 61.2% to 62.2%
  • Non-GAAP SG&A expense is expected to be in the range of $28.0 million
    to $29.0 million
  • Non-GAAP R&D expense is expected to be in the range of $25.0 million
    to $26.0 million
  • Non-GAAP interest and other expense is expected to be approximately
    $2.0 million
  • Non-GAAP effective tax rate is expected to be in the range of 16% to
    20%
  • Non-GAAP earnings per diluted share are expected to be in the range of
    $0.58 to $0.64

Webcast and Conference Call

Semtech will be hosting a conference call today to discuss its second
quarter fiscal year 2019 results at 2:00 p.m. Pacific time. An audio
webcast will be available on Semtech's website at www.semtech.com
under the "Investor Relations" section. A replay of the call will be
available through September 28, 2018 at the same website or by calling
(855) 859-2056 and entering conference ID 2395787.

Non-GAAP Financial Measures

To supplement the Company's consolidated financial statements prepared
in accordance with GAAP, this release includes a non-GAAP presentation
of select non-GAAP metrics. The Company's measure of free cash
flow is calculated as cash flow from operations less net capital
expenditures. The Company's non-GAAP measures of gross margin, SG&A
expenses, R&D expenses, operating margin, net income and earnings per
diluted share exclude the following items, if any:

  • Share-based compensation
  • Amortization of purchased intangibles and impairments
  • Restructuring, transaction and other acquisition or
    disposition-related expenses and gains on dispositions
  • Litigation expenses or dispute settlement charges or gains
  • Environmental reserves
  • Equity in net gains or losses of equity method investments

To provide additional insight into the Company's third fiscal quarter
outlook, this release also includes a presentation of forward-looking
non-GAAP measures. These non-GAAP financial measures are adjusted to
exclude the items identified above because such items are either
operating expenses which would not otherwise have been incurred by the
Company in the normal course of the Company's business operations or are
not reflective of the Company's core results over time. These excluded
items may include recurring as well as non-recurring items, and no
inference should be made that all of these adjustments, charges, costs
or expenses are unusual, infrequent or non-recurring. For example:
certain restructuring and integration-related expenses (which consist of
employee termination costs, facility closure or lease termination costs,
and contract termination costs) may be considered recurring given the
Company's ongoing efforts to be more cost effective and efficient;
certain acquisition and disposition-related adjustments or expenses may
be deemed recurring given the Company's regular evaluation of potential
transactions and investments; and certain litigation expenses or dispute
settlement charges or gains (which may include estimated losses for
which we may have established a reserve, as well as any actual
settlements, judgments, or other resolutions against, or in favor of,
the Company related to litigation, arbitration, disputes or similar
matters, and insurance recoveries received by the Company related to
such matters) may be viewed as recurring given that the Company may from
time to time be involved in, and may resolve, litigation, arbitration,
disputes, and similar matters.

Notwithstanding that certain adjustments, charges, costs or expenses may
be considered recurring, in order to provide meaningful comparisons, the
Company believes that it is appropriate to exclude such items because
they are not reflective of the Company's core results and tend to vary
based on timing, frequency and magnitude.

As noted in its first quarter fiscal year 2019 earnings release, the
Company will no longer adjust prior-period non-GAAP performance metrics
of net sales and gross margin to exclude the cost of the Comcast Warrant
as the Comcast Warrant was fully vested in the first quarter of fiscal
year 2019. Accordingly, the Company's non-GAAP performance previously
reported for the first quarter of fiscal year 2019 and the second
quarter of fiscal year 2018 will not be comparable to the previous
periods presented in the tables below. The Company in previous periods
had excluded the recognized cost of the Comcast Warrant from non-GAAP
net sales and non-GAAP gross margins because the cost related to a
non-routine, non-cash equity award that was provided to Comcast as an
incentive to deploy a network based on technology developed by the
Company and because the Comcast Warrant would not have had an ongoing
impact on revenues in future periods.

These non-GAAP financial measures are provided to enhance the user's
overall understanding of the Company's comparable financial performance
between periods. In addition, the Company's management generally
excludes the items noted above when managing and evaluating the
performance of the business. The financial statements provided with this
release include reconciliations of these non-GAAP measures to their most
comparable GAAP measures for the second quarter of fiscal year 2018 and
the first and second quarters of fiscal year 2019, along with a
reconciliation of forward-looking non-GAAP measures (other than the
non-GAAP effective tax rate) to their most comparable GAAP measures for
the third quarter of fiscal year 2019. The Company is unable to include
a reconciliation of the forward-looking non-GAAP measure of
the non-GAAP effective tax rate to the corresponding GAAP measure as
this is not available without unreasonable efforts due to the high
variability and low visibility with respect to the charges that are
excluded from this non-GAAP measure. We expect the variability of the
above charges to have a potentially significant impact on our GAAP
financial results. These additional non-GAAP financial measures should
not be considered substitutes for any measures derived in accordance
with GAAP and may be inconsistent with similar measures presented by
other companies.

Forward-Looking and Cautionary Statements

This release contains "forward-looking statements" within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995, as amended, based on the Company's current expectations,
estimates and projections about its operations, industry, financial
condition, performance, results of operations, and liquidity.
Forward-looking statements are statements other than historical
information or statements of current condition and relate to matters
such as future financial performance including the Company's outlook for
the third quarter of fiscal year 2019, future operational performance,
the anticipated impact of specific items on future earnings, and the
Company's plans, objectives and expectations. Statements containing
words such as "may," "believes," "anticipates," "expects," "intends,"
"plans," "projects," "estimates," "should," "will," "designed to,"
"projections," or "business outlook," or other similar expressions
constitute forward-looking statements.

Forward-looking statements involve known and unknown risks and
uncertainties that could cause actual results and events to differ
materially from those projected. Potential factors that could cause
actual results to differ materially from those in the forward-looking
statements include, but are not limited to: the Company's ability to
forecast its effective tax rates due to changing income in higher or
lower tax jurisdictions and other factors that contribute to the
volatility of the Company's effective tax rates and impact anticipated
tax benefits; the Company's ability to manage expenses to achieve
anticipated shifts in demand among target customers, and other
comparable changes or protracted weakness in projected or anticipated
markets; competitive changes in the marketplace including, but not
limited to, the pace of growth or adoption rates of applicable products
or technologies; export restrictions and the impact of trade
restrictions and tariffs; shifts in focus among target customers, and
other comparable changes in projected or anticipated end-user markets;
the Company's ability to integrate its acquisitions and realize expected
synergies and benefits from its acquisitions and dispositions; the
continuation and/or pace of key trends considered to be main
contributors to the Company's growth, such as demand for increased
network bandwidth and connectivity, demand for increasing energy
efficiency in the Company's products or end-use applications of the
products, and demand for increasing miniaturization of electronic
components; adequate supply of components and materials from the
Company's suppliers, to include disruptions due to natural causes or
disasters, weather, or other extraordinary events; the Company's ability
to forecast and achieve anticipated net sales and earnings estimates in
light of periodic economic uncertainty, to include impacts arising from
European, Asian and global economic dynamics; and the amount and timing
of expenditures for capital equipment. Additionally, forward-looking
statements should be considered in conjunction with the cautionary
statements contained in the risk factors disclosed in the Company's
Annual Report on Form 10-K for the fiscal year ended January 28, 2018,
subsequent Quarterly Reports on Form 10-Q, and other filings with the
Securities and Exchange Commission, and in material incorporated
therein, including, without limitation, information under the captions
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Risk Factors". In light of the significant risks and
uncertainties inherent in the forward-looking information included
herein that may cause actual performance and results to differ
materially from those predicted, any such forward-looking information
should not be regarded as representations or guarantees by the Company
of future performance or results, or that its objectives or plans will
be achieved or that any of its operating expectations or financial
forecasts will be realized. Reported results should not be considered an
indication of future performance. Investors are cautioned not to place
undue reliance on any forward-looking information contained herein,
which reflect management's analysis only as of the date hereof. Except
as required by law, the Company assumes no obligation to publicly
release the results of any update or revision to any forward-looking
statements that may be made to reflect new information, events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated or future events, or otherwise.

About Semtech

Semtech Corporation is a leading supplier of high performance analog,
mixed-signal semiconductors and advanced algorithms for high-end
consumer, enterprise computing, communications and industrial equipment.
Products are designed to benefit the engineering community as well as
the global community. The Company is dedicated to reducing the impact
it, and its products, have on the environment. Internal green programs
seek to reduce waste through material and manufacturing control, use of
green technology and designing for resource reduction. Publicly traded
since 1967, Semtech is listed on the Nasdaq Global Select Market under
the symbol SMTC. For more information, visit http://www.semtech.com.

Semtech, the Semtech logo and LoRa are registered trademarks of Semtech
Corporation or its subsidiaries.

SMTC-F

SEMTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands - except per share amount)
         
Three Months Ended Six Months Ended
July 29, April 29, July 30, July 29, July 30,
  2018     2018     2017     2018     2017  
Q219 Q119 Q218 Q219 Q218
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Net sales $ 163,211 $ 130,429 $ 153,127 $ 293,640 $ 296,929
Cost of sales   63,087     58,960     60,891     122,047     119,778  
Gross profit 100,124 71,469 92,236 171,593 177,151
Operating costs and expenses:
Selling, general and administrative 33,529 41,406 39,237 74,935 73,252
Product development and engineering 28,079 26,199 27,432 54,278 53,415
Intangible amortization 6,480 6,961 6,675 13,441 12,961
Loss on disposition of business operations - - - - 375
Changes in the fair value of contingent earn-out obligations   (900 )   -     -     (900 )   -  
Total operating costs and expenses   67,188     74,566     73,344     141,754     140,003  
Operating income (loss) 32,936 (3,097 ) 18,892 29,839 37,148
Interest expense, net (2,200 ) (2,190 ) (2,029 ) (4,390 ) (4,075 )
Non-operating income (expense), net   542     190     (204 )   732     (836 )
Income (loss) before taxes and equity in net losses of equity
method investments
31,278 (5,097 ) 16,659 26,181 32,237
Provision for taxes   6,082     (17,510 )   4,095     (11,428 )   7,852  
Net income before equity in net losses of equity method
investments
25,196 12,413 12,564 37,609 24,385
Equity in net losses of equity method investments   (27 )   (31 )   -     (58 )   -  
Net income $ 25,169   $ 12,382   $ 12,564   $ 37,551   $ 24,385  
 
Earnings per share:
Basic $ 0.38 $ 0.19 $ 0.19 $ 0.57 $ 0.37
Diluted $ 0.37 $ 0.18 $ 0.19 $ 0.55 $ 0.36
 
Weighted average number of shares used in computing earnings per
share:
Basic 66,063 66,324 65,763 66,194 65,801
Diluted 68,880 68,195 67,470 68,428 67,421

SEMTECH CORPORATION  
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
   
July 29, January 28,
  2018     2018  
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 311,334 $ 307,923
Accounts receivable, net 78,376 53,183
Inventories 58,893 71,067
Prepaid taxes 9,347 11,809
Other current assets   20,346     17,250  
Total current assets 478,296 461,232
 
Non-current assets:
Property, plant and equipment, net 122,608 124,586
Deferred tax assets 24,244 4,236
Goodwill 346,731 341,897
Other intangible assets, net 46,766 60,207
Other assets   90,125     93,618  
Total assets $ 1,108,770   $ 1,085,776  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,717 $ 37,208
Accrued liabilities 55,791 60,832
Deferred revenue 5,100 12,758
Current portion, long term debt   17,307     15,410  
Total current liabilities 115,915 126,208
 
Non-current liabilities:
Deferred tax liabilities 15,762 14,682
Long term debt, less current portion 201,986 211,114
Other long-term liabilities 71,819 68,759
Stockholders' equity   703,288     665,013  
Total liabilities & stockholders' equity $ 1,108,770   $ 1,085,776  
 
SEMTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL
INFORMATION
(Amounts in thousands)
 
Six Months Ended
July 29, July 30,
  2018     2017  
(Unaudited) (Unaudited)
 
Net income $ 37,551 $ 24,385
 
Net cash provided by operating activities 84,367 45,996
Net cash used in investing activities (21,126 ) (44,027 )
Net cash used in financing activities   (59,830 )   (21,249 )
Net increase (decrease) in cash and cash equivalents 3,411 (19,280 )
Cash and cash equivalents at beginning of period   307,923     297,134  
Cash and cash equivalents at end of period $ 311,334   $ 277,854  
 
 
Three Months Ended
July 29, April 29, July 30,
  2018     2018     2017  
Q219 Q119 Q218
(Unaudited) (Unaudited) (Unaudited)
Free Cash Flow:
Cash Flow from Operations $ 49,338 $ 35,029 $ 35,637
Net Capital Expenditures   (4,886 )   (4,935 )   (13,777 )
Free Cash Flow: $ 44,452   $ 30,094   $ 21,860  

SEMTECH CORPORATION
SUPPLEMENTAL INFORMATION: RECONCILIATION OF GAAP TO NON-GAAP
RESULTS
(Amounts in thousands - except per share amounts)
 
  Three Months Ended   Six Months Ended
July 29,   April 29,   July 30, July 29,   July 30,
  2018     2018     2017     2018     2017  
Q219 Q119 Q218 Q219 Q218
Gross Margin- GAAP 61.3 % 54.8 % 60.2 % 58.4 % 59.7 %
Share-based compensation   0.2 %   0.3 %   0.2 %   0.2 %   0.3 %
Adjusted Gross Margin (Non-GAAP)   61.5 %   55.1 %   60.4 %   58.6 %   60.0 %
 
 
Three Months Ended Six Months Ended
July 29, April 29, July 30, July 29, July 30,
  2018     2018     2017     2018     2017  
Q219 Q119 Q218 Q219 Q218
Selling, general and administrative- GAAP $ 33,529 $ 41,406 $ 39,237 $ 74,935 $ 73,252
Share-based compensation (11,378 ) (11,462 ) (10,055 ) (22,840 ) (15,611 )
Transaction and integration related (264 ) (233 ) (1,133 ) (498 ) (1,619 )
Restructuring Charges - (346 ) - (346 ) (429 )
Environmental and other reserves - - (43 ) - (61 )
Litigation cost net of recoveries   6,304     (559 )   (278 )   5,744     (328 )
Adjusted selling, general and administrative (Non-GAAP) $ 28,191   $ 28,806   $ 27,728   $ 56,995   $ 55,204  
 
 
Three Months Ended Six Months Ended
July 29, April 29, July 30, July 29, July 30,
  2018     2018     2017     2018     2017  
Q219 Q119 Q218 Q219 Q218
Product development and engineering- GAAP $ 28,079 $ 26,199 $ 27,432 $ 54,278 $ 53,415
Share-based compensation (2,282 ) (2,225 ) (1,992 ) (4,506 ) (3,877 )
Transaction and integration related (135 ) (294 ) (308 ) (429 ) (721 )
Litigation cost net of recoveries   (532 )   -     -     (532 )   -  
Adjusted product development and engineering (Non-GAAP) $ 25,130   $ 23,680   $ 25,132   $ 48,811   $ 48,817  
 
 
Three Months Ended Six Months Ended
July 29, April 29, July 30, July 29, July 30,
  2018     2018     2017     2018     2017  
Q219 Q119 Q218 Q219 Q218
Operating Margin- GAAP 20.2 % -2.4 % 12.3 % 10.2 % 12.5 %
Share-based compensation 8.6 % 10.7 % 8.1 % 9.5 % 6.8 %
Intangible amortization 4.0 % 5.3 % 4.4 % 4.6 % 4.4 %
Loss on disposition of business operations 0.0 % 0.0 % 0.0 % 0.0 % 0.1 %
Transaction and integration related 0.2 % 0.5 % 1.0 % 0.3 % 0.8 %
Restructuring Charges 0.0 % 0.3 % 0.0 % 0.1 % 0.1 %
Environmental and other reserves 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %
Litigation cost net of recoveries -3.5 % 0.4 % 0.2 % -1.8 % 0.1 %
Changes in the fair value of contingent earn-out obligations   -0.6 %   0.0 %   0.0 %   -0.3 %   0.0 %
Adjusted Operating Margin (Non-GAAP)   28.9 %   14.8 %   26.0 %   22.6 %   24.8 %
 
 
Three Months Ended Six Months Ended
July 29, April 29, July 30, July 29, July 30,
  2018     2018     2017     2018     2017  
Q219 Q119 Q218 Q219 Q218
GAAP net income $ 25,169 $ 12,382 $ 12,564 $ 37,551 $ 24,385
 
Adjustments to GAAP net income:
Share-based compensation 13,966 14,015 12,328 27,980 20,333
Intangible amortization 6,480 6,961 6,675 13,441 12,961
Loss on disposition of business operations - - - - 375
Transaction and integration related 399 527 1,443 927 2,340
Restructuring Charges - 346 - 346 429
Environmental and other reserves - - 43 - 61
Litigation cost net of recoveries (5,772 ) 559 278 (5,212 ) 328
Changes in the fair value of contingent earn-out obligations (900 ) - - (900 ) -
Investment gain   -     -     (750 )   -     (750 )
Total Non-GAAP adjustments before taxes 14,173 22,408 20,017 36,582 36,077
Associated tax effect (1,741 ) (20,654 ) (2,332 ) (22,395 ) (4,341 )
Equity in net losses of equity method investments   27     31     -     58     -  
Total of supplemental information net of taxes   12,459     1,785     17,685     14,245     31,736  
Non-GAAP net income $ 37,628   $ 14,167   $ 30,249   $ 51,796   $ 56,121  
 
Diluted GAAP earnings per share $ 0.37 $ 0.18 $ 0.19 $ 0.55 $ 0.36
Adjustments per above   0.18     0.03     0.26     0.21     0.47  
Diluted non-GAAP earnings per share $ 0.55   $ 0.21   $ 0.45   $ 0.76   $ 0.83  
 
 
Three Months Ended Six Months Ended
July 29, April 29, July 30, July 29, July 30,
  2018     2018     2017     2018     2017  
Q219 Q119 Q218 Q219 Q218
Comcast Warrant*
Impact on Net Sales $ - $ (21,501 ) $ (3,197 ) $ (21,501 ) $ (8,477 )
Associated tax effect - 3,678 1,200 3,678 3,011
Impact on EPS $ - $ (0.26 ) $ (0.03 ) $ (0.26 ) $ (0.08 )
 
*In consideration of discussions held with the Securities and
Exchange Commission we will no longer adjust net sales for the
impact of the Warrant for any comparable historical periods
presented. The Company will instead provide GAAP net sales for
historical periods presented and will separately disclose the impact
of the Warrant on the financial statement line items impacted by the
Warrant.

SEMTECH CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP OUTLOOK
Third Quarter of Fiscal Year 2019 Outlook
(Amounts in thousands - except per share amounts)
   
Q3 FY19 Outlook
October 28,
2018

Low

High

Gross Margin- GAAP 61.0 % 62.0 %
Share-based compensation   0.2 %   0.2 %
Adjusted Gross Margin (Non-GAAP)   61.2 %   62.2 %
 

Low

High

Selling, general and administrative- GAAP $ 38.2 $ 39.2
Share-based compensation (9.2 ) (9.2 )
Transaction and integration related   (1.0 )   (1.0 )
Adjusted selling, general and administrative (Non-GAAP) $ 28.0   $ 29.0  
 

Low

High

Product development and engineering- GAAP $ 28.0 $ 29.0
Share-based compensation (2.5 ) (2.5 )
Transaction and integration related   (0.5 )   (0.5 )
Adjusted product development and engineering (Non-GAAP) $ 25.0   $ 26.0  
 

Low

High

GAAP EPS $ 0.33 $ 0.39
Share-based compensation 0.18 0.18
Transaction, restructuring, and acquisition related expenses 0.02 0.02
Amortization of acquired intangibles 0.09 0.09
Associated Tax Effect   (0.04 )   (0.04 )
Adjusted EPS (Non-GAAP) $ 0.58   $ 0.64  

View Comments and Join the Discussion!