Semtech Announces Second Quarter of Fiscal Year 2024 Results

CAMARILLO, Calif. — (BUSINESS WIRE) — September 13, 2023 — Semtech Corporation (Nasdaq: SMTC), a high-performance semiconductor, IoT systems and cloud connectivity service provider, today reported unaudited financial results for its second quarter of fiscal year 2024, which ended July 30, 2023.

Highlights for the Second Quarter of Fiscal Year 2024

Net sales of $238.4 million, an increase of 0.8% sequentially and 13.9% year-over-year
GAAP gross margin of 42.3% and Non-GAAP gross margin of 49.6%
GAAP diluted loss per share of $5.97 and Non-GAAP diluted earnings per share of $0.11
Cloud data center net sales grew 114% sequentially
High-end consumer net sales grew 58% sequentially
Effective June 30, 2023, Paul H. Pickle became Semtech's president and chief executive officer
On September 8, 2023, the Company announced the appointment of Mark Lin as the next Semtech executive vice president and chief financial officer

Results on a GAAP basis for the Second Fiscal Quarter 2024

Net sales were $238.4 million
GAAP Gross margin was 42.3%
GAAP SG&A expense was $65.0 million
GAAP R&D expense was $51.4 million
GAAP Operating margin was (125.9)%
GAAP Depreciation expense was $6.6 million
GAAP Intangible amortization expense was $15.4 million
GAAP Interest expense was $24.2 million
GAAP Net loss attributable to common stockholders was $382.0 million or $5.97 diluted loss per 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. These 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 2024 (see the list of non-GAAP financial measures and the reconciliation of these measures to the most comparable GAAP measures set forth in the tables below under "Supplemental Information: Reconciliation of GAAP to Non-GAAP Results")

Non-GAAP Gross margin was 49.6%
Non-GAAP SG&A expense was $42.8 million
Non-GAAP R&D expense was $43.0 million
Non-GAAP Operating margin was 13.6%
Non-GAAP Interest expense was $23.4 million
Non-GAAP Net income attributable to common stockholders was $7.0 million or $0.11 diluted earnings per share

“In the recent quarter, our net sales aligned with our projections and our non-GAAP gross margin and earnings per share each exceeded our estimates, largely due to focused cost-saving initiatives,” said Paul H. Pickle, Semtech’s president and chief executive officer. “I have had the opportunity to recognize our company's distinct capabilities in the High-Performance Analog and IoT sectors and the dedication of a very talented team. While we remain cautious given the current challenges of broader economic uncertainties and high channel inventory, I am confident that our ongoing operational refinements and strong presence in key markets keep us poised to recover as economic conditions evolve.”

Third Fiscal Quarter 2024 Outlook

Both the GAAP and non-GAAP third fiscal quarter 2024 outlook below take into account the Company's current estimates, export restrictions, inflationary pressure and other macroeconomic conditions. The Company is unable to predict the full impact such challenges may have on its future results of operations.

GAAP Third Fiscal Quarter 2024 Outlook

Net sales are expected to be in the range of $190.0 million to $210.0 million
GAAP Gross margin is expected to be in the range of 41.5% to 44.0%
GAAP SG&A expense is expected to be in the range of $54.2 million to $56.2 million
GAAP R&D expense is expected to be in the range of $53.4 million to $55.4 million
GAAP Intangible amortization expense is expected to be approximately $14.9 million
GAAP Interest and other expense, net is expected to be approximately $24.3 million
Fully-diluted share count is expected to be approximately 64.2 million shares
Share-based compensation is expected to be approximately $12.1 million, categorized as follows: $0.5 million cost of sales, $8.2 million SG&A, and $3.4 million R&D
Transaction, integration and restructuring expenses are expected to be approximately $15.0 million
GAAP capital expenditures are expected to be approximately $6.0 million
GAAP depreciation expense is expected to be approximately $7.9 million

Non-GAAP Third Fiscal Quarter 2024 Outlook (see the list of non-GAAP financial measures and the reconciliation of Non-GAAP Gross margin, Non-GAAP SG&A expense, and Non-GAAP R&D expense to the most comparable GAAP measures set forth in the tables below under "Reconciliation of GAAP to Non-GAAP Outlook")

Non-GAAP Gross margin is expected to be in the range of 47.0% to 49.0%
Non-GAAP SG&A expense is expected to be in the range of $36.0 million to $38.0 million
Non-GAAP R&D expense is expected to be in the range of $45.0 million to $47.0 million
Non-GAAP normalized tax rate for fiscal year 2024 is expected to be approximately 12%
Non-GAAP Diluted loss per share is expected to be in the range of $0.22 to $0.09

The Company is unable to include a reconciliation of the forward-looking non-GAAP normalized tax rate and non-GAAP Diluted loss per share to the corresponding GAAP measures as this is not available without unreasonable efforts due to the high variability and low visibility with respect to the impact of transaction, integration and restructuring expenses, share-based awards and the amortization of acquisition-related intangible assets that are excluded from these non-GAAP measures. The Company expects the variability of the above charges to have a potentially significant impact on its GAAP financial results.

Webcast and Conference Call

Semtech will be hosting a conference call today to discuss its second fiscal quarter 2024 results at 2:00 p.m. Pacific time. The dial-in number for the call is (877) 407-0312. Please use conference ID 13736082. An audio webcast will be available on Semtech’s website at www.semtech.com in the “Investor Relations” section under “Investor News.” A replay of the call will be available through October 11, 2023 at the same website or by calling (877) 660-6853 and entering conference ID 13736082.

Non-GAAP Financial Measures

To supplement the Company's consolidated financial statements prepared in accordance with GAAP, this release includes a presentation of select non-GAAP financial measures. The Company’s non-GAAP measures of gross margin, SG&A expense, R&D expense, operating margin, interest expense, net (loss) income attributable to common stockholders, diluted (loss) earnings per share and normalized tax rate exclude the following items, if any:

Share-based compensation
Intangible amortization
Transaction and integration related costs or recoveries (including costs associated with the acquisition of Sierra Wireless)
Restructuring and other reserves, including cumulative other reserves associated with historical activity including environmental and pension
Litigation costs or dispute settlement charges or recoveries
Gain on sale of business
Equity method income or loss
Investment gains, losses, reserves and impairments, including interest income from debt investment
Write-off of deferred financing costs and debt discount
Goodwill impairment
Amortization of inventory step-up

To provide additional insight into the Company's third quarter outlook, this release also includes a presentation of forward-looking non-GAAP financial measures. Management believes that the presentation of these non-GAAP measures provides useful information to investors regarding the Company’s financial condition and results of operations. These non-GAAP financial measures are adjusted to exclude the items identified above because such items are either operating expenses that 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 the Company 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.

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