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Semtech Announces Third Quarter of Fiscal Year 2017 Results


CAMARILLO, Calif., Nov. 30, 2016 (GLOBE NEWSWIRE) -- Semtech Corporation (Nasdaq:SMTC), a leading supplier of analog and mixed-signal semiconductors, today reported unaudited financial results for its third quarter of fiscal year 2017, which ended October 30, 2016.   Net sales computed in accordance with U.S. generally accepted accounting principles ("GAAP"), were $137.2 million, which has been reduced by $3.7 million of share-based compensation associated with the previously announced issuance of a Warrant to Comcast.  Excluding the offset associated with the Warrant, net sales were $140.9 million ("non-GAAP net sales").

Highlights for the Third Fiscal Quarter 2017

Results on a GAAP basis for Third Fiscal Quarter 2017

GAAP net income for the third quarter of fiscal year 2017 included a pre-tax gain of $25.0 million from the previously-announced divestiture of the Company's Snowbush IP business.

To facilitate a complete understanding of comparable financial performance between periods, the Company also presents performance results net of certain non-cash items and items that are not considered reflective of the Company's core results over time.  The Company's non-GAAP measures of net sales, gross margin, net income, earnings per diluted share, and free cash flow exclude certain items as described below under "Non-GAAP Financial Measures."

Results on a Non-GAAP basis for Third Quarter 2017 (see the list of non-GAAP items and the reconciliation of these to the most relevant GAAP items set forth in the tables below): 

Mohan Maheswaran, Semtech's President and Chief Executive Officer, stated, "Q3 of fiscal 2017 was another solid quarter for Semtech. The Company achieved significant year-over-year net sales growth while growing earnings at an even faster rate for the same period.  The strength we are experiencing from exciting growth markets that include the Internet of Things, hyper-scale datacenters and mobile  devices is expected to continue and contribute to a better than seasonal outlook for our fourth fiscal quarter.  Our focus on divesting non-core assets while investing in new product platforms and maintaining Opex discipline should enable the Company to continue to leverage the growth we expect to see over the next several years."

GAAP Fourth Quarter of Fiscal Year 2017 Outlook

Non-GAAP Fourth Quarter of Fiscal Year 2017 Outlook

Webcast and Conference Call
Semtech will be hosting a conference call today to discuss its third quarter of fiscal year 2017 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 December 30, 2016 at the same website or by calling (855) 859-2056 and entering conference ID 40359367.

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 net sales, gross margin, net income, earnings per diluted share, and free cash flow.  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 net sales, gross margin, net income and earnings per diluted share exclude the following items, if any:

To provide additional insight into the Company's fourth quarter outlook, this release also includes a presentation of forward-looking non-GAAP measures including net sales, gross margin, effective tax rate and earnings per diluted share. 

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 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.

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 results for the second and third quarters of fiscal year 2017 and the third quarter of fiscal year 2016 along with a reconciliation of forward-looking earnings per diluted share to its most comparable GAAP measure for the fourth quarter of fiscal year 2017.  The Company is unable to include a reconciliation of the forward-looking non-GAAP measures of non-GAAP tax rate to the corresponding GAAP measure as these are not available without unreasonable efforts due to the high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures.  In particular the measures and effects of non-cash income taxes, which are extremely difficult to project as a result of our tax status in a number of foreign jurisdictions, and share-based compensation specific to non-employee common stock options, are directly impacted by unpredictable fluctuations in our stock price.  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 press 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 fourth quarter of fiscal year 2017 outlook, 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; 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 Company's ability to accurately forecast the amount and timing of the share-based compensation associated with the vesting of the Warrant issued to Comcast; 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, 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 31, 2016,   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 analog and mixed-signal semiconductors 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, and the Semtech logo are registered marks of Semtech Corporation and/or its subsidiaries.

SEMTECH CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
(Table in thousands - except per share amount) 
             
  Three Months Ended   Nine Months Ended 
  October 30, July 31, October 25,  October 30, October 25, 
   2016   2016   2015    2016   2015  
  Q3 2017 Q2 2017 Q3 2016  Q3 2017  Q3 2016 
  (Unaudited) (Unaudited) (Unaudited)  (Unaudited) (Unaudited) 
             
Net sales $   137,185   $   135,911   $   115,810    $   404,241   $   371,610   
Cost of sales  56,120     54,136     46,226      162,877     148,050  
Gross profit  81,065      81,775      69,584       241,364      223,560   
Operating costs and expenses:            
Selling, general and administrative  35,116     32,824     30,747      101,654     102,383  
Product development and engineering  25,600     26,325      26,855      77,097     84,771  
Intangible amortization and impairments  6,286     6,328     6,308      19,017     18,648  
Gain on disposition of business operations    (25,036)    -      -       (25,036)    -   
Changes in the fair value of contingent earn-out obligations    -      (129)    (14,186)     (162)    (13,618) 
Restructuring charges    -      -      962      -      4,526  
Total operating costs and expenses  41,966     65,348     50,686      172,570     196,710  
Operating income (loss)    39,099      16,427      18,898       68,794      26,850   
Interest expense, net  (1,890)    (2,037)    (1,964)     (5,857)    (5,698) 
Non-operating expense, net  (690)    (136)    (777)     (871)    (1,152) 
Income before taxes     36,519      14,254      16,157        62,066      20,000   
Provision for taxes     5,743     5,276      5,453      15,424     9,750  
Net (loss) income  $   30,776   $   8,978   $   10,704    $   46,642   $    10,250   
             
Earnings  per share:             
Basic $  0.47  $  0.14  $  0.16   $  0.71  $  0.16  
Diluted $  0.46  $  0.14  $  0.16   $  0.71  $  0.15  
             
Weighted average number of shares used in computing earnings per share:           
Basic  65,549   65,299   65,117    65,331   65,920  
Diluted   66,207   65,905   65,217     65,898   66,251  
             
             
SEMTECH CORPORATION 
CONDENSED CONSOLIDATED BALANCE SHEETS 
(Table in thousands) 
             
  October 30, Jan 31,        
   2016   2016         
  (Unaudited)          
ASSETS            
Current assets:            
Cash and cash equivalents $  297,939  $  211,810         
Accounts receivable, net    59,193     44,132         
Inventories    62,679     63,875         
Prepaid taxes    6,982     5,236         
Other current assets    11,917     16,168         
Total current assets    438,710     341,221         
             
Property, plant and equipment, net    95,547     101,006         
Deferred tax assets    8,711     7,354         
Goodwill    329,703     329,703         
Other intangible assets, net    68,064     88,430         
Other assets    60,314     43,803         
Total assets $   1,001,049   $   911,517          
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
Accounts payable $  43,931  $  35,486         
Accrued liabilities    43,731     41,204         
Deferred revenue    11,026     8,628         
Current portion - long term debt    19,094     18,569         
Total current liabilities    117,782     103,887         
             
Deferred tax liabilities    22,462      6,802         
Long term debt - less current    228,795     239,177         
Other long-term liabilities    46,115     33,600         
Stockholders' equity    585,895     528,051         
Total liabilities & stockholders' equity $   1,001,049   $   911,517          
             
SEMTECH CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Table in thousands) 
             
  Nine Months Ended        
  October 30, October 25,        
   2016   2015         
  (Unaudited) (Unaudited)        
             
Net (loss) income  $    46,642   $   10,250           
             
Net cash provided by operating activities    84,694     67,616         
Net cash used in investing activities    15,598     (55,106)         
Net cash used in financing activities    (14,163)    (50,479)        
Net increase (decrease) in cash and cash equivalents    86,129     (37,969)        
Cash and cash equivalents at beginning of period    211,810     230,328         
Cash and cash equivalents at end of period $   297,939    $   192,359          
             
             
SEMTECH CORPORATION 
SUPPLEMENTAL INFORMATION - NOTES TO CONSOLIDATED GAAP STATEMENTS OF INCOME 
(Tables in thousands - except per share amounts) 
             
  Three Months Ended  Nine Months Ended 
  October 30, July 31, October 25,  October 30, October 25, 
   2016   2016   2015    2016   2015  
Share-based Compensation Q3 2017 Q2 2017 Q3 2016  Q3 2017 Q3 2016 
  (Unaudited) (Unaudited) (Unaudited)   (Unaudited) (Unaudited) 
Revenue offset $  3,669  $  -   $  -    $  3,669  $  -   
Cost of sales    360     372     197    1,108     1,071  
Selling, general and administrative    3,965     4,183     2,933    12,001     6,006  
Product development and engineering    1,401     1,542   1,987    4,420     6,320   
Total share-based compensation $  9,395  $  6,097  $  5,117   $  21,198  $  13,397  
             
             
  Three Months Ended  Nine Months Ended 
  October 30, July 31, October 25,  October 30, October 25, 
   2016   2016   2015    2016   2015  
Gross Profit - Reconciliation GAAP to Non-GAAP Q3 2017 Q2 2017 Q3 2016  Q3 2017 Q3 2016 
  (Unaudited) (Unaudited)  (Unaudited)  (Unaudited) (Unaudited) 
             
GAAP gross profit $   81,065   $   81,775   $   69,584     $   241,364   $   223,560   
Adjustments to GAAP gross profit:            
Revenue: share-based compensation- Comcast Warrant  3,669     -      -     3,669     -   
Cost of sales: other share-based compensation    360     372     197      1,108     1,071  
Acquisition related fair value adjustments    -      -      -       -      265  
Non-GAAP gross profit $   85,094   $   82,147   $   69,781    $   246,141   $   224,896   
             
             
  Three Months Ended  Nine Months Ended 
  October 30, July 31, October 25,  October 30, October 25, 
   2016    2016   2015    2016   2015  
Net Income - Reconciliation GAAP to Non-GAAP Q3 2017 Q2 2017 Q3 2016  Q3 2017 Q3 2016 
  (Unaudited) (Unaudited) (Unaudited)  (Unaudited) (Unaudited) 
             
GAAP net income $   30,776   $   8,978   $   10,704     $   46,642   $   10,250   
             
Adjustments to GAAP net income:            
Share-based compensation $  9,395  $  6,097   $  5,117   $  21,198  $  13,397  
Intangible amortization and impairments    6,286     6,328     7,363      19,017     19,703  
Gain on disposition of business operations    (25,036)    -      -       (25,036)    -   
Transaction and integration related expenses     1,308     1,804     883      4,062     6,528  
Acquisition related earn-out - compensation    603     54     1,164      1,982     3,600   
Acquisition related earn-out - non-compensation    -      (129)    (14,186)     (162)    (13,780) 
Environmental and other reserves    1,123     -      -       2,123     2,855  
Gain on litigation settlement    -      -      -       (1,725)    -   
Restructuring charges    -      -      962      -      4,526  
Impairment of cost method investment    -      -      600      -      600  
Total before tax adjustment    (6,321)    14,154     1,903      21,459     37,429  
Associated tax effect    (196)    (385)    (511)     (1,580)    (2,077) 
Total of supplemental information net of taxes    (6,517)    13,769   1,392      19,879     35,352  
Non-GAAP net (loss) income $    24,259   $   22,747   $   12,096    $   66,521   $   45,602   
             
Diluted GAAP earnings per share $  0.46  $  0.14  $  0.16   $  0.71  $  0.15  
Adjustments per above    (0.09)    0.21     0.03      0.30     0.54  
Diluted non-GAAP earnings per share $  0.37  $  0.35  $  0.19   $  1.01  $   0.69  
             
             
  Three Months Ended  Nine Months Ended 
  October 30, July 31, October 25,  October 30, October 25, 
   2016   2016   2015    2016   2015  
Tax Impact Associated With Supplemental Information Q3 2017 Q2 2017 Q3 2016  Q3 2017 Q3 2016 
  (Unaudited) (Unaudited) (Unaudited)  (Unaudited) (Unaudited) 
Adjustments to GAAP net income:             
Share-based compensation $  2,769  $  1,496  $  2,669   $  5,694  $  4,759  
Intangible amortization and impairments    1,685     1,800     1,748      5,193     4,848  
Gain on disposition of business operations    (6,839)    -      -       (6,839)    -   
Acquisition related earn-out    8     (5)    (4,298)     130     (3,808) 
Valuation allowance against deferred tax assets    2,309     (3,455)    234      (3,377)    (6,571) 
Environmental and other reserves    264     549     158      779     2,849  
Total of associated tax effect $  196  $  385  $  511   $  1,580  $  2,077  
              
             
   Three Months Ended      
  October 30, July 31, October 25,      
   2016   2016   2015       
  Q3 2017 Q2 2017 Q3 2016      
  (Unaudited) (Unaudited)  (Unaudited)      
Free Cash Flow:            
Cash Flow from Operations $  39,227   $  31,666  $  18,870       
Net Capital Expenditure  (8,406)  (2,635)  (2,461)      
Free Cash Flow: $   30,821   $   29,031   $   16,409        
             
             
Q4FY17 EPS Guidance Range Reconciliation            
GAAP to Non-GAAP Reconciliation (net of tax)            
  Low  High        
GAAP EPS    0.13     0.17         
              
Share-based compensation    0.10     0.10         
Transaction, restructuring, and acquisition related expenses    0.01     0.01         
Amortization of acquired intangibles    0.09     0.09         
Non-GAAP EPS $  0.33  $  0.37         
             

 

Contact:

Sandy Harrison

Semtech Corporation

(805) 480-2004

webir@semtech.com

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Source: Semtech Corporation

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