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Semtech Announces Third Quarter of Fiscal Year 2018 Results


CAMARILLO, Calif., Nov. 29, 2017 (GLOBE NEWSWIRE) -- Semtech Corporation (Nasdaq:SMTC), a leading supplier of high-performance analog, mixed-signal semiconductors and advanced algorithms, today reported unaudited financial results for its third quarter of fiscal year 2018, which ended October 29, 2017. Net sales computed in accordance with U.S. generally accepted accounting principles ("GAAP"), were $150.3 million, after being reduced by $6.2 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 $156.6 million ("non-GAAP net sales").

Highlights for the Third Fiscal Quarter 2018

Results on a GAAP basis for the Third Fiscal Quarter 2018

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 the Third Fiscal Quarter 2018 (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, "We are pleased with the strong momentum from our key growth initiatives through the first three quarters of the year.  Non-GAAP net sales increased 13% through the first nine-months of fiscal 2018, while non-GAAP operating income increased at nearly 3 times that rate, demonstrating the leverage of the model."  Maheswaran continued, "Despite the outlook for a more seasonal pattern for fiscal Q4, we expect the momentum from our strategic growth engines in the IoT, high-performance mobile and data center markets to contribute to a record annual financial performance for fiscal 2018 and provide a platform for growth again in fiscal year 2019."

GAAP Fourth Quarter of Fiscal Year 2018 Outlook

Non-GAAP Fourth Quarter of Fiscal Year 2018 Outlook

Webcast and Conference Call

Semtech will be hosting a conference call today to discuss its third quarter of fiscal year 2018 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 29, 2017 at the same website or by calling (855) 859-2056 and entering conference ID 81686674.

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 fiscal 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 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.

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 2018 and the third quarter of fiscal year 2017, along with a reconciliation of forward-looking earnings per diluted share to its most comparable GAAP measure for the fourth quarter of fiscal year 2018.  The Company is unable to include a reconciliation of the forward-looking non-GAAP measure of the non-GAAP 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 which 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 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 2018 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 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 29, 2017, 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 and the Semtech logo are registered trademarks or services marks of Semtech Corporation or its subsidiaries.

SMTC-F


  
SEMTECH CORPORATION 
CONSOLIDATED STATEMENTS OF OPERATIONS 
(Table in thousands - except per share amount) 
           
 Three Months Ended Nine Months Ended 
 October 29, July 30, October 30, October 29, October 30, 
  2017   2017   2016   2017   2016  
 Q3 2018 Q2 2018 Q3 2017 Q3 2018 Q3 2017 
 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) 
           
Net sales $   150,304   $   153,127   $   137,185   $   447,233   $   404,241   
Cost of sales 60,885     60,891     56,120     180,663     162,877  
Gross profit 89,419    92,236    81,065      266,570      241,364   
Operating costs and expenses:          
Selling, general and administrative 36,568     39,237     35,116     109,820     101,654  
Product development and engineering 27,631     27,432     25,600     81,046     77,097  
Intangible amortization 7,453     6,675     6,286     20,414     19,017  
(Gain) loss on disposition of business operations   -      -      (25,036)    375     (25,036) 
Changes in the fair value of contingent earn-out obligations   188     -         188     (162) 
Total operating costs and expenses 71,840   73,344   41,966     211,843     172,570  
Operating income   17,579      18,892      39,099      54,727      68,794   
Interest expense, net (2,032)     (2,029)    (1,890)    (6,107)    (5,857) 
Non-operating income (expense), net 1,267     (204)    (690)    431     (871) 
Income before taxes and equity in net losses of equity method investments    16,814      16,659       36,519      49,051      62,066   
Provision for taxes    3,272     4,095     5,743     11,124     15,424  
Net income before equity in net losses of equity method investments   13,542      12,564      30,776      37,927      46,642   
Equity in net losses of equity method investments   (204)    -      -      (204)    -   
Net income $   13,338   $   12,564   $   30,776   $   37,723   $   46,642   
           
Earnings  per share:          
Basic$  0.20  $  0.19  $  0.47  $  0.57  $  0.71  
Diluted$  0.20  $  0.19   $  0.46  $  0.56  $  0.71  
           
Weighted average number of shares used in computing earnings per share:          
Basic 66,194   65,763   65,549    65,932   65,331  
Diluted 67,817   67,470   66,206   67,555   65,899  
           
           
SEMTECH CORPORATION 
CONSOLIDATED BALANCE SHEETS 
(Table in thousands) 
           
 October 29, January 29,       
  2017   2017        
 (Unaudited)         
ASSETS          
Current assets:          
  Cash and cash equivalents$  291,125  $  297,134        
  Accounts receivable, net   66,456     51,441        
  Inventories    71,249     65,872        
  Prepaid taxes   5,274     5,563        
  Other current assets   15,741     18,418        
  Total current assets   449,845     438,428        
           
Non-current assets:          
  Property, plant and equipment, net   123,360     108,910        
  Deferred tax assets   5,848     5,493         
  Goodwill   341,890     329,703        
  Other intangible assets, net   67,660      61,773        
  Other assets   82,354     67,235        
  Total assets$   1,070,957   $   1,011,542          
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
  Accounts payable$  39,832  $  41,960         
  Accrued liabilities   51,398     54,524        
  Deferred revenue   12,729     12,059        
  Current portion, long term debt   14,462     14,432        
  Total current liabilities   118,421     122,975        
           
Non-current liabilities:          
  Deferred tax liabilities   8,687     6,881        
  Long term debt, less current portion   215,674     226,524        
  Other long-term liabilities   63,516     49,899        
  Stockholders' equity   664,659     605,263        
  Total liabilities & stockholders' equity$   1,070,957   $    1,011,542         
           
           
SEMTECH CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Table in thousands) 
           
 Nine Months Ended       
 October 29, October 30,       
  2017   2016        
 (Unaudited) (Unaudited)       
           
Net income $   37,723   $    46,642         
           
Net cash provided by operating activities   72,850     84,694        
Net cash (used in) provided by investing activities   (51,894)    15,598        
Net cash used in financing activities   (26,965)    (14,163)       
Net (decrease) increase in cash and cash equivalents   (6,009)    86,129        
Cash and cash equivalents at beginning of period   297,134     211,810        
Cash and cash equivalents at end of period$   291,125   $   297,939         
            
           
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 29, July 30, October 30, October 29, October 30, 
  2017   2017   2016   2017   2016  
Share-based PaymentsQ3 2018 Q2 2018 Q3 2017 Q3 2018 Q3 2017 
 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) 
Revenue offset$  6,249  $  3,197  $  3,669  $  14,726  $  3,669  
Cost of sales   316     281     360     1,161     1,108  
Selling, general and administrative   6,589     10,055     3,965     22,200     12,001   
Product development and engineering   2,202     1,992    1,401     6,079     4,420  
Share-based compensation$  15,356  $  15,525  $  9,395  $  44,166  $  21,198  
           
           
 Three Months Ended Nine Months Ended 
 October 29, July 30, October 30, October 29, October 30, 
  2017   2017   2016   2017   2016  
Gross Profit - Reconciliation GAAP to Non-GAAPQ3 2018 Q2 2018 Q3 2017 Q3 2018 Q3 2017 
 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) 
           
GAAP gross profit$   89,419   $    92,236   $   81,065   $   266,570   $   241,364   
Adjustments to GAAP gross profit:          
Revenue: share-based payment - Comcast Warrant 6,249     3,197     3,669     14,726     3,669  
Cost of sales: other share-based payments   316      281     360     1,161     1,108  
Non-GAAP gross profit$    95,984   $   95,714   $   85,094   $   282,457   $   246,141   
           
           
 Three Months Ended Nine Months Ended 
 October 29, July 30, October 30, October 29, October 30, 
  2017   2017   2016   2017   2016  
Net Income - Reconciliation GAAP to Non-GAAPQ3 2018 Q2 2018 Q3 2017 Q3 2018 Q3 2017 
 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) 
           
GAAP net income$   13,338   $   12,564   $   30,776   $   37,723   $   46,642   
           
Adjustments to GAAP net income:          
Share-based compensation$  15,356  $  15,525  $  9,395  $  44,166  $  21,198  
Intangible amortization   7,453     6,675     6,286     20,414     19,017  
(Gain) loss on disposition of business operations   -      -      (25,036)    375     (25,036) 
Transaction and integration related, including debt refinance costs   858     1,026     1,671     2,651     4,094  
Acquisition related earn-out   604      416     603     1,579     1,820  
Environmental and other reserves   21     43     1,123     82     2,123  
Litigation cost net of recoveries   955     279     50     1,284     381  
Investment loss (gain)   365      (750)    (413)    (385)    (2,138) 
Equity in net losses of equity method investments   204     -      -      204     -   
Total Non-GAAP adjustments before taxes   25,816     23,214     (6,321)    70,370     21,459  
Associated tax effect   (2,696)    (3,532)    (196)    (10,048)    (1,580) 
Total of supplemental information net of taxes   23,120     19,682     (6,517)    60,322     19,879  
Non-GAAP net income$   36,458   $    32,246   $   24,259   $   98,045   $   66,521   
           
Diluted GAAP earnings per share$  0.20  $  0.19  $  0.46  $  0.56  $  0.71  
  Adjustments per above   0.34     0.29     (0.09)    0.89     0.30  
Diluted non-GAAP earnings per share$  0.54  $  0.48  $  0.37  $  1.45  $  1.01  
           
           
 Three Months Ended Nine Months Ended 
 October 29, July 30, October 30,  October 29, October 30, 
  2017   2017   2016   2017    2016  
Tax Impact Associated With Supplemental InformationQ3 2018 Q2 2018 Q3 2017 Q3 2018 Q3 2017 
 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) 
  Adjustments to GAAP net income:          
  Share-based compensation$  4,474  $  3,937  $  2,769  $  12,565  $  5,694  
  Valuation allowance against deferred tax assets   (4,057)    (2,225)    2,309      (8,638)    (3,377) 
  Other   2,279     1,820     (4,882)    6,121     (737) 
  Total of associated tax effect$  2,696  $  3,532  $  196  $  10,048  $  1,580  
           
           
 Three Months Ended     
  October 29, July 30, October 30,     
  2017   2017   2016      
 Q3 2018 Q2 2018 Q3 2017     
 (Unaudited) (Unaudited) (Unaudited)     
Free Cash Flow:          
Cash Flow from Operations$  26,854  $  35,637  $  39,227      
Net Capital Expenditures (7,866)  (13,777)   (8,406)     
Free Cash Flow:$   18,988   $   21,860    $   30,821       
           
           
Q4FY18 EPS Guidance Range Reconciliation          
GAAP to Non-GAAP Reconciliation (net of tax)          
 Low  High       
GAAP EPS   0.08     0.10        
            
Share-based compensation expense   0.22     0.22        
Transaction, restructuring, and acquisition related expenses   0.01     0.01        
Amortization of acquired intangibles   0.09     0.09        
Non-GAAP EPS$  0.40  $  0.42        
           


Contact:
Sandy Harrison
Semtech Corporation
(805) 480-2004
webir@semtech.com

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Source: Semtech Corporation

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