Semtech Announces First Quarter of Fiscal Year 2020 Results

CAMARILLO, Calif.–(BUSINESS WIRE)–Semtech Corporation (Nasdaq: SMTC), a leading supplier of high
performance analog and mixed-signal semiconductors and advanced
algorithms, today reported unaudited financial results for its first
quarter of fiscal year 2020, which ended April 28, 2019.

Highlights for the First Fiscal Quarter 2020

• Q1 FY2020 net sales of $131.4 million, and GAAP EPS of $0.20 and
  non-GAAP EPS of $0.34
• Bookings grew 18% sequentially resulting in a Book to Bill greater
  than 1
• Announced first LoRa Cloud™ Services platform for geolocation
• Record quarterly number of design wins

Results on a GAAP basis for the First Fiscal Quarter 2020

• GAAP Net sales were $131.4 million
• GAAP Gross margin was 61.9%
• GAAP SG&A expense was $38.4 million
• GAAP R&D expense was $27.1 million
• GAAP Operating margin was 9.8%
• GAAP Net income was $13.3 million or $0.20 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. 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 First Fiscal Quarter 2020 (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 62.2%
• Non-GAAP SG&A expense was $28.7 million
• Non-GAAP R&D expense was $24.4 million
• Non-GAAP Operating margin was 21.8%
• Non-GAAP Net income was $23.0 million or $0.34 per diluted share

Mohan Maheswaran, Semtech’s President and Chief Executive Officer,
stated, “We delivered first fiscal quarter 2020 results that were
in-line with our expectations. Our bookings grew nicely over the prior
quarter, as we saw early signs of improving customer demand in several
of our end-markets. Despite near-term uncertainties, our main growth
drivers have strong design win momentum and should contribute to revenue
growth in the second half of fiscal year 2020.”

Second Fiscal Quarter 2020 Outlook

Both the GAAP and non-GAAP second fiscal quarter 2020 outlook below take
into account the anticipated impact to the Company, based on its current
estimates, of the recently announced export restrictions pertaining to
Huawei and certain of its affiliates, imposed by the U.S. Department of
Commerce. The Company is continuing to review and assess the impact of
the export restrictions on its products and services, and is unable to
predict the full impact such restrictions may have on its results of
operations.

GAAP Second Fiscal Quarter 2020 Outlook

• Net sales are expected to be in the range of $128.0 million to $142.0
  million
• GAAP Gross margin is expected to be in the range of 61.6% to 62.2%
• GAAP SG&A expense is expected to be in the range of $37.4 million to
  $38.4 million
• GAAP R&D expense is expected to be in the range of $26.7 million to
  $27.7 million
• GAAP Intangible amortization expense is expected to be approximately
  $3.9 million
• GAAP Interest and other expense is expected to be approximately $1.6
  million
• GAAP Effective tax rate is expected to be in the range of 16% to 18%
• GAAP Earnings per diluted share are expected to be in the range of
  $0.11 to $0.20
• Fully-diluted share count is expected to be approximately 68.0 million
  shares
• Share-based compensation is expected to be approximately $11.3
  million, categorized as follows: $0.4 million cost of sales, $8.4
  million SG&A, and $2.5 million R&D
• Capital expenditures are expected to be approximately $7.0 million
• Depreciation expense is expected to be approximately $5.9 million

Non-GAAP Second Fiscal Quarter 2020 Outlook (see the list of
non-GAAP items and the reconciliation of these to the most comparable
GAAP items set forth in the tables below)

• Non-GAAP Gross margin is expected to be in the range of 61.9% to 62.5%
• 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 $24.0 million
  to $25.0 million
• Non-GAAP Interest and other expense is expected to be approximately
  $1.6 million
• Non-GAAP Effective tax rate is expected to be in the range of 15% to
  17%
• Non-GAAP Earnings per diluted share are expected to be in the range of
  $0.32 to $0.40

Webcast and Conference Call

Semtech will be hosting a conference call today to discuss its first
fiscal quarter 2020 results at 2:00 p.m. Pacific time. 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 June 29, 2019 at the same website or
by calling (855) 859-2056 and entering conference ID 7237419.

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 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, effective tax rate, 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 second quarter outlook,
this release also includes a presentation of forward-looking non-GAAP
measures. Management believes that the presentation of these non-GAAP
financial measures provide useful information to investors regarding the
Company’s financial condition and results of operations because 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 is no longer adjusting 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 will not be
comparable to the period 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 margin 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 first and fourth quarters of fiscal
year 2019 and first quarter of fiscal year 2020, 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 second quarter of fiscal year 2020. 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 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 second
quarter of fiscal year 2020 outlook, the Company’s expectations
concerning the negative impact on the Company’s results of operations
from its inability to ship certain products and provide certain support
services due to the export restrictions related to Huawei, 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
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 laws
affecting the Company’s trade and investments including the adoption and
expansion of trade restrictions including with respect to Huawei, and
tariffs or the occurrence of trade wars; changes in the legal
requirements related to the sale of our products, including developments
regarding the restrictions on future shipments with respect to Huawei;
shifts in focus among target customers, and other comparable changes in
projected or anticipated end-user markets; 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 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 27, 2019,
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 or service
marks of Semtech Corporation or its subsidiaries.

SMTC-F

Contacts

Sandy Harrison
Semtech Corporation
(805) 480-2004
[email protected]

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