Semtech (SMTC) Beats Q1 Earnings And Revenue Estimates

Semtech Corporation (NASDAQ:SMTC) reported first-quarter fiscal 2017 earnings of 22 cents per share, which beat the Zacks Consensus Estimate by 20 cents. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Revenues

Semtech’s total revenue was $131.1 million, up 10.6% sequentially and 0.8% year over year. The increase was driven by strong demand for the company’s enterprise computing, industrial and communication end markets, partially offset by the weakness in the company’s high-end consumer end markets.

Reported revenues came on the higher end of management’s expected range of $124.0 million to $132.0 million and beat the Zacks Consensus Estimate of $129.0 million.

Distribution sales represented approximately 65% of total revenue, while direct sales accounted for the rest.

Bookings

In the quarter, bookings increased sequentially, resulting in a book-to-bill ratio of more than 1.

Margins

Reported gross margin was 59.9%, up 130 basis points (bps) sequentially but down 40 bps year over year. The sequential increase was due to improved manufacturing efficiencies and higher revenues.

Semtech’s operating expenses (selling, general and administrative (SG&A) + product development and engineering) of $58.9 million were down 12.4% from $67.2 million in the year-ago quarter. As a percentage of sales, both SG&A and product development & engineering expense decreased. The net result was an operating margin of 10.1% compared with 3.8% in first-quarter fiscal 2016.

Net Income

On a GAAP basis, Semtech recorded net income of $6.9 million or 11 cents per share. In the year-ago quarter, the company had reported a loss of $0.14 million or a breakeven per share.

On a pro-forma basis, Semtech generated earnings per share of 22 cents compared with 18 cents a year ago.

Balance Sheet & Cash Flow

Semtech ended the quarter with cash and cash equivalents of $216.0 million compared with $211.8 million in the previous quarter. Accounts receivables were $49.2 million, up from $44.1 million in the prior quarter. Days sales outstanding decreased by six to 32.

Total debt (short-term plus long-term) was $252.3 million compared with $257.7 million in the previous quarter.

During the quarter, cash flow from operations was $13.8 million, capital expenditure came in at $2.7 million and free cash flow was $11.1 million.

Guidance

For the second quarter of fiscal 2017, management expects revenues in the range of $130.0 million to $140.0 million, while the Zacks Consensus Estimate is pegged at $133.0 million. Gross profit margin is expected within 59.6–60.2% on a GAAP basis and 60.0–60.5% on a non-GAAP basis.

Management projected SG&A expense within $32.2–$33.2 million and research and development expense in the $25.6 million to $26.6 million range, both on a GAAP basis. The company anticipates stock-based compensation expense of $6.1 million, amortization of acquired intangible assets of $6.4 million and interest and other expense of $2.2 million.

Accordingly, based on a share count of 66.0 million, GAAP earnings per share are expected in the range of 12–17 cents, and non-GAAP earnings are projected within 30–36 cents. The Zacks Consensus Estimate is pegged at 23 cents.

Also, the tax rate is projected in the range of 29–31% on a GAAP basis and 21–23% on a non-GAAP basis. Capital expenditure is anticipated to be roughly $8.0 million.

Our Recommendation

Semtech Corporation manufactures a wide range of analog and mixed-signal semiconductors, including Standard Semiconductor Products, Rectifier and Assembly Products and Other Products. The company reported a decent quarter with both the top and the bottom lines exceeding our expectations.

We believe that the company’s new design wins, product introductions and solid execution will boost revenues and margins in the near term. However, challenges to several key end markets could weigh on the company’s growth prospects.

Currently, Semtech has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are M/A-Com Technology Solutions Holdings, Inc. (NASDAQ:MTSI) , Monolithic Power Systems, Inc. (NASDAQ:MPWR) and Microchip Technology Inc. (NASDAQ:MCHP) , each sporting a Zacks Rank #1 (Strong Buy).

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SEMTECH CORP (SMTC): Free Stock Analysis Report

MONOLITHIC PWR (MPWR): Free Stock Analysis Report

MA-COM TECH SOL (MTSI): Free Stock Analysis Report

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