Semtech Announces Second Quarter of Fiscal Year 2014 Results and Expansion of Stock Repurchase Program

  • Record Revenue of $165M, up 9% Year-Over-Year
  • Record Gross Profit of $101M, up 35% Year-Over-Year
  • Record Gross Profit Margin of 61%
  • Net Income up 29% Sequentially

Business Wire

CAMARILLO, Calif.--(BUSINESS WIRE)--

Semtech Corporation (SMTC), a leading supplier of analog and mixed-signal semiconductors, today reported unaudited financial results for its fiscal year 2014 second quarter, which ended July 28, 2013. The company also announced that its Board of Directors approved increasing the existing stock repurchase authorization by $50.0 million. Prior to the increase, the company had $42.5 million remaining from the authorization implemented in November 2011.

Net revenue for the second quarter of fiscal year 2014 was $165.0 million, up 9.5 percent from the second quarter of fiscal year 2013 and up 1.6 percent from the first quarter of fiscal year 2014.

Gross profit margin, computed in accordance with U.S. generally accepted accounting principles (GAAP), for the second quarter of fiscal year 2014 was 61.0 percent compared to 49.5 percent in the second quarter of fiscal year 2013 and 59.9 percent in the first quarter of fiscal year 2014.

GAAP net income for the second quarter of fiscal year 2014 was $19.1 million or 28 cents per diluted share. This compares to GAAP net income of $10.0 million or 15 cents per diluted share in the second quarter of fiscal year 2013 and GAAP net income of $14.8 million or 22 cents per diluted share in the first quarter of fiscal year 2014.

To facilitate the complete understanding of comparable financial performance between periods, Semtech also presents performance results net of certain non-cash and one-time items. Semtech's non-GAAP results exclude the following items:

  • Stock-based compensation expense
  • Acquisition related fair value adjustments
  • Transaction and integration related expenses
  • Intangible amortization and impairments
  • Write off of deferred financing costs
  • Release of prior accrued taxes on foreign earnings

Excluding the items listed above, Non-GAAP net income for the second quarter of fiscal year 2014 was $35.8 million or 52 cents per diluted share. Non-GAAP net income was $27.5 million or 41 cents per diluted share in the second quarter of fiscal year 2013 and was $31.3 million or 46 cents per diluted share in the first quarter of fiscal year 2014.

Non-GAAP gross profit margin for the second quarter of fiscal year 2014 was 61.3 percent. Non-GAAP gross profit margin for the second quarter of fiscal year 2013 was 61.2 percent and 61.6 percent in the first quarter of fiscal year 2014.

As of July 28, 2013 Semtech had $242.0 million in cash, cash equivalents and marketable securities, compared to $173.4 million in cash, cash equivalents and marketable securities at the end of the second quarter of fiscal year 2013 and $236.4 million in cash, cash equivalents and marketable securities at the end of the first quarter of fiscal year 2014.

Mohan Maheswaran, Semtech's President and Chief Executive Officer, stated, "Semtech delivered solid second quarter results with record revenue and gross margin. We also expanded operating margin, grew net income and continued to see strong design win activity. We expect our Q3 results to be negatively impacted by both a reduction in demand and inventory corrections at several of our largest smartphone customers. We anticipate that this weakness will continue through most of the second half. However, we remain confident in our ability to manage through any short term demand fluctuations as we head towards our $1 billion revenue goal."

The results announced today are preliminary, as they are subject to customary quarterly review procedures by the Company's independent registered public accounting firm. As such, these results are subject to revision until the Company will have filed its quarterly report on Form 10-Q for the second quarter of fiscal year 2014.

Third Quarter of Fiscal Year 2014 Outlook

  • Net sales are expected to be in the range of $135.0 million to $145.0 million
  • GAAP gross profit margin is expected to be in the range of 58.7% to 59.7%
  • Non-GAAP gross profit margin is expected to be in the range of 59.0% to 60.0%
  • GAAP SG&A expense is expected to be in the range of $30.0 million to $31.5 million
  • GAAP R&D expense is expected to be in the range of $31.0 million to $31.5 million
  • Stock-based compensation expense, which is included in the preceding estimates, is expected to be approximately $6.4 million, categorized as follows: $0.4 million cost of sales, $3.2 million SG&A, and $2.8 million R&D
  • Amortization of acquired intangible assets is expected to be approximately $7.6 million
  • Transaction and integration related expenses of approximately $1.0 million
  • Interest and other expense is expected to be approximately $2.0 million
  • GAAP tax rate is expected to be a benefit in the range of 2.0% to 3.0%
  • Non-GAAP tax rate is expected to be a provision in the range of 9.0% to 11.0%
  • GAAP earnings are expected to be in the range of 13 to 21 cents per diluted share
  • Non-GAAP earnings are expected to be in the range of 31 to 37 cents per diluted share
  • Fully diluted share count is expected to be approximately 69.0 million shares
  • Capital expenditures are expected to be approximately $10.0 million

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 gross profit, net income and earnings per diluted share and free cash flow. To provide additional insight into the Company's second quarter outlook, this release includes a presentation of forward-looking non-GAAP earnings per diluted share. A further discussion of these non-GAAP financial measures can be found above. The non-GAAP gross profit, net income and earnings per diluted share measures exclude stock-based compensation, amortization of acquired intangible assets, and the other items detailed above. The non-GAAP presentation of free cash flow excludes capital expenditures. These non-GAAP 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 GAAP results for the second quarter of fiscal years 2014 and 2013 and the first quarter of fiscal year 2014; and a reconciliation of forward-looking earnings per diluted share for the third quarter of fiscal year 2014. These additional 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 Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements other than historical information or statements of current condition and relate to matters such as future financial performance, future operational performance, the anticipated impact of specific items on future earnings, and our plans, objectives and expectations. These forward-looking statements are identified by the use of such terms and phrases as "intends," "goal," "estimate, "expect," "project," "plans," "anticipates," "should," "will," "designed to," "believe," and other similar expressions which generally identify 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. Important factors that could cause actual results to differ materially include, but are not limited to: 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, demand for increasing miniaturization of electronic components; shifts in demand among target customers, and other comparable changes or protracted weakness in projected or anticipated markets; competitive changes in the market place, 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; adequate supply of components and materials from our suppliers, and of our products from our third-party manufacturers, to include disruptions due to natural causes or disasters, or related extraordinary weather events; the Company's ability to forecast and achieve anticipated revenues and earnings estimates in light of periodic economic uncertainty, to include impacts arising from European and global economic dynamics; the Company's ability to manage expenses to achieve anticipated amounts; and the amount and timing of expenditures for capital equipment deemed necessary or advisable by the Company. Additionally, forward-looking statements should be considered in conjunction with the cautionary statements contained in the "Risk Factors" section and elsewhere in the Company's Annual Report on Form 10-K for the fiscal year ended January 27, 2013, in the Company's other filings with the SEC, and in material incorporated therein by reference. In light of the significant uncertainties inherent in the forward-looking information included herein, any such forward-looking information should not be regarded as representations by the Company that its objectives or plans will be achieved or that any of its operating expectations or financial forecasts will be realized. Investors are cautioned not to place undue reliance on any forward-looking information contained herein. The Company assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

About Semtech

Semtech Corporation is a leading supplier of analog and mixed-signal semiconductors for high-end consumer, 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 marks of Semtech Corporation.

SEMTECH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Table in thousands - except per share amount)
           
Three Months Ended Six Months Ended
July 28, April 28, July 29, July 28, July 29,
  2013     2013     2012     2013     2012  
Q2 2014 Q1 2014 Q2 2013 FY 2014 FY 2013
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Net sales $ 165,010 $ 162,407 $ 150,704 $ 327,417 $ 267,346
Cost of sales   64,302     65,120     76,179     129,422     137,484  
Gross profit 100,708 97,287 74,525 197,995 129,862
Operating costs and expenses:
Selling, general and administrative 33,315 34,794 31,220 68,109 76,038
Product development and engineering 33,125 34,559 32,613 67,684 56,696
Intangible amortization and impairments   9,811     7,856     7,977     17,667     13,555  
Total operating costs and expenses   76,251     77,209     71,810     153,460     146,289  
Operating income (loss) 24,457 20,078 2,715 44,535 (16,427 )
Interest expense (10,584 ) (4,060 ) (3,442 ) (14,644 ) (4,955 )
Interest income and other (expense), net   (198 )   (807 )   (590 )   (1,005 )   (706 )
Income (loss) before taxes 13,675 15,211 (1,317 ) 28,886 (22,088 )
(Benefit) provision for taxes   (5,437 )   434     (11,339 )   (5,003 )   (34,319 )
Net income $ 19,112   $ 14,777   $ 10,022   $ 33,889   $ 12,231  
 
Earnings per share:
Basic $ 0.28 $ 0.22 $ 0.15 $ 0.50 $ 0.19
Diluted $ 0.28 $ 0.22 $ 0.15 $ 0.49 $ 0.18
 
Weighted average number of shares used in computing earnings per share:
Basic 67,614 66,956 65,587 67,285 65,435
Diluted 69,090 68,579 67,165 68,813 67,207
 
SEMTECH CORPORATION
CONSOLIDATED BALANCE SHEETS
(Table in thousands)
   
July 28, January 27,
2013 2013
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 237,060 $ 223,192
Temporary investments - 4,973
Accounts receivable, net 80,595 69,160
Inventories 78,214 74,878
Deferred tax assets 7,334 7,473
Prepaid taxes 7,073 7,794
Other current assets   19,214   18,523
Total current assets 429,490 405,993
 
Property, plant and equipment, net 113,314 101,837
Long-term investments 4,923 7,907
Deferred income taxes 40,828 33,563
Goodwill 393,584 393,584
Other intangible assets, net 187,916 206,058
Other assets   19,595   22,071
Total assets $ 1,189,650 $ 1,171,013
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 50,404 $ 51,991
Accrued liabilities 36,866 49,276
Deferred revenue 5,398 3,745
Current portion - long term debt 18,385 48,449
Deferred tax liabilities   3,245   4,221
Total current liabilities 114,298 157,682
 
Deferred tax liabilities - non-current 3,636 2,042
Long term debt - less current 282,157 282,286
Other long-term liabilities 39,073 34,177
Stockholders’ equity   750,486   694,826
Total liabilities & stockholders' equity $ 1,189,650 $ 1,171,013
 
SEMTECH CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Table in thousands)
   
 
Six Months Ended
July 28, July 29,
  2013     2012  
(Unaudited) (Unaudited)
 
Cash flows from operating activities:
Net income $ 33,889 $ 12,231
Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions:
Depreciation, amortization and impairments 28,937 22,545
Effect of acquisition fair value adjustments 121 28,600
Accretion of deferred financing costs and debt discount 1,010 1,081
Writeoff of deferred financing costs and debt discount 8,773 -
Deferred income taxes (6,529 ) (12,425 )
Stock-based compensation 14,782 10,245
Excess tax benefits on stock based compensation - (2,913 )
(Gain) loss on disposition of property, plant, and equipment (27 ) 85
Changes in assets and liabilities   (22,511 )   (47,578 )
Net cash provided by operating activities 58,445 11,871
 
 
Cash flows from investing activities:
Purchase of available-for-sale investments (1,050 ) (10,106 )
Proceeds from sales and maturities of available-for-sale investments 8,998 103,199
Proceeds from sales of property, plant, and equipment 57 -
Purchase of property, plant, and equipment (23,565 ) (10,715 )
Purchase of intangible assets (2,583 ) -
Acquisitions, net of cash acquired   -     (491,717 )
Net cash used in investing activities (18,143 ) (409,339 )
 
 
Cash flows from financing activities:
Proceeds from debt issuance, net of discount 328,000 347,000
Deferred financing cost (3,637 ) (8,962 )
Payment for interest rate cap - (1,100 )
Excess tax benefits on stock based compensation - 2,913
Proceeds from exercises of stock options 8,328 2,413
Repurchase of outstanding common stock - (269 )
Payment of long term debt   (359,125 )   (5,625 )
Net cash (used in) provided by financing activities (26,434 ) 336,370
Effect of exchange rate increase on cash and cash equivalents   -     (66 )
 
Net increase (decrease) in cash and cash equivalents 13,868 (61,164 )
Cash and cash equivalents at beginning of period 223,192 227,022
   
Cash and cash equivalents at end of period $ 237,060   $ 165,858  
 
SEMTECH CORPORATION
SUPPLEMENTAL INFORMATION - NOTES TO CONSOLIDATED GAAP STATEMENTS OF INCOME
(Tables in thousands - except per share amounts)
           
Three Months Ended Six Months Ended
July 28, April 28, July 29, July 28, July 29,
  2013     2013     2012     2013     2012  
Stock-based Compensation Expense Q2 2014 Q1 2014 Q2 2013 FY 2014 FY 2013
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cost of sales $ 405 $ 328 $ 297 $ 733 $ 528
Selling, general and administrative 3,548 4,882 2,657 8,430 5,881
Product development and engineering   2,203     3,416     1,965     5,619     3,836  
Total stock-based compensation expense $ 6,156   $ 8,626   $ 4,919   $ 14,782   $ 10,245  
 
 
Three Months Ended Six Months Ended
July 28, April 28, July 29, July 28, July 29,
  2013     2013     2012     2013     2012  
Gross Profit - Reconciliation GAAP to Non-GAAP Q2 2014 Q1 2014 Q2 2013 FY 2014 FY 2013
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
GAAP gross profit $ 100,708 $ 97,287 $ 74,525 $ 197,995 $ 129,862
Adjustments to GAAP gross profit:
Stock-based compensation expense 405 328 297 733 528
Acquisition related fair value adjustments   -     2,408     17,355     2,408     29,966  
Non-GAAP gross profit $ 101,113   $ 100,023   $ 92,177   $ 201,136   $ 160,356  
 
 
Three Months Ended Six Months Ended
July 28, April 28, July 29, July 28, July 29,
  2013     2013     2012     2013     2012  
Net Income - Reconciliation GAAP to Non-GAAP Q2 2014 Q1 2014 Q2 2013 FY 2014 FY 2013
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
GAAP net income $ 19,112 $ 14,777 $ 10,022 $ 33,889 $ 12,231
 
Adjustments to GAAP net income:
Stock-based compensation expense $ 6,156 $ 8,626 $ 4,919 14,782 $ 10,245
Acquisition related fair value adjustments 338 2,747 18,065 3,085 31,198
Transaction and integration related expenses 506 931 1,757 1,437 19,323
Intangible amortization and impairments 9,811 7,856 7,977 17,667 13,555
Writeoff of deferred financing cost 8,773 - - 8,773 -
         
Total before taxes 25,584 20,160 32,718 45,744 74,321
Associated tax effect   (8,935 )   (3,670 )   (15,276 )   (12,605 )   (41,151 )
Total of supplemental information net of taxes   16,649     16,490     17,442     33,139     33,170  
Non-GAAP net income $ 35,761   $ 31,267   $ 27,464   $ 67,028   $ 45,401  
 
Diluted GAAP earnings per share $ 0.28 $ 0.22 $ 0.15 $ 0.49 $ 0.18
Adjustments per above   0.24     0.24     0.26     0.48     0.50  
Diluted non-GAAP earnings per share $ 0.52   $ 0.46   $ 0.41   $ 0.97   $ 0.68  
 
 
Three Months Ended Six Months Ended
July 28, April 28, July 29, July 28, July 29,
  2013     2013     2012     2013     2012  
Tax Impact Associated With Supplemental Information Q2 2014 Q1 2014 Q2 2013 FY 2014 FY 2013
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Adjustments to GAAP net income:
Stock-based compensation expense $ 2,596 $ 1,203 $ 4,029 3,799 $ 4,766
Acquisition related fair value adjustments 66 570 4,238 636 5,141
Transaction and integration related expenses 194 283 2,470 477 2,664
Intangible amortization and impairments 2,877 1,614 1,495 4,491 2,093
Release of prior accrued taxes on foreign earnings - - - - 23,443
Write off of deferred financing costs 3,202 - - 3,202 -
Effect of enacted tax rate changes - - 3,044 - 3,044
         
Total of associated tax effect $ 8,935   $ 3,670   $ 15,276   $ 12,605   $ 41,151  
 
 
Three Months Ended
July 28, April 28, July 29,
  2013     2013     2012  
Q2 2014 Q1 2014 Q2 2013
(Unaudited) (Unaudited) (Unaudited)
Free Cash Flow:
 
Cash Flow from Operations $ 41,296 $ 17,150 23,605
Net Capital Expenditure   (12,766 )   (10,742 )   (6,085 )
Free Cash Flow: $ 28,530   $ 6,408   $ 17,520  
 
 
Q3 FY14 Earnings Per Share Guidance
GAAP to Non-GAAP Reconciliation (net of tax)

Low

High

GAAP EPS $ 0.13 $ 0.21
 
Stock based compensation expense 0.08 0.07
Transaction and integration related expenses 0.01 0.01
Amortization of acquired intangibles 0.09 0.08
   
Non-GAAP EPS $ 0.31   $ 0.37  

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



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