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Semtech (SMTC) Down 0.9% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Semtech (SMTC). Shares have lost about 0.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Semtech due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Semtech Q2 Earnings and Revenues Top Estimates

Semtech Corporation’s fiscal second-quarter 2022 non-GAAP earnings of 65 cents per share surpassed the Zacks Consensus Estimate by 4.8%. The reported earnings increased 22.6% sequentially and 51.2% year over year.

Net sales of $185 million increased 9% sequentially and 29% from the prior-year quarter. It also outpaced the Zacks Consensus Estimate by 2.21%.

The top-line growth was driven by strong momentum across all end-markets served.

Additionally, Semtech’s LoRa business, Tri-Edge platform and 10G PON products contributed well to its quarterly performance.

For the fiscal second quarter, shipments in Asia, North America and Europe represented 81%, 11% and 8% of net sales, respectively.

The company introduced 11 new products and achieved 3,018 new design wins, up 16% year over year.

Revenues by End Market

Net revenues from the infrastructure market, which represented 37% of its total revenues, increased 10% on a sequential basis.

Also, revenues from the industrial market increased 5% from the prior quarter and represented 31% of total net revenues.

Additionally, net revenues from the high-end consumer market represented 32% of total revenues and increased 10% sequentially.

Revenues by Product Group

Signal Integrity Product Group revenues contributed 39% to total revenues. The reported figure increased 10% sequentially. The increase was driven by strong demand across data center and PON markets.

Revenues from its Protection Product Group represented 27% of the total revenues. The figure was up 9% sequentially and 49% year over year. The increase was driven by growing protection revenues, as customers in North America and Korea saw an improvement in their supply constraints.

Wireless and Sensing Product Group revenues, which contributed 34% to total revenues, increased 7% sequentially and 61% year over year. The increase was driven by record net sales of LoRa platform products.

Operating Results

Non-GAAP gross margin of 62.7% expanded 90 basis points (bps) year over year.

Fiscal second-quarter adjusted selling, general and administrative expenses increased 22.6% year over year to $34.2 million. Also, adjusted product development and engineering expenses increased 21.6% from the year-ago quarter to $31.7 million.

Non-GAAP operating margin of 27.1% also expanded 280 bps year over year.

Balance Sheet and Cash Flow

As of Aug 1, 2021, cash and cash equivalents were $262.7 million compared with $258.2 million on May 2, 2021.

Account receivables were $73.1 million, up from $66.5 million in the fiscal first quarter. Long-term debt was $175.4 million, up from $175.3 million in the previous quarter.

For the quarter, cash flow from operations was $53 million, net capital expenditures amounted to $6.97 million and free cash flow totaled $46 million.

During the quarter, the company repurchased 639, 519 shares for $42 million.

Guidance

For fiscal third-quarter 2022, management expects net sales in the range of $188-$198 million. Non-GAAP earnings per share are expected in the range of 68-76 cents.

Non-GAAP gross margin is expected within 62.8-63.8%. Also, management projects SG&A expenses within $33.5-$34.5 million, and research and development costs in the range of $32.5-$33.5 million.

Further, management anticipates generating higher revenues from all product groups in the fiscal third quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Semtech has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Semtech has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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