Semtech's (SMTC) Q2 Earnings Beat Estimates, Sales Rise Y/Y
Semtech Corporation’s SMTC second-quarter fiscal 2024 non-GAAP earnings of 11 cents per share beat the Zacks Consensus Estimate of 2 cents per share. However, the metric decreased by 87.3% year over year.
Net sales of $238.4 million outpaced the Zacks Consensus Estimate of $237.1 million. The figure increased by 13.9% from the prior-year quarter’s level.
Top-line growth was driven by the company’s strength in IoT System Products Group. Solid momentum across the industrial end-market contributed well.
Softness in Signal Integrity and Advanced Protection and Sensing product lines were concerns. Weak momentum across infrastructure and consumer markets was a headwind.
Shares of Semtech have lost 20.2% on a year-to-date basis against the industry’s growth of 19.7%.
Semtech Corporation Price, Consensus and EPS Surprise
Semtech Corporation price-consensus-eps-surprise-chart | Semtech Corporation Quote
Revenues by End Market
Sales from the infrastructure market were $42.4 million (18% of net sales), which exhibited a decline of 49.9% year over year.
Sales from the industrial market were $161.99 million (68% of net sales), up 93.5% from the prior-year period’s level.
Sales from the high-end consumer market were $34.02 million (14% of net sales), declining 17% year over year.
Revenues by Product Lines
Signal Integrity (20% of net sales) sales were $46.51 million in the reported quarter, down 46.8% year over year. The figure came below the consensus mark of $57 million.
Advanced Sensing and Protection (20% of net sales) sales were $48.52 million, down 25.7% from the prior-year quarter. The figure came below the consensus mark of $49.08 million.
IoT System (50% of net sales) sales were $119.5 million, increasing 110.9% on a year-over-year basis. The figure surpassed the Zacks Consensus Estimate of $115 million.
IoT Connected Services (10% of net sales) sales were $23.9 million in the reported quarter. The figure surpassed the Zacks Consensus Estimate of $10.9 million.
Operating Results
Non-GAAP gross margin of 49.6% contracted from 65.2% reported in the year-ago quarter.
Adjusted selling, general and administrative expenses for the fiscal second quarter increased 20.9% to $42.8 million from the last fiscal year’s quarterly number. Adjusted product development and engineering expenses increased 17.5% from the year-ago quarter to $42.95 million.
The non-GAAP operating margin of 13.6% contracted significantly from 30.8% reported in the last fiscal year quarter.
Balance Sheet and Cash Flow
As of Jul 30, 2023, cash and cash equivalents were $147.9 million, down from $164.2 million as of Apr 30, 2023.
Account receivables for fiscal second-quarter 2024 were $159.1 million, up from $145.4 million in first-quarter fiscal 2023.
Long-term debt was $1.33 billion compared with $1.34 billion in the previous fiscal quarter.
In the reported fiscal quarter, the company used $12 million of cash in operations compared with $89.9 million in the previous quarter. Free cash flow in the fiscal second quarter was an outflow of $18.9 million.
Guidance
For third-quarter fiscal 2024, management expects net sales of $190-$210 million. The Zacks Consensus Estimate for the same is pegged at $244.32 million.
The non-GAAP gross margin is expected to be 47-49%. Management projects SG&A expenses of $36-$38 million and research and development costs of $45-$47 million on a non-GAAP basis.
The non-GAAP-based loss is expected in the band of 22-9 cents per share. The consensus mark for the bottom line is pinned at 16 cents of earnings per share.
Zacks Rank & Stocks to Consider
Currently, Semtech carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader technology sector are Asure Software ASUR, Arista Networks ANET and Badger Meter BMI. While Asure Software sports a Zacks Rank #1 (Strong Buy), Arista Networks and Badger Meter each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Asure Software shares have gained 23.8% in the year-to-date period. ASUR’s long-term earnings growth rate is currently projected at 27%.
Arista Networks shares have gained 61.9% in the year-to-date period. The long-term earnings growth rate for ANET is currently projected at 18.75%.
Badger Meter shares have gained 47.3% in the year-to-date period. BMI’s long-term earnings growth rate is currently projected at 15.05%.
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