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Semtech's (SMTC) Q3 Earnings Beat Estimates, Sales Rise Y/Y

Semtech Corporation’s SMTC third-quarter fiscal 2024 non-GAAP earnings of 2 cents per share compares favorably with the Zacks Consensus Estimate for a loss of 15 cents per share. However, the metric decreased by 96.9% year over year.

Net sales of $200.89 million came below the Zacks Consensus Estimate of $200.93 million. The figure increased by 13.1% 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. The improving consumer market was a plus.

Softness in the Signal Integrity product line was a major concern. Weak momentum across the infrastructure market was a headwind.

Shares of Semtech have lost 29.5% on a year-to-date basis against the industry’s growth of 20.3%.

Semtech Corporation Price, Consensus and EPS Surprise

Semtech Corporation Price, Consensus and EPS Surprise
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 totaled $43.2 million (21% of net sales), indicating a decline of 38.7% year over year.

Sales from the industrial market amounted to $120.2 million (60% of net sales), up 65.8% from the prior-year period’s level.

Sales from the high-end consumer market totaled $37.6 million (19% of net sales), up 8.3% year over year.

Revenues by Product Lines

Signal Integrity (24% of net sales) sales totaled $48.74 million in the reported quarter, down 36.5% year over year. The figure missed the consensus mark of $53 million.

Advanced Sensing and Protection (25% of net sales) sales amounted to $50.6 million, down 1.3% from the prior-year quarter's level. The figure came above the consensus mark of $42.9 million.

IoT System (39% of net sales) sales were $77.4 million, increasing 55.7% on a year-over-year basis. The figure lagged the Zacks Consensus Estimate of $91 million.

IoT Connected Services (12% of net sales) sales were $24.2 million in the reported quarter. The figure surpassed the Zacks Consensus Estimate of $12.09 million.

Operating Results

Non-GAAP gross margin of 49.6% contracted from 65.5% reported in the year-ago quarter.

Adjusted selling, general and administrative expenses for the fiscal third quarter increased 6% to $38.6 million from the prior-year quarter's reported number.

Adjusted product development and engineering expenses increased 38.9% from the year-ago quarter's level to $43.9 million.

The non-GAAP operating margin of 10.2% contracted significantly from the 27.2% reported in the prior-year quarter.

Balance Sheet and Cash Flow

As of Oct 29, 2023, cash and cash equivalents were $123.8 million, down from $147.9 million as of Jul 30, 2023.

Account receivables for third-quarter fiscal 2024 totaled $156.6 million, down from $159.1 million in second-quarter fiscal 2024.

Long-term debt was $1.37 billion compared with $1.33 billion in the previous quarter.

In the reported fiscal quarter, the company used $5.8 million of cash in operations compared with $12 million in the previous quarter. Free cash flow in the fiscal third quarter totaled $12.4 million.

Guidance

For fourth-quarter fiscal 2024, management expects net sales of $180-$200 million. The Zacks Consensus Estimate for the same is pegged at $207.38 million.

The non-GAAP gross margin is expected to be 48% (+/- 100 bps). Non-GAAP operating margin is anticipated to be 9.1% (+/- 200 bps).

The non-GAAP-based loss is expected to be 5 cents per share (+/- 6 cents). The consensus mark for earnings is pinned at a loss of 4 cents per share.

Zacks Rank & Stocks to Consider

Currently, Semtech carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Badger Meter BMI, Arista Networks ANET and Adobe ADBE. While Badger Meter sports a Zacks Rank #1 (Strong Buy), Arista Networks and Adobe each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Badger Meter have gained 31.1% in the year-to-date period. BMI’s long-term earnings growth rate is 20.39%.

Shares of Arista Networks have surged 70.2% in the year-to-date period.  ANET's long-term earnings growth rate is 19.77%.

Shares of Adobe have risen 84.3% in the year-to-date period. ADBE’s long-term earnings growth rate is 13.54%.

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