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Semtech (SMTC) Q3 Earnings Beat Estimates, Revenues Up Y/Y

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Semtech Corporation (SMTC - Free Report) reported strong fiscal third-quarter 2019 results, wherein earnings and revenues beat the Zacks Consensus Estimate.

Non-GAAP earnings of 63 cents per share beat the consensus mark by a couple of cents, and also increased 14.5% sequentially as well as 16.7% year over year. Earnings came within the guided range of 58-64 cents per share.

Non-GAAP revenues of $173.6 million increased 6.3% sequentially and 15.5% from the prior-year quarter. The increase was driven by growth in the IoT, data center and mobile markets. Revenues were within the guided range of $168-$178 million.

Following the third-quarter earnings release, its share price rose 4.9%. Also, shares of Semtech have gained 41.2% on a year-to-date basis against the industry’s decline of 12.1%.

 

 

The company’s improved profitability was driven by differentiated growth drivers and diversification strategy. Key growth drivers for Semtech are product differentiation, operational flexibility, along with a specific focus on fast-growing segments and regions.

Let’s delve into the numbers in detail:

Revenues by End Market

Sales to the enterprise computing end market, which represented 30% of its total revenues, were up on a sequential basis.

Also, sales to the high-end consumer market represented 29% of the total revenues, increasing sequentially. Roughly 20% of high-end consumer revenues were attributable to mobile devices and 9% to other consumer systems.

The industrial and communications end markets recorded strong demand, and both increased sequentially, representing 30% and 11% of the total revenues, respectively.

Revenues by Product Group

Signal Integrity Product Group revenues contributed 40% to total sales and increased 2% sequentially. Continued strength in data center demand, PON, base station and video markets contributed to the growth.

Protection Product Group represented 28% of the total revenues and was up 13% sequentially. This was due to increasing use of protection for 10-gig Ethernet ports in enterprise cloud switches, and wireless access points and base stations.

Wireless and Sensing Product Group, which contributed 30% to the total revenues, was up 6% sequentially.

Bookings

Bookings, which accounted for roughly 37% of the shipments, decreased on a sequential basis during the quarter. The book-to-bill ratio was below 1.

Margins and Net Income

Non-GAAP gross margin was 61.7%, up 20 basis points (bps) sequentially and 200 bps from the year-ago quarter.

Semtech’s adjusted operating expenses of $54.3 million increased 2.2% on a year-over-year basis. As a percentage of sales, selling, general and administrative, as well as product development and engineering expenses decreased.

As a result, its operating margin of 30.4% was up 150 bps sequentially and 610 bps year over year.

Balance Sheet & Cash Flow

Semtech ended the quarter with cash and cash equivalents of $312.2 million, up from $311.3 million in the fiscal second quarter. Accounts receivables were $83.8 million, up from $78.4 million in the fiscal second quarter. Long-term debt was $197.4 million, down from $202 million in the fiscal second quarter.

During the quarter, cash flow from operations was $136.4 million, capital expenditure amounted to $3.1 million and free cash flow totaled $48.9 million.

Guidance

For fiscal fourth-quarter 2019, management expects revenues on a non-GAAP basis in the range of $155-$165 million. The Zacks Consensus Estimate for the same is pegged at $165.3 million.

Non-GAAP gross profit margin is expected within 61.5-62.5%. Management projects SG&A expenses within $26.5-$27.5 million, and research and development expenses in the range of $24.5-$25.5 million. Non-GAAP earnings per share are expected in the range of 53-57 cents. The corresponding Zacks Consensus Estimate is pegged at 55 cents.

Semtech Corporation Price, Consensus and EPS Surprise

 

Semtech Corporation Price, Consensus and EPS Surprise | Semtech Corporation Quote

Zacks Rank and Stocks to Consider

Semtech currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include AMETEK, Inc. (AME - Free Report) , QuinStreet, Inc. (QNST - Free Report) and Stamps.com Inc. (STMP - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for AMETEK, QuinStreet and Stamps.com is currently pegged at 11.18%, 25% and 15%, respectively.

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