Semtech(SMTC) - 2025 Q2 - Quarterly Results

Semtech Q2 FY2025 Earnings Release Financial Highlights and Management Commentary Semtech reported Q2 FY2025 net sales of $215.4 million, a 4% sequential increase, demonstrating improved profitability and confidence in growth strategy Q2 FY2025 Key Financial Metrics | Metric | Value | Sequential Change | | :--- | :--- | :--- | | Net Sales | $215.4 million | +4% | | GAAP Gross Margin | 49.0% | +70 bps | | Non-GAAP Gross Margin | 50.4% | +60 bps | | GAAP Operating Margin | 3.6% | +210 bps | | Non-GAAP Operating Margin | 14.2% | +200 bps | | GAAP Diluted EPS | ($2.61) | N/A | | Non-GAAP Diluted EPS | $0.11 | N/A | | Adjusted EBITDA Margin | 18.8% | +270 bps | - CEO Hong Hou stated that the solid Q2 financial performance and favorable Q3 outlook demonstrate the successful execution of the company's growth strategy, positioning Semtech to capture significant future market opportunities[2] - CFO Mark Lin highlighted sequential and year-over-year improvements in gross, operating, and adjusted EBITDA margins, attributing the performance to a commitment to prudent cost control while growing the business[2] Second Quarter of Fiscal Year 2025 Financial Results Q2 FY2025 net sales reached $215.4 million, a 4% sequential increase, with a GAAP net loss of $170.3 million and Non-GAAP net income of $8.1 million Q2 FY2025 Financial Performance (GAAP vs. Non-GAAP) | (in millions, except per share data) | GAAP Q2'25 | Non-GAAP Q2'25 | GAAP Q1'25 | Non-GAAP Q1'25 | GAAP Q2'24 | Non-GAAP Q2'24 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $215.4 | $215.4 | $206.1 | $206.1 | $238.4 | $238.4 | | Gross margin | 49.0% | 50.4% | 48.3% | 49.8% | 42.3% | 49.6% | | Operating income (loss) | $7.8 | $30.5 | $3.1 | $25.2 | ($300.1) | $32.4 | | Operating margin | 3.6% | 14.2% | 1.5% | 12.2% | (125.9)% | 13.6% | | Net (loss) income | ($170.3) | $8.1 | ($23.2) | $4.1 | ($382.0) | $8.5 | | Diluted (loss) earnings per share | ($2.61) | $0.11 | ($0.36) | $0.06 | ($5.97) | $0.13 | | Adjusted EBITDA | N/A | $40.5 | N/A | $33.1 | N/A | $39.0 | | Adjusted EBITDA margin | N/A | 18.8% | N/A | 16.1% | N/A | 16.4% | Third Quarter of Fiscal Year 2025 Outlook Semtech projects Q3 FY2025 net sales of $233.0 million, anticipating further margin expansion and Non-GAAP diluted EPS of $0.23 Q3 FY2025 Non-GAAP Outlook | Metric | Mid-Point Guidance | Range | | :--- | :--- | :--- | | Net sales (in millions) | $233.0 | +/- $5.0 million | | Gross margin | 52.0% | +/- 50 bps | | Operating expenses, net (in millions) | $81.0 | +/- $1.0 million | | Operating income (in millions) | $40.2 | +/- $2.8 million | | Operating margin | 17.2% | +/- 80 bps | | Diluted earnings per share | $0.23 | +/- $0.03 | | Adjusted EBITDA (in millions) | $48.7 | +/- $2.8 million | | Adjusted EBITDA margin | 20.9% | +/- 80 bps | | Diluted share count (in millions) | 78.6 | N/A | - The company is unable to provide a reconciliation of its forward-looking non-GAAP guidance to the corresponding GAAP measures without unreasonable efforts due to high variability and low visibility of certain excluded items[5] Consolidated Financial Statements (GAAP) The unaudited GAAP financial statements reveal a Q2 net loss of $170.3 million, total assets of $1.37 billion, and negative free cash flow of $8.4 million Statements of Operations The Statements of Operations detail net sales, gross profit, operating income, and a significant net loss for the quarter, including a loss on extinguishment of debt Condensed Consolidated Statements of Operations (in thousands) | (Three Months Ended) | July 28, 2024 (Q2'25) | April 28, 2024 (Q1'25) | July 30, 2023 (Q2'24) | | :--- | :--- | :--- | :--- | | Net sales | $215,355 | $206,105 | $238,372 | | Gross profit | $105,464 | $99,592 | $100,728 | | Operating income (loss) | $7,768 | $3,143 | ($300,109) | | Loss on extinguishment of debt | ($144,688) | — | — | | Net loss attributable to common stockholders | ($170,295) | ($23,159) | ($382,002) | | Diluted loss per share | ($2.61) | ($0.36) | ($5.97) | Balance Sheets The Balance Sheets present the company's financial position, including assets, liabilities, and stockholders' deficit as of July 28, 2024, and January 28, 2024 Condensed Consolidated Balance Sheets (in thousands) | | July 28, 2024 | January 28, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $115,928 | $128,585 | | Total current assets | $541,743 | $534,197 | | Goodwill | $541,104 | $541,227 | | Total assets | $1,368,000 | $1,373,735 | | Liabilities and Equity | | | | Total current liabilities | $224,673 | $217,156 | | Long-term debt | $1,192,865 | $1,371,039 | | Total liabilities | $1,509,437 | $1,680,985 | | Stockholders' deficit | ($141,437) | ($307,250) | Statements of Cash Flows The Statements of Cash Flows detail cash movements from operating, investing, and financing activities, highlighting negative free cash flow for the quarter Condensed Consolidated Statements of Cash Flows (in thousands) | (Six Months Ended) | July 28, 2024 | July 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($5,084) | ($101,992) | | Net cash used in investing activities | ($2,672) | ($19,577) | | Net cash (used in) provided by financing activities | ($4,550) | $34,727 | | Net decrease in cash and cash equivalents | ($12,657) | ($87,598) | - Free cash flow was negative for the second quarter at ($8.4) million, calculated from cash flow from operations of ($5.0) million less net capital expenditures of ($3.4) million[20] Reconciliation of GAAP to Non-GAAP Financial Measures The company reconciles GAAP to Non-GAAP measures by adjusting for items like share-based compensation and debt extinguishment loss, transforming a GAAP net loss into Non-GAAP net income Gross Margin and Operating Expenses Reconciliation This section details the reconciliation of GAAP to Non-GAAP gross margin and operating expenses, highlighting key adjustments for amortization and share-based compensation - Non-GAAP gross margin for Q2 FY2025 was 50.4%, adjusted from the GAAP margin of 49.0% primarily by excluding $2.3 million (1.1% of sales) in amortization of acquired technology[21] - Non-GAAP operating expenses were $77.9 million in Q2 FY2025, reconciled from GAAP operating expenses of $97.7 million, with key exclusions including share-based compensation ($16.4 million), restructuring charges ($1.5 million), and transaction/integration costs ($1.5 million)[22] Operating Income and Net Income Reconciliation This section reconciles GAAP operating income and net loss to their Non-GAAP counterparts, detailing adjustments for various non-core items - Adjusted Non-GAAP operating income for Q2 FY2025 was $30.5 million, a significant increase from the GAAP operating income of $7.8 million, with reconciliation including adding back share-based compensation, amortization, and restructuring costs[23] Reconciliation of GAAP Net Loss to Non-GAAP Net Income (Q2'25, in thousands) | Description | Amount | | :--- | :--- | | GAAP net loss attributable to common stockholders | ($170,295) | | Share-based compensation | $17,138 | | Intangible amortization | $2,561 | | Transaction and integration related costs, net | $1,958 | | Restructuring and other reserves, net | $1,541 | | Loss on extinguishment of debt | $144,688 | | Other adjustments (net) | $7,913 | | Associated tax effect | $2,784 | | Non-GAAP net income attributable to common stockholders | $8,107 | Adjusted EBITDA Reconciliation This section provides the reconciliation from GAAP net loss to Adjusted EBITDA, detailing adjustments for interest, taxes, D&A, and other non-recurring items Reconciliation to Adjusted EBITDA (in thousands) | (Three Months Ended) | July 28, 2024 (Q2'25) | April 28, 2024 (Q1'25) | July 30, 2023 (Q2'24) | | :--- | :--- | :--- | :--- | | GAAP net loss | ($170,295) | ($23,159) | ($382,002) | | Interest, Taxes, D&A | $49,575 | $36,147 | $103,480 | | Loss on extinguishment of debt | $144,688 | — | — | | Share-based compensation | $17,138 | $15,234 | $13,399 | | Other adjustments | $2,988 | $4,871 | $21,824 | | Adjusted EBITDA | $40,544 | $33,093 | $39,046 | | Adjusted EBITDA Margin | 18.8% | 16.1% | 16.4% | Important Disclosures This section details the company's use of non-GAAP financial measures and provides cautionary statements regarding forward-looking information and associated risks Non-GAAP Financial Measures Explanation This section explains the company's rationale for using non-GAAP financial measures, detailing the types of adjustments made to GAAP results - The company uses non-GAAP financial measures to supplement its GAAP statements, believing they provide useful information to investors regarding financial condition and results of operations[9] - Non-GAAP measures exclude items such as share-based compensation, intangible amortization, transaction/integration costs, restructuring, litigation, and goodwill impairment, among others[7] - For fiscal year 2025, the company has adopted a projected non-GAAP normalized tax rate of 15%, which will be applied to each quarter to reduce variability in interim reporting periods[12] Forward-Looking Statements This section addresses forward-looking statements, outlining potential risks and uncertainties that could cause actual results to differ materially from projections - The press release contains forward-looking statements regarding future financial and operational performance, including the Q3 FY2025 outlook[14] - Potential risks that could cause actual results to differ materially include: covenants under debt agreements, material weaknesses in internal controls, risks of integrating Sierra Wireless, supply chain constraints, economic and political disruptions, and competitive changes[15] - Investors are cautioned not to place undue reliance on forward-looking statements, as they are based on management's analysis only as of the date of the release[16]