Semtech Corporation

Greetings. Welcome to the STEM Tech Corporation Q1 fiscal year 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Sandy Harrison, VP of Investor Relations. Thank you. You may begin.

Thank you, Hilary, and welcome to CEMTEC's conference call to discuss our first quarter fiscal year 22 financial results. Speakers for today's call will be Mohan Monswaran, CEMTEC's President and Chief Executive Officer, and Emeka Chukwu, our Chief Financial Officer. A press release announcing our unaudited results was issued after the market closed today and is available on our website at CEMTEC.com. Today's call will include forward-looking statements that include risks and uncertainties that could cause actual results to differ materially from the results anticipated in these statements. For a more detailed discussion of these risks and uncertainties, please review the State Harbor Statement included in today's press release and in the other risk factors section of our most recent periodic reports filed with the Securities and Exchange Commission. As a reminder, today's comments made on today's call are current as of today only, and Suntec undertakes no obligation to update the information from this call should facts or circumstances change. As a reminder, all references made to financial results in Mohan's and Emeka's prepared remarks during this call will refer to non-GAAP financial measures unless otherwise noted. A discussion of why the management team considers such non-GAAP financial measures useful along with the detailed reconciliation of such non-GAAP measures to the most comparable GAAP measures are also included in today's press release. With that, I'll turn the call over to CEMTAC's Chief Financial Officer, Emeka Chuka. Emeka?

Thank you, Sandy. Good afternoon, everyone. As Sandy stated, unless otherwise noted, I will be reviewing our non-GAAP financial results and the reconciliation tablets available in today's press release. For Q1 fiscal year 22, net sales grew 3% sequentially and 28% over the same period a year ago to $170.4 million. and above the midpoint of our guidance, led by the continued strength of the circular themes driving our growth platforms. In Q1, shipments into Asia represented 78% of net sales. North America represented 13%, and Europe represented 9%. We estimate that approximately 35% of our shipments is consumed in China. Total direct sales represented approximately 14%, and sales to distribution represented approximately 86%. And our POS represented another quarterly record. Our distribution business remains balanced, with 31% of the total POS coming from the high-end consumer end market, 37% coming from the infrastructure end market, and 32% from the industrial end market. Q1 bookings increased on both the Q over Q and year over year basis and once again represented a new quarterly record and resulted in a book to bill well above 1. Those bookings accounted for approximately 17% of shipments during the quarter. Q1 non-GAAP gross margin increased 50 basis points sequentially to 62%. which was at a high end of our guidance range due to a more favorable product mix. For Q2 and fiscal year 22, we continue to expect our gross margin to trend higher as we expect net sales growth to come from our growth platforms that tend to have higher margins. We believe that we can continue to mitigate the higher costs associated with the challenging global supply chain. through slower customer pricing reductions or through price increases. Q1 non-GAAP operating expense increased 3% to $64.1 million, driven by the negative impact of the weaker U.S. dollar and higher new product development expenses. For the rest of fiscal year 22, Due to the weaker US dollar, we expect our non-GAAP operating expense to be slightly above current levels. In Q1, we were pleased to see our operating profit on a sequential basis and year-over-year basis grow significantly faster than our revenue due to gross margin expansion and modest growth in operating expenses. We expect to see continued operating leverage as we go through the year driven by revenue growth from our LoRa-enabled triage and our industrial protection platforms. As a reminder, beginning in fiscal year 22, we started using a normalized non-GAAP tax rate of 13% for the full fiscal year that we believe reduces the variability in non-GAAP tax rates that can occur throughout the year. We will update this tax rate annually at the beginning of each fiscal year. In Q1, our cash flow from operations increased 20% sequentially to $33 million, or 19% of net sales. And free cash flow increased 61% sequentially to 16% of net sales compared to our long-term free cash flow target of 25% to 30% of sales. In Q1, we repurchased approximately 361,000 shares of our standard stock for $25 million, resulting in $364 million remaining in our standard authorization that was expanded by our board during the quarter. We expect to continue to use our cash to opportunistically repurchase our shares, make strategic investments, and pay down our debt. Accounts receivable in Q1 decreased 6% from Q4, while days of sales increased a day to 37 days and remains below our target range of 40 to 45 days. In Q1, net inventory in absolute dollar terms increased 7% sequentially, and days of inventory increased to 126 days from 116 days at the end of Q4. and remains above our target range of 90 to 100 days. We expect our net inventory to remain above our target range to support stronger demand and to address the tighter supply chain environment. In summary, fiscal year 22 is off to a strong financial start. Our growth platforms are showing strength. Our growth margins are expanding, driven by those platforms. and our optimized operating expenses are leading to a rapidly expanding operating margin. Our cash flow generation remains strong and we continue to focus on the execution of those things that we can control and believe the long-term circular nature of our growth engines position us nicely for strong growth and the record financial performance in fiscal year 22 and beyond. I will now hand the call over to Mohan.