Semtech Corporation

Greetings. Welcome to the Semtech Corporation quarter two 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 that this conference is being recorded. I will now turn the conference over to your host, Sandy Harrison. You may begin.

Thank you, John. And welcome to CEMTAC's conference call to discuss our second quarter fiscal year 22 results. Speakers for today's call will be Mohan Maheswaran, CEMTAC'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 CEMTAC.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 safe harbor statement that's 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, comments made on today's call are current as of today only, and Semtech undertakes no obligation to update the information from the call should facts or circumstances change. All references made to financial results in Mohan's and Emeka's prepared remarks during this call, we 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 detailed reconciliations of such non-GAAP measures to the most comparable GAAP financial measures are included in today's press release. I want to also highlight that Semtech will be hosting its first ever Tech Topic webinar that is scheduled for Wednesday, October 6th. where we will focus on our LoRa platform. More details on the event, including the agenda and sign-up information, will be coming soon. With that, I will turn the call over to CEMTAC's Chief Financial Officer, Emeka Chugu. Emeka?

Thank you, Sandy. Good afternoon, everyone. As is our practice, I will be focusing my comments on our non-GAAP financial results, unless otherwise noted. For Q2 fiscal year 22, Net sales grew 9% sequentially and 29% year-over-year to $185 million, which was above the midpoint of our guidance and represented a new quarterly record led by the circular momentum that contributed to new records achieved by several of our key growth platforms. In Q2, shipments into Asia Represented 81% of net sales, not America represented 11% and Europe represented 8%. Why these represent the shift to addresses for our distributors and. We estimate that approximately 35% of our shipments are consumed in China. 27% in the Americas and the balance over the rest of the world. Total direct sales represented approximately 13% of net sales, and sales to distribution represented approximately 87%. And our POS was another quarterly record. Our distribution business remains balanced with approximately 39% of the total POS coming from the infrastructure end market, 31% from the industrial end market, and 30% from the high-end consumer end market. Q2 bookings remained strong and increased 75 percent year-over-year and resulted in a book-to-bill well above 1. Those bookings accounted for approximately 3 percent of shipments during the quarter. Q2 growth margin increased 70 basis points sequentially to 62.7 percent, which was at the upper end of our guidance range due to a more favorable product mix. Our growth margin is benefiting from a higher mix of cells from our growth platforms, including LoRa-enabled, data center triage PAM4 CDRs, 10 gig POM, 5G wireless, and broadband industrial protection. For Q3, we expect the growth margin in the range of 62.8% to 63.8% as we anticipate a greater contribution from these growth drivers. Q2 operating expense increased 3% to $65.9 million, driven by higher variable compensation expenses, slightly offset by lower new product development expenses. For the rest of fiscal year 22, we expect our operating expense to be in line to slightly above current levels. In Q2, we were again pleased to see our operating profit on a sequential and year-over-year basis grow much faster than itself due to the gross margin expansion and stable operating expenses. This drove a 270 basis point sequential expansion of our operating margin to 27.1%. We expect continued operating leverage as we make progress towards our 32% to 36%. percent long-term target model. In Q2, cash flow from operations increased 63 percent sequentially to a record $53 million, or 29 percent of net sales, while free cash flow increased 71 percent sequentially to 25 percent of net sales, achieving the lower end of our long-term free cash flow target range of 25 percent to 30 percent of net sales. In Q2, we repurchased approximately 1% of our outstanding stock for $42 million, resulting in $322 million remaining in our outstanding authorization. We expect to continue to use our cash to opportunistically repurchase our shares, make strategic investments, and pay down debt. Accounts receivable in Q2 increased 10% from Q1, while days of sales decreased three days from Q1 to 34 days, and remains below our target range of 40 to 45 days. In Q2, net inventory in absolute dollar terms increased 10% sequentially, and days of inventory increased by three days to 129 days at the end of Q2. We expect our net inventory to remain above our target range of 90 to 100 days to support the stronger demand and the tighter supply chain environment. In summary, we are pleased with the strong first half momentum we are seeing from our higher margin growth engines, which we expect to continue in the second half. We believe the sustainable secular drivers behind our growth engines are expanding gross margins, stable operating expenses, and strong cash flow generation have positioned us well to deliver a record financial performance in fiscal year 22 and beyond. I will now hand the call over to Mohan.