Semtech Corporation

Greetings. Welcome to the Semtech Corporation conference call to discuss the first quarter fiscal year 2023 financial results. Speakers for today's call will be Mohan Maheswaran, Semtech's President and Chief Executive Officer, and Emeka Chukwu, Semtech's Executive Vice President and Chief Financial Officer. Please note this conference is being recorded. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. I will now turn the call over to CEMTEX Executive Vice President and Chief Financial Officer Emeka Chukwu.

Thank you, Operator.

The press release announcing our unaudited resource was issued after the market closed today and is available on our website at CEMTEX.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 included in today's press release and in the other risk factors section of our most recent periodic reports. with the Securities and Exchange Commission. As a reminder, comments made on today's call are current as of today only, and CEMTAC undertakes no obligation to update the information from this call should facts or circumstances change. During this call, all references made to financial results in my prepared remarks and Mohan's prepared remarks. who 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. In Q1 fiscal 23, the company delivered net revenue of $202.1 million, a sequential increase of 6% and an increase of 19% year over year and was once again above the midpoint of our guidance. These numbers include $2.9 million of revenue from our high reliability business that we diverted at the start of Q2. We continue to demonstrate the leverage in our model by growing earnings at approximately twice the rate of revenue growth. Non-GAAP earnings per share grew 14% sequentially and 51% year-over-year. The strength of the circular drivers behind our growth engines of LoRa, Tri-Edge, PON-X, 5G and systems protection platforms, contributed to the strong net revenue performance, despite the challenges presented by COVID and supply constraints. In Q1, shipments into Asia, North America, and Europe represented 76%, 13%, and 11% respectively. While this represented the ship-through addresses of our distributors and customers, We estimate that approximately 33% of our shipments are consumed in China, 29% in the Americas, 19% in Europe, and the balance over the rest of the world. Total direct sales represented approximately 11% of net revenue, and distribution represented approximately 89%. Our distributed POS represented another quarterly record and the business remains balanced with approximately 40%, 35% and 25% of the total POS coming from the infrastructure, industrial and high-end consumer and markets respectively. Net revenues from the high-end consumer market increased 2% sequentially and decreased 11% over the prior year, and represented 24% of total net revenues. Approximately 12% of high-end consumer net revenues was attributable to mobile devices, and approximately 12% was attributable to other consumer systems. Net revenue from the industrial end market increased 4 percent sequentially and 42 percent over the prior year and represented 39 percent of total net revenues. Finally, the infrastructure end market increased 11 percent sequentially and 24 percent over the prior year and represented 37 percent of total net revenues. Q1 bookings decreased 23% sequentially, and those bookings accounted for approximately 1% of our Q1 shipments. Q1 gross margin increased 30 basis points sequentially to 64.8%, a new quarterly record, driven by a higher mix of our growth engines. For Q2, we expect growth margin to expand to another record, reflecting the benefit of the continued strength of our growth engines. In fiscal 23, we expect our growth margins to trend higher, 100 to 200 basis points, from a favorable richer mix of our growth platforms. In Q1, operating expense increased slightly to $70.9 million, driven by higher staffing costs. For Q2, we expect our operating expense to increase slightly due to higher new product expenses. In Q1 of fiscal 23, operating profit grew 11% sequentially, approximately two times the rate of net revenue growth, reflecting the higher gross margin and the modest increase in operating expense. Sequentially, operating margin expanded approximately 130 business points to 29.8%. and expanded approximately 550 business points from the same quarter last year, representing solid progress towards our 32% to 36% long-term target model. We are seeing the strong operating leverage expected from the success of our growth platforms. In Q1, cash flow from operations was $50 million, up 54% from the same quarter last year. This is the result of the record operating profit and good management of working capital. Free cash flow increased 56% year over year. Cash flow generation in fiscal 23 is expected to be strong, despite the strategic decision to maintain higher levels of inventory because of strong demand and supply constraints. In Q1, we repurchased approximately $50 million or 1.2% of our standard stock. We have approximately $209 million remaining in our share repurchase authorization. We expect to continue to use our cash to opportunistically repurchase our shares, make strategic investments, and pay down debt. Q1 accounts receivable decreased 7% sequentially, and days of sales declined four days to 31 days. In Q1, our net inventory in absolute dollar terms decreased 6% sequentially, and days of inventory decreased six days sequentially to 140 days, primarily reflecting the value of the inventory reclassified as available for sale. as a result of the divestiture of our high reliability discrete business. We expect our net inventory to remain above our target range of 90 to 100 days to support the higher demand and the tighter supply chain environment. In summary, we are very pleased to deliver another record financial performance in Q1, despite the supply chain constraints and continued pandemic headwinds. We are pleased to see our years of investment in technology platforms that enable us a smarter, sustainable planet, drive record sales, record gross margin, and record earnings per share. Our cash flow generation remains strong. The financial model is delivering a strong leverage. In fiscal year 23, we believe the long-term circular nature of our growth engines, positions us nicely for another record financial performance in fiscal year 23. I will now hand the call over to Mohan.