Semtech Corporation

When activity and bookings increased across the number of customers, and we are also pleased with multiple hundred gig per lane design wins with tier one and tier two customers. We expect growth in this application to continue in the second quarter. Our tri-edge products are also performing well with strong demand from key hyperscalers for 50 gig pan four and 200 gig and 400 gig AOCs for AI and cloud applications. Our 50-gig tri-edge products offering lower power and cost have consistently maintained strong share versus DSPs. In LPO, we remain engaged with several key partners in accelerating adoption of this technology. Net sales for passive optical network products were above our expectations at $27.2 million for the first quarter, a sequential increase of 88% and a year-over-year increase of 64%. The drivers of this strong results are consistent with what we communicated last quarter following the release of tenders. Robust demand for our XG pond and XGS pond reflect our first market position, technical leadership and superior product performance. Expected market drivers in the North American and EMEA markets are consistent with prior quarter. We are pleased with our continued engagement with several large network providers in both 10 gig and 50 gig applications. As there was a bit of a pent-up demand reflected in Q1, we expect net sales of PON to moderate in Q2. That said, based on our current analysis of booking POS trends, we expect solid results for PON throughout the year. Regarding other products in the infrastructure and market, wireless demand has been consistent but at low levels. That said, we are well positioned to lead 5G advanced front-haul deployments with our tri-edge and fiber-edge 50-gig wireless platform and through our active participation in the mobile optical pluggables alliance, which includes our key partners Ericsson and Nokia. Our 50-gig front-haul systems are in qualification and we expect initial sales in the latter half of FY25 for these products and production ramp in FY26. For the first quarter, high-end consumer net sales were $34.5 million, a sequential increase of 8% and up 60% year-over-year. POS was seasonally flat quarter-over-quarter and up 24% year-over-year. Consistent with our expectations, channel inventories continued to improve, down 11% and down 22% year-over-year. Net sales in consumer TVS grew within expectations to 24.9 million, up 20% sequentially, and up 108% year-over-year, and paired with channel inventory decline. We believe our market share at several leading consumer products companies continued to grow with design wins, including handsets, wearables, and tablets. Our performance has been driven by customer preference of our first-to-market high-performance protection devices. Our demonstrated capabilities to reliably deliver to customer demand while maintaining extremely high levels of quality has enabled us to secure a top tier scorecard rating at our largest consumer electronic customer. We expect these capabilities along with market leading innovation allow us to meaningfully outperform market growth. We also continue to extend the frontiers of our capabilities through the deployment of innovative power management solutions that effectively combine over voltage, over current, over temperature, and surge protection with traditional IEC ESD protection. We saw increased levels of interest and adoption for these products at key customers during the first quarter. Our class leading per se proximity sensing products had healthy consumption, up 19% sequentially and up 62% year over year. One of the consumption drivers was the rollout of specific absorption rate standards that took effect earlier this year. This demand has been supplemented by per se design wins in several markets. covering tablets, earbuds, notebook computers, and smartphones. We expect the consumption trend to strengthen driven by widespread adoption of features such as gesture control for earbuds and gesture controlled smart glasses featuring bone conduction speakers. In line with our expectations, channel inventories for proximity sensing declines 26% sequentially and 5% year over year. For the first quarter, industrial net sales were 115.6 million, down 5% sequentially and within expectations. Our IoT systems business recorded first quarter net sales of 48.4 million, down 26% sequentially and down 57% year over year. Consistent with guidance, shipments for this business reflect our desire for healthier channel and end customer inventories. That said, this business is showing signs of recovery with first quarter bookings up 47% sequentially. For our router business, bookings more than doubled, both sequentially and year over year. Router bookings were skewed towards our higher gross margin products, but we saw gains across all product families. Continuing its very strong launch, pipeline and bookings from the XR60, the world's smallest rugged 5G router, continue to grow. We are pleased that we completed major network operator certifications on schedule and have commenced initial XR60 shipments for commercial programs, with second quarter shipments expected to sequentially double. XR60 pipeline expected to close in the current year is also very strong, with opportunities in government applications serving border security, public safety, and logistics each have benefited from passage of a U.S. federal budget. XR60 pipeline has also broadly increased in utility, transit, and medical applications. Lastly, routers saw channel inventories decline 27% sequentially and 47% year-over-year. Bookings in our module business were up 22% sequentially with growth driven by our 5G offerings and supported by further certifications at global network operators. Module bookings were particularly focused in enterprise networking applications, mirroring market growth. Pipeline also grew across a number of IoT markets, including payment processing, energy, and fleet management. We are also very pleased to have announced, along with key partners, satellite non-terrestrial network support in our LPWA modules, further advancing our position in fleet and asset tracking. We believe the hardware business reached bedrock in the first quarter with stability in the second quarter and growth in the second half of FOI 25. First quarter net sales for our connected services businesses were 24.1 million, effectively flat quarter over quarter and within expectations for this relatively stable stream of recurring revenue. Net sales of our RF industrial products, including LoRa-enabled solutions, increased 76% sequentially and 19% year-over-year. POS increased 25% sequentially and 16% year-over-year. The first quarter was characterized by further strengthening of LoRa adoption in both private and public LoRaWAN networks. In addition to traditional utility use cases, we saw greater momentum for our LoRa solutions targeting applications and connected spaces, including building maintenance and energy management. We are also seeing increased opportunities in city management and citywide smart lighting control. In order to further simplify network deployment and reduce system cost, we are pleased to have introduced two technical enablers to the market, LoRa Relay and the LoRa Single Channel Hub. The hub was launched at the Embedded World Show held in April, with demos of this product being co-hosted by several Simtech partner companies. We see this product as an important enabler for the adoption of LoRa technology into smart home applications. For TVS products in this end market, we continue to focus on our strategy to leverage customer engagement and adoption of best-in-class consumer products to capture meaningful SAM. In the first quarter, bookings for these products encouragingly increased 61% sequentially with sequential net sales growth of 7%. Design wins reaching production in the first quarter span applications, including intelligent vehicle cockpits and advanced displays, vehicle antenna, medical equipment, industrial power over Ethernet, and body-worn cameras used by first responders. Now, I'll turn the call back over to Mark.

Thank you, Paul. For the first quarter, we recorded net sales of $206.1 million, up 7% sequentially and above the high end of our guidance range, with the infrastructure end market contributing to the favorable result. Coupling net sales and channel inventory by end market and on a sequential basis, infrastructure net sales were up 42% and channel inventory was down 8%. High-end consumer net sales were up 8% and channel inventory was down 11%. Industrial net sales were down 5% and channel inventory was down 17%. Gross margin was 49.8%, up 90 basis points sequentially and up 130 basis points year-over-year, reflecting favorable mix and cost-controlled overhead spending. Operating expenses were $77.4 million and at the low end of guidance. We continue to closely evaluate spending And on a year-over-year basis, operating expenses declined $15.3 million, or 17%. We believe current spending levels reflect a prudent level of cost control, coupled with improved allocation of spending to drive near-term financial results. We are wholly committed to programs supporting customer projects. Operating income was $25.2 million, and operating margin was 12.2%. a sequential increase of 300 basis points, and a year-over-year increase of 290 basis points. Net interest expense was $20.5 million in line with guidance. We recorded net earnings per share of $0.06 based on a diluted share count of 67.6 million shares. Adjusted EBITDA for the first quarter was $33.1 million, and adjusted EBITDA margin was 16.1%. This compares the fourth quarter figures of $24 million and 12.5%, and prior year first quarter figures of $30.8 million and 13%. Moving to the balance sheet, we ended the first quarter with a cash balance of $126.8 million. Working capital changes largely corresponded to revenue and cost of goods sold. Inventories nominally increased $3.5 million, or 2% sequentially, in part to support second quarter shipments and to carry a nominal amount of wafer bank, supporting active copper cable opportunities. Inventories are down 30% year over year. Principal outstanding on our debt was $1.4 billion, unchanged from the fourth quarter, with a weighted average interest rate of 5.86%. At the end of our first quarter, a consolidated net leverage ratio calculated in accordance with our credit facility was 9.5, and we expect to maintain compliance with our debt covenants for the next 12 months. Free cash flow for the fourth quarter was a $1.4 million use of cash, reflective of working capital changes, and we did not draw on our revolver. Now turning to second quarter guidance, we currently expect net sales of $212 million, plus or minus $5 million. We continue to evaluate shipments into channel to maximize gross margin opportunities. We expect net sales from the infrastructure and market to increase sequentially with data center applications leading the growth. As Paul mentioned, In the first quarter, net sales of PON were up 80% sequentially, and we expect a bit of normalization for this application. We expect net sales from the high-end consumer market to be slightly up with expected seasonality benefiting this market at the end of the second quarter through Q3. We expect industrial net sales to be flat to slightly up with bookings activity indicating a recovery in the second half of FY25. Based on expected product mix and net sales levels, gross margin is expected to be 50%, plus or minus 50 basis points. Operating expenses are expected to be $77.5 million, plus or minus $1 million. We expect net interest expense to be $20.5 million and a non-GAAP tax rate of 15%. These amounts are expected to result in a net income per share at $0.09, plus or minus $0.03, and adjusted EBITDA of $36.3 million, plus or minus $2.6 million. I'd now like to turn the call back over to the operator for Q&A.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. Participate using speaker equipment. It may be necessary to pick up your handset before pressing the star key.