Semtech Corporation

Good day, and thank you for standing by. Welcome to STEM Tech Corporation's fourth quarter and fiscal year 2025 earnings conference call. At this time, all participants are in a listen-only mode. After management remarks, there will be a question and answer session. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to Mark Lin, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, operator. Good day, everyone, and welcome. I'm pleased to be joined today by Hong Ho, President and Chief Executive Officer. Today, after market close, we released our unauded results for the fourth quarter and fiscal year 2025, which are posted along with an earnings call presentation to our investor website at investors.semtech.com. Today's call will include various remarks about future expectations, plans, and prospects, which comprise forward-looking statements. please refer to today's press release and see slide two of the earnings presentation, as well as the risk factor section of our most recent annual report on Form 10-K for a number of risk factors that could cause our actual results and events to differ materially from those anticipated or projected on this call. You should consider these risk factors in conjunction with our forward-looking statements. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than net sales. Please refer to today's press release and see slide three of the earnings presentation for important information regarding notes on our non-GAAP financial presentation. The press release and earnings presentation will also include reconciliations of our GAAP and non-GAAP financial measures. With that, I'll turn the call over to Hong.

Thank you, Mark. Good afternoon, everyone. Fiscal year 2025 represented a year of a positive inflection on many fronts, For each quarter, we reported sequential growth in net sales, growth margin, operating margin, and earnings per share. Our signal integrity and analog mixed signal and wireless segments demonstrated strong sequential growth in each quarter of FY25. And our IoT systems and connectivity segment inflected to sequential growth in the second quarter of FY25. Aligning to one of our near-term priorities of driving margin expenses through disciplined investment, innovation, and efficiency, on a year-over-year basis, FY25 adjusted gross margin improved 200 basis points, adjusted operating margin improved 570 basis points, adjusted EBITDA margin improved 610 basis points, and adjusted diluted earnings per share increased 529%. During FY25, we uncovered and aggressively pursued many opportunities through close customer engagement. We were able to prudently shift investments to R&D programs that were better aligned to major market opportunities and accelerated product development supporting this opportunity. We also executed on our near-term priority of balance sheet improvement, substantially reducing our leverage and cash interest burden. This in turn allowed us to increase focus on operational improvements and a strategic direction. We continue to prioritize divestitures of non-core assets. and we believe the reduction in total leverage during FY25 and the stronger business fundamentals better position Semtech in our ongoing portfolio optimization process. We remain focused on elevating our winning culture, and I'm pleased with the marked improvement in our employee engagement metrics. In the new fiscal year, we're internally focusing on three core priorities to position Semtech for future success. First, portfolio optimization and simplification. Driving to completion the initiatives we started and focus on our core competencies. Second, strategic investment in R&D. Accelerating innovation to support broader customer programs and driving sustainable long-term growth while maintaining financial discipline. Third, driving margin expansion, enhancing profitability through portfolio optimization, leveraging AI for efficiency and productivity, and maximizing operational leverage on higher revenue. With the strong progress we made in FY25, We aim to deliver even greater value to our shareholders in FY26. Moving to our end markets, for Q4, infrastructure net sales were $69.1 million, up 5% sequentially, and up 75% year over year. Net sales for data center were a record $50 million, up 16% sequentially, and up 183% year over year. And I'm pleased with the growth across our data center portfolio. Regarding copper edge use in active copper cables, we are disappointed that the expected volume ramp would not materialize for FY26 due to rack architecture changes as we previously announced. We now expect Copper Edge demand at our Anker customer to be lower than our prior expectations for three to four quarters, based on our estimate of the new server rack deployment timelines. We continue to believe Copper Edge deployment will encompass broader applications, including our ICs embedded in board designs And our IC is embedded in connectors in addition to our initial deployment in a cable application. Copper Edge at a 1.6T aggregated bandwidth was introduced about a year ago. And we believe Semtech's advancements in low power, low latency solutions will be a significant differentiator in the ecosystem. We remain engaged. with over 20 potential customers, including hyperscalers, switch makers, and cable suppliers for a number of use cases, and expect this engagement to result in revenues from multiple customers and multiple applications by the latter part of FY26. Lastly, based on continued collaboration with our anchor customer, we expect our CopperEdge portfolio to be included in their future generation rack designs. For our FiberEdge portfolio, net sales were at the regular levels, supporting 400 gig and 800 gig retimed optics across a broad market of module manufacturers and the cloud service providers. For linear pluggable optics or LPO, and a linear receive optics, or LRO, we remain confident in adoption starting in the latter part of FY26. Test and qualification are progressing as expected at several module manufacturers for both 800 gig and 1.6T applications. I look forward to the upcoming optical fiber communications conference our OFC to be held in San Francisco the first week of April. Semtech and our technology partners will have multiple product demos showcasing our TIA and our laser driver components in numerous LPO and LRO modules. In addition, we are scheduled to show our 400 gig per channel test chips to support 3.2T aggregated bandwidth transceivers. I also look forward to participating in the CEO panel during the Optica Executive Forum at OFC. Moving to our high-end consumer end market, net sales for Q4 were $35.4 million, up 10% year over year. And for FY25, net sales were $147 million, up 17% year over year. In our high-end consumer TVS, our transient voltage separation product line, net sales for Q4 were $24.1 million, up 16% year-over-year and down 15% sequentially, reflective of typical seasonality. FY25 net sales were $103.3 million, up 33% year-over-year. reflective of steady contributions from design wins and the market share expansion over the last year at the world's largest consumer electronics company and at other key North American and Korean companies. We believe our customers' increasing technical requirements move the market toward our differentiated products. USB Type-C high power charging is a particular example of the need to increase protection capabilities while maintaining signal integrity of USB Type-C high-speed data traces. Our class-leading per se or person-sensing product continues to perform well in the market, with a leading position in smartphones to address specific absorption rate or SAR standards. with draft regulations introducing increasingly stringent requirements. PerSe continues to gain market share as customers expand the use of Semtex ICs to achieve superior compliance to SAR standards without compromising device performance. PerSe in smart glasses is another key application where our technology allows for hyper responsive gesture control capabilities, critical to accurate control for call and message, content capture, and media settings. A key customer characterized smart glasses as a potential next generation compute platform and an AI form factor. And we believe Semtech is well positioned to support this customer on current and future designs. Moving to our industrial end market, for Q4, industrial net sales were $146.6 million, up 12% sequentially and up 21% year-over-year. Within the industrial end market, LoRa-enabled solutions recorded Q4 net sales of $37.1 million, up 28% sequentially and up 205% year-over-year. Smart meters are just one of the applications well suited for LoRa, and we are pleased with the incremental smart meter wins in France, Germany, the UK, and China. For water and gas meters, we believe LoRa's sensitivity, which permits robust collection of readings through physical barriers, and the ability to extend battery life over multiple years, are key differentiators over competing protocols. Allora Gen 2 and Gen 3 products have been well received and are the predominant lower volume. They offer smaller device footprints combined with improved radio performance and an easier integration, allowing ecosystem partners to reduce time to market. For example, LoRa Gen 3 includes the capabilities to integrate LoRa 1 inside the modem, which reduces LoRa-specific design expertise required to integrate LoRa into a device. Semtech also released the first Gen 4 chip in the LoRa Plus family early this week. LoRa Plus is a single chip solution that addresses use cases requiring a robust long-distance link combined with multiple protocol capabilities, including Amazon Sidewalk, WISUN FSK, and Z-Wave. The LoRa Plus transceiver also supports terrestrial and SATCOM networks, and its increased data rates support audio streaming and image transfer. Our IoT systems hardware business recorded Q4 net sales of $69 million, up 19% sequentially, coupled with another quarter of a sequential increase in bookings. Our IoT systems business pipeline benefited from the inclusion of a significant China-based market participant on the Section 1260H list, in January 2025, and we expect pipeline to convert to bookings throughout the year. During the same month, a Europe-based participant announced it was exiting the cellular IoT market, providing another potential tailwind to the business. In Q4, we are pleased to have achieved a 5G REDCap certification a significant milestone in collaboration with AT&T and Qualcomm. This is AT&T's first 5G REDCap certification, and we believe this positions us to make sustainable, scalable, and cost-effective solutions attainable for many industries. IoT connected services net sales were overall stable for this largely reoccurring revenue business. We are pleased that AirVantage Smart Sensing has been recognized with the M2M Innovation of the Year Award by IoT Breakthrough. AirVantage Smart Sensing offers a turnkey LoRaWAN sensor network solution with a global cellular backhaul allowing our customers to efficiently manage the design and configuration of a secure and scalable sensor network. In summary, I'm very pleased with Semtech's execution and performance across our businesses and thank our employees for embracing our Semtech Rising initiative, which incorporates elements like transparent and frequent communications on our vision and priorities to drive alignment and leadership and employee development, all of which are aimed at bringing out the best from our employees. I now turn the call back to Mark for additional details on our financial results and our outlook for the first quarter of FY26.