Semtech Corporation

Good day and thank you for standing by. Welcome to SunTech Corporation's third quarter fiscal year 2026 earnings conference call. At this time, all participants are in a listen-only mode. Following our prepared 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 call over to Mitch Hawes, Senior Vice President of Best Relations for SunTech. Thank you. Please go ahead.

Thank you and welcome to Semtech's third quarter 2026 financial results conference call. Participants on today's call are Hong Ho, our President and Chief Executive Officer, and Mark Lin, our Executive Vice President and Chief Financial Officer. But before we begin, I would like to highlight upcoming investor events, including the UBS Technology Conference on December 2nd and 3rd, the Consumer Electronics Show on January 6th through the 9th, and the Needham Growth Conference on January 13th through the 14th. Today, after market close, we released our unaudited results for the third quarter fiscal year 2026, which are posted, along with an earnings call presentation, to our investor relations 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 factors section of our most recent annual report on Form 10-K, for a number of risk factors that could cause or actual resultant events to differ materially from those anticipated or projected on today's call. You should consider these risk factors in conjunction with our forward-looking statements. We will refer primarily to non-GAAP financial measures during today's call. Please see today's press release and slide three of the earnings presentation for important information regarding notes on our non-GAAP financial presentation. The press release and earnings presentation also include reconciliations of our GAAP and non-GAAP financial measures. With that, I will turn the call over to Hong.

Thank you, Mitch. Good afternoon to all of you joining the call today. The Semtech team made solid progress again this quarter, driving strong sequential and year-over-year revenue and earnings growth, aligning our data center roadmap to capture major drills and design win opportunities ahead. Further strengthening our financial profile, all while executing on the R&D roadmap and portfolio expansions that we believe establish a foundation for growth. Looking at Q3, net sales were $267 million, up 4% sequentially, and up 13% year over year, driven by the momentum of a data center and a lower portfolio. Adjusted operating margins grew 180 basis points sequentially and 230 basis points year-over-year. Adjusted diluted earnings per share were 48 cents, up 17% sequentially and 85% year-over-year. Again, this quarter, the core assets we have delineated, namely data center, LoRa, and Per Se, together strongly contributed to our revenue growth. We continue leveraging our R&D resources to expand our portfolio, including in LoRa with multiple protocol integrations, showcasing YSAN and LoRaWAN synergy for smart infrastructure and a new TIA and driver building blocks that establish a new performance standards for 1.6T multimode optical transceivers in AI data centers. In addition to our strong financial performance, we further optimized our capital structure with a successful convertible offering. The collective actions taken over the past few quarters have provided Semtech significant balance sheet flexibility, resulting in nominal interest expenses and a much improved cash flow generation. This improved financial position allows us to accelerate investments in our core technologies. Finally, portfolio optimization remains a key focus. At the beginning of our fourth quarter, we completed the acquisition of the force sensing business, including its technology, products, and key employees from Provo. By leveraging Semtech's customer penetration, global sales and support network, and our existing capacitive sensing product portfolio, we expect to accelerate the proliferation of the advanced force sensing human-machine interface solutions and the MEMS sensors by targeting leading computing, smartphone, wearable, and automotive applications. In addition, we are making solid progress on the divestiture of non-core assets. With our new financial advisor, we have engaged in diligence conversations with a number of interested parties, which has generated multiple indications of interest We believe this asset represents a very compelling synergistic value to this potential acquirers. Now let me move the discussion to our end markets. For Q3, infrastructure net sales were $77.9 million, up 6% sequentially and up 18% year over year, strongly supported by our data center business. Net sales for data center were a record $56.2 million, up 8% sequentially and up 30% year-over-year, benefiting from strong demand for a broad portfolio, including our market-leading Fibre Edge TIAs whose net sales set another record. Moving into Q4 in the next fiscal year, we expect an acceleration of sequential and year-over-year growth for data center-based business. This conviction is supported by our expectation of continued increases in AI CapEx, expanding customer engagement, and a strong demand pipeline for high-performance, low-power solutions, including incremental contributions from linear pluggable optics our LPO, and the CopperEdge linear equalizers. We believe our low-power analog solutions are a core enabler for making next-generation data center infrastructure scalable at 800 gig and 1.6T. With a hyperscale and AI data center's capacity measured on electric consumption, every incremental watt saved in networking connectivity multiplied by tens of millions of ports will enable a meaningful increase in compute capacity. By delivering best-in-class efficiency and signal integrity at the physical layer, analog solutions give cloud and the AI operators the flexibility to adopt a new 1.6T-based topologies, whether that is the higher density switches new optics architectures, or more desegregated RECs, while staying within strict power, thermal, and transmission latency envelopes. To support data center build-outs, we are seeing broad-based demand acceleration, supported by customer forecast for 800 gig TI8 through 2026. Beyond 800 gig, we are actively supporting a wide range of customers on their 1.6T transceiver designs and deployment with both TIAs and drivers. And we expect 1.6T volume runs to begin early in calendar year 2026 and grow concurrent with the deployment of 1.6T switches. Regarding LPO, We have secured design wins with several leading US hyperscalers with our TIAs and drivers in 800 gig transceivers and AOCs. And we continue expanding our customer pipeline through engagement with our optical module customers. We expect a meaningful revenue contribution from TIAs for LPOs starting in Q4. and the momentum to build into calendar 2026. In parallel, we are accelerating our R&D roadmap and targeting initial sampling of 1.60 LTO drivers and TIAs before year end. Regarding active copper cables, customers benchmarking ACC's against the competing technologies are seeing clear advantages. excellent signal integrity, lower latency, and more importantly, power consumption up to 90% lower than DSP-based AEC solutions. We expect to ramp ACC's with a major hyperscaler during calendar year 2026. With this deployment transitioning incorporating ACC's in place of AEC, our DAC's We anticipate broader market penetration as this hyperscaler demonstrates ACC's benefit versus incumbent technologies. Our engagements with additional ACC customers are intensive and broad-based, and we anticipate more design gains over coming quarters. In addition, a number of customers including our entry customer, are evaluating the integration of our CopperEdge linear equalizers on their PCB boards and connectors to improve signal integrity of the high-speed links. We anticipate designing of onboard CopperEdge use cases over the coming quarters. Moving forward, we believe our broad portfolio of FiberEdge TIAs and our rapidly emerging CopperEdge and LPO solutions positioned us for accelerating data center revenue growth throughout 2026. Now moving to our high-end consumer end market, net sales for Q3 were $41.9 million, up 2% sequentially and up 5% year over year. Year-to-date net sales were $118.5 million, up 6% compared to the same period last year. Drills from a high-end consumer's portfolio is outpacing market metrics such as worldwide handset unit volume drills by a considerable margin, demonstrating market share gains, customer adoption of differentiated solutions, and a strong supply chain execution. In addition, Our PerSe sensing technology continues to be designed in a growing range of applications, including smart glasses and smartphone platform supporting both existing designs and the new launches over the coming quarters. As I referenced earlier, we completed the acquisition of leading force sensing portfolio from Quovo at the beginning of Q4. The integration is well underway, with our first product shipped starting last week. And we look forward to this company's expanding our sensor portfolio with a proven IP and appeared with our global go-to-market engine, unlocking cross-selling opportunities across a diverse array of leading customers. The combination of these unique capabilities provide a robust side of touch and gesture detection capabilities. Moving to our industrial end market, Q3 industrial net sales were $147.2 million, up 3% sequentially and up 12% year over year. Driven by another quarter of strong LoRa performance, LoRa-enabled solutions net sales were $40 million, up 10% sequentially, and up 40% year over year, supported by the continued expansion across several end markets and multiple applications in verticals such as smart utilities, smart buildings, smart city, and asset management. Looking ahead, we believe we are well positioned to drive lower adoption with additional capabilities and features. Our recently launched Gen4 LoRa Plus transceivers offer integrated multi-protocol connectivities in addition to the LoRaWAN capabilities in a single chip across both sub-gigahertz and 2.4 gigahertz frequency bands. This simplifies hardware design, lowers BOM costs, and enables customers to create a unified design supporting multiple protocols, thus enabling deployments for customers rolling out solutions across different geographies and regions. The LoRa Plus transceivers now deliver data reads of up to 2.6 megabits per second on both sub-gigahertz and 2.6 gigahertz band. This capability enables faster transfer of video images and richer sensor data while maintaining ultra-low power consumption and enables applications that were not practical before. We're also continuing to see good traction in commercial drones. LoRa enables long-range communication up to 10 kilometers for applications like agriculture monitoring, livestock tracking, and the infrastructure inspection. With Gen 4's higher data rate, drones can now transmit images and sensor data in real time while covering larger areas efficiently. Our IoT systems and connectivity business recorded Q3 net sales of $88.3 million, down 1% sequentially and up 7% year over year. We see strong design wind momentum as the IoT transitions from 4G to 5G, leveraging our market leadership. As of this quarter, we have completed all the necessary certifications for our 5G REDCap modules, and the products are now commercially available. The business pipeline continues to be strong, thanks to the broader market recovery and the favorable geopolitical environment for this business. Networking solutions with routers, gateways, and air link services in the portfolio had a strong execution quarter, advancing strategic initiatives across carrier partnerships, software platform innovation, and the market positioning. We expanded our 5G standalone capabilities with support for network slicing, enabling dedicated first responder network slices on T-Mobile's key priority and Verizon's frontline networks. We believe this positions AirLink as a differentiated solution for mission-critical public safety communications where quality of service and network prioritization are essential. We launched the AI-powered support tools, delivered our next-generation management platform supporting both cloud and on-prem customer requirements, and announced a strategic partnership with the G-Tech, extending our reach by embedding Airlink connectivity into their rugged computing ecosystem. The mission-critical cellular router market continues growing in double digits with accelerating 5G refresh cycles, and we believe we are well positioned to capture share through our carrier relationships, ecosystem partnerships, and differentiated ruggedized solutions. We also launched the industrial-first single-vendor offering with Skylo, providing access to terrestrial and satellite networks through a single SIM and delivering the industry-first complete device-to-cloud terrestrial and satellite IoT solution from a single partner. Our strong results this quarter reflected the impact of our focus on growth of our core assets, disciplined R&D investments, and the deep and expanding partnerships we are building with our customers. As power constraints intensify for our customers across all our end markets, we believe Semtech is uniquely positioned to lead with ultra-power-efficient solutions spanning high-bandwidth data center networking, lower connectivity for rapidly expanding IoT use cases, and sensing technologies that enable the functionality of next-generation AI interfaces. We see significant opportunities ahead and are focused on executing against them while continuing to create long-term value for all of our stakeholders. Now let me lay out my priorities for the next few months. First, capture growth opportunities in our core assets Through selective strategic investments, we plan to fill key capability gaps. Leveraging our operational excellence, we will also focus on ensuring capacity availability, particularly against the backdrop of tight supply and geopolitical uncertainties. Second, focus on the divestiture of non-core assets. This will help address margin disparities and enable us to focus fully on our core business priorities. Third, strengthen our winning culture and elevating our company mindset to work great is a new normal. In the year of Semtech Rising, we fixed the balance sheet, aligned our core portfolio with market growth drivers, and built a strong foundation of winning culture. Building on the momentum of these successes, we are now embarking on the journey of the Semtech transforming, paving the way towards Semtech Exilin, and solidify our position as a global leader in enabling next-generation data center, LoRa-based IoT, and our expanded sensing portfolio. With that, I will now turn the call over to Mark for additional details on our financial results and our outlook for the fourth quarter of FY26.