Semtech Corporation (NASDAQ:SMTC) Q3 2016 Earnings Conference Call - Final Transcript
Nov 18, 2015 • 05:00 pm ET
Good afternoon. My name is Kyle, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Q3 Fiscal Year 2016 Semtech Corporation Earning Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)
Thank you. Mr. Harrison, you may begin your conference.
Thank you, Kyle, and welcome to Semtech's conference call to discuss our financial results for the third quarter of fiscal year 2016 ended October 26, 2015. I'm Sandy Harrison, Director of Business Finance and Investor Relations. Speakers for today's call will be Mohan Maheswaran, Semtech's President and Chief Executive Officer, and Emeka Chukwu, our Chief Financial Officer. A press release announcing our unaudited results for the quarter was issued after the market closed today, and it is available on our website at www.semtech.com.
(Forward-Looking Cautionary Statements)
During the call, we may refer to pro forma or other financial measures that are not prepared in accordance with Generally Accepted Accounting Principles. A discussion of why the management team considers non-GAAP information useful, along with detailed reconciliations between GAAP and non-GAAP results are included in today's press release.
With that, I will now turn the call over to Semtech's Chief Financial Officer, Emeka Chukwu. Emeka?
Thank you, Sandy. Good afternoon, everyone. For Q3 fiscal 2016, we reported net revenues of $115.8 million, which was just above the midpoint of our guidance range. These results represented a decline of 8% from the prior quarter, and the decrease of 22% from the third quarter of fiscal 2015. Demand was lower across all our end markets as our passive optical network customers build up inventory. On wireless infrastructure, demand remained muted. However, we saw our Samsung business stabilize during the quarter.
In Q3, shipments into Asia represented 70% of revenue. North America represented 20% and Europe represented 10% of total revenue. Sales through distribution represented approximately 56% of total revenue, and direct sales represented approximately 44% of revenue. Bookings decreased sequentially in Q3, and resulted in a book-to-bill slightly below 1. Sales bookings accounted for approximately 55% of shipments during the quarter.
Gross margin on a GAAP basis for Q3 of fiscal 2016 was 60.1%, sequentially flat from Q2 of fiscal 2016 as expected. In Q4 of fiscal 2016, we expect GAAP gross margin to decline approximately 100 basis points mostly due to lower absorption as we reduce the inventory levels further.
Operating expense on a GAAP basis decreased approximately 40% compared to the prior quarter. The decrease was mainly driven by $14.2 million of benefit from fair value re-measurement of the Triune Systems earn-out liability. In addition, we saw lower expenses as a result of last quarter's cost reduction actions, lower restructuring related expenses and a lower support expenses for ERP implementation.
In Q4 of fiscal 2016, we expect our operating expense on a GAAP basis to increase approximately 35% driven by the non-recurrence of the fair value re-measurement