Semtech Corporation (NASDAQ:SMTC) Q2 2018 Earnings Conference Call - Final Transcript

Aug 30, 2017 • 05:00 pm ET

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Semtech Corporation (NASDAQ:SMTC) Q2 2018 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good afternoon. My name is Amanda and I will be your conference operator today. At this time, I would like to welcome everyone to the Semtech Corporation Q2 FY18 Earnings 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. At this time, it is my honor to turn the call over to Mr. Sandy Harrison, Director of Finance and Investor Relations. You may begin your conference.

Executive
Sandy Harrison

Thank you, Amanda and welcome to Semtech's conference call to discuss our financial results for the Second Quarter of Fiscal Year 2018. 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 was issued after the market closed today and is available on our website at semtech.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 as well as the other Risk Factors section of our most recent periodic reports filed with the Securities and Exchange Commission. As a reminder, comments made on today's call are current as of today only and Semtech undertakes no obligation to update the information from this call, should facts or circumstances change.

During the call, we will refer to non-GAAP financial measures that are not prepared in accordance with generally accepted accounting principles. 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 also included in today's press release. As a reminder all references to financial results in Mohan's and Emeka's formal presentations on this call refer to non-GAAP measures, unless otherwise noted. With that, I will turn the call over to Semtech's Chief Financial Officer, Emeka Chukwu. Emeka?

Executive
Emeka Chukwu

Thank you, Sandy. Good afternoon, everyone. For Q2 of fiscal 2018, GAAP net sales were $153.1 million, an increase of 6% sequentially and 13% year-over-year. Q2 GAAP net sales included $3.2 million expense for the Comcast warrant. In Q3, we expect the charge for the Comcast warrant to increase to approximately $6.7 million as Comcast accelerates its rollout of network coverage. We now expect the Comcast warrant expense to come in around $23 million for fiscal year 2018. Q2 GAAP gross margin increased a 110 basis points sequentially to 60.2% due to lower sequential Comcast warrant expense and a more favorable product mix. Q2 GAAP operating expense increased approximately 10% sequentially due to the impact of higher stock price or equity Comcast expenses, higher new product expenses and production related expenses. Q2 GAAP tax rate was 24.6% compared to 24.1% in Q1. For fiscal 2018, we expect our GAAP tax rate to be in the 25%