Semtech Corporation (NASDAQ:SMTC) Q3 2020 Earnings Conference Call - Final Transcript

Dec 04, 2019 • 05:00 pm ET

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Semtech Corporation (NASDAQ:SMTC) Q3 2020 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Greetings and welcome to the Semtech Corporation Fiscal Year 2020 Third Quarter Conference Call. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to your host, Sandy Harrison, Director of Business Finance and Investor Relations. Mr. Harrison, you may begin.

Executive
Sandy Harrison

Thank you and welcome to Semtech's conference call to discuss our fiscal results for the third quarter of fiscal year 2020. 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 close 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 and in 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 only -- 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 included in today's press release. 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 now turn the call over to Semtech's Chief Financial Officer, Emeka Chukwu, Emeka?

Executive
Emeka N. Chukwu

Thank you, Sandy. Good afternoon, everyone. For Q3 fiscal year 2020, net sales increased 3% sequentially to $141 million, which was above the midpoint of our guidance. In Q3, shipments into Asia represented 75% of net sales, North America represented 16%, and Europe represented 9%. Total direct sales represented approximately 24%, and sales to distribution represented approximately 76%. Our distribution business remains balanced with 55% of the total POS coming from the high-end consumer and enterprise computing end markets, and 45% of total POS coming from the industrial and communications end markets.

Bookings declined sequentially that resulted in a book-to-bill above 1. Tons bookings accounted for approximately 42% of shipments during the quarter.

Q3 GAAP gross margin declined 70 basis points sequentially to 61.2%, due to lower absorption associated with our efforts to reduce our inventory levels.

Q3 GAAP operating expense decreased 8% sequentially, due to lower performance-based compensation expense and the non-recurrence of restructuring charges that occurred in Q2. In Q4, we expect GAAP operating expense to increase between 5% to 8% sequentially, primarily due to higher share-based compensation expenses.

Q3 GAAP tax rate was 16.4%, down from 63.3% in Q2, which reflected additional reserves