Semtech Corporation (NASDAQ:SMTC) Q2 2021 Earnings Conference Call - Final Transcript

Aug 26, 2020 • 05:00 pm ET

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Semtech Corporation (NASDAQ:SMTC) Q2 2021 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Greetings and welcome to the Semtech Corporation Second Quarter FY '21 Earnings Call. [Operator Instructions] It is now my pleasure to introduce your host, Sandy Harrison, Vice President of Investor Relations. Thank you, Mr. Harrison, you may begin.

Executive
Sandy Harrison

Thank you, Victor, and welcome to Semtech's conference call to discuss our financial results for the second quarter of fiscal year '21. Speakers for today's call will be Mohan Maheswaran, President -- 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 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 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. A 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. 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 Chukwu

Thank you, Sandy. Good afternoon, everyone. For Q2 of fiscal year '21, net sales increased 8% sequentially and 5% over the prior year to $143.7 million, which was above the midpoint of our guidance. In Q2, shipments into Asia represented 80% of net sales, and North America represented 12% and Europe represented 8%. Total direct sales was approximately 19% and sales to distribution was approximately 81% of net sales. Our distribution business remains balanced with 47% of total POS coming from the infrastructure end market, 27% from the industrial end markets and 26% from the high-end consumer end market. Bookings decreased over the prior quarter but resulted in a book to bill above 1. POS bookings accounted for approximately 21% of shipments during the quarter.

Q2 gross margin increased 50 basis points due to a higher mix of infrastructure revenue. We expect our Q3 gross margin to decline slightly due to a higher mix of consumer revenue. Q2 GAAP operating expense increased 7% sequentially due to a higher share-based compensation expense. We expect Q3 GAAP operating expense to increase 1% to 4% sequentially, primarily due to higher share-based compensation expense, driven by higher stock price. Q2 GAAP other expenses were $2.9 million versus $4.8