Semtech Corporation — Second Quarter Fiscal Year 2027 Earnings Summary

Financial Performance

• Net sales reached a record $341.9 million, representing a 17% increase sequentially from Q1'27 ($291.0 million) and a 33% increase year-over-year from Q2'26 ($257.6 million).
• GAAP gross margin was 53.8%, compared to 52.0% in Q1'27 and 52.1% in Q2'26.
• Non-GAAP adjusted gross margin was 54.5%, up from 53.0% in Q1'27 and 53.2% in Q2'26.
• GAAP operating margin was 16.3%, improving from 8.9% in Q1'27 and -6.3% in Q2'26.
• Non-GAAP adjusted operating margin was 24.4%, up from 20.4% in Q1'27 and 18.8% in Q2'26.
• GAAP diluted earnings per share (EPS) were $1.59, compared to $0.27 in Q1'27 and a loss of $0.31 in Q2'26.
• Non-GAAP adjusted diluted EPS were $0.71, up from $0.51 in Q1'27 and $0.41 in Q2'26.
• GAAP net income was $160.1 million, a significant recovery from a net loss of $27.1 million in Q2'26 and $26.6 million in Q1'27.
• Non-GAAP adjusted net income was $69.5 million, up from $49.4 million in Q1'27 and $36.7 million in Q2'26.
• Adjusted EBITDA was $91.1 million, compared to $66.4 million in Q1'27 and $56.5 million in Q2'26.
• Adjusted EBITDA margin was 26.6%, up from 22.8% in Q1'27 and 21.9% in Q2'26.
• Free cash flow was $61.4 million, calculated as net cash provided by operating activities of $68.9 million less net capital expenditures of $7.5 million.
• GAAP operating expenses were $128.0 million, down from $150.3 million in Q2'26, driven by a $42.0 million goodwill impairment in Q2'26.
• Non-GAAP adjusted operating expenses were $102.8 million, up from $95.1 million in Q1'27 and $88.4 million in Q2'26.
• Total semiconductor products gross margin (Signal Integrity and Analog Mixed Signal and Wireless segments combined) was 62.8%.
• Cash and cash equivalents were $204.1 million as of July 26, 2026, compared to $195.2 million as of January 25, 2026.
• Long-term debt was $349.4 million as of July 26, 2026, down from $491.2 million as of January 25, 2026.

Guidance and Future Outlook

• For the third quarter of fiscal year 2027, the company forecasts net sales of $410.0 million, plus or minus $5.0 million.
• Non-GAAP adjusted gross margin is expected to be 58.3%, plus or minus 100 basis points (63.9% excluding business held for sale).
• Non-GAAP adjusted operating expenses are projected at $112.0 million, plus or minus $3.0 million.
• Non-GAAP adjusted operating income is forecasted at $127.0 million, plus or minus $4.0 million.
• Non-GAAP adjusted operating margin is expected to be 31.0%, plus or minus 60 basis points.
• Non-GAAP adjusted diluted EPS is projected at $1.05, plus or minus $0.03.
• Non-GAAP adjusted EBITDA is expected to be $134.3 million, plus or minus $4.0 million.
• Non-GAAP adjusted EBITDA margin is forecasted at 32.8%, plus or minus 60 basis points.
• The company expects a non-GAAP normalized tax rate of 18% for the remaining quarters of fiscal year 2027.
• Management anticipates broad-based bookings strength to translate into sustained revenue, margin, and earnings growth.
• Record backlog and accelerating bookings point to a strong inflection in growth with visibility extending into the next fiscal year.

Business Segments and Product Lines

• The company focuses on high-performance semiconductors for AI data center networking and intelligent, connected IoT devices.
• Signal Integrity segment net sales were $126.2 million with a segment gross margin of 65.3%.
• Analog Mixed Signal and Wireless segment net sales were $117.4 million with a segment gross margin of 60.1%.
• IoT Systems and Connectivity segment net sales were $98.3 million with a segment gross margin of 34.0%.
• The cellular module business has been classified as held for sale, with net sales of $48.1 million and adjusted gross profit of $10.9 million included in the total results.
• The company is executing on portfolio optimization and expanding focus areas to build a predictable, high-margin, and high-return business.

Market and Competitive Landscape

• Demand is growing in artificial intelligence-related semiconductors, though the company notes the cyclical nature of the industry and potential volatility.
• The company faces competition from new or established IoT, cloud services, and wireless service companies, as well as competitors with greater resources.
• The company relies on a limited number of suppliers and subcontractors, creating potential supply chain disruption risks.
• The company highlights the integration of Sierra Wireless, Inc.'s business and operations as a key strategic focus.

Risks and Challenges

• Risks include the volatility of financial results, historical rapid decreases in average selling prices, and periodic economic uncertainty.
• Potential risks involve disruptions in government operations, changes in export restrictions, tariffs, and retaliatory tariffs.
• The company faces risks related to supply chain disruptions, manufacturing capacity constraints, and failure to successfully develop or sell new products.
• Risks include the difficulty of integrating the Sierra Wireless business and executing other acquisitions or divestitures, including the pending divestiture of the cellular module business.
• The company notes the risk of material weaknesses in internal control over financial reporting and adverse changes in effective tax rates.
• The company's ability to comply with debt covenants and its level of indebtedness are cited as potential risks.
• Forward-looking statements are subject to risks that could cause actual results to differ materially from projections.

Management Commentary and Tone

• Hong Hou, President and CEO, stated the team executed exceptionally well, delivering record revenue, earnings leverage outpacing revenue growth, and significant progress on portfolio optimization.
• Mark Lin, Executive Vice President and CFO, described the quarter as one of disciplined execution, converting record revenue and margin expansion into strong operating and free cash flow.
• Management expressed conviction entering the third quarter, expecting broad-based bookings strength to drive sustained growth.
• The tone is confident, emphasizing the goal of building a predictable, high-margin, and high-return business.

Other Key Points

• The company has classified its cellular module business as held for sale as of the period end.
• A conference call was hosted to discuss results, with a replay available through September 22, 2026.
• The company adopted a full-year, normalized tax rate for non-GAAP income tax provision computation to reduce quarterly variability.
• Non-GAAP financial measures exclude items such as share-based compensation, intangible amortization, transaction and integration costs, restructuring, litigation costs, and goodwill impairments.
• The company reported a $42.0 million goodwill impairment in Q2'26, which was not present in Q2'27 or Q1'27.
• The company's non-GAAP normalized tax rate was 17% for the first two quarters of fiscal year 2027 and is projected at 18% for the remaining quarters.
• The company defines free cash flow as cash flows provided by operating activities less net capital expenditures.