Good afternoon. My name is Heidi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Semtech Corporation Q4 FY17 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. It is now my pleasure to turn the call over to Mr. Sandy Harrison, Director of Business Finance and Investor Relations. You may begin your conference.

Thank you, Heidi. And welcome to Semtech’s conference call to discuss our financial results for the fourth quarter and fiscal year 2017, ended January 29, 2017. Speaker for today's call will be, Mohan Maheswaran, Semtech's President and Chief Executive Officer, and Emeka Chukwu our Chief Financial Officer. Our press release announcing our unaudited results was issued after the market closed today, and is available on our Web site 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 factor section of our most recent periodic reports filed with 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 the 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 on Mohan's and Emeka's formal presentations on this call will 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?

Thank you, Sandy. Good afternoon, everyone. For Q4 fiscal 2017, GAAP net sales were $140 million, an increase of 2% sequentially and 18% year-over-year. Q4 GAAP net sales included $1.7 million expense for the Comcast warrants. Fiscal 2017 GAAP net sales increased 11% over fiscal 2016 to $544.3 million, and included a total of $5.4 million from Comcast warrants. Q4 GAAP gross margin increased 50 basis points sequentially to 59.6% due to the impact of lower sequential Comcast warrant expense and a more favorable mix. Q4 GAAP operating expense increased approximately 63% sequentially due mainly to the non-recurrence of the gain from the Snowbush divestiture, and the bad debt charge in Q3, slightly offset by the impact of higher stock price and equity compensation. Q4 GAAP tax rate was approximately 27.1% compared to 15.7% in Q3. Q3 benefited from a more favorable tax rate as a result of the Snowbush divestiture. For fiscal 2018, we expect our GAAP tax rate to be in the 23% to 27% range. Moving on to the non-GAAP results, which exclude the impact of equity-based compensation, amortization of acquired intangibles, acquisition of disposition-related and other non-recurring charges, not tied to current operations. Q4 fiscal 2017 net sales were $141.8 million, a 1% sequential increase and 20% increase over Q4 fiscal 2016 and represented the fifth consecutive quarter of results above the mid-point of our guidance. Fiscal year 2017 net sales were $549.7 million, an increase of 12% over the prior year. In Q4, shipments into Asia represented 76% of total sales, North America was 17% and Europe represented 7%. Total net sales to distribution represented approximately 69% and direct sales represented approximately 31%. Q4 bookings increased sequentially and year-over-year, and resulted in a book-to-bill firmly above 1. Total bookings accounted for approximately 44% of shipments…

Thank you, Emeka. Good afternoon, everyone. I will discuss our Q4 fiscal year 2017 performance by end of market, and by product group, discuss our fiscal year 2017 performance, and then provide our outlook for Q1 of fiscal year 2018. In Q4 of fiscal year 2017, we achieved non-GAAP net revenues of $141.8 million, an increase of 1% sequentially and an increase of 20% over Q4 of fiscal year 2016. End-of-market demand increased from the enterprise computing, communications and industrial end markets, and decreased from the high-end consumer end market. For Q4 of fiscal year 2017, we posted non-GAAP gross margin of 60.5% and non-GAAP earnings per diluted share of $0.37. In Q4 of fiscal year 2017, net sales from the enterprise computing end market increased nicely over the prior quarter, and represented 30% of total net revenues. The industrial end market also increased over the prior quarter and represented 26% of total net revenues. The high-end consumer end market decreased from the prior quarter, and represented 26% of total net revenues. Approximately 20% of high-end consumer net revenues were attributable to mobile devices and approximately 6% were attributable to other consumer systems. Finally, net revenues from the communications end market increased over the prior quarter and represented 18% of total net revenues. I will now discuss the performance of each of our product groups. In Q4 of fiscal year 2017, our Signal Integrity Product Group delivered strong results, increasing 7% sequentially and 12% over the same period a year ago, and represented 46% of total net revenues. Enterprise computing and communications end market demand grew sequentially, led by record quarterly demand from our cloud and hyperscale data center customers, and the expected recovery from our PON and wireless base station customers. Revenues from the industrial end market remained flat.…

Certainly [Operator Instructions]. Your first question comes from the line of Craig A. Ellis with B. Riley Financials. Craig, your line is open.

Thanks. Well, that sounded so official. Congratulations on the nice execution guys and what looks like very broad-based growth in the product portfolio, Mohan. The first question is a follow-up on the increase in the intermediate-term gross margin model. You mentioned that one of the factors causing the increase was the expected contribution from licensing and royalty. Can you provide more color on when you would expect those to be material? And the degree to which they contributed to, what looks like a 300 basis point increase, at the midpoint?

So, if you recall during the Analyst Day that we held in June of 2016, we basically talked about the geolocation revenue and its potential to help us drive our gross margins up. So when you look at the gross margins, the increase in the target range, there are three key drivers; the first one is the mix. As Mohan in his prepared remarks has talked about all the growth engines that we have; unfortunately for us, most of our growth engines are coming in with gross margins that are higher than our current levels. So, as we continue to see a ramp in those, we would expect that to drive to gross margin expansion. The second thing that is driving the gross margin, the increase in the target range, is just the overall business being higher, driving a much more increase in manufacturing activities and hence, higher absorption. And the third key driver, like you mentioned, is the license and the royalty from LoRa. As we said during our Analyst Day, back in June, we expect that the licensing and the royalty is probably still more of two to three-year uplift for it to get to a significant size, but we're very pleased with what we're seeing so far. Right now, it is not contributing that much, but we do expect that in two or three years we should see a significant contribution for that. So the way I would expect to see us achieving this target is that in the next one to two years, driven by the higher mix of higher gross margin products and the increased absorption, I would expect that to take us to about 61%-62% range, and then in the next two to three years, that the licensing will take us to the high end of the new target range.

And then, the follow-up question, I'll flip it over to Mohan. Mohan, in talking about the product line dynamics, you talked about wireless charging. That's been a market where we've been waiting for some large players to move ahead with device and wireless charging. It looks like that may be happening. What's the sense you're getting from customers on the transmit side and building out all the points that would assist your businesses as you put the scale of wireless charging?

Craig, what we see is generally a movement towards more wireless charging across the industry; wearable, increases in wearables, is generally driving it; mobile devices, but even higher power industrial equipments and power drills and those type of things, as well as automotive, driving the need for more wireless charging functions. Obviously, if the major mobile companies integrate wireless charging into their devices, it does help stimulate and catalyze the industry somewhat. But the beauty about our solutions and our approach is that we're not tied to one standard, we have programmability in the products. And so, rapid changing of the functionality is possible. And so customers are moving with our solution, I think, can provide a pretty quick solution to customers who do come out with -- and devices with wireless charging.

And then final question and then I'll jump back in the queue. Emeka, I believe the target margin range was predicated on $180 million in sales, but that, I think, annualizes to something around 770, if I got that right. But, it looks like what the Company is also saying with the intermediate-term model and the revenue basis for that model is that it's moving towards its $1 billion in annual sales goal. Is that the way we should read that? And what are some of the gives and takes as you look out more towards the longer term to get to that longer-term target that you have for the Company?

So, I think I’ve just took you through the gross margin expansion, which, obviously, is starting to be a key driver to achieving the operating margin target. I think on the other hand, what you probably in terms of modeling, probably just need to look at it like what we tried to target is to see operating expenses, maybe grow it at about half the rate of our revenue growth. So, yes, as I look out and see how do we play out of it, I'm assuming the $1 billion revenue target is definitely achievable within the next three, four, five years. And I'm not sure that there is really anything else that is really going to be in terms of puts and takes, I think the two key things are over there is going to be the gross margin expansion and the fact that operating expenses are beyond our control.

Your next question comes from the line of Harsh Kumar with the Stephens, Inc. Harsh your line is open.

I have a couple of questions, Emeka, one for you. Your OpEx was pretty well controlled. It looks like it's going to be pretty well-controlled. It looks like, if your guidance shapes out for the April as you've guided it. I was curious how much revenue can you do without you have to seriously look to expand revenue from current levels? In other words, how much revenue leverage is possible at current levels of revenue, current levels of OpEx?

So, at this point Harsh, the new models definitely assume that we are growing organically. I think we've been talking about this that even in the last two years where we were going through our difficulties. One of the things that we did was we kept our eyes on the future. We continue to take care of our operating expenses. But even though we were bringing them down, we were sure to ensure that we had everything, we left everything in the Company that we actually need to achieve the $1 billion of revenue target. So I think the operating expenses we have right now is definitely the infrastructure we have. Everything that we have in the Company is all been sized up and poised to support the $1 billion of revenue. And like I mentioned to Craig, I would expect to see operating expenses maybe growing at about half the rate of revenue growth, and that's how we expect to get to the new model and to get to the high end of that model.

And then maybe, Emeka one more for you is if I look at your guidance on the top line on April, for April versus maybe where the street was. And maybe just even looking at how well you are growing in April, which, theoretically, should be seasonally down quarter. So, how much of that is a function of the Samsung ramp? Because we've heard the Samsung phones coming out at the end of March and you're probably going to benefit dramatically, or to some degree from it? And then also, part two of the question is, what else is growing in this April quarter, because in my opinion it's somewhat unseasonal. And then how should we think about seasonality for your business anymore with all these growing ties?

So Harsh, I think first of all, let me comment on the growth in Q1. Certainly, our Signal Integrity Product Group is going to grow nicely in the quarter. We have data center growing nicely for us, that market is doing very well. I also mentioned that PON and base stations are recovering a little bit in Q1, so that's good. You have protection growing in Q1, but we've been somewhat modest in our thinking about Samsung's strength and where they could do well. And I think the timing of that is going to be end of Q1 maybe more Q2, and certainly Q3 time frame. So for Q1, I think, it's a combination of the Signal Integrity products, some protection. But also, our Wireless and Sensing is doing incredibly well. Obviously, LoRa is growing very nicely, and our proximity sensing is doing quite well across different mobile platforms; some of them -- some high-profile platforms, but also in some customers that we haven't historically penetrated with our proximity sensing. So, in general, I would say, it's pretty broad based our strength.

And then could you address maybe how we should look at seasonality for the next year or two years for you guys, with all these fast growing parts? Or is there even…

Yes, it's a little bit challenging, because something like LoRa, we're not quite sure about the seasonality there. But I would say, for now, I think we expect the first half to be quite strong and the second half, depending on the consumer business, particularly the Q3 time frame, I think to be perhaps a little bit weaker. But its early days, Harsh, and it is tough for us to really comment on the seasonality, given that we've got so many secular things going on.

And my last one and then I'll move back in the line. Would you, Mohan, give us some kind of an idea of Comcast implementation in the two cities? How it's going? And finally, when can we expect client devices? I know there's a lot of infrastructure stuff in LoRa right now.

Well, actually, the end devices now are starting to ramp up quite nicely. So, we have gateways being deployed across the world, which was our strategy. And now we have end devices that are now connecting to those gateways. So it's actually a very nice path that's being followed. So, with Comcast specifically, I think the progress is very good. They have two cities covered as per the agreement. And so, now they are running proof of concepts with attachments to those gateways in those cities and proving out some verticals and the progress is good. I can't really comment specific details about what they're doing and how they're doing it. But I can tell you that the progress is good. And as I mentioned in my script that the anticipation is that, by the end of the year, the milestone, the third milestone which covers 10 cities, will be achieved. And so, that's a good positive sign, I think.

Your next question comes from the line of Rick Schafer with Oppenheimer. Rick, your line is open.

Maybe I'll just follow-up on the protection question for a second. I know it was up nicely again this quarter. What would growth have been, I guess, without the Note 7 headwind? And would that be an indication of what we can look for, for expected growth rates? And maybe as part of that answer. I mean, do you see a scenario where growth actually accelerates from here with the move to smaller lithographies?

So in Q4, Rick, we had mentioned that on our previous call that it was about $4 million per quarter impact to us. So, you could add $4 million essentially to our Q4 number, that's what the number would have been, and the Note 7 not been canceled. Now, having said that, it's difficult to say because they, I think, Samsung is still very aggressive in trying to win market share. And they would maybe replace some of the Note 7 phones with other phones. And so, it's difficult to call. As you know, they are expecting to release some new phones this year, and we expect them to do quite well. But one of the things we have done nicely, I think, is to diversify. So we are exposed to China smartphones, as well as Korean smartphones and as well as other mobile devices. And I think a high single-digit growth rate for this business is a good number to plan on.

And then maybe a follow-up on LoRa then as well. Could you give any color on current revenue distribution by region or by customer? Are you more concentrated in Europe with a few customers there? And maybe, how does that look over the next year or two as some of the new cities, like in North America for instance, start to ramp?

So, the way we look at it, Rick, is that we look at infrastructure first. Once the gateways are in place, it means that end nodes are going to follow once the vertical solutions are in place. And so, our whole approach is being, let's get as many gateways deployed, and these are public and private networks. And with our new picocell gateway, even consumer-based applications; I would say, Asia is in the lead that includes Korea and China and Taiwan; I would say, Europe is on par, probably a little bit behind in terms of actual full deployments. But it's a little bit more fragmented with the countries, different countries; some countries are doing better than others. USA, obviously, you look in terms of Comcast, but I think in Comcast can catch up very quickly and U.S. can catch up very quickly. Even outside Comcast, we have a lot of activity, more on the private networking side in the U.S. So I think the U.S. is starting to move quite nicely for us. And then when the gateway is deployed, I think it's going to be -- you're going to start hearing us, hearing from us, talking about attach rates. And attach rates to different gateways and what we expect from this region. So I think more to come. Its early days to do that now, but I would say that probably by mid-year, we'll be starting to talk about that.

And maybe early days for this question then too. But I mean, if you look out at a couple of years from now, when you're at $100 million in LoRa revenues. Would you hazard to guess what percent of those revenues would be license and royalty looking out those two years from now?

I think it will be quite small at that time. Because so the way to think about geolocation, you need the gateways and then you need the end nodes and then the geolocation service on top of that. So we had anticipated. And we're starting to get small revenues now, but I think the three year time frame is more the time frame where we'll start to see the geoloc revenues really start to ramp up. That could change. Lot of these use cases that are emerging are new markets. I mean there really are new applications that are opening up for using LoRa for LPWAN connectivity; and some of them are quite compelling that could generate much faster geolocation revenue. But at this point, I would say, it's probably closer to the two to three years out.

Your next question comes from the line of Steve Smigie with Raymond James and Associates. Steve, your line is open.

This is Vince Celentano on for Steve. I just want to also congratulations on the strong quarter and guide; also great job with the diversification efforts in the handset space with the Chinese OEMs. I was wondering, what kind of content expansion do you expect for the Chinese handsets in 2017? In general, do you expect revenue growth to come from more of getting traction in new OEMs? Or is it more about getting more of your content on your existing customers?

So initially, if I look at it, the China -- China is a new -- China smartphones anyways is really a new opportunity for us that we've been working for over the last year or so. And now we're starting to see really good traction on. But historically our penetration of the mobile market has been with protection devices. And now we're starting to see revenues from both protection and proximity sensing devices. So, yes, that content increases. It's not dramatic increase, but I would say, it's an increase. And then a lot depends on which phones are using the proximity sensing and protection devices. Not all the phones will use proximity sensing. Some of the regions don't have the regulations yet in place, so some customers don't ship into those regions where they have the important compliance requirements. So it varies. But I would say our content is increasing and our expansion into China phones is also increasing.

And then switching over to the data center, since you’re really seeing opportunity for you guys, especially as you transition over to that single-lambda; as of right now, but for 100G specifically. How much of the total debt in our revenue would you say was that last year? And what are you targeting for this fiscal year as far as100G sales?

Well, 100G -- so first of all, let me clarify that it's not single-lambda it's quad 25-gig at the moment, and that's what we see as being the predominant revenue driver for the next couple of years. 100-gig single-lambda, we see as FY19 story. And it's ramping very fast, and this past year, it ramped up very fast. I would say, now, it's about equal percentage relative to the other bandwidths that are being shipped.

Your next question comes from the line of Mitch Steves with RBC Capital Markets. Mitch, your line is open.

I just had a few one on the LoRa product portfolio. I think we're trying to do the math, just trying to figure out what the run rate is. But I thought that it was supposed to be in the industrial segment, but then you stated that the industrial segment was flattish year-over-year. I'm just trying to reconcile the point where LoRa fits in the entire, both the end market side and the product segment side?

We have our LoRa revenues in the industrial segment, Mitch. And so, if industrial came down it was probably as a result of one of the other businesses coming down, not LoRa.

And then from the product segment side, it's all the LoRa revenue, it's actually Wireless and Sensing and timing?

Yes, correct.

So we should basically try to back into the math on the industrial side of what the wireless side of that, so it kind of implies you do maybe $10 million a quarter now on LoRa?

No, LoRa revenue is closer to the $20 million to $30 million range in FY17. And we're expecting that to double to close to somewhere between $40 million and $60 million in FY18. And then as we said to get to $100 million in FY19 is the goal. That's always been the two goals. The revenues come from a contribution of gateway revenue, chips from gateway revenue and chips from end node devices. So, the momentum is very good there.

Your next question comes from the line from Cody Acree with Drexel Hamilton. Cody, your line is open.

Maybe Mohan, could you just go back and summarize quickly your thoughts on the in-segment growth rates for 2018, you interspersed as, I think, in your prepared remarks. But if you could just summarize those…

For the product groups, I would say, our Signal Integrity Product Group, we expect double-digit growth; I would say Wireless and Sensing we expect double-digit growth; Protection, high-single-digits and Power and Hhigh-Rel low to mid-single-digits.

And Emeka, you gave some delineations, some breakdown of the drivers of your gross and operating margin improvements. Can you really just talk about linearity of how you expect to get there? How -- does it sound like the royalty revenues are going to be that big of a contributor in the near-term? So, just how should we think about the acceleration of these market trends?

So Cody as you can imagine a bulk of our gross margin and the expansion that I'm talking about is going to be driven by mix. So, it's always very difficult to talk about the linearity of when you're talking about mix. But I think what I tried to say in an earlier response was that, I would expect that given the current mix improvements that we are expecting from our optical transceiver products and LoRa and just the higher levels of manufacturing activity, that that should allow us to maybe get to the 61%, 62% in the next one to two years and then for the location revenue, the geo-location [indiscernible] and royalty to take us to the high end about three years time.

And then, lastly, I guess, Mohan, could you just talk about the success that you have had with diversification and protection with the Chinese OEMs? Maybe you can single out or any places that you're particularly serve?

Well, we've been looking to China smartphone angle and China Mobile angle for, as I said, quite a while now maybe last couple of years. And done a very good job and I think had very good success, both with our protection and our proximity sensing devices. There are a number of China Mobile manufacturers, and we are fortunate to have relationships with a couple of them that are doing very well. I think that they will continue to do well. And our feeling is it's a nice balance to have. Obviously, we have success with Korea. We have success in China now. We've always had some success in the U.S. market, not as much as we maybe would like. And there is an opportunity there in the future. But it does help us to have multiple customers now that are contributing to the business versus just historically from Korea.

I guess, maybe another way. Is there any of the leading Chinese OEMs that you're not working with?

No.

Your next question comes from the line of Lena Zhang with Summit Redstone. Lena, your line is open.

Most of my questions have been answered, just one on the foundry supply. Have you noticed supply delivery time or stretch and recent delay?

Well, I think, Lena, it depends area-to-area which segment we're in. But supply is tight, it's not like there's a lot of capacity out there. So, that is healthy sign for the industry. Demand is strong. And so when demand is strong and supply is tight, one has to be very cautious about making sure you have right balance in place and you're forecasting mix correctly, and those types of things. But it does vary from segment-to-segment. Obviously, the segments that we are most concerned about are the high volume segments, like the consumer segments. And at the moment, I think, there's capacity there. But if the mobile customers start to ramp up successfully in Q2 and Q3 and then sell phones successfully then obviously that's going to put a lot of pressure on the supply chain.

There are no further questions, at this time. I will turn the call back over to the presenters.

Thank you. In closing, fiscal year 2017 was an exciting year with faster growth and outperformance at Semtech has become accustom to in the last 10 years. We outperformed our peers and industry while leading the industry to several of the fastest-growing segments of the industry. We are off to a solid start in FY18, and are expecting several of our product groups to achieve record results in FY18 and beyond. And help drive the Company along its positive path of getting to $1 billion in net revenues. In addition, due to the confidence we have in our current strategy and our operational performance, we are increasing both our non-GAAP gross margin model range and our non-GAAP operating margin model range. With that, we appreciate your continued support of Semtech, and look forward to updating you on next quarter. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.