Semtech (SMTC) Extends LPWAN Agreement with Comcast (CMCSA); Updates Q3 GAAP Outlook
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Semtech Corporation (Nasdaq: SMTC) announced that it has entered into an agreement with Comcast (Nasdaq: CMCSA) regarding the intended trial deployment by Comcast of a low-power wide-area network (LPWAN) in the United States, based on Semtech LoRa® Wireless Radio Frequency Technology. The LoRaWAN™-based network trial deployment is expected to commence in the calendar fourth quarter of 2016 in Philadelphia and San Francisco, and target “smart” enterprise, government and consumer Internet of Things (IoT) applications such as metering, asset tracking, building and public venue management, security, food safety, vending, and waste management. Upon successful completion of the trials, the network could be expanded to up to 30 U.S. cities within a period of 30 months.
To facilitate an accelerated build-out of the network in at least 30 major cities across the country, Semtech has agreed to grant Comcast a Warrant to purchase 1,086,957 shares of Semtech’s common stock at a purchase price per share equal to $0.01 (“Warrant”). This Warrant will vest in several phases based upon successful completion of milestones which are generally tied to regional coverage targets as follows:
- 10% will vest on the Warrant issue date
- 10% will vest once at least 50% of the population of two target cities have LoRaWAN coverage
- 26% will vest once at least 50% of the population of 10 target cities have LoRaWAN coverage
- 27% will vest once at least 50% of the population of 20 target cities have LoRaWAN coverage
- 27% will vest once at least 50% of the population of 30 target cities have LoRaWAN coverage
This Warrant is expected to vest over a period of 30 months and is valued at approximately $30 million based on the average closing price of Semtech’s common stock over the 10-trading day period ending Oct. 4, 2016. In accordance with U.S. generally accepted accounting principles (“GAAP”), any expense related to this Warrant is expected to be recorded as a reduction to net sales since it is being granted to a customer.
Accordingly, Semtech expects to record a reduction to its GAAP net sales of approximately $3.8 million in the third quarter of fiscal year 2017 which is expected to reduce GAAP earnings per diluted share for this same period by approximately $0.06. As a result of these items, Semtech is updating its GAAP outlook for the third quarter of fiscal year 2017 and now expects GAAP net sales to be in the range of $130.0 million to $138.0 million compared to the prior range of $134.0 million to $142.0 million. GAAP earnings per diluted share are now expected to be in the range of $0.43 to $0.47 compared to prior range of $0.49 to $0.53.
Consistent with Semtech’s historical practices, non-cash expenses associated with the granting of stock-based compensation, including those associated with the Warrant, will be excluded from non-GAAP financial measures and will therefore not impact non-GAAP net sales or earnings per share.
Semtech will host a conference call on Oct. 5, 2016 at 2:00 p.m. Pacific time to discuss today’s announcement. A link to the conference call is available in the Investor Relations section of the Company’s website at http://investors.semtech.com/. A replay of the call will also be available and accessible from the Company’s website.
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