Microchip Technology Announces Financial Results for Second Quarter of Fiscal Year 2019

  • Record GAAP net sales of $1.433 billion, up 18.1% sequentially and up 41.5% from the year ago quarter.  Microchip was unable to provide GAAP net sales guidance.
  • Record Non-GAAP net sales of $1.513 billion, up 24.4% sequentially and up 49.5% from the year ago quarter.  The midpoint of our guidance provided on August 9, 2018 was non-GAAP net sales of $1.512 billion.
  • On a GAAP basis:  gross margin of 48.1%; operating income of $102.7 million; net income of $96.3 million; and EPS of $0.38 per diluted share.  Microchip was unable to provide GAAP guidance.
  • On a non-GAAP basis: gross margin of 61.7%; record operating income of $579.3 million and 38.3% of net sales; record net income of $454.6 million and record EPS of $1.81 per diluted share, up 28.4% from the year ago quarter.  Our guidance provided on August 9, 2018 was non-GAAP EPS of $1.65 to $1.83 per diluted share.
  • Record quarterly dividend declared of 36.45 cents per share.

CHANDLER, Ariz., Nov. 07, 2018 (GLOBE NEWSWIRE) -- (NASDAQ: MCHP) - Microchip Technology Incorporated, a leading provider of microcontroller, mixed signal, analog and Flash-IP solutions, today reported results for the three months ended September 30, 2018 as summarized in the following table:

(in millions, except per share amounts and percentages) Three Months Ended September 30, 2018
  GAAP % of
Net
Sales
Non-
GAAP1
% of
Net
Sales
Net Sales$1,432.5 $1,513.3 
Gross Margin$689.348.1%$933.761.7%
Operating Income$102.77.2%$579.338.3%
Other Expense$(142.1) $(108.2) 
Income Tax (Benefit) Provision$(135.7) $16.5 
Net Income$96.36.7%$454.630.0%
Net Income per Diluted Share$0.38 $1.81 

(1) See the "Use of Non-GAAP Financial Measures" section of this release.

GAAP net sales for the second quarter of fiscal 2019 were $1.433 billion, up 41.5% from GAAP net sales of $1,012.1 million in the prior year's second fiscal quarter.  GAAP net income for the second quarter of fiscal 2019 was $96.3 million, or $0.38 per diluted share, down from GAAP net income of $189.2 million, or $0.77 per diluted share, in the prior year's second fiscal quarter.  The current year's GAAP net income was significantly adversely impacted by purchase accounting adjustments associated with our acquisitions.

Non-GAAP net sales for the second quarter of fiscal 2019 were $1.513 billion, up 49.5% from non-GAAP net sales of $1,012.1 million in the prior year's second fiscal quarter.  Non-GAAP net income for the second quarter of fiscal 2019 was $454.6 million, or $1.81 per diluted share, up 32.1% from non-GAAP net income of $344.1 million, or $1.41 per diluted share, in the prior year's second fiscal quarter.  For the second quarters of fiscal 2019 and fiscal 2018, our non-GAAP results exclude the effect of share-based compensation, expenses related to our acquisition activities (including intangible asset amortization, inventory valuation costs, excess capacity charges to normalize acquired inventory levels, severance and other restructuring costs, and legal and other general and administrative expenses associated with acquisitions), non-cash interest expense on our convertible debentures, adjustments for a manufacturing excursion issue with one of our suppliers, losses on the settlement of debt, and losses on available-for-sale investments.  Due to our required adoption of the new revenue recognition standard on April 1, 2018 that resulted in revenue being recognized when the product is sold to our distribution customers, our non-GAAP adjustments include the effect of our distributors increasing or decreasing their inventory holdings in order to present a measure of the end market demand for our products.  For the second quarter of fiscal 2019, our non-GAAP income tax expense is presented based on projected cash taxes for fiscal 2019, excluding transition tax payments under the Tax Cuts and Jobs Act.  For the second quarter of fiscal 2018, our non-GAAP income tax expense is presented in a manner that excludes the tax impact of non-GAAP adjustments calculated using the applicable tax rates in the jurisdictions where the adjustments occurred, tax adjustments in accordance with ASC 740-270, and one-time tax events.  A reconciliation of our non-GAAP and GAAP results is included in this press release.

Microchip announced today that its Board of Directors has declared a record quarterly cash dividend on its common stock of 36.45 cents per share.  The quarterly dividend is payable on December 5, 2018 to stockholders of record on November 21, 2018.

"Our September quarter financial results were very good," said Steve Sanghi, Chief Executive Officer.  "Our non-GAAP net sales came in above the mid-point of our guidance that we issued on August 9, 2018, resulting in record non-GAAP operating income, net income, and earnings per share."

Mr. Sanghi added, "During the September quarter we made significant progress in correcting the excess inventory in the Microsemi distribution channel down to about 2.6 months.  We believe that at the current levels distributors are holding the amount of inventory needed to support end market demand and that the inventory levels are in line with the levels maintained by our distributors for our historical business."

"In the September 2018 quarter, non-GAAP net sales for each of our microcontroller, analog, licensing and FPGA product lines achieved all-time records.  Microcontroller non-GAAP net sales were $820.1 million, up 12.6% from the June 2018 quarter and analog non-GAAP net sales were $438.8 million, up 33.6% from the June 2018 quarter," said Ganesh Moorthy, President and Chief Operating Officer.  "Our microcontroller and analog results benefited from a full quarter of contribution from Microsemi."

Mr. Moorthy added, "The integration of Microsemi with Microchip is rapidly progressing.  We are achieving synergies in the business units, sales, operations and support functions, while we relentlessly march toward the synergy targets we have outlined for our stockholders."

Eric Bjornholt, Microchip's Chief Financial Officer, said, "We paid down $501 million of total debt during the September quarter as we re-aligned our operational cash requirements to support the business.  We will continue to use substantially all of our excess cash generation after dividends to de-lever the balance sheet as quickly as possible."

Mr. Sanghi added, "Beginning April 1, 2018, we adopted the new GAAP revenue recognition standard which requires us to recognize revenue at the time products are sold to distributors.  Prior to this change, revenue on such transactions were deferred until the product was sold by our distributor to an end customer.  We are not able to provide guidance on a GAAP basis as we are not able to predict whether inventory at our distributors will increase or decrease in relation to end-market demand.  As evidence of this uncertainty, in recent years, we have seen net inventory at our distributors increase or decrease by a significant amount in a single quarter.  Our non-GAAP revenue will be based on what we believe reflects true end-market demand as we measure revenue based on when product is sold by our distributors to an end customer.”

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