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

  • GAAP net sales of $1.375 billion, down 4.0% sequentially and up 38.3% from the year ago quarter.  Microchip was unable to provide GAAP net sales guidance.
  • Non-GAAP net sales of $1.416 billion, down 6.4% sequentially and up 42.4% from the year ago quarter.  The midpoint of our guidance provided on November 7, 2018 was Non-GAAP net sales of $1.400 billion.
  • On a GAAP basis:  gross margin of 56.7%; operating income of $194.7 million; net income of $49.2 million; and EPS of $0.20 per diluted share.  Microchip was unable to provide GAAP guidance.
  • On a Non-GAAP basis:  record gross margin of 62.2%; operating income of $530.0 million and 37.4% of net sales; net income of $405.6 million and EPS of $1.66 per diluted share, up 22.1% from the year ago quarter.  Our guidance provided on November 7, 2018 was Non-GAAP EPS of $1.49 to $1.64 per diluted share.
  • Paid down $377.5 million of debt in the December 2018 quarter.  Cumulatively paid down $878.5 million of debt over the last two quarters.
  • Record quarterly dividend declared of 36.50 cents per share.

CHANDLER, Ariz., Feb. 05, 2019 (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 December 31, 2018 as summarized in the following table:

  
(in millions, except per share amounts and percentages) Three Months Ended December 31, 2018
  GAAP % of
Net Sales
Non-
GAAP1
% of
Net Sales
Net sales$1,374.7 $1,416.0 
Gross margin$779.656.7%$881.162.2%
Operating income$194.714.2%$530.037.4%
Other expense$(139.7) $(109.7) 
Income tax provision$5.8 $14.7 
Net income$49.23.6%$405.628.6%
Net income per diluted share$0.20 $1.66 

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


GAAP net sales for the third quarter of fiscal 2019 were $1.375 billion, up 38.3% from GAAP net sales of $994.2 million in the prior year's third fiscal quarter.  GAAP net income for the third quarter of fiscal 2019 was $49.2 million, or $0.20 per diluted share, up from a GAAP net loss of $251.1 million, or $1.07 per diluted share, in the prior year's third fiscal quarter.  The current year's GAAP net income was significantly adversely impacted by purchase accounting adjustments associated with our acquisitions.  The prior year's GAAP net income results were significantly adversely impacted by one-time tax adjustments related to the Tax Cuts and Jobs Act of 2017.

Non-GAAP net sales for the third quarter of fiscal 2019 were $1.416 billion, up 42.4% from non-GAAP net sales of $994.2 million in the prior year's third fiscal quarter.  Non-GAAP net income for the third quarter of fiscal 2019 was $405.6 million, or $1.66 per diluted share, up 18.9% from non-GAAP net income of $341.2 million, or $1.36 per diluted share, in the prior year's third fiscal quarter.  For the third 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 third 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 third 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.

Beginning with the fiscal quarter ending March 31, 2019, we will be changing the information included in our financial guidance.  Please refer to the “Fourth Quarter Fiscal Year 2019 Outlook” section of this release for details regarding our revised approach to providing guidance.

Microchip announced today that its Board of Directors has declared a record quarterly cash dividend on its common stock of 36.50 cents per share.  The quarterly dividend is payable on March 7, 2019 to stockholders of record on February 21, 2019.

"Our December quarter financial results were good in spite of a challenging economic backdrop," said Steve Sanghi, Chief Executive Officer.  "Our non-GAAP net sales came in above the mid-point of our guidance that we issued on November 7, 2018.  We are pleased that through record non-GAAP gross margins, tight expense control and continued synergies from our Microsemi acquisition, our non-GAAP operating margins exceeded the high-end of our guidance."

Mr. Sanghi added, "After reducing the inventory in the Microsemi distribution channel in the September 2018 quarter, Microsemi distribution inventory remained at a stable 2.6 months in the December 2018 quarter.  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."

Mr. Sanghi further added, "Since closing the Microsemi acquisition, we have removed sell-in revenue incentives and sales discounts from the Microsemi business and have realized significant operating expense synergies.  As a result of these actions, we achieved record non-GAAP operating profit percentage for the Microsemi business.  The accretion run rate from the Microsemi transaction already exceeds the 75 cents per share annualized run rate which was our initial guidance for one year after the acquisition date."

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