Microchip Technology Announces Record Net Sales for First Quarter Fiscal Year 2014

Microchip Technology Announces Record Net Sales for First Quarter Fiscal Year 2014

  • RECORD NET SALES OF $462.8 MILLION, UP 7.6% SEQUENTIALLY AND UP 31.4% FROM YEAR AGO QUARTER.
  • ON A NON-GAAP BASIS: GROSS MARGINS OF 58.0%; RECORD OPERATING INCOME OF $141.3 MILLION; RECORD NET INCOME OF $120.4 MILLION; AND EPS OF 57 CENTS PER DILUTED SHARE. THE FIRST CALL PUBLISHED ESTIMATE FOR NON-GAAP DILUTED EPS WAS 54 CENTS.
  • ON A GAAP BASIS: GROSS MARGINS OF 57.6%; OPERATING INCOME OF $98.4 MILLION; NET INCOME OF $78.6 MILLION; AND EPS OF 37 CENTS PER DILUTED SHARE. THERE WAS NO PUBLISHED FIRST CALL ESTIMATE FOR GAAP EPS.
  • RECORD NET SALES OF MICROCONTROLLERS, 16-BIT MICROCONTROLLERS, 32-BIT MICROCONTROLLERS AND ANALOG PRODUCTS
  • RECORD DEVELOPMENT TOOL SHIPMENTS

CHANDLER, Ariz.--(BUSINESS WIRE)-- Microchip Technology Incorporated (NAS: MCHP) , a leading provider of microcontroller, analog and Flash-IP solutions, today reported results for the three months ended June 30, 2013 as summarized in the following table:

 
(in millions, except earnings per diluted share and percentages) Three Months Ended June 30, 2013
  


GAAP

 

% of Net
Sales

 

Non-
GAAP1

 

% of Net
Sales

Net Sales $462.8   $462.8  
Gross Margin $266.6 57.6% $268.5 58.0%
Operating Income $98.4 21.3% $141.3 30.5%
Other Expense (including Gains/Losses on Equity Method Investments) 

$

8.1

 

 

 

$

5.9

 

 

Income Tax Expense $11.8   $15.0  
Net Income $78.6 17.0% $120.4 26.0%
Earnings per Diluted Share  37 cents    57 cents  

1

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

GAAP net sales for the first quarter of fiscal 2014 were $462.8 million, up 7.6% sequentially from net sales of $430.1 million in the immediately preceding quarter, and up 31.4% from net sales of $352.1 million in the prior year's first fiscal quarter. GAAP net income for the first quarter of fiscal 2014 was $78.6 million, or 37 cents per diluted share, up 31.7% from GAAP net income of $59.7 million, or 28 cents per diluted share, in the immediately preceding quarter, and down 0.2% from GAAP net income of $78.7 million, or 39 cents per diluted share, in the prior year's first fiscal quarter. In the first quarter of fiscal 2014, GAAP net income included amortization of acquired intangibles of $27.7 million and special charges of $1.7 million.

Non-GAAP net income for the first quarter of fiscal 2014 was $120.4 million, or 57 cents per diluted share, up 10.1% from non-GAAP net income of $109.3 million, or 52 cents per diluted share, in the immediately preceding quarter, and up 24.3% from non-GAAP net income of $96.9 million, or 48 cents per diluted share, in the prior year's first fiscal quarter. For the first quarters of fiscal 2014 and fiscal 2013, our non-GAAP results exclude the effect of share-based compensation, expenses related to our acquisition activities (including intangible asset amortization, inventory valuation costs, severance costs, earn out adjustments and legal and other general and administrative expenses associated with acquisitions), and non-cash interest expense on our convertible debentures. A reconciliation of our non-GAAP and GAAP results is included in this press release.

Microchip also announced today that its Board of Directors declared a quarterly cash dividend on its common stock of 35.4 cents per share. The quarterly dividend is payable on September 4, 2013 to stockholders of record on August 21, 2013.

"We are very pleased with our execution in the June quarter. Our actual net sales exceeded the high end of our upwardly revised guidance we provided on June 3, 2013," said Steve Sanghi, President and CEO. "We also significantly exceeded the high end of our upwardly revised gross margin guidance and improved our gross margin percentage by 163 basis points sequentially."

Mr. Sanghi added, "Our non-GAAP operating profit reached 30.5% in the June quarter and we are making good progress towards our long-term goal of 32.5%. Our non-GAAP earnings per share exceeded the mid-point of our original guidance given on May 2, 2013 by 5 cents per share."

"Our microcontroller net sales grew a strong 8.9% sequentially in the June quarter to achieve an all time record of $300.3 million," said Ganesh Moorthy, Chief Operating Officer. "All three microcontroller categories grew revenue significantly with 8-bit getting close to an all-time high. Net sales of our 16-bit products were up 10.1% sequentially to set a new record. Net sales of our 32-bit products were up 26.3% sequentially, also setting a new record."

Mr. Moorthy added, "Our analog business grew revenue 6.2% sequentially in the June quarter to achieve a new record and continues to perform exceptionally well. Analog revenue represented 22.3% of Microchip's overall net sales and, at a $413 million annualized sales run rate, has quietly become one of the larger analog franchises in the industry."

Eric Bjornholt, Microchip's Chief Financial Officer, said, "We ended the June quarter with $256.1 million in inventory, which represents 119 days. Inventory is within our target model and we have increased manufacturing activities in our factories to support the anticipated growth of our business. Inventory at our distributors was at 32 days at the end of June and remains at very low levels compared to where it has been historically."

Mr. Sanghi concluded, "The book-to-bill ratio in the June quarter was very strong. We have continued to see very strong bookings and expedite requests in our business driven by strong demand and our design win pipeline, which has provided us with good visibility for the September quarter. We expect Microchip's total net sales in the September quarter to be up between 2 and 6 percent sequentially."

Microchip's Recent Highlights:

  • Microchip continued to grow its industry-leading PIC® microcontroller platform. On the high end, it expanded the 32-bit PIC32MX3/4 family with a compelling mix of performance, integrated peripherals and memory for low-cost graphical human interfaces, connectivity and digital-audio applications.
  • Microchip also added three new families of innovative 8-bit MCUs, which all combine Microchip's eXtreme Low Power technology with high analog and digital integration, making them well suited for a broad range of mixed-signal applications, such as sensing, signal conditioning, LED/lighting, battery/power management, digital power supplies, motor control, battery charging, smart energy and other general-purpose designs.
  • To make the real-time power monitoring and code optimization of its MCUs affordable for portable, power-supply, motor-control and meter designs, Microchip introduced the MPLAB® REAL ICE™ Power Monitor Module. This tool provides unsurpassed current measurement, while optimizing software for the lowest possible power consumption.
  • Microchip shipped a record 50,534 development systems during the June quarter, which offers further evidence of the continued strong interest in its products. The total cumulative number of development systems shipped now stands at 1,529,399.
  • In the area of analog and interface ICs, Microchip once again expanded its very large portfolio. The Company added a family of op amps that extend battery life with exceptionally low power consumption. Additionally, its new 36V digipots support wide signal swings and high power-supply voltages for industrial, automotive and audio applications.
  • Microchip added a LIN 2.1/ SAE J2602-2 transceiver, a system basis chip and a system-in-package device, all of which comply with global automotive standards while providing extremely low power consumption, and high robustness, reliability and integration. Likewise, Microchip's new family of high-speed CAN transceivers is low power, highly robust and meets the stringent EMC requirements of global automotive OEMs.
  • Microchip also expanded its USB controller hub portfolio, on two fronts. For USB 2.0, the Company introduced the world's first programmable USB2 controller hubs, which also add simultaneous support for USB2, HSIC and low-power modes. The seven ICs in this new family provide advanced battery charging and I/O bridging to multiple serial protocols for the designers of PCs, mobile devices, docking stations and monitors.
  • On the USB 3.0 front, Microchip added SuperSpeed Certified USB3 controller hubs that are the world's first with on-chip programmable memory. This third-generation family includes a hybrid version with a certified 4-port USB3 hub and three additional USB2 lanes, rounding out the industry's most complete and flexible USB3 hub offering for applications such as PCs, peripherals, computing platforms, storage solutions, networking and consumer devices, set-top boxes, docking stations and monitors.
  • Microchip also grew its portfolio of highly reliable embedded memory, with a family of serial EEPROM devices that feature a unique, pre-programmed 32-bit serial number for customers requiring unique IDs in their applications. For applications needing longer than 32-bit IDs, the unique ID can be extended to 48-bit, 64-bit, 96-bit, 128-bit and other lengths by increasing the number of bytes read from memory.
  • The Company expanded its Arduino™ compatible chipKIT™ platform with boards that contain prototyping-friendly 32-bit MCU packages. The new PIC32 MCU-based boards from partners Digilent, Inc., the Fair Use Building and Research (FUBAR) Labs, and Schmalz Haus LLC feature low pin count SOIC or SPDIP packages, which were previously only available with 8-bit MCUs for the Arduino community. This enables all users to benefit from the PIC32's high performance, memory and integrated peripherals while using the basic hobbyist prototyping equipment that is found in most home workshops.

Second Quarter Fiscal Year 2014 Outlook:

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.

 
 Microchip Consolidated Guidance
  
GAAP
 

Non-GAAP
Adjustments

 
Non-GAAP1
       
Net Sales $472.0 to $490.6 million   $472.0 to $490.6 million
Gross Margin2 57.6% to 58.2% $2.4 to $2.5 million 58.1% to 58.7%
Operating Expenses2 34.5% to 35.0% $35.4 to $36.8 million 27.0% to 27.5%
Other Expense $7.3 million $2.2 million $5.1 million
Income Tax Expense 12.3% to 12.7% $2.8 to $3.0 million 10.8% to 11.2%
Net Income $86.7 to $95.5 million $37.0 to $38.6 million $123.7 to $134.1 million

Diluted Common Shares Outstanding3

 Approximately 215.9 million shares Approximately 0.6 million shares Approximately 215.3 million shares
Earnings per Diluted Share 40 to 44 cents About 18 cents 58 to 62 cents
1 See the "Use of Non-GAAP Financial Measures" section of this release.
2Earnings per share have been calculated based on the diluted shares outstanding of Microchip on a consolidated basis.
3See Footnote 2 under the "Use of Non-GAAP Financial Measures" section of this release.
 
  • Microchip's inventory days at September 30, 2013 are expected to be about flat with the days at June 30. We believe our inventory position will enable us to continue to service our customers effectively while allowing us to control future capital expenditures. Our actual inventory level will depend on the inventory that our distributors decide to hold to support their customers, overall demand for our products and our production levels.
  • Capital expenditures for the quarter ending September 30, 2013 are expected to be approximately $27 million. Capital expenditures for all of fiscal year 2014 are anticipated to be approximately $90 million. We are continuing to take actions to selectively invest in the equipment needed to support the expected growth of our new products and technologies.
  • We expect net cash generation during the September quarter of approximately $110 million to $130 million prior to the dividend payment.

1

 Use of Non-GAAP Financial Measures: Our Non-GAAP adjustments, where applicable, include the effect of share-based compensation, expenses related to our acquisition activities (including intangible asset amortization, inventory valuation costs, restructuring costs, severance costs, earn-out adjustments and legal and other general and administrative expenses associated with acquisitions), and non-cash interest expense on our convertible debentures, the related income tax implications of these items and nonrecurring tax events.
 

We are required to estimate the cost of certain forms of share-based compensation, including employee stock options, restricted stock units and our employee stock purchase plan, and to record a commensurate expense in our income statement. Share-based compensation expense is a non-cash expense that varies in amount from period to period and is affected by the price of our stock at the date of grant. The price of our stock is affected by market forces that are difficult to predict and are not within the control of management. The non-GAAP adjustments related to the impact of our acquisitions, nonrecurring tax events and a portion of our interest expense related to our convertible debentures are either non-cash expenses or non-recurring expenses related to such transactions. Accordingly, management excludes all of these items from its internal operating forecasts and models.

 

We are using non-GAAP net sales, non-GAAP gross profit, non-GAAP gross profit percentage, non-GAAP operating expenses in dollars and as a percentage of sales including non-GAAP research and development expenses and non-GAAP selling, general and administrative expenses, non-GAAP operating income, non-GAAP other expense, net, non-GAAP income tax/tax rate, non-GAAP net income, and non-GAAP diluted earnings per share which exclude the items noted in the immediately preceding paragraph, as applicable, to permit additional analysis of our performance.
 

Management believes these non-GAAP measures are useful to investors because they enhance the understanding of our historical financial performance and comparability between periods. Many of our investors have requested that we disclose this non-GAAP information because they believe it is useful in understanding our performance as it excludes non-cash and other charges that many investors feel may obscure our underlying operating results. Management uses these non-GAAP measures to manage and assess the profitability of its business. Specifically, we do not consider such items when developing and monitoring our budgets and spending. As described above, the economic substance behind our decision to exclude such items relates either to these charges being non-cash in nature, or to the one-time nature of the events. Our determination of the above non-GAAP measures might not be the same as similarly titled measures used by other companies, and it should not be construed as a substitute for amounts determined in accordance with GAAP. There are limitations associated with using non-GAAP measures, including that they exclude financial information that some may consider important in evaluating our performance. Management compensates for this by presenting information on both a GAAP and non-GAAP basis for investors and providing reconciliations of the GAAP and non-GAAP results.

 

2

Diluted Common Shares Outstanding can vary for, among other things, the trading price of our common stock, the actual exercise of options or vesting of restricted stock units, the potential for incremental dilutive shares from our convertible debentures (additional information regarding our share count is available in the investor relations section of our website under the heading "Supplemental Financial Information"), and the repurchase or the issuance of stock. The diluted common shares outstanding presented in the guidance table above assumes an average Microchip stock price in the September 2013 quarter of $40 per share (however, we make no prediction as to what our actual share price will be for such period or any other period and we cannot estimate what our stock option exercise activity will be during the quarter).
 

3

Generally, gross margin fluctuates over time, driven primarily by the mix of microcontrollers, analog products and memory products sold and licensing revenue; variances in manufacturing yields; fixed cost absorption; wafer fab loading levels; inventory reserves; pricing pressures in our non-proprietary product lines; and competitive and economic conditions. Operating expenses fluctuate over time, primarily due to net sales and profit levels.
 
  

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands except share amounts)
(Unaudited)
 
 
Three Months Ended June 30,
20132012
 
Net sales$462,792$352,134
Cost of sales 196,218  147,337 
Gross profit266,574204,797
 
Operating expenses:
Research and development73,08548,826
Selling, general and administrative65,71055,592
Amortization of acquired intangible assets27,6774,046
Special charges 1,701  - 
 168,173  108,464 
 
Operating income98,40196,333
Losses on equity method investments(260)(121)
Other expense, net (7,805) (5,348)
 
Income before income taxes90,33690,864
Income tax provision 11,757  12,154 
 
Net income$78,579 $78,710 
 
Basic net income per common share$0.40 $0.41 
Diluted net income per common share$0.37 $0.39 
 
Basic common shares outstanding 196,950  193,452 
Diluted common shares outstanding 212,266  203,700 
 
  

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 
ASSETS
 
June 30,March 31,
20132013
(Unaudited)
Cash and short-term investments$961,875$1,578,597
Accounts receivable, net232,262229,955
Inventories256,136242,334
Other current assets 165,424 185,484
Total current assets1,615,6972,236,370
 
Property, plant & equipment, net513,723514,544
Long-term investments933,375257,450
Other assets 820,780 843,041
 
Total assets$3,883,575$3,851,405
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Accounts payable and other current liabilities$201,847$202,659
Deferred income on shipments to distributors 149,817 138,952
Total current liabilities351,664341,611
 
Long-term line of credit260,000620,000
Long-term borrowings348,688-
Convertible debentures365,562363,385
Long-term income tax payable186,588182,723
Deferred tax liability379,512388,250
Other long-term liabilities37,30121,966
 
Stockholders' equity 1,954,260 1,933,470
 
Total liabilities and stockholders' equity$3,883,575$3,851,405
 
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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(in thousands except per share amounts and percentages)

(Unaudited)

 
RECONCILIATION OF GAAP NET SALES TO NON-GAAP NET SALES

Three Months Ended

June 30,
20132012
Net sales, as reported$462,792$352,134
Distributor revenue recognition adjustment -  252 
Non-GAAP net sales$462,792 $352,386 
 
RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT
Three Months Ended
June 30,
20132012