Microchip Technology Inc. (NASDAQ:MCHP) Q2 2017 Earnings Conference Call - Final Transcript

Nov 07, 2016 • 05:00 pm ET

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Microchip Technology Inc. (NASDAQ:MCHP) Q2 2017 Earnings Conference Call - Final Transcript

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Presentation
Operator
operator

Good day, everyone, and welcome to the Microchip Technology Second Quarter of the Fiscal Year 2017 Financial Results Conference Call.

As a reminder, today's call is being recorded.

At this time, I would like to turn the call over to Microchip's Chief Financial Officer, Mr. Eric Bjornholt. Please go ahead, sir.

Executive
J. Eric Bjornholt

Good afternoon, everyone.

(Forward-Looking Cautionary Statements)

In attendance with me today are Steve Sanghi, Microchip's Chairman and CEO, and Ganesh Moorthy, Microchip's President and COO. I will comment on our second quarter fiscal 2017 financial performance and Steve, Ganesh will then give their comments on the results, discuss the current business environment as well as our guidance and provide an update on the integration activities associated with the Atmel acquisition. We will then be available to respond to specific investor and analyst questions.

I want to remind you that we are including information in our press release and this conference call on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on the Investor Relations page of our website at www.microchip.com, which we believe you will find useful when comparing GAAP and non-GAAP results. I will now go through some of the operating results, including net sales, gross margin and operating expenses. I will be referring to these results on a non-GAAP basis, prior to the effects of our acquisition activities and share-based compensation.

Non-GAAP net sales in the September quarter were a record $873.8 million. They were well above the high end of our guidance and were up [3.5%] sequentially from net sales of $844 million in the immediately preceding quarter. Non-GAAP net sales were $2.5 million higher than GAAP net sales as we are reporting non-GAAP net sales on a full sell-through revenue recognition basis while GAAP recognizes the Atmel Asia distribution network as having sell-in revenue recognition.

Our non-GAAP results are being presented on a full sell-through basis to provide investors with a better view of the true end-market demand for our products. We will start recognizing revenue on a sell-through basis for the Atmel Asia distributors effective October 1. We have posted a summary of our revenue by product line and geography on our website for your reference.

On a non-GAAP basis, gross margins were 57.2% in the September quarter and significantly above the high end of our guidance, which was 56.2%. Non-GAAP operating expenses were 26.7% of sales, significantly below the bottom end of our guidance range of 27.2% and non-GAAP operating income was 30.5%, well above the high end of our guidance of 29%. Non-GAAP net income was a record $219.6 million, resulting in record earnings per diluted share of $0.94, which was $0.05 higher than the high end of our guidance of $0.89, up 11.6% on a sequential basis and up 42.6% as compared to the same quarter last year.

On GAAP basis, net sales were $871.4 million, and gross margins including share-based compensation and acquisition-related expenses were 47.1% in the September quarter. GAAP gross margins include the