Microchip Technology Inc. (NASDAQ:MCHP) Q3 2017 Earnings Conference Call - Final Transcript

Feb 07, 2017 • 05:00 pm ET

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Microchip Technology Inc. (NASDAQ:MCHP) Q3 2017 Earnings Conference Call - Final Transcript

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Presentation
Operator
operator

Good day everyone and welcome to the Microchip Technology third quarter and fiscal year 2017 financial results conference call. As a reminder, today's call is being recorded.

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

Executive
Eric Bjornholt

(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 third quarter fiscal 2017 financial performance and Steve and 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 in 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 on 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 actives and share based compensation.

Non-GAAP net sales in the December quarter were a record $881.2 million and they were well above the high end of our guidance and were up 0.8% sequentially from net sales of $873.8 million in the immediately preceding quarter.

We have posted a summary of our revenue by product line and geography on our website for you reference. On a non-GAAP basis, gross margins were 57.8% in the December quarter and significantly above the midpoint of our guidance, which was 56.9%. Non-GAAP operating expenses were 25% of sales, significantly below the midpoint of our guidance range of 26.7%.

And non-GAAP operating income was an outstanding 32.8%, well above the midpoint of our guidance of 30.15% and very close to reaching our prior long-term operating model goal of 33%, which we had previously guided investors that we would achieve in the March 2018 quarter.

Non-GAAP net income was a record $246.5 million, resulting in record earnings per diluted share of $1.05, which was $0.145 higher than the midpoint of our guidance of $0.905, up 11.6% on a sequential basis and up 64.9% as compared to the same quarter last year.

On a GAAP basis, net sales were $834.4 million. GAAP net sales were $46.8 million lower than non-GAAP net sales because for GAAP accounting purposes, we began recognizing revenue on a sell-through basis for the Atmel Asia distributors on October 1, 2016. And the inventory sitting in the distribution channel on that date was not recognized as revenue in our GAAP financial statements when it was subsequently sold by the distributors.

Sales to all Atmel distributors are now being recognized based on sell-through revenue recognition.