Microchip Technology Inc. (NASDAQ:MCHP) Q2 2018 Earnings Conference Call - Final Transcript

Nov 06, 2017 • 05:00 pm ET

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Microchip Technology Inc. (NASDAQ:MCHP) Q2 2018 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good day, everyone, and welcome to this Microchip Technology Second Quarter and Fiscal Year 2018 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 CFO, Mr. Eric Bjornholt. Please go ahead, sir.

Executive
Eric Bjornholt

Thank you and good afternoon everyone.

(Forward-Looking Cautionary Statement)

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 year 2018 financial performance and Steve and Ganesh will then give their comments on the results and discuss the current business environment as well as our guidance. 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 on this conference call on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on the IR 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.

Net sales in the September quarter were a record $1.012 billion, well above our guidance and up 4.1% sequentially from net sales of $972.1 million in the immediately preceding quarter. This was Microchip's first quarter with more than a $1 billion in sales. 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 61.04% in the September quarter and above the high end of our guidance, which was 60.75%. Non-GAAP operating expenses were 22.46% of sales well just below the low end of our guidance of 22.5%. And non-GAAP operating income was a record 38.6%, well above the high end of our guidance of 38.25%. Non-GAAP net income was a record $344.1 million and was up 7.9% on a sequential basis and up 56.7% as compared to the same quarter last year. Non-GAAP earnings per diluted share was $1.41, which was $0.06 higher than the midpoint of our guidance of $1.35.

On a GAAP basis, gross margins including share-based compensation and acquisition-related expenses, were 60.7% in the September quarter. GAAP gross margins include the impact of $3.7 million of share-based compensation. Total operating expenses were $388.7 million and include acquisition intangible amortization of $120.9 million, share based compensation of $19.9 million, $0.7 million of acquisition-related and other costs and special charges of $19.9 million, consisting primarily of $19.5 million charge for fees associated with transitioning from the public utility provider in Oregon to a lower cost direct access provider. This change is expected to provide significant expense and cash flow savings in the future. After these adjustments GAAP net income was a record $189.2 million or