Microchip Technology Inc. (NASDAQ:MCHP) Q4 2018 Earnings Conference Call Transcript

May 08, 2018 • 08:30 am ET

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Microchip Technology Inc. (NASDAQ:MCHP) Q4 2018 Earnings Conference Call Transcript

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Presentation
Operator
operator

Good day, everyone, and welcome to this Microchip Technology Fourth 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 President and CEO, Mr. Steve Sanghi. Please go ahead, sir.

Executive
Steve Sanghi

Thank you. I'd like to turn the call to Eric Bjornholt, CFO, first. Eric, go ahead.

Executive
Eric Bjornholt

Good morning, everybody. (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 fourth quarter and full fiscal year 2018 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 make some specific comments on the pending acquisition of Microsemi. We will then be available to respond to specific investor or analyst questions.

I want to remind you that we are including information in our press release 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 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 March quarter were just over $1 billion, above the high end of our guidance and up 0.8% sequentially from net sales of $994.2 million in the immediately preceding quarter. 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 at the high end of our guidance at 61.7%, which is a new record level for Microchip. Non-GAAP operating expenses were 22.2% of sales, and non-GAAP operating income was a record 39.5%. Non-GAAP net income was a record $351.3 million, resulting in earnings per diluted share of $1.40, which was above the high end of our guidance of $1.37. Non-GAAP EPS in the March 2018 quarter was up 20.7% compared to the March quarter of 2017.

For fiscal year 2018, on a non-GAAP basis, net sales were a record $3.981 billion and up 13.7% year-over-year. Gross margins were 61.1%.. Operating expenses were 22.4% of sales, and operating income was 38.7% of sales. Net income was $1.356 billion, and non-GAAP EPS was $5.45 per diluted share. On a GAAP basis, gross margins in the March 2018 quarter, including share-based compensation and acquisition-related expenses, were 61.4%. GAAP gross margins include the impact of $3.3 million of share-based compensation. Total operating expenses were $371 million and include acquisition and tangible amortization of $122.8 million, share-based compensation of $20 million, $5.2 million of acquisition- related and other cost and special charges of $0.2 million.

GAAP net income in