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

May 08, 2018 • 08:30 am ET


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


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Eric Bjornholt

the quarter was $146.7 million or $0.58 per diluted share and was impacted by a couple of discrete events in the quarter. GAAP net income was impacted by a $15.5 million charge associated with marking our investments to market through the P&L. These investments used to be held to maturity. But since the investments will be liquidated to fund the acquisition of Microsemi, the unrealized loss that would have been recorded in other comprehensive income in the absence of the anticipated acquisition was recognized in earnings. GAAP net income was also impacted by $38.9 million of discrete tax expense during the quarter, primarily associated with the Tax Cuts and Jobs Act.

For fiscal year 2018, net sales were a record $3.98 billion, gross margins were 60.8%, operating expenses were 37.3% of sales and operating income was 23.5% of sales. Net income of $255.4 million was $1.03 per diluted share. The non-GAAP tax rate was 8.4% in the March quarter. As we have continued to evaluate the impact of the Tax Cuts and Jobs Act, we are now expecting about $327 million of taxes to be paid over the eight years related to the tax incurred on foreign earnings that were permanently invested offshore referred to as the transition tax.

This estimate is up modestly from what we had discussed with investors last quarter. We estimate the tax payments to be approximately $26 million in years one through five, $49 million in year six, $65 million in year seven and $82 million in year eight.

We will continue to evaluate the impact of the Tax Cuts and Jobs Act, and these estimates may change as we complete our full analysis. As we look forward, excluding the transition tax from the Tax Cuts and Jobs Act, we expect our ongoing long-term cash tax rate to be between 8% and 9% percent, which is what we are providing to investors for cash flow and non-GAAP operating model forecasting purposes.

Moving on to the balance sheet. Our inventory balance at March 31, 2018, was $476.2 million. Microchip had 112 days of inventory at March 31, 2018, down three days from the end of the December quarter. Inventory at our distributors was at 36 days, and up two days from the December quarter. The cash flow from operating activities was $359.6 million in the March quarter. As of March 31, the consolidated cash and total investment position was $2.197 billion, of which over $700 million is domestic cash. Due to the Tax Cuts and Jobs Act, the majority of our offshore cash can be brought back to the US without incurring any material additional tax cost.

Our EBITDA in the March 2018 quarter was a record $429.6 million. Our net leverage, excluding our 2,037 convertible debentures was 0.95 at March 31, 2018, positioning us well for the Microsemi acquisition. Capital expenditures were $58.4 million in the March 2018 quarter and $206.8 million for fiscal year 2018.

In April, we completed the purchase of a building