Microchip Technology Exceeds Financial Guidance for the First Fiscal Quarter 2010 and Guides for Strong Growth for Second Fiscal Quarter 2010
NET SALES OF $192.9 MILLION, UP 11.4% SEQUENTIALLY ON A GAAP BASIS: GROSS MARGIN OF 50.0%; OPERATING PROFIT OF 16.2%; NET INCOME OF $27.4 MILLION AND 14.2% OF NET SALES; EPS OF 15 CENTS PER DILUTED SHARE ON A NON-GAAP BASIS: GROSS MARGIN OF 51.4%; OPERATING PROFIT OF 22.1%; NET INCOME OF $35.0 MILLION AND 18.1% OF NET SALES; EPS OF 19 CENTS PER DILUTED SHARE DAYS OF INVENTORY REDUCED BY 26 DAYS SEQUENTIALLY, TO 108 DAYS AT JUNE 30, 2009 RECORD SHIPMENTS OF 35,608 DEVELOPMENT TOOLS IN THE JUNE QUARTER MAINTAINED QUARTERLY DIVIDEND AT 33.9 CENTS PER SHARE
CHANDLER, Ariz.--(BUSINESS WIRE)-- Microchip Technology Incorporated (NASDAQ: MCHP), a leading provider of microcontroller and analog semiconductors, today reported results for the three months ended June 30, 2009 as summarized in the following table:
GAAP % of Non-GAAP1 % of
Revenue Revenue
Revenue $192.9 million $192.9 million
Gross Margin $96.4 million 50.0% $99.1 million 51.4%
Operating Income $31.2 million 16.2% $47.2 million 22.1%
Other Income (Expense) $1.5 million ($2.5) million
Income Tax Expense $5.3 million $5.2 million
Net Income $27.4 million 14.2% $35.0 million 18.1%
Earnings per Diluted Share 15 cents 19 cents
1 See "Use of non-GAAP Financial Measures" following the Outlook section of this
release.
Net sales for the first quarter of fiscal year 2010 were $192.9 million, up 11.4% sequentially from net sales of $173.3 million in the immediately preceding quarter, and down 28.1% from net sales of $268.2 million in the prior year's first quarter. GAAP net income for the first quarter of fiscal year 2010 was $27.4 million, or 15 cents per diluted share, up 23.4% from GAAP net income of $22.0 million, or 12 cents per diluted share, in the immediately preceding quarter, and down 62.8% from GAAP net income of $75.7 million, or 40 cents per diluted share, in the prior year's first quarter.
Non-GAAP net income for the first quarter of fiscal year 2010 was $35.0 million, or 19 cents per diluted share, up 25.4% from non-GAAP net income of $27.9 million, or 15 cents per diluted share, in the immediately preceding quarter, and down 57.6% from non-GAAP net income of $82.6 million, or 44 cents per diluted share, in the prior year's first quarter. Our non-GAAP results exclude any gain or loss on trading securities, the effect of share-based compensation, the impact of our recent acquisition activities, the acquisition of a patent license and non-cash interest expense on our convertible debentures associated with the adoption of FSP ABP 14-1, Accounting for Convertible Debt Instruments that May be Settled in Cash Upon Conversion. A reconciliation of our non-GAAP and GAAP results is included in this press release.
Microchip also announced today that its Board of Directors declared a quarterly cash dividend on its common stock of 33.9 cents per share. The quarterly dividend is payable on September 3, 2009 to stockholders of record on August 20, 2009. Microchip initiated quarterly cash dividend payments in the third quarter of fiscal 2003.
"During the June quarter we saw a steady improvement in the overall business environment that enabled us to exceed our revenue, gross margin, earnings per share and inventory guidance we provided in early June," said Steve Sanghi, Microchip's President and CEO. "Our book-to-bill ratio for the June quarter was 1.18, resulting in our opening backlog position for the September quarter being significantly higher than our backlog entering the June quarter."
"In the June quarter we achieved GAAP gross margins of 50.0% and non-GAAP gross margins of 51.4%. Non-GAAP gross margins were up over 200 basis points from the March quarter and we expect significant gross margin improvement again in the September quarter," continued Mr. Sanghi.
"Our microcontroller businesses performed well in the June quarter and revenues were up 11.9% sequentially. Our 16-bit microcontroller revenues were up 15.7% sequentially and 33.3% year-over-year," said Ganesh Moorthy, Executive Vice President and Chief Operating Officer. "We shipped a record 35,608 development systems in the June quarter, and have now exceeded 800,000 in cumulative development tool shipments."
Eric Bjornholt, Microchip's Chief Financial Officer, said, "Inventory levels on Microchip's balance sheet decreased by $17.6 million in the June quarter compared to the March 2009 quarter. We greatly reduced the days of inventory on our balance sheet, ending June with 108 days of inventory, 26 days lower than the March 2009 balance. In the June quarter, days of inventory in the distribution channel were flat to the prior quarter at 38 days. Our inventory is in a very good position to allow us to ramp production activities to be in line with anticipated demand levels."
Mr. Bjornholt continued, "In the June quarter our cash, short-term and long-term investment position was essentially flat, dropping by only $2.6 million. We expect our cash and investment position to increase in the September quarter."
Mr. Sanghi concluded, "Despite the continued weakness in the global economy, we are seeing improving trends in Microchip's business and our overall visibility. We expect revenue for the September quarter to be up between 7% and 11% sequentially."
Microchip's Recent Highlights:
-- Microchip announced its next-generation low-power PIC(R) microcontroller
families with nanoWatt XLP extreme low power technology for the world's
lowest sleep currents. This industry-leading combination of low power
consumption and functionality makes these PIC microcontrollers ideal for
designers who need their products to operate longer using less power, or
requiring fewer battery changes.
-- During the quarter, Microchip shipped 35,608 development systems, a new
record that demonstrates the continued strong interest in Microchip's
products in the face of a tough economy. The total cumulative number of
development systems shipped now stands at 804,924.
-- Microchip announced the world's first and only operational amplifiers to
include mCal, an on-chip, one-shot calibration circuit that is active
upon power-up or controlled via an external hardware pin. This unique
feature provides an innovative solution for high-speed, high-precision
applications.
-- Microchip significantly expanded its wireless offerings with solutions
for adding Wi-Fi to embedded designs; its first Sub-GHz radio
transceiver for the unlicensed Industrial, Scientific and Medical radio
frequency band; and an expansion of its ZigBee(R)/IEEE 802.15.4
portfolio that included a longer-range module and a certified ZigBee PRO
software stack.
-- Continuing its leadership position in touch sensing, Microchip added an
analog front end for inductive touch-sensing to its comprehensive mTouch
(TM) portfolio of capacitive, inductive and resistive solutions. By
combining a number of discrete components into this analog front end,
Microchip has made it even easier to add inductive touch for user
interfaces through metal, thick gloves and in the presence of liquids.
Additionally, the mTouch Capacitive Touch Evaluation Kit was introduced
for the quick and easy development of capacitive touch user-interface
applications with Microchip's 8- and 16-bit PIC microcontrollers.
-- Microchip's PIC16C84 8-bit microcontroller was named to IEEE Spectrum
Magazine's list of "25 Microchips That Shook the World." Additionally,
EE Times chose Microchip's new seven-member dsPIC33F "GS" Series as
their "eeProductCenter Product of the Week."
-- Microchip announced that embedded designers can now combine digital
signal processing and microcontroller control code with the 32-bit PIC32
microcontroller family, using its no-cost, royalty-free High Performance
DSP Library. This new library, which was added to the MPLAB C Compiler
for PIC32 microcontrollers at no additional cost, enables substantially
faster computation for complex algorithms.
-- Other additions to Microchip's analog portfolio included the MCP656X
family of high-speed comparators with rail-to-rail input/output and low
operating voltage for battery-powered applications; the MCP401X family
of low-power I2C(TM) digital potentiometers; and three new families of
low-power, high-precision operational amplifiers.
Second Quarter Fiscal 2010 Outlook:
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.
GAAP Non-GAAP Non-GAAP1
Adjustments
Revenue $206 to $214 $206 to $214
million million
Gross Margin2 52.8% to 53.8% $2.3 to $2.5 54.0% to 55.0%
million
Operating Expenses2 32.25% to 33.00% $7.6 to $8.0 28.5% to 29.25%
million
Other Income ($3.1) to ($3.6) $1.6 million ($1.5) to ($2.0)
(Expense)4 million million
Tax Rate 11.5% to 12.5% $1.9 to $2.0 12.5% to 13.5%
million
Diluted Common 186.4 to 187.1 1.7 million shares 184.7 to 185.4
Shares Outstanding3 million million
Earnings per Share 18 to 20 cents 5 to 6 cents 23 to 26 cents
-- Capital expenditures for the quarter ending September 30, 2009 are
expected to be approximately $10 million. Capital expenditures for all
of fiscal year 2010 are anticipated to be approximately $20 million.
-- We expect net cash generation during the September quarter of
approximately $75 to $85 million before the dividend payment of $62.2
million announced today. The amount of expected net cash generation is
before the effect of any stock buy back activity.
-- Microchip's Board of Directors authorized a stock buy back of up to 10.0
million shares in December 2007. At March 31, 2009, approximately 2.5
million shares remained available for purchase under this program.
Future purchases will depend upon market conditions, interest rates and
corporate considerations.
1 Use of Non-GAAP Financial Measures:
Our Non-GAAP adjustments, where applicable, include share-based compensation expense; acquisition-related acquired inventory valuation cost and intangible asset amortization, other acquisition-related expenditures, non-cash interest expense, gains and losses on trading securities, other non-recurring items in our business and the related income tax implications of these items.
SFAS 123(R) requires us to estimate the cost of certain forms of share-based compensation, including employee stock options, restricted stock units and our employee stock purchase plan, and to record a commensurate expense in our income statement. Share-based compensation expense is a non-cash expense that varies in amount from period to period and is affected by the price of our stock at the date of grant. The price of our stock is affected by market forces that are difficult to predict and are not within the control of management. The value of our trading securities varies in amount from period to period and is affected by fluctuations in the market prices of such securities that we cannot predict and are not within the control of management. The non-GAAP adjustments related to the impact of our acquisitions and a portion of our interest expense related to our convertible debentures are non-cash expenses related to such transactions. Our acquisitions of patent portfolio licenses are non-recurring events in our business. Accordingly, management excludes all of these items from its internal operating forecasts and models.
We are using non-GAAP gross profit, non-GAAP research and development expenses, non-GAAP selling, general and administration expenses, non-GAAP operating income, non-GAAP other income (expense), non-GAAP income tax expense/tax rate, non-GAAP net income, and non-GAAP diluted earnings per share which exclude the items noted in the immediately preceding paragraph, to permit additional analysis of our performance. Management believes these non-GAAP measures are useful to investors because they enhance the understanding of our historical financial performance and comparability between periods. Many of our investors have requested that we disclose this non-GAAP information because they believe it is useful in understanding our performance as it excludes non-cash and other charges that many investors feel may obscure our true operating costs. Management uses these non-GAAP measures to manage and assess the profitability of its business. Specifically, we do not consider such items when developing and monitoring our budgets and spending. As described above the economic substance behind our decision to exclude such items relates either to these charges being non-cash in nature or to the one-time nature of the events. Our determination of the above non-GAAP measures might not be the same as similarly titled measures used by other companies, and it should not be construed as a substitute for amounts determined in accordance with GAAP. There are limitations associated with using non-GAAP measures, including that they exclude financial information that some may consider important in evaluating our performance. Management compensates for this by presenting information on both a GAAP and non-GAAP basis for investors and providing reconciliations of the GAAP and non-GAAP results.
2 Generally, gross margin fluctuates over time, driven primarily by the mix of microcontrollers, analog products and memory products sold; variances in manufacturing yields; fixed cost absorption; wafer fab loading levels; inventory reserves; pricing pressures in our non-proprietary product lines; and competitive and economic conditions. Operating expenses fluctuate over time, primarily due to revenue and profit levels.
3 Diluted Common Shares Outstanding can vary for, among other things, the trading price of our common stock, the actual exercise of options or vesting of restricted stock units, the potential for incremental dilutive shares from our convertible debentures, and the repurchase or the issuance of stock or the sale of treasury shares.
4 Our second quarter fiscal 2010 outlook does not assume any gains or losses on trading securities as we are not able to predict the September 30, 2009 market trading prices for these securities at this time.
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended June 30,
2009 2008(1)
Net sales $ 192,949 $ 268,172
Cost of sales 96,514 104,575
Gross profit 96,435 163,597
Operating expenses:
Research and development 27,636 31,552
Selling, general and administrative 36,383 45,413
Special charge 1,238 -
65,257 76,965
Operating income 31,178 86,632
Other income, net 1,477 5,302
Income before income taxes 32,655 91,934
Income tax provision 5,287 16,387
Net income $ 27,368 $ 75,547
Basic net income per share $ 0.15 $ 0.41
Diluted net income per share $ 0.15 $ 0.40
Basic shares used in calculation 182,856 184,663
Diluted shares used in calculation 185,526 191,049
1 As adjusted due to the adoption of FSP APB 14-1 "Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)".
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
June 30, March 31,
2009 2009 (1)
(Unaudited)
Cash and short-term investments $ 1,407,435 $ 1,389,945
Accounts receivable, net 98,044 88,525
Inventories 113,872 131,510
Other current assets 141,790 138,864
Total current assets 1,761,141 1,748,844
Property, plant & equipment, net 513,765 531,687
Long-term investments 30,729 50,826
Other assets 80,774 80,409
Total assets $ 2,386,409 $ 2,411,766
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other accrued liabilities $ 65,760 $ 71,714
Deferred income on shipments to distributors 83,431 83,931
Total current liabilities 149,191 155,645
Convertible debentures 335,539 334,184
Long-term income tax payable 72,737 70,051
Deferred tax liability 367,788 365,734
Other long-term liabilities 3,946 3,834
Stockholders' equity 1,457,208 1,482,318
Total liabilities and stockholders' equity $ 2,386,409 $ 2,411,766
1 As adjusted due to the adoption of FSP APB 14-1 "Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)".
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(Unaudited)
(in thousands except per share amounts and percentages)
RECONCILIATION OF GROSS PROFIT TO NON-GAAP GROSS PROFIT
Three Months Ended
June 30,
2009 2008
Gross profit, as reported $ 96,435 $ 163,597
Share-based compensation expense 1,710 1,625
Acquisition-related acquired inventory valuation 967 -
costs and intangible asset amortization
Non-GAAP gross profit $ 99,112 $ 165,222
Non-GAAP gross profit percentage 51.4 % 61.6 %
RECONCILIATION OF RESEARCH AND DEVELOPMENT EXPENSES TO NON-GAAP RESEARCH AND
DEVELOPMENT EXPENSES
Three Months Ended
June 30,
2009 2008
Research and development expenses, as reported $ 27,636 $ 31,552
Share-based compensation expense (2,989 ) (2,435 )
Non-GAAP research and development expenses $ 24,647 $ 29,117
Non-GAAP research and development expenses as a 12.8 % 10.9 %
percentage of net sales
RECONCILIATION OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES TO NON-GAAP
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Three Months Ended
June 30,
2009 2008
Selling, general and administrative expenses, as $ 36,383 $ 45,413
reported
Share-based compensation expense (4,299 ) (3,639 )
Acquisition-related intangible asset amortization and (308 ) -
other costs
Non-GAAP selling, general and administrative expenses $ 31,776 $ 41,774
Non-GAAP selling, general and administrative expenses 16.5 % 15.6 %
as a percentage of net sales
RECONCILIATION OF OPERATING INCOME TO NON-GAAP OPERATING INCOME
Three Months Ended
June 30,
2009 2008
Operating income, as reported $ 31,178 $ 86,632
Share-based compensation expense 8,998 7,699
Acquisition-related acquired inventory valuation 1,275 -
costs, intangible asset amortization and other costs
Special charge - patent license 1,238 -
Non-GAAP operating income $ 42,689 $ 94,331
Non-GAAP operating income as a percentage of net 22.1 % 35.2 %
sales
RECONCILIATION OF OTHER INCOME, NET TO NON-GAAP OTHER INCOME (EXPENSE), NET
Three Months Ended
June 30,
2009 2008(1)
Other income, net, as reported $ 1,477 $ 5,302
Convertible debt non-cash interest expense 1,508 1,241
Gain on trading securities (5,477 ) -
Non-GAAP other income (expense), net $ (2,462 ) $ 6,543
Non-GAAP other income (expense), net, as a percentage -1.3 % 2.4 %
of net sales
RECONCILIATION OF INCOME TAX PROVISION TO NON-GAAP INCOME TAX PROVISION
Three Months Ended
June 30,
2009 2008(1)
Income tax provision, as reported $ 5,287 $ 16,387
Income tax rate, as reported 16.2 % 17.8 %
Share-based compensation expense 1,170 1,393
Acquisition-related acquired inventory valuation 165 -
costs, intangible asset amortization and other costs
Special charge - patent license 124 -
Convertible debt non-cash interest expense 581 478
Gain on trading securities (2,097 ) -
Non-GAAP income tax provision $ 5,230 $ 18,258
Non-GAAP income tax rate 13.0 % 18.1 %
1 As adjusted due to the adoption of FSP APB 14-1 "Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement)".
RECONCILIATION OF NET INCOME AND DILUTED NET INCOME PER SHARE TO NON-GAAP NET
INCOME AND NON-GAAP DILUTED NET INCOME PER SHARE
Three Months Ended Three Months
June 30, Ended
March 31,
2009 2008(1) 2009(1)
Net income, as reported $ 27,368 $ 75,547 $ 22,016
Share-based compensation expense, net 7,828 6,306 7,231
of tax effect
Acquisition-related acquired inventory
valuation costs, intangible asset 1,110 - 352
amortization and other costs, net of
tax effect
Special charge - patent license, net 1,114 - 3,600
of tax effect
Special charge - in-process research
and development expenses, net of tax - - 320
effect
Special charge - abandoned
acquisition-related expenses, net of - - 968
tax effect
Convertible debt non-cash interest 927 763 813
expense, net of tax effect
Gain on trading securities, net of tax (3,350 ) - (7,392 )
effect
Non-GAAP net income $ 34,997 $ 82,616 $ 27,908
Non-GAAP net income as a percentage of 18.1 % 30.8 % 16.1 %
net sales
Diluted net income per share, as $ 0.15 $ 0.40 $ 0.12
reported
Non-GAAP diluted net income per share $ 0.19 $ 0.44 $ 0.15
1 As adjusted due to the adoption of FSP APB 14-1 "Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement)".
Microchip will host a conference call today, August 6, 2009 at 5:00 p.m. (Eastern Time) to discuss this release. This call will be simulcast over the Internet at www.microchip.com. The webcast will be available for replay until August 13, 2009.
A telephonic replay of the conference call will be available at approximately 7:00 p.m. (Eastern Time) August 6, 2009 and will remain available until 5:00 p.m. (Eastern Time) on August 13, 2009. Interested parties may listen to the replay by dialing 719-457-0820 and entering access code 3892841.
Cautionary Statement:
The statements in this release relating to strong growth in second fiscal quarter 2010, expecting significant gross margin improvement in the September quarter, inventory being in a very good position to line up with anticipated demand levels, expecting cash and investments to increase in the September quarter, seeing improving trends in Microchip's business and our visibility, expecting revenue to be up between 7% and 11% sequentially, continued strong interest in Microchip's products, our second quarter fiscal 2010 outlook (GAAP and Non-GAAP as applicable) for revenue, gross margin, operating expense, other income (expense), tax rate, diluted common shares outstanding, earnings per share, capital expenditures for the September quarter and for fiscal 2010 and net cash generation are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause our actual results to differ materially, including, but not limited to: the level of continued adverse economic conditions in the U.S. and global economies, changes in demand or market acceptance of our products and the products of our customers; the mix of inventory we hold and our ability to satisfy short-term orders from our inventory; changes in utilization of our manufacturing capacity; competitive developments including pricing pressures; the level of orders that are received and can be shipped in a quarter; the level of sell-through of our products through distribution; changes or fluctuations in customer order patterns and seasonality; foreign currency effects on our business; the impact of any significant acquisitions that we make; costs and outcome of any current or future tax audit or any litigation involving intellectual property, customers or other issues; disruptions in our business or the businesses of our customers or suppliers due to natural disasters, terrorist activity, armed conflict, war, worldwide oil prices and supply, public health concerns or disruptions in the transportation system; and general economic, industry or political conditions in the United States or internationally.
For a detailed discussion of these and other risk factors, please refer to Microchip's filings on Forms 10-K and 10-Q. You can obtain copies of Forms 10-K and 10-Q and other relevant documents for free at Microchip's Web site (www.microchip.com) or the SEC's Web site (www.sec.gov) or from commercial document retrieval services.
Stockholders of Microchip are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date such statements are made. Microchip does not undertake any obligation to publicly update any forward-looking statements to reflect events, circumstances or new information after this August 6, 2009 press release, or to reflect the occurrence of unanticipated events.
About Microchip:
Microchip Technology Incorporated is a leading provider of microcontroller and analog semiconductors, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide. Headquartered in Chandler, Arizona, Microchip offers outstanding technical support along with dependable delivery and quality. For more information, visit the Microchip Web site at www.microchip.com.
The Microchip name and logo, and PIC are registered trademarks of Microchip Technology Inc. in the USA and other countries. mTouch is a trademark of Microchip Technology Inc. All other trademarks mentioned herein are the property of their respective companies.
Source: Microchip Technology Incorporated
Released August 6, 2009