Microchip Technology Exceeds Financial Guidance for the Second Fiscal Quarter 2010
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Microchip Technology Exceeds Financial Guidance for the Second Fiscal Quarter 2010

CHANDLER, Ariz. — (BUSINESS WIRE) — November 4, 2009 — Microchip Technology Incorporated (NASDAQ: MCHP), a leading provider of microcontroller and analog semiconductors, today reported results for the three months ended September 30, 2009 as summarized in the following table:

     

GAAP

   

% of
Revenue

   

Non-GAAP1

   

% of
Revenue

Revenue     $226.7 million           $226.7 million      
Gross Margin     $123.3 million     54.4%     $125.8 million     55.5%
Operating Income     $52.7 million     23.3%     $63.1 million     27.8%
Other Income (Expense)     ($1.4) million           ($2.0) million      
Income Tax Expense     $6.8 million           $7.9 million      
Net Income     $44.5 million     19.6%     $53.2 million     23.5%
Earnings per Diluted Share     24 cents           29 cents      
               

1 See the “Use of Non-GAAP Financial Measures” section of this release.

Net sales for the second quarter of fiscal year 2010 were $226.7 million, up 17.5% sequentially from net sales of $192.9 million in the immediately preceding quarter, and down approximately 16% from net sales of $269.7 million in the prior year’s second fiscal quarter. GAAP net income for the second quarter of fiscal year 2010 was $44.5 million, or 24 cents per diluted share, up 62.5% from GAAP net income of $27.4 million, or 15 cents per diluted share, in the immediately preceding quarter, and down 41.3% from GAAP net income of $75.7 million, or 40 cents per diluted share, in the prior year’s second fiscal quarter.

Non-GAAP net income for the second quarter of fiscal year 2010 was $53.2 million, or 29 cents per diluted share, up 51.9% from non-GAAP net income of $35 million, or 19 cents per diluted share, in the immediately preceding quarter, and down 36.3% from non-GAAP net income of $83.5 million, or 45 cents per diluted share, in the prior year’s second fiscal quarter. Our non-GAAP results exclude the effect of share-based compensation, any gain or loss on trading securities, the impact of our acquisition activities and non-cash interest expense on our convertible debentures associated with the adoption of the Financial Accounting Standards Board’s Accounting Standards Codification Subtopic 470-20, Debt with Conversion and Other Options – Cash Conversion, which requires us to account separately for the liability and equity components of certain convertible debt instruments in a manner that reflects our nonconvertible debt (unsecured debt) borrowing rate when interest cost is recognized. 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 34 cents per share. The quarterly dividend is payable on December 2, 2009 to stockholders of record on November 18, 2009. Microchip initiated quarterly cash dividend payments in the third quarter of fiscal 2003.

“During the September quarter we experienced strength in all geographies and product lines, allowing us to exceed our revenue, gross margin and earnings per share guidance that we revised positively in early September,” said Steve Sanghi, Microchip’s President and CEO.

“We achieved GAAP gross margins of 54.4% and non-GAAP gross margins of 55.5%. Non-GAAP gross margins were up over 400 basis points from the June quarter, and we expect another 150 to 200 basis points of gross margin improvement in the December quarter as we continue to increase production levels in our factories in response to improving business conditions,” continued Mr. Sanghi.

“Our microcontroller business delivered excellent results and revenue was up 16.6% sequentially, and we shipped a record 38,086 development tools. Our 16-bit microcontrollers posted a very strong sequential revenue growth of 49.1%, as well as a 70.3% growth from the year-ago quarter,” said Ganesh Moorthy, Chief Operating Officer. “Our analog business executed on all fronts and revenue grew an exceptional 25.5% sequentially.”

Eric Bjornholt, Microchip’s Chief Financial Officer, said, “Inventory levels on Microchip’s balance sheet decreased by $5.4 million in the September quarter compared to the June quarter. Inventory days declined from 108 days at June 30, 2009 to 96 days at September 30, 2009. Days of inventory at our distributors remained flat to the June quarter levels. We have aggressively increased our manufacturing output so that we can continue to meet the needs of our customers.”

Mr. Bjornholt continued, “In the September quarter our cash, short-term and long-term investment position increased by $34.6 million after payment of our quarterly cash dividend of $62.1 million. We expect our cash generation to remain strong for the balance of fiscal year 2010.”

Mr. Sanghi concluded, “We are extremely pleased with the performance of our business and excellent execution by our employees. Our book-to-bill ratio for the September quarter was 1.15, resulting in our opening backlog position for the December quarter being significantly higher than our backlog entering the September quarter. While there are fewer shipping days in Europe and the Americas this quarter, based on the improved visibility and general business conditions, we expect revenue to be up 4% to 8% sequentially.”

Microchip’s Recent Highlights:

Third 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
Adjustments

   

Non-GAAP1

Revenue     $236 to $245 million           $236 to $245 million
Gross Margin2     56.2% to 56.7%     $1.6 to $1.8 million     57% to 57.5%
Operating Expenses2     30.1% to 30.3%     $8.0 to $8.2 million     26.8% to 27.0%
Other Income (Expense)     ($2.7) to ($2.9) million     $1.6 million     ($1.1) to ($1.3) million
Tax Rate     12.1% to 12.5%     $1.8 to $2.0 million     12.8% to 13.2%

Diluted Common Shares Outstanding3

   

187.5 to 188.3 million

   

1.7 million shares

   

185.8 to 186.6 million

Earnings per Share     27 to 29 cents     5 to 6 cents     33 to 35 cents

Calendar Year 2010 Internal Plan:

In order to provide more insight into our business, Microchip is providing information about our internal plan for calendar year 2010. It reflects the results we expect from our multi-year demand creation activity that has generated a large number of new designs. Many of these designs are with new customers in emerging markets and applications that are outside our traditional core areas, which we believe will result in increased market share.

Calendar Year 2010 Internal Plan     GAAP     Non-GAAP1
Revenue     $1.05 billion     $1.05 billion
Gross Margin2     57.7%     58.5%
Operating Expenses2     29.6%     26.7%
Operating Profit     28.1%     31.8%
Earnings Per Share     $1.29     $1.50

1 Use of Non-GAAP Financial Measures:

Our Non-GAAP adjustments, where applicable, include the effect of share-based compensation, any gain or loss on trading securities, the impact of our recent acquisition activities and non-cash interest expense on our convertible debentures and the related income tax implications of these items.

We are required 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 or, in the case of our trading securities, because such item is difficult to predict and not within the control of management. 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.

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

       
(in thousands, except per share amounts)

(Unaudited)

 

Three Months Ended
September 30,

 

Six Months Ended
September 30,

 

2009

2008 (1)

2009

2008 (1)

Net sales $ 226,661 $ 269,706 $ 419,610 $ 537,878
Cost of sales   103,321     105,553     199,835   210,128  
Gross profit 123,340 164,153 219,775 327,750
 
Operating expenses:
Research and development 29,568 31,343 57,204 62,895
Selling, general and administrative 41,046 45,629 77,429 91,042
Special charge   -     -     1,238   -  
70,614 76,972 135,871 153,937
 
Operating income 52,726 87,181 83,904 173,813
 
Other (expense) income, net   (1,444 )   4,953     33   10,255  
 
Income before income taxes 51,282 92,134 83,937 184,068
 
Income tax provision   6,797     16,414     12,084   32,801  
 
Net income $ 44,485   $ 75,720   $ 71,853 $ 151,267  
 
Basic net income per share $ 0.24   $ 0.41   $ 0.39 $ 0.82  
 
Diluted net income per share $ 0.24   $ 0.40   $ 0.39 $ 0.80  
 
Basic shares used in calculation   183,190     183,615     183,023   184,139  
Diluted shares used in calculation   186,922     187,936     186,224   189,493  
 

(1) As adjusted due to the adoption of ASC Subtopic 470-20, Debt with Conversion and Other Options – Cash Conversion.

MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
ASSETS
   
September 30, March 31,
2009 2009 (1)
(Unaudited)
Cash and short-term investments $ 1,363,994 $ 1,389,945
Accounts receivable, net 106,651 88,525
Inventories 108,451 131,510
Other current assets   148,360   138,864
Total current assets 1,727,456 1,748,844
 
Property, plant & equipment, net 497,958 531,687
Long-term investments 108,729 50,826
Other assets   84,142   80,409
 
Total assets $ 2,418,285 $ 2,411,766
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
Accounts payable and other accrued liabilities $ 84,089 $ 71,714
Deferred income on shipments to distributors   86,261   83,931
Total current liabilities 170,350 155,645
 
Convertible debentures 337,403 334,184
Long-term income tax payable 75,522 70,051
Deferred tax liability 372,700 365,734
Other long-term liabilities 3,993 3,834
 
Stockholders' equity   1,458,317   1,482,318
 
Total liabilities and stockholders' equity $ 2,418,285 $ 2,411,766
 

(1) As adjusted due to the adoption of ASC Subtopic 470-20, Debt with Conversion and Other Options – Cash Conversion.

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 Six Months Ended
September 30, September 30,
2009 2008 2009 2008
Gross profit, as reported $ 123,340 $ 164,153 $ 219,775 $ 327,750
Share-based compensation expense 1,869 2,053 3,579 3,678
Acquisition-related acquired inventory valuation costs and intangible asset amortization   580     -     1,547     -  
Non-GAAP gross profit $ 125,789   $ 166,206   $ 224,901   $ 331,428  
Non-GAAP gross profit percentage

55.5

%

61.6

%

53.6

%

61.6

%

 

RECONCILIATION OF RESEARCH AND DEVELOPMENT EXPENSES TO NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES

Three Months Ended Six Months Ended
September 30, September 30,
2009 2008 2009 2008
Research and development expenses, as reported $ 29,568 $ 31,343 $ 57,204 $ 62,895
Share-based compensation expense  

(3,108

)

 

(2,640

)

 

(6,097

)

 

(5,075

)

Non-GAAP research and development expenses $ 26,460   $ 28,703   $ 51,107   $ 57,820  
Non-GAAP research and development expenses as a percentage of net sales

11.7

%

10.6

%

12.2

%

10.7

%

 

RECONCILIATION OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES TO NON-GAAP SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Three Months Ended Six Months Ended
September 30, September 30,
2009 2008 2009 2008
Selling, general and administrative expenses, as reported $ 41,046 $ 45,629 $ 77,429 $ 91,042
Share-based compensation expense

(4,523

)

(3,800

)

(8,822

)

(7,439

)

Acquisition-related intangible asset amortization and other costs  

(255

)

  -    

(563

)

  -  
Non-GAAP selling, general and administrative expenses $ 36,268   $ 41,829   $ 68,044   $ 83,603  
Non-GAAP selling, general and administrative expenses as a percentage of net sales

16.0

%

15.5

%

16.2

%

15.5

%

 
RECONCILIATION OF OPERATING INCOME TO NON-GAAP OPERATING INCOME
Three Months Ended Six Months Ended
September 30, September 30,
2009 2008 2009 2008
Operating income, as reported $ 52,726 $ 87,181 $ 83,904 $ 173,813
Share-based compensation expense 9,500 8,493 18,498 16,192
Acquisition-related acquired inventory valuation costs, intangible asset amortization & other costs 835 - 2,110 -
Special charge - patent license   -     -     1,238     -  
Non-GAAP operating income $ 63,061   $ 95,674   $ 105,750   $ 190,005  
Non-GAAP operating income as a percentage of net sales

27.8

%

35.5

%

25.2

%

35.3

%

 

RECONCILIATION OF OTHER (EXPENSE) INCOME, NET TO NON-GAAP OTHER (EXPENSE) INCOME, NET

Three Months Ended Six Months Ended
September 30, September 30,
2009

2008(1)

2009

2008(1)

Other (expense) income, net, as reported

$

(1,444

)

$ 4,953 $ 33 $ 10,255
Convertible debt non-cash interest expense 1,559 1,288 3,067 2,529
Gain on trading securities  

(2,071

)

  -    

(7,518

)

  -  
Non-GAAP other (expense) income, net

$

(1,956

)

$ 6,241  

$

(4,418

)

$ 12,784  
Non-GAAP other (expense) income, net, as a percentage of net sales

-0.9

%

2.3

%

-1.1

%

2.4

%

 
RECONCILIATION OF INCOME TAX PROVISION TO NON-GAAP INCOME TAX PROVISION
Three Months Ended Six Months Ended
September 30, September 30,
2009

2008(1)

2009

2008(1)

Income tax provision, as reported $ 6,797 $ 16,414 $ 12,084 $ 32,801
Income tax rate, as reported

13.3

%

17.8

%

14.4

%

17.8

%

Share-based compensation expense 1,235 1,537 2,405 2,930
Acquisition-related acquired inventory valuation costs, intangible asset amortization & other costs 109 - 274 -
Special charge – patent license - - 124 -
Convertible debt non-cash interest expense 600 496 1,181 974
Gain on trading securities  

(797

)

  -    

(2,894

)

  -  
Non-GAAP income tax provision $ 7,944   $ 18,447   $ 13,174   $ 36,705  
Non-GAAP income tax rate

13.0

%

18.1

%

13.0

%

18.1

%

 

(1) As adjusted due to the adoption of ASC Subtopic 470-20, Debt with Conversion and Other Options – Cash Conversion.

 

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 Six Months Ended
September 30, September 30,
2009

2008(1)

2009

2008(1)

Net income, as reported $ 44,485 $ 75,720 $ 71,853 $ 151,267
Share-based compensation expense, net of tax effect 8,265 6,956 16,093 13,262
Acquisition-related acquired inventory valuation costs, intangible asset amortization and other costs, net of tax effect 726 - 1,836 -
Special charge – patent license, net of tax effect - - 1,114 -
Convertible debt non-cash interest expense, net of tax effect 959 792 1,886 1,555
Gain on trading securities, net of tax effect  

(1,274

)

  -    

(4,624

)

  -  
Non-GAAP net income $ 53,161   $ 83,468   $ 88,158   $ 166,084  
Non-GAAP net income as a percentage of net sales

23.5

%

30.9

%

21.0

%

30.9

%

 
Diluted net income per share, as reported $ 0.24   $ 0.40   $ 0.39   $ 0.80  
Non-GAAP diluted net income per share $ 0.29   $ 0.45   $ 0.48   $ 0.88  
 

(1) As adjusted due to the adoption of ASC Subtopic 470-20, Debt with Conversion and Other Options – Cash Conversion.

Microchip will host a conference call today, November 4, 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 November 11, 2009.

A telephonic replay of the conference call will be available at approximately 7:00 p.m. (Eastern Time) November 4, 2009 and will remain available until 5:00 p.m. (Eastern Time) on November 11, 2009. Interested parties may listen to the replay by dialing 719-457-0820 and entering access code 6340154.

Cautionary Statement:

The statements in this release relating to improving business conditions, expecting 150 to 200 basis points of gross margin improvement in the December quarter, aggressively increasing our manufacturing output so that we can continue to meet the needs of our customers, expecting our cash generation to remain strong for the balance of fiscal 2010, expecting revenue to be up 4% to 8% sequentially, continued strong interest in our products, solidifying our position as the broadest touch-sensing solutions provider, our third quarter fiscal 2010 outlook (GAAP and Non-GAAP as applicable) for revenue, gross margin, operating expenses, other income (expense), income tax provision/tax rate, diluted common shares outstanding, earnings per share, inventory, capital expenditures for the December quarter and for fiscal 2010 and net cash generation, our ability to invest in equipment to support the expected revenue growth of our new products and technologies, our plan to take advantage of low-cost equipment opportunities, and our calendar year 2010 internal plan (GAAP and Non-GAAP as applicable) for revenue, gross margin, operating expenses, operating profit and earnings per share 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 strength of the economic recovery or any further weakness or unexpected fluctuations 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 and our ability to effectively ramp our production levels; 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 November 4, 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.


Contact:

Microchip Technology Incorporated, Chandler
INVESTOR RELATIONS
J. Eric Bjornholt, CFO, 480-792-7804
Gordon Parnell, Vice President of Business Development
and Investor Relations, 480-792-7374