(2) See the "Use of Non-GAAP Financial Measures" section of this release.
Net sales for the second quarter of fiscal 2023 were a record $2.073 billion, up 25.7% from net sales of $1.650 billion in the prior year's second fiscal quarter.
GAAP net income for the second quarter of fiscal 2023 was $546.2 million, or $0.98 per diluted share, up from GAAP net income of $242.0 million, or $0.43 per diluted share, in the prior year's second fiscal quarter. For the second quarters of fiscal 2023 and fiscal 2022, GAAP net income was adversely impacted by amortization of acquired intangible assets associated with our previous acquisitions and losses on settlement of debt.
Non-GAAP net income for the second quarter of fiscal 2023 was a record at $814.4 million, or $1.46 per diluted share, up from non-GAAP net income of $605.7 million, or $1.07 per diluted share, in the prior year's second fiscal quarter. For the second quarters of fiscal 2023 and fiscal 2022, our non-GAAP results exclude the effect of share-based compensation, expenses related to our acquisition activities (including intangible asset amortization, severance, and other restructuring costs, and legal and other general and administrative expenses associated with acquisitions including legal fees and expenses for litigation and investigations related to our Microsemi acquisition), professional services associated with certain legal matters, non-cash interest expense on our convertible debentures and losses on the settlement of debt. For the second quarters of fiscal 2023 and fiscal 2022, our non-GAAP income tax expense is presented based on projected cash taxes for the applicable fiscal year, excluding transition tax payments under the Tax Cuts and Jobs Act. A reconciliation of our non-GAAP and GAAP results is included in this press release.
Microchip announced today that its Board of Directors declared a record quarterly cash dividend on its common stock of 32.8 cents per share, up 9.0% from the cash dividend paid last quarter and up 41.4% from the year ago quarter. The quarterly dividend is payable on December 6, 2022 to stockholders of record on November 22, 2022.
"Our fiscal second-quarter results exceeded expectations resulting in yet another quarter of strong growth and profitability," said Ganesh Moorthy, President and Chief Executive Officer. "Record revenue of $2.07 billion grew 5.6% sequentially and 25.7% year over year, driven by broad-based strength in our business. Disciplined execution by our team in combination with our resilient end markets helped to drive record non-GAAP gross margins, operating margins, and earnings per share as we remain focused on executing our Microchip 3.0 strategy, which we believe positions us for long-term success."
Mr. Moorthy added, "Amid changing economic conditions and ongoing global supply disruption, our business remains strong as we exited the September quarter with the highest unsupported backlog ever. While we see encouraging signs of the supply chain loosening, many of our technology corridors remain constrained despite the careful capacity ramps we continue to implement. As such, we expect capacity to remain tight for specialized, trailing-edge technologies throughout 2022 and into 2023. Our focus on Total Systems Solutions and semiconductor industry megatrends is creating ample growth opportunities as our design win and new products funnel remains healthy."
Steve Sanghi, Microchip's Executive Chair, said, “Microchip’s Board of Directors approved a sequential increase in our dividend of approximately 9% to a record 32.8 cents per share, up from the August dividend of 30.1 cents per share. The dividend announced today represents a 41.4% year-over-year increase, and the board remains committed to an increasing cash return strategy. Given our strong cash flow generation during the September quarter, we are targeting to return $409.7 million to our shareholders through dividends and share repurchases in the December quarter, and for calendar year 2022 our cash return to shareholders is expected to be approximately $1.57 billion."
Eric Bjornholt, Microchip's Chief Financial Officer, said, "Our strong cash generation capabilities have helped us to pay down approximately $5.48 billion in debt over the past 17 quarters as we reduced our total debt by another $264.9 million during the September quarter. Our net debt to adjusted EBITDA leaving the September 2022 quarter was 1.84 times and we are making excellent progress towards our net debt to adjusted EBITDA target of 1.5 times."
Mr. Moorthy concluded, "Our backlog for the December quarter remains strong, and we have more capacity improvements coming into effect. Demand continues to outpace supply, and we have considerable backlog requested by customers in the December quarter that we currently cannot fulfill until later quarters, despite growing capacity from last quarter. Considering these factors and the economic backdrop, we expect net sales in the December quarter to be up between 3% and 5% sequentially, and we expect to grow sequentially again in the March quarter. At the mid-point of our guidance for the December quarter, net sales would be 22.7% higher than the year-ago quarter."
Microchip's Highlights for the Quarter Ended September 30, 2022:
- Unveiled the industry’s first terabit-scale secure Ethernet PHY family with port aggregation for enterprise and cloud interconnect. The META-DX2+ enables OEMs to double router and switch system capacities with 112G PAM4 connectivity for 800G ports, plus it adds encryption and Class C/D precision timing.
- Introduced a new family of CXL™-based smart memory controllers for data center computing enabling modern CPUs to optimize application workloads. The SMC 2000 family of smart memory controllers delivers DDR memory bandwidth, capacity expansion, reliability and media flexibility for next-generation CPUs and SoCs to accelerate AI and machine learning performance.
- Achieved MIL-STD-883 Class B Qualification on Radiation-Tolerant (RT) PolarFire® FPGA, paving the way for power-saving, high-speed processing in space. This major step toward QML Class Q and Class V spaceflight qualification enables system integration leveraging RT PolarFire power and radiation advantages over SRAM-based FPGA alternatives.
- Announced a 32-bit MCU based on an Arm® Cortex®-M0+ core with functional safety, cybersecurity protection and AUTOSAR compatibility features. The PIC32CM JH microcontroller is a 512KB Flash, 5V, Dual CAN FD device that delivers premium features typically only available on more expensive, higher performance devices.
- Released functional safety certification packages for SmartFusion® 2 and IGLOO® 2 FPGAs to speed time to market. The FPGAs now add IEC 61508 certification to their Single Event Upset (SEU) mitigation benefits.
- Expanded the portfolio of MPU-based System-on-Modules (SOMs) with the SAM9X60D1G-SOM. With this latest small-form factor SOM designers can take advantage of a mid-level performance MPU and significantly reduce design complexities in a myriad of applications.
- Issued a statement on the CHIPS & Science Act of 2022 where Microchip President and CEO, Ganesh Moorthy, shared his thoughts following the passage of the Act.
Third Quarter Fiscal Year 2023 Outlook:
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.
| Microchip Consolidated Guidance | |||
| Net Sales | $2.135 to $2.177 billion | ||
| GAAP | Non-GAAP Adjustments | Non-GAAP (1) | |
| Gross Margin | 67.5% to 67.7% | $6.3 to $7.3 million | 67.8% to 68.0% |
| Operating Expenses (2) | 30.7% to 30.9% | $214.3 to $218.3 million | 20.7% to 20.9% |
| Operating Income | 36.6% to 36.9% | $220.6 to $225.6 million | 46.9% to 47.3% |
| Other Expense, net | $52.9 to $55.3 million | ($0.1) to $0.3 million | $53.0 to $55.0 million |
| Income Tax Provision | $134.7 to $176.0 million (3) | $41.7 to $69.8 million | $93.0 to $106.2 million (4) |
| Net Income | $593.3 to $572.8 million | $262.3 to $295.6 million | $855.6 to $868.4 million |
| Diluted Common Shares Outstanding | Approximately 556.4 to 556.9 million shares | Approximately 556.4 to 556.9 million shares | |
| Earnings per Diluted Share | $1.03 to $1.07 | $0.49 to $0.51 | $1.54 to $1.56 |
