Document
| | | | | | | | |
| | EXHIBIT 99.1
NEWS RELEASE
INVESTOR RELATIONS CONTACT: J. Eric Bjornholt -- CFO..... (480) 792-7804
|
MICROCHIP TECHNOLOGY ANNOUNCES RECORD FINANCIAL RESULTS
FOR THIRD QUARTER OF FISCAL YEAR 2022
•Record net sales of $1.758 billion, up 6.5% sequentially and up 30.0% from the year ago quarter. The midpoint of our guidance provided on November 4, 2021 was net sales of $1.749 billion.
•On a GAAP basis: record gross margin of 65.6%; record operating income of $515.0 million and 29.3% of net sales; net income of $352.8 million; and EPS of $0.62 per diluted share. Our guidance provided on November 4, 2021 was for GAAP EPS of $0.58 to $0.60 per diluted share. Our guidance did not include the $16.1 million loss on debt settlement associated with our debt refinancing activities in the quarter.
•On a Non-GAAP basis: record gross margin of 66.1%; record operating income of $784.5 million and a record 44.6% of net sales; record net income of $681.7 million and record EPS of $1.20 per diluted share. Our guidance provided on November 4, 2021 was for Non-GAAP EPS of $1.14 to $1.20 per diluted share.
•Record cash flow from operations of $853.4 million.
•Paid down $362.7 million of debt in the December 2021 quarter. Cumulatively paid down $4.77 billion of debt over the last 14 quarters.
•Record quarterly dividend declared of 25.3 cents per share, an increase of 9.1% sequentially and 29.7% from the year ago quarter.
•Achieved Investment Grade debt rating from Moody's and Fitch. Announced $4.0 billion stock buyback program, and repurchased approximately $166.0 million, or two million shares, during the December 2021 quarter.
CHANDLER, Arizona - February 3, 2022 - (NASDAQ: MCHP) - Microchip Technology Incorporated, a leading provider of smart, connected, and secure embedded control solutions, today reported results for the three months ended December 31, 2021, as summarized in the table below.
| | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2021(1) | |
| Net sales | $1,757.5 | | | | | | | |
| GAAP | % | Non-GAAP(2) | % | | | | |
| Gross margin | $1,153.3 | 65.6% | $1,161.7 | 66.1% | | | | |
| Operating income | $515.0 | 29.3% | $784.5 | 44.6% | | | | |
| Other expense | $(73.5) | | $(53.7) | | | | | |
| Income tax provision | $88.7 | | $49.1 | | | | | |
| Net income | $352.8 | 20.1% | $681.7 | 38.8% | | | | |
| Net income per diluted share | $0.62 | | $1.20 | | | | | |
(1) In millions, except per share amounts and percentages of net sales.
(2) See the "Use of Non-GAAP Financial Measures" section of this release.
- - more - -
Microchip Technology Incorporated 2355 West Chandler Blvd. Chandler, AZ 85224-6199 Main Office 480•792•7200
Microchip Technology Reports
Third Quarter Fiscal 2022
Financial Results
Page 2
Net sales for the third quarter of fiscal 2022 were a record $1.758 billion, up 30.0% from net sales of $1.352 billion in the prior year's third fiscal quarter.
GAAP net income for the third quarter of fiscal 2022 was $352.8 million, or $0.62 per diluted share, up from GAAP net income of $36.2 million, or $0.07 per diluted share, in the prior year's third fiscal quarter. For the third quarters of fiscal 2022 and fiscal 2021, GAAP net income was significantly adversely impacted by purchase accounting adjustments associated with our acquisitions.
Non-GAAP net income for the third quarter of fiscal 2022 was a record at $681.7 million, or $1.20 per diluted share, up from non-GAAP net income of $444.9 million, or $0.81 per diluted share, in the prior year's third fiscal quarter. For the third quarters of fiscal 2022 and fiscal 2021, 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, IT security remediation costs, non-cash interest expense on our convertible debentures, losses on the settlement of debt, and gains related to equity investments. For the third quarters of fiscal 2022 and fiscal 2021, 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 25.3 cents per share, up 9.1% from the cash dividend paid last quarter and up 29.7% from the year ago quarter. The quarterly dividend is payable on March 8, 2022 to stockholders of record on February 22, 2022.
"Our December quarter results continued to be strong, with revenue growing 6.5% sequentially and 30.0% year-over-year despite ongoing manufacturing capacity constraints," said Ganesh Moorthy, President and Chief Executive Officer. "December quarter revenue, non-GAAP gross margin, non-GAAP operating margin, and non-GAAP EPS were all records. Our December 2021 quarter operating margin of 44.6% was up 210 basis points from 42.5% in the September 2021 quarter and was well above the high end of our guidance."
Mr. Moorthy added, "Overall business conditions remained very strong in the December quarter with high levels of bookings and record backlog for product to be shipped over multiple quarters, accentuated by our Preferred Supply Program which continues to be greater than 50% of our aggregate backlog and 100% of our backlog in the most constrained capacity areas. Similar to the September quarter, in the December quarter demand outpaced the
Microchip Technology Reports
Third Quarter Fiscal 2022
Financial Results
Page 3
capacity improvements we implemented, resulting in our unsupported backlog continuing to climb and our lead times stretching out."
Steve Sanghi, Microchip's Executive Chair, said, "Microchip's Board of Directors approved a sequential increase in our dividend of 9.1%, to a record 25.3 cents per share, up from our November dividend of 23.2 cents per share. The dividend announced today also represents a 29.7% year-over-year increase. Our Board of Directors is now targeting to increase our dividend at least 9% sequentially, which is up from the 7% sequential increases communicated at our Investor and Analyst Day on November 8, 2021."
Eric Bjornholt, Microchip's Chief Financial Officer, said, "We continued to aggressively pay down our debt with another $362.7 million of payments during the December quarter, reflecting a cumulative debt pay down of $4.77 billion over the past 14 quarters, as we have actively managed the working capital requirements for the business. In the December quarter, we exchanged $96.2 million of dilutive convertible debentures for cash and shares of our common stock. We used cash generation during the quarter to fund the principal amount of the convertible debt exchanges and we believe that these transactions will benefit stockholders by significantly reducing share count dilution to the extent our stock price appreciates over time. We also refinanced our revolving line of credit to be in line with our investment grade rating and decreased the size of the facility from $3.6 billion to $2.75 billion. We remain focused on continuing to enhance our capital structure in the future."
Mr. Moorthy concluded, "Our backlog for the March quarter is very strong. We also have considerable backlog requested by customers in the March quarter that currently cannot be fulfilled until later quarters despite us growing capacity from last quarter. Additionally, our supply in the March quarter is expected to be adversely impacted by the COVID-19 Omicron variant which has increased the level of factory workforce absentees. Given this backdrop, we expect our net sales in the March quarter to be up between 2% and 5% sequentially. At the mid-point of our guidance for the March quarter, net sales will be 24% higher than the year ago quarter."
Microchip's Highlights for the Quarter Ended December 31, 2021:
•Unveiled its new ISO 26262 functional safety packages simplifying design of ASIL B and ASIL C safety applications using dsPIC®, PIC18 and AVR® microcontrollers, accelerating development and certification of automotive safety applications.
•Announced the expansion of its Gallium Nitride (GaN) Radio Frequency (RF) power device portfolio with new Monolithic Microwave Integrated Circuits (MMICs) and discrete devices that deliver performance levels required in 5G, satellite communication and defense applications.
Microchip Technology Reports
Third Quarter Fiscal 2022
Financial Results
Page 4
•Introduced a new maXTouch® touchscreen controller that allows automotive designers to satisfy various and unique aspect ratios for touch displays in cars, an offering that includes additional functional safety support requested by OEMs.
•Announced its collaboration with Acacia, part of Cisco, to enable market transition to 400G pluggable coherent optics for data center routing, switching and Metro Optical Transport Network (OTN) platforms.
•Unveiled the second development tool offering in our Smart Embedded Vision initiative for designers using its PolarFire® RISC-V System on Chip (SoC) Field Programmable Gate Array (FPGA), for embedded vision applications at the edge.
•Unveiled the release of a high-precision voltage reference (Vref) IC that provides very-low drift for extended temperature automotive applications, completing Microchip’s family of Vref products providing increased reliability and AEC-Q100 qualification.
•Expanded our functional-safety-certified family of capacitive maXTouch® touchscreen controllers, adding two new IEC/UL 60730 Class B certified touchscreen controllers, the MXT448UD-HA and MXT640UD-HA, for the home appliance market.
•Announced our collaboration with Mersen on their 150 kilovolt-ampere (kVA) three-phase silicon carbide Power Stack Reference Design, providing Microchip’s Silicon Carbide MOSFETs and Digital Gate Drivers.
•Introduced the TimeProvider® 4100 Release 2.3 precision timing grandmaster for communication networks, meeting the industry’s latest IEEE® 1588 v2.1 2019 security standard for protection of timing systems while providing an increased level of deployment flexibility and scalability.
Microchip Technology Reports
Third Quarter Fiscal 2022
Financial Results
Page 5
Fourth Quarter Fiscal Year 2022 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 | $1.793 to $1.845 billion | | |
| GAAP | Non-GAAP Adjustments | Non-GAAP(1) |
Gross Margin | 65.8% to 66.1% | $7.9 to $8.9 million | 66.2% to 66.6% |
Operating Expenses(2) | 36.6% to 37.2% | $268.9 to $272.9 million | 21.8% to 22.2% |
| Operating Income | 28.6% to 29.5% | $276.8 to $281.8 million | 44.0% to 44.8% |
| Other Expense, net | $58.7 to $61.1 million | $9.2 to $9.6 million | $49.5 to $51.5 million |
| Income Tax Provision | $77.1 to $101.6 million(3) | $29.1 to $53.5 million | $48.0 to $48.1 million(4) |
| Net Income | $376.2 to $382.2 million | $315.0 to $345.0 million | $691.2 to $727.2 million |
Diluted Common Shares Outstanding | Approximately 565.3 to 566.4 million shares | | Approximately 565.3 to 566.4 million shares |
| Earnings per Diluted Share | $0.66 to $0.68 | $0.56 to $0.60 | $1.22 to $1.28 |
(1) See the "Use of Non-GAAP Financial Measures" section of this release for information regarding our non-GAAP guidance.
(2) We are not able to estimate the amount of certain Special Charges and Other, net that may be incurred during the quarter ending March 31, 2022. Therefore, our estimate of GAAP operating expenses excludes certain amounts that may be recognized as Special Charges and Other, net in the quarter ending March 31, 2022.
(3) The forecast for GAAP tax expense excludes any unexpected tax events that may occur during the quarter, as these amounts cannot be forecasted.
(4) Represents the expected cash tax rate for fiscal 2022, excluding any transition tax payments associated with the Tax Cuts and Jobs Act.
•Microchip's inventory days in the March 2022 quarter are expected to be in the range of 120 to 125 days, compared to 116 days on December 31, 2021. Our actual inventory level will depend on the inventory that our distributors decide to hold to support their customers, overall demand for our products, and our production levels.
•Capital expenditures for the quarter ending March 31, 2022 are expected to be between $135 million and $145 million. Capital expenditures for all of fiscal 2022 are expected to be between $390 million and $400 million. We continue to add capital equipment to maintain, grow and operate our internal manufacturing capabilities to support the expected growth of our business.
Under the GAAP revenue recognition standard, which we adopted on April 1, 2018, we are required to recognize revenue when control of the product changes from us to a customer or distributor. We focus our sales and marketing efforts on creating demand for our products in the end markets we serve and not on moving inventory into our distribution network. Therefore, the elements of our internal performance and executive and employee
Microchip Technology Reports
Third Quarter Fiscal 2022
Financial Results
Page 6
compensation metrics that are based on sales and operating results are measured using the value of the end-market demand for our products. We use end-market demand for these purposes because we do not believe that the underlying value of our business benefits from increases in the value of inventory that is held in the supply chain. As many of our products are designed into customer applications with relatively long lives, such value is only realized when the end-market demand is created, and the supply chain sells the inventory to the end customer. We define end-market demand as the net dollar amount of our products, licensing revenue, and other services delivered to our direct (non-distributor) customers and by our distributors to their customers. We are able to calculate end-market demand based on information that our distributors provide us about their product shipments to their customers and inventory holdings. The value of end-market demand from our distributors is calculated as the net transaction value of these shipments. We believe that our end-market demand metric reflects true end-market demand based on when product is sold to direct customers or by our distributors to an end customer. We believe the use of end-market demand is also important to investors and users of our financial statements as it reflects the final outcome of our sales activities, whereas our GAAP net sales are based on estimates made earlier in (or before the end of) the process of creating and fulfilling demand is complete. We also manage our manufacturing and supply chain operations, including our distributor relationships, towards the goal of having our products available at the time and location the end customer desires. Management uses end-market demand to manage and assess the profitability of our business and when developing and monitoring our budgets and spending. Many of our investors have requested that we disclose end-market demand metric because they believe it is useful in understanding our performance as it provides better information regarding end-market demand for our products. Therefore, we believe that it is useful to investors for us to disclose end-market demand. Our determination of end-market demand metric might not be the same as similarly titled measures used by other companies.
Use of Non-GAAP Financial Measures: Our non-GAAP adjustments, where applicable, include 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, IT security remediation costs, non-cash interest expense on our convertible debentures, losses on the settlement of debt, and gains related to equity investments. For the third quarters of fiscal 2022 and fiscal 2021, our non-GAAP income tax expense is presented based on projected cash taxes for the fiscal year, excluding transition tax payments under the Tax Cuts and Jobs Act.
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
Microchip Technology Reports
Third Quarter Fiscal 2022
Financial Results
Page 7
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. Our other non-GAAP adjustments are either non-cash expenses, unusual or infrequent items, or other expenses related to transactions. Management excludes all of these items from its internal operating forecasts and models.
We are using non-GAAP operating expenses in dollars, including non-GAAP research and development expenses and non-GAAP selling, general and administrative expenses, non-GAAP other expense, net, and non-GAAP income tax rate, which exclude the items noted above, as applicable, 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 underlying operating results. Management uses non-GAAP measures to manage and assess the profitability of our business and for compensation purposes. We also use our non-GAAP results when developing and monitoring our budgets and spending. Our determination of these 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 these 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.
Generally, gross margin fluctuates over time, driven primarily by the mix of products sold and licensing revenue; variances in manufacturing yields; fixed cost absorption; wafer fab loading levels; costs of wafers from foundries; inventory reserves; pricing pressures in our non-proprietary product lines; and competitive and economic conditions. Operating expenses fluctuate over time, primarily due to net sales and profit levels.
Diluted Common Shares Outstanding can vary for, among other things, the trading price of our common stock, the exercise of options or vesting of restricted stock units, the potential for incremental dilutive shares from our convertible debentures (additional information regarding our share count is available in the investor relations section of our website under the heading "Supplemental Financial Information"), and repurchases or issuances of shares of our common stock. The diluted common shares outstanding presented in the guidance table above assumes an average Microchip stock price in the March 2022 quarter between $75 and $85 per share (however,
Microchip Technology Reports
Third Quarter Fiscal 2022
Financial Results
Page 8
we make no prediction as to what our actual share price will be for such period or any other period and we cannot estimate what our stock option exercise activity will be during the quarter).
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Net sales | $ | 1,757.5 | | | $ | 1,352.1 | | | $ | 4,976.7 | | | $ | 3,971.3 | |
| Cost of sales | 604.2 | | | 506.3 | | | 1,747.5 | | | 1,519.3 | |
| Gross profit | 1,153.3 | | | 845.8 | | | 3,229.2 | | | 2,452.0 | |
| | | | | | | |
| Research and development | 245.4 | | | 210.1 | | | 730.0 | | | 607.9 | |
| Selling, general and administrative | 177.5 | | | 154.2 | | | 531.7 | | | 445.2 | |
| Amortization of acquired intangible assets | 215.7 | | | 231.6 | | | 647.0 | | | 699.9 | |
| Special (income) charges and other, net | (0.3) | | | 4.3 | | | 20.4 | | | 8.9 | |
| Operating expenses | 638.3 | | | 600.2 | | | 1,929.1 | | | 1,761.9 | |
| | | | | | | |
| Operating income | 515.0 | | | 245.6 | | | 1,300.1 | | | 690.1 | |
| | | | | | | |
| | | | | | | |
| Other expense, net | (73.5) | | | (228.8) | | | (296.8) | | | (495.0) | |
| | | | | | | |
| Income before income taxes | 441.5 | | | 16.8 | | | 1,003.3 | | | 195.1 | |
| Income tax provision (benefit) | 88.7 | | | (19.4) | | | 155.7 | | | (38.3) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income | $ | 352.8 | | | $ | 36.2 | | | $ | 847.6 | | | $ | 233.4 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Basic net income per common share | $ | 0.64 | | | $ | 0.07 | | | $ | 1.54 | | | $ | 0.46 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Diluted net income per common share | $ | 0.62 | | | $ | 0.07 | | | $ | 1.50 | | | $ | 0.44 | |
| | | | | | | |
| Basic common shares outstanding | 554.9 | | | 526.8 | | | 551.2 | | | 511.4 | |
| Diluted common shares outstanding | 567.3 | | | 550.8 | | | 566.1 | | | 533.9 | |
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
| | | | | | | | | | | |
| ASSETS |
| December 31, | | March 31, |
| 2021 | | 2021 |
| (Unaudited) | | |
Cash and short-term investments | $ | 315.5 | | | $ | 282.0 | |
Accounts receivable, net | 930.1 | | | 997.7 | |
Inventories | 768.2 | | | 665.0 | |
Other current assets | 186.7 | | | 200.5 | |
Total current assets | 2,200.5 | | | 2,145.2 | |
| | | |
Property, plant and equipment, net | 929.9 | | | 854.7 | |
| | | |
Other assets | 12,916.8 | | | 13,478.9 | |
Total assets | $ | 16,047.2 | | | $ | 16,478.8 | |
| | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY |
| | | |
Accounts payable and accrued liabilities | $ | 1,218.7 | | | $ | 1,086.7 | |
Current portion of long-term debt | — | | | 1,322.9 | |
Total current liabilities | 1,218.7 | | | 2,409.6 | |
| | | |
Long-term debt | 7,868.5 | | | 7,581.2 | |
Long-term income tax payable | 673.5 | | | 689.9 | |
Long-term deferred tax liability | 41.4 | | | 43.9 | |
Other long-term liabilities | 441.8 | | | 417.1 | |
| | | |
| Stockholders' equity | 5,803.3 | | | 5,337.1 | |
Total liabilities and stockholders' equity | $ | 16,047.2 | | | $ | 16,478.8 | |
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(in millions, except per share amounts and percentages)
(unaudited)
RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
Gross profit, as reported | $ | 1,153.3 | | | $ | 845.8 | | | $ | 3,229.2 | | | $ | 2,452.0 | |
| | | | | | | |
Share-based compensation expense | 8.4 | | | 6.4 | | | 26.3 | | | 18.8 | |
| COVID-19 shelter-in-place restrictions on manufacturing activities | — | | | — | | | — | | | 2.8 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Non-GAAP gross profit | $ | 1,161.7 | | | $ | 852.2 | | | $ | 3,255.5 | | | $ | 2,473.6 | |
Non-GAAP gross profit percentage | 66.1 | % | | 63.0 | % | | 65.4 | % | | 62.3 | % |
RECONCILIATION OF GAAP RESEARCH AND DEVELOPMENT EXPENSES TO NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
Research and development expenses, as reported | $ | 245.4 | | | $ | 210.1 | | | $ | 730.0 | | | $ | 607.9 | |
Share-based compensation expense | (23.4) | | | (25.0) | | | (76.1) | | | (70.0) | |
| Acquisition-related | (0.2) | | | (0.2) | | | (0.6) | | | (0.2) | |
Non-GAAP research and development expenses | $ | 221.8 | | | $ | 184.9 | | | $ | 653.3 | | | $ | 537.7 | |
Non-GAAP research and development expenses as a percentage of net sales | 12.6 | % | | 13.7 | % | | 13.1 | % | | 13.5 | % |
RECONCILIATION OF GAAP SELLING, GENERAL AND ADMINISTRATIVE EXPENSES TO NON-GAAP SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
Selling, general and administrative expenses, as reported | $ | 177.5 | | | $ | 154.2 | | | $ | 531.7 | | | $ | 445.2 | |
Share-based compensation expense | (19.1) | | | (19.8) | | | (60.8) | | | (54.5) | |
| Acquisition-related | (1.0) | | | (0.8) | | | (3.3) | | | (1.5) | |
Professional services associated with certain legal matters | (1.8) | | | (4.3) | | | (5.6) | | | (9.1) | |
IT security remediation | (0.2) | | | (0.1) | | | (0.2) | | | (1.4) | |
Non-GAAP selling, general and administrative expenses | $ | 155.4 | | | $ | 129.2 | | | $ | 461.8 | | | $ | 378.7 | |
Non-GAAP selling, general and administrative expenses as a percentage of net sales | 8.8 | % | | 9.6 | % | | 9.3 | % | | 9.5 | % |
RECONCILIATION OF GAAP OPERATING EXPENSES TO NON-GAAP OPERATING EXPENSES
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
Operating expenses, as reported | $ | 638.3 | | | $ | 600.2 | | | $ | 1,929.1 | | | $ | 1,761.9 | |
Share-based compensation expense | (42.5) | | | (44.8) | | | (136.9) | | | (124.5) | |
| Acquisition-related | (1.2) | | | (1.0) | | | (3.9) | | | (1.7) | |
Professional services associated with certain legal matters | (1.8) | | | (4.3) | | | (5.6) | | | (9.1) | |
IT security remediation | (0.2) | | | (0.1) | | | (0.2) | | | (1.4) | |
Amortization of acquired intangible assets | (215.7) | | | (231.6) | | | (647.0) | | | (699.9) | |
| Special income (charges) and other, net | 0.3 | | | (4.3) | | | (20.4) | | | (8.9) | |
Non-GAAP operating expenses | $ | 377.2 | | | $ | 314.1 | | | $ | 1,115.1 | | | $ | 916.4 | |
Non-GAAP operating expenses as a percentage of net sales | 21.5 | % | | 23.2 | % | | 22.4 | % | | 23.1 | % |
RECONCILIATION OF GAAP OPERATING INCOME TO NON-GAAP OPERATING INCOME
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
Operating income, as reported | $ | 515.0 | | | $ | 245.6 | | | $ | 1,300.1 | | | $ | 690.1 | |
| | | | | | | |
Share-based compensation expense | 50.9 | | | 51.2 | | | 163.2 | | | 143.3 | |
| COVID-19 shelter-in-place restrictions on manufacturing activities | — | | | — | | | — | | | 2.8 | |
| | | | | | | |
| Acquisition-related | 1.2 | | | 1.0 | | | 3.9 | | | 1.7 | |
Professional services associated with certain legal matters | 1.8 | | | 4.3 | | | 5.6 | | | 9.1 | |
IT security remediation | 0.2 | | | 0.1 | | | 0.2 | | | 1.4 | |
| | | | | | | |
| | | | | | | |
Amortization of acquired intangible assets | 215.7 | | | 231.6 | | | 647.0 | | | 699.9 | |
| Special (income) charges and other, net | (0.3) | | | 4.3 | | | 20.4 | | | 8.9 | |
Non-GAAP operating income | $ | 784.5 | | | $ | 538.1 | | | $ | 2,140.4 | | | $ | 1,557.2 | |
Non-GAAP operating income as a percentage of net sales | 44.6 | % | | 39.8 | % | | 43.0 | % | | 39.2 | % |
RECONCILIATION OF GAAP OTHER EXPENSE, NET TO NON-GAAP OTHER EXPENSE, NET
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
Other expense, net, as reported | $ | (73.5) | | | $ | (228.8) | | | $ | (296.8) | | | $ | (495.0) | |
Loss on settlement of debt | 16.1 | | | 142.1 | | | 101.6 | | | 214.0 | |
Non-cash other expense, net | 9.2 | | | 13.2 | | | 30.2 | | | 54.6 | |
| | | | | | | |
| Gains on equity investments | (5.5) | | | — | | | (5.5) | | | (0.2) | |
| | | | | | | |
| | | | | | | |
Non-GAAP other expense, net | $ | (53.7) | | | $ | (73.5) | | | $ | (170.5) | | | $ | (226.6) | |
Non-GAAP other expense, net, as a percentage of net sales | (3.1) | % | | (5.4) | % | | (3.4) | % | | (5.7) | % |
RECONCILIATION OF GAAP INCOME TAX PROVISION (BENEFIT) TO NON-GAAP INCOME TAX PROVISION
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Income tax provision (benefit) as reported | $ | 88.7 | | | $ | (19.4) | | | $ | 155.7 | | | $ | (38.3) | |
Income tax rate, as reported | 20.1 | % | | (115.5) | % | | 15.5 | % | | (19.6) | % |
Other non-GAAP tax adjustment | (39.6) | | | 39.1 | | | (32.0) | | | 105.6 | |
Non-GAAP income tax provision | $ | 49.1 | | | $ | 19.7 | | | $ | 123.7 | | | $ | 67.3 | |
Non-GAAP income tax rate | 6.7 | % | | 4.2 | % | | 6.3 | % | | 5.1 | % |
RECONCILIATION OF GAAP NET INCOME AND GAAP DILUTED NET INCOME PER COMMON SHARE TO NON-GAAP NET INCOME AND NON-GAAP DILUTED NET INCOME PER COMMON SHARE
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Net income, as reported | $ | 352.8 | | | $ | 36.2 | | | $ | 847.6 | | | $ | 233.4 | |
| | | | | | | |
Share-based compensation expense | 50.9 | | | 51.2 | | | 163.2 | | | 143.3 | |
| COVID-19 shelter-in-place restrictions on manufacturing activities | — | | | — | | | — | | | 2.8 | |
| | | | | | | |
| Acquisition-related | 1.2 | | | 1.0 | | | 3.9 | | | 1.7 | |
Professional services associated with certain legal matters | 1.8 | | | 4.3 | | | 5.6 | | | 9.1 | |
IT security remediation | 0.2 | | | 0.1 | | | 0.2 | | | 1.4 | |
| | | | | | | |
| | | | | | | |
Amortization of acquired intangible assets | 215.7 | | | 231.6 | | | 647.0 | | | 699.9 | |
| Special (income) charges and other, net | (0.3) | | | 4.3 | | | 20.4 | | | 8.9 | |
Loss on settlement of debt | 16.1 | | | 142.1 | | | 101.6 | | | 214.0 | |
Non-cash other expense, net | 9.2 | | | 13.2 | | | 30.2 | | | 54.6 | |
| | | | | | | |
| | | | | | | |
| Gains on equity investments | (5.5) | | | — | | | (5.5) | | | (0.2) | |
Other non-GAAP tax adjustment | 39.6 | | | (39.1) | | | 32.0 | | | (105.6) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Non-GAAP net income | $ | 681.7 | | | $ | 444.9 | | | $ | 1,846.2 | | | $ | 1,263.3 | |
Non-GAAP net income as a percentage of net sales | 38.8 | % | | 32.9 | % | | 37.1 | % | | 31.8 | % |
GAAP net income as a percentage of net sales | 20.1 | % | | 2.7 | % | | 17.0 | % | | 5.9 | % |
Diluted net income per common share, as reported | $ | 0.62 | | | $ | 0.07 | | | $ | 1.50 | | | $ | 0.44 | |
Non-GAAP diluted net income per common share | $ | 1.20 | | | $ | 0.81 | | | $ | 3.26 | | | $ | 2.37 | |
| Diluted common shares outstanding, as reported | 567.3 | | | 550.8 | | | 566.1 | | | 533.9 | |
| Diluted common shares outstanding non-GAAP | 567.3 | | | 550.8 | | | 566.1 | | | 533.9 | |
RECONCILIATION OF GAAP CASH FLOW FROM OPERATIONS TO FREE CASH FLOW
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
| GAAP cash flow from operations, as reported | $ | 853.4 | | | $ | 509.7 | | | $ | 2,095.0 | | | $ | 1,467.3 | |
| Capital expenditures | (90.7) | | | (21.4) | | | (255.5) | | | (37.2) | |
| Free cash flow | $ | 762.7 | | | $ | 488.3 | | | $ | 1,839.5 | | | $ | 1,430.1 | |
| Free cash flow as a percentage of net sales | 43.4 | % | | 36.1 | % | | 37.0 | % | | 36.0 | % |
Microchip Technology Reports
Third Quarter Fiscal 2022
Financial Results
Page 14
Microchip will host a conference call today, February 3, 2022 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 February 17, 2022.
A telephonic replay of the conference call will be available at approximately 8:00 p.m. (Eastern Time) on February 3, 2022 and will remain available until 5:00 p.m. (Eastern Time) on February 17, 2022. Interested parties may listen to the replay by dialing 719-457-0820 and entering access code 1298729.
Cautionary Statement:
The statements in this release relating to ongoing manufacturing capacity constraints, our unsupported backlog continuing to climb and our lead times stretching out, now targeting to increase our dividend at least 9% sequentially, actively managing the working capital requirements for the business, our belief that these convertible debt exchange transactions will benefit stockholders by significantly reducing share count dilution to the extent our stock price appreciates over time, remaining focused on continuing to enhance our capital structure, that our supply in the March quarter is expected to be adversely impacted by the COVID-19 Omicron variant which has increased the level of factory workforce absentees, expecting our net sales in the March quarter to be up between 2% and 5% sequentially, that at the mid-point of our guidance for the March quarter, net sales will be 24% higher than the year-ago quarter, our fourth quarter fiscal 2022 guidance for net sales and GAAP and non-GAAP gross margin, operating expenses, operating income, other expense, net, income tax provision, net income, diluted common shares outstanding, earnings per diluted share, expected inventory days in the March 2022 quarter, capital expenditures for the March 2022 quarter and for all of fiscal 2022, continuing to add capital equipment to maintain, grow and operate our internal manufacturing capabilities to support the expected growth of our business, our belief that our end-market demand metric reflects true end-market demand based on when product is sold to direct customers or by our distributors to an end customer and our assumed average stock price in the March 2022 quarter 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: any continued economic uncertainty due to the impact of the COVID-19 pandemic, actions taken or which may be taken by the Biden administration or the U.S. Congress, monetary policy, political, geopolitical, trade or other issues in the U.S. or internationally, any further unexpected fluctuations or weakness in the U.S. and global economies (including China), changes in demand or market acceptance of our products and the products of our customers and our ability to meet any continued increases in market demand; the impact of current and future changes in U.S. corporate tax laws (including the Tax Cuts and Jobs Act of 2017), foreign currency effects on our business; 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 manage and expand our production levels to
Microchip Technology Reports
Third Quarter Fiscal 2022
Financial Results
Page 15
meet any continued increases in market demand; competitive developments including pricing pressures; the level of orders that are received and can be shipped in a quarter; changes or fluctuations in customer order patterns and seasonality; our ability to obtain a sufficient supply of wafers from third party wafer foundries to meet our increasing needs and the cost of such wafers, our ability to obtain additional capacity from our suppliers to increase production to meet any continued increases in market demand; our ability to realize the expected benefits of our preferred supply program; our ability to successfully integrate the operations and employees, retain key employees and customers and otherwise realize the expected synergies and benefits of our acquisitions; the impact of any future significant acquisitions that we may make; the costs and outcome of any current or future litigation or other matters involving our Microsemi acquisition, the Microsemi business, intellectual property, customers, or other issues; the costs and outcome of any current or future tax audit or investigation regarding our business or the business of Microsemi, our actual average stock price in the March quarter and the impact such price will have on our share count; fluctuations in our stock price and trading volume which could impact the number of shares we acquire under our share repurchase program and the timing of such repurchases; disruptions in our business or the businesses of our customers or suppliers due to natural disasters (including any floods in Thailand), terrorist activity, armed conflict, war, worldwide oil prices and supply, public health concerns (including the COVID-19 pandemic) 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 website (www.microchip.com) or the SEC's website (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 February 3, 2022 press release, or to reflect the occurrence of unanticipated events.
Microchip Technology Reports
Third Quarter Fiscal 2022
Financial Results
Page 16
About Microchip:
Microchip Technology Incorporated is a leading provider of smart, connected and secure embedded control solutions. Its easy-to-use development tools and comprehensive product portfolio enable customers to create optimal designs, which reduce risk while lowering total system cost and time to market. The Company's solutions serve more than 122,000 customers across the industrial, automotive, consumer, aerospace and defense, communications and computing markets. Headquartered in Chandler, Arizona, Microchip offers outstanding technical support along with dependable delivery and quality. For more information, visit the Microchip website at www.microchip.com.
Note: The Microchip name and logo, the Microchip logo, maXTouch and PolarFire are registered trademarks of Microchip Technology Incorporated in the U.S.A. and other countries. TimeProvider is a registered trademark of Microchip Technology Incorporated in the U.S.A. All other trademarks mentioned herein are the property of their respective companies.
