Microchip Technology(MCHP) - 2025 Q2 - Quarterly Results

Financial Performance Summary This section summarizes Microchip's Q2 FY2025 financial results, management insights, and shareholder returns Second Quarter Fiscal 2025 Financial Highlights For the second quarter of fiscal year 2025, Microchip reported net sales of $1.164 billion, a significant decrease of 48.4% year-over-year, but exceeding the midpoint of guidance. Both GAAP EPS of $0.14 and Non-GAAP EPS of $0.46 met or exceeded the company's projections, with results positively impacted by a $13.3 million legal settlement | Financial Metric | Q2 FY2025 Actual | YoY Change | Guidance Midpoint/Range | | :--- | :--- | :--- | :--- | | Net Sales | $1.164 billion | -48.4% | $1.150 billion | | GAAP EPS | $0.14 | -88.4% | $0.10 - $0.14 | | Non-GAAP EPS | $0.46 | -71.6% | $0.40 - $0.46 | - Financial results were positively impacted by a $13.3 million legal settlement, which added $0.02 per diluted share to both GAAP and non-GAAP EPS[1] | (in millions, except percentages) | GAAP | Non-GAAP | | :--- | :--- | :--- | | Gross Profit | $668.5 (57.4%) | $692.9 (59.5%) | | Operating Income | $146.6 (12.6%) | $340.8 (29.3%) | | Net Income | $78.4 (6.7%) | $250.2 (21.5%) | Management Commentary Management indicated the company is navigating a challenging period of inventory correction and macroeconomic weakness, especially in European industrial and automotive sectors. Despite limited visibility, they observe positive signs like flat bookings and higher expedite requests, suggesting a potential market bottom. The company remains focused on cost discipline and capitalizing on growth in the data center market with its Total System Solutions - CEO Ganesh Moorthy stated the company is navigating an inventory correction amidst macro weakness, particularly in Europe. However, positive signs such as flat sequential bookings and higher expedite requests suggest a potential bottom formation[7][8] - CFO Eric Bjornholt emphasized maintaining strong cost discipline and balance sheet management to ensure operational readiness for an anticipated market recovery[8] - COO Rich Simoncic highlighted growing adoption of the company's Total System Solutions in AI-accelerated servers, with products like PCIe switches, SSD controllers, and CXL solutions strengthening their data center portfolio[8] Shareholder Returns In the September quarter, Microchip returned approximately $261.0 million to stockholders through dividends and share repurchases. The company also declared a record quarterly dividend of 45.5 cents per share for the upcoming December quarter, representing a 3.6% increase from the prior year | Shareholder Return Activity | Amount | | :--- | :--- | | Total Returned to Stockholders | ~$261.0 million | | Dividends Paid | $243.7 million | | Stock Repurchases | $17.3 million (0.2M shares) | - A record quarterly cash dividend of 45.5 cents per share was declared, an increase of 3.6% from the year-ago quarter. The dividend is payable on December 6, 2024[1][6] - The company has cumulatively repurchased $2.444 billion in stock over the last twelve quarters under its $4.0 billion buyback program[1] Business Outlook This section details Microchip's Q3 FY2025 financial guidance and projected capital expenditures Third Quarter Fiscal Year 2025 Outlook For the third quarter of fiscal 2025, Microchip anticipates net sales to be between $1.025 billion and $1.095 billion. The company projects non-GAAP earnings per diluted share to be in the range of $0.25 to $0.35, reflecting continued macroeconomic uncertainties in a seasonally weak quarter | Q3 FY2025 Guidance | GAAP | Non-GAAP | | :--- | :--- | :--- | | Net Sales | $1.025B - $1.095B | $1.025B - $1.095B | | Gross Profit % | 56.2% - 58.1% | 57.0% - 59.0% | | Operating Income % | 4.8% - 9.1% | 22.2% - 25.8% | | EPS | ($0.04) - $0.03 | $0.25 - $0.35 | - CEO Ganesh Moorthy noted that despite substantial inventory destocking, the company continues to face macro uncertainties in what is historically its seasonally weakest quarter[8] Capital Expenditures Capital expenditures for the third quarter of fiscal 2025 are expected to be approximately $20 million, with the full fiscal year 2025 forecast at about $150 million. These investments are aimed at maintaining and growing internal manufacturing capabilities - Capital expenditures are projected to be about $20 million for the quarter ending December 31, 2024[11] - For the full fiscal year 2025, total capital expenditures are expected to be approximately $150 million[11] Financial Statements This section presents Microchip's condensed consolidated statements of income and balance sheets Condensed Consolidated Statements of Income For the three months ended September 30, 2024, Microchip's net sales were $1.16 billion, a sharp decline from $2.25 billion in the prior-year period. This resulted in a net income of $78.4 million, compared to $666.6 million in the same quarter last year | (in millions) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net sales | $1,163.8 | $2,254.3 | | Gross profit | $668.5 | $1,527.4 | | Operating income | $146.6 | $885.0 | | Net income | $78.4 | $666.6 | | Diluted EPS | $0.14 | $1.21 | Condensed Consolidated Balance Sheets As of September 30, 2024, the company's balance sheet showed total assets of $15.62 billion, a slight decrease from $15.87 billion at the end of fiscal 2024. Total debt stood at $6.42 billion, while stockholders' equity was $6.28 billion | (in millions) | September 30, 2024 | March 31, 2024 | | :--- | :--- | :--- | | Cash and short-term investments | $286.1 | $319.7 | | Inventories | $1,339.6 | $1,316.0 | | Total assets | $15,622.3 | $15,873.2 | | Total current liabilities | $3,285.7 | $2,519.4 | | Long-term debt | $4,476.6 | $5,000.4 | | Stockholders' equity | $6,275.9 | $6,657.8 | Non-GAAP Financial Measures This section explains Microchip's non-GAAP financial measures and their reconciliation to GAAP results Use and Rationale for Non-GAAP Measures Microchip utilizes non-GAAP financial measures to provide a clearer understanding of its historical financial performance and for internal management purposes. These measures exclude items such as share-based compensation, acquisition-related expenses, cybersecurity incident costs, and other non-cash or infrequent charges to better reflect underlying operating results - Non-GAAP adjustments include the effects of share-based compensation, cybersecurity incident expenses, acquisition-related costs (like intangible asset amortization), and losses on debt settlement[13][14] - Management believes these measures are useful to investors as they enhance the understanding of historical performance and comparability between periods by excluding charges that may obscure underlying results[17] Reconciliation of GAAP to Non-GAAP Measures The report provides detailed reconciliations for key financial metrics, bridging the gap between reported GAAP figures and the non-GAAP results used for management analysis. Major adjustments include amortization of acquired intangibles, share-based compensation, and cybersecurity incident expenses Gross Profit Reconciliation For Q2 FY2025, GAAP gross profit of $668.5 million was adjusted for $4.3 million in share-based compensation and $20.1 million in cybersecurity incident expenses, resulting in a non-GAAP gross profit of $692.9 million | Q2 FY2025 (in millions) | Amount | | :--- | :--- | | Gross profit, as reported (GAAP) | $668.5 | | Share-based compensation expense | $4.3 | | Cybersecurity incident expenses | $20.1 | | Non-GAAP gross profit | $692.9 | Operating Income Reconciliation Q2 FY2025 GAAP operating income of $146.6 million was reconciled to non-GAAP operating income of $340.8 million. The primary adjustments were $122.7 million for amortization of acquired intangible assets and $46.3 million for share-based compensation | Q2 FY2025 (in millions) | Amount | | :--- | :--- | | Operating income, as reported (GAAP) | $146.6 | | Share-based compensation expense | $46.3 | | Cybersecurity incident expenses | $21.4 | | Amortization of acquired intangible assets | $122.7 | | Other adjustments | $3.8 | | Non-GAAP operating income | $340.8 | Net Income and EPS Reconciliation GAAP net income of $78.4 million ($0.14 per share) for Q2 FY2025 was adjusted for several items, most notably $122.7 million in amortization of acquired intangibles, to arrive at a non-GAAP net income of $250.2 million ($0.46 per share) | Q2 FY2025 (in millions, except EPS) | GAAP | Non-GAAP | | :--- | :--- | :--- | | Net Income | $78.4 | $250.2 | | Diluted EPS | $0.14 | $0.46 | Free Cash Flow Reconciliation The company generated $43.6 million in cash flow from operations in Q2 FY2025. After subtracting $20.8 million in capital expenditures, the resulting free cash flow was $22.8 million | Q2 FY2025 (in millions) | Amount | | :--- | :--- | | GAAP cash flow from operations | $43.6 | | Capital expenditures | ($20.8) | | Free cash flow | $22.8 | Other Information This section provides conference call details, forward-looking statement cautions, and a company overview Conference Call Information Microchip scheduled a conference call for 5:00 p.m. Eastern Time on November 5, 2024, to discuss the financial results. A webcast and telephonic replay were made available until November 26, 2024 - A conference call to discuss the release was held on November 5, 2024, at 5:00 p.m. ET[34] - A webcast replay is available on the company's website, and a telephonic replay is available until November 26, 2024[34][35] Cautionary Statement on Forward-Looking Statements The release includes a safe harbor provision cautioning that forward-looking statements, including financial guidance and management commentary, are subject to significant risks and uncertainties. These factors, such as economic weakness, inventory fluctuations, and geopolitical issues, could cause actual results to differ materially from expectations - Statements regarding financial guidance, market conditions, and business strategy are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995[36] - Key risks include economic uncertainty (especially in China and Europe), changes in customer demand, inventory management challenges, competitive pricing pressure, supply chain issues, and geopolitical conflicts[36][37] About Microchip Microchip Technology Incorporated is a major provider of smart, connected, and secure embedded control solutions. Headquartered in Chandler, Arizona, the company serves approximately 116,000 customers across diverse markets including industrial, automotive, consumer, and communications - Microchip is a leading provider of smart, connected and secure embedded control solutions[41] - The company serves about 116,000 customers in markets such as industrial, automotive, consumer, aerospace and defense, communications, and computing[41]