Microchip Technology(MCHP) - 2025 Q3 - Quarterly Results

Financial Results for Third Quarter of Fiscal Year 2025 Q3 FY2025 Financial Highlights Microchip reported a significant downturn in Q3 FY2025 with net sales of $1.026 billion and a GAAP net loss of $53.6 million Q3 FY2025 Key Financial Metrics | Metric | GAAP | Non-GAAP | | :--- | :--- | :--- | | Net Sales | $1,026.0 M | $1,026.0 M | | Gross Profit | $561.4 M (54.7%) | $568.8 M (55.4%) | | Operating Income | $30.9 M (3.0%) | $210.7 M (20.5%) | | Net (Loss) Income | $(53.6) M | $107.3 M | | Diluted (Loss) EPS | $(0.10) | $0.20 | - Net sales of $1.026 billion were down 11.8% sequentially and 41.9% from the $1.766 billion reported in the year-ago quarter[3][4] - GAAP results were adversely impacted by the amortization of acquired intangible assets, while Non-GAAP results exclude this and other items[5][6] Management Commentary Management acknowledged a challenging quarter, initiating actions to restructure manufacturing and adjust channel strategy amid an ongoing inventory correction - CEO Steve Sanghi highlighted the need for decisive actions due to revenue declining to $1.026 billion and inventory levels reaching 266 days[8] - Key actions initiated include restructuring the manufacturing footprint, adjusting channel strategy, and intensifying customer engagement to strengthen the company's competitive position[8] - Management believes the inventory destocking cycle is not yet complete, and while March quarter bookings are running higher than December, overall levels remain low[9] - COO Rich Simoncic noted strong momentum for new RISC-V processors and connectivity solutions in industrial, automotive, and aerospace applications[9] Business Outlook for Q4 FY2025 The company forecasts Q4 FY2025 net sales between $920.0 million and $1.000 billion and is reducing capital expenditures Q4 FY2025 Guidance | Metric | GAAP Guidance | Non-GAAP Guidance | | :--- | :--- | :--- | | Net Sales | $920.0 M - $1.000 B | $920.0 M - $1.000 B | | Gross Profit % | 51.2% - 53.1% | 52.0% - 54.0% | | Operating Income % | (8.9)% - (2.9)% | 11.5% - 16.3% | | EPS | $(0.24) - $(0.14) | $0.05 - $0.15 | - Capital expenditures for Q4 FY2025 are expected to be approximately $23 million, with the full-year forecast at about $135 million[11] - The company has paused most factory expansion actions and reduced planned capital investments through fiscal 2026 due to the slowing macroeconomic environment[11] Shareholder Returns Microchip continued its commitment to shareholders, distributing approximately $244.6 million through dividends in the third quarter - The company returned approximately $244.6 million to stockholders in the December quarter via dividends[3] - A quarterly dividend of 45.5 cents per share was declared for the March quarter, an increase of 1.1% from the year-ago quarter[3][7] Consolidated Financial Statements (Unaudited) Condensed Consolidated Statements of Operations The income statement reveals a sharp decline in performance, with net sales falling to $1.026 billion and a net loss of $53.6 million Statement of Operations Summary (Three Months Ended Dec 31) | (in millions) | 2024 | 2023 | | :--- | :--- | :--- | | Net sales | $1,026.0 | $1,765.7 | | Gross profit | $561.4 | $1,120.0 | | Operating income | $30.9 | $529.4 | | Net (loss) income | $(53.6) | $419.2 | Condensed Consolidated Balance Sheets The balance sheet shows total assets of $15.63 billion, with increased inventories and long-term debt Balance Sheet Summary (in millions) | Account | Dec 31, 2024 | Mar 31, 2024 | | :--- | :--- | :--- | | Cash and short-term investments | $586.0 | $319.7 | | Inventories | $1,356.3 | $1,316.0 | | Total assets | $15,632.2 | $15,873.2 | | Long-term debt | $6,749.5 | $5,000.4 | | Stockholders' equity | $6,031.5 | $6,657.8 | Reconciliation of GAAP to Non-GAAP Measures Explanation of Non-GAAP Measures The company uses non-GAAP measures, excluding items like share-based compensation, to provide a clearer view of core operational performance - Non-GAAP adjustments primarily exclude the effects of share-based compensation, acquisition-related expenses (including intangible asset amortization, severance, and restructuring costs), and losses on debt settlement[13][14] - Management believes these non-GAAP measures are useful to investors as they enhance the understanding of historical financial performance and comparability between periods by excluding charges that may obscure underlying operating results[17] Reconciliation Tables This section provides detailed reconciliations from GAAP to Non-GAAP for key financial metrics, quantifying various adjustments Gross Profit Reconciliation Q3 FY2025 GAAP gross profit of $561.4 million was adjusted to a Non-GAAP gross profit of $568.8 million Q3 FY2025 Gross Profit Reconciliation (in millions) | Description | Amount | | :--- | :--- | | GAAP Gross Profit | $561.4 | | Share-based compensation | $7.4 | | Non-GAAP Gross Profit | $568.8 | Operating Income Reconciliation GAAP operating income of $30.9 million was adjusted to a Non-GAAP figure of $210.7 million, mainly by adding back amortization Q3 FY2025 Operating Income Reconciliation (in millions) | Description | Amount | | :--- | :--- | | GAAP Operating Income | $30.9 | | Amortization of acquired intangible assets | $122.6 | | Share-based compensation expense | $49.4 | | Other adjustments | $7.8 | | Non-GAAP Operating Income | $210.7 | Net Income and EPS Reconciliation A GAAP net loss of $53.6 million was reconciled to a Non-GAAP net income of $107.3 million, driven by significant add-backs Q3 FY2025 Net (Loss) Income Reconciliation (in millions) | Description | Amount | | :--- | :--- | | GAAP Net (Loss) Income | $(53.6) | | Amortization of acquired intangible assets | $122.6 | | Share-based compensation expense | $49.4 | | Other non-GAAP tax adjustment | $(19.2) | | Other adjustments | $7.1 | | Non-GAAP Net Income | $107.3 | Cash Flow Reconciliation The company generated $253.4 million in free cash flow, representing 24.7% of net sales for the quarter Q3 FY2025 Free Cash Flow Calculation (in millions) | Description | Amount | | :--- | :--- | | GAAP cash flow from operations | $271.5 | | Capital expenditures | $(18.1) | | Free cash flow | $253.4 | Supplementary Information Conference Call Information A conference call was scheduled for February 6, 2025, to discuss financial results, with a replay available - A conference call to discuss the earnings release was scheduled for February 6, 2025, at 5:00 p.m. ET[38] Cautionary Statement on Forward-Looking Statements This section contains a safe harbor statement warning that forward-looking statements involve numerous risks and uncertainties - The release contains forward-looking statements regarding business strategy, financial guidance, and operational plans, which are subject to risks and uncertainties[40] - Key risk factors include economic uncertainty, changes in customer demand, inventory management, competitive pricing pressure, supply chain constraints, and the impact of geopolitical conflicts[40][41] About Microchip Microchip Technology is a leading provider of smart, connected, and secure embedded control solutions serving diverse markets - Microchip is a leading provider of smart, connected, and secure embedded control solutions, serving approximately 112,000 customers across diverse markets[45]