Microchip Technology Inc. F1Q10 (Qtr End 06/30/10) Earnings Call Transcript

Microchip Technology Inc. F1Q10 (Qtr End 06/30/10) Earnings Call Transcript
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Microchip Technology Inc. (MCHP)

F1Q10 (Qtr End 06/30/10) Earnings Call

August 05, 2010 05:00 pm ET

Executives

J. Eric Bjornholt - VP and CFO

Ganesh Moorthy - COO

Steve Sanghi - President and CEO

Analysts

James Schneider - Goldman Sachs

Christopher Danely - JPMorgan

Sumit Dhanda - Banc of America Merrill Lynch

Uche Orji - UBS

Brendan Furlong - Miller Tabak

Terence Whalen - Citi

Tim Luke - Barclays

Doug Freedman - Gleacher & Company

Craig Ellis - Caris and Company

Ruben Roy - Pacific Crest Securities

Neely Matta - Stifel Nicolaus

Presentation

Operator

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» Microchip Technology Inc. F1Q10 (Qtr End 06/30/09) Earnings Call Transcript

Good day, everyone, and welcome to this Microchip Technology First Quarter and Fiscal Year 2011 Earnings Results Conference Call. As a reminder, today's call is being recorded.

At this time, I would like to turn the call over to Microchip's Chief Financial Officer, Mr. Eric Bjornholt. Please go ahead, sir.

J. Eric Bjornho

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Good afternoon, everyone. During the course of this conference call, we will be making projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions and that actual events or results may differ materially. We refer you to our press release of today as well as our recent filings with the SEC that identify important risk factors that may impact Microchip's business and results of operations.

In attendance with me today are Steve Sanghi, Microchip's President and CEO; Ganesh Moorthy, Microchip's COO; and Gordon Parnell, Vice President, Business Development and Investor Relations.

I will comment on our first quarter of fiscal year 2011 financial performance, and Steve and Ganesh will then give their comments on the results, discuss the current business environment and discuss our guidance. We will then be available to respond to specific investor and analyst questions.

For today's discussion, I will first present the results for Microchip excluding SST, followed by SST's continuing operations and finally for the combined Microchip and SST continuing operations. We are including information on our press release on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on our Investor Relations page of our website at www.microchip.com, which we believe you will find useful when comparing GAAP and non-GAAP results.

We will now go through some of the operating results for the June quarter. I will be referring to gross margin and operating expense information on a non-GAAP basis prior to the effects of share based compensation and acquisition related expenses.

For Microchip excluding SST, net sales were a record $302.4 million, exceeding our 300 million revenue guidance for the quarter and we're up approximately 8.8% from net sales of $278 million in the immediately preceding quarter and were up 56.7% from net sales of $192.9 million in the June 2009 quarter.

Excluding SST, Microchip's non-GAAP net income for the first quarter of fiscal year 2011 was $96 million or a record $0.51 per diluted share, an increase of 10.7% from non-GAAP net income of 86.7 million or $0.46 per diluted share in the immediately preceding quarter.

Gross margins for microchip excluding SST were a record 62% in the June quarter compared to 61.6% in the March quarter. The increase in gross profit margin was driven by a variety of factors including higher production activity in our factories and continued cost reduction efforts from our global manufacturing operations.

With the increase in revenue in the June quarter our continued focus on prudent spending, we were able to achieve operating leverage from the business with total operating expenses of 25% of sales for Microchip excluding SST and non-GAAP operating income was a record 37%. SST's continuing operations produced net sales of $18.4 million which was above our quarterly guidance of $18 million.

In the June quarter, the SST continuing operations produced non-GAAP gross margins of 90% and non-GAAP net income of $8.3 million or $0.04 per diluted share. For Microchip and SST continuing operations combined, net sales for the September quarter were a record 320.8 million, up approximately 15.4% from net sales of $278 million in the immediately preceding quarter and up 66.3% from net sales of $192.9 million in the June 2009 quarter.

On a geographic basis, revenue in the America was up 8.6 sequentially, Europe was up 2.7%, and Asia was up 25.4%. All geographies were in line with their expectations for the quarter and delivered growth above normal seasonality. Asia continues to be our largest geographic region representing 53.9% of sales in the June quarter. The Americas were 22.6% of sales and Europe was 23.5% of sales. These measurements are based on where the product was delivered for manufacturing purposes for our customers, but does not necessarily represent where the design activity is taking place or where the end product consumption is occurring.

The combined gross margins for Microchip and SST's continuing operations were an outstanding 63.6% and at the high end of our previous guidance.

Total consolidated operating expenses from continuing operations were 25.7%. This compares to our combined company guidance for the June quarter of 26.6%. Research and development costs were $35.5 million representing 11.1% of sales. Sales and general administrative expenses were $46.9 million representing 14.6% of sales. The Microchip and SST continuing operations produced consolidated non-GAAP operating income of 37.9%.

Combined company's non-GAAP net income was $104.2 million or $0.55 per diluted share compared with our June quarter guidance of $0.52 per share. The after-tax impact on continuing operations in the June 2010 quarterly earnings that have been excluded from our non-GAAP results include $8.3 million in share-based compensation expense, 1 million in non-cash interest expense associated with our convertible debt, and 4.9 million in charges associated with our acquisition activities. The acquisition related charges include the sell-through of purchased inventory costs, amortization of intangible assets and acquisition related expenses.

On a full GAAP basis, the combined results of Microchip and SST's continuing operations were as follows: Gross margins including share-based compensation and acquisition related expenses, which includes the sell-through of written up inventory and intangible amortization, were 62.2%. Total operating expenses were $92.8 million or 28.9% of sales and includes share-based compensation of $7.5 million, acquisition-related expenses of $2.5 million, and $0.5 million in severance charges that are classified as a special charge within operating expenses.

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