Microchip Technology Announces Record Financial Results For Fourth Quarter And Fiscal Year 2016

First Quarter Fiscal Year 2017 Outlook:

The following statements are based on current expectations.  These statements are forward-looking, and actual results may differ materially.  Due to our recent acquisition of Atmel and the related purchase accounting and revenue differences related to revenue recognition in our distribution channel, we are not able to provide GAAP guidance at this time. We are able to provide the following non-GAAP guidance:

 


Microchip Consolidated Guidance - Non-GAAP1

Net Sales

$799.1 million to $841.9 million

   Gross Margin2

54.8% to 55.2%

   Operating Expenses

29.1% to 29.8%

   Operating Income

25.0% to 26.1%

Other Expense

$22.8 million

Income Tax Expense

8% to 9%

Net Income

$160.7 million to $181.2 million

Diluted Common Shares Outstanding3

230.3 million shares

Earnings per Diluted Share3

70 cents to 79 cents

1

See the "Use of Non-GAAP Financial Measures" section of this release.

2

See Footnote 2 under the "Use of Non-GAAP Financial Measures" section of this release.

3

Earnings per share has been calculated based on the diluted shares outstanding of Microchip on a consolidated basis.

 

  • Microchip's inventory days, excluding Atmel, at June 30, 2016 are expected to be about flat at the midpoint of our guidance. 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. Microchip needs to complete its purchase accounting analysis for Atmel before it can provide inventory guidance that includes Atmel.
  • Capital expenditures, including Atmel, for the quarter ending June 30, 2016 are expected to be approximately $35 million. Capital expenditures for all of fiscal year 2017 are expected to be approximately $140 million. We are continuing to invest in the equipment needed to support the growth of our production capabilities for fast growing new products and technologies.
  • We expect net cash generation during the June quarter of $140 million to $160 million prior to the dividend payment, changes in borrowing levels, and our acquisition-related activities.

 

1 

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, inventory valuation costs, severance costs, and legal and other general and administrative expenses associated with acquisitions), preclusion of revenue recognition under GAAP for inventory in the distribution channel on the acquisition dates of our acquisitions, revenue recognition changes related to Micrel and ISSC distributors, a loss on the retirement of convertible debentures, non-cash interest expense on our convertible debentures, gains on equity securities, the related income tax implications of these items and non-recurring tax events.  Our non-GAAP net sales outlook for the June 2016 quarter reflects accounting for revenue for both Atmel and Micrel distributors on a sell-through basis.  Net sales from Atmel's sell-through distributors that the distributors owned as of the acquisition date is not recognized for GAAP purposes.  We believe that our disclosure of non-GAAP net sales provides investors with useful information regarding the actual end market demand for our products.

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 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 or non-recurring expenses related to such transactions.  Accordingly, management excludes all of these items from its internal operating forecasts and models.

We are using non-GAAP net sales, non-GAAP gross profit, non-GAAP gross profit percentage, non-GAAP operating expenses in dollars and as a percentage of sales including non-GAAP research and development expenses and non-GAAP selling, general and administrative expenses, non-GAAP operating income, non-GAAP other expense, net, non-GAAP income tax provision (benefit)/tax rate, non-GAAP net income, and non-GAAP diluted earnings per share 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 these non-GAAP measures to manage and assess the profitability of our business.  Specifically, we do not consider such items when developing and monitoring our budgets and spending.  Our determination of the above 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 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.

2 

Generally, gross margin fluctuates over time, driven primarily by the mix of microcontrollers, mixed-signal products, analog products and memory 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.

3 

Diluted Common Shares Outstanding can vary for, among other things, the trading price of our common stock, the actual 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"), 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 June 2016 quarter of $49 per share (however, 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).


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