(2) See the "Use of Non-GAAP Financial Measures" section of this release.
GAAP net sales for the second quarter of fiscal 2021 were $1.31 billion, down 2.1% from net sales of $1.338 billion in the prior year's second fiscal quarter.
GAAP net income for the second quarter of fiscal 2021 was $73.6 million, or $0.27 per diluted share, down from GAAP net income of $108.9 million, or $0.43 per diluted share, in the prior year's second fiscal quarter. For the second quarters of fiscal 2021 and fiscal 2020, GAAP net income was significantly adversely impacted by purchase accounting adjustments associated with our acquisitions.
Non-GAAP net income for the second quarter of fiscal 2021 was $416.4 million, or $1.56 per diluted share, up from non-GAAP net income of $365.7 million, or $1.43 per diluted share, in the prior year's second fiscal quarter. For the second quarters of fiscal 2021 and fiscal 2020, our non-GAAP results exclude the effect of share-based compensation, COVID-19 shelter-in-place restrictions on manufacturing activities, 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 available-for-sale investments. For the second quarters of fiscal 2021 and fiscal 2020, 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 has declared a record quarterly cash dividend on its common stock of 36.85 cents per share. The quarterly dividend is payable on December 4, 2020 to stockholders of record on November 20, 2020.
"The September quarter continued to demonstrate what the best of the Microchip culture and its employees represent," said Steve Sanghi, Chief Executive Officer. "Our global team all came together in the middle of a global pandemic, while working with a pay cut, and delivered superb performance during the quarter."
Mr. Sanghi added, "Despite the COVID-19 pandemic, we delivered $1.31 billion of net sales which was essentially flat on a sequential basis compared to our September 9, 2020 updated guidance which was for net sales to be down between 2% to 6%. We also delivered outstanding non-GAAP gross margin of 62.2% and non-GAAP operating margin of 39.2%. We achieved non-GAAP EPS of $1.56 which was 15 cents above the midpoint of our updated guidance."
"In the September quarter, we saw the automotive, industrial and consumer home appliance markets start their recovery," said Ganesh Moorthy, President and Chief Operating Officer. "Medical devices for elective procedures which experienced a slow-down in the June quarter as individuals and hospitals delayed elective procedures, also started their recovery in the September quarter. As expected, we saw the work from home related markets of computing and data center, as well as medical devices for hospitals, revert to more normal demand patterns as the surge we saw in the June quarter dissipated. In general, enterprise demand remains weak as most businesses remain predominantly with work from home policies, thus deferring enterprise spending for the office environment."
Mr. Moorthy added, "During the September quarter we began to experience rising constraints in our supply chain due to the confluence of a number of factors. Despite these constraints, our operations team executed extremely well to meet the strong demand we saw which enabled us to achieve our strong results. The supply chain constraints are continuing into the December quarter. At times like this we are fortunate to have our internal factory capabilities, and we are making strategic capacity investments, to better position our business for growth."
Eric Bjornholt, Microchip's Chief Financial Officer, said, "We continued to aggressively pay down our debt with another $331.1 million of payments during the September quarter, reflecting a cumulative debt pay down of $2.95 billion over the past nine quarters, as we have actively managed the working capital requirements for the business. In the September quarter, we also exchanged $796.1 million of our 2025 and 2027 convertible senior subordinated notes for cash and shares of our common stock. While these transactions did not impact the overall level of debt on our balance sheet, we believe that these convertible exchanges will benefit stockholders by significantly reducing share count dilution to the extent our stock price appreciates over time."
Mr. Sanghi concluded, "Our September quarter bookings were strong and have continued that way through October. We are seeing good recovery in many of our markets and despite our stopping shipments to Huawei for the full December quarter, we expect our net sales in the December quarter to be flat to up 5% sequentially. Additionally, we now believe that the June and September quarters were the bottom of this business cycle for Microchip. We are guiding to a much stronger than seasonal December quarter and we expect significant revenue growth in calendar year 2021."
Microchip's Highlights for the Quarter Ended September 30, 2020:
- Introduced a new high-speed Analog-to-Digital Converter (ADC) family delivering 80 Megasamples per second (MSPS) for high-frequency, high-temperature aerospace and defense, industrial and automotive applications.
- Made available the industry’s only low-inductance and programmable gate driver kit for inverter designers containing Microchip’s AgileSwitch® digital programmable gate driver and Silicon Carbide (SiC) power module.
- Announced the industry’s first SoC FPGA development kit based on the RISC-V Instruction Set Architecture (ISA) establishing a broad RISC-V-based Mi-V ecosystem for PolarFire® SoC FPGAs.
- Partnered with Machine-Learning (ML) software leaders (Cartesiam, Edge Impulse and Motion Gestures) to simplify AI-at-the-edge using Microchip’s 32-bit MCUs and MPLAB® X Integrated Development Environment (IDE).
- Introduced an automotive single-pair Ethernet physical layer (PHY) transceiver with the industry’s lowest sleep current—less than 15 µA—which is around four times lower than other available devices.
- Announced a high-reliability, extended-temperature Commercial-Off-The-Shelf (COTS) Gigabit Ethernet physical layer (PHY) transceiver for aerospace and military systems.
- Announced an ensemble graphics toolkit to speed Linux® Graphical User Interface (GUI) development to enhance Microchip’s 32-bit microprocessor capabilities when used in low- and mid-range- resolution displays and touch screens.
- Unveiled our highest-density EEPROM with 4 Mbit memory device that provides designers with flexibility and proven reliability for portable consumer and medical devices including fitness trackers, hearing aids and glucose monitors.
- Unveiled a time and frequency instrument with embedded Global Positioning System (GPS) M-code receiver for securing military communication systems, radar and networks reliant on GPS signals which was approved by the U.S. Air Force GPS Directorate.
- Expanded our Flashtec® family with a PCIe® Gen 4 Enterprise NVMe™ Solid State Drive (SSD) controller that enables power and form-factor optimized enterprise NVMe SSDs in data centers.
- Announced high-speed CoaXPress® 2.0 devices that speed machine vision image capture while simplifying system design and deployment of capture cards and cameras supporting the new industry specifications.
Third Quarter Fiscal Year 2021 Outlook:
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. We are not able to predict whether inventory at our distributors will increase or decrease during the quarter and are therefore providing a range of GAAP net sales guidance. In recent years, we have seen net inventory at our distributors increase or decrease by a significant amount in a single quarter.
| Microchip Consolidated Guidance | |||||
| Net Sales | $1.310 to $1.375 billion | ||||
| GAAP | Non-GAAP Adjustments | Non-GAAP (1) | |||
| Gross Margin | 61.9% to 62.3% | $6.3 to $7.3 million | 62.4% to 62.8% | ||
| Operating Expenses (2) | 44.3% to 45.6% | $287.2 to $291.2 million | 23.1% to 23.7% | ||
| Operating Income | 16.3% to 18.0% | $293.5 to $298.5 million | 38.7% to 39.7% | ||
| Other Expense, net | $88.3 to $90.3 million | $13.3 million | $75.0 to $77.0 million | ||
| Income Tax Provision | $22.0 to $34.0 million (3) | $1.7 to ($8.2) million | $23.7 to $25.8 million (4) | ||
| Net Income | $103.0 to $123.1 million | $305.0 to $320.0 million | $408.0 to $443.1 million | ||
| Diluted Common Shares Outstanding | Approximately 269.8 to 272.7 million shares | Approximately 269.8 to 272.7 million shares | |||
| Earnings per Diluted Share | $0.38 to $0.45 | $1.13 to $1.18 | $1.51 to $1.63 | ||
| (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 December 31, 2020. Therefore, our estimate of GAAP operating expenses excludes certain amounts that may be recognized as Special Charges and Other, net in the quarter ending December 31, 2020. | ||||
| (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 expected cash tax rate for fiscal 2021 excluding any transition tax payments associated with the Tax Cuts and Jobs Act. | ||||
- Microchip's inventory days in the December 2020 quarter are expected to be in the range of 116 to 124 days, compared to 120 days at September 30, 2020. 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 December 31, 2020 are expected to be about $35 million. Capital expenditures for all of fiscal 2021 are expected to be between $110 million and $120 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 and to bring in-house some of our wafer fabrication, assembly and test operations that are currently outsourced.
