Microchip Technology Inc. (MCHP) Q2 2023 Earnings Call Transcript

Microchip Technology Inc. (NASDAQ:MCHP) Q2 2023 Earnings Conference Call November 3, 2022 5:00 PM ET

Company Participants

Ganesh Moorthy - President & Chief Executive Officer

James Eric Bjornholt - Senior Vice President & Chief Financial Officer

Stephen Sanghi - Executive Chair

Conference Call Participants

Ambrish Srivastava - BMO

Vivek Arya - Bank of America Securities

Christopher Rolland - Susquehanna

Timothy Arcuri - UBS

William Stein - Truist Securities

Chris Danely - Citigroup

Toshiya Hari - Goldman Sachs

Harlan Sur - JPMorgan

Matt Ramsay - Cowen

Joe Moore - Morgan Stanley

Tore Svanberg - Stifel

Raji Gill - Needham & Company

Vijay Rakesh - Mizuho

James Eric Bjornholt

[Technical Difficulty]

Is a record $814.4 million. Non-GAAP earnings per diluted share was a record $1.46, and at the high-end of our guidance range.

On a GAAP basis in the September quarter, gross margins were a record at 67.4%. Total operating expenses were $642.8 million and included acquisition intangible amortization of $167.5 million, special charges of $4.3 million, $3.2 million of acquisition-related and other costs and share-based compensation of $34.8 million. GAAP net income was a record $546.2 million resulting in a record $0.98 in earnings per diluted share and was adversely impacted by a $2.1 million loss on debt settlement associated with our convertible debt refinancing activities. Our September quarter GAAP tax expense was impacted by a variety of factors, notably the tax expense recorded as a result of the capitalization of R&D expenses for tax purposes.

Our non-GAAP cash tax rate was 11.2% in the September quarter. We now expect our non-GAAP cash tax rate for fiscal '23 to be between 9.8% and 10.8%, exclusive of the transition tax, any potential tax associated with restructuring the Microsemi operations into the Microchip global structure and any tax audit settlements related to taxes accrued in prior fiscal years. This is modestly higher than our previous forecast as we have refined our tax calculations for the year.

A reminder of what we communicated last quarter, our fiscal '23 cash tax rate is higher than our fiscal '22 tax rate for a variety of factors, including lower availability of tax attributes such as net operating losses and tax credits as well as the impact of current tax rules requiring the capitalization of R&D expenses for tax purposes. There appears to be some momentum for the tax rules requiring companies to capitalize R&D expenses to be pushed out or repealed. If this were to happen, we would anticipate about a 300 basis point favorable adjustment to Microchip's tax rate in fiscal year 2023.