Microchip Technology Incorporated

and welcome to Microchip's Q4 and FY25 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Steve Sankey, the Executive Chair, CEO, and President. Thank you, and you may proceed, sir.

Thank you, operator, and 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 or predictions and that actual events or results may differ materially, we refer you to our press releases of today as well as our recent filing with the SEC that identify important risk factors that may impact Microchip's business and results of operations. In attendance with me today are Rich Simonsec, Microchip's COO, Eric Deonhold, Microchip's CFO, and Sajid Dowdy, Microchip's Head of Investor Relations. I will provide an update on our restructuring. Eric will go over fourth quarter fiscal year 2025 financial performance, and Rich will then review some product line updates. I will then provide an overview of the current business environment and our first quarter fiscal year 2026 guidance. We will then be available to respond to specific investor and analyst questions. Since I returned as Microchip's CEO on November 18, 2024, I have spent a significant amount of time evaluating key aspects of Microchip's business. On March 3, 2025, I provided an update on our nine-point recovery plan to set the company on a course to achieve its previous premium status of performance. Today I will give you a brief update on our progress on that nine-point plan. The first action was to resize our manufacturing footprint. Tempe Fab 2 is now closed. The actions in our other two fabs, namely Fab 4 in Oregon and Fab 5 in Colorado Springs, are complete. The actions in our back end Philippines facilities are also complete. These actions reduce capacity. but leaves the fabs in a position to ramp capacity rapidly when needed on short notice. The second action was to reduce our inventory. Our inventory at the end of December 2024 was 266 days. Our target inventory is 130 to 150 days. Our inventory at March 31, 2025 was 251 days, making it the first meaningful reduction in days of inventory in three years. In the March quarter, we had reduced production for only part of the quarter. We will have reduced production for all of the June quarter. Thus, we expect to reduce inventory more substantially in this June quarter. The inventory at the end of June is expected to be between 215 and 225 days. During the fiscal year 2026, ending March 31, 2026, our goal is to reduce inventory by over $350 million, which will liberate cash. The third action was a review of our megatrends and total system solution. We made two changes to our megatrends. First, we replaced 5G with artificial intelligence, and second, we replaced ADAS with network and connectivity. ADAS is now part of network and connectivity, which is essentially the movement of data outside of the data center, such as industry 4.0 and automotive networking. The fourth action was to conduct a business unit by business unit deep dive. This was completed and resulting organization changes were made. The fifth action was a review of Microchip's channel strategy. This action was also completed and resulting changes have been made in our channel strategy. We have not seen any negative impact from these changes in our distribution channel. The sixth point of evaluation was to strengthen our customer relationships. We met with over 700 customers in the past 130 plus days. giving customers a chance to communicate with us candidly. The results are in based on customer feedback. Recall that we had said that at 12% of the customers, our relationship had deteriorated through the COVID cycle. Within this 12%, we have already been able to restore 78% of these customers to either approved or preferred status. leaving only 2.6% of the customers where the relationship remains stressed and in need of more restoration effort. At this point, we will continue to work our customer relationships as a normal course of business and believe that this concern is closed and behind us. Point seven was the long-term business model, which we unveiled on March 3rd. Point eight was achieving our operating expense model. We completed a global layoff of approximately 10% of our employees to bring our expenses down. We plan to continue to improve our operating expense percentage through revenue growth, attrition, and controlling other operating expenses. The ninth and final area was the CHIPS Act activity. We reinitiated our discussions with the CHIPS office. The CHIPS office is still reorganizing under the new administration. With that, I will pass the call over to Eric Deonhold.

Thanks, Steve, and good afternoon, everyone. We are including information in our press release and on this conference call on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on the investor relations page of our website at www.microchip.com. and included reconciliation information in our earnings press release, which we believe you will find useful when comparing our GAAP and non-GAAP results. We have also posted a summary of our outstanding debt and our leverage metrics on our website. I will now go over some of the operating results including net sales, gross margin, and operating expenses. Other than net sales, I will be referring to these results on a non-GAAP basis, which is based on expenses prior to the effects of our acquisition activities share-based compensation, and certain other adjustments as described in our earnings press release and in the reconciliation on our website. Net sales in the March quarter were $970.5 million, which was down 5.4% sequentially, and $10.5 million above the midpoint of our guidance provided on February 6, 2025. We have posted a summary of our net sales by product line and geography on our website for your reference. On a non-GAAP basis, gross margins were 52%, including capacity under utilization charges of $54.2 million. Operating expenses were at 38% of sales, and operating income was 14% of sales. Non-GAAP net income was $61.4 million, and non-GAAP earnings per diluted share was $0.11, which was $0.01 above the midpoint of our guidance. On a GAAP basis in the March quarter, gross margins were 51.6%. Total operating expenses were $601.4 million and included acquisition and tangible amortization of $122.6 million, special charges of $71.6 million, which was primarily driven by foundry contract exit costs and employee separation costs. Share-based compensation was $37.2 million and $1.4 million of other expenses. The gap net loss attributable to common shareholders was 156.8 million, or 29 cents per share. For fiscal year 2025, net sales were 4.402 billion, and were down 42.3% from net sales in fiscal year 2024. On an on-gap basis, gross margins were 57%, operating expenses were 32.5% of sales, and operating income was 24.5% of sales. Non-GAAP net income was $708.8 million, and EPS was $1.31 per diluted share. On a GAAP basis, gross margins were 56.1%, operating expenses were 49.3% of sales, and operating income was 6.7% of sales. The GAAP net loss attributable to common shareholders was $2.7 million. Our non-GAAP cash tax rate was 13.6% in the March quarter and 14.2% for fiscal year 2025. Our non-GAAP tax rate for fiscal year 26 is expected to be about 12%, which is exclusive of the transition tax and any tax audit settlements related to taxes accrued in prior fiscal years. Our inventory balance at March 31st, 2025 was 1.293 billion and was down 62.8 million from the balance at December 31st, 2024. We had 251 days of inventory at the end of the March quarter, which was down 15 days from the prior quarter's level, driven by our inventory reduction actions. Included in our March ending inventory was 18 days of a long life cycle, high margin products whose manufacturing capacity has been end of life by our supply chain partners. Inventory at our distributors in the March quarter was at 33 days, which was down four days from the prior quarter's level. Distribution took down their inventory in the March quarter as distribution sell-through was about $103 million higher than distribution sell-in. Our cash flow from operating activities was $205.9 million in the March quarter. Our adjusted free cash flow was $182.6 million in the March quarter. As of March 31st, our consolidated cash and total investment position was $771.7 million. In the March quarter, we completed a $1.485 billion mandatory convertible preferred stock offering with a three-year term and purchased a cap call that is generally expected to reduce or offset potential dilution to the common stock upon conversion of the preferred stock. with such reduction subject to an initial cap price of $71.40 per share. The mandatory preferred convertible transaction was done to reduce our debt and preserve our investment grade rating. Our total debt decreased by $1.125 billion in the March quarter, and our net debt decreased by $1.31 billion. Our adjusted EBITDA in the March quarter was $200.4 million, and 20.6% of net sales. Our trailing 12 month adjusted EBITDA was 1.337 billion and our net debt to adjusted EBITDA was 3.66 at March 31st, 2025. Capital expenditures were 14.2 million in the March quarter and 126 million for fiscal year 2025. Our expectation for capital expenditures for fiscal year 2026 is to be at or below $100 million. Depreciation expense in the March quarter was $41.2 million. I will now turn it over to Rich, who will provide some commentary on our product line innovations in the March quarter. Rich.