Net sales for the third quarter of fiscal 2023 were a record $2.169 billion, up 23.4% from net sales of $1.758 billion in the prior year's third fiscal quarter.

GAAP net income for the third quarter of fiscal 2023 was $580.3 million, or $1.04 per diluted share, up from GAAP net income of $352.8 million, or $0.62 per diluted share, in the prior year's third fiscal quarter. For the third quarters of fiscal 2023 and fiscal 2022, GAAP net income was adversely impacted by amortization of acquired intangible assets associated with our previous acquisitions.

Non-GAAP net income for the third quarter of fiscal 2023 was a record at $863.7 million, or $1.56 per diluted share, up from non-GAAP net income of $681.7 million, or $1.20 per diluted share, in the prior year's third fiscal quarter. For the third quarters of fiscal 2023 and fiscal 2022, our non-GAAP results exclude the effect of share-based compensation, 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, non-cash interest expense on our convertible debentures and losses on the settlement of debt. For the third quarters of fiscal 2023 and fiscal 2022, 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 declared a record quarterly cash dividend on its common stock of 35.8 cents per share, up 9.1% from the cash dividend paid last quarter and up 41.5% from the year ago quarter. The quarterly dividend is payable on March 7, 2023 to stockholders of record on February 21, 2023.

"We are pleased to report our 9th consecutive revenue growth quarter and another quarter of record operating profit and net income," said Ganesh Moorthy, President and Chief Executive Officer. "Our fiscal third quarter revenue grew 4.6% sequentially and 23.4% year-over-year to $2.17 billion. Non-GAAP operating margins came in at 47.5%, which was ahead of our guidance range and above the high-end of our long-term operating model. Our consistent results demonstrate our team's relentless focus on operational excellence, which we believe positions us well to capture market share gains over the business cycle."

Mr. Moorthy added, "Supply is gradually improving, and for the first time in nine quarters we were able to modestly reduce our large unsupported backlog. We are starting to see improvements in lead times in select technology corridors and remain focused on strategically reducing our unsupported backlog in a disciplined manner, while preserving the quality of the new backlog that gets placed. With gradual supply improvements, we are aiming to better serve our customers by targeting lead times for most of our products to be 26 weeks or less by the second half of 2023. In addition, China's zero COVID policy, and the after-effects of their subsequent rapid lifting of lock-downs, resulted in disruptions which drove higher-than-normal inventory at customers and distributors. We remain cautiously optimistic that we can deliver a soft landing for our business and expect our operating metrics to once again demonstrate resiliency through this business cycle."

Steve Sanghi, Microchip's Executive Chair, said, “Microchip's Board of Directors approved a sequential increase in our dividend of 9.1% to a record 35.8 cents per share, which represents a 41.5% year-over-year increase. Given our strong cash flow generation during the December quarter, we are targeting to return $469.8 million to our shareholders in the March quarter through dividends and share repurchases, representing 62.5% of our adjusted free cash flow in the December quarter. Our adjusted cash flow excludes $385 million that we collected from our customers or paid to suppliers for long-term supply assurance payments. We are adjusting for these payments since they are refundable when customers fulfill their purchase commitments. Our board remains committed to increasing cash returns to shareholders, and we are announcing today that since we expect to exit the March quarter with our net leverage below 1.5X we will accelerate the percentage of free cash flow returned. Under this program, starting with the June quarter, we expect to increase the percentage of adjusted free cash flow we return to shareholders every quarter by 500 basis points, until we reach 100% of adjusted free cash flow returned which is targeted to occur in approximately eight quarters. Therefore in the June 2023 quarter we now expect to return 67.5% of our adjusted free cash flow from the March quarter to shareholders."

Eric Bjornholt, Microchip's Chief Financial Officer, said, "We continued to aggressively pay down our debt with another $719.1 million of payments during the December quarter, reflecting a cumulative debt pay down of almost $6.2 billion over the past 18 quarters, as we have actively managed the working capital requirements for the business. Our net debt to adjusted EBITDA was 1.56x for the December quarter. In addition, our capital return strategy is expected to give us the flexibility to continue to pay down high-interest debt. Our operating model has been a strong cash generator and is demonstrating significant operating leverage as we continue on our Microchip 3.0 journey."

Mr. Moorthy concluded, "Our backlog for the March quarter is strong and we have more capacity improvements coming into effect. However, we are also taking active steps to help customers with inventory positions to selectively push out some of their backlog. Considering these factors and the economic backdrop, we expect net sales in the March quarter to be up between 1% and 4% sequentially, and we expect to grow revenue sequentially again in the June quarter. At the mid-point of our guidance for the March quarter, net sales would be 20.6% higher than the year-ago quarter."

Microchip's Highlights for the Quarter Ended December 31, 2022:

• Introduced new Arm^®-based PIC^® microcontrollers designed to create an easier way to add Bluetooth^® Low Energy Connectivity. Our PIC32CX-BZ2 MCU family includes built-in Bluetooth Low Energy and other wireless functionality with premium analog performance and comprehensive design support.
  

• Announced a smart metering platform available on a 32-bit MCU product family equipped with an MPL460 PLC modem. Our PIC32CXMT provides maximum flexibility with three tiered devices including a single core, dual core and system-on-chip (SOC) to streamline smart meter and communications infrastructure development.
  

• Launched new industrial Gigabit Ethernet transceivers that offer Precision Timing Protocol (PTP) to optimize process automation functionality. Our LAN8840 and LAN8841 are single-port Gigabit Ethernet transceivers delivering PTP-v2 (IEEE 1588-2008) time stamping for highly coordinated factory and process automation.
  

• Showcased RISC-V-based FPGA and space-compute solutions at RISC-V Summit. Microchip’s PolarFire^® devices lead in delivering 2X power efficiency, military grade security and highest reliability, which will be extended by the PolarFire 2 FPGA roadmap.
  

Fourth Quarter Fiscal Year 2023 Outlook:

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.