J. Eric Bjornholt
Senior Vice President, Chief Financial Officer at Microchip Technology
Good afternoon, everybody. 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 are predictions and that actual events or results may differ materially. We refer you to our press release as of today as well as our recent filings with the SEC that identify important risk factors that may impact Microchip's business and results of operations.
In attendance with me today are Ganesh Moorthy, Microchip's President and CEO; and Steve Sanghi, Microchip's Executive Chair; and Sajid Daudi, Microchip's Head of Investor Relations. I will comment on our second quarter fiscal year 2024 financial performance. Ganesh will then provide commentary on our results and discuss the current business environment as well as our guidance. And Steve will provide an update on our cash return strategy. We will then be available to respond to specific investor and analyst s.
We are including information in our press release and 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 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 through 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 the reconciliations on our website. Net sales in the September quarter were $2.254 billion, which were down 1.5% sequentially. 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 68.1%, operating expenses were at 20% and operating income was a record 48.1%. Non-GAAP net income was $889.3 million and non-GAAP earnings per diluted share was $1.62.
On a GAAP basis in the September quarter, gross margins were 67.8%, total operating expenses were $642.4 million, and included acquisition intangible amortization of $151.4 million, special charges of $1.8 million, share-based compensation of $38 million and $1.1 million of other expenses. GAAP net income was a record $666.6 million, resulting in a record $1.21 in earnings per diluted share. Our non-GAAP cash tax rate was 14.2% in the September quarter.
Our non-GAAP tax rate for fiscal year 2024 is expected to be about 14.2%, which is exclusive of the transition tax and any tax audit settlements related to taxes accrued in prior fiscal years. Our fiscal '24 cash tax rate is expected to be higher than our fiscal '23 tax rate for a variety of factors, including lower availability of tax attributes, such as net operating losses and tax credits, lower depreciation with our expectation for lower capital expenditures in the U.S. in fiscal '24, as well as the impact of current tax rules requiring the capitalization of R&D expenses for tax purposes.
We are still hopeful that the tax rules requiring companies to capitalize R&D expenses will be pushed out or repeal. If this were to happen, we would anticipate about a 200 basis point favorable adjustment to Microchip's non-GAAP tax rate in future periods. Our inventory balance on September 30, 2023, was $1.331 billion. We had 167 days of inventory at the end of the September quarter, which was flat to the prior quarter's level. Although we reduced inventory dollars in the quarter, we were not able to make as much progress as we would have liked, as we continue to accommodate requests by customers to push out delivery schedules for products that were very far through the manufacturing process.
We also continue to invest in building inventory for long-lived, high-margin products whose manufacturing capacity is being end of life by our supply chain partners, and these last-time buys represented 10 days of inventory at the end of September. We expect dollars of inventory on our balance sheet to reduce in the December quarter. Inventory at our distributors in the September quarter was at 35 days, which was up six days from the prior quarter's level.
Our cash flow from operating activities was $616.2 million in the September quarter. Included in our cash flow from operating activities was $87.5 million of long-term supply assurance receipts from customers. We have adjusted these items out of our free cash flow to determine the adjusted free cash flow that we will return to shareholders through dividends and share repurchases, as these supply assurance payments will be refundable over time as purchase commitments are fulfilled. Our adjusted free cash flow was $454.3 million in the September quarter. As of September 30, our consolidated cash and total investment position was $256.6 million. Our total debt increased by $45.6 million in the September quarter, and our net debt was up by $60.2 million.
Over the last 21 full quarters since we closed the Microsemi acquisition and incurred over $8 billion in debt to do so, we have paid down $6.72 billion of the debt and continue to allocate substantially all of our excess cash beyond dividends and stock buyback to bring down this debt. In the September quarter, we issued a $750 million Term Loan A and retired $1 billion in bonds that matured on September 1, 2023, with the Term Loan A and proceeds from our line of credit. We also issued $1 billion of commercial paper during the September quarter, taking advantage of about a 90 basis point lower interest rate on the commercial paper compared to our line of credit rate.
Our line of credit had $39 million of borrowings against it at September 30, 2023. During the September quarter, we also retired $18.2 million of total principal amount of our 2027 convertible bonds for a total cash payment of $42.7 million. The amount paid above the principal amount essentially works like a synthetic stock buyback, reducing any current and future share count dilution that could result if these convertible bonds were ever converted into shares. The $24.5 million we paid above the par value for the convertible bonds was in addition to our normal share buyback activity that we executed during the quarter, resulting in an additional reduction in the diluted share count outstanding.
Our adjusted EBITDA in the September quarter was $1.152 billion and 51.1% of net sales. Our trailing 12-month adjusted EBITDA was a record at $4.57 billion. Our net debt to adjusted EBITDA was 1.28 at September 30, 2023, down from 1.84 at September 30, 2022. Capital expenditures were $74.4 million in the September quarter. Our expectation for capital expenditures for fiscal year 2024 is between $300 million and $325 million, which is down from the $300 million to $350 million we shared with investors last quarter, as we are delaying certain capital given the more challenging economic backdrop. We expect that our capital investments will continue to provide us with increased control over our production during periods of industry-wide constraints. Depreciation expense in the September quarter was $47 million.
I will now turn it over to Ganesh to give his comments on the performance of the business in the September quarter as well as our guidance for the December quarter. Ganesh?
