Ganesh Moorthy
President & Chief Executive Officer at Microchip Technology
Thank you, Eric, and good evening, everyone.
Our March quarter results were consistent with our guidance, with net sales down 24.9% sequentially and down 40.6% from the year ago quarter as we endured through a major inventory correction. Non-GAAP gross margin came in as expected at 60.3% and non-GAAP operating margin was better than expected, 32.9% due to the strong expense control programs we had in place. However, as Eric mentioned, our tax rate was higher than expected, and as a result, our consolidated non-GAAP diluted EPS only met expectations at $0.57 per share.
Our revenue decline resulted in March quarter EBITDA dropping. And as a result, our net leverage ratio rose to 1.57x. We expect our net leverage to rise modestly a few quarters as trailing 12-month adjusted EBITDA drops when replacing stronger prior year quarters with weaker current year quarters. However, our cash generation capability remains strong, and we are committed to our capital return plan.
Our capital return to shareholders in the June quarter will increase to 87.5% [Phonetic] of our March quarter adjusted free cash flow as we continue on our path to return 100% of our adjusted free cash flow to shareholders by the March quarter of calendar year 2025.
Reflecting on our fiscal year '24 results, it was a roller coaster year with a positive start that was followed by a major inventory correction. As compared to fiscal year '23, revenue declined 9.5% to $7.6 billion. Non-GAAP operating margin was resilient at 43.9% as we took the actions required to respond to the major inventory correction. Capital return to shareholders through a combination of dividends and share buybacks in fiscal '24 was $1.89 billion, representing a 15.4% growth as compared to fiscal '23.
My thanks to our worldwide team for their support, hard work and diligence as we navigated a difficult environment and focus on actions that we believe position us well to thrive in the long term.
Taking a look at our fiscal year '24 net sales from a product line perspective, our mixed signal microcontroller net sales were down 10.2% and represented 56% of Microchip's overall revenue. Our analog net sales were down 15.2% and represented 26.4% of Microchip's overall revenue. While we don't normally break out our FPGA product line results, it is noteworthy that our fiscal year '24 FPGA revenue exceeded $670 million and set another record. FPGA revenue grew over 22% as compared to fiscal '23 and delivered operating margins of north of corporate average. We deliver market-leading mid-range FPGA solutions with best-in-class low power, reliability and security and are especially well suited for the fast emerging opportunities around artificial intelligence at the edge. Our overall FPGA design win momentum is strong across multiple end markets.
A few other product line notes are significant. Early in April, we closed our acquisition of Soul Korea-based VSI and ADAS and digital cockpit connectivity pioneer to extend our automotive networking market leadership. This acquisition adds automotive SerDes Alliance Motionlink technology, otherwise known as ASA DASH ML to Microchip's broad Ethernet and PCIe automotive networking portfolio to enable next-generation software-defined vehicles. with the anticipated increase in the adoption of advanced camera-based driver assistance systems, in-cabin monitoring, safety and convenience features and multiscreen digital cockpits for next-generation software-defined vehicles, there is a growing requirement for a more highly asymmetric raw data and video links and higher bandwidth with the ASA Motion Lake Open Standard supports.
Also last month, we closed our acquisition of Neuronix AI Labs whose innovative software technology enhances AI-enabled intelligent edge solutions and increases neural networking capabilities. This technology expands our capabilities for power-efficient AI-enabled edge solutions deployed in FPGAs. Neuronix AI Labs provides neural network sparcity optimization technology that enables the reduction in power, size and calculation for tasks such as image classification, object detection and semantic segmentation while maintaining high accuracy.
Finally, in July, we expect to announce our entry into the 64-bit embedded microprocessor market with a suite of products, development tools and other support requirements to address high-performance embedded processing applications including AI-enabled edge solutions. This will extend our strong 32-bit embedded microprocessor portfolio to higher performance and increased capabilities while preserving Microchip's historically strong ecosystem of leading development tools to make adoption ease for embedded system design engineers.
Microchip is the only company to offer the widest embedded control and processing platform from 8-bit to 64-bit as well as FPGAs with a common development tool ecosystem that's empowering customers to innovate and reuse their work across a wide spectrum of markets and applications.
Now for some color on the March quarter and the general business environment. All regions of the world and most of our end markets with the exception of Aerospace and Defense and the artificial intelligence subset of data centers were weak. We believe that our product shipments were significantly lower than the end market consumption of our distribution channels drained inventory during the quarter. Our broad base of customers continued to lower their inventory and adjust their business plans in the midst of a weak macro environment and an uncertain outlook. With no major supply constraints, coupled with very short lead times and a weak macro environment, we believe there is inventory destocking as well as reduction in target inventory levels that is underway at multiple levels. At our direct customers and distributors who buy from us, our indirect customers who buy through our distributors and in some cases, our customers' customers.
We are, however, also seeing early signs of green shoots in our business. First, the level of request the cancellations and pushouts has started to subside. Second, our bookings have started to pick up, albeit from low levels. February bookings were the highest in eight months. March bookings were the highest in all of fiscal '24 and April bookings were higher than March. Third, the new bookings are aging over a shorter period of time; and fourth, the number of expedites and shipment pulling requests are growing. Collectively, these green shoots, we believe, are pointing to the formation of a bottom.
Our average lead times continue to be eight weeks or less. During a period of business uncertainty, we believe short lead times are the best way to help customers navigate the environment successfully and improve the quality of backlog placed with us. However, the significant reduction in lead time is also resulting in reduced near-term visibility for our business.
Given the severity of the inventory correction, our factories around the world are running at lower utilization rates and our three major fabs will take another two-week shutdown in the June quarter in order to help control the growth of inventory.
Our internal capacity expansion actions remain paused. We expect our capital investments in fiscal year '25 will be low, even as we prepare for the long-term growth of our business.
On the CHIPS Act front, we have nothing new to report. The CHIPS office has completed their diligence for the grants we are seeking and we are working towards an agreement.
At this stage of a major inventory correction, we believe that the days of inventory metric where the for Microchip for our distributors can be Decepta as this is a backward-looking indicator measuring off of a baseline that is well below where we believe end market consumption is at. For inventory planning, we are, therefore, focused on where we believe consumption is running and will likely run in the coming quarters. We continue to work with our distribution partners to attempt to find the right balance of inventory required to serve their customers, manage through their cash flow requirements and be positioned for the eventual spinning of business conditions.
The operating expense reduction efforts we implemented last quarter, including broad-based salary sacrifices are continuous this quarter. The shutdown for manufacturing team members and pay cuts for non-manufacturing team members are consistent with our long-standing culture of shared sacrifices and down cycles and shared rewards and up cycles. Our culture of shared sacrifice protects our valuable employees from layoffs, helps enable us to support -- customers maintain our design win momentum, helps ensure that manufacturing capacity can be done quickly as business conditions strengthen and helps enable our product development teams to maintain their pace of new solution introductions.
Now let's get into the genes for the June quarter. While we see a number of green shoots and other indicators, we still need turns orders within the quarter to meet our guidance. Operating in a high turns and have historically been normal for Microchip. It is just not a position we have found ourselves in over the last few years to a supply-constrained high backlog environment we and the industry experience.
Taking all the factors we have discussed on the call today into consideration, we expect our net of the June quarter to be between $1.22 billion and $1.26 billion. We believe that the June 2024 quarter marks the bottom of the cycle for Microchip and that our business will return to sequential revenue growth in the September 2024 quarter. We expect our non-GAAP gross margin to be between 59% and 61% of sales. We expect non-GAAP operating expenses to be between 28.25% and 28.75% of sales. We expect non-GAAP operating profit to be between 30.25% and 32.75% of sales, and we expect our non-GAAP diluted earnings per share to be between $0.48 and $0.56.
We believe that the fundamental characteristics of growth, profitability and cash generation of our business remain intact. We are confident that our solution and the engine of innovation for the applications and end markets we serve. Our focus on total system solutions and key market megatrends continue to fuel strong design win momentum, which we expect will drive above-market long-term growth. We remain committed to executing our Microchip 3.0 strategic imperatives, which we believe will deliver sustained results and substantial shareholder value.
Last but not least, a month ago, we appointed Rich Simoncic as Chief Operating Officer. Rich is a Microchip Lifer who has been with us for 35 years in many different capacities, which has been expanding his role over the last few years, and he and I will jointly lead the Microchip global enterprise so that we can apply our combined leadership capacity to engage the opportunities and challenges that are ahead of us.
With that, let me pass it back on to Steve to talk more about our cash return to shareholders. Steve?
