Microchip Technology Incorporated (MCHP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Microchip Technology Fiscal 2025 Annual Shareholders Meeting. I'd now like to introduce your host for today's program, Steve Sanghi. Please go ahead, sir.

Thank you and good morning, everyone. It's 9:00 a.m and the 2025 Annual Meeting of the Stockholders of Microchip Technology Incorporated will please come to order. I'm Steve Sanghi, Chairman of the Board, CEO and President of Microchip Technology. I would also like to introduce the additional members of the audience. First I will introduce the other members of the Board of Directors. When I call your names, please standup and be recognized. Ellen Barker, retired Senior Vice President and Chief Information Officer of Texas Instruments; Rick Cassidy, retired Senior Vice President of Corporate Strategy at TSMC; Matt Chapman, retired CEO of Northwest Evaluation Association; Victor Peng, retired President of Advanced Micro Devices and Karen Rapp, retired CFO of National Instruments. Next, I will introduce the company's executive staff that are in attendance today, starting with Rich Simoncic, Chief Operating Officer; Eric Bjornholt, Senior Corporate Vice President and Chief Financial Officer; Mathew Bunker, Senior Corporate Vice President, Operations; Lauren Carr, Senior Corporate Vice President, Global Human Resources; Mike Finley, Senior Corporate Vice President, Operations; Patrick Johnson, Senior Corporate Vice President, FPGA and Timing Business Units; and Joe Krawczyk, Senior Corporate Vice President, Worldwide Client Engagement. A partner of the firm of Ernst & Young, the company's independent registered public accounting firm is also here today, John Gaylord. I would also like to introduce Rob Suffoletta, he is on the back. A partner with the law firm of Wilson Sonsini Goodrich & Rosati, who serves as the company's outside legal counsel. Pursuant to the company's bylaws, I have been appointed by the Board of Directors to serve as Chair of this meeting. Rob Suffoletta will serve as Secretary of this meeting. Notice of this meeting stating the time, place and purposes was mailed on or about July 7, 2025, postage prepaid, to each stockholder of record at the close of business on June 20, 2025. Affidavits of mailing have been received by the company and are available for inspection at this meeting. 539,674,554 shares of common stock were outstanding at the close of business on June 20, 2025, and are entitled to vote at this meeting. Now with respect to the voting of your shares. If you have already mailed in your proxy and you do not want to change your vote, then you do not need to do anything at this time. If you did not turn in your proxy, or if you wish to change a proxy you previously submitted, or if you hold a proxy to vote the shares of another stockholder, please submit those proxies to us at this time. Anybody who wants to change their votes or they are holding proxies for other shareholders, if not, lastly if there is anyone here who did not submit a proxy and who wishes to vote their shares in person, please raise your hand. So that Macy can distribute the ballot to you. Anybody that did not vote, any stockholder who wants [indiscernible]? We will collect those ballots when we open the polls for voting in a few moments. In accordance with the provisions of Delaware law, the Board of Directors has appointed Rob Suffoletta to serve as the Inspector of Election at this meeting, and he subscribed the oath of his office prior to the meeting. Rob has informed me that a quorum is present, and I declare the meeting open for business. If there are any questions that relate directly to one of the proposals, I would like to receive that question at the time that we consider each of the proposals. Otherwise, we have reserved time after we complete the business matters of this meeting for a question-and-answer period. So please hold all questions not related to the proposals until the question-and-answer period. The first proposal is election of the company's directors to serve for the ensuing year and until their successors are elected and qualified. A nominee for director shall be elected if the votes cast for such nominee's election exceed the votes cast against such nominee's election. Nomination for directors will now be received. I recognize Eric Bjornholt.

My name is Eric Bjornholt. I nominate Ellen L. Barker, Rick Cassidy, Matthew W. Chapman, Victor Peng, Karen M. Rapp, Steve Sanghi for election as directors of the company.

Rich Simoncic?

I second the nomination.

Since no other nominations were received, the nominations are now closed. The second proposal is to ratify the appointment of Ernst & Young LLP, as the independent registered public accounting firm of Microchip for the fiscal year ending March 31, 2026. The affirmative vote of the holders of the majority of the votes cast affirmatively or negatively at the meeting is required to adopt the proposal. Is there any discussion on this proposal? A motion calling for a vote on this proposal will now be received. I recognize Rich Simoncic.

My name is Rich Simoncic, I move for the adoption of the following resolution: resolved to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of Microchip for the fiscal year ending March 31, 2026.

Joe Krawczyk?

I second the motion.

The third proposal is to hold an advisory nonbinding vote regarding the compensation of our named executives. The affirmative vote of the holders of a majority of the votes [indiscernible] I am being asked to speak louder. The third proposal is to hold an advisory nonbinding vote regarding the compensation of our named executives. The affirmative vote of the holders of a majority of the votes cast affirmatively or negatively at the meeting is required to approve this proposal. Is there any discussion on this proposal? If not, then a motion calling for a vote on this proposal will now be received. I recognize, Joe Krawczyk.

My name is Joe Krawczyk. I move for the adoption of the following resolution: Resolved, to approve on an advisory nonbinding basis the compensation of named executives.

Mathew Bunker?

I second the motion.

The polls are now open for voting on the proposals before the meeting. The time and date of opening of the polls is 9:07 a.m. today, August 19, 2025. Macy, please collect the ballots of those stockholders who wish to vote in person. If you have a ballot, please raise your hand so that we can collect them. [Voting]

The polls are now closed. The time and date of closing of the polls is 9:08 a.m. today, August 19, 2025. Will the Inspector of Elections, please announce the vote?

With regard to Proposal 1, the election of the Microchip Board of Directors, I hereby declare that all the nominees are duly elected as directors of the company to serve for the ensuing year until their successors are elected and qualified. With regard to Proposal 2, to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of Microchip for the fiscal year ending March 31, 2026, I hereby declare the proposal has been approved. With regard to proposal 3, an advisory nonbinding vote regarding the compensation of Microchip's named executives, I hereby declare that the compensation of the named executive officers has not been approved by nonbinding advisory vote.

At this time, I recognize Karen Rapp.

My name is Karen Rapp. I'm a member of the Microchip Board -- and Board of Directors and Chair of the Compensation Committee of the Board. As the inspector of election just reported, the shareholders did not approve the advisory, nonbinding proposal regarding the compensation of Microchip's executive officers. In the prior 14 years, our shareholders approved the say-on-pay vote with an average vote of over 92%. So we're disappointed that the proposal is not approved this year. Since the proposal is nonbinding and advisory, it will not impact the compensation of Microchip's executive officers. However, the Compensation Committee and the Board will consider the outcome of the vote in evaluating executive compensation in the future. This year, we received feedback from proxy advisory firms and certain shareholders that they do not support time-based RSU grants to interim CEO, and this is the key reason that they voted against the say-on-pay vote. They felt that the RSU awards granted to Steve Sanghi, after he was appointed as Interim CEO, should have been at least partially performance-based instead of time based. This onetime award vested quarterly over the 2-year period from February 2026 through February 2028, and was approved by the Compensation Committee after considering other mechanisms. The Board and the Compensation Committee felt that Mr. Sanghi was uniquely positioned to provide leadership transitions and to minimize disruptions to the company's operations and strategic initiative. Upon Mr. Sanghi being appointed as a permanent CEO in July of 2025. The Compensation Committee approved an RSU award for Mr. Sanghi that was 60% performance based and 40% time based and vested quarterly over the period of May 2028 through August 2029. The performance metric is based on Microchip's cumulative non-GAAP operating margin over a period of 12 quarters ending June 30, 2028. There is overlap of vesting of the interim awards grant and the award associated with the appointment as permanent CEO. The other Microchip executives were granted RSU awards in July 2025. That is the same performance metric and were 50% performance-based and 50% time based. Thank you for your continued support of Microchip.

This concludes the formal portion of our meeting. Before I adjourn the meeting, is there any further business? If not, I will entertain a motion to adjourn. Mathew Bunker?

I move that the meeting be adjourned.

Eric Bjornholt?

I second the motion.

All in favor say, aye. [Voting]

Opposed say no? [Voting]

The meeting is adjourned. Please stay seated. At this time, we will hold a question and answer period. If you have a question, please raise your hand. For you to be recognized, please state your name, your relationship with the company and then your question, and your relationship with the company, state that you are stockholder, you are an employee or whatever the relationship you have and then please ask the question.

[ Chu Wong ] I am a shareholder, [indiscernible] cash flow. Can you comment on that?

Sure. For the last several quarters, going back more than a year, as Microchip profit fell significantly during the prolonged industry correction, Microchip did not produce enough free cash flow to pay dividend. And therefore, during that time, we had to borrow money each quarter to make the shortfall in the cash flow [indiscernible]. Microchip will cut its dividend like some of the other companies have done at similar time. But Microchip made a commitment that we will not cut the dividend. Instead, we built up the balance sheet by raising $1.45 billion of a mandatory convertible transaction, which is an equity-like instrument in February of this year. And with that, we brought our debt leverage down. And we also said based on improvement in the business during the last quarter, which was a very good quarter, that the September quarter will be the last quarter we need to borrow a small amount of money to pay dividends. After September quarter our profit will recover enough to [indiscernible]. Did that answer your question. Thank you very much, this meeting is adjourned.

Thank you, ladies and gentlemen, for your participation in today's call. This does conclude the program. You may now disconnect. Good day.