Q4 2019 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please can shouldn't you just standby and thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by welcome to monolithic power systems fourth quarter 2019 earnings conference call. At this time, all participants' lines journalists only mode. After the speakers presentation, there will be a question and answer session.
To ask a question during this session you would need to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you acquire any further sisters, Please press star zero.
I would now like Kinda conference over to your speaker today monolithic CFO Bernie Blegen. Please go ahead Sir.
Thank you very much.
Good afternoon, and welcome to the fourth quarter 2019, monolithic power systems Conference calls.
Right today by Michael thing on electronics, CEO and founder.
And of course of today's conference calls, we will make forward looking statements and projections and involve risks and uncertainties, which could cause results to differ materially from management's current views and expectations.
Please refer to the Safe Harbor statement contained in the earnings release published today.
Uncertainties and other factors that could cause actual results to differ or identified in the safe Harbor statements contained in the Q4 earnings release and in our S.P.C. filings, including our form 10-K filed on March 1st 2019.
And form 10-Q filed on November 1st 2019, both of which are accessible through our website.
You W. W God monolithic power Dot com.
M.P.S. assumes no obligation to update the information provided on today's call.
We'll be discussing gross margin operating expense R&D and that's generic sense operating income interest and other income net income and earnings on both a gap sounding non-GAAP basis.
These non-GAAP financial measures are not prepared in accordance with gap.
And should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with go.
The table that outlines the reconciliation between the non-GAAP financial measures to GAAP financial measures is included in our earnings release, which we are filed with the FCC.
I would refer investors to the Q4 2018.
Q3, 2019, and two for 2018 earnings releases as well as to reconciling tables that are posted on our website.
I'd also like to remind you that today's conference call is being webcast live over the Internet and will be available for replay on our website for one year along with the earnings release filed with the FCC earlier today.
For the full year 2019, M.P.S. achieved record revenue of $627.9 million, 47.8% from the prior year, well arc industry segments experienced a significant downturn.
As always we executed our strategy is consistently.
In recent years, especially in 2019.
More and more first tier companies recognized MTS is superior technologies as well as our product quality excellent customer support.
We see a lot more high quality growth opportunities ahead of us.
Our objective is to successfully manage our expenses to support our growth, which will in turn benefit our shareholders in both the long and short term.
Here are few highlights, which we achieved in 2019.
Introduced.
Leading edge system solutions, using Qs Mod technologies for GPU based artificial intelligence and machine learning application.
Introduced 48 volt Qs Mod technology for both cloud based and automotive applications.
Well that design wins in Qs Mod and eight high application MPS is at the early stage this important revenue ramp.
One of the major contract to support a tier one automotive supplier, which will begin generating revenue in the next two to three years.
Successfully co developed cutting edge solutions for smart driving systems and lighting applications.
Began volume shipments hi, Chris programmable power modules for communication application such as Fiveg networks.
Entered the high performance analog market with the formation of a high precision data acquisition business group.
With input from our customers we've completed the detailed product specifications.
We expect to release these products in 2020.
The initial revenue ramp is expected to begin in 2021.
The rollout of these advanced products will Mark MPS is introduction it was a highly profitable high speed precision data acquisition market segment.
We understand the road to success may not be smooth. However, we believe our commitment will pay off in the long term and our shareholders will be please with the middle of these efforts in the coming years.
Let's go through go like what we really don't have any fix if there is one item worth pointing out.
We deliberately reduce our inventory in Q3 in Q4 2019, which in hindsight is not necessary.
As a result, our current inventory level is too low for M.P.S. to maximize our growth in the next few months.
Although we can still keep up our growth rate as in the past. We unfortunately may not be able to take full advantage of all the potential upsides.
In order fill customers demand in the second half 2020, we now have to connect tremendous effort in order to accelerate our schedule to bring up second 12 inch fab. This is created and I know, it's very hard chip for our teams.
Turning back to our full year 2019 revenue by market segment compared to 2018.
Communications revenue up 28.1% computing and storage up 18.9%.
Automotive up 12.8% and industrial up 12.3%.
Similar revenue was down 10.8%.
Full year, 2019 computing and storage revenue grew $30.1 million over the prior year $289.2 million.
18.9% increase primarily resulting from strong sales growth for cloud computing and high end notebooks.
Computing and storage revenue represented 30.1% of MTS is total revenue in 2019 compared with 27.3% in 2018.
Communications revenue grew $14.2 million $84.8 million. This improvement was primarily due to initial ramping fiveg infrastructure sales.
Communications revenue represented 13.5% of our 2019 revenue compared with 12.1% in 2018.
Automotive revenue grew $10.2 million to $90.3 million in 2019.
This growth primarily represented increased sales and infotainment.
Safety and connected connectivity application products.
Automotive revenue represented 14.4% of MPS is full year 2019 revenue compared with 13.8% in 2018.
Industrial revenue grew $10.9 million to $99.4 million in 2019.
This growth reflected sales for applications in power sources security and industrial meters.
Industrial revenue represented 15.8% of MPS is full year 2019 revenue compared with 15.2% in 2018.
Consumer revenue.
Fell $19.9 million to $164.2 million.
With the exception of home appliances, and Wearables, all major consumer markets decrease between years.
Consumer revenue represented 26.2% of MPS is full year 2019 revenue compared with 31.6% in 2018.
Switching to Q4.
Yeah. He has had a record fourth quarter with revenue of $166.7 billion, 1.2% lower than revenue generated in the third quarter, 2019, but 8.6% higher than the comparable quarter of 2018.
Market segment revenue for the computing and storage grew 27.8% year over year.
Automotive grew 8.6% and communications grew 8.5% in.
Industrial was essentially even with Q4 2018 or consumer revenue fell 5.7% from prior year.
Fourth quarter 2019, GAAP gross margin was 55.1% 10 basis points lower than third quarter 2019, but even with margin reported in the fourth quarter of 2018.
Our GAAP operating income was $30.7 million compared to $30.0 million reported in third quarter, 2019, and $33.1 million reported in the fourth quarter of 2018.
Fourth quarter 2019, non-GAAP gross margin was 55.5% 10 basis points lower then go to the third quarter 2019, yeah on the fourth quarter of 2018.
Our non-GAAP operating income was $50.8 million compared to $51.4 million reported in the prior quarter.
And $46.6 million reported in the fourth quarter of 2018.
Let's review, our operating expenses, our GAAP operating expenses were $61.2 million in the fourth quarter compared to $63.1 million in the third quarter 2019, and $51.5 million in the fourth quarter 2018.
Our non-GAAP fourth quarter 2019, operating expenses were $41.8 million down from the $42.5 million. We spent in the third quarter of 2019, but up from the $38.7 million reported in the fourth quarter of 2018.
On both the gap.
Non-GAAP basis fourth quarter, 2019 litigation expenses for $991000 compared with the 692000 dollar expense.
In Q3, 2019, and a 409000 dollar expense in Q4 2018.
The differences between GAAP and non-GAAP operating expenses.
For the quarters discussed here our stock compensation.
Our stock compensation and income or loss from an unfunded deferred comp plan.
Fourth quarter, 2019 stock compensation expense, including $574000 charged to cost of goods sold was $18.7 million compared with $21.3 million recorded in third quarter of 2019.
Switching to the bottom line fourth quarter 2019, GAAP net income was $32.4 million were 70 cents per fully diluted share compared with 64 cents per share in the third quarter 2019, and 61 cents per share in the fourth quarter of 2018.
Q4.
2019, non-GAAP net income was $48.4 million or one dollar and four cents per fully diluted share compared with $1.08 per share in the third quarter 2019, and 99 cents per share in the fourth quarter of 2018.
Fully diluted shares outstanding at the end of Q4 2018 to 46.5 million.
Now, let's look at the balance sheet.
As of December 31st 2019, cash cash equivalents and investments totaled $458.5 million compared to 422.0 millions dollars at the ended the third quarter of 2019.
For the quarter MPS generated operating cash flow of about $61.1 million compared with Q3, 2019 operating cash flow of $72.4 million.
Fourth quarter, 2019 capital spending totaled $8.7 million.
Accounts receivable ended the fourth quarter 2018 at $52.7 million or 29 days sales outstanding compared with the $58.3 million for 31 days reported at the ended the third quarter 2019, and the $55.2 million were 33 days report.
In the fourth quarter of 2018.
Our internal inventories at the end to the fourth quarter 2019, or $127.5 million down from the hundred $35.6 million at the end of the third quarter 2019.
Days of inventories fell 255 days at the end of Q4 2019 from 163 days at the end of third quarter of 2019.
Before turning to our outlook for Q1, 2020, I would like to remind everybody of our long term non-GAAP financial model, which has been largely unchanged for the past five years.
First.
We target to grow revenue at a rate fitness 10 to 15 percentage points greater than our peers.
Here are the market is expected to grow between five to eight percentage points. We believed it MPS should be able to grow annual revenue from 15% to 20%.
Second.
We target quarterly gross margin to grow by 10 to 20 basis points sequentially.
Third to ensure continued growth we target increases in our RMB and SGN AIGH investment.
50% to 60% of the annual revenue growth rate.
Finally, we expect to return, 30% to 40% accompanies annual free cash flow to shareholders.
This long term financial model is an important tool in setting expectations for accelerated revenue growth and providing operating leverage while allowing for a proper level of business reinvestment.
I would now like to turn to our Q1 2020 outlook.
We are forecasting Q1 2020 revenue in the range of $161 million to $167 million. We also expect the following.
GAAP gross margin in the range of 55.1% to 55.7%.
Non-GAAP gross margin in the range of 55.42, 56.0%.
Total stock based compensation expense of $18 million to $20 million, including approximately $600000 that we'd be charged to cost of goods sold.
GAAP R&D and SGN expenses between 58.4 and $62.4 million.
Non-GAAP R&D and SDMA expenses to be in the range of $41.0 million to $43.8 million.
This estimate excludes stock compensation and litigation expenses.
Litigation expenses to be in the range of $1.5 million to $2.5 million as MPS prepares for upcoming trial, which is set to begin at the end of March.
Interest income is expected in the range to range from $1.5 million to $1.7 million before foreign exchange gains or losses.
Fully diluted shares to be in the range of 46.2 to 47.2 million shares.
Finally, we were pleased to announce a 25% increasing or a quarterly dividend just 50 cents per share from 40 cents per share for shareholders of record as of March 31 2020.
In conclusion, we will continue executing on our strategy and winning market share.
Well now open the phone lines for questions.
Thank you as a reminder, if you'd like to ask a question press star one on your telephone.
Your question press the pound key.
And our first question comes from Jeremy.
Stifel Nicholas your line is open.
Yes, good afternoon, and congrats on the strong results and outlook, especially in a challenging environment.
I guess my first question regarding it you mentioned.
About not having sufficient inventory on hand to meet all the immediate demand you're seeing zero. When you can kind of quantify what's kind of being left on the table and and is there a chance to capture this maybe later on in the coming quarters.
All these products we just the.
He is on a neat and all customers have a hub.
Upside.
The many of us up many of them they told us so.
We believe is okay. These are deemed sockets are difficult to change and.
No change.
Can't change.
Bob.
And.
Those volumes still will be.
Yeah, we're not trying to identify the risk factor with regard to our ability to execute against expectations. We're just saying that you would be in prudent for us to allow our investors to believed that there is even more upside beyond that because we may.
I have some constraints with regard to inventory, yes, I'll tell you went to lead the way evolved a few thousand partner.
And a very difficult to predict which was the <unk>.
Which ones are when most.
And.
Not that causes a lot of a lot of problems fall planning and also fall fall fall shipments went now do you Paul shooting.
Great. Thank you very much that's that's helpful clarity.
And I guess my a follow up would be.
Burning you mentioned entering the high performance analog market with it you know the high precision did acquisition group can you give us more details about this maybe.
Sure Michael maybe what initial application is going to go after first and how you plan to compete in this market and maybe your sales strategies do you need more distribution partners or is this something that you can leverage your E commerce platform.
<unk>.
The initial one other thing or do you use the initial lucky segment data communications and as well as a as well as a medical applications and.
We don't want to though we don't have a long since <unk> launch in strategies I think it's a little while Ethernet slowly.
E Commerce E Commerce and.
We're trying to push everything so soon so E commerce.
Great. Thank you very much.
Thank you next question comes from Alexandra, reaching with William Blair. Your line is open.
Great. Thanks, congratulations on a wonderful quarter.
Just on 40 volt, you talked about the new product introductions and 29 team and I believe you guys said on the last earnings call that you'd be seeing some revenue in Q1 can you just update us on that and how we should think about the total revenue opportunity there as we look into 2020 and 2021.
Yeah, I don't think that Ah, we guided per se on giving an exact revenue outlook for Q1 with beginning a 48 volt.
But we said that it would be in 2020 and right now it's a everything is tracking a pretty much longer expectations.
So what's really exciting is that I think that it validates our strategy to have gone into 48 volt and to enjoy didn't participate in many of the opportunities that are brings us.
Okay. That's helpful and then I apologize if I missed it the Bernie did you give us a little bit of clarity in terms of by segment in Q1, what segments leave you thought would be the strongest sequentially.
Yeah again, you know I think the broader question. There is the you know.
What's gonna be what are the revenue drivers looking like and at this point I think it's a continuation of more of what we've been seen recently so for example.
The compute and storage market is it could very well positioned for growth.
In the early part of the year.
Likewise communication.
We believe that a there's also any significant opportunity.
The growth, particularly in Q1, when you look at Oh, I should make one one outstrip on computing notebooks, which are we reporting computing or seasonal and coming out of Q4. They tend to have a C C.
No decline, which we are anticipating as well, but when you look at a storage or cloud computing.
I think that there were very well position.
And then after that if you look at a consumer again, that's still has not a hit a steady state or you know showing any signs of being healthy and again consumer is also very seasonal and normal to expected decline from Q4 two Q.
One and then when you look at industrial a lot of that was a revenue performance, particularly in the second half of the year.
Reflected inventory builds upon the part of certain of our customers who were anticipating a trade restrictions and so that area may fall off in Q.
Automotive a that tends to go.
Either on the plateau well when it gets designed in the new revenue opportunity is the spike.
Okay.
Just on automotive some in some other semiconductor companies have alluded to sort of a bottoming out improvement there.
Are you seeing a similar situation I am I know it depends on what model your designed into and whatnot, but do you feel like the worst is behind you.
I think a we are too too small to call the industrial.
Well growing total all these a greenfield markets and I am, though and that though the leasing the we said a different the end of the wood Oh. This is the beginning.
It's a beginning in the world for ATM.
Understood. That's it for me. Thank you so much thanks Alex.
Thank you. Our next question comes from Michel Waller with Needham Your line is open.
Hi, guys. Thanks for taking my question congrats on that.
So I guess.
The next generation gaming.
Welcome.
That's right.
The only about <unk>.
Or.
Tickets.
Thank you.
From a gross margin perspective.
Should we think about that.
Corporate gross margin.
You are you talking about the gave me, particularly.
Yeah.
Typically.
Gaming is a zero eight.
Not a major part of our our business and are not even though it's all lumped into the into the Oh one product.
Lehman isn't a consumer.
And.
It is the NIM in the into share similar.
If you coal power.
And so the business is very lumpy Tonight and but.
We we treat disability opportunities there and.
Our customizable, we like so Oh, our solutions and that will will support them up.
When the when the demands Hum.
Yeah, we would probably expect to see a similar ramped as we did in 2017.
That's that's helpful.
For my follow up you had mentioned.
Your dollar content.
Uh huh.
Server platform.
Yeah.
$70.
That's really what's one.
I'm just trying to figure out I know this is a bit further off but equally.
That's expected to launch in 2021, how do you guys see your dollar content.
Changing generation or generation or just any color you can get there would be helpful.
On the dollar content, we got we haven't.
Seen an opportunity to do expand beyond.
We currently are your are getting on the be 14.
But then again the specs are not entirely finalized so if it turns out that the space or the power requirements.
Or.
Materially different from what are the 14 as a there might be an opportunity for pricing leverage.
Okay.
Thank you.
Yes.
Thank you.
Thank you and our next question comes from Matt Ramsay with Cowen Your line is open.
Hey, guys. This is Josh I'll call. It there on behalf of Matt. Thanks for taking my questions and congrats on the results in a tough environment.
Oh I guess the first question was.
If you think about your inventory commentary from last quarter are there any you know couple items in particular that you could point to that drove the change in your thought process from Threeq to Fourq you and then also is there any margin impact from bringing on the new 12 inch fab and you're sort of what sounds like capacity constraints.
Well you're talking about.
Margins then if you look 12, each fabs, okay. When we find that would bring up with that but did not.
We won't have the immediate impact to pool for the Magee Kumon all easily fund.
<unk> product and then from the new Fabs always the a yield to two years down the road.
We in terms of a which segment, although although we will we all want or even totally.
Right, Okay, it's actually across the board.
Got it thank you and I guess in the beginning of the call you mentioned in several tier one companies <unk> launching with your design wins were there any you know I guess, if you would rank order one or two that you're most excited about heading into 2020. Thank you didn't congrats again.
Even though we said at a blended set of that or the beginning of a call. Some updated these off season a deep.
There's a few things that we achieved the than me in a into 2019 sitting up and will.
All of the diesel will generate significant revenue eating 18 2020, yeah, it's not restricted to any one end market segment, it's actually very broad based to the level of the.
Customer engagement that we receiving from tier ones.
Thanks, guys.
Thank you and our next question comes from Rick Schafer with Oppenheimer. Your line is open.
Hi, guys I'll Echo everyone else's congratulations on another another bottle at the quarter mother up another great quarter. So good job I just set up maybe a question.
Oh Corona virus or.
It's the topic is your you guys have three of your for production boundaries.
China. So I'm just curious Michael Liberty, if it gets you're seeing any signs of some supply disruption or do you expect to see any signs you know wants guys just start coming back to work next week.
On the spot, but falls, the we know they'll all open.
Now all operating and you know really tight.
Conditions, Okay and.
All the assembly same thing so lucky and so so far.
No really doesn't disrupt and I'll Oh supply.
And again right. It's very early stage, two really fully appreciate or understand how any of our businesses will be impacted.
Sure sure I understand.
So maybe a follow up if I could just on your auto builds I know you guys secured one of the I think the number one tier one auto.
Fire a few months ago.
I'm.
Just curious where we stand on securing.
The number two tier one auto supplier you know and as part of your answer I'm curious I mean from after you sign number one.
Have you seen the too soon to have seen any noticeable uptick and you end up design activity.
And maybe also just.
A comment on China in General I do so I'd be interested I know that it was kind of a slow year, Oh for China auto basically cancelled, but design here I think last year, a bottle year I'm curious you know kind of work.
Your expectations are for China, This year, what you're seeing like.
Well, okay, but oh, everybody to watch lucky to all those will not be a good years, so much but.
MPS side, so much well looking pretty good enough for 2000 Pony and.
All these the number one number two number three of them. All so no. We are deeply engaged in that we see all the activities.
That week he.
The more than the we can't handle and now we'd have to pick and choose.
Got it thanks Michael.
Thank you and our next question comes from Ross Seymore with Deutsche Bank. Your line is okay.
Hi, guys. A this is loss on behalf of Ross cancellations on there really solid criteria.
I know you guys don't guide out more than one quarter, but after my high level perspective, now that we're coming out of this industry downturn what are your expectations for returning to either she's at all or even above seasonal growth is it moderated by what are your inventory can change.
How are you thinking about the flip but their coverage from here.
Well you called the industrial good although the downturn when it came in.
You said, it's a Bernie eat <unk> Britney said earlier, so we will grow above the industrial market I can't put us whats the often enough about 10 15, 20%.
So we committed on that.
Okay, Great and then.
Does the and then the inventory can change is that kind of restricting sac growth prospect or do you think you can still kind of hit that target.
We tried to and a it's the we couldn't have the as it was said earlier, we cannot maximize the because.
Our customer Paline those Uh huh.
I'm pulling though we find something and so we have to keep it up on line up and whenever possible ship them and.
Absolutely I <unk> O inventory that is even in the very low stage.
Got it and then the last one for me is your computing and storage segment kind of thing driving really strong gross and I was just curious when you look into 2020, how are you thinking about the shape of that business and.
In particular, you are you worried about any risk of inventory digestion of wont be buying or do you think that it's really strong secular growth and that's driving that the strength.
Yeah. When you look at a 2019 I think that first half of the year was an anomaly where are the hyperscale toward trying to digest access.
You know capacity.
And so I would see you know with the be 14 haven't been just recently rolled out.
A return to a more normalized adoption process.
Okay, great. Thank you guys.
Thank you as a reminder, she would like to ask a question press star one on your Touchtone telephone.
Next question comes from.
<unk> send Burke with Stifel. Your line is open.
Yes, Thank you and.
Congratulations again are very very nice results.
First question on on inventory been type I mean, you're a ton of 56 days.
So you know how how tight business I mean, I know you want to run a little bit higher than that but it doesn't seem alarming he'll know either so.
Maybe you could just elaborate a little bit on that.
I think.
We're at a 155 days right now and if you were to look at sort of the industry standards. You know, we're probably in about a the midpoint range of what what people might expect.
There's two things, though the differentiate us.
The first is the diversity of the number products that we maintain and then the second is that we build inventories ahead of when we sell them and as a result, because were growing at a rate that is 10 to 15 percentage points faster than the industry that puts more pressure on us to have more inventory available.
And then earlier stage so it's as much a risk management decision with that level, we carry and I think that we've said previously that we're more comfortable with inventory levels between about hundred 60 980 days.
For the.
I haven't.
Company, even totally yes, there's a very predictable.
For the girls company and the we have a particular for MPS, we have Uh huh.
No thousands will have a hunters.
Roger and that they are picking off.
Some of the softer other one of the slowest how do we picked on those very difficult to cool.
Well, it's a it's a good good problem to have a sick second question and I always ask.
Michael if you could give us an update on your ecommerce business. We noticed that you know the website keep keeps changing so you could update on the biggest thanks.
Oh, the ecommerce site it other than the NPS the website E com most of the.
No.
<unk>.
Well, no new phone that olin's, okay, but our product to sell to the same park.
Hey, part D E Commerce is doing really well and [laughter] and so.
As a result of much named as a result of a learning and though we changing you see that you'll see no Oh, Oh, well web sites and then.
So so far we can't give you the significant nimble yet okay, but so up a few of them to 2000 and another two asylum plenty I think they will move some meetings.
Right. So at least you're now seeing that the the traffic really moving into right direction sounds like yes, the kids.
But yeah, the keys or tropics a weekend.
I can give you <unk> and allergies or not we we believe I came up a year ago. We we believe that bucket and then there's a lot of fishing up in the Pacific Ocean. So we got the fishing in the Middle <unk> Pacific Ocean, We didn't come later [laughter].
Well, we issue what kind of fish aware omni.
Well not longmont positive.
While we wait so what we haven't gone through that base, okay, well not long wall plug it in mouth.
Very good Nick Nick So you have enough bait last last question on the emotion business. If you could also update US there, including obviously you know your your system level motor products.
Yes.
So the the model is intended to just the not selling a modems navigate and not you tend to provide as opposed to write a convenient fall for our customers for their initial rent so nothing we.
Those businesses.
The very beginning said that goes to <unk>. So we see quite a few orders from a fall our internet and then the then no.
Typically those customers are going very similar.
You bet that yep projects, it takes a year and the other half and.
True to where it's not like mis selling of silicon pieces that game and ER and Oh, usually a multiples you guys. It takes about three or four years and.
In terms of an E.E.
He machines, we have Ah I don't know what the.
Tony maybe you can say to indicate.
Tony something million dollar. So this is a more than 20, Lafayette 20, something really bonus.
This year as a way you're going to keep up a seamless similar gross wage I'm not giving me and.
So would be assuming you would be a 30 or $40 million, okay and think that we're comfortable in saying that it can be a 30 or 40 million dollar business here in the next few years I think though that Michael makes a very good point as far as the length of time between adoption and when you actually.
We generate revenue many of those applications Oh, let's have characteristics similar to automotive.
Very good congratulations again.
Thank you.
Thank you and I'm showing no further questions at this time I'd like to turn call back to Bernie Blegen for any closing remarks.
Thank you I'd like to thank you all for joining US for this conference call and look forward to take I'm talking to again during our first quarter 2020 conference call, which will likely be in April. Thank you and have a nice day.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect everyone have a great day.
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