Q1 2020 Earnings Call
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Participants arent in listen only mode at the conclusion of today's conference call instructions will be given for the question didn't answer session.
If anyone needs for systems at anytime during this conference call. Please press the star key followed by the zero on your Touchtone phone as a reminder, this conference is being recorded today Wednesday may six 2020, I would now like call over to Leanne Sievers of Shelton Group Investor Relations.
Please go ahead.
Good afternoon, and welcome to side Times first quarter 2020 financial results conference call on the call from side time or was just pushy, Chief Executive Officer, and Art Chadwick Chief Financial Officer before we begin I'd like to point out that during the course of this call. The company may wouldn't make forward looking statements regarding expected future results, including financial.
Position strategy and plans future operations, the timing market the impact of Cobot 19, the company's outlook and guidance as well as other areas of discussion. It is not possible for the company's management to predict all risk nor can the company assess the impact of all sectors on its business, where the extent, which any factor or combination of factors.
May cause actual results to differ materially from those contained in any forward looking statements in light of these risks uncertainties and assumptions. The forward looking events discussed during this call may not occur and actual results may differ materially and adversely from those anticipated are applied neither the company nor any other person the state's responsibility for the accuracy.
And completeness of the forward looking statements.
The company undertakes no obligation to publicly update forward looking statements for any reason after the date of this call to conform these statements to actual results or to changes in the company's expectations.
More detailed information on risks associated with our business, where you're free to the risk factors described in our 10-K filing which we filed with the C. C. On March 2nd 2020 also during this call we will refer to certain non-GAAP financial measures, which we consider to be an important measures. The company performance. These non-GAAP financial measures are provided in addition to and not.
As a substitute for or superior to measures of financial performance prepared in accordance with U.S. gap. The only difference between GAAP and non-GAAP results stock based compensation expense, but please refer to the press release issued today for a detailed reconciliation between GAAP and non-GAAP financial results and outlook to turn the call over to Virginia. Please go ahead.
Thank you Dan good afternoon, and thank you everyone for joining us.
Today's call.
Especially in what has become an unprecedented dying for the world.
Reback recapping, what first quarter, two we delivered solid results with both revenue and yes.
Well above our original guidance revenue of 21.7 million.
It could be expected seasonality of the mobile I too because you want markets, while achieving year over year growth of 47%.
Turning to Housewives I'm is doing.
And the Colgate 19th endemic our actions as you can imagine, having focus and the safety and well being up employees worldwide.
But we've also successfully transitioned to working from home with high productivity and morality all functional groups.
Our customer interaction because he used to be strong, especially in China in North America with good design win activity.
Our success an ability to effectively operate in this new virtue of environment is a testament to the strength of a team markets and our products and.
And finally, it is a testament to the value we bring to our customers as they continue to choose site time for the challenging timing problems.
On supply.
Our multisource strategy has proven effective in maintaining product shipments our suppliers are operating with no major delays. However that situation as you can imagine can change during these uncertain times.
[noise] watch trends, which is the diversity of for timing and market segments customers and products has benefited us in this challenging environment.
Size I'm 65 products have been designed into 200 applications across communications enterprise mobile I have to consumer and industrial auto Aero and defense markets.
Additionally, we serve over 10000 customers that have chosen flight time to solve their complex sudden problems in industry, leading to the cone.
I'm happy to note that we're making excellent progress and becoming a trusted advisor in planning to our customers.
Even while working from home, we're reaching their customers in many ways ranging from one on one meetings to technically webinars during which we are able to help them design better products with our technical expertise.
This approach continues to result in design.
As examples at the tier one customer high performance computing.
Hi done with selected because we were 60% smaller and the most resilient to vibration.
As another tier one customer of data center equipment.
Onetime device integrated the complete block three increasing system performance in both these cases sites and was able to displace entrenched competitor and because of the additional value that we provide.
On the technology front, we continue to establish a leadership position of the timing industry to a unique expertise in Mems mixed signal and analog and system level integration.
Over the past 15 years, we have developed and have ships through generations of Mems resin makers that are currently in use in our oscillators today I'm pleased to reveal that I've heard generation Mems resonator, which have up to two times better stability now ready.
We have now samples oscillator that use these resonate occurs and have up to 10 times better phase noise simultaneously, reducing power by up to seven times.
These are dramatic improvements and these dramatic improvements built on our history of delivering significant performance enhancements in every generation of the resume theres a few produce.
Combined with our other advantages advantages such as environmental recipients size and so on we're building a new unique classic products that delivers high value.
[noise], India, India Communications and enterprise, we continue to get strong design wins with a 12 elite and Emerald family of products.
Particularly excited with the breadth of design wins in Fiveg one of the most prominent growth areas for our business. Currently we are designed into 10 different fiveg applications, including radios and testing business.
At the tier one supplier to fiveg or are you.
Motivated you units, we are the preferred provider of timing on that 11 design wins worldwide.
We've also designed into multiple mobile edge computing applications, which is the growth area.
Customers worldwide.
In all five she continues to be a focus area for site time, and you're well positioned to grow our business in this market in 2021 and successive years.
In summary, I'm pleased with a continued progress in our new product and design win activity for future growth. We believe that a focus on high value applications and products allows us to deliver high growth and predictable revenue.
Though there was uncertainty.
Especially in consumer customer demand in the consumer I O T mobile segment.
I believe we're well positioned to navigate this challenging environment with over 71 million in cash and an established leadership position and timing.
And then closely engaged with customers and continuing to innovate at a fosters it'd be disrupt the 8 billion dollar timing market with a leading silicon men solutions.
With that I'd like to turn the call of art to discuss financial results for the first quarter and our outlook for the second quarter.
For the New York.
Great. Thanks for Josh and good afternoon, everyone. We are very pleased to be holding our second financial results conference call as a public company.
During my review today, I will discuss Q1 2020 financial results and we will provide guidance for the second quarter.
I'll focus my discussion on non-GAAP financial results and refer you to today's press release for a detailed description of our GAAP results as well as a reconciliation of GAAP to non-GAAP results.
First of all Q1 was an excellent quarter for us revenue was $21.7 million above our guidance range for the quarter.
This was down 23% sequentially, reflecting the expected seasonality in our business.
But it was up 47% over the same quarter a year ago.
To provide some color on revenue by end market I'll review, our three major market groupies as I did last quarter.
First is mobile aiotv and consumer which consist primarily of sales into mobile phones wearable devices and consumer products.
Sales in Q1 were $11.9 million or 55% of sales down from 18.6 million or 66% of sales in Q4.
Reflecting typical seasonality for these markets in the first quarter of the year.
Next is industrial auto and aerospace, which goes into industrial applications automotive aerospace and military applications and broad based sales.
Sales in Q1 were 5.5 million or 25% of sales up from 5.3 million or 19% of sales in Q4.
And third is communications and enterprise, which consists of wireless infrastructure, including Fiveg datacenter and networking sales in Q1 were 4.4 million or 20% of sales up from 4.2 million or 15% of sales in Q4.
We had only one customer in Q1 were sales exceeded 10% in sales to that customer were 34% of sales.
Non-GAAP gross margins for the quarter were 46.1%.
Non-GAAP operating expenses were $11.9 million or 55% of sales almost evenly split between R&D and that's DNA expenses.
This was higher than in Q4 due to beginning of the year FICA taxes, a full quarter of cost related to being a public company and select new hires.
The non-GAAP operating loss was $1.9 million.
Net interest and other expense was zero point $2 million has generated a non-GAAP net loss of 2.1 million.
Or 14 cents per share.
Stock based compensation expense and related payroll taxes were $3.0 million.
Which are excluded from our non-GAAP results.
Accounts receivable were $15.8 million down from 17.7 million in Q4 with Dsos of 65 days inventory was 14.2 million up from 11.9 million in Q4, as we built some inventory to protect against potential supply chain disruptions.
Resulting from the cold in 19 pandemic.
In regards to cash we generated $2.0 million and cash from operations.
And you 3.2 million for the purchase of assets and taxes paid on RSU grants.
Out of an abundance of caution given the current global contraction. We also drew down on a revolving line of credit to ensure increased liquidity during these unusual times.
We do $9 million, which increased our debt from 41 million at the end of Q4 to 50 million at the end of Q1.
Our intention is to maintain this approximate level of debt until it's clear the economy is on an upward trend and then pay down some of our debt accordingly.
As a result, we ended the quarter was $71.3 million in cash and equivalents.
I'd now like to grow that provide some guidance for the second quarter of 2020.
Prior to the coal that 19 crisis, we would have expected sales in Q2 to be up from Q1.
But unfortunately, the current economic contraction, we'll have some impact on Q2 revenue.
Some of our markets are holding up well, but others are being impacted.
We believe revenue in the second quarter will be down between 7% and 13% sequentially.
To between 18.9 million and 20.2 million.
With the midpoint of 19.6 million.
I would however, like to point out that at that midpoint.
Sales would be 24% higher than the same quarter last year.
And that's during this global contraction, which we think clearly shows the strength of our growth story.
I would now like to provide some further color on our various markets.
We're seeing strength and communications and enterprise, especially Fiveg and datacenter driven by increased demand from new product ramps in wireless server and networking.
We expect sales into these markets will increase.
5% to 10% sequentially.
In the industrial auto in aerospace markets with a number of moving parts, but they're all generally positive.
Broad based industrial appears to be holding up well and we expect sales to increase sequentially.
Although the automotive market is a smaller portion of our business, we bring unique value to this market and new programs are driving increased sales.
And it's a similar story for aerospace, we're also seeing increasing sales.
Overall, we believe sales into our industrial auto and aerospace market segment will increase 5% to 10% sequentially.
Same type of gross as with comes in enterprise.
[noise] markets most affected this quarter, our mobile aiotv and consumer markets, which is not surprising since so many people are sheltered at home and retail stores are closed.
It's difficult to know exactly how significant the impact will be since it is somewhat dependent and how quickly shelter in place restrictions or relapsed and how quickly consumer spend again.
Our Q2 outlook for this segment is based on orders already booked by our customers.
As well as recent forecast, we see directly from our customers.
Needless to say those forecasts could change as the quarter progresses.
However, based on our current data points, we believe sales into our mobile Aiotv and consumer segment will be down somewhere between 20 and 30% sequentially.
Gross margins are expected to be relatively flat with Q1, and though we expect an improved product mix. This will likely be offset by the lower overall revenue.
We are managing operating expenses closely we have temporarily slowed hiring and are aggressively managing discretionary expenses second quarter non-GAAP operating expenses are expected to be relatively flat with the first quarter, so somewhere between 11.8 million and $12.0 million.
Q2 interest expense would be approximately $400000 an increase over Q1 due to the higher debt level Q2 share count will be approximately 15.2 million shares.
Stock based compensation expense will be approximately $3.1 million, an income taxes will be nominal.
For the balance sheet, we're planning a modest increase in inventory in order to build a bit more buffer in the event of any supply chain disruptions.
[noise] based on this guidance, we expect Q2, non-GAAP EPS will be a loss of between 20 cents and 24 cents per share.
[noise] now, we do not plan and providing guidance for the full year, but I will make a few comments.
We expect revenue in the second half of the year to be meaningfully higher than revenue in the first half for a variety of reasons.
First we we hope and believe the economy will rebound is a world opens back up over the next few months.
However, more specific decide time, we expect a strong bounced back in our mobile aiotv and consumer business due to new programs and seasonality of that business.
Sales will also be fueled by growth from specific design wins in targeted higher growth markets.
Furthermore, we expect gross margins to improve in the second half as we ship more of our newer higher margin products and as overall revenue increases.
Gross margins should improve two to four points in the second half over margins in the first half.
[noise]. So these are unusual times, but we believe side time is well positioned for strong growth in the future.
We have an exceptional workforce.
Differentiated products that address large and growing markets.
An enviable list of tier one customers and a strong balance sheet.
We firmly believe these strings will allow us to manage through these truly unusual times and emerge stronger than ever and with that I'd like to turn the call back to the upper operator for acuity.
[noise] to ask a question you when either press star one on your telephone to withdraw your question press. The pound team. Please stand by will be compiled the human day roster.
Your first question comes from Chris Caso with Raymond James.
Yes. Thank you good afternoon.
I guess the first question is regarding what you're seeing in the biotech consumer segment.
Okay.
I guess, but perhaps you could put that in perspective of.
The amount of.
The extent to its that that is reflecting a reduction in end market sales by by your customer if the customer is doing anything with regard to inventory.
How that plays in the second half and again you did talk about.
Well that improving as you go into the second half and perhaps talk about some of the visibility that you have there.
Yeah, well first of all Chris.
We do expect as art indicated that the mobile aiotv.
Business and consumer to a slightly lesser extent is going to show up.
A couple of reasons one is.
That it always does because Q3 Q4 are in fact, the right time for that the second is that we continue to get significant design wins in this space.
Fall off.
But at a pretty prominent in all of the the Hearables the wearables.
And and consumer products that you would expect such as the the remote cameras and door bells and and all of that so we think that are our pipeline of design wins is very solid and growing quite nicely.
As far as.
What we hear from a customers on this.
Frankly.
Some of as some of it is us just being cautious.
And some of it or push outs by some of our customers who have a some of the smaller ones in the space in the wearable space.
Our seeing.
Relatively low traction.
At these in these times some of the bigger guys have newer products that are waiting to come out. So I think that combination is what allows us to sort of say that it's lower in the coming in this Q2, but we're pretty confident about growth in Q3 Q4.
Got it thank you.
As a follow up.
I wanted to ask about.
The potential for supply disruptions, what you're seeing and perhaps how the customers might be reacting.
I guess firstly.
Have you seen any supply disruptions yourselves, we've obviously heard a lot of out in the space, particularly in Bakken manufacturing and then secondly, we've seen in some cases customers tend to pull forward some orders.
To protect against potential supply disruptions I I'm sure you guys would be watching for that if he can give any visibility as to what your customers may be doing and the extent to which you can monitor monitor that.
Right. So there's really three questions. One is what have we seen in our suppliers what have we seen behavior with our customers and the third one I'll throw in as one on competitors. So first and foremost on the suppliers. We did have some rocky behavior in late.
Q1.
Particularly in regards to Malaysia, where there was a pretty.
You know.
Sort of a overnight shutdown of the business.
And that that was a little bit scary, but it was deemed semiconductor business. As you may know was deemed essential business and car some which are the primary supplier opened up.
And has done quite well for us since.
The site point about competitors is that you will note that in many places of course Crystal is not crystal technology is not semiconductor technology. So in Malaysia. For example, they were not deemed as essential so their plants continue to be shutdown was site time continue to be able to show.
With.
That kind of behavior has just seen has given up and and added in importance as a supplier because of supply chain other than that their supply chain with Bosch on the men side is solid and we've been in constant contact with them. They have no issues whatsoever, they're continuing to operate the port fab in.
Mostly normal way TSMC continues in a very very solid way.
And then S C and a utac our two other suppliers have seen no change no issues at all and finally the car some pickup which was in the end of Q1 resolved itself pretty quickly by the early part of.
April and so on so I feel very confident about that.
On our customers we have not seen.
Any big concerns about pulling in so that they can have a product to the extent some of them did pull in.
You know that they are trying to do this for with an abundance of caution but be reached out to them and explain to them how different our supply chain is from other timing products and that appears to have had a significant amount of impact we've done that with many of our customers weve shown them are.
Buildup of inventory buildup of men's our build up of Cmos. The fact that we had a fabulous company and I think that's that's given them.
Oh, good good opportunity to sort of not due to many pull ins. So I think all in all its supply chain has done well for cytokine and in fact is one of our strengths as we go into the timing market, we actually think that some of the.
Larger customers will see the difference between US and for example, if some of the producers of high end or Cxos and TCX, those who are suffering significant shortages.
Because of shutdowns in places like India, or <unk> or Europe, or other parts of the world, where they have factories and most of the factories are not working.
Thank you.
Yes.
Your next question is from Blayne Curtis with Barclays.
Hey, guys. Thanks to my quick Hey area.
Kind of curious it.
When you look I think the calm segment in somewhat the industrial auto as well as those segments are based upon.
Ramping new products that Im kind of just curious in this environment, whether any of those products you have the wind, but whether the end products. The whole will get delayed in terms of their ramp then I guess as part of that if you can just address I answered answer you or are you said a significant second half I guess based.
First what you would have said you three months ago for those segments I'm just curious if it's still on track bank.
A generally there are still on track there is well there are one or two customers that we think have a have a pulled back a little bit just because of the market condition. These are smaller customers, but generally you know if you're looking at either argues for edge computing.
Same or backhaul or frontal or microwave.
All of these small cell all of these continue to be deployed in fact, we think that they might even be deployed with a greater sense of urgency. If you see what what some of the big guys like Verizon and others are doing the other thing that's happening is in the datacenter area, which has not been a huge.
A big area for Us, we're seeing traction, particularly in China, where we see a resurgence of China Chinese products for China manufacture for Chinese consumption studies.
And we see this in the area of of data Center, but we also see this in the area of just a high end processing with high end processors coming out of China.
That would compete with processors in the United States. For example, so we see more strengthened this market knocked less and we are pretty I'm pretty happy.
Happy with our traction and the breadth as I pointed out in my prepared remarks I was really.
Happy to see that we have you know our 12 of our elite and embedded products are being put out into 10 different applications and for example, I never would have expected radios and im not ready as the test instruments as well as one are very happy to see that.
And of course these are high areas fees. So that's why we can connect that to increase in gross margins as we go forward in the year.
Your next question is from twice Wattenberg with Stifel.
Yes. Thank you. So so I know you're not getting full year guidance, but if you look at historical you tend to have sort of this 40 60.
First time versus a second have raised show is that the way we should be thinking about 20, Tony as well.
Yeah again, sorry this is arch.
You know I don't want to I don't want to put hard numbers on it because we're not giving hard guidance for the year, but clearly you know if you look at Ah you know, our 2018 and 2019 fiscal years the back half substantially stronger than the first half and we feel pretty confident that that's how this year is going to look also.
We just have a lot of growth drivers that will drive pretty pretty significant increases in revenue in the in the back half. So I again, I don't want to put a number on it but we're pretty bullish about a Q3 in Q4 at this point.
Very good and you know when you listen to some of your larger cap peers. You know there the kind of entering the June quarter with pretty high backlog levels and quite a bit of orders, but they're also kind of hair cutting those given the environment.
How how did your backlog and you know how youre booking sort of.
Performed here over the last two few weeks.
Yeah, you know given the global contraction I kind of would expected some of our customers to hold off on orders, but that has not happened.
Again, we don't want to get to specific about you know what percentage is booked but I will say this.
We we are more booked where we are today going into Q2 than we were in either Q1 or Q4.
So I would concur with those observations.
That's very helpful. Thank you very much yeah go ahead I looked at it particularly in light of the comment of question earlier about how much of it a pull ins and we did shake that tree and we don't think that these are significant pull ins. We just think that people are just a placing orders better.
And and I think it's working out much better for us.
Very good thank you.
Thanks to our.
Your next question is from Quinn Bolton with Needham.
I apologize because I got dropped from for the gold or in some of their prepared comments, but just wanted to come back to to the gross margin artistic he said as margins up to four points in the second half first the first half is that still sort of the same drivers of better mix better absorption, taking some business direct.
And just the ramp of new products.
Yeah, I think you listen to just quite well Brad that's exactly correct you know our as we've always talked about our newer products have higher Sps and higher gross margins as that becomes a larger percentage of our sales that that helps blended margins.
As we take more sales direct that cuts out a the distributor for those particular sales that leads to higher margins are higher revenue helps or manufacturing overhead absorption so that leads to higher margins.
So all of the above is true and I feel very confident that a that should be happening in the back half of the year. So so we guided up two to four points, you know things work and in our favor it could be you know at the high into that range or even a little higher obviously, if we have a very very strong consumer mobile aiotv that may.
Obviously helped the topline, but but temper a little bit of the gross margin percentage improvement, but a in either case those are good news scenarios.
Great and then just a follow up on elite and Emerald. It sounds like those design wins are still largely on track to ramp in the second half and originally I think you mentioned some of the applications like remote radio heads are fiveg in data center servers, but just want to make sure that good on the leading them role that you know there's there's been no.
Significant to layer push out in some of the bigger design wins you have that's right.
That's right in fact, as I said, we might even be seeing a little bit up an acceleration in some of them.
We're very happy with the success of that we have you know we have this this this.
The strategy are taking a platform product like elite and then doing multiple derivatives off it and the derivatives of elite in the last 456 from four five months have grown remarkably because these derivatives or either mil spec or they are automotive spec or that features like.
Cxo differential of TCX. So that are added to it it costs us relatively lower to produce these derivative products yet they have a significant impact.
On on revenue and and we continue to push that strategy in it you know certainly elite has been very very instrumental in that and Emerald is just getting to that level right now.
Great and then just last question for me in the automotive industrial Mill Aerospace. Okay. I'm wondering if you could give us some sense how much of that is automotive I would think automotive and consumer probably some of the harder hit segments of.
The business with with the cobot outbreak that specifically wondering how much of the that bucket is automotive today or is it more industrial automotive is probably automotive Quinn is probably the smallest.
We think industrial as I've always said as one of the largest and.
<unk> defense is slow slowly growing.
Not very big but of course, very profitable and the aerospace business is doing very well for us.
So we do very well because that's a good combination of volume S. P performance.
And we have you know multiple design wins and in many many satellites and and so on so I think Oh automotive.
We it's holding its own it's directionally up it's not very large is directionally up.
But when the long run we're seeing that the automotive design wins, we are getting or the ones were being considered for those again, where we bring exceptional value.
And that business continues to take site time.
And designed with tight time, indeed that in the areas of you wbz than the areas of of 30.
For its utilize it easier lasers for four in the working in the cars.
San Diego 15, 88 in the idea of cameras radar light or all of these are great examples of business foresight and.
Great. Thank you.
Yep.
Thanks, Greg.
And there are no further questions at this time I'll turn the call back over to Sicad went at this time.
Great. Thanks, operator, well that concludes our call today, we want to thank everybody for spending the time and listening to what we had to say, we hope everybody has a safe and healthy and we look forward to having another conference call on a quarter hopefully with you know.
A good results by the end of Q2. Thank you everybody have a great day.
Bye bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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