Q1 2020 Earnings Call
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Good for standing by and welcome to the power integrations first quarter earnings call.
So I'm all participants are in listen only mode. After the speakers presentation there'll be a question and answer session.
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I'd like to get into cars or to your speaker today, Joe Shiffler director of Investor Relations.
Thank you good afternoon, and thanks, everyone for joining us.
With me on the call today are volleyball, the Krishnan, President CEO power integrations, and Sandeep and I are our chief financial Officer.
Our discussion today, including Q and a session.
Will include forward looking statements denoted by words like will would believe shouldn't expect outlook forecast and similar expressions of look toward future events or performance.
Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied.
Such risks and uncertainties are discussed in our press release and in our most recent form 10-K filed with the FCC on February 7th 2020. During this call we will refer to financial measures not calculated according to generally accepted accounting principles non-GAAP measures exclude stock based compensation expenses amortization of acquisition related intangible assets and the.
Tax effects of these items a reconciliation of non-GAAP measures to our GAAP results is included in our press release. Finally this call is the property of power integrations and any recording or rebroadcast is expressly prohibited without the written consent of power integrations now I'll turn the call over to bother.
Thanks, Joe and good afternoon powder Activations had a strong first quarter revenue is just under $110 million.
That's in line that <unk> guidance and up 23% from a year ago.
Non-GAAP EPS was 76 cents per share up more than 80% from a year ago.
I'd be done it at $26 million up cash flow from operations.
So you know what do you have revenue growth was driven equally by the communications and consumer categories, reflecting growth in smart phone Chargers and appliances.
Industrial also to turn to yet only a growth for the first time in five quarters completing that a comedy from last year's cyclical decline.
Well the conditions have obviously changed since the end of the quarter, although Q1 to those nevertheless demonstrate the fundamental strength offload business.
Yeah, well positioned to vet the economic shock caused by the pad that make and we will stay focused on long term growth, while managing potently through the downturn.
We also benefited from a strong balance sheet, especially in the big awful at least have litigation settlement, which left us with them all at $400 million in cash and investment.
Deflecting, both our confidence in the future I pod business and a healthy cash position I Love Board has increased at a quarterly dividend by more than 10% beginning with the June payout.
As to how the pandemic is affecting our business I am pleased to say that our day to day operations have continued to function effectively.
Since mid March I was kind of the headquarters has been subject to myself that in place order, which will remain in effect until at least the end of may.
Most other employees around the World also continued to work remotely, though our sales force in China has been back in office for some time, though and that applications Engineering center in the Philippines has partially the open.
Innovation is the key hallmark awful a company. So it's not surprising that that would imply that palm clever ways to keep us moving forward seamlessly during this challenging times, including the more operational Lapid Labick <unk> expanded online sales training and customer support and many other examples.
The last month, we have made in our online presence at Pollard Dot Com have also pool enormously valuable during the pandemic.
Well, what all that topic, including usage up an online support forums has it isn't notably.
And you said you up all the <unk> export designs top that has jumped over 20%.
I would work she will trade show a booth for the applied Optoelectronics conference, which was cancelled Jeff. This before its scheduled opening has driven nearly 10000 medicines and 9000 views off the product and technology videos, we produced.
With respect to the supply chain, our supply of wafers, which comes primarily from Japan and to a lesser extent some of the U.S. as not being affected by the pad Debbie.
Oh, It Chinese assembly and test vendors what affected by the extended shutdown following the lunar new year holiday, but have been back to essentially full speed since mid February.
Well, that's all other assembly and test subcontracted, Malaysia, let's close for two weeks.
In mid to late March due to a government mandated sat down and operated at reduced capacity through most of April.
But is now fully supporting our capacity needs.
The E M. A subcontractor that assembled southern Highpowers gets regular board was also closed for two weeks in March followed by a period up reduce capacity, but is expected to the gym normal operations sharpening.
We have also ramped up a second supplier, we should enable us to satisfy highpower demand in Q2.
Why did they supply chain disruptions have granted short term challenges the impact on our customers and our results to date has been mitigated to a large extent by the diversification or supplier base multi sourcing all high volume products safety stocks of key inputs such as lead friends.
And maintaining an ample die back.
Barring any further disruptions we believe we have adequate supply to meet doesn't have any predictions for the June quarter.
Turning to the demand environment I would experience has been similar to that described by some of our peers.
We saw strong bookings in March after the extended shut down in February across China.
Followed by its slow down in bookings in April though the average up March and April was consistent with the monthly then that implied by our guidance for the June quarter, which is I don't know $6 million plus or minus $5 million.
That would be up 3% it'll have yet at the midpoint.
In terms of end markets, while appliance and industrial applications, we likely exhibit softness in Q2, so they went by the economic slowdown.
We expect sequential growth in communications category, reflecting further adoption of faster smartphone charges.
We expect the sequential growth to be driven primarily by Chinese Oems.
We continue to roll out faster charges at an aggressive pace.
We believe we are expanding our lead in the rapid charging market, where the integration and efficiency of crucial to achieving attractive form factors.
Our competitive advantage widens as follow levels rise and functionality increases which is the detection market is clearly heavy.
We are seeing a growing number of OEM and aftermarket charges with exceptionally high power level, you know they did form factors and multiport charging.
We believe these differentiated high end design will become an increasingly important part of the mobile ecosystem going forward.
<unk> now thinking strategically about charging like never before thanks to the high of public needs of Fiveg.
Advanced technologies like gas switches and the emergence of U.S.P.P.D. and programmable charges that can they live on whatever amount. The pilot is demanded by a mobile device.
But a significant portion of the market the days of the charger as a disposable commodity are clearly over and we expect to see it variety of new approaches and much overtime.
Some Oems will offer fast inbox doctors to differentiate that handsets and win market share.
While others may offer charges only as accessories letting the consumer choose from a range of lower costs are higher performance options or multiport charges for consumers who own multiple devices.
Fixed you must be charging ports in homes and offices and hotels I would also becoming an important part of the mobile ecosystem.
Bassmobiles charges and fix charging for not only the quiet higher reliability that standard charges.
It, particularly advantage alpha highly integrated products.
But also bring higher dollar content.
This is especially true of charges with multiple board since we would typically so one I see plus each output.
The use of guard technology also brings a significant increase you know a dollar content.
The bugs in the power electronics industry out on gas has exploded since we announced last summer that we have begun shipping Gan based innoswitch I see in high volume.
Since then they have announced several new products featuring Gan, including two in just the past couple of months.
In March we announced an expanded range of units, which I see is mid smaller sized gan devices, increasing the cost effectiveness of gotten devices down to as little as 27 wall.
In April we extended the politicians Apollo you don't Bucks chipset, but display pallets supplied by incorporating gas switches for higher power TV monitors and appliances with LCD displays.
Also in March we announced that our scale I, probably what I see plus silicon carbide, Mosfets, which we introduced last year have achieved it you'd see Q1 hundred automotive qualification.
This is about third gate driver IC to be qualified for automotive use it particularly important step as easy market continues to move towards silicon carbide in place up traditional IGBT.
While material revenues from you'd be Dri plant application. So still a few years away. We believe automotive has the potential to be our largest addressable market in the future and we continue to work closely with car makers, while investing in products and infrastructure to support this market.
Finally, I'd like to highlight the addition of Anita Gunty to our board of directors on April 1st I think that has extensive experience in technology space. Most recently at senior VP of engineering services at Wipro and previously as VP of global technology at Flex.
She also has strong experience in analog semiconductor having worked as a general manager for several years at Texas instruments.
We are excited to welcome Anita to the board and now I'll turn it over the Sunday.
Thanks, Barlow and good afternoon. Our Q1 results was strong with revenue growth of 23% year over year, and 85% increase in non-GAAP EPS.
On a sequential basis revenues declined 4% would the communications and computer Guy degrees, each falling about 20% compared to the fourth quarter.
Consumer revenues increased roughly 10% sequentially on seasonal growth in air conditioning and higher revenues from major appliances.
Industrial revenues, what up low single digits with increases across a broad range of applications.
Revenue mix for the quarter was 41% consumer, 33% industrial 22% communication and 4% computer.
With consumer and industrial both increasing as a percentage of the revenue mix.
Non-GAAP gross margin improved to 52.6% up 50 basis points from the prior quarter.
Non-GAAP operating expenses were 34.8 million about $700000 below our expectations, mainly reflecting a slow pace of hiring and reduced travel stemming from the pandemic.
The non-GAAP effective tax rate for the quarter was 7%.
Resulting in non-GAAP earnings of 76 cents per diluted share.
Inventories on the balance sheet rose by about $6 million during the quarter and we had 166 days of inventory on hand at quarter end.
While this is above our long term target range. We believe it is advantages to have ample inventory given the uncertainty of the cotton supply and demand environment and the long shelf life of our product.
We have slowed wafer starts in response to the weaker demand environment, but we intend to caddy above normal levels of inventory through the downturn to guard against any follow the supply disruptions.
And to be ready in the event up a strong recovery as we saw coming out of the 2009 financial crisis.
As is typical of the March quarter channel inventory rose by about one week during the quarter to 7.6 weeks coming off the Mark to your low we saw in the prior quarter.
Cash flow from operations was $26.4 million for the quarter, while capital expenditures were $11.6 million.
We paid our $5.6 million in dividends and use $2 million plus stock repurchases.
The average price per share on the repurchases during the quarter was $83 and change.
Cash and investments in the balance sheet increased by $12 million during the quarter and stood at $423 million on March 31st.
As Bob noted our board has raised the quarterly dividend by two cents effective but the next be out in June.
Looking ahead to the second quarter, we expect revenues to be in the range of $106 million, plus or minus $5 million would the wider than normal range, reflecting the high level of uncertainty in this environment.
We expect higher revenues from the communication category in the June quarter, reflecting both seasonality and the ramp up new cell phone the design wins.
Combined with softer demand in consumer and industrial this should contribute to a lower non-GAAP gross margin of 51% to 51.5%.
On expenses as Bob indicated, we're tightening up belt, but plan to continue investing in our long term growth, especially in our people.
While we have slowed the pace of hiring considerably.
We have not reduce headcount or salaries.
And we gave our normal annual merit increases in April.
As a result operating expenses should increase modestly in the June quarter do approximately $35.5 million.
For the year, we now expect non-GAAP operating expenses to grow between two went ahead and 3%.
Down from our previous expectation of 5% to 6%.
Other income should decrease slightly in Q2, reflecting the lower interest rate environment.
I expect the tax rate to remain around 7%.
Regarding capital expenditures, we have reduced our plan for twentytwenty from $60 million to 50 million with half of the reduction coming from facilities and half from a reduction in capacity additions.
We now expect to spend about $20 million on facilities. This year with the balance spent on capacity and other needs.
Operator.
Finally give instructions for queuing there.
Thank you.
Tom I'll like to remind everyone in order to ask your question. Please press star one on your telephone keypad.
Please hold from all I can follow the Q and a roster.
Your first question comes from Ross Seymore from Deutsche Bank. Your line is open.
Yeah.
Question and I hope everybody is seeing healthy.
So my first question in the first quarter it looks like communication declined a lot more than what we had modeled sequentially and that consumer E.
Pretty well.
What do you think inline with expectations in the quarter.
That's not a big surprises like.
Okay.
Well Q1 is seasonally usually is down but we thought we would do better than seasonality will be down only slightly but obviously it turned out to be a as trials are.
A downturn and that's a market that we talk.
The the the average bookings between those two months is consistent with the rate of bookings we need to meet the guidance that they're given that's how we have a calculated the guidance now we can there be additional surprises for in the during the rest of the quarter, absolutely we see that many.
Customers change their forecasts you know all the time, but taking all the information. We know today. This is the best number we could come up and and as Sunday pointed out we're giving you a wider range normally be two plus or minus 3 million, we did plus or minus five.
<unk>.
Because it's a it's just a very uncertain world that things are very fluid Ah, but I think fundamentally we will do better than most of our peers.
Because we are going to have a share in in the most areas, especially in fast Chargers.
Okay great.
<unk>.
Is or is there any specific areas that you're making more optimistic about ah four demand growth or potential what's out there.
I would say that we expect that the the communications, we'll do better than other areas into to I.B., We we said that in our <unk>.
Simply because of the penetration of fast chargers into the cell phone market.
We also know that the appliances will be week in into two based on everything you know now Chinese plants manufacturers have been a very slow in in their bookings and also they'd have to be have had some cancellations.
So those are the two things we know Ah beyond that we don't have a good feeling industrial is all over the place we have some infrastructure programs, which are doing well like in China, but things like Frakking is of course very weak nobody's you know installing tracking equipment.
So there is a mixture of things going on it's really hard to predict where those things we'll end up in the quarter.
But you know if you're already one third into the quarter. So we have done the best we can to come up with the number.
Okay great.
One more for me if you could maybe talk a little bit about your design wins within gain on now several new products, but can you talk about the design when traction that you're saying there.
In any.
Any automotive design wins that you currently have in hand.
Okay in terms again, most of our design wins on on the high end of the cell phone charges to date now we do have again designs outside of cell phone charges like in appliances, and and we are now introducing products into displays that'd be expect to have some design was there.
But today, mostly it's in the high end of the fast Chargers, either very high power charge us all after market charges up you have number of design Miss on after market charges. As we mentioned after market is an important part of a long term strategy because the you know we think over the.
Longer term at some of the it's <unk> could potentially offer chargers as a accessory rather than in the box and so we are focusing on providing the highest performance smaller size highest reliable.
<unk>.
And I think gans really fits into that a picture because again offers a smaller size and if the consumer has to choose they would really focus on size and the looks and the the liability if they're going to use the same charger over multiple generations of poems.
Thanks, So much and you stay will.
Thank you you too.
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Your next question comes from Germany <unk>.
Yes, good afternoon, and let me add like that's on the again progress.
Thanks, <unk> questions about again itself, yeah, I think you're talking about sweet spot I'm doing something the 18 wide 2024 watch I mean, the past can't can't give us an update their had any scene and trend keep moving up higher levels and and is there a difference maybe in the mainstream versus premium versus low and.
So in terms of where you can really fits it's roughly about 30 watts 30 watching about gatten makes a lot of sense because if it out again the charges will be bigger it'll be less efficient so it will generate more heat.
And even though Gan is more expensive as a device we sell the system cost becomes meaningful about 30 watts and that's where we see most of the design. We have designed for all the way up to 65 Watts I mean, we talked about that in the last call. If he ever designed for a charge. It up 60, if I watch for a cell phone, which is really mind boggling.
Do you think about putting that much power into a cell phone.
So as you go to higher power levels it becomes meaningful the last the latest you know switch product for interviews. We we start at 27 watch because I said 30 Watts is where we think the crossover point is for most applications, but we also.
Have announced products <unk>, which goes into display applications, maybe are actually using gan to expand the power to much higher power levels I would trust a generational products went up to about 30 40 50 Watts began we can go to higher power levels switches required for things like televisions and large screen display.
Place and appliances, and so on and so forth. So as far as we are concerned we see again as a continuum values silicon up to a certain power level and beyond that we will just switch over again, we think again is a very very viable technology. He does cost effectiveness system level. It gives us very high S.P.
For our product.
And we are made it so easy to use without integration solution that I think we are getting have very very strong traction in the marketplace. In fact as far as we know we are the only ones shipping in high volume, even though there are many many companies who are talked about god for many years in the past.
That's very helpful. Thank you and and speaking of which you know it seems like.
You know.
Pardon me restricts seems to suggest you guys had happened market last year, you see that shifting materially Miss you're getting that you are the only one in high volume and and what <unk> what are things that.
Doing that you can extend that that kind of.
Vanished you'll need it.
I'm I'm not sure what I understood. The question can you repeat the question again.
Yes, so it sounds like maybe you had you know based on some 30 per research and we had half the market half again market last year.
Can you talk about you know where that looks like maybe in in in 2020, I'm, giving okay guys are the only one shipping at high volume.
I I understand that now yes, we are seeing a and continuous design once again I would expectation. This year. It will be that we'll have a nice clothes over the last year. The only thing that we don't we don't noise the impact of the pandemic on the demand side of it.
You know we were expecting again to be in double digits millions this year, but given the uncertainties of the man it's hard for me to predict that what it will be this yet I. All I can say is we continue to gain share.
<unk>.
But the question Mark is dumb at the economy.
Great. Thank you and maybe just one last question for now it's you know get switching over to the automotive side.
So we made a comment that this could be the largest.
Market for you and the future is there can't give us some inflection points <unk>, we should look for to see that transition.
Absolutely when like the time indeed.
So there are many sockets for us in the car electric car, but.
Highest revenue using the drive train and that's the one that takes the longest a design cycle, but simply because it has to go through very rigorous testing knocked us electrical testing, but also protesting for almost a year before they will go into production. So on the drive train even though we had engage with customers already if you don't.
To expect to see any significant revenue until you know 2023 24 time frame.
Having said that there are many other socket that we can get earlier, depending upon the the the functionality. So we have already introduced three products with automotive qualification, we plan to introduce more this year.
And we expect to start generating a little bit up revenue. This here and that will gradually increase over the years, but the the main increase our hockey state kind of an increase will only happened when we get into the driver train drive train that will be in the I would say 2023 late twenties.
23 or 2024.
But we should see meaningful revenue in other applications things like outboard Chargers onboard Chargers and emergency power supplies and there are many power supplies that can work from the battery voltage because I've got 408 intervals down to lower voltage is for various types.
Systems, and those all required power supplies and be a qualifying I raised to the D.C. products for that application.
And and can just remind us really quickly what he turned solutions are and and you know how we might replace them.
So the the current architecture is quite different from what the new future architectural it'd be currently most electric cars.
Use the 400 volt battery only for driving the motor the main motor.
Everything else in the call is operated at 12 bowls, using a 12 year old battery and the reason for that is all of the sub systems are designed for troubles, just citizen that acid battery actually you'll be shocked I have the high end that tests like car and he'd had the 12 volt lead acid battery that powers.
All of the electronics you know your computer system, you're you know wiper.
Everything in the car is operating a toll except the main motor which operates at 400 balls.
No that's going to change everything is going to operate from high voltage in the future simply because it is much more efficient to operate from high voltage. It. It has less weight. If you use high voltage cables because occurrence of much lower so the trend is towards higher voltage's and using higher voltage just the opposite <unk>.
Systems.
And in fact, even the battery voltage, which is currently 400 balls is expected to go to 800 balls over the next four to five years. So we are not working on the existing platform yeah working on the next generation product platform, which is a different architecture altogether.
Mm.
Thank you so much that's very helpful.
<unk>.
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Again, if you like to ask the question is <unk> <unk> surely Chris Roland with Schiano Caroline It's open.
Hey, guys. If I heard you correctly I think you said that your stock purchases in the corner, where it <unk> $3 on average.
If I got that right notwithstanding.
I was wondering Sandeep can you comment trade my IRA for me.
[laughter] well you'd have crashed yet we've always been opportunistic as I'm always said and historically if you look at the disciplined be of hide here and now there's talk move up and down very quite rapidly and but they're opportunistic as you know and odd approach will continue to be opportunistic market.
Does what it does <unk> just to add to that we have a matrix.
That will purchase more stock as the price goes down it's very very strong function of the stock price. Unfortunately, I was talk been stay down long enough to put us to buy a lot of it because it was so all the time it went down and came back up or otherwise when I purchased even more.
That's a that's truly are fantastic anyway, but that's nice guys.
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I guess for my first real question four columns I guess, perhaps talk about the magnitude of about stock, we're going to happen, but I'm, particularly interested in September and December and should we think this year or more of a Porsche revenue.
From September to December as some mothers have suggested this year.
And then second we would use spectral revenue for coms tea easily be up for the second half this year versus the second half of last year.
Okay. So let me plus they're talking about cue to rethink <unk> communication would be up meaningfully exactly how much it'll be up is really hard to tell they the booking some very molotov they go up and down on a daily basis. So it's hard to tell but we think we we we are comfortable that will be meaningful.
But we can't put a number on it.
Acutely on Q4 is really really hard to predict like you just take a normal seasonality I would expect you to be stronger than to to that's how it usually is but given the uncertainties of the pandemic. It is really hard to project if yada yada understand even if there is demand demand is a major issue we don't know how.
The demand is going to turn out in the second half, but that could also be deceptions in supply chain on other components that could prevent people from making the phones are charges is not just our components, but also the components could have an impact so.
It is very hard to predict what I can save it some confidence is that we will outperform our peers most of them P.S. I should say and the reason for that is we are continuing to gain share in most of the areas where in especially in a cell phones and and and then apply.
Answers and industrial and because of that we will output from that and the other advantage is that we have a lot of inventory we can afford to carry the inventory because our products don't go obsolete. So when it comes back we'll be that much better position to address the demand.
Even if there are some supply disruptions because of the eventually be catty so because.
<unk>, we think we are much better position to outdo.
The the analog industry I mean, we did that last year I think we outgrew that long and let's see by eight or 9% and I think we will outgrow a a lot industry again this year.
Okay, Great and then perhaps you can talk about.
Have they extended because of the supply chain for you guys.
And then also.
Some other guys.
Seems as if there might be some.
Because people are worried about.
Supply chain disruptions.
Oh, you're confident that this isn't taking place or or do you think there's ultimately a little bit of ordering that that that you're comfortable around.
Actually I'm confident that some of the auditing and March laws that blogging, because we know that some of those got the pushed out and cancelled in April that's why we always average April and March to see what the the L. demand is <unk>.
Because that'd be the we are taking April bookings net up cancellations and Pushouts and then adding it to marching averaging it and that the average is consistent with what we need a include too.
To to meet our mid point about guidance. So so that's the way I look at it so the the other question I'm talking about what the plus question was do you remember the question.
Yeah.
Yeah I lead time these times on most of our products I I would lead times are still pretty normal we are in the four to six weekly times there are certain products, which are impacted by the shut down we had in Malaysia.
That we will catch up very quickly, but right now we we we have a little bit of a shortage that endorsed lead times of longer but our goal is to catch up on that over the next couple of months.
That's great. Thanks, so much guys.
You're welcome.
No no further questions about this time.
Okay, then we'll wrap it up here thanks, everyone for listening there will be a replay of this call available on our website, which is investors dot power dot com.
<unk> again for listening and good afternoon.
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Close this conference call you May now just.
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