Q4 2020 Monolithic Power Systems Inc Earnings Call
Extraordinary challenge the continues into 2021.
Despite these challenges we will continue to execute on our strategic plan.
Turning back to full year of 2020 revenue by market segment, compared with 2019 communications revenue up 67, 9%.
Consumer revenue up 34, 2% computing and storage up 33, 8% automotive up 27% and industrial up 23%.
Demonstrating just how broad base of our revenue improvement was.
Communications revenue grew 57 $5 billion to of $142 $3 million. This improvement was primarily due to an infrastructure sales ramp.
Communications revenue represented 16, 9%.
Of our 2020 revenue compared with 13, 5% in 2019.
Consumer revenue grew $56 2 million to $224 million.
Reversing two consecutive years of sales declines this growth reflected higher gain counsel sales along with increased sales of Wearables and home appliances.
Consumer revenue represented 26, 1% of Mps's full year of 2020 revenue compared with 26, 2% in 2019.
Full year, 2020 computing and storage revenue grew $64 million over the prior year to $253 2 million.
This 33, 8% increase primarily resulted from strong sales growth for cloud computing and storage applications compute.
Computing and storage revenue represented 38% of Mps's total revenue in 2020, compared with 31% in 2019.
Automotive revenue grew $18 $7 million to of $109.0 million in 2020. This growth of primarily represented increased sales of infotainment safety and connectivity application products.
Automotive revenue represented 12, 9% of Mps's full year 2020 revenue compared with 14, 4% in 2019.
Industrial revenue grew $22 million to of $119 6 million in 2020.
This growth primarily reflected higher sales for applications in power sources.
Industrial revenue represented 14, 2% of Mps's full year 2020 revenue compared with 15, 8% in.
In 2019.
Switching to Q4.
NPS had a record fourth quarter with revenue of $233 8 million.
The 10, 2% lower than revenue generated in the third quarter of 2020.
But 39, 8% higher than the comparable quarter of 2019.
The market segment revenue for our consumer grew 69, 7% year over year automotive grew 63, 1% industrial grew 38, 8% Communications grew 35, 6% and computing and storage grew 11, 1%.
Fourth quarter 2020, GAAP gross margin was 55, 3% 20 basis points higher than both third quarter 2020, and the fourth quarter of 2019.
Our GAAP operating income was $40 8 million compared to $60 8 million reported in the third quarter of 2020 and $37 million reported in the fourth quarter of 2019.
Fourth quarter 2020, non-GAAP gross margin was 55, 7% 20 basis points higher than both the third quarter of 2020, and the fourth quarter of 2019.
Our non-GAAP operating income was $66 3 million compared to $84 $9 million reported in the prior quarter and $58 million reported in the fourth quarter 2019.
Let's review, our operating expenses, our GAAP operating expenses were $88 9 million from the fourth quarter compared with $83 1 million in the third quarter of 2020 and $61 $2 million in the fourth quarter of 2019.
Our non-GAAP fourth quarter 2020, operating expenses were $63 6 million up from the $59 $1 million. We spent in the third quarter of 2020 and up from $41 8 million reported in the fourth quarter of 2019.
On both a GAAP and the non-GAAP basis fourth quarter 2020 litigation expenses were $1 5 million compared with a $1 $8 million expense in Q3, 2020 and of $991000 of expense in Q4 2019.
The differences between GAAP and non-GAAP operating expenses for the quarters discussed here are stock compensation and income or loss from the unfunded deferred compensation plan.
Fourth quarter, 2020 stock compensation expense, including $686000 charged to cost of goods sold was $23 1 million compared with $23 1 million recorded in the third quarter of 2020.
Switching to the bottom line fourth quarter 2020, GAAP net income was $42 9 million or <unk> 90 per fully diluted share.
Paired with $1 18.
Per share in the third quarter of 2020, and 70 per share in the fourth quarter of 2019.
Q4, 2020, non-GAAP net income was $62 5 million.
Our $1 31 per fully diluted share compared with $1 69 per share in the third quarter of 2020 and $1 <unk> per share in the fourth quarter of 2019.
Fully diluted shares outstanding at the end of Q4 2020 were $47 6 million.
Now, let's look at the balance sheet.
As of December 31.
2020, cash cash equivalents and investments totaled 598.0 million compare.
Compared with $554 5 million at the end of the third quarter of 2020.
For the quarter NPS generated operating cash flow of about $79 $6 million compared with Q3, 2020 operating cash flow of $77 $4 million.
Fourth quarter 2020 capital spending totaled $11 5 million.
Accounts receivable ended the fourth quarter of 2020 of $66 8 million or 26 days sales outstanding compared with the $93 5 million of 33 days reported at the end of the third quarter of 2020.
And the $52 7 million or 29 days reported.
In the fourth quarter of 2019.
Our internal inventories at the end of the fourth quarter of 2021 of $157 1 million.
Up from the $148 1 million at the end of the third quarter of 2020.
Calculated on a basis consistent with our past practice and as you can see from the webinar of video.
Days of inventory rose to 137 days at the end of Q4 2020 from the 116 days at the end of the third quarter of 2020.
Historically, we.
We have calculated days of inventory on hand, as a function of the current quarter revenue.
We believe comparing current inventory levels with the following quarters revenue provides a better economic match on this basis again, you can see days of inventory increased to 132 days at the end of the fourth quarter of 2020 from 129 days at the end of the third quarter of 2020.
I would like to turn.
Our Q1, 'twenty 'twenty one outlook.
We are forecasting Q1, 2021 revenue in the range of $236 million to $248 million.
We also expect the following.
GAAP gross margin in the range of 55, 1% to 55, 7% non.
Non-GAAP gross margin in the range of 50, $542 56, Oh percentage.
Total stock based compensation expense of 27.
229 million.
<unk>.
Including approximately $800000 that would be charged to cost of goods sold.
GAAP R&D and SG&A expenses between 89 and $93 million non.
Non-GAAP R&D and SG&A expenses to be in the range of $62 eight to $64 8 million.
This estimate excludes stock compensation and litigation expenses.
Litigation expenses to be in the range of $2 three eight of $2 7 million.
Interest income is expected to range from one four to $1 8 million before foreign exchange gains or losses.
Fully diluted shares to be in the range of 47, 3% of 48 3 million shares.
Finally, we are pleased to announce a 20% increase in our quarterly dividend to <unk> 60 per share from <unk> 50 per share for shareholders of record as of March 31 2021.
In conclusion, our performance in 2020 validated our strategy to growth through diversification and sustainability.
We will continue to execute this strategy and invest in our future.
I will now open the phone lines for questions.
Thank you Bernie analysts I would now like to begin our Q&A session. As a reminder, if you would like to ask a question. Please click the participants of icon on the menu bar and then click the raise hand button.
Our first question is from Matt Ramsay from Cowen.
Your line is now open.
Thank you very much good afternoon, good evening everybody.
Hey, Michael Mckenney hope you're well.
Mike My first question.
It is around the supply that you guys of bringing online you talked about a couple of different efforts and you have done over the last few quarters two to.
To add supply in I guess.
Michael.
Wonder if you might characterize it as.
Anyway, one how much supply can you bring online in the immediate term versus over the next couple of years to support what revenue levels and two.
Do you feel like Theres now a situation where your own supply of expanding to support your share gains where the rest of the industry might be tightening.
A bit and how does that how does that play into your thoughts about revenue growth. Thanks to many of a follow up.
Well.
We.
We said in a couple of quarters. The go we're building our capacity to <unk>.
$2 billion.
Capability.
And.
So that's our long term strategy, we will do that anyway.
And just.
Reason in the region.
From a last year as the way pulling on the pulling a little faster the market we.
We can.
Akshay.
And as the cycles up and down so the way.
We plan for our long term futures and the.
But in a reasonably the year, so obviously with the <unk> and the increase of capacities.
We.
Started in the early last year, and we're a little bit of ahead of the game ahead of the market day mix and.
Looking.
Yes.
<unk> futures the we'll continue to.
So we still are facing increasing delinquent.
Got it no that makes sense in the long term I guess from my follow up question is the more near term oriented one Bernie if you Mike.
Give some color on how you are expecting.
The guidance was was well above consensus for the March quarter, maybe you could talk about it by by segment, what Youre expecting the trends to be of as you move from from December into the March Thanks, guys.
Sure I think.
That.
We saw in 2020 that revenue in both automotive and industrial were probably most heavily impacted.
Of the.
Covid pandemic.
So what we saw in the second half.
Of the year is that both of those two markets.
The showed marked improvement.
And have significant momentum as we go into 2021.
But really.
Our broad base. So a lot of the trends that we saw that we benefited from in 2020.
We will continue continue on possibly the only exception is communications.
Which had a strong three quarters it will be difficult to compare against.
Our next question is from Torrey Svanberg from Stifel. Your line is now open.
Yes. Thank you congratulations on the execution.
So far I think you are the only company that ive seen ex the increasing the inventory day, so congratulations on that too.
The last quarter, you talked about the size of the delinquencies you had in 19.
Could you give us a ballpark for where they stand right now.
I think it's the last quarter, we talked about I know the last couple of quarters. We have continued the facing of delinquent delinquent.
Delinquencies in the.
And the.
This quarter was in the last quarter web.
The relatively similar.
Two quarters ago, we are facing a part of it.
Quite a bit more.
Yes, and I think that.
That's a reflection of.
Continued strong demand.
In the face of industry wide capacity constraints.
So we've actually had to manage at this level now for about the last three to four quarters.
And the pain.
We're getting good at it but we're certainly believe we have it is well under control as possible of good handle on it.
So that were escalating shipments only based on the needs of the end user as opposed to any one building inventory in either of the channel are on customer shelves.
And the reason we can meet the most of all of our our customers demand is up due to we.
And we.
We added capacity at the beginning of last year.
And now we can fulfill most.
Most of it.
Very good and as my follow up on capacity you talked about the second 12 inch also new eight inch I know you typically bond naming of foundries on these calls but could you at least talk about sort of the the geographical.
Aspect to the William Foundry partners are at this point.
No we talk to the diversified.
Outside of China.
The other way speaking.
And these fabs.
Well it could be.
We're still exploring in the engaged at the beginning of the engagement with the where the both of us.
With the fab within China.
And outside of China.
Great. Thank you very much congrats again.
Thanks George.
Our next question is from Ross Seymore from Deutsche Bank Ross. Your line is now open.
Hi, guys can you hear me.
Yes.
Hi, there so congratulations on the growth, especially impressive.
Not only relative to the analog group, but the diversity of it as you looked at 2020 as a whole other than the year over year income, which I know is difficult you talked a little bit about you expect it to be diverse book.
You just said with some of the idiosyncratic drivers of company specific things in 2020 would be just kind of by end markets, obviously not customer specific.
Sure.
I think that in the computing.
We had seen in 2018 in 2019 of run up in notebooks and really in 2020.
It was.
Increased demand in the datacenter book in terms of powering servers as well as the storage.
In the consumer market.
We benefited from the once every three year refresh of the gaming Council and also we saw a nice uptick both in home appliances as well as well.
Wearables or mobility.
And then when we look at the industrial and automotive as I said earlier, both of those seem to be handicapped at the beginning of the year.
We have design wins, but we can't guarantee with the market circumstances of going to be so the unit sales on some of the new products. We are introducing we're a little limited, but certainly showed a lot of strength in the second half of the year.
And actually Bernie forgive me, if I misspoke I was actually talking more about 2021.
What those drive similar sort of story, but.
'twenty, one more looking forward than back.
Thank you.
Repeat the same.
So plenty of water.
Yes.
I'd say the only thing in the first half that gives us a little pause the side from the communications.
The comparable is that.
There is probably going to be some softness in the first half of the year related to <unk>.
Computing on the at the datacenter, but outside of that Michael is exactly right.
Well, maybe that's a good part of our process.
It's not going down.
The <unk> going is not of the strong okay.
But the demand of steel.
Slightly more than we expected.
Yes.
Got it and then I guess as my my real follow up.
A lot of companies are questioning the sustainability of this demand and I know crystal balls are always foggy, but.
You guys would growth I, just annualize your first quarter guidance, 15% I know of seasonality might not be the breast framework, but there seems to be an active debate amongst investors on is I think just too hot and there's got to be of stumble because theres excess ordering inventory is going to build et cetera et cetera. How are you guys viewing that kind of supply.
Versus demand balance in the trust and the quality of the orders.
Well and if you look at the in the past three of four years. So how can we grow some things like.
In the pharma 17 total quantum the 5%.
In the.
And the level and the.
2019, we grow only 8% net game.
<unk>.
Us and the.
Our designing all of these the opportunity still there some of that came in and we just sort of shifted to from 19 two of quality.
<unk>.
So again in the automotive industrial and the first half of the year wasn't there by the.
Catch up in the second half of a year and in the computing communications and the.
And.
We'll also I missed the consumer of consumers and.
And in the beginning of stronger then none of the stronger than normal and our standard is probably even all of the pharma 2019.
And the.
This year.
We can see the weighting of we never forecast.
Macro economy condition, but we do see the the product and the.
And now we're facing a shortage of.
Amazon is on the on the on the the best buys.
We believe the end.
These are all of the wheel.
Okay. Thank you and congrats.
Our next question is from Rick Schafer from Oppenheimer. Rick Your line is now open.
Thanks.
My congratulations on the execution guys I'm sure it wasn't easy up there this quarter, especially.
Couple of questions I guess, I guess I'd like to ask.
A couple of your bigger growth pillars, maybe starting with auto.
I think it grew about 15% last year with Saar down about 15 or so.
Just optically it looks like you guys could do something around 50% growth. This year I mean, maybe you could talk about what leads that growth I mean is it a das.
Body control do you.
The <unk> kick in at all and kind of add.
Give a little more wind through the sales this year.
And I guess second part of that question I'm. Just curious are you worried at all of our indirect supply constraints potentially limiting the limiting your upside here.
Alright, let me.
Talk about your second part first.
And the growth overall for NPS is the limiting by hour.
Our capacities and utilization of <unk>.
Of total total capacity of the <unk>.
We have of.
<unk> thousand and 4000 of parts and the.
The.
It's inconceivable, we can utilize the empire anti capacities.
From the auto growth, yes, Okay. We are the Bonnie said earlier, we have Ada es.
And the.
And the start to ramp.
And the last last quarter also and we.
We have a more more customers start to ramp.
These are the very high end product and the and the.
We are very pleased with the MLP.
Are the products the EMA autos the Mecca.
We talk about it in the.
In the past decade from.
Lightning to lift gates too.
True.
A copy of the.
Audio of the pulse of power.
Power modules and then be in the.
In auto and the now and now we see start to ramp.
We just just at the beginning we see in all of these.
All of the of the products start to ramp.
But these are still.
At the beginning.
And Rick just one more point is that I think we have read that the auto industry.
Is suffering from its own capacity issues are being able to have a stable supply chain.
As I look at our Q1 numbers.
That is not directly impacting.
Our demand or our ability to ship.
Yes.
Though small in the.
And our market presence.
In auto industry, but the.
All of these the initial ramp and the.
And.
It changes the needle.
And the revenue stream.
Thanks, and Thats kind of what I was asking about I'm just worried if the secondary.
Supply constraints could end up hurt somebody else can't ship.
Maybe my second question, Michael just on cloud server.
If you could talk about how that data center ramp looks like for <unk>. This year.
I mean, just isolate still a needle mover or is it really more of SaaS on our rapid point of this year, where we're kind of maybe potentially see a step function and revenues.
As that starts to pick up.
Yes, I cant really the acronym these of named the with the.
The.
<unk>.
Uh huh.
Yes.
The $13 five.
VR 13.5, then the.
It's.
Most of it.
<unk>.
Is the ramp in the ramping now.
The way.
See the revenue growth the VL for teams I think of the of the albeit next year story.
Thanks.
Our next question is from Alex Vecchi from William Blair. Alex Your line is now open.
Hi, guys congratulations on the on the impressive quarter from me as well.
Maybe Bernie just on a more housekeeping question.
<unk> for gross margin at the midpoint of looking flat quarter over quarter is that a is that due to end market mix or are you are you seeing any.
Increasing manufacturing costs weighing on margins and then how should we think about sort of that resumption back to the 10 to 20 basis points going forward.
Yes, I came away all the.
You May now you see the consumers the second wave of growth too and we have of somewhere in the.
And the slightly even though with the.
Lower <unk> lower gross margin on the other hand, yes the manufacturer.
As the going up.
Okay. That's helpful.
And then just on your inventory days you guys have talked in the past about the 100 and the E 200 day target.
<unk> made some improvements this quarter.
How do we think about getting back to Q&A deal of inventory level in terms of timing.
Well.
So the demand keep coming.
The.
He is now in some of that game.
It would be difficult in the game.
When you think of the by the end of the end of the year isn't the wood.
Hopefully we can go back to 180 to 200 days of inventory.
Yes, I think if you look at whether it's the inventory that we hold on our books are particularly in the channel. It's very lean right now and then we've already discussed delinquencies.
We have a lot of the catch up to do before we really can get the model to the 180 to 200 day goal.
Understood and.
That's it from me I'll pass it on to the next.
Okay.
Our next question is from Quinn Bolton from Needham Quinn. Your line is now open.
Hey, guys.
From my congratulations as well just wanted to follow up on Alex's question on the on the delinquencies and your ability to catch up with some of those delinquencies I mean, how much of the ability to meet those delinquencies is going to come from the new 12 inch fab that you brought on line in the fourth quarter of last year are you able to qualify more parts and other.
The high volume runners on that fab or.
Just kind of curious your ability to actually get to secure more wafer capacity from your five foundry partners. In this very tight environment I guess a lot of companies are saying that they think of supply constraints.
It's going to remain constrained all year, which makes it sound like being able to get back to a 180% of 200 days.
Delinquencies is a pretty tall order in calendar 'twenty one yes.
Yes, it's a great question and thanks for allowing of the opportunity to give a little more context here.
With the new Fab I mean, we were very pleased to report as one of our highlights.
That we were able to qualify parts and be able to inventory and ship them.
But that process of qualifying more parts.
So the it can be meaningful as far as both deliveries and addressing our delinquencies.
The ongoing and it's going to require an investment.
<unk> both in the 12 inch capability as well as the new fab that we're bringing up in 2021. So just because we've qualified of few parts and we've got the process started.
It still takes about nine to 12 months before you have of the full capability of.
Yes.
In the quantity quantity, we increase our capacity by quantify it's plenty of of a farm out here Mike.
My rough calculation the.
It's about 20% to 25% increase last year.
I guess my follow up question was just on the Comm space. Obviously, you had three very strong quarters in 2020, and then one of your large customers.
The.
You were the only no longer able to ship I believe you may now have a license to resume shipments to that customer and I'm. Just wondering if that's the case do you have now perhaps some better outlook than you might of 90 days ago from the comms business in 2021.
We have a more clear from that game and the customer start to play a place of placing orders now.
Yes, I think there's two forms or as you identified one customer in particular.
And I think we might see that begin to ramp from the second half of this year, but I think more broadly other opportunities are starting to come.
Come on not just with the top tier, but some of the second share customers in the <unk> and infrastructure area.
Great. Thank you.
Our next question is from William Stein from Truest William Your line is now open.
Great. Thanks for taking my question.
Michael I'm wondering if you can update us on the longer term transition to selling more modules I know thats something that is from the long term perspective, potentially very accretive to growth and margins I think we're still pretty early in that process, but any any movement in the quarter that you'd like to highlight.
I think the.
The result of the very good.
And in the middle of this.
Uh huh.
Is the of Hi, Hi.
<unk> demand and the.
Tony can Brittany can tell you what is the.
The ramps all kind of what is the increased silica.
And the.
<unk>.
Yes, we had the.
Revenue doubled.
In 2020, and we exited the year, where it continued to increase sequentially each quarter.
And.
It's interesting because we thought that it would have more narrow applications.
Particularly in industrial.
But in fact, it's proven to be very broad based and also.
Is sustainable what I mean by that last point is that we thought that if people want to unit volume they might be more likely to.
So the components and just by Silicon and in fact, we're seeing a lot of people that are going in the volume shipments with the modules as well.
All of Cros.
Of all across our product lines that are so I don't have.
Of total numbers for the modules.
Roughly from like a 30 40 million of Auris now some of it came in.
Compare.
Compare a year ago syndicate is the.
But when you said at the half of that.
Great and then one other thing I'd like to ask about is.
Your NPS now service.
Did you see any change in that in the quarter I know, that's something that seemed to come online sort of just in time for.
The work from home Covid situation that I think it was very helpful. For you any change in that and any anticipated change. If we hopefully are able to return to offices in the next quarter or two.
Yeah. Kevin This is a it's a great help again, the we set it up the decade just of.
At the beginning of power.
Just the right before the pandemic that came in.
All of these are software the videos.
The things with <unk>.
Also of the.
The bank Okay.
The working bank share.
We just set a lot.
We turned the law when the pandemic happens and it's the receivable enormous.
Praise from our our our customers and in terms of how many new customers. So that's all really really carefully.
Careful way.
The increase a few percent farmed out from the video from the virtual Ocho bench.
Okay.
Great. Thank you.
Our next question is from Kevin Garrigan from Rosenblatt, Kevin Your line is now open.
Hi, guys congrats on the quarter and thanks for taking my question just a quick one from me.
The little this earlier, but in your automotive segment, you've expanded into several of those features of the automobile side of the kind of infotainment.
Can you give us the Gary can you talk a little bit about some of your design wins there.
You kind of seeing more design wins and the ones you already have our kind of those progressing.
Okay.
I should answer Rick.
Rick Schafer of the question of the more precise and of that.
The the Berry.
The BMS.
The we don't have a clear desire.
In the in all of those sites.
And but.
Your your question does the.
We have a pre.
Pretty much across the board and the.
From.
The body controls to aid us in to the <unk> and.
And the two later in the.
All in the also to all the sensors and we have pretty much.
Across the board, but our content.
All of.
The content when we expanded the from 100 of 50 to $140.
Essentially doubled it and.
But everything at the beginning of the NPS and the revenue is so small set of wages, but you'll see the you see the net change.
Yes on the dollar content. The just wanted to go back of that because it's an important part is this is not just unit sales, but some of the new applications that we're bringing on we go from having $10 of available content to upwards of 40 or $50 per a complete system.
We're getting both of the.
The unit as well as the ASP expansion.
The when I'm talking about our revenue as small as the compare the market opportunity is the we said we addressed the the billing of market segments.
<unk>.
Now.
Some of the products that became is of total that's of total standard and.
We only have all of us.
Just $1 million.
Revenue of 110 $110 million in.
Most of our new product the <unk>.
Ramping started from.
Last year.
The second half of the year.
Okay got it thank you.
Our next question is from Ross Seymore from Deutsche Bank Ross. Your line is now open hi.
Hey, guys. Thanks for letting me ask a couple of quick follow ups.
Just two quick ones first you mentioned in answering a prior question about your ability to ship to the formerly band product.
Our band customer is that just in the comm space or is that band some of why your computing and storage segment also went down sequentially in the fourth quarter.
So.
Again, we don't generally talk about individual customers. The census, one has gotten so much visibility.
<unk>.
We actually have.
Three primary lines of business.
With them one is in the consumer one is in the data center and the other is in infrastructure.
And the infrastructure, meaning comms right, yes, yes.
Gotcha, Okay and is there any difference in what you are able to ship going forward out of those three things are you able to ship all of them or is it just not the five day stuff, but the other two.
Well our products are there.
Again as the since the building blocks that came in the particularly.
Uh huh.
He is a former.
Im of Com business in the.
And also.
What's the.
The center the data centers and the shares are same product and the.
We don't the.
We don't know exactly what the.
Holiday divided by consumer device consumer device the more in the Chargers and the EMA.
The.
Now we know some okay.
It's a pretty much.
Let's continue.
Gotcha and then the last question a little bit more housekeeping wise Bernie what are you thinking about tax rate for 2021.
Yeah, so on a non-GAAP basis.
We've historically used seven 5% and now we've moved to 10% which represents that there is certain.
Stock comp that is not as the deductible as it was in prior years.
And then <unk>.
Looking ahead we're.
I'm not going to try to outguess, what the bite. The administration is going to do but I think that we need to be sensitive of the fact that there may be increases both in the domestic rate as well as.
A higher tax rate on any international products.
We don't know.
At this point.
Got it thanks guys.
Okay.
If there any follow up questions. Please click the raise hand button.
As there are no further questions I'd like to turn the webinar back over to Bernie.
Greg Thank you everybody.
I appreciate youre joining us for this conference call and look forward to talking to you again in the first quarter of 2021.
Which would likely be in the April timeframe.
Thanks, again and have a nice day.
Okay.