Q1 2021 Monolithic Power Systems Inc Earnings Call
Switching to the bottom line first quarter 2021 GAAP net income was $45 4 million.
Or <unk> 95 per fully diluted share compared with $42 9 million.
Or <unk> 90 per share in the fourth quarter of 2020.
First quarter 2021, non-GAAP net income was $69 5 million or $1 46 per fully diluted share compared with $52 5 million or $1 31.
Fully diluted share in the fourth quarter of 2020.
Fully diluted shares outstanding at the end of Q1 2021 were $47 7 million.
Now, let's look at the balance sheet cash cash equivalents and investments were $641 6 million at the end of the first quarter of 2021 compared to $598 million at the end of the fourth quarter of 2020.
For the quarter MTS generated operating cash flow of about $77 1 million compared with operating cash flow of $79 6 million in the fourth quarter of 2020.
First quarter 2021 capital spending totaled $19 million.
Accounts receivable ended the first quarter of 2021 at $84 1 million or 30 days.
Sales outstanding up four days from 2006 days at the end of the fourth quarter of 2020.
Our internal inventories at the end of the first quarter of 2021 were $175 million up from the $157 1 million at the end of the fourth quarter of 2020 day.
Days of inventory increased to 141 days at the end of Q1 2021, compared with 137 days at the end of the fourth quarter of 2020.
Historically, we've calculated days of inventory on hand, as a function of the current quarter's revenue.
We believe comparing current inventory levels with the following quarters revenue provides a better economic match.
On this basis, you can see days of inventory increased slightly to 128 days at the end of the first quarter of 2021 from 126 days at the end of the fourth quarter of 2020.
I would now like to turn to our outlook for the second quarter of 2021.
We are forecasting Q2 revenue in the range of $274 million to $286 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 five $2 56, 1%.
GAAP, R&D and SG&A expenses between $95 $9 million and $99 9 million.
Non-GAAP R&D and SG&A expenses to be on the range of $65 5 million to 67 5 million.
This estimate excludes stock compensation and litigation expenses.
Total stock based compensation expense of $31 4 million to $33 4 million, including approximately $1 million that would be charged to cost of goods sold.
Litigation expenses, ranging between two three and $2 7 million.
Interest and other income is expected to range from one three to $1 7 million before foreign exchange gains or losses.
Fully diluted shares to be in the range of 47, 3% to $48 3 million shares.
In conclusion.
We have paved the way to multibillion dollar revenue.
I will now open the webinar for questions.
Okay.
Thank you Bernie analyst I would now like to begin our Q&A session. As a reminder, if you would like to ask a question. Please click on the participants icon on the menu bar and then click the raise hand button.
Our first question comes from Joshua the culture of Cowen Joshua Your line is now open.
Yes, Thanks for taking my question and congrats on another set of solid results I was hoping you could elaborate on the inventory dynamics one of the few companies that.
We invested proactively ahead of the supply issues across the industry, but they're still not near year 180 to 200 day target.
Just wondering how youre thinking about balancing rebuilding the channel versus taking business and some of your peers cancer and also the share gains. Thank you.
Well.
As we spend continued to expand our our capacities as we said earlier and as.
As we said in the last quarters and I think of the World, We expect with the current rate of increase.
So.
The capacity will be the end of the year or early next year, we'll achieve that type of inventory. So that if the demand is not continued to increase.
This much.
And I think it's notable Josh.
<unk>.
We did increase both in terms of dollars and days the amount of inventory, we had from Q4 to Q1, which rounds runs counter to the.
The capacity constraints in some peer companies are experiencing.
Alright, Thank you that makes sense.
Any more granularity you can provide.
In the guidance by end market for next quarter any any of the buckets moving.
Materially more than the others, thanks, and congrats again.
Yes, I would probably look to compete.
Computing.
Where there was a couple of quarter GAAP in data center.
Data centers should begin to take off again.
I think automotive.
Appears to be continuing to grow nicely both in terms of year over year performance and sequentially.
And also we're seeing that same continuation.
In consumer.
Our next question comes from Ross Seymore of Deutsche Bank Ross. Your line is now open.
Hey, guys. Thanks for letting me ask a question I wanted to talk about the sustainability of demand.
Recently in this earning season a lot of semi stocks sold off on really good numbers and it clearly it looks like the market is worried about double ordering those sorts of peak cyclical activities can you talk a little bit about how your visibility has changed if at all over the last quarter from the demand side of the equation in any kind of general puts and takes.
About how you view the second half of the year I know you are only guiding for <unk>, but.
Any sort of company specifics are general trends that you'd like to highlight in the second half of the year would be helpful.
Yes, Okay and.
Of course, the way concerning a double orders came in.
In the past that we said that we have a rigorous procedures to prevent a that okay and.
Partial we partly seeing partial shipments.
Last six quarters, and we make sure our customers have a very minimal.
Very minimal on hand inventories and the same times net preventing deadline downs market.
Production lined out.
So go back to your question, but what's the demand on the market we believe.
All of our demand.
Sustainable the reason, we said that.
Bernie said earlier.
In our script and on that.
For us these are greenfield market Greenfield product lines, we started two to growth and.
But when you said 37, 37% of our products. So we grow all pharma, new our new product.
We released from the last three years and.
There is no reason to believe next two years the next next.
Next year.
On the non <unk> been talking about the next six months I am talking about next couple of years. These products will continue to growth.
And at the same time.
Product that we released in the last two years that we will continue to to <unk> total revenues.
In the 12 months.
Later.
So we believe our growth is sustainable.
Okay. Thanks, Michael I guess for my follow up a little more specific on one of your segments. The communications area has been very very volatile I know, there's bans on different customers that can ship at different points in times, but can you talk a little bit about what's driving the sequential growth that was up so much in the first quarter admittedly off of a weaker.
Our quarter and then as this year progresses, how do you see that market, specifically more on <unk> side of things rather than the networking and gateway sites.
We see.
As a matter of fact to Marcio to talk to.
We have a communication committee.
Acacia meetings with top tier.
Our non Chinese <unk> makers okay.
And.
The non.
That market segment, so well picking up and.
Well believe okay.
They believe.
This year.
And.
And the next year they are on this.
On the on the delinquency too.
We believe we're very well positioned just as Michael said there.
The reach new customers that we're addressing the <unk> solution is.
Very broad so.
<unk>.
We think that.
As the market gains momentum, we're very well positioned to take full advantage of it.
Great. Thanks, guys and congrats again, thank you. Thank you.
Our next question comes from tourists Bomberg of Stifel. Your line is now open.
Yes, Thank you Michael and Bernie Congrats again on a very strong quarter. First question I was hoping you could talk a little bit about your share gains, especially during times when capacity is really tight so your solutions tend to be more integrated especially versus discrete.
And a lot of those discrete are in shortage. So.
I'm just wondering if you are seeing an acceleration in your share gains doing this very tight semiconductor environment.
Well it's up.
If examples I can give you a couple of example, a couple of scenarios.
If we are in.
Dual sources.
Our competitors are using our customers using two or dual source or.
Or triple sourced.
And ours tend to be low more or fewer component then.
Than our competitor.
And that is a one one interpretation why the domain.
We're gaining so much demand.
<unk>.
And another.
Another scenario.
For the futures and we gain market share is because.
Just the reason because.
For those new products, there are new project the shipping.
Putting our production for next six to two.
<unk> hundred 12 months, and we have a lot of design wins lately.
Great and as my follow up on you talked about the contribution from the new products. I know you are not going to give us specific information on pricing, but is it fair to say that the Isps now on those new products are considerably higher than perhaps the last year on too.
Yes.
<unk> margins are we stay on low cost and whatnot.
We're not looking for.
Hygiene price hikes.
And that probably is not sustainable so Nokia I think upward protects our models on that.
And going the same training.
On the before and bucket.
Yes.
Just to add to that.
Yes, certainly the new products, we're introducing and particularly those that are more heavily integrated.
On the mix of business does favor.
Asps for those new products.
Yes.
Okay. Thank you congrats again, thank you. Thank you.
Our next question comes from William Stein of choice. William Your line is now open great. Thanks for taking my questions Ernie you.
I think it was you in the opening remarks, you said something about paved the way for accelerated growth.
I'll know monolithic system.
Pretty amazing job with regard to growth relative to the industry, but.
Should we interpret that as meaning perhaps we stay above 20% for a more protracted period of time.
I think that's all we see it now and and always be announced and that can be.
A year or two years ago, Okay, we only grow like 8% again.
Last year <unk> something's on that.
And this year, so far so on and we're in a very high high percentage and.
So we looked at.
This kind of way we will it will continue.
Yeah.
I think thats the message that we've tried to say in the.
Formal comments and Michael added to that if you look at the.
The reason for our growth.
Last year and this year.
It has much more to do with market share gains and new products and having developed our supply chain.
Then it does necessarily rely upon.
Just the <unk>.
Router market.
And so certainly in 2019, we had high expectations and we were we're not immune to downturns in the market.
But I think that.
If we.
Have a more normalized demand.
That we can perpetuate this accelerated rate of revenue growth.
Perhaps in excess of the 20% Mark.
And then along these lines I think a couple of other questions might've, even alluded to it with regard to higher asps.
I think a big driver of that is your.
Transition to selling more of these modules those types of more complex integrated solutions.
Is that the case and I'm, hoping you might quantify that for us I think in the past you've talked about growth rates at least offline.
The module business, maybe you can talk about whether this is reaching.
Size, where it makes sense to disclose revenue from that piece.
Yes, the module business.
Is doing really well to <unk>.
Module Slash E Commerce business is doing really well and I think it wouldnt beginning to find a way household growth.
That business by no means this is a bit of a full blown yet a full blown business, yes, we have been really well.
Breaking up.
<unk>.
But that business now.
I see it in it's.
It's much higher ASP.
And that will start to grow like two years out will be a significant difference and.
Significant.
Up.
Contribution to the to the revenue growth.
One other aspect to add.
<unk>.
Is that if you look at certain of our end markets and all.
Automotive as an example.
Much more of what they are demanding is not force specific I see they want to have a system solution. So.
If you look for example at autonomous driving our aid off.
There has to be built in sales safe redundancy you have to have systems communications throughout in the example, amusing here.
Coordinate.
The cameras sensors and the processor and so you are buying you are creating entire chipsets for a dynamic solution.
Just by the natural consequence of how Youre designing those solutions they have significantly higher ASP.
And to.
To elaborate on that and then these are not restricted to only a semiconductor that we designed.
We are also and tie solutions.
And.
We designed it NPS don't produce anything by NPS, okay, including semiconductor we designed us on with designers semiconductor at the same time that we design.
Other components and now.
Now as Bernie said earlier, even in the automotive business with selling solutions rather than in.
In the past, we were selling a single piece of silicon.
And the two or three years later.
How are you.
How can you specify is on NPS, a semiconductor company, but we are a solution providers and we sell solutions much higher.
Hi.
ASP.
Yeah, that's great. Thanks, guys.
Thank you very much.
Our next question comes from David Williams of Loop capital David Your line is now open.
Thank you and congrats on the quarter.
Thanks, David.
Okay I wanted to touch on the capacity expansion and you had mentioned this earlier, but how is that progressing and I guess is it moving at the same pace as you would have expected just kind of given some of the tightness that we're seeing within the industry is or maybe is that moving at the pace you expected and maybe the pricing of that anything anything surprising there.
Yes capacity.
Expansion, we mentioned about six quarters ago. So on that came in we steadily increase.
And the last year and we did.
Some.
Extra works to increase the capacity based on that day.
And from now on profit.
Probably a pretty continues.
Kind of.
Increased okay.
<unk>.
So puneet you can you can comment.
I think we've been clear that.
In 2020, we brought up the 12 inch fab and now we're continuing to qualify parts on that in 2021, we're midstream on bringing up an eight inch capacity were continuing to qualify parts one of the underreported stories here is.
Is that we have existing relationships with our fab partners that date back as long as 15 to 20 years.
And they are excellent relationships and we've been able to manage both in terms of.
When there is under under capacity in overcapacity.
We have very even handed relationships so even within our existing.
Foundation or base.
Debt.
<unk> been encouraged and been very positive contributors.
Helping us add capacity as well so.
I think the important point here as we said in our earlier comments is that continuous investment has always been a part of MTS that's a differentiator.
And that.
We see it as being able to.
Expand over the next several years in order to keep up with the increased demand that we're anticipating.
Great and then maybe just on the leverage you think that that's remaining in the model here. Obviously, there is quite a bit that's embedded but how well.
We're thinking that gross margin at the us oriented maybe even the operating margin where do you think those could go to as you really start to hit on all cylinders and and and.
And get the revenue.
And that you have mentioned.
Well revenue acceleration would need to continue to.
To invest and the obvious landside, we can't grow out of this thing are on it many times.
And.
As long as law.
The growth rate there can we see the growth rate.
In the in.
And our next four years in the next 12 months and once we see that where we invest.
Okay. Thank you.
Our next question comes from Rick Schafer of Oppenheimer. Rick Your line is now open.
Thanks, Hey, guys I'll add my congratulations as well.
Maybe a couple of questions by end market and I guess, the first one on automotive.
Outgrew.
<unk> by 35%, 40% last year.
I know, it's tight component supplies kind of curve first quarter auto production didn't seem to hurt you guys too much I know Youre your auto business I think was up almost 100%.
So I guess my question is do you see that as an ongoing risk or something that could it could.
Impact your auto growth I'm curious.
You almost doubled it this past quarter I mean could it have been better if it worked for for components.
By constraints out there, whether they're direct or indirect or.
I guess any science these or are things getting better yet in that auto food chain.
Yes.
Our growth is the restricted by the shortage of a component of pharma, our our customer size, we don't really know and that came in.
On the other hand.
Total market share is addressed addressable market.
Where NPS in the so small so teeny tiny.
And.
So we will notice and all of these greenfield product growth I came in.
These are new demand and.
Right off the bat.
And.
These products are just taking off.
Okay. Thanks.
Oh, sorry Bernie.
Im sorry, just to add one more quick comment we have seen nothing at this point.
To indicate that there has necessarily been a slowdown in ordering in automotive.
So again as <unk>.
Michael said, we cant make a guess as far as whether there is a limit on demand, but we see continued strong.
Numbers on our backlog.
Great. Thanks.
And maybe just a follow up on the Hyperscale SKU highlighted Bernie I think you mentioned hyperscale spend kind of picking up for data center starting to show signs of life. So.
I'm curious just with the launch of ice Lake and things are we arent picking up share in that elsewhere as well as the Hyperscale is getting better.
How do you see I guess Qs Mod data center, how do you see that ramping this year I mean is it relatively linear from here are we going to see a second half.
Inflection of some kind is that kind of builds from a nurse.
I'm also curious.
I think last quarter, you talked about 48 volt, a little bit I don't know is it just.
Too much too small to kind of break out we're talking about or can you give a sense of what kind of contribution <unk> 48 volt Qs mod.
It is now thanks.
Sure. So let me start with the 48 volt question.
On.
I believe that there is significant.
Growth opportunity for us in 48 volt I think we're very well positioned.
For us those Gpus.
And down the road in the eventual.
AI.
AI applications.
There are even automotive applications that we're positioned.
<unk>.
If it was not in six months nine months, where the revenue will be a significantly.
So then turning to your other point the point of inflection for Qs Mod and remember just for everybody elses benefit.
That's our dynamic power management for the CPU processor.
That.
Really we see.
Good growth in what we refer to as VR $13 five but it's when it goes to seven nanometer via <unk>, which is expected for next year.
That's where we might get much more of an uplift market share gains.
Got it thank you guys.
Our next question is from Quinn Bolton of Needham. Your line is now open.
Thanks ill offer my congratulations.
And Brian just my first question is I think.
You've sort of said 2020 in 2021 would be investment years, which would somewhat constrain your operating margin here in the near term it looks like your revenues come in stronger than expected and so even with that investment your op margins expanding in from doing my math right. It looks like op.
Margin will be over 31% in June how should we think about your level of investment as revenue continues to come in better than expected will you continue to invest or do you think you'll you'll drive further operating leverage going forward.
I think up to a net.
From now and we see the.
Growth opportunity is.
It's even higher than the last than the three years ago, and so we will continue to invest as long as we see that as long as we can keep up that kind of growth rate and that is and also what would definitely slow we've gotten some okay.
Until we regroup okay. So far.
So far we see.
So much opportunities.
There's no I guess, that's a good problem yeah yeah.
Yeah.
I do think that there are further opportunities for operating margin expansion, but I think that we've tried to be clear on this during the chicken. The last 18 months that we see that there's more value to our shareholders in being able to accelerate the rate of revenue growth and that's really where we've been putting most of our emphasis on.
Yeah.
Got it and then the second question is I think you touched on some of this with your disclosure that new products were 37% of sales, but obviously as the investment community worries about how much double ordering maybe going on given the overall industry tightness.
Tightness I guess I'm wondering do you guys have a figure you can give us for as a percentage of your products that are either sole sourced <unk> new products, because I think where the.
Threat of double ordering maybe would be on older products that are dual sourced and so I guess I'm trying to figure out what percentage of your revenue today might be from older products.
That could have alternative sources.
Yeah, let me put it that way, okay, we have 37% of our products we have.
45000 products.
As I think about it okay and these are 37% of our product and the January all these on revenue.
A portion of our revenue is still relatively small.
And still stood still in the ramping stage and.
Those product and.
Both product.
Mostly as a single source.
And.
As you said these are legacy products.
Once the production volume ramp.
Somewhat stabilize and that they will have a second source.
Of course, we clearly we experienced some.
Agency Force.
And on.
Or even double ordering Duncan and.
We said on which we try to keep a very very minimal.
Just prevent number lined down at the same time.
We prevent them on <unk>.
Korea carry too much of the inventory.
I don't know if I answer your answer your question maybe.
Yeah.
That's helpful. I guess last quick one for you Bernie do you expect to increase your absolute inventory dollars on hand in the June quarter.
Yes currently that's what we are modeling yes.
Now again Michael.
Careful to add.
This is.
The supply chain, we have pretty good visibility on that.
On the demand.
We have to continually try to test and make sure we understand that so on.
On the supply chain, we're looking at continuing to increase the dollar value of inventory.
Sequentially in quarters.
And demand, we just have to continue to reassess.
But as Michael also said.
Our time horizon has more to do on the demand front.
Over the next 15 to 18 months as opposed to anything that we're concerned about in the next quarter or two.
Got it thank you.
Our next question is from Kevin Garrigan of Rosenblatt, Kevin Your line is now open.
Hi, guys, let me Echo my congratulations on the <unk>.
<unk>.
Rick one for me.
You alluded a little to it before but I'll just kind of wondering how youre MTS now service E Commerce business day, this quarter and how that.
This compares to last quarter, which I believe also has some pretty strong growth.
Looking a little further out as things start to open back up do you think that business will take a pause.
I don't think it's a bit of us taking a pause.
We just started.
Okay.
That would be a very upsetting.
Taking a pause.
And if we're taking a pause block cave, we probably we probably well at this time, we're still learning and may pick up on so okay.
And that's something we haven't really figured out okay.
But so far in the last three.
All four or five quarters.
And the.
Our measurements that way.
No way in place.
That we put in place in that case, they are keep going up and up and the orders in <unk>.
And then interacting and.
The demand creation the value of the index for the main Creek for a day bank.
Creations to keep increasing.
And I think they will turn into a revenue soon okay and the change to a much bigger revenues.
Kevin if I could add to that a little bit.
The e-commerce and the NPS now.
Just two legs are two aspects of the much larger story of how we transitioned from a IC company to a solutions provider that also includes.
Providing fully.
Complete reference designs.
And a broad array of solutions in all of our different end markets.
So this is really proving the longer term model.
While we are still learning and the numbers are still relatively small we are in the early innings of this.
Everything is very encouraging.
We're headed in the right direction on to something that.
Is very sustainable.
Got it that's very helpful. Thanks, guys.
Thank you.
If there are any follow up questions analysts please click the Reed <unk> Barton.
As there are no further questions I would now like to turn the webinar back over to Bernie.
Thanks Jen.
Like to thank you all for joining us for the Q1 2021 earnings Webinar I look forward to talking to you again during our second quarter conference call, which will likely be on July. Thank you have a nice day.