Q2 2022 Monolithic Power Systems Inc Earnings Call
And I will be the moderator for this webinar joining.
Joining me today are Michael Hsing, CEO , and founder of MTS, and Bernie Blegen, VP and CFO .
In the course of today's webinar, we will be making forward looking statements and projections that involve risk and uncertainty, which could cause results to differ materially from management's current views and expectations.
Please refer to the Safe Harbor statement contained in the earnings release published today.
Risks uncertainties and other factors that could cause actual results to differ are identified in the safe Harbor statements contained in the Q2 earnings release and in our latest 10-K and 10-Q filings that can be found on our website.
<unk> assumes no obligation to update the information provided on today's call.
We will be discussing gross margin operating expense R&D and SG&A expense operating income other income income before income taxes net income and earnings on both a GAAP and a non-GAAP basis.
non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for or superior to measures of financial performance for prepared in accordance with GAAP a table that outlines the reconciliation between the non-GAAP financial measures to GAAP financial measures is included in our Q2 'twenty.
'twenty two earnings release, which we have furnished to the SEC and is currently available on our website.
Now I'd like to turn the call over to Bernie Blegen.
Thanks, Jim.
MTS achieved record second quarter revenue of $461.0 million 22, 1% higher than the first quarter of 2022, and 57, 2% higher than the second quarter of 2021.
This broad based year over year revenue growth was the result of consistent execution against our strategies.
Turning now to the second quarter 2022 revenue by market.
And our enterprise data market.
Quarter 2022 revenue of $65 $2 million increased 53, 4% from the first quarter of 2022, primarily due to an accelerated ramp in our datacenter and workstation computing sales.
Second quarter 2022 revenue was up 117, 9% year over year.
Enterprise data revenue represented 14, 2% of Mps's second quarter, 2022 revenue compared with 10, 2% in the second quarter of 2021.
Storage and computing revenue of $122 $3 million increased 26, 6% from the first quarter of 2022.
The sequential revenue improvement reflected higher commercial notebook and storage sales.
Second quarter 2022 revenue was up 111, 6% year over year.
Storage and computing revenue represented 26, 5% of Mps's second quarter 2022 revenue compared with 19, 7% in the second quarter of 2021.
Second quarter consumer market revenue of $97 $3 million increased 21 seven.
7% from the first quarter of 2022.
The sequential quarterly revenue improvement was broad based with particular strength noted in home appliances and gaming.
Second quarter 2022 revenue was up 27, 9% year over year.
Consumer revenue represented 21, 1% of MTS second quarter, 2022 revenues compared with 25, 9% in the second quarter of 2021.
Second quarter 2022, industrial revenue of $55 9 million increased 15, 1% from the first quarter of 2022.
Reflecting increased sales of products for power source and security applications.
Second quarter 2022 revenue was up 28, 9% year over year.
Industrial revenue represented 12, 1% of our total second quarter 2022 revenue compared with 14, 8% in the second quarter of 2021.
Second quarter automobile revenue of $61 million increased 11, 9% from the first quarter of 2022.
Primarily due primarily to increased sales of applications for advanced driver assistance systems, the digital cockpit and lighting products set.
Second quarter 2022 revenue was up 25, 3% year over year automotive revenue represented 13, 2% of Mps's second quarter 2022 revenue compared with 16, 6% in the second quarter of 2021.
Second quarter 2022 communications revenue of $59 $3 million was up six 7% from the first quarter of 2022.
Most of the sequential revenue increase was related to <unk>.
<unk> infrastructure.
Second quarter 2022 revenue was up 58, 3% year over year.
Communications sales represented 12, 9% of our total second quarter 2022 revenue compared with 12, 8% in the second quarter of 2021.
Moving now to a few comments on gross margins GAAP gross margin was 58, 8% 90 basis points higher than the first quarter of 2022, and 280 basis points higher than the second quarter of 2021.
Our GAAP operating income was $141 9 million compared.
Compared to $96 1 million reported in the first quarter of 2022 and <unk> 66.
Million dollars reported in the second quarter of 2021.
non-GAAP gross margin for the second quarter of 2022 was 59, 8% up 70 basis points from the gross margin reported for the first quarter of 2022, and 270 basis points higher than the second quarter from a year ago.
The quarter over quarter and year over year increases in both GAAP and non-GAAP gross margin is attributed largely to operational efficiency gains and a more favorable sales mix.
Our non-GAAP operating income was $179 4 million compared to $133 6 million reported in the first quarter of 2022.
Let's review, our operating expenses, our GAAP operating expenses were $129 $1 million in the second quarter of 2022, compared with $122 7 million in the first quarter of 2022, and $103 6 million in the second quarter of 2021.
Our non-GAAP second quarter 2022, operating expenses were $92 7 million up from the $86 $6 million. We spent in the first quarter of 2022 and up from the $73 million reported in the second quarter of 2021.
The differences between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are primarily stock compensation expense and income or loss on an unfunded deferred compensation plan.
For the second quarter of 2022 total stock compensation expense, including approximately $1 $2 million charged to cost of goods sold was $42 $9 million.
Compared with $39 8 million recorded in the first quarter of 2022.
Our second quarter 2022, GAAP other income.
Other expense was $5 $1 million compared with $634000 in the first quarter of 2022.
Our second quarter 2022, non-GAAP other expense was $7000 compared with non-GAAP other income of $1 6 million in the first quarter of 2022.
The decrease.
This is due to a $2 million increase in charitable contributions, partly offset by the favorable impact of currency exchange rates.
The difference in non-GAAP other income.
GAAP other income is the income or loss on an unfunded deferred compensation plan.
Switching to the bottom line second quarter 2020 to GAAP net income was $114 7 million or $2 37 per fully diluted share compared with $79 6 million or $1 65 per share in the first quarter of 2022, and $55 2 million or $1 <unk>.
<unk> per share in the second quarter of 2021.
Second quarter 2022, non-GAAP net income was $157 million.
Or $3 25 per fully diluted share compared with $118 3 million or $2 45.
Per fully diluted share in the first quarter of 2022, and $86 5 million or $1 81.
On a per share per fully diluted share in the second quarter of 2021.
Fully diluted shares outstanding at the end of Q2 2022 were $48 3 million.
Now, let's look at the balance sheet cash cash equivalents and investments were $814 1 million at the end of the second quarter of 2022, compared with $775 9 million at the end of the first quarter of 2022.
For the quarter NPS generated operating cash flow of approximately $105 2 million.
Compared with Q1, 2022 operating cash flow of $107 4 million.
Accounts receivable ended the second quarter of 2022 at $125 $5 million, representing 25 days of sales outstanding which was four days lower than the 29 days reported at the end of the first quarter of 2022, and one day higher than the 24 days in the second.
Quarter of 2021.
Our internal inventories at the end of the second quarter of 2022 were $359 $6 million.
Up from the $311 million at the end of the first quarter of 2022.
Days of inventory of 172 days at the end of the second quarter of 2022 were six days lower than at the end of the first quarter of 2022.
Historically, we have calculated days of inventory on hand, as a function of current quarter 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 of 162 days at the end of the second quarter of 2022, which were 13 days higher than the 149 days at the end of the first quarter of 2022.
And 44 days higher than the 118 days at the end of the second quarter of 2021.
I would like now to turn to our outlook for the third quarter of 2022.
We are forecasting Q3 revenue in the range of $480 to $500 million.
GAAP gross margin in the range of 58, 4% to 59%.
Percent.
non-GAAP gross margin in the range of $58 seven to 59, 3%.
Total stock based compensation expense in the range of $42 8 million to $44 $8 million, including.
Approximately $1 $3 million that would be charged to cost of goods sold.
GAAP R&D and SG&A expenses between $136 2 million and $142 million.
non-GAAP R&D and SG&A expenses in the range of $94 7 million to 96.
$7 million.
Litigation expense in the range between two three and $2 7 million.
Interest and other income in the range from one three to $1 7 million before foreign exchange gains or losses fully diluted shares in the range of 47 nine to 48 9 million shares.
In conclusion.
We are continuing to execute on our growth strategies, including expansion and diversification of our R&D centers and manufacturing partnerships in multiple countries I will now open the webinar up for questions.
Thank you Bernie.
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 buckhead.
Our first question is from Rick Schafer of Oppenheimer Your.
Your line is now open.
Thanks.
Congratulations you guys another great quarter.
Thank you Michael for the question given the guidance, but I'm. Just curious are you seeing any impact from the delayed launch of Sapphire Rapids.
I mean, I know, you're you're accelerating content is a lot higher than your your CPU core power content I think 48 volt and please correct me if I'm wrong I think our math shows 48 volt track into sort of a $100 million. This year. So I guess I'm just I'm just looking at sort of the puts and takes I know this is.
Pretty good pretty much a monster guide, but just curious if youre seeing any drag there from that from that delayed launch.
So far we see for the next year or so.
All our growth is these are as you know these are all greenfield and that gave me an we don't.
All the products that were designed to being in the last few years.
Therefore, whatever.
The version of it and.
So.
If there's a delay the one things that we actually care less and.
Okay.
NPS controls.
Sure.
But overall we have.
As a higher power processor and.
It's.
NPS can provide much higher benefit to those market sentiment. So is that off of about a half years in a year and some that.
We don't notice it.
In this period.
And we are.
We can gain more market shares.
We grow from.
<unk> is an existing business that we have a plenty of it to two growth.
Okay. Thanks, a lot Michael for the color and if I could follow up maybe on the supply question.
The majority of your wafer supply is still.
Two in China.
Plus you've got your big Chengdu backend facility. So I guess, how concerned are you with with trying to de risk.
Apply chain as we keep watching headlines with the U S government trying to tighten restrictions et cetera on equipment and everything.
China. So just curious your thoughts there and maybe as part of that if you could talk about where things stand now with with TSMC and give a sense maybe of timing and capacity plans there.
Yes.
Yes.
And just like any other company some okay clear.
Clearly, we're transitioning out of the last 20 years of our manufacturing from China to other places.
All of these the infrastructure has to be bid up and and.
We just to Mecca.
The company Sunoco, Inc.
In a transitioning to actually we started transitioning earlier.
We first started from our engineering manpower.
And then we transition out of.
Six seven years ago and.
Six years ago and that manufacturers, who.
We started about three years ago and as you know, we you always use a trading edge of a DRAM fab, Okay, Alright digital fab.
Fab.
And.
<unk>.
Three or four years ago, and clearly some of these.
These are high no.
60, nanometers, and 40 nanometers and Fabs, Okay, all engaged with it with the NPS.
As we have a reputation so we will fill up all of these effects and announce the opens up and careers in the mean time lines.
These are the places now some okay.
We're only talking about a fab discipline now.
In the next few years, so again it would be would be.
I can't say to move move out of China. Some okay.
Two bigger capacity some okay, and we have a large market segment.
Our.
30% of our revenues from.
From China.
In the next year or couple of years in <unk> next year.
It would be a very diversified.
And just to add to that.
As the capacity restrictions are becoming less of a concern for the market in general.
Customers are asking for diversification is in a China plus one strategy.
So we're working along those lines in companion to expanding our overall capacity yes.
They all require each region and they require.
The local suppliers, that's where we're playing our games and they came in that's.
Our customer request.
<unk>.
So we are fully aware of it.
So we engage with all of these fabs okay.
South Asia.
Europe .
In Korea.
No.
And Japan and so.
That's how I see it.
Okay. Thanks, a lot for the color congrats again.
Our next question is from Matt Ramsay of Cowen Matt. Your line is now open.
Thank you very much guys hopefully you can hear me okay.
Congratulations on the results. So I had two questions and I'll. Just go ahead and ask them out at the same time, because I think we got multiple calls going Tonight.
First one Michael both in the server business. So the new enterprise data segment and in the PC business could you give us some indication of how far ahead of the unit sales to your power.
Your core CPU power on accelerated power products actually sell in.
Versus the unit.
Shipments that they get reported by the end customers.
Bernie the second question completely unrelated 800 million Bucks in cash give or take if you get to kind of walk us through some of that.
The uses of cash the answer Michael would like to build some inventory, which is kind of always the case, but if you have any new things to say there that'd be really helpful. Thanks, guys.
Well firstly to your first question, what I would honestly say I don't really know.
It's difficult.
And as you know and like.
We sell.
These are building blocks.
<unk>.
Four.
More or less in the.
In.
In our server.
Dennis centers areas.
<unk>.
More generic parts and that they can be they can be used in multiple ways.
And it's hard to track.
And frankly, we don't really care.
And as long as the way our revenue goes up.
And for very high of powers and these Apollo that got 40, Ables Apollo's them. Okay. We do have a pretty good dominant players.
In our segment.
So much.
I think I'd ramp Hasnt really just started.
<unk>.
We'll be in the future that would be a lot more.
But.
<unk> mentioned about you mentioning about our notebooks.
We're mostly in the.
In high.
High performance gaming or mostly in them.
In our commercial book.
And.
Number of our sets.
And.
The CPU versus the Cpus is also hot too.
<unk>.
How to match.
<unk>.
Because we are selling these apologize licenses they can it can be.
There can be some two phase so they can be three phase that it can be full face okay.
We don't quite know okay.
And then also we care less and so.
So it's difficult to answer so all these are notebooks or the high end and high end gaming site in our gaming notebooks and in our commercial and so these are the ones that are.
If they have a variety of it.
Yes.
And on the issue as far as our cash position, which is putting on the table, it's sort of an enviable position to have over $800 million of cash and cash equivalents.
And there's probably three things that we look at.
The first is we've been consistently paying out routine dividend.
This year, it's $3 75 per quarter or $3 for the full year and we're evaluating the sustainability.
And even at higher level.
We generally announce dividend increases in February companion with our Q4 operating results and we'd expect to do so again this year.
Another area that.
We found is very key and strategic to US is building out capacity.
We're looking as Michael said earlier for different avenues in order to build out additional capacity and some in some cases that may require additional investment and then finally as you also added is in working capital and making sure that we have adequate inventory on hand in order to.
Our sustain our customers.
Demand profile.
And so right now were still below our target of 180 to 200 days of inventory. So we will continue to be investing in inventories as well.
Yeah.
These are <unk> and all the other expenses that they are small.
Relatively compare that the cash that we generate every year.
<unk>.
So what we want to do this.
That's probably the NPS and all the best.
<unk> be consistent and we'd give us increase our revenues.
Unit and that vessel.
We have being doing a note in the past few years and we will continue to do so and also we don't what we would do some acquisitions, but not acquisition for revenues.
Our next question is from William Stein of choice. William Your line is now open.
Thanks for taking my question and congrats on the great results and outlook.
I tend to ask about is traction in the module business because I know that this is something thats, helping boost the revenue growth and the margin I'm, hoping you can maybe update us on.
The traction in that business. Please.
The module is doing well some that came in.
But the revenue is still small.
<unk> million dollars.
But.
I know in the next few years will grow double or triple it.
And that's what we've seen in.
In the in our pipeline.
Design win activities.
So as we said orca.
A few years ago, we do e-commerce on Okay, what we do.
Programmable modules.
These are shown true benefits too.
Two hour.
Our.
Our customers truly realize it yet.
Yes, I would say that.
Particularly as we had this supply demand imbalance.
Our customers are also looking for.
Enabling technologies.
That.
The decision process for earning a design win where historically had been just on the lowest cost provider.
Now things like the Programmability the flexibility and.
The time to market total cost of ownership.
Or taking a larger.
Waiting in the decision process and we feel like we're very strategically positioned to take advantage of that change in the market.
That's great and as a follow up if I can.
I'm wondering if you can talk about.
Your lead times now and how they might have changed in the last.
I don't know a couple of months and the degree to SaaS in the competitive advantage. My understanding is that you are offering lead times that enable customers to switch away from competitors products.
Lead times that are so long that it suddenly makes sense to switch.
Sort of comment or update on that would be helpful. Thanks, guys.
Our lead time, it really hasnt changed much and we're soon.
We are still under a lot of delinquencies.
That's a good thing because as Bernie said earlier.
All of the benefit.
Our product technology, and finally, our customers realize that.
<unk>.
<unk>.
High demand in that.
Even though I.
I think due to that.
The new design win activities and.
They are they are switched to this type of a new new.
New technology, a new design methodologies and.
That would really benefit NPS and the same time that we had to.
We had to.
Increase our capacity.
Not only from China.
And then globally, that's our our customer demand.
Yes.
Top off that answer is that.
I don't think our lead times were necessarily different from anybody else necessarily in the industry.
But we had the advantage of having so many new products coming out in the market Greenfield opportunities that we invested ahead of the curve and Thats, where we were able to have product availability when others didn't.
Thanks, guys.
Yes.
Our next question is from Quinn Bolton of Needham Cohen. Your line is now open.
Hey, guys. Congratulations on the nice results I guess.
Would love to ask obviously, we've seen some in the compute space Intel and micron offering much more subdued outlook for the second half I think theres clearly some inventory <unk> going on in the channel and I'm. Just wondering obviously your September guidance is very strong, but as you look at your order book have you started.
To see any changes in the notebook or compute and storage and enterprise data Center segment.
By Echo some of the comments referred from folks like Intel and Micron.
In the broader market and then I've got a follow up.
We.
For the for the notebooks.
And.
For our side us steel demand is still pretty good.
Still good and look at man.
And.
Okay.
I think.
The orders and the.
The order of slow down then Ben than before and.
But we still have a delinquency.
And for memory site.
Before for memory sites and the amount of our new format. Okay starting.
We are still facing some shortages now.
Yes.
If I could just add to that is that we are looking at.
Any areas of our business that might be susceptible to.
Either.
Backlog that is cancelled or pushed out and keep in mind that cancellations are always a part of all semiconductor companies. It's not just.
A one time or a new event.
And the fact of the matter is is that any influence relative to the size of our overall backlog today.
Is very minor and so thats whats given us very confident in the outlook for the second of a rate of our book and the rate of our cancellations <unk> I was at a very similar.
In the last few years.
Last few quarters, yes.
So no noticeable uptick in cancellations or push outs. It sounds like is what youre, saying.
Yes got it.
Second question is just enterprise data showing very strong growth and I think that's going to be one of the biggest drivers for the business over the next couple of years, given the greenfield opportunities and just can you guys size for US is the accelerator quartered in 48 volt opportunity larger than the share gain on CPU power.
Do you think they are both equally sort of driving the growth and just trying to sort of what's the biggest driver do you think for the enterprise data Center I think is the boss.
Not only not only that.
The.
The CPU size for the servers.
We can.
<unk>.
And we gained market share with <unk>.
<unk>.
Into the into the in the.
Hey, Matt games.
A couple of years ago, but the very small percentage.
And it will start to ramp, but we're skewed.
Ross.
Distinct than the bigger suppliers.
<unk>.
That's on a from a from a server sites.
And the 40 ables as U S. Even though we talk about it.
And.
We talk about since 2017 or 18 and.
We said that this is the evitable and.
Trained you had to go move out to 248 volt and will.
We are now seeing the fault trend up.
And we're not replacing anybody in semicon west.
Yes.
We set up the different market trend.
And so and also <unk>.
Data center and the rack.
The rack itself.
<unk>.
<unk> NPS of ramping our revenue from there.
From the AC powers and these are 380, <unk> and 240 volt input converted into 48 volt.
And.
And also.
The battery backup.
And we provide that.
Same with provides the solutions for battery management.
And also.
Cooling side.
So.
NPS is almost.
Almost a one partner one.
One stop shopping place for data center.
Thank you Michael.
Our next question is from <unk> <unk> of Stifel.
Your line is now open.
Yes. Thank you.
First one for Michael Michael.
You're known for driving a lot of new innovative business models and as we now start to think about adding.
Adding capacity to get to $4 billion.
Given the geopolitical dynamics and so forth and I know you've talked a little bit about this but.
Are you thinking are working on new business models to.
To try and secure more capacity for your continuous growth.
Well.
There isn't one of the things we do.
Of course, we had to.
The fab led to mobile.
And.
We will have it.
Increase our more more more capacity outside of China, We started about a couple of years ago.
Some more than a couple of years ago.
And then now we engaged with some bigger DRAM fabs.
<unk> the way, we will feel that not being done in a.
Next couple of years and.
But going in to future.
<unk> futures NPS actually require less semi conductors.
And that because of a lot of products more programmable.
And we can use it for multiple use in that game.
And the same times, we are growing our revenues, we're selling a lot more.
More than semiconductor were selling power solutions more modules and so.
So we kind of move up to a full change under the new requirement <unk> in that game.
We play in a market that we're not competing with anybody and we just provides the solutions.
<unk>.
So those are.
Manufactured these are clearly.
Different building modules.
We sign up.
Our partnerships okay for.
<unk> assembled is new.
New modules and.
Is unprecedented and a lot of testings.
Qualifications.
<unk> designed the whole whole assisting pharma from a grown up.
And.
So these are the.
And there is no such a facility out there so we have to invent it.
And I think just to Echo a point there is if you look at our revenue for the quarter, we grew 57%.
And.
Keep in mind that we've had one price increase.
That was in February of this year for 5%.
And so if you actually look at where the source of the revenue growth came from about half of it is volume related and the other half is higher asp's because of higher value products that we're selling.
So that means that we've differentiated our supply chain. So we're not just dependent on silicon based products.
Making total solutions.
These are.
The bigger effect and that Hasnt really taken place yet.
That would be a couple a year a couple of years down the road you will see much bigger effect and.
So there's a lot of the new lot of work to do.
Are ahead of us.
These.
Particularly these are new type of a module nobody else has built a kind of a thing.
We have grown up with develop the ml immigrant develop the done manufacturing and as well as testing a quantification part of it.
That's great perspective, thank you for that Michael.
As my follow up and this is related to what you just mentioned there Bernie which is which is pricing I know youre, obviously growing by adding more value and higher ASP products, but you mentioned that 5% price increases I think it's well documented that of your competitors have raised prices by more than that so.
I guess my question is just simply that are you're gaining a lot of share.
Because you didnt engage in this aggressive price increases in some of your customers and your competitors gaining.
Gaining share.
Gaining share is it difficult to count on that because.
Gaining share if as the equals product is gaining shares.
And a similar product and.
So.
Our price better performance better we are gaining share. So okay. Now we're talking about a completely different fleets and.
Those market segment, we want to getting there is less price sensitive.
But quality performers lot more a lot more important.
<unk>.
Now is it okay, we offer some things.
A lot more than that.
10 years ago, We said, who do we compete with.
<unk>.
Non of companies sell controller and our power MOSFET.
They are separate NPS.
Is the integrated.
And now Youre talking about NPS.
Our product even on the silicon side.
We have microcontroller, we have a memory of digital we have a power.
And very unique is how we.
What do we how do we.
Blaine.
To sit and then now is the good thing too.
Use of this type of a silicon based.
Technology, we migrate out when we became a provides a total solutions.
So how do we how do we displayed and that's how we gain market share it's very difficult to say.
It sounds like Youre, displacing more and more companies than before just one last quick one for you Bernie most companies Dsos were up this quarter because of the China Lockdowns.
Shipments being later in the quarter your Dsos actually went down this quarter. So.
Could you just talk a little bit about how the China Lockdown impacted us I mean, obviously it didn't impacted the same way, but any other color you can share with us would be great. Thanks.
No we really didn't have much impact from the China shutdown.
Obviously, we were able to record.
Revenue growth that is.
Well above the industry average.
And.
The concern we might've had is if our customers supply chains, we are impacted.
But we continue to hit our delivery schedules and.
There was an impact I'm sure we felt some of it but it was very marginal.
Great. Thank you and congrats on the strong results. Thank.
Thank you. Thank you.
Our next question is from Ross Seymore of Deutsche Bank Ross. Your line is now open.
Thanks, guys I'll ask a question first question is really kind of a high level one over the years you guys have generally outperformed the analog market by maybe 10 or 15 percentage points of growth.
And gain share et cetera, et cetera, even last year wasn't terribly outside of that range, but this year. It seems like that delta probably doubles at least maybe maybe something more so I do get investors that are concerned that your increased availability versus the peers allows you to ship and then it can be double shipping in response to the double.
Ordering and so its a cyclical phenomenon.
Widening that gap can you just talk about the reasons you think that gap is sustainable and then looking forward do you think that gap will continue to grow. Despite the fact that you are operating off of a larger base.
Yeah.
I think I would just add partially partially correct.
Other company couldn't ship okay.
We have the inventories and again, we have a capacity to ship but.
This year, particularly we see things are very different.
And.
Mono product.
Especially we shipped to these tier one companies from the industrial side of our multiple multiple sites in the <unk>.
Even the data centers.
And.
Sure.
They don't want it.
He had been intended to NPS has them has a bigger has a majority.
The bigger suppliers, where they.
It give us.
As a as a backup and test that out.
And in the last years with.
We ship all of these units.
Units.
Our PPA failures.
We are far better than everybody else.
And that's the one thing is the quality of quantity is everything.
But then.
They took a chance when they have a shortage.
And so we proved that would give us.
Big opportunity would prove them these products.
Okay. Good.
Is it better than than our.
Whenever.
The past day, they design them out.
In the last year and this year.
All of the new products are the other new.
New segment start to growth.
And.
As our product that we can change it we can we can.
Reconfigured.
And.
That will continue.
We'll continue to grow and as we see it we cannot.
We cannot handle it all the other projects.
And.
And.
So in the foreseeable futures market.
These products will contribute to continued growth.
And keep in mind.
Still facing large delinquencies ourself.
And so we've had to be.
Very.
Cautious and opportunistic as far as how we allocate our wafer starts in order to meet real customer demand. So I think we've been clear that during the first half of the year we.
We did a cleanup of double orders and have confirmed as I said earlier that the NPS is backlog is still remains very healthy.
And then when you look at the inventory in the channel.
We're at.
It's very lean and we believe we don't have perfect insight that the inventory on our customers' shelves is likewise very lean because we've only been doing partial shipments there. So.
As far as the markets, we feel reasonably confident obviously notebook or some of the consumer could give us.
We're trying to stay very key.
Close to that and evaluate its impact.
But as Michael said, a lot of our new growth opportunities are in these large.
Tier one opportunities.
Is that secular growth, that's really driving it and that's different from just building up in the channel or on customer shelves.
Come back to your question. So Okay. Now you said that youre growing in large basis the growth is difficult to grow.
That's kind of built the EBIT.
Bidding that everybody has in mind, okay. In my mind I don't have a limit.
And.
The limit is within yourself what to do.
And.
People told me then that get early all $200 million.
Barry It sounds like a $500 million of barriers.
$200 million at the time was a barrier.
One time.
And five.
$500 million wasn't okay then.
Then our people tell me also youre going to grow $1 billion, even a slow downs in an hour.
At the time of the seriously.
2017.
2017 to 18, yes 17.
I actually said it when we get to $1 billion, we're going to accelerate it.
And that's at the time and Thats, how I see it.
And then now okay, NPS, we're not selling silicon anymore, we're selling a lot more than our silicon.
<unk>.
Why now accelerating the growth.
So it's of course, I'm not saying that.
So a lot of things are still depend on our our execution, but only thing is the mindset when not.
Dwell on selling semiconductors MSA.
Selling semiconductor is limited, but you have a lot of.
Service engineering manpower, we can our customer can benefit to it.
That's unlimited almost.
And supporting Michael's point, there you might remember six or seven quarters ago.
We made the statement that by the end of Q2 of 'twenty two that we would have capacity to support $2 billion revenue run rate.
And I think that.
The key there is the execution and the focus and that's exactly what we've done.
Great. Thanks for all that color guys, I guess, hopefully quicker follow up to all of this as you expand beyond the semiconductor side you get into I don't want to say systems, but more solutions in general some of the stuff you talked about with the entire rack the AC to DC the.
The cooling all of the above.
What do we look at the gross margin doing that that sounds like higher gross margin business and I know consistency of gross margin expansion is the mantra that you guys have lived by and delivered but it seems like mix would go.
And a big tail or would be a big tailwind for you going forward from a gross margin perspective. So just talk about what this changing in your revenue mix means whether it's end market or system solutions versus chips to your gross margin.
Yes.
That's kind of a things away growing too.
Of course, I can I want to say is all we can charge as much as our customers available so okay, and thats kind of a half BS okay.
And.
But the reality is that okay. I think we're comfortably stay around this.
Mid to high two.
Hi, <unk> 50.
55% to 60% in that game in a range I think that's a sweet spot.
For us, we're not going to print the corners of for us to grow to over 70%. So again.
And.
When we get that we'll get there okay. So far we don't have a headwinds and again and.
I think the opportunity drives the model itself in the next couple of years.
We must stay around this and as we all know and that can maybe move up a slide later.
We don't have at least we don't have a headwind.
Yes.
So in the office three or four years that we will see some okay. How we change your models.
I would just add that I think that we.
We reported gross margin of 59, 8%.
And as Michael said somewhere in that area is the sort of the sweet spot for our model that allows us also to accelerate our rate of revenue growth.
So it's something that we'll continue to evaluate but I think right now we're very comfortable with this being our model.
Yes.
Thanks, guys. Congrats again, we're not chasing the volumes going down.
We're not.
NPS is not good and chasing our volume went not doing them.
<unk>.
These are manufacturing okay.
Excellent NPS it doesn't manufacture anything.
The high volume things best not MTS fault.
Thank you.
Our next question is from Melissa Fairbanks with Raymond James Let's say your line is now open.
Hi, guys. Thanks, very much I will echo the congratulations on another great quarter I just had two really quick ones for you first could you remind us what your inventory target or ideal levels of inventory would be.
In order to maybe clear some of the delinquencies.
And then second on a somewhat related note what should we be thinking about for Capex. This year, either as a percentage of revenue or absolute investment and then what's the longer term required requirements you mean.
Need in order to meet your demand or your growth plans.
Good questions.
So as far as inventory.
Keep in mind that being so much of our positioning is around.
Growth.
That is sort of a risk management decision.
We believe that 180 to 200 days of inventory.
Is what's needed so that we can manage and upside in customer demand, but also.
If we end up in an unfortunate situation, where we have lots of inventory the north sellable.
We can compensate for that without having any disruption to our customers.
<unk>.
So I think that.
It's been difficult to manage delinquencies, while increasing inventories in order to support our model, but I think we've done a pretty good job in these really unusual times and then as far as the capital requirements.
I think we've talked in the past as far as.
What our spending rate is.
It tends to be.
Quarterly basis can be somewhere between.
14, and $18 million per quarter, with a lot of that being testing equipment or <unk>.
Even if we are purchasing.
Buildings, we purchased.
Office space.
And the first half of this year was a little bit lighter.
Than our normal run rate, but I think <unk>.
<unk> two <unk>.
18, absent a big building purchase is probably a good run rate.
Okay, great. Thanks, very much that's all for me.
Yes.
Our next question is from Alex <unk> of William Blair. Alex Your line is now open.
Okay.
Yeah.
If there are any follow up questions. Please click the raise hand button.
Yeah.
Sorry, I was muted apologies.
Ill.
Start over Bernie can you hear me Michael can you hear me, yes, Yes, hi, Alex.
<unk> is about that user error here.
I was saying I apologize again, if someone's already asked this question, but I wanted to expand a little bit.
Last question just in terms.
The competitive dynamic in your products being sort of.
Being superior to those of the competition as well as more of the solution sale. How do we think about power management in particular and your positioning within the customer.
As these products become more complicated you take up more space on the board I would assume that those conversations are becoming more tightly coupled.
And you guys are becoming more important to the customer in terms of conversation.
Yes.
We.
And.
<unk>.
As a matter of fact in the pharma Mps's fund the beginning so we don't sales in that game.
Ah.
Turning to pin compatible okay.
And.
And the <unk>.
Similar product that we offer as of actually we are always up for a better product.
<unk>.
Much compacts much higher efficiencies and.
So and also cost of an event without Amit.
Charge on their legs and that's what it.
Is known for NPS Okay.
And a one time, it's early early period.
Times of NPS is that like a price curious kind of companies.
And we.
We actually within that means that we left a lot of dollars on that on the table and.
Well of course, we're not.
We're not competing in that in that market segment anymore.
Yes.
Now.
We offer either a total solutions.
If you do if you had mentioned you're talking about any application they need a power and youre talking about electrical car.
NPS can do the whole call.
And the use of electronics.
<unk>.
You want to build the data centers NPS. It provides dana anti anti product for data centers.
<unk>.
We're mostly there.
That's how we sell value.
And we're not we're not competing on this product competes with.
That product, we have all software behind it.
And <unk>.
A user interface software so again that changes the game, we're not competing with.
With our product.
Per se anymore.
I think an interesting dynamic that we've been observing is that.
Power management was always an afterthought with the last thing FTE design Your board.
It came up with the least bad solution now we are introduced at the very front end of the development of an application and the reason is is because our power solutions enable.
Our customers to be able to develop higher power solutions than they would otherwise so that's an interesting twist and the relationship where we're being introduced more earlier to the process enabled to jointly come up with.
The development of shared solutions.
Okay.
Sure.
You see that as I can remember.
<unk> four years ago.
We actually built a car.
We're in a very advanced cost.
And are far advanced than than any of any heart AUC in the in the market.
And we as a battery management and the same times all of them are the modal controls.
No more complex than the existing EV.
And so.
So just a follow up purpose. So we can demonstrate we can do it.
And <unk>.
Now we can do it in the four years later actually we can do a lot more than that.
And so that's kind of examples Mike.
Okay.
That's extremely helpful. And then Bernie just one last quick question.
In terms of the guidance any more.
Market that we should think of or how should we think about the end markets in terms of strength versus strongest versus weakest or any.
Any notable things to call out.
Yes, I think that the themes that youre going to be seen to the next two to three years or.
Enterprise data and automotive.
Automotive had a relatively slow.
First half, but that was exactly what we had in expectations. There is no no no surprise there.
And we believe that the second half it looks very healthy.
Does the data center.
Yes.
Okay.
We.
We don't want to okay what.
What we provide is not customer asphalt.
Yes, we would do that well asking with Hudson, we would do that we should lead to customers. So what you shouldn't be.
That's the game, we are really pleased with.
Kind of gains.
And that I think is that all the power stuff with like a 48 volt. We said this is all I can say.
In 2017, so this.
This is the futures.
And we anticipated that electrical costs, we anticipated.
And so now.
We can.
Next few years and then we will see the very similar thing. So we'll see if all of these that will happen.
Perfect. Thank you so much.
Congratulations again thank.
Thank you Alex.
There are any follow up questions. Please click the <unk> button.
As there are no further questions I would now like to turn the webinar back over to Bernie.
Great. Thanks, Jen I'd like to thank you all for joining us on the webinar and look forward to talking to you again during the third quarter, which will likely be at the end of October . Thank you have a nice day.
Yeah.