Q2 2023 Monolithic Power Systems Inc Earnings Call
Revenue.
Paired with 21, 1% in the second quarter of 2022.
In our enterprise data markets second quarter 2023 revenue of $48 million increased one 7% from the first quarter of 2023, primarily due to initial shipments of new generation, AI applications, which offset softer demand for CPU applications.
Second quarter 2023 enterprise data revenue was down 26, 4% year over year.
Enterprise data revenue represented 10, 9% of Mps's second quarter, 2023 revenue compared with 14, 2% in the second quarter of 2022.
Second quarter.
Automotive revenue of $104 4 million decreased 0.9% from the first quarter of 2023.
Second quarter 2023, automotive revenue was up 71, 1% year over year.
Automotive revenue represented 23, 6% of Mps's second quarter, 2023 revenue compared with 13, 2%.
In the second quarter of 2022.
Second quarter 2023 communications revenue of $49 3 million was down 27, 4% from the first quarter of 2023, primarily reflecting lower infrastructure sales.
Second quarter 2023 communications revenue was down 16, 9% year over year.
Communications sales represented 11, 2% of our total second quarter 2023 revenue compared with 12, 9% in the second quarter of 2022.
I'd like to make some general comments about our business.
In our previous earnings calls, we have noted customer ordering patterns could oscillate.
This has turned out to be the case, we continue to see some orders getting delayed or amended by Poland requests.
This lack of short term visibility has made forecasting beyond Q3 2023 more difficult.
However, our business fundamentals remain unchanged.
In the last few years, our revenue and customer base have expanded tremendously, particularly amongst tier one accounts.
We believe we have solidified our market share gains by delivering quality products and services.
Additionally, we have a strong design win pipeline, which positions us well for future growth.
Here are a few highlights here are a few of our recent highlights.
We have been designated a preferred supplier with multiple tier one customers in automotive and telecom markets.
We have started sampling silicon carbide power solutions for data centers and Green energy conversion.
We are also continuing development for EV power management applications.
We are continue to broaden our customer base for AI applications and developing solutions for next generation platforms.
We have new design wins in battery management solutions.
And USB PD for automotive industrial and consumer applications.
These will be major revenue drivers as we look ahead to 2024 and 2025.
Moving now to a few comments on gross margin.
GAAP gross margin was 56, 1% 120 basis points lower than the first quarter of 2023, and 260 basis points lower than the second quarter of 2022.
Our GAAP operating income was $112 3 million compared to $124 $3 million reported in the first quarter of 2023.
non-GAAP gross margins in the second quarter of 2023 was 56, 5%.
<unk> 120 basis points from the gross margin reported in the first quarter of 2023.
The quarter over quarter decrease in both GAAP and non-GAAP gross margin is attributed largely to unfavorable variances and higher direct expenses.
Our Q2 2023, non-GAAP operating income was $153 1 million compared.
Compared to $164 $1 million reported in the first quarter of 2023.
Let's review our operating expenses.
Our GAAP operating expenses were $135 4 million in the second quarter of 2023, compared with $134 5 million in the first quarter of 2023.
Our non-GAAP second quarter 2023, operating expenses were $96 8 million matched.
Matching what was reported in the first quarter of 2023.
The difference between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are primarily stock compensation expense.
Net income or loss on an unfunded deferred compensation plan.
For the second quarter of 2023, total stock compensation expense, including approximately $1 $1 million.
Charged to cost of goods sold was $38 8 million compared with $37 million recorded in the first quarter of 2023.
Switching to the bottom line.
Second quarter 2023, GAAP net income was $99 5 million or $2 <unk> per fully diluted share compared with $109 8 million or $2 26 per share in the first quarter of 2023.
Second quarter 2023, non-GAAP net income was $137 5 million.
Or $2 82 per fully diluted share compared with $146 1 million or $3 per fully diluted share in the first quarter of 2023.
Fully diluted shares outstanding at the end of Q2 2023 were $48 8 million.
Now, let's look at balance sheet.
Cash cash equivalents and investments were $941 1 million at the end of the second quarter of 2023 compared to $919 1 million at the end of the first quarter of 2023.
For the quarter NPS generated operating cash flow of approximately $92 million.
Compared with Q1, 2023 operating cash flow of $218 8 million.
Yeah.
Accounts receivable ended the second quarter of 2023 at $169 2 million representing.
Representing 35 days sales outstanding.
Which was two days lower than the 37 days reported at the end of the first quarter of 2023.
Our internal inventories at the end of the second quarter of 2023 or $427 4 million.
Down from the $438 million at the end of the first quarter of 2023.
Days of inventory of 201 days at the end of the second quarter of 2023, we're three days lower than at the end of the first quarter of 2023.
Comparing current inventory levels with the following quarters projected revenue you can see days of inventory decreased to 184 days at the end of the second quarter of 2023 from 203 days at the end of the first quarter of 2023.
I would now like to turn to our outlook for the third quarter of 2023.
We are forecasting Q.
Q3 revenue in the range of $464 to $484 million.
GAAP gross margin in the range of 55, five to <unk> 56, 1%.
non-GAAP gross margin in the range of $55 7 million to 56, 3%.
Total stock based compensation expense in the range of $33 5 million.
To $35 5 million, including <unk>.
Approximately $1 million that would be charged to cost of goods sold.
GAAP operating expenses between $129 $4 million and $133 4 million.
non-GAAP operating expenses in the range of $96 9 million to $98 9 million.
This estimate excludes stock compensation expense, but includes litigation expense.
Interest and other income in the range of 3.2.
$3 4 million before foreign exchange gains or losses.
Fully diluted shares in the range of 48, six to $49 1 million shares.
In conclusion.
We continue to execute our long term strategy.
I will now open the webinar for questions.
<unk>.
Thank you Bernie and Alice 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 is from Ross Seymore Deutsche Bank Ross Your line is now open.
Thanks for let me ask a question just wanted to ask Bernie first when you had your general business condition update about orders remaining volatile et cetera, I Wonder if you could just give us a little more color on kind of improving staying the same and is there any changes in things like competitive intensity pricing.
Geographic differences any color a little bit more detailed than what you gave in your original preamble.
Sure I'd be glad to help out with that so I think that we started that part of the conversation by acknowledging that in each of the last the prior three quarters.
That we believe that ordering patterns with oscillate.
And thats pretty consistent when youre coming off of the period, where there had been an extra normal level of ordering that created a demand supply imbalance that afterwards.
Sort of draining your backlog as you are.
Watching your customers try to align around what they're guessing is end customer demand.
As a result of that we have not had the same level of visibility out no.
Past 90 to 120 days that we would have during the more normal ordering pattern.
As a result of that we don't have the same level of predictability.
On the second half of your question.
The one thing that remains consistent whether it's under normal conditions or whether it's today is we've always been in a very competitive marking marketplace and obviously price downs are the norm and that we have competitors like ourselves that are trying to go after as much incremental.
Business during this transitory period.
As as possible.
Let me add it.
Two.
We do see.
Slight improvement.
And the.
For instance, in our first quarter and that.
Essentially.
Simona and.
We do.
Seed.
Our consumer business improvement.
Both from a U S size to Agi side and.
And.
Either way, it's pretty much stayed the same.
Okay, great. Thanks for that and I guess as my follow up.
Bernie you guys have had relatively volatile end markets. That's specific to you, but just in a general sense. So any sort of color in your guide for the third quarter between the various end markets and the one that I think most people are most interested in albeit still a relatively smaller part of your business as your enterprise data.
And then any sort of color between the AI side, you talked about last for the second quarter and the CPU side, which has been a little bit weaker.
Yes.
To answer your call.
Your question today, we don't season Okay.
All of the product as it relate to with with the AI now can we.
We cannot ship enough.
Now.
And.
And the other one.
Either a part of atonal price standouts.
Data centers CPU power and.
These are still.
Steve Delaney.
Yes, and one other thing to add and this is specific to MTS not necessarily.
Stronger comment of the general market.
Automotive.
Came in a little bit lower than would have been expected and as we look at the ramp in the second half we are observing that at.
At least for two of our customers' unit volumes appear to be lower and we had two product launches, which have been delayed into Q4 into Q1.
Thanks, guys.
Yes.
Our next question is from Quinn Bolton of Needham When your line is now open.
Hey, Michael and Bernie I, just wanted to ask on the <unk>.
GPU side of the business there has been recent chatter in the market.
One of your large customers, maybe bringing in Renaissance as a second source as well as potentially Vycor just just wondering if you might.
Sure any thoughts you have as you look forward with that customer.
About the impact.
Multi sourcing of that customer.
Maybe a related question how are you feeling about your position looking into the next generation three nanometer processor at that customer and then I've got a follow up thanks.
Okay, I think that so far.
We're in the lead position.
And.
<unk>.
I can't.
We are engaged deeply in.
And the future designed and.
Develop.
New products for the second second.
Generations.
The.
Next generations and.
So other than that we we can't we can't speculate anything so okay.
I think I think in.
Most scenarios and.
This particular customer is representative is they wanted to take a leadership position through innovation.
And they found us.
An equal partner for that.
But it's in everybody's best interest that it be a competitive not a single source.
And so yes, we'd always anticipated that.
There would be redesigns that allow competition into the market.
Yes.
To provide the best solutions in the same time, we understand that our customers and that requires that.
The other solutions.
This is a very large market and there is no means an NPS can supply.
And also mps's.
As always the toughest.
<unk> power supply.
Slide the worlds and.
If there's a performance needs.
I believe the NPS that is the best solution.
Now and.
<unk>.
And for the year.
Richard.
Thank you Michael and.
Ernie you had mentioned sort of visibility out beyond 90 to 120 days.
Pretty choppy at this point just given the industry dynamics.
Yes, I looked out to the fourth quarter and it looks like the street has modeled the fourth quarter approximately flat, which I think is an above seasonal.
Pattern for MTS, historically and I'm just wondering can you comment whether you think.
Above seasonal fourth quarter looks right Teu, perhaps given the ramp in the GPU business and some of the timing shifts you just mentioned in automotive or do you think.
It would be best to.
For investors to think that the December quarter is going to see.
Sort of a seasonal decline in the December quarter. Thank you.
Yes, I think that.
Normal seasonality.
For MTS would be somewhere between a sequential decline of between 4% to five percentage points.
And I can point to.
The increase in.
The notebook sales during Q3.
Which precedes Christmas so thats a normal seasonal factor that's expected to come down and we're not seeing the uplift that had been anticipated from automotive.
So I would.
B.
More comfortable with a seasonal down in Q4.
If you you mentioned the seasonality well, we're talking about seasonality.
And.
I tried to figure out what is seasonality now.
Last year and the last couple of years.
We have a very strong.
Q4 <unk>.
The year before that.
And our customers see orders have shown it just came in.
And the analysis and the.
Demand.
Is it clearly is a much less and.
So you have we experienced.
Over years in.
In the last couple of years that like over 40%.
This year.
And the cleaning of the nos are much much.
Much less.
And I can't really call it the amount of any malls.
<unk>.
So just.
As I said, it's now very clear and that came in.
But as you.
You said are usually the seasonality with when lowered.
Okay.
Understood. Thank you Michael Thank you Bernie.
Our next question is from Rick Schafer of Oppenheimer. Your line is now open.
Thanks.
Yeah, Hi, guys I just had a couple of questions if I could.
The first one.
Kind of maybe revisit auto for a second I mean, you mentioned power isolation module in your prepared remarks.
I don't know if you could give us a little bit more color there kind of an update on how many customers are evaluating.
The product now talked about a little bit about if she could buy to assign wind timing revenue timing kind of expectation there.
He is auto is going to be the first to ramp and then data center and then more of a green stuff how does that all kind of shake out I guess, what I'm asking.
Yes.
So we saw it in.
Are they a little bit about we will.
Introduced to.
<unk> sampling.
Announced okay.
It was delayed due to technical issues and.
So speaking with now.
We have a.
Re sample it and <unk>.
Mostly.
<unk>.
In automotive and also data centers.
Same as we mentioned earlier is the silicon carbide.
These are products that would always thought the sample.
Okay. Thanks, Michael.
Second question is.
Guys have almost $2 billion power management business now.
I think modules are on track to be 10% of that or so this year.
That's up from basically nothing just a couple of years ago. So.
If this business sort of.
I believe in bringing additional correct.
Better margins I think to core average.
It's a five X JSP multiplayer I'm, just trying to get a sense of.
Michael how big do you envision this business, becoming as a percent of mix going forward and are there any particular end markets that are going to be favored at least initially by by the move into modules.
Yes, I believe that's our that's our futures and.
When customers want to have a plug and play solutions.
One of the less technically involved with.
With the power management and that's in a module.
Solution is the way to go and that people doesn't want to buy Ics on a design all of all of these up.
Okay.
And.
Initially that's the way, we ramping a lot of them in the auto business and the industrials Mckim.
Industrial sites and.
As well as the telecom.
<unk>.
Or even semi equipment.
A lot of.
I can go on go on and on so again, a lot of things to be mentioned.
But.
Most of these products, it's not price sensitive and they are.
Not.
Volume consumer related product.
<unk>.
<unk>.
So this is Stuart.
At the very beginning we have audited the customer base and we have all the new product coming out.
And.
We will see the similar growth rates in <unk>.
In the next few years.
Got it thanks Michael.
Our next question is from Jeremy Kwan of Stifel. Jeremy Your line is now open.
Thank you, yes. This is jeremy on for Corey.
I guess, maybe a first question on the comps business. It was down meaningfully as you guys expected and were probably by the early ones to call out last quarter I guess, what's your sense of where things are now.
Should we expect this business to kind of sort of bumps along at these levels.
Second half or maybe picking up next year and what are your customers telling you in terms of their expectations.
Yes.
As you see we didnt participate in <unk> and.
<unk> and <unk>.
And the other influenced structured business, the all new to us and.
So you know what the <unk> hasn't really ramped up quickly yet, but our products.
<unk>.
Designed to the EMA last last few years.
We just are waiting for our customers that give us orders and.
And.
<unk>.
So far it is not clear.
Okay next question.
Our next question is from William Stein of Trust William Your line is now open.
Hey, there.
Thanks for taking my questions.
First.
I'm, hoping you can talk to us about channel inventory.
When you look at your P&L, you had nearly 50% revenue growth last year I think there is a lot of there's a pretty strong sense among investors that.
There might be.
Some inventory still in the channel to be worked through.
We'd love to hear any update or any measurement you have that.
<unk>.
Sure so as far as what we observed in Q2 is that there was a meaningful decrease in channel inventories both in terms of dollars and days.
And the sort of phenomenon that we've seen.
Has been a time delay between when the end customer places an order.
And when they want to do a pulled back because of uncertainty with what end customer demand has been.
So I can point to a couple of our end markets, where that was very clear but.
But we believe right now that we're in a position to continue to bring to normalized channel inventories over the next two quarters.
So not normalized yet.
It is what it sounds like certainly the September guidance I assume there's some.
Expectation that sir.
<unk> will be lower than sell through is that is that fair.
Yes.
Then.
Going back to the comments about the visibility and predictability out.
Last 90 120 days.
Not just the demand that.
The new net orders that were receiving but also the strength of the sell through is also a little harder to predict.
Great. Thank you.
Our next question is from Matt Ramsay of Cowen Matt. Your line is now open.
Thank you very much.
Michael Barney can you guys hear me okay.
Yes.
Awesome.
So I guess for for my first question.
Michael we.
You and I've had some conversations about.
The company strategically.
Wanting to sort of rebuild.
The consumer business as a percentage of revenue over time.
And get it back to a higher level than it's been now.
Yes.
I'd like to revisit some of those conversations and just see if you had any comments about.
How you feel about supply.
Demand environment.
And the competitive environment in order to try to push to sort of reemphasize your company in certain parts strategically of that consumer segment. Thank you.
Yes.
A quick question as we see some improvement.
But.
At the beginning.
As we see.
Our.
Supplied the costs.
Oh went down dramatically.
As Bernie said alloy inventory values even.
It reflects in inventory value now.
And.
So you know in the past <unk>.
And NPS and named in the price of <unk> Okay.
Very simple games, Okay, we don't mind.
And we don't buy in the consumer segment and they pay it will have a fight.
And the all the high gross margin is.
On the.
Other segments.
And it's all because of share our technology strengths, we provide a much better is a much smaller size.
<unk>.
In in our consumer segment in the last couple of years, we we neglected to that and because we don't have enough revenues are evident.
Enough capacities and.
So.
It's not that difficult to go back to the same games.
<unk>.
Since the IPO.
No. Thanks, Thanks, Michael I think as my follow up question I wanted to.
Really focus on the enterprise data segment, just because thats.
Where.
Large percentage of my Investor question has come from and I think there is there's two dynamics going on here right.
The strength of the AI.
Business.
With your lead customer there and.
Some softness in the CPU market, that's well documented.
And so the question is really what would you guys I think had built.
On books inventory to support ramps of all the customers in that space. So I guess the question is how quickly.
What would the lead time speed to respond to an uptick in demand then and do you have any visibility into the timing of.
Potential reacceleration of that segment and how long does that visibility. Thanks.
Our visibility is probably the well documented a decade here listening to all of these are major AI supply youll see NPS okay.
And you will see the NPS.
And the next few quarters.
Potential okay.
And.
But I can talk to you about our technical issues.
I think that the NPS is so far the solutions.
<unk> is a far better than the hour.
Our competitor so we aim.
For the next generation of AI processor, we're now working on now and again, we're looking at.
A year ago even.
Among the 18 months ago and <unk>.
So the relationship is strong and and also.
<unk>.
So the technical reason.
They were more challenging and.
The space is.
It's a critical and you had to wait all the heat out.
<unk>.
For the next generation power even higher.
And so we provide all of these are verticals solutions and we pioneer with it.
All the other solutions to fit into that into the phone.
In our form factors.
<unk>.
The integrated solution is the only way to go.
And I would think if I could just add to that is also the breadth of the customer opportunities that we're engaged with and over the course of the next four quarters, we're going to see multiple new customer applications launch initially with MTS. So yes, we have a very powerful.
Initial position with.
One customer, but we expect the branch that out very quickly with.
It was a multiple cost comfortable comment.
Thank you guys really appreciate it.
Our next question is from Hans <unk> of Rosenblatt.
Your line is now open.
No problem. Our next question is from Jeremy Kwan of Stifel. Jeremy Your line is now open.
Yes, hi, Thank you for allowing me a follow up here I.
I guess I wanted to ask about capacity you guys have always been very ahead of the curve.
<unk> long term capacity and through up and down cycles.
I was wondering how youre thinking about it in this environment.
And whether or not that might give you guys some competitive advantage.
And some of these.
Applications that you're really targeting.
And also if you have a capex number for this quarter. Thank you.
Yes.
We are we stated earlier.
Many of our customers and our requested.
Move out of China, and now we kind of achieved and a more than 50%. We can have I think more than 50% of the capability out of China.
And.
So the overall capacity so we don't have it.
Problem now say, okay, we have a more inventories again.
We want to sell them off from our.
Our inventory.
And.
Does that answer your question Okay.
And I think that.
When you look at capacity today, it's really when this environment turns around and becomes more predictable how are we positioned to service our customers.
A year and two years from now and I think the investments that we're making both in terms of expanding capacity and diversifying geographically.
Both on the front end and the back yet will.
We will pay very good dividends as far as customer satisfaction.
Okay.
Our next question is from Chris Caso of Wolf, Chris Your line is now open.
Yes. Thank you good evening.
First question is regarding order visibility.
I ask because for the past several quarters.
That really hasnt been any requirement for turns business going forward.
Is that something that's changing going forward given some of the changes in the end markets.
And what does that mean with regard to your revenue visibility as we look out over the next few quarters.
Sure I think that Michael responded to this pretty nicely in that we saw some improvement in Q2 from Q1 as far as our net bookings.
But it's still not.
To the degree that.
We have historically enjoyed in either 2018 or 2020 just to pick two to more recent years.
In the past, we would have up to 90, 95% of our next quarter's revenue in hand.
At the end of the preceding quarter.
And so youre only relying on a fraction of a percent in order to have turns business in order to accomplish the numbers for that particular quarter.
So we're seeing steady improvement, but we're still not at the level, yet where we have that predictability.
Got it thank you.
As a follow up.
Just had a follow up question about supply and I understand that that supply is getting a bit easier out there historically I think.
Our ability to procure supply from.
Thanks.
Your competitors has been a source of competitive advantage for monolithic power.
How do you see the landscape going forward I know you bring bringing on some different foundry partners.
As you tried to diversify outside of China. What do you think that means for you. Both your access to wafers over long term as well as the pricing do you think that competitive advantage remains.
While we maintain our pricing as a lockout costs of all of these are only the material costs as they as the much lower then.
Or go back to normal I should have said okay.
<unk>.
As a pre pandemics and.
So in terms of our capacities and our cat eye.
I didn't mention earlier, we won't expand our outlet.
Out of China, that's a form our customers request and at the other one is we want to expand it because just before our next couple of years of growth.
And.
Mostly we are steering.
Sure.
Follow our long term plan and we invest of course malware she has slowed down a little bit.
In the next few quarters and.
But over the over the long term. So we should have spent okay.
<unk>.
Continue the course.
Thank you.
If there are any follow up questions. Please click the raise hand battle.
As there are no further questions I would like to turn the webinar back over to you Barry.
Thanks, again, Jim I'd like to thank you all for joining us for this webinar and look forward to talking to you again during our third quarter, webinar, which will likely be at the end of October .
And have a nice day.
Okay.