Monolithic Power Systems, Inc.

Welcome, everyone, to the MPS First Quarter 2021 Earnings Webinar. Please note that this webinar is being recorded and will be archived for one year on our investor relations page at www.monolithicpower.com. My name is Genevieve, and I will be the moderator for this webinar. Joining me today are Michael Singh, CEO and founder of MPS, and Bernie Blagan, VP and CFO. Hello. In the course of today's conference call, 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 statement contained in the Q1 earnings release. and in our SEC filings, including our Form 10-K filed on March 1st, 2021, which is accessible through our website. NPS 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, interest and other income, net income and earnings on both a GAAP and a non-GAAP basis. These 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 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 earnings release, which we have filed with the SEC. I would refer investors to the Q1 2020, Q4 2020, and Q1 2021 earnings releases, as well as to the reconciling tables that are posted on our website. I'd also like to remind you that today's conference call is being webcast live over the internet and will be available for replay on our website for one year, along with the earnings release filed with the SEC earlier today. Now, I would like to turn the call over to Bernie Blagan.

Senator Blagan. MPS posted record first quarter revenue of $254.5 million, 53.5% higher than the first quarter of 2020. The year over year revenue increase represented strength in the overall market and more importantly, broad-based market share gains resulting from customer acceptance of our new product introductions. 37% of our first quarter 2021 revenue resulted from new products introduced in the last three years. New product acceptance on this scale has paved the way for accelerated growth. Looking at our revenue by market, first quarter 2021 revenue from consumer markets of $66.2 million increased $28.8 million, or 77.1% from the same period of 2020. The year-over-year revenue increase reflected a broad increase in overall demand along with the initial revenue ramp from our new mobile device charging IC. Consumer revenue represented 26.0% of our Q1 revenue compared with 22.6% contribution in the first quarter of 2020. First quarter 2021 automotive revenue of $44.9 million grew 92.5% over the same period of 2020. This growth primarily reflected continuing sales growth for infotainment safety and connectivity application products and first time revenue from products introduced in the 2021 model year. Automotive revenue represented 17.6% of MPS's first quarter 2021 revenue compared with 14.1% in the previous year. In our computing and storage market, first quarter 2021 revenue of $67.5 million increased $15.5 million, or 29.9% year over year, due primarily to higher notebook and storage sales. Computing and storage revenue represented 26.5% of MPS's first quarter 2021 revenue, compared with 31.3% in the first quarter of 2020. First quarter 2021 industrial revenue of $39.8 million increased 57.7% from the first quarter of 2020 and accounted for 15.6% of our total first quarter revenue. The revenue increase over the first quarter of 2020 primarily reflected broad-based gains in all of our major product groups. First quarter 2021 communications revenue, $36.1 million, rose $8.2 million, or 29.4% from the first quarter of 2020. The year-over-year increase primarily reflected higher networking and wireless gateway home router sales. Communication revenue represented 14.2% of MPS's first quarter 2021 revenue compared with 16.8% in the first quarter of 2020. Our sustainable above market growth is based on the following. One, we have and are continuously investing in expansion and diversification of our supply chain. Specifically, we executed ahead of market demand. Two, we accelerated the release of advanced products and solutions based on our leading edge technologies. Three, we've gained increased acceptance of our solutions with first tier customers globally. Four, we continue to diversify and support a wider number of end product applications. Moving now to a few comments on gross margin. GAAP gross margin was 55.4%, 10 basis points higher than the fourth quarter of 2020 and 20 basis points higher than the first quarter of 2020. Our GAAP operating income was $46.1 million, compared with $40.0 million reported in the fourth quarter of 2020. For the first quarter of 2021, non-GAAP gross margin was 55.8%, 10 basis points better than the fourth quarter of 2020, and 30 basis points better than the first quarter of 2021. Our non-GAAP operating income was $75.8 million compared to $66.3 million reported in the fourth quarter of 2020. Let's review our operating expenses. Our GAAP operating expenses were $95.0 million in the first quarter of 2021, compared with $88.9 million in the fourth quarter of 2020. Our non-GAAP first quarter 2021 operating expenses were $66.2 million up from the $63.6 million reported in the fourth quarter of 2020. The differences between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are stock compensation expense and income or loss on an unfunded deferred compensation plan. For the first quarter of 2021, total stock compensation expense, including approximately $816,000 charged to cost of goods sold, was $28.6 million compared with $23.0 million recorded in the fourth quarter of 2020. Switching to the bottom line, first quarter 2021 GAAP net income was $45.4 million or 95 cents per fully diluted share compared with $42.9 million or 90 cents 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 $62.5 million or $1.31 for 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 equivalents and investments were $641.6 million at the end of the first quarter of 2021, compared to $598.0 million at the end of the fourth quarter of 2020. For the quarter, NPS generated operating cash flow of about $77.1 million, compared with operating cash flow $79.6 million in the fourth quarter of 2020. First quarter, 2021 capital spending totaled $19 million. Accounts receivable end of the first quarter of 2021 at $84.1 million, or 30 days of sales outstanding, up four days from 26 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. 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 quarter's 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 to $286 million. We also expect the following. Gap. gross margin in the range of 55.1 to 55.7%. Non-GAAP gross margin in the range of 55.5 to 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 in 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 2.3 and 2.7 million dollars. Interest and other income is expected to range from 1.3 to 1.7 million dollars 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 multi-billion dollar revenue. I will now open the webinar for questions.

Thank you, Bernie. Analyst, I would now like to begin our Q&A session. As a reminder, if you would like to ask the question, please click on the Participants icon on the menu bar and then click the Raise Hand button. Our first question comes from Joshua Buchalter of Cohen. Joshua, your line is now open.