Monolithic Power Systems, Inc.

Welcome everyone to the MPS fourth 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 Cunningham 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. In the course of today's conference call, we will make 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 Q4 earnings release and in our SEC filings, including our Form 10-K, filed on March 1st, 2021, and Form 10-Q, filed on November 8th, 2021, both of which are 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, other income, income before income taxes, 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 Q4 and full year 2021 earnings release, which we have filed with the SEC and is currently available 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'd like to turn the call over to Bernie Blagan.

Thanks, Jen. In 2021, MPS surpassed the $1 billion revenue milestone by achieving record full year revenue, $1.2 billion, 43.0% higher than the prior year. This performance represented consistent execution against our strategies and being recognized by more first tier companies for our superior technologies, product quality, and excellent customer support. As we see more high quality growth opportunities ahead of us, we continue to invest in our infrastructure and operational capabilities. In 2021, MPS grew capacity by 40% and we are on track to expand capacity in 2022, well beyond $2 billion, allowing the company to successfully ramp new product revenue and achieve strategic market share gains. Here are a few highlights which we achieved in 2021. Brought online a new 8-inch fab and continued to qualify parts in the 12-inch fab we brought online in 2020. We will continue to invest in growing fab and assembly capacity. We designed processor cores and MCU technology into products requiring more sophisticated power solutions, such as USB power delivery, smart motor drives, and high power electrification. Our first prototype of a high precision analog digital converter product for medical applications achieved outstanding silicon performance in lab evaluations. We have started customer sampling in Q1 22. Validation of this technology is a strong first step in developing a new business segment supporting both industrial and infrastructure and market applications. We believe new product revenue from a large number of previously released designs will ramp in 2022. The representative sample includes product supporting applications in VR14, 5G, BMS, ADAS, AI, USB PD, DDR, and many more. Turning to our full year 2021 revenue by market segment compared with 2020. Automotive revenue was up 87.5%. Computing and storage revenue up 47.0%. Industrial revenue up 54.5%. consumer revenue up 28.1% and communications revenue up 15.3%, demonstrating just how broad-based our full year 2021 revenue improvement was. Automotive revenue grew $95.4 million to $204.3 million in 2021. This 87.5% year over year gain primarily represented increased sales of our highly integrated applications supporting the digital cockpit, automated driver assistance systems and connectivity. Automotive revenue represented 16.9% of MPS's full year 2021 revenue compared with 12.9% in 2020. Full year 2021 computing and storage revenue grew $119.1 million over the prior year to $372.3 million. This 47.0% increase primarily resulted from strong sales growth for enterprise notebooks, cloud computing, and storage applications. Computing and storage revenue represented 30.8% of MPS's total revenue in 2021 compared with 30.0% in 2020. Industrial revenue grew $65.2 million to $184.8 million in 2021. This 54.5% year-over-year increase was broad-based with each of our primary product lines enjoying better than double digit revenue growth. Industrial revenue represented 15.3% of MPS's full year 2021 revenue compared with 14.2% in 2020. Consumer revenue grew $61.9 million to $282.3 million, reflecting increased product sales for home appliances and smart TVs. consumer revenue represented 23.4% of MPS's full year 2021 revenue compared with 26.1% in 2020. Communications revenue grew $21.8 million to $164.1 million. This 15.3% improvement reflected higher sales of products for both infrastructure and wireless routers and gateway applications. Communications revenue represented 13.6% of our 2021 revenue compared with 16.9% in 2020. Switching to Q4, MPS had a record fourth quarter with revenue of $336.5 million, 4.0% higher than revenue generated in the third quarter of 2021 and 44.4% higher than the comparable quarter in 2020. By market segment, revenue for computing and storage grew 91.6% year over year. Communication grew 54.7%. Automotive grew 43.2%. Industrial grew 33.3%. And consumer grew 1.9%. Fourth quarter 2021 gap gross margin was 57.6%. Same as third quarter 2021 and 230 basis points higher than the fourth quarter of 2020. Our GAAP operating income was $78.6 million compared to $77.1 million reported in the third quarter of 2021 and $40.0 million reported in the fourth quarter of 2020. Fourth quarter 2021 non-GAAP gross margin was 57.9%. 10 basis points higher than the third quarter of 2021 and 220 basis points higher than the fourth quarter of 2020. The year over year expansion in fourth quarter non-GAAP gross margin was largely due to a shift in sales mix favoring high value Greenfield products and operational efficiency gains, which more than offset higher product input costs. NPS achieved noteworthy market share gains in 2021 due in large measure to product availability and disciplined sales price management. Our non-GAAP operating income was $112.0 million compared to $108.4 million reported in the prior quarter and $66.3 million reported in the fourth quarter of 2020. Let's review our operating expenses. Our GAAP operating expenses were $115.3 million in the fourth quarter compared with $109.2 million in the third quarter of 2021 and $88.9 million in the fourth quarter of 2020. Our non-GAAP fourth quarter 2021 operating expenses were $83.0 million up from the $78.7 million we spent in the third quarter of 2021 and up from the $63.6 million reported in the fourth quarter of 2020. On both a GAAP and a non-GAAP basis, fourth quarter 2021 litigation expense was a credit balance of $420,000 compared with a $3.4 million expense in Q3 2021 and a $1.5 million expense in Q4 2020. The credit balance in fourth quarter 2021 litigation expense reflected an IP settlement, refund of a legal retainer, and lower than anticipated fees. The differences between GAAP and non-GAAP operating expenses for the quarters discussed here are stock compensation expense and income or loss from an unfunded deferred compensation plan. Fourth quarter 2021 stock compensation expense, including $921,000 charged to cost of goods sold was $31.2 million, compared with $31.6 million recorded in the third quarter of 2021. Switching to the bottom line, Fourth quarter 2021 GAAP net income was $72.7 million or $1.51 for fully diluted share compared with $1.44 per share in the third quarter of 2021 and 90 cents per share in the fourth quarter of 2020. Q4 2021 non-GAAP net income was $102.1 million or $2.12 per fully diluted share compared with $2.06 per share in the third quarter of 2021 and $1.31 per share in the fourth quarter of 2020. Fully diluted shares outstanding at the end of Q4 2021 were 48.2 million. Now let's look at the balance sheet. As of December 31, 2021, cash, cash equivalents and investments totaled $727.5 million compared to $744.5 million at the end of the third quarter of 2021. For the fourth quarter of 2021, MPS generated operating cash flow of about $28.2 million compared with Q3 2021 operating cash flow of $117.8 million. The between quarter drop in operating cash flow primarily reflected a $51.3 million increase in inventory and higher accounts receivable. Fourth quarter 2021 capital spending totaled $17.6 million. Accounts receivable ended the fourth quarter of 2021 at $104.8 million or 28 days of sales outstanding compared with the $79.9 million or 22 days of sales outstanding reported at the end of the third quarter of 2021 and the $66.8 million or 26 days reported at the end of the fourth quarter of 2020. Our internal inventories at the end of the fourth quarter of 2021 were $259.4 million up from the $208.1 million at the end of the third quarter of 2021. Calculated on a basis consistent with our past practice and as you can see from the webinar video, days of inventory rose to 166 days at the end of Q4 2021 from the 134 days at the end of the third quarter of 2021. Historically, we've calculated days of inventory on hand as a function of the current quarter revenue. We believe comparing current inventory levels with the following quarters revenue provides a better economic match. On this basis, again, you can see days of inventory increased to 152 days at the end of the fourth quarter of 2021 from 133 days at the end of the third quarter of 2021. I would now like to turn to our Q1 2022 outlook. We are forecasting Q1 2022 revenue in the range of $354 to $366 million. We also expect the following. Gap gross margin in the range of 57.4% to 58.0%. Non-GAAP gross margin in the range of 57.7% to 58.3%. Total stock-based compensation expense of $36.9 to $38.9 million, including approximately $1.1 million that would be charged to cost of goods sold. GAAP, R&D, and SG&A expenses between $119.2 and $123.2 million. Non-GAAP, R&D, and SG&A expenses to be in the range of $83.4, $85.4 million. This estimate excludes stock compensation and litigation expenses. Litigation expenses to be in the range of 2.3 to 2.7 million dollars. Interest income is expected to range from 1.0 to 1.4 million dollars before foreign exchange gains or losses. Fully diluted shares to be in the range of 47.8 to 48.8 million shares. Finally, I'm pleased to announce a 25% increase in our quarterly dividend to 75 cents per share from 60 cents per share for stockholders of record as of March 31st, 2022. In conclusion, MPS's strong financial performance in 2021 was largely due to a 40% increase in fab and assembly capacity, which supported our high value Greenfield product revenue ramp. Looking ahead, NPS is on track to expand capacity in 2022 well beyond $2 billion, allowing the company to successfully ramp new product revenue and achieve strategic market share gains in 2023, 2024, and beyond.

Thank you, Bernie. Analysts, I would now like to begin our Q&A session. As a reminder, if you would like to ask a question, please click on the participants icon on the menu bar and then click the raise hand button. Our first question is from Tori Svanberg of Stiefel Nicholas. Tori, your line is now open.

Yes, thank you and congratulations on the very, very strong results. So I'm going to ask this question differently. Usually people ask you, how come you carry so much inventory? This time I'm going to ask you, how were you able to actually get your inventory days that high? How are you both finding the capacity and again, being able to build the inventory in spite of this very, very tight environment we're seeing in the industry?

Well, as you know, in this business, building inventories and qualified fabs, these are not one-day, two-day things. They're not short-term. These are all we planted a few years ago, and now the opportunity presents it, and we just catch it. And nothing was short-term. We don't have a crystal ball for the futures. And we just react. We just plan ahead and react as fast as we can.

And I think to add to that, that shows that we have a lot of inventory on hand. that presents the capacity to allow us for sales in the next two quarters. So what we've done is made conscious investments in inventory in the supply chain. And what we're trying to do is manage such that we hold the inventory We're still keeping channel in the channel inventory lean, and we're trying to make sure to the best of our abilities that we're in touch with the inventories that our customers are keeping. So they're likewise lean.

Yeah, I also want to add, and okay, as you remember, and a few years ago, and I talk about NPS is going for well beyond a million or a couple of million dollars. And I wasn't joking. And we plan ahead for our business. That's what we saw. a few years ago. And now you grow this much is a, of course we didn't expect that. And, but we do have a capacities and like I mean, we do have to do some creative ways in the scrambling to get to a 45%. And, And so that's all that is. We don't have magic tricks in the last six months or so.

And it's good, as Michael noted, we crossed the $1 billion revenue threshold. And our revenue growth rate has accelerated from a historic precedent.

Yeah, no, well, well done. As my follow up question, could you just add a little bit more color on the $2 billion worth of capacity? You've talked about now, you know, ramping in on eight inch, you're also qualifying products on 12 inch. Will there actually be 12 inch product sales this this year?

Yes. We're qualified. As you know, NPS don't build a FAB, and we don't have a lot of capital spending. But we do have increased all these capacity, qualified FABs, and that costs money. And So to answer your questions, we do transitions. Nowadays, we get all this capacity, whether it's 12-inch or 8-inch, as much as we can.

And just to add to that, that was our second 12-inch fab that we brought online in 2020.

Yes. Right. Very good. I'll go back in line. Thank you, and congrats again. Okay, thank you.

Our next question comes from William Stein of Truist. William, your line is now open.

Great, thanks for taking my question. Congrats on the eye-popping results and outlook. I wanna ask about the module business that you've spoken about in the past, this thing that might even accelerate growth further over time. I'm wondering what percentage of revenue modules contributes today and how we should think about the trajectory of that business. And if you could also comment on Any potential tuck-in acquisitions that were either executed or contemplated in the future to fulfill your strategy in that area? Thank you.

Yes. Okay. I'll go ahead to you. You asked the question. The module business, I think, is a share of 10%. In the fall of this year? It's actually mid single digits.

Okay.

Yeah. Yeah. Yeah. And so you can quantify as a much more, much more accurately. Okay. I don't know all the numbers in detail. All I know is, okay, we, We grow 100% every year in the last couple of years. And now you're using the word accelerating this year and the next couple of years. That's what I see now. And the other things, okay. The second part of your questions about acquisitions for the tucking technology or to enhance our future growth on the, using our NPS technology for those companies. Yeah, we are engaged with a handful, it's a handful of a company, like more than five or six companies. And so far we're engaging with it. And nothing materials lies. We should announce that now. Thank you.

Our next question is from Alex Vecchi of William Blair. Alex, your line is now open.

Thanks for taking my question and I echo the congratulations on the outstanding results. Just maybe to expand on Tori's question with regards to the capacity expansion from 2 billion on Can you quantify how much more capacity you think you'll be adding in the next year or two or three or the right way to think about it? I think in the past, you've alluded to the fact that the current product portfolio can support upwards of three to 4 billion in revenues. Is that sort of the right way to think about the long-term trajectory?

Yes, that's absolutely correct. And for the semiconductors, yes, we have to have a fab capacities and for that kind of revenues. But even going to futures market because we're selling more high dollar modules and the solutions and which utilizes silicones even less. So we have, we should have, we shouldn't, and our semiconductor wafer capacity, even shouldn't, and there will be less factors.

That's actually really helpful. And then similarly with the comments in terms of the segment breakdown, the storage and compute segment was very strong in the quarter. And I think you've talked a little bit about enterprise notebooks. It seems like that's one of the areas, notebooks in general, where there's a little investor trepidation. going forward, can you maybe talk about what the opportunity there is or maybe what the SAM is for your notebook outlook over the next few years?

Sure. I think it's important to qualify that the growth that we've experienced in particular over the last two, three years has really been at the enterprise level where we're selling into units that retail for above $1,200. And we've been very successful as far as capturing a large part of market share that really is not necessarily driven by consumer trends. So they're not as prone to the downward unit numbers that are being projected for notebooks.

Yeah, overall, we want to achieve a balanced growth. We don't want to be known as a noble company. And that's our way. And as NPS's strategy is diversify the growth.

And just to pick up on Michael's point, we saw a very strong uptick in our cloud and server business, particularly in Q4, which we expect to continue to ramp into 2022.

Yeah, overall the notebook revenue is a single digit now.

Thank you, with that I'll hop back into queue.

Our next question is from Quinn Bolton of Needham. Quinn, your line is now open.

Hey guys, I'll offer my congratulations as well. And Bernie and Michael, I'm surprised you haven't gotten the question yet, but I follow the company for a long time. I think this is the biggest gross margin beat you guys may have ever put up. If I got my numbers right, you beat gross margin by 130 basis points in this quarter. Looking back to the third quarter, I think you had a $4 million litigation loss. uh revenue in in the number that that you know drove strength and gross margin but that was clearly a one-time issue so can you talk first about what drove the strength and gross margins and you're guiding them effectively flat up 10 basis points technically in in the first quarter so it looks like that margin strength continues can you just talk about gross margin

Sure, we tried to reflect on that a little bit in the prepared comments where I indicated that we're benefiting right now by a more favorable shift in our product mix, which is higher margins on the new greenfield business, but also operational efficiencies. As far as we indicated earlier, the percentage of silicon that's coming from 12-inch but also as a reflection of our improved quality standards. So I think that as we've reflected on what the sustainable margin going forward that we've offered sort of a new floor, which we look to grow again, 10 to 20 basis points sequentially, although obviously we'll keep our eyes open if there is an opportunity to have another step up.

Yes, there's another side. A few years ago, we talked about a greenfield product, and then you actually, I remember, asked, okay, there's no headwind in the, is there any headwind in the gross margins? So the answer was, and all these new product, greenfield product, were all aimed at the high-end products. high-end products and higher values. And so the gross margin should be better. So this time, okay, and we didn't increase the price that much. We are... we pretty much passed the cost to our customers, or not even passed to our customers. But as Bernie said, it was shifted to 12-inch, and also the internal efficiency, improvement and with a high gross margin product, that is the majority of the gross margin improvement.

Got it. And as a follow on, for two quarters now, you've seen a pretty nice increase in your internal inventory levels. Wondering if you could just comment you know, as you're building that internal inventory, how much of that is for new greenfield products versus say the run rate business?

We, it clearly was shifted away from a consumer side. And so that were allocated a lot of product for these high-end targeted, NPS targeted market segment. So we grow the inventories for those segments.

I think something to add there is that we do have some high volume business and we're treating that as run rate. So it's probably the area that has the tightest capacity, but where we have these new products, the greenfield opportunities, and we have new customers and new markets, as an insurance policy to make sure that they're perceived very positively and that we can cover upside potential. We have been building inventory to support that. And I think that's being reflected very well as far as the customer acceptance of the new products, as well as market share gains afforded by the appropriate inventory levels.

Got it. Thank you.

Our next question is from Ross Seymour of Deutsche Bank. Ross, your line is now open.

Thanks for that nice question. I'll echo the congrats. I wanted to follow up on the second half of your answer to Quinn's question there, Bernie. And in the past, you guys have always gained market share and very consistently so. This year was, well, this past year was no different, but you also had significantly greater availability than your competition. So I just wanted to see what the client or the customer experience relationship, how that's been enhanced because of the availability. Do you believe that the wins you've gotten from availability will lead to sticky relationships going forward? You mentioned moving up into kind of first tier customer base. I'm just trying to figure out the sustainability of the revenue growth strategy. because of that availability dynamic.

That's a very, very good question. So, okay, how did the, how we grow like a 45% of the over, over our closest to a billion dollar base? Okay. I mean, um, well, you think about it, it's okay. All these are product, uh, that were released and, uh, Greenfield products. Okay. And, uh, um, these two are first tier customers and, uh, um, Usually these are large customers that they ramping a new supply very carefully. So they don't allocate a large percentage. They always have a second source. And now it's not like I have a shortage everywhere. NPS has capacities. So everything's shifted to, to NPS. That's one factor. And the second factor is that we talk about NPS products are more programmable. And our customers find out before they care less. And now they find out, okay, our product, single product can do a multiple purpose. And that contributes another factors. and uh so we can replace and okay we can shortly redesign uh our customers we designed another source out uh to adapt the mps solutions so by these two points okay is very sticky and okay especially the second point and our mps products are more programmable and uh they they enjoy that and they solve their problems and they realize the values. And so I would say they're very sticky.

Great. And I guess as my follow-up question, I thought you talked about another greenfield opportunity, which is a huge part of the analog market, which is getting into the converter side of things. Can you just talk a little bit about your aspirations there, some of the applications you're going after and what sort of opportunity?

you see uh unfolding in that yeah we we just uh um we we did it um we do have a silicon and announced and okay and the the performance is outstanding and uh these are the new market segments and i came here and uh these are purely in a in a single site and uh uh which we we never have it okay and uh These are internally developed. We have a group of people and they have a lot of experience and that's a new market segment for us. So the focus will be the communications and also medical applications like imaging, x-rays and ultrasounds and those types of things.

And just to add, as far as the characteristics of this technology, there are not a lot of companies that have been successful with this. And the ones that have, have carved out pretty exclusive markets. And as a result of that, they command very high gross margins. So we look to be a new market entrant, but also with a big competitive advantage.

Yeah, so it is a milestone for NPS, a so-called high-performance analog company. They tried it, and they achieved a mediocre result. And now, okay, see what we can do. And we do have a product, and so for the next couple of years, we'll see what we can do. Thank you.

Our next question is from Chris Castle from Raymond James. Chris, your line is now open.

Yes, thank you. For my first question, I'll talk a little bit about seasonality. Obviously, the Q1 results are better than what we normally expect in a seasonal Q1, and I suspect that's because of some of the capacity additions that you're bringing on. Can you talk about these capacity additions as we go through the year? Are they brought in the road to the $2 billion revenue level, capacity level? Is that going to come on fairly evenly during the year? Is there a step up at some point? And then when that happens, do you think that you will be fully able to meet your customer requirements, you know, presumably this year?

Chris, I think you get credit for three questions there. Hopefully I'll be able to keep the thread going. The first issue had to do with seasonality and that generally speaking from Q4 to Q1, we observe a a modest dip. In fact, because we have such an unprecedented demand-supply imbalance, that in fact seasonality is not as much a function today as opposed to your second question, which has to do with product availability. That's the gating item for how fast that a company can grow. And as Michael pointed out earlier, is that as part of our company, we've always built capacity alongside the development of our new products. So we in fact got out in front of this upsurge in the market and have been able to participate and in fact accelerate our capacity build out. And that's really a reflection of how we're looking at 2022. But I think that one thing that we've always done is we've had to make intelligent decisions many years ahead of when the capacity has been needed So in fact, we're in discussions in order to be able to get capacity for 23, 24 and beyond. And we feel very secure in what we're capable of doing in 22.

Well, to answer your questions honestly, okay. If we give us another 50% growth years for this year, we'll be in trouble. Okay.

Okay. I think that would be welcome trouble if that were the case.

Yeah.

I'll take liberty to ask one more that you were nice enough to answer my three, which is with regard to pricing. And Bernie, you made a comment on the call. You spoke about discipline, sales, price management, as I think how you termed it. Could you explain what that means and the extent to which pricing has been a contributor to year-on-year growth and whether that's something that's in the rearview mirror or you'd expect to continue to increase?

I think that most people have recognized within the semiconductors and even specific to analog, that that created a opportunity for many companies to affect price increases with their customers. And a lot of them implemented that as early as Q1 of this year. We chose, we made a conscious decision not to increase our prices on a broad base. There were selective market opportunities, but broadly we did not. And we did that along with having the product availability as a means of being able to secure a higher level of market share. And so now as we look at 2022, we are going to implement selective but more broad-based price increases, but they'll be at a more modest level than some of our peer companies have implemented.

Yeah, we look at it, we invest in our customers for the future growth and for the future opportunities. And, but we do have to have a modest growth margin expansions. And as we, as our models, okay, we keep said it, we have a steady state growth on every segment. Very helpful, thank you.

Our next question is from Rick Schaefer of Oppenheimer. Rick, your line is now open.

Oh, thanks. And my congratulations, guys, on a nice quarter, another nice quarter. Maybe if I could, just a quick question on 5G. I mean, you guys have talked in the past about, you know, 5G is a pretty significant opportunity for MPS. I think, Michael, I think you said potentially hundreds of dollars of potential content there. sort of similar to server or data center cloud for you guys. So I don't know if you could give us any update on design momentum since when the revenue contribution might sort of start to inflect if that's still kind of the second half of this year. And I'm curious as part of that question, I mean, are you going to see QS mod sort of be part of that initial ramp this year or Or is it going to be more sort of point of load, eFuse, sort of how you began your journey in server? If you could give any color there, that'd be great.

Yeah. So to answer your first part of question first, in the 5Gs, there's actually a lot of products, especially in the high current side, all relate to QS mod. And similar technology-based product, we power up the 5Gs in all areas, from the signal size all the way to transmitters. We don't see a very high rate of ramping. And so they're still steady state. And the other question is QS model for the data centers. This year, we have to say, we occupied, it's still less than a single digit of a total percentage of the total 10 of the market. But the significance is from always almost nothing and to a high end of a single digit. Earlier, I said that if we don't occupy the 30% of the market, we should not be in the business. So we still have a lot of room to grow.

And I think with the release of VR14 that we're at a very good inflection point in the cloud and in the data center.

Yeah. And Michael, just to follow that, but it took, I think, about three or four years to sort of get point of load needs you share today, which I think is about 30%. So I think you're saying that's sort of a good proxy for QS mod could be in the next couple of years.

Oh, yes. Okay. Yeah. So it'll take, I'm actually longer than that, more than three or four years. And I was wondering why is it so long? In the early days, I said we could grow very quick. I didn't know what I was talking about. And for the next, as Bernie mentioned, the VR4 teams and the VR13.5, I saw sort of an NPS accepted as a, as a players, okay? And VR for teams, I think we have a pretty good shares to start to ramp, but it's not happening now, okay? And sometimes this year, right?

Yeah, VR 13 has been delayed again. It's more likely to be Q3. Yeah, yeah, yeah. But you are right. We've observed in Q4 an uplift as a result of 13.5. Yeah, yeah, okay.

Thanks. And if I could ask us to follow up to Bernie, probably I just, you know, I wanted to ask, I haven't asked in a long time, you know, balance sheet looks great. Obviously, you know, I was just curious if you could give us an update on use of cash going forward. I mean, obviously you've done a really good job of investing in future growth and R&D, but I'm just curious how much, you know, you need to run the business here and, you know, feed R&D, et cetera. Thanks.

Yeah, and it's a great question because you wanna look at it sort of three levels for our particular story. One is we have to keep a certain amount of cash available in order to fund our growth, particularly as it relates to receivables and inventory, but also we're expanding operating expenses worldwide at an accelerated rate. and all of those demand a level of liquidity. The next thing that we've talked about is building infrastructure and capacity. And even though we're outsourced as far as our fabs and assembly, we do a lot of our own testing. In fact, with the quality requirements of some of the new markets we're going in, we can't outsource that. We do all of our own testing and that requires an additional investment. And then you have buildings, which as you know, We're one of the few companies that we purchase our own footprint to house our growing staff headcount. We're going to continue to leverage the balance sheet in order to help accelerate our growth, while at the same time, as we announced in the prepared comments, we're increasing the dividend by 25 percent. We're also mindful that we need to return some of the cash back to the shareholders.

Yeah, well, Bernie said that he said accelerate and expense growth. No, we're not accelerating. No, absolutely not. And let's make that clear. And so we are pretty little bit above our model. OK, growth, OK, the NPS growth, the expenses of growth, OK. and for the return of cash to our investors. And we have an overwhelming case support from our investors and dividend and then not buyback. So we are following a buybacks. Okay, now, okay, we said, okay, let's delay it. And I came in because we get a feedback. So, okay, they want a dividend. I don't know whether it relates to a tax issue or not related. So I think in the past, we said our models consistently increased the dividends. And the other side of using cash is we want to acquire a company, not for revenue growth. It's cheaper to grow MPS revenue by its own. But we can do this. So we can, MPS has a lot of garden variety of a different product and can feed some, can enhance couple of the areas to the end product. And we want to acquire those small tugging product, very unique and sustainable growth and sustainable. And based on NPS technology, we can grow those companies. And that's the company we're really interested in. And so earlier I said that we're engaged with a few companies now.

Thanks for all that, Keller, guys. Congrats.

Our next question is from Matt Ramsey of Cohen. Matt, your line is now open.

Thank you very much. Good afternoon, everyone. Michael, I've been asking you about this for, I don't know, three, four years, but in the last, I guess, three or four months, you guys talked a bit more about opportunities for MPS in the electric vehicle market, some in drivetrains, some in regenerative braking. I wonder if you might talk a little bit more about the revenue opportunity per car with your lead customer, the timing of that, and how wide is the pipeline in terms of the number of engagements that you might have in the EV market? Thanks.

EV market in ADAS area, I think that we are in ADAS 2.5 or 3.0, we almost engage with everybody. So I can give you a numbers. For pure electrical car, NPS has about somewhere as $80 to $100 shipping today. And we're starting this year. Well, starting not this year, starting actually last year. If you're involved with a regenerative braking and a drivetrain, those will add another over $1,000. And those are... We don't have those revenue yet, but we do release those product.

Got it. Any of those larger ASP products, any thoughts on timing?

There's a mini product that we are talking about now. We have released a couple of them already. More than a couple of them already. And the key is that we want to offer the total solutions. And customers pretty much can use the NPS reference design.

Got it. As my follow-up question, it's a different topic. And one of the things that I've been having investor conversations about is the broad-based industry adding, investing a ton of CapEx and adding a ton of capacity and this fear that the industry is adding it at a peak, right? You see a couple of new fabs coming online from Texas Instruments in the next number of quarters, Infineon's up in CapEx, pretty much everyone is. And so you guys have been in a unique position to have a ton of capacity come online when others have struggled to do it. And it sounds like that's gonna continue for you. I just wonder, any concerns as the industry catches up with capacity, Michael, and maybe you could contrast the type of capacity, the process node that you're on, the nature of the capacity that you're bringing online for some that the rest of the industry may be adding. Thank you.

Yeah, that's a good question. So, okay, you know that, okay, first things I should answer that, you know, NPS don't build anything. We don't build anything, we don't have a FAB, but we do have all the technologies. And usually how we getting a FAB capacity is those FAB are empty. And we go in there, we said, okay, we can fill you up. It's a long-term partnership. And so, and then like this year, the last year, so like, and then you want to add a capacity, forget it. Okay, me and those guys are busy shipment. Okay, me and there's no FAB as entities. And so we engage with them in the downturns and we implement our technology. Remember, we don't, it's not like a building a FAB. We don't build a FAB. The cost is a minimum and, but we do have some commitment and we do have some consignment or some equipment. Okay. But these costs to compare building a fab is much, much less. Okay.

Thanks very much, guys. I appreciate it. Yeah. Okay.

Our next question is from Tori Svanberg of Stiefel Nicholas. Tori, your line is now open.

Thank you. Just two quick follow-ups. I know it's early in the year, but you have, so you have four horses that are running really fast. You have one horse that's, you know, kind of just running slowly. If we look at this year, which of the horses do you think will grow a bit faster? I know there's a lot of talk about auto and server, but yeah, which, which horses should we bet on this year?

Well, we don't want to be in those MPS's auto companies and It's definitely not a noble company. And I think it's a, we're shifting clearly this year, we're shifting from our consumers to well, at least the last couple of quarters. So we shift from a consumer to automotives and a server and a service from a cloud computing side. And again, And so these are for this year, probably remained similar. So that's all we see it.

Yeah, and I think that when you say that we've got five strong horses, that's a more accurate reflection because they'd say that in the current year, we were surprised by the strength of industrial. So, and I think that's gonna continue on into the next year. And as we talked about earlier, the communications market, while it may not be coming on as fast as we'd originally hoped for or expected, still looks very promising in the second half of this year. So I think really the thesis remains being broad-based growth.

Yeah, but who knows? And let's say that all these other market segments slow down, and as a consumer business, every half year, we can shift it. And we can shift it quickly. Currently, it's not a favor, but we can shift it quickly. And by the end of the year, maybe we grow a consumer business.

Sounds good. And coming back to the data converter topic, a new segment for you. What are some of the things that we should track for your success there? We all know it's very difficult to crack into that market. And are you going into that market really, really at the high end of data converter technology? And will that be the way for us to track your success there?

So far, yes, it's a very, very high end product. But that's a new market segment. So like earlier I said, okay, we said that we're gonna ramp in the data center very quickly. Okay, turned out to be, it wasn't a case. So I don't wanna predict that. But I know the technology is good and the test data showed, okay, we are far better than on the existing market product.

Great. If you can even get the 100 million there, I'd be very impressed.

Oh, yes. Okay. It's a matter of time. I'm confident of that. And along the way, probably we'll learn a few things. Yeah. Okay. Very good. Thank you. All right, okay.

If there are any follow-up questions, please click the raise hand button. As there are no further questions, I would now like to turn the webinar back over to Bernie.

Well, once again, I'd like to thank you all for joining us for this conference call. I look forward to talking to you again about our first quarter, which will likely hold in April. So thanks again and have a nice day.