Monolithic Power Systems, Inc.

Welcome, everyone, to the MPS first quarter 2022 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. Hello. 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 harbour 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 harbour statements contained in the Q1 earnings release and in our SEC filings, including our Form 10-K, filed on February 25, 2022, 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, 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 Q1 2022 earnings release, which we have furnished to the SCE 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.

Thanks, Jen. MPS, those record first quarter revenue, $377.7 million. 48.4% higher than the first quarter of 2021. 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. Before looking at our revenue by market, I would like to call your attention a change in our reporting. In order to provide increased visibility on data center and cloud computing revenue, we broke reporting for computer and storage into two separate line items. The table has been included in this webinar showing the company's quarterly revenue on this basis since 2017. The first line item is called storage and computing, which primarily refers to total storage and client computing revenue. The second line item called enterprise data which captures revenue from data center and cloud computing in our storage and computing market first quarter 2022 revenue of 96.6 million dollars increased 18.6 million dollars for 23.9 percent from the fourth quarter of 2021 due primarily to higher storage and commercial notebook sales computing storage and computing revenue represented 25.6% of MPS's first quarter 2022 revenue compared with 20.2% in the first quarter of 2021. In our enterprise data market, first quarter 2022 revenue of $42.5 million increased 5.0% in the fourth quarter of 2021 due primarily to continuing strength data center at workstation computing sales. Enterprise data revenue represented 11.3% of NPS's first quarter 2022 revenue compared with 6.4% in the first quarter of 2021. First quarter 2022 communications revenue of $55.6 million rose $9.7 million or 21.1% from the fourth quarter of 2021. The quarter-over-quarter increase primarily reflected higher revenue related to 5G build-outs and satellite communications. Communications revenue represented 14.7% of NPS's first quarter 2022 revenue, compared with 14.2% in the first quarter of 2021. First quarter 2022 revenue from consumer markets of $80.0 million increased 13.69 or 20.6% from the fourth quarter of 2021. This sequential quarterly improvement, the sequential revenue increase reflected a broad-based increase, particularly related to our IoT business. Consumer revenue represented 21.2% of our Q1 revenues. compared with a 26.0% contribution in the first quarter of 2021. First quarter 2022 automotive revenue of $54.5 million decreased 3.2% from the fourth quarter of 2021. Automotive revenue represented 14.4% of MTS's first quarter 2022 revenue compared with 17.6% in the previous year. In our industrial market, revenue of $48.5 million was essentially flat with revenue recorded in the fourth quarter of 2021. Industrial revenue represented 12.8% of our first quarter revenue compared with 15.6% in the prior year. Moving now to a few comments on gross margin. Gap gross margin was 57.9%. 30 basis points higher than the fourth quarter of 2021, and 250 basis points higher than the first quarter of 2021. Our GAAP operating income was $96.1 million, compared with $78.6 million reported in the fourth quarter of 2021. For the first quarter of 2022, non-GAAP gross margin was 58.3%, 40 basis points better in the fourth quarter of 2021 and 250 basis points better than the first quarter of 2021. Our non-GAAP operating income was $133.6 million compared to $112.0 million reported in the fourth quarter of 2021. On both the GAAP and the non-GAAP basis, the sequential quarterly gross margin improvement was primarily due to a better product mix as revenue from higher value new product introductions or ranking. Let's review our operating expenses. Our GAAP operating expenses were $122.7 million in the first quarter of 2022, compared with $115.3 million in the fourth quarter of 2021. Our non-GAAP first quarter 2022 86.6 million dollars, up from the 83.0 million dollars reported in the fourth quarter of 2021. The differences between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are stock compensation expense, amortization of purchased intangibles, and income or loss on an unfunded deferred compensation For the first quarter of 2022, stock compensation expense, including approximately $1.3 million charged to cost of goods sold, was $39.8 million, compared with $31.2 million recorded in the fourth quarter of 2021. Switching to the bottom line, first quarter 2022 GAAP net income was $79.6 million, or $1.65 for holding and moving shares. compared with $72.7 million for $1.51 per share in the fourth quarter of 2021. First quarter, 2022 non-GAAP net income of $118.3 million for $2.45 per fully remitted share, compared with $102.1 million for $2.2 million in the fourth quarter of 2021. Believe it or not, it shares outstanding at the end of Q1 2022 or 48.2 million. Now let's look at the balance sheet. Cash cash equivalents and investments were $775.9 million at the end of the first quarter of 2022, compared to $727.5 million at the end of the fourth quarter of 2021. For the quarter, NPS generated operating cash flow of about $107.4 million, with operating cash flow of $28.2 million in the fourth quarter of 2021. First quarter of 2022, capital spending totaled $26.9 million. Accounts receivable ended the first quarter of 2022 at $120.3 million, with 29 days of sales outstanding. up one day from 28 days at the end of the fourth quarter of 2021. Our internal inventories at the end of the first quarter of 2022 were $311.0 million, up from a $259.4 million at the end of the fourth quarter of 2021. Days of inventory increased to 178 days at the end of Q1 2022, 166 days at the end of the fourth quarter of 2021. Historically, we calculated days of inventory on hand as a function of the current quarter revenue. We believe comparing current inventory levels with the following quarters projected revenue provides a better economic match. On this basis, again, as you can see, days of inventory increased to 159 days at the end of the first quarter of 2022, up from 149 days at the end of the fourth quarter of 2021. I would now like to turn to our outlook for the second quarter of 2022. We are forecasting Q2 revenue in the range of $420 to $440 million. We also expect the following. The outgrowth margin in the range of 58.4% and 59.0%. Non-GAAP gross margin in the range of 58.7, 59.3%. GAAP, R&D, and SG&A expenses between $132.7 million and $136.7 million. Non-GAAP R&D and SG&A expenses to be in the range of $90.0 million to $92.0 million. Full stock-based compensation extends from $44.2 million to $46.2 million, including approximately $1.5 million that would be charged to cost of goods sold. Litigation expenses range between $2.3 and $2.7 million. Interest and unrental is expected to range from $1.3 to $1.7 million before fully delivered shares to be in the range of 47.8 to 48.8 million shares. In conclusion, we will continue to execute our long-term plan for sustainable growth. I will now open the webinar up for questions.

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 Ross Seymour of Deutsche Bank. Ross, your line is now open. Thank you.