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spk05: Welcome everyone to the MPS first quarter 2024 earnings webinar. 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, Bernie Blagen, EVP and CFO, and Tony Bailo, VP of Finance. Earlier today, along with our earnings announcement, MPS released written commentary on the results of our operations. Both of these documents can be found on our website. Before we begin, I would like to remind everyone that in the course of today's presentation, we may make forward looking statements and projections that involve risk and uncertainty. Risks, uncertainties and other factors that could cause actual results to differ from these forward looking statements are identified in the safe harbor statements contained in the Q1 earnings relief and in our latest SEC filings. Including our form 10 K, which can be found on our website. Our statements are made as of today and we assume no obligation to update this information. Now I'd like to turn the call over to Bernie.
spk11: Thanks, Jen. We're doing something a little different with today's earnings call. As a detailed recital of performance metrics is included in the company's earnings commentary, accompanying the earnings release, I'll use this time to provide just a few comments on our Q1 2024 performance and our outlook before opening the call up to Q&A. Our financial performance improved in the first quarter of 2024 with revenue up both sequentially from Q4 23 and year over year from Q1 23. Ordering patterns consistently trended upward through the quarter. Visibility into the second half of 2024, however, is limited and many of our customers remain cautious. Despite this uncertainty around the second half of 2024, customer engagement across all of our end markets remains high and our design win pipeline continues to grow stronger. Additionally, we are continuing to expand our product portfolio and diversify our supply chain globally. We believe both actions position our company for further growth as the market improves. In summary, we saw consistent improvement through the first quarter, but we continue to be cautious about the second half of 2024 business conditions. Overall, our proven long term growth strategy remains intact and we can swiftly adapt to market changes as they occur. I'll now open the webinar up for questions.
spk05: Thank you, Bernie. Analysts, I would now like to begin our Q&A session. As a reminder, if you'd 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 Svamberg of Stiefel. Tori, your line is now open.
spk12: Yes, thank you and congratulations on this enviable consistency. I have two questions. My first question is on share gains. Historically, Michael, monolithic power tends to really accelerate share gains during downturns. I know there's a lot of focus on enterprise data right now, which is a third of your revenue, but can you maybe call out some other verticals or applications where you are seeing more share gains in the current downturn?
spk10: Clearly, we just wait for if we have an audit this downturn. You see this, we compare the rest of the industries, we're like 10% up. That's really a share gain. In terms of the vertical market, although it's clearly the one, we won many sockets in there. NPS is still small compared to all these established competitors. Other ones, even the servers and the notebooks areas, these are all gain shares. The last one is the consumer. As we said a year ago, we give it up some of the shares because of the capacity constraints. Now, we have a lot more capacity now and you will see some growth in the near future.
spk11: If I could add one additional comment there, is that we've had a number of greenfield opportunities that have been waiting to launch in an improved microenvironment. In addition to the end markets that Michael just referenced, I think that you'll also see share gains in both communications and industrial.
spk12: Great, thank you. For my follow-up question, and specifically on enterprise data, which is now a 30 year revenues, there's been some chatter lately about lower power management content in next generation AI data centers due to liquid cooling and other techniques to lower overall power. Is this impacting NPS broadly or is this more a very specific use case in the server power management market?
spk10: All these are cooling systems, the new format or vertical powers and NPS involve all of them. If they transition to those markets, those systems and NPS end up in the same games, we will gain and we will grow with it. If any other comments? Tony? Yeah,
spk11: I think that the point that we've demonstrated, particularly with enterprise data, is the ability to leverage up content as we go into higher value technology. For example, the water cooled and vertical represent opportunities, not threats. If you look down the line not too far out, we'll also be going into rack power as well.
spk10: Excellent. That's good. Yeah, good answer.
spk12: Great, thank you. I'll go back in line. Congrats again.
spk05: Our next question is from Quinn Bolton of Needham. Quinn, your line is now open.
spk07: Great. As I'll add my congratulations on very steady performance in a challenging macro environment, I guess I wanted to follow up on Tori's question on enterprise data. Lots of your competitors making noise about perhaps gaining share at your largest enterprise data customer and wondering if you could just address your latest thoughts on competitive landscape in both lateral power and then perhaps looking forward to vertical power and then I've got a follow-up.
spk10: Yeah, as you may remember, 2016 we have a power curve versus the power curve and CPU computing capabilities versus the power densities. We projected it for 2018 or 2019. That would be the crossover point. That NPS product and for those common footprint and use a driver's moth couldn't fit into the peripheral powers. That's around 700 watts. If you remember that, 2016 we said that. At the time we projected was a CPU was wrong. It actually turned out to be a GPU. But the power is the power densities. By 2018 or 19, that's pretty much the peripheral powers that reached the limit. Now from that time, everybody goes to verticals for even higher power AI computations and all learning. All of these powers go to verticals and peripheral powers that reach the limit. I can comment on our competitors. So far, NPS, as always, we want to bring the best technologies. And we are not a champion of volumes. We don't do that. Whatever we do, we do the best. Not the volumes that we ship. So when the market became normalized and became normal, not like last year or so, there would be more solutions coming on board. A lot of our competitors start to copy our product. So that's fine. We stick our NPS model. We have a very diverse environment. I
spk11: think it's important to keep in mind when you look at our history, as Michael just referenced there, that we've always won opportunities due to our innovation. And as we look at the next generation of GPU or TPU or ASIC products that are in this high power and market, we're in enabling technology. Meaning that at the cycle, we're consulted, we're integrated, in fact, with the development of the next generation of products. So we believe that strategically, that yes, there will be competitive influences in the market, but we want to continue to position ourselves as the leader.
spk07: Yeah, maybe just a quick follow up. Just any comments you guys have on when you think vertical power may go to volume production? Is that something that happens later in 2024? Is that not in volume until sometime in 2025? And then the follow up, Bernie, is you look at the consensus estimates, the streets modeled up 9% sequential growth in your December quarter. Your typical seasonality, I think, is down 1% to 3%. Wondering if you have any comments as to that sort of a seasonal pattern out in Q4? I know you're not guiding out that far, but wondering if you could make any comments about that sort of atypical growth.
spk10: Yeah, I answered the first part of it. And the vertical power is happening now. There's a multiple of our customers. They are launching the vertical power now. So we are shipping those products.
spk11: Yeah, and I'll pick up the second part of your question there, is that seasonality, particularly as you're exiting a downturn, is hard to predict. And what we tried to indicate with our prepared comments is that there are signs of optimism from the standpoint of improved ordering patterns. But how that translates into the second half is hard to predict. And so we have more of a profile of the guide that we've given for Q2, but that really, as far as the difference between Q3 and Q4, we see them higher than Q2, perhaps, but between the two of them, flabish.
spk10: Yeah, as we see AI, probably still continue to grow. Yeah, a very fast rate.
spk07: Great. Thank you.
spk05: Our next question is from Rick Schaefer of Oppenheimer. Rick, your line is now open.
spk09: Thanks. I was having trouble with my mute button. I applied my congratulations, guys, and I just had a couple of questions. The first one, just since we're talking about power, and I sort of pointed one on server CPU power, some of the new x86 platforms that are due out later this year are pushing 500 watts. I mean, is there an expectation, just like the call you made back in 2016, maybe that was a little premature, but is there expectation that x86 is eventually going to move to 48 volts still? And if so, I guess, where are we in that transition? How far off do you think that is?
spk10: Yeah, okay. Now, since you mentioned in 2016, I can go back earlier. 2014, we're not invited. We're outside the door. In 2016, we can join. We're invited as a guest, and we give some tokens, so you can play it. So the transitions and from VR 13, 13 and a half to 14, then this time, when these new CPU powers will have a significant market shares, that will keep, and it's not reflected into revenue yet. And once those CPU release, we will gain a significant amount of shares.
spk09: Any comment, Michael, on the transition to 48 volt power for x86?
spk10: That we don't know. The higher powers is over 700 watts. I think those will transition to vertical powers, which were already, and other ones below that, we believe are still using a traditional rack power and use a 12 volt supply.
spk09: Got it. Thanks. And just as a follow-up, shifting gears a little bit to auto, I was just curious what your expectations are for your auto business this year. Obviously, that market is under a little bit of pressure near term, but I believe you guys have been pretty open about some of your material share gains. For instance, with China, within China ADAS, also with some of your top auto customer, you've also got some pretty significant share gains, I believe ramping later this year, but I was curious if you could provide any update there. Go ahead. Oh, and then I just was curious if you could add in there what your expectations are from, I know you had a couple of launches, that some OEMs delayed in the second half last year, and I didn't know if you still expected to benefit from those this year. I know that's kind of a lot in one question, but there's a lot going on in your auto business.
spk10: Yes, certainly. We actually care less with the share gain, with the revenue expectations. Of course, we have to prepare all the inventories, and that's the only thing we care about. Whatever it is, we want to do. If we're not the best, we will not win those market segments. Particularly, these are new applications and new features. So far, we can tell you, that in this year or the end of the last year, Chinese EV makers produce a lot more. With those features that we are in, they export it not to the US, but to other parts of the world. They increase somewhere 5 to 6 million units, million cars. That's where we see the upside so far.
spk09: Thanks.
spk05: Our next question is from Ross Seymour of Deutsche Bank. Ross, your line is now open.
spk01: Hi, I'll echo the congratulations on the stability. Just a question on the visibility of the second half. I understand the caution, especially given everything going out in the broader market, but you also said that your bookings are improving, the order rates, the engagements, etc. Is the visibility improving? It's just not as good as it used to be. I'm just trying to reconcile the booking side improving, but the visibility not.
spk11: Sure, Ross. If we can reflect that over the course of about the last six quarters, ordering patterns have been well below whatever we call normal. When we're seeing improvement, doesn't mean that we're seeing that they've necessarily stabilized, or that they're as addictive as when you have five or six consecutive quarters of strong ordering patterns. All we're trying to do right now is remain cautiously optimistic.
spk02: Hey, Ross, it's Tony. The only thing I'd probably add on that is really focused on the design win engagement, making sure that pipeline is healthy, because it's difficult to call when the market would come back. As Bernie said, it's still pretty choppy. If we have that strong design win pipeline, as well as having the supply chain diversification we were talking about, we're set to take advantage when the markets do come back.
spk01: Thanks for that, Tony and Bernie. I guess as my one follow-up, a nearer term question for you, any outliers in the growth that you're guiding to in the second quarter by end market segments, versus the 7% total?
spk10: No, I- Outliers means like AI stuff. Yeah. Yeah, as I said earlier, we still see a lot of growth. We are trying to get all the inventory ready. It's starting to go even further, and I even have a lot more upside.
spk11: If I look sequentially between Q2 and Q1, we do see the continuing demand profile for enterprise data. I think we see also some contribution from automotive, but the rest of our end markets are pretty flattish.
spk01: Thank you. Okay.
spk05: Our next question is from William Stein of Truist. William, your line is now open.
spk03: Great. Can you hear me? Yeah. Thanks for the question. Congrats on the good results, and thanks for the change in format. It's a breath of fresh air.
spk10: Yeah, at least you appreciated it. We tried to make it easy for you.
spk03: Thank you. I'm hoping you can update us on the progress you've pursued to try to diversify your manufacturing geographic footprint, both on the front end and back end, and then I can follow up, please.
spk02: Yeah, I'll start, and then I'll let Michael and Bernie pick up. I think we continue to make progress on diversification of our supply chain globally, and so I think that is proceeding as planned. I think that we're set as customers would ask for that capability that we have it ready for them right now. I think, as based on what we've said in the past, I would say there's no change in the expectation there. So Bernie, Michael, anything you
spk10: want to... Yeah, we build all these capacities our customer demands. There's a few of them that really demand a lot outside of China, so we have more capacity. So that's the comment.
spk03: Okay. Okay, let me try a different topic. Some product types that I know have been ramping maybe over a long period of time. One is data converters, which is a category. I think there's really one very dominant supplier, but you guys have started to get into that area. And then the other is the modules that you make when these are much more complex. They have many, many chips, I think, in each one. If you can talk to us about the recent growth in those newer categories, that would be helpful color. Thank you.
spk10: Yeah. Okay. Let me answer the first one, the data converters. Okay, data converters, it's a technology that we're talking about and we developed in the last few years. And we won't design when we start to shipping products. However, it's only one or two products. Now we're going to release a family of a product in less than a year, less than a year time. That will meet a more general market. The other topic that we're talking about, oh, there's a module. Yeah, so-called e-commerce modules. And we're actually doing well. Exactly the e-commerce we talked about in 2018. It's going well over $100 million. But these are multi-chip modules. There's more than $100 million. Actually, all these AI products that we're shipping, these are all modules. And vertical powers and also the rack powers, we're shipping all these modules. So in the past, as I said, I'm sick and tired of selling silicon only. I want to leverage and monetize our know-how, we'll sell these power module cell solutions.
spk11: And I think that we've sort of hit on one of the strategic differentiators between MPS and a lot of our competitors is that we can offer the most flexible architecture of whether it is delivering a module or a silicon die. So however the customer wants to build our silicon or our modules in their application, we have the flexibility to do just that.
spk03: Thanks, guys.
spk05: Our next question is from Matt Ramsey of Cohen. Matt, your line is now open.
spk06: Hey, guys. Good afternoon. I guess this is my first question. Guys, I wanted you to maybe talk a little bit about the AI business in particular as your silicon providers that are driving these platforms make generational transitions. I think there's a little bit of confusion. The big primary guy in AI is not just launching one product, but they're launching three different ones that I expect have slightly different content. And you obviously have other customers there in AI, not just in video, but others. So if you could talk generally, Michael, about just what you're seeing from a content perspective, generation to generation there, and maybe Bernie, what are the variables on sort of blended content increases that you might see as we move forward? Thanks.
spk10: Yeah, but I can't talk about the, well, we don't know how our customers and these AI GPU providers, how they use it. They sell, they have a different model. They have a different model. They have a variety of a product. As long as we know, they use some of the user IC in general for peripheral powers and verticals is all more than 700 watt powers, over a thousand watt powers. These are from modules. And how many modules per CPUs? We have rough ideas, but we don't know exactly.
spk11: So, yeah, that's the first point. Yeah. And to follow up on your second point, it's a very content rich environment for us. It also includes memory, for example, and the CPU process processor, in addition to- Optical. And optical as well. So, I think it's really too early to put limits on content availability. In fact, we're finding new areas in order to deploy.
spk10: Oh, yeah. And so far, we just want to handle the growth. Yeah. All the demand from a memory side, from opticals, from even the GPU, CPU powers. And this period is really the growth period.
spk06: Yeah. Got it. Now, thank you guys. That's helpful. I know there's a lot of moving parts. I was going to kind of step back and ask a little bit about gross margin trajectory. It comes up a lot in my conversations. I know you're kind of in that 55 range. I guess, Bernie, what are the puts and takes here? I know there are big customers ramping in enterprise data and there are variables around that. There's also mix between your segments and where you're sourcing supply from. There's a lot of variables here. So, what would- I mean, are we kind of at a relative floor in the 55 or slightly above range? And what would be the variables that could drive the margin back higher?
spk11: Sure. This is a pretty simple question. So, as you know, the range that we target is between 55 and 60%. We demonstrated that during the post pandemic stimulus, that our margin was able to go to the higher end of that limit. And right now, for the last couple of quarters, as well as our guidance here, we've maintained an on-gap rate of 55.7. And really what will enable us to go up is a change in the mix of business.
spk06: All right. Thank you very much, guys.
spk05: Our next question is from Gary Mobley of Wells Fargo. Gary, your line is now open.
spk08: Hey, guys. Congrats and thank you for consistently seeing the expectation. Most of the interesting questions have been asked and answered, but I wanted to touch on pricing trends. I know you don't overlap a whole lot with the analog chip market leader, but clearly they're being aggressive on price. So, maybe if you can speak to the different product groups or business segments that might be affected by that, and as well, just generally speak about the pricing environment for your broad set of products.
spk02: Yeah.
spk08: Tony, you want to? I'll
spk02: start and then let Bernie jump in. I think what you've heard from us in the past is that for us, because we lead on innovation and we're trying to work on the next generation platforms and work on where we really have a differentiated advantage to our technology, we're probably less susceptible to pricing and some of the segments that are volume related or might be more mainstream. I do know there's lots of reports out there about pricing right now, but I'd say right now that's not impacting us in any way and you can kind of see that in our outlook. So, Bernie, I'd like to add some more on that.
spk11: Yeah. Fundamentally, part of the issue that's driving prices, both additional capacity in China, as well as additional capacity that's coming on with a large North American company, and on the cost side, we've always been very, very competitive regardless of the end market opportunity. And the
spk10: cost of that, regardless of what the margin is, we always have to go, we always drive the cost down. Yeah. Oh, I should give you more than you asked. And it's a little future. And so far, nobody has asked that question yet. We saw in the near term market in the next couple of years, the AI truly trickles down to all applications, not only in the cars, in all the sensors, all these in the building for the phones, and all kinds of things that trickle down to different levels. And we see now all kinds of activities going on now. And there's a lot of these are requested from our customers. And we don't see that in the end of last year, even in the beginning of this year. Reasonably, we see a lot more. So that will drive those products. Definitely will drive the gross margin up.
spk08: Okay. Thank you for that comprehensive answer. Last quarter, your distribution inventory, I think you characterized it. I think you characterized the distribution inventory as being a little bit above the target level. What is it now? Have you been able to work that down to more of a normalized level?
spk11: Sure. So there's sort of two ways to look at our channel inventory right now. If you try to keep that elevated so that inventory is basically available on demand. But then with regard to all of the other end markets, we've seen it coming down nicely. Thank you.
spk05: Our next question is from Tori of Stiefel. Tori, your line is now open.
spk12: Yes. Thank you. I just had two quick follow-ups. I'm intrigued by the consumer segment, Michael. I know that's surprising when everyone's talking about AI, but I think this is the lowest percentage has ever been. But you did talk about getting some share there in the downturn. So any particular applications that we should keep an eye on as you start to grow back in the consumer area?
spk10: Yeah. Okay. That's a good question. I mean, yeah, I said earlier that's a failing to unhealthy percentage. We want to have a diversified growth. We neglected our consumers. But on the other hand, during this period, a lot of our competitors care less about cost and we have less effect. But we did lower the price in the notebook market segment. And that's probably you see it now. We grow the notebook revenues faster than the notebook market growth. And these are low-marketing products again. But looking forward, audio product, a lot of them relate to a consumer product. Maybe Tony, you can mention about, okay, you can talk about this stuff, okay.
spk02: I'll go and then Michael can certainly talk a lot more. But I point you back to what we announced last quarter on our Xign acquisition and where we really looked at their technology and saw an opportunity to participate in the high-end audio market. And MPS of scale and Xign technology really offered an opportunity to go after customers. And we're seeing some traction in that area. So consumers got a wide base of potential applications. And I think we'll continue to pick our shots where we can sort of really add value with our innovation.
spk10: Yeah. I can tell you, we will start to ship in Q3, but Xiong and MPS together as a bundle.
spk12: Yeah, that's exciting. And my last question is on communications. It was actually up sequential this quarter. Everything that we're hearing, of course, is that that market is still very weak. In your prepared remarks, you said that that growth was driven by networks. So can you elaborate a little bit what's going on there? Are you actually starting to see that market turning or is this just pure share gains?
spk11: It remains a flatish market. I think that in quarter by quarter, we're going to see infrastructure go up or down. But the full year outlook is that it'll probably be flat with 23.
spk10: Sounds good. Thank you. I'm betting on a communication market. It will trickle down from the end of the speed and the domain of a higher speed. We'll trickle down to all these segments. And we have a lot of design wings in the 5G or using other high speed or the Wi-Fi. And we're ready for that.
spk12: So Michael, what you mean is AI will trickle down and as that happens, the comm sector will revive.
spk10: That's right. Yeah, it has to. That's no brainer. Okay.
spk12: Great.
spk10: Love
spk12: the color. Thank you.
spk05: Our last question is from Melissa Fairbanks of Raymond James. Melissa, your line is now open.
spk04: Hey guys, Michael, I love a no brainer. I mean,
spk10: I love that. I don't need a migraine to talk about it.
spk04: I'm adjusting my model accordingly. So I know you guys addressed auto earlier and I know everyone is focused on enterprise data. But I would like to understand better, we're coming up on the model year builds, you know, for like model year 2025. I would like to know where you feel comfortable guiding the auto revenue from here.
spk11: Yeah. So let me take that one. A lot of the exposure we have with new content is with the EV companies. And so Michael touched on the opportunity, particularly as it relates to Chinese OEMs, where we have a good install base, particularly as it relates to ADOS or autonomous driving. And those tend not to be as seasonally driven as the internal combustion. So while we're seeing some sequential improvement quarter by quarter during the year, we don't necessarily, we're not looking for that hockey stick that used to occur with automotive sales in Q3.
spk04: Okay. Okay. Got it. Thank you very
spk05: much, guys.
spk10: All right. Thank you.
spk05: I would now like to turn the webinar back over to Bernie.
spk11: So I'd like to thank you all for joining us on this conference call and look forward to talking to you again during the second quarter conference call, which will likely be in late July. Thank you. Have a nice day.
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