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spk03: headwinds during the quarter. Our prudent management of inventory has positioned us to rebound faster than many of our industry peers, and today our bookings fully support strong sequential revenue growth in mobile, and we are also seeing the initial improvement in order patterns in the projector market. Acknowledging the remains uncertainty in the global economy, we are feeling increasingly optimistic about the balance of the year. We are well capitalized to continue executing on our growth initiatives while maintaining our focus on an aggressive new product roadmap, as well as expanded ecosystems for both advanced mobile gaming and true cut motion platform. With that said, I'll hand the call to Haley to review financials and provide our guidance for the second quarter.
spk05: Thank you, Todd. Revenue for the first quarter of 2023 was 10 million. in line with the midpoint of our guidance. The sequential and year-over-year decline was driven by lower demand in mobile related to the industry-wide inventory correction in smartphones, combined with historical first quarter seasonality in the projector market. Additionally, as anticipated, video delivery revenue declined sequentially following higher sales of certain end-of-life products during the fourth quarter. The resulting breakdown of revenue in the first quarter was as follows. Revenue from mobile was approximately $3.3 million. Home and enterprise revenue was approximately $6.7 million. As a reminder, home and enterprise now reflects the combination of revenue from projector and video delivery end markets. Projector accounted for approximately 90% of home and enterprise revenue in the first quarter, and we expect it to continue to represent a majority of home and enterprise revenue in future quarters. Non-GAAP gross profit margin was 44.1% in the first quarter of 2023 compared to 53.3% in the fourth quarter of 2022 and compared to 53.2% in the first quarter of 2022. Gross margin for the quarter reflected a combination of product mix and reduced absorption rate associated with lower revenue. Non-GAAP operating expenses were $13.6 million in the first quarter compared to $10.8 million last quarter and $11.6 million in the first quarter of 2022. As a reminder, operating expenses in the fourth quarter benefited from a $2.5 million credit to R&D related to our co-development project. Excluding this credit, first quarter operating expenses were largely consistent with the OpEx level in the fourth quarter of 2022. On an on-gap basis, First quarter 2023 net loss was 8.2 million or a loss of 15 cents per share compared to a net loss of approximately 800,000 or a loss of 1 cent per share in the prior quarter and a net loss of 3.5 million or a loss of 6 cents per share in the first quarter of 2022. Adjusted EBITDA for the first quarter of 2023 was a negative 7.8 million compared to a negative $1 million last quarter and a negative $2.2 million in the first quarter of 2022. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $62.8 million. As discussed on our last conference call, and as Todd just mentioned, during the first quarter, we closed the previously announced sale of equity interest in our Shanghai subsidiary, which was the primary contributor to the increased cash balance at quarter end. In addition to cash used from operations, a portion of the cash proceeds from the transaction were offset by the purchase of two mask sets during the quarter. Shifting to our current expectations and guidance for the second quarter of 2023. Based on current order trends and backlogs, we anticipate second quarter total revenue to be in a range of between 12.5 million and 14.5 million. At the midpoint of this range, total revenue would represent sequential growth of approximately 35%, led by an anticipated increase in sales of ICs into the mobile market. Non-GAAP gross profit margin in the second quarter is expected to be between 40% and 42%. This gross margin range reflects anticipated product mix, including higher revenue contribution from mobile. Additionally, The lower than historical gross margin levels in the first half of 2023 reflect previous increases in cost of materials, a portion of which we chose not to immediately pass through to mobile customers during a period of weaker demand associated with the inventory correction in smartphones. As demand and unit sales of ICs increase in the second half of 2023, we expect to pass through incrementally higher material costs to customers, resulting in improved gross margins, particularly in mobile. We continue to target gross margins returning to levels near 50%. We expect operating expenses in the second quarter to range between $11 million and $12 million on a non-GAAP basis. This range reflects our expectation to achieve another planned milestone related to our co-development agreement. As of previous treatment, the milestone payment will be recognized as a credit to R&D, reducing our anticipated reported operating expenses for the second quarter. Lastly, we expect second quarter non-GAAP EPS to range between a loss of $0.08 per share and a loss of $0.12 per share. That completes our prepared remarks, and we look forward to taking your questions. Operator, please proceed with the Q&A session.
spk04: If you'd like to ask a question at this time, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from a line of Raji Gill with Needham.
spk00: Yeah, thanks for taking my questions and congrats on really good momentum in your business. In the mobile phone market for the second quarter and kind of what you're seeing throughout the year, Todd, you're bucking a lot of the trends that you're seeing in the China handset market and what a lot of suppliers have been indicating that the correction is steeper. And the recovery in the China handset market is going to take longer than expected. You guys are really bucking that trend. So I guess my first question is, one, you had managed your channel inventory pretty effectively the last couple of quarters. Maybe you could talk a little about that in terms of the way your channel inventory is. And then in terms of the rebound that you're seeing with your customers, Can you talk about, you know, where the inventory levels are that the customers are sitting on? And just clear in kind of how you're able to kind of diverge from those trends.
spk03: Sure. Thanks, Roger. So, overall channel inventory. We went into the start of Q1 when we guided down significantly. We went in... I thought would probably be all of Q1 and some of Q2 in the channel for whatever we were projecting for mobile. By February, for the month of February, it became clear to me that the new programs that we were included in were ramping much harder than I anticipated. And so it became clear that we would burn through that inventory and sometime in probably April. So we started, while I was there in February, ramping up new orders to our supply chain through both our foundry and assembly and test. The good news is because we're bucking the trend, getting access in short term to capacity was not a challenge this particular time. But even with that, going into March, those programs were doing better than forecasted. Customers were trying to expedite what we had in WIP. They had ran through inventory and then needed to expedite what we had in WIP. And so we have multiple Tier 1s for multiple programs simultaneously for both X5 and X7. that were paying expedite fees for us to get that product through our foundry quicker than anticipated. So today, the channel is lean, to say the least. With the guidance we gave you, we could probably beat the midpoint if we get Expedited wafers quicker than we anticipate which will be a challenge Okay, so that demand pool is exceeding through into q3 It's probably too early I mean we have new models being launched in the second half of the year that will add to these models so We're optimistic, but I want to see if that sticks through with the consumers and how China comes back But right now we're pretty optimistic
spk00: Great, appreciate it. And for my follow-up, the gross margins, you kind of talked a little bit about some of the puts and takes in the near term. You know, now that you're seeing, you know, a pickup in X7, which have higher ASPs, I'm just curious how you're thinking about the pricing environment, you know, over the next couple quarters.
spk03: Good question. X7 does have a higher ASP, but it has a bunch of new features and definitely is a larger die than X5. Where we priced it, even though it's a higher ASP, it has a lower margin profile than X5. We kept it that way on purpose to try to increase adoption of it. When we originally priced it, we expected the price increases from the supply chain to abate. I think it's well known out there that they have not fully abated. And there was some new price increases that got extended into 23 through the supply chain. We are no longer absorbing those. So we are now passing through price increases to all of our customers in all of our markets starting in the second half of this year.
spk00: Thank you.
spk04: Yep. As a reminder, that is star 1-1 to ask a question. Our next question comes from Suji De Silva with Roth Capital.
spk01: Hi, Todd. Hi, Haley. These new smartphone programs, some of these, were these paused, Todd, during the lockdowns, and are they resuming now? And I presume some of the newer programs, if they are coming back, They sound like, from what you said, they're coming back fairly aggressively. Are they more for the X7 or is it a mix of the two?
spk03: It was a mix of the two. When we went out of 22 with inventory, there was some X7 inventory in the channel, but if you look at the channel and the customers, it was predominantly X5. I thought for sure it would take us six to eight months to burn through the X5 inventory. Some of the expedites are on X5 devices. So some of the phones that I just mentioned, and I mentioned which ones that included X5, they had such strong demand for those models, they went through our excess inventory of X5 and our expediting new wafer starts. And then same with X7. Some of the models were X7, the demand was high, And they went through our inventory and now we're expediting wafers through the line. They are all, Suji, to be clear, all of this demand is based upon models that have been released. You know, I want to make sure, pretty much all the demand. It's got to be well over 95% are models that were released from, either later part of December or early January on. So this is not, um, like a rejuvenation of older models that burnt through inventory. These are all new models. And, you know, you understand the customers I think went into these new models, um, being conservative because they, they had not been conservative the year prior. And in our particular case, we had, you know, four or five different models that all blew through the initial forecast. And, you know, when they realized they were blowing through the forecast, we quote 26 . These guys came in and were expediting within eight weeks to when they needed the parts. And, you know, the closer you're in to that cycle time, The harder it is for us to expedite, the further out it easier is to expedite.
spk01: Okay, great, Todd. And then switching over to the projector market, just to understand, what's your updated view on end demand for 23 versus the typical year? I know it's obviously had a headwind starting the year. I'm curious what you're expecting in terms of where that demand starts to come back into normal or not this year.
spk03: Yeah. We don't really want to give annual guidance, but I will say that right now we expect mobile to finish the year as a growth business year over year compared to 22, even with the trough we had in Q1. We still expect projector to probably be down, you know, low double digits, you know, just 10 to 15% for the year. As the correction takes through, we don't give guidance on true cut. I do expect us to be through any inventory correction by the end of this year on the projector, but we're expecting this back half of the year to be for mobile, the growth year-over-year growth business. Okay.
spk01: All right. Thanks, Todd. Thanks, Hale.
spk04: Our next question comes from Richard Shannon with Craig Hallam.
spk02: Well, hi, Todd and Haley. Thanks for taking my questions. Can you hear me?
spk03: We can. Thanks, Richard.
spk02: Okay, good. Line clicked off there on me. I got in a little late, and I may have missed some comments here, so apologies for redoing some of this, but just want to make sure I understand on the guidance for the second quarter about the moving pieces here. It wasn't clear to me whether whether you expected any growth within the home and enterprise bucket, whether that includes any last-time buys, or is all of it coming through mobile?
spk03: No, no last-time buys. The last-time buys we had on the transcoding products finished up in the fourth quarter of 22, and we expect overall home and enterprise, which is projector and transcoding, to be slightly, slightly up from Q1, so sequentially up. And then we expect mobile to be significantly up.
spk02: Okay. And if I'm running my model here, Todd, almost in real time here, it seems like that's getting close to kind of doubling sequentially then. Is that about right? That is about right. Okay. Okay. I might come back to that in a second here. I want to hit a couple other topics here, specifically on gross margins. You had your number from the year, which I think makes sense here. without passing through the cost. But as we think about your passing those through, I'm not sure what kind of pace you're thinking of, but what kind of a number could we think if you were trying to adjust this quarter for price increases, what could we see? Is it a couple points or a few points?
spk03: Well, the Q2 we guided, and the reason we're guiding to a low margin is we give plenty of lead time to our price increases to our customers. So there are no price increases loaded into the Q2 numbers. So that growth is all unit growth. Q3 and Q4, we're passing on price increases across the board to all markets, all customers, various different levels. Depending on the mix, you know, we're trying to get back. You know, there's two things happening. One, our mix is more mobile-centric, okay? And it probably will be on a go-forward basis for a for the foreseeable future. It's gonna be just a much faster growing business than projector and home and entertainment. But we didn't pass through all the price increases that we absorbed or continue to absorb. And we are now doing that. Now with the goal that we get back, if we get back to a reasonable mix, it's still going to be more mobile centric that we get back above a 50% corporate level gross margin with the higher mobile mix. I, we are still not modeling in any of this significant true cut revenue. Once true cuts, the licensing business, once this kicks in, um, we will re advise to all the analysts what the corporate goals
spk02: for our margin are but they're significantly higher than low 50s okay that is helpful one last question for me i'll jump out of line todd um obviously had a lot of nice milestones and events in your true cut business last year um and you've been you've been clear this is a a long process developing an ecosystem uh so assuming you you sign up a streaming customer At any point in time, I'm not trying to apply a timeframe to this, but assuming you do that, what kind of milestones would you expect to be able to announce, not only with the streaming customer, maybe before that with other ecosystem partners to make this a reality?
spk03: So that's a good question. I think that's good for any investors that are listening on the call to see. How do you keep an eye and see if we're hitting our milestones, given that we're not putting financial milestones in there? I would suggest that... we are getting interest in, in strong interest in, in, in helping, uh, other studios deliver high frame rate to premium large format theaters around the world with new releases. So you, you probably will hear some of that activity sooner than later. I think if people monitor us and see more content partners, um, using our technology to deliver a better experience i think that that's a telling tell upon announcing our first distribution partner streaming company to then want to deliver this this premium format content to the home and entertainment world you will quickly see us announce partnerships with device manufacturers that are on the other end of that home entertainment delivery. I think once you see that, that's zero to one. Then the next question is, does it expand beyond that first major distributor and those device partners and multiply to multiple streaming companies and multiple device partners?
spk02: So that's how you see it roll out, I think. Okay. I'm sure we'll follow up on that in the future, but I think that's all the questions for me. Thanks a lot, Todd. Thank you, Richard.
spk04: That concludes today's question and answer session. I'd like to turn the call back to management for closing remarks.
spk03: For those of you attending today's call, thank you for your time. I hope it was helpful. Look forward to giving you updates as the year progresses.
spk04: This concludes today's conference call. Thank you for participating. You may now disconnect.
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