芯源系統 (MPWR) 2004 Q4 法說會逐字稿

Good day everyone and welcome to the Monolithic Power Systems fourth quarter 2004 teleconference. As a reminder, today's conference call is being recorded.

Now for today's opening remarks and introductions, I'll turn things over to your host, Mr. Tim Christoffersen, CFO. Please go ahead, sir.

Good afternoon and welcome everyone. Thanks for taking the time to join us today. With me on today's call is Michael Hsing, CEO and Founder of Monolithic Power Systems.

In the course of today's conference call, we will make forward-looking statements and projections that involve risk and uncertainty, including statements regarding our future financial performance and business outlook including projected net revenues, gross margins, operating expenses and effective tax rates for the first quarter of 2005 and our outlook for continuing growth.

Actual results may differ materially from our statements or projections. Factors that could cause actual results to differ from our projections include, but are not limited to, the potential impact of customers of the effects of litigation in which the company is involved; risks associated with our continued development and expansions of our business; acceptance or demand for our products being lowered unexpected; and based on our limited operating history, difficulty in predicting or budgeting for future expenses and financial contingencies.

Other equally important factors are detailed in the Company's SEC filings, including but not limited to, our final perspectives for our initial public offering of common stock filed on November 19th, 2004 and are accessible through our Website, all of which factors are incorporated by reference into today's discussion.

I'd also like to remind you that today's conference is being Webcast live over the Internet and will also be available for a replay on our Website for one year at www.monolithicpower.com. Along with our earnings release, the reconciliation between GAAP and non-GAAP numbers and other financial and statistical information presented during the call.

Now I'll turn the call over to Michael for a review of the fourth quarter's business highlights. Following Michael's comments, I'll provide highlights on our financial results for the December quarter and our business outlook for quarter one 2005. Michael will conclude then with a closing comment or two and we will open up the call to your questions.

So, at this point, I'd like to turn it over to Michael.

Thank you, Tim. Welcome here. Thank you for attending our first earnings call today. I'm pleased to announce that MPS has a record fourth quarter. The revenue was $15.1 million, which was an 85 percent increase over the fourth quarter of 2003. The gross margin was 62.6 percent in comparison with a 60.9 percent from a year before. As a result, our non-GAAP net income was $3.4 million after $3 million of legal litigation expense.

The revenue growth came from all our product lines including LTD Backlight (ph) Controller, DC/DC, LED Drivers and Audio Amplifiers. We saw strong customer demand across our entire project market - consumer electronics, computing and the communications. During the fourth quarter, we were successful in key metrics of future growth.

First, we introduced more products and continue to diversify our product portfolio. We penetrate deeper in the modable (ph) large and high gross markets. Second, we strengthened our design engineering team, adding several industrial leading analogue design engineers. Third, we continue to innovate and improve our process technology and further extend our competitive advantage.

Finally, we expanded our worldwide pattern (ph) portfolio. We are pleased that we settled a trade secrets lawsuit with Linear Technology as announced last week. Now we expect our legal expense to increase in Q1 2005 due to two scheduled trials. We feel very confident that we can protect and defend our intellectual properties and we believe this is an investment of our future.

Now, I'll turn the call over to our CFO, Tim Cristoffersen.

Yes, thanks, Michael. So, just picking up on what Michael said, we are pleased to report that the financial results of the December quarter - our first quarter as a public company - exceeded our expectation both for revenues and for gross margins.

As Michael mentioned, revenues came in at $15.1 million for the quarter and $47.9 million for the year. This compares to $8.2 million for the fourth quarter 2003 and $24.2 million for all of 2003. Now, let me also give you a summary of the revenue breakdown for the quarter by our four product lines.

The LTD Backlight or CCFL was $6 million compared to $5.4 million in quarter four of 2003. DC/DC was $7.3 million, up significantly from the $2.2 million in quarter four of 2003. The White LED drivers were 1.2 million versus or compared to the 400,000 in the fourth quarter of 2003. And audio was 600,000 compared to 100,000 in the fourth quarter of 2003.

Gross margins, again as Michael mentioned, came in at 62.6 percent for the quarter and 59.3 percent for the year. As many of you know, our target operating model for gross margins remained at the 58 to 63 percent. GAAP based operating expense in the December quarter were $9.8 million. This total included $2.6 million for stock compensation expenses, $3 million of patent litigation costs and $4.2 million in R&D and SG&A combined.

This compares to $4.7 million in the December quarter of 2003, which included $1.5 million for stock compensation expenses, $600,000.00 for patent litigation and $2.6 million for R&D and SG&A. Non-GAAP operating expense, which excludes stock compensation expenses, in the December quarter were 7.2 million.

R&D and SG&A were 28 percent of revenues or near the low end of our target operating model. GAAP net income was $647,000.00 for the quarter and a loss of $4.1 million for our 2004. In the December quarter, we had an income cap benefit of $1 million or 4 cents per diluted share. The relief of our tax valuation allowance, triggered by five quarters of taxed profitability, was the principle factor accounting for the tax credit.

So, after pre-IPO accretion charges, net income per diluted share is 2 cents for the December quarter and a loss of 58 cents for 2004. On a non-GAAP basis, net income for the quarter was $3.4 million or 12 cents per diluted share.

Now let me turn for a few comments on the balance sheet. Cash and cash equivalents have increased to $49 million in the quarter from $15.7 million in the prior quarter. The increase included $34.9 million in net IPO proceeds. Accounts receivable ended the quarter at $4 million, up from $3.6 million for the September quarter.

Day sales outstanding, or DSO's, were 24 days compared to 22 days in the prior September quarter. Our inventory levels increased to $5.4 million in the quarter from $4.1 million at the end of September. Now, let me briefly address our outlook for the first quarter of 2005.

For the March quarter, we are targeting total revenues to be in the range of $13 to $14 million. Now, the March quarter has started off exceptionally well. We see a strength in all of our market segments, as Michael mentioned, and our revenue outlook is significantly above the seasonal characteristics of our business.

Our target model remains 58 to 63 percent gross margins. And given the seasonally strong revenue in the first quarter that we expect, we expect gross margins should approach 60 percent. We expect our non-GAAP operating expenses for the March quarter to be higher than the fourth quarter of 7.2 million.

Again, as Michael mentioned, we have a trial currently scheduled in February and a second trial scheduled to start in the last week of March. So, we expect non-GAAP operating expenses to be 8 to 8.5 million. Lastly, for the March quarter we expect a tax rate of 25 to 25 percent.

Now, I'd like to turn the microphone back to Michael for a closing comment, after which we look forward to taking your questions.

Thanks, Tim. 2005 will be an exciting year for us. As a public company, MPS has a greater visibility and our customers have more confidence in MPS. We continue to strengthen our design engineering team to develop innovative products and to provide more value to our customers.

Most importantly, we are an emerging leader in analogue mixed signal semiconductors. And I'm very confident we will win (ph).

Now, we will open for questions.

Thank you, gentlemen.

(Operator instructions).

Our first question comes from Andrew Root with Goldman Sachs.

Thanks for taking my question. A quick question (inaudible) guidance. I understand the target model, but just curious if you could sort of juxtapose for us, Tim, the better than seasonal revenue guidance, but also wafer prices that seem to be moving in your favor - falling in most places - and whether that's sort of a midpoint to peg or if there are other things we should think about there?

Andrew, I'm glad you joined us today. The best assessment that I can give is that in a seasonally normal revenue level, which approximates what the consensus is from you and your compatriots of about 10.5, you know, we're strongly above that. At least our expectations is at 13 to 14. So, rather than being at the low end, which would normally be the case, our best is that of somewhere about just approaching 60 percent.

Okay, I guess a couple of follow-ups. One is, from the foundries are you seeing some of the same wafer price reductions that have been reported on some of their conference calls? And I guess the second part of it is, do you incur any incremental fixed costs in the first quarter that weren't there in the fourth quarter?

Okay, let me pickup the second question first and maybe Michael has a comment on the ASMC. No, we don't have any real pickup, but as I think most of you know, we do have a more than normal for a fabless semiconductor company a somewhat higher fixed cost because we do all our own testing. Michael, you might want to comment on whether we're seeing any difference in pricing.

Yes, the pricing is relatively stable and we, as expected, okay as our price negotiated (inaudible) any lower.

Okay, so when you're saying pricing is stable you meant your products and then the negotiations were related to wafer pricing?

The negotiations, yes. And we have our discussed with our foundries. As you understand, wafer costs is only a part of our entire production for the packaging and the testing. And that those take a large percentage.

Okay. That makes sense. Thank you.

(Operator instructions).

Next with Piper Jaffray we have Tore Svanberg.

Yes, good afternoon. A couple of questions. First of all, looks like your audio business is really starting to grow again. Could you maybe share with us what the expectations are for that business as we move throughout 2005?

So far in our product we introduced in the beginning of the middle of last year, we see a good attraction. Particularly in the LCD TV market. And also some DVD receivers.

Okay, very good. And I know you usually don't breakup revenue by end market, but could you at least give us some qualitative comments on how each of your end markets performed in the fourth quarter?

Our major markets (inaudible) electronics, computing and communications. Although, as you know, we're also in (inaudible) medical and other markets and they currently have smaller revenues. And I don't know if I answered your questions?

Yes, I was just trying to understand if there are any end markets that are doing a little bit better than others in Q4 and maybe also going into the March quarter?

They are about the same. All the same. They all increased by very similar proportions.

Okay, very well. And just two followup questions for Tim. First of all, could give us some visibility metrics to your revenue numbers? You know, either by talking qualitatively about your backlog or maybe some bookings rates? I'm just trying to understand the visibility you have towards that number.

Well, we feel pretty comfortable about the visibility partly because we're a little farther a long in the quarter than we will be doing a 10-Q instead of a 10-K. So, you know, we're a week and a half further in. That's one point. But we feel pretty comfortable about the visibility between shipments to date, and backlog, which we don't talk about in specific numbers.

That gives us a pretty high level of comfort with our outlook.

I might add, we work with our customers very closely and I would feel good about that. Our forecast (inaudible).

Okay, very well. And just a final question, Tim. Do you have any 10 percent plus customers in the quarter?

No, we don't. Now, previously, we had one customer that more or less we could figure out as a end user was slightly above 10 percent. But our larger customer is about 7 percent. That's, of course, that's excluding distributors.

No, that's understood. Very well, thank you.

Okay. Thanks for joining us, Tore.

Next with Merrill Lynch we'll go to Mr. Joseph Osha.

I wanted to - a couple of questions. For starters, I know you are growing, but the increase in inventory I thought was a little notable. Are there any comments on that? Was that planned or maybe is there extra CCFL part there giving out that line item sell?

No, that was basically planned. You know, on the road show we spoke to our history as a private company where we ran inventory very tightly and we felt that - and we said that we would be increasing the level of inventory, you know, with a fairly short lead time. We get a lot of competitive advantage out of being able to respond to our customers with short lead time. So, the increase was very much planned.

Okay, and then on the CCFL business. Anything, you know, clearly it's kind of a first real decline you've seen. Would you characterize it as - how would you characterize the reasons underpinning that? I know you talked about it about, but just give us some more color.

A decline of -

Well, you made a comment about decline. Could you elaborate?

What's the fourth quarter CCFL Backlight number you gave?

Six million.

Yes, it was 7.3 in the third quarter by my numbers.

Yes, that's - I'll comment on it. Yes, that is down. It was down in the third quarter and one of the factors that's going on in our forecast for Q1 is relative to the seasonal outlook for us - our seasonal model - CCFL is quite strong.

The backlight is very strong.

No, I mean, you guys - I'm showing that, you know, your CCFL inverter business was $7.3 million in the September quarter, right?

Right.

It was 6 million in the December quarter.

Correct.

And that is mostly, you know, the vast majority of that goes into a laptop, yes?

Yes.

Okay, so the idea here is that given the kind of build timing that, you know, forgive me, I'm just learning the company here still.

Sure.

But that's basically seasonal with your fourth quarter panel build basically occurs in the third quarter. Is that the idea?

Yes, that's correct.

Yes.

Okay, so then the idea is that you're expecting that CCFL business then to pickup sequentially again in the first quarter?

No, it normally is lower in the first quarter.

Normally it's lower and we expect to see some large - higher volume in a few.

Okay, you lost me there. Are we saying CCFL is going to be up or down in the first quarter?

Seasonally, it will be strong. I mean, it seasonally is down, but it's not going to be down nearly as much as it would normally. So, it's slightly down instead of seasonally down.

Right, but just the pattern then would tend to be that you'd see this thing kind of peak in the third quarter calendar quarter, roll off in the fourth, roll in the first and then pickup again in the second and third?

That's correct.

That's correct.

Okay. Now, as far as your DC/DC converter business goes, that's a much more broadly based business. More competitors, more products and so forth. Obviously, there's been a market share gain at work here, but I follow a lot of analog companies and most of their comments about the fourth calendar quarter were pretty gushy.

How is your level of confidence in that number in terms of, you know, how much of it was real demand versus how much of it might have just gotten put on people's shelves?

Well, we said that not much of on the shelves. We stay very close to the customers and our distributors are more like a shipping point then a true distributor. So, we know what's going on at the customer level and our distributors aren't stacking the shelves.

Okay, so this is just market share gain from new programs ramping here?

Yes.

That's what we believe.

Okay, that's good. And then the last question I had, and this is just kind of to followup on an earlier question. Can you give me some sense as to what your turns dependency might be as we come into the March quarter here?

Well, our turns dependency is perhaps higher than normal because one of our competitive advantages is that we provide a shorter lead time to our customers, and that's a selling advantage for us. And so that's why we don't really want to talk about backlog per se because it's misleading in our case.

Our customers know that we can deliver in relatively short time. Certainly more competitive than many of the other companies.

Right. And you know, Linear Technology, for example, says the same thing. But what I'm trying to do is relative to whatever normal operational baseline you might have in terms of how much business you turn and trying to tell whether you were kind of on that norm or above it or below it. If you see what I'm saying.

Well, certainly for this quarter we're - we're less dependent on the turns because it's a very strong quarter and a lot has come in in terms of build up and backlog. So, it's a very solid quarter in terms of our confidence about the outlook.

Okay. And then last question and then I'll go away. Can you give us an update - obviously, we know the litigation with Linear settled. Anything else that we should know in terms of the status of the other litigation?

Well, not really. I mean, there has been no significant change in any of the litigations, other than, of course, that settlement, from what was described in considerable detail in the perspectives that was filed in late November.

Right, right. No big changes?

No.

Okay, thank you gentlemen.

Thank you for joining us, Joe.

Next we have Tom Lee (ph) with Deutsche Bank.

Good afternoon. Congratulations on a good quarter. On calling on behalf of Ross Seymore. A question for you. The LED driver product segment. It looks like it's the first quarter where that product line is declining. You did really well on DC converters. Is there something behind the decline in the drivers in terms of the reasoning?

Decline from the third quarter?

Correct. Yes, you did 1.6 million in the third quarter.

Yes, I think that the major effect is that in China the cell phone inventory. And several large customers put on hold or they push it out.

Okay. Have you seen any changes in terms of throughout the quarter or first quarter of '05 in terms of whether that inventory's clearing out?

Yes, we see that those customers are coming back now.

Okay. I'll go to another question. If you can give us a breakdown in terms of the distribution versus direct sales?

Distribution, Tim, the main thing that for our distributor is not a typically distributor you sell through. And we tend to use our distributor as a logistic, essentially. So, it's a very different from a traditional sense how you distinguish between them.

Okay, I think I understand. And then just in terms of a couple of expense items. Litigation expense in the first quarter and whether the accretion redeemable expense has terminated?

Well, I'll start with the second one first. That has with IPO it goes away. So, it's not - it won't be there in subsequent quarters. With respect to litigation, you know, we mentioned that we have two trials going on and Michael mentioned that the litigation expense was higher.

In the outlook with regard to non-GAAP operating expenses we indicated that last quarter we were at 7.2 million and we expect to be in the 8 to 8.5 million. There's a little bit of increased SG&A in there, but it's basically the increase in litigation expenses.

Okay, thank you.

Okay. Thanks for joining us.

It looks like you have a followup from Mr. Svanberg.

Okay.

Hi, good afternoon. This is actually Jeremy (ph) calling for Tore.

Okay.

I just had a question - I think, Michael, you mentioned some new investments in (inaudible) technology. I was wondering if you could elaborate a little bit more. Are you introducing new flavors or building off your old one?

Oh, yes. Definitely. We're in more capabilities, basically. And in terms of we don't do - in terms of training accuracies we have a major improvement. As well as current handling capabilities we're moving forward.

Great. And you also mentioned hiring some new industrial engineers. Can you give us an early view as to what type of product applications you intend to target?

I said industry leading -

Oh, I'm sorry.

Products and they are all analog design engineers.

Okay.

That's as usual.

Could you give us an update on what you're doing in the automotive segment, then?

Well, we are mostly in (inaudible).

Yes, okay, thank you very much.

(Operator instructions). Gentlemen, it appears there are no further questions at this time. I'll turn the conference back over to you for any further or closing comments you may have.

Well, I just wanted to say to those of you who are still there, we very much appreciate your joining the call and we look forward to more of them.

Thank you very much, everyone.

Bye.

And everyone, once again, this will conclude today's Monolithic Power Systems fourth quarter 2004 teleconference. Thank you all.