芯源系統 (MPWR) 2005 Q1 法說會逐字稿

Good day, everyone, and welcome to the Monolithic Power Systems first quarter 2005 teleconference. As a reminder, today's call is being recorded. For opening remarks and introductions, I would like to turn the conference over to Tim Christoffersen. Please go ahead, sir.

Thank you. Good afternoon and welcome, everyone. Thank you 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, our expectations regarding new distributors for our product, the progress toward customer acceptance of our new products, strengths in our DC to DC and white LED product segments, and our business outlook, including outlook for the second quarter of 2005, projected net revenues, gross margin, operating expenses and effective tax rates for the second quarter, 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, risks and costs of litigation in which the Company is involved, risks associated with our continued development and expansion of our business, acceptance of or demand for our products being lower than expected, 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 form 10-K filed on March 31, 2005, which are accessible through our website. All of which factors are incorporated by reference in today's discussion.

I'd like to remind you that today's conference call is being webcast live over the internet and will also be available for 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'd like to turn the call over to Michael for a review of the first quarter's business highlights. Following Michael's comments, I will provide comments on our financial results for the March quarter and our business outlook for Q2 2005. We will then open up the call to your questions. So at this point, I'll turn it over to Michael.

Thanks, Tim. I would like to welcome everyone to MPS' first quarter earnings call for fiscal year 2005.

I am pleased to announce that we ended our first quarter with a revenue $14.6 million and a gross margin at the 62.2%, which were above our guidance of $13 million to $14 million and 60%, respectively. As we have mentioned in the past, Q1 tends to be a seasonally low quarter in our business. Due to this seasonality, we believe looking at the year-over-year growth is a more accurate way to measure our results.

Comparing Q1 '05 with Q1 '04, we grow our revenue by 115%, and increased our gross margin by 10.4 margin points. We're off to a good start in 2005.

We experienced revenue growth in all of our product lines, including LCD backlight ICs, DC to DC, LED drivers and audio amplifiers. In particular, we saw strong demand for our LCD backlight, where we gained market shares in the new customers. We also saw strong demand for our DC to DC products, which are used in products such as the flat panel display, router, wireless LAN, where we supply existing customers as they grow their business and have continued to gain new customers in the design wins.

We also saw strong demand and customer demand across all our target markets, including consumer electronics, computing and in communications. Some of the highlights of our first quarter include; one, we continue to expand our custom base. Our new product design wins including audio amplifiers in the flat panel display and the high frequency DC to DC for wireless LAN, satellite radio and the digital video broadcast receivers.

Two, we increased our sales capability in international markets, including China, Europe, Japan and the U.S. We have doubled our worldwide sales force, signed a major U.S. distributor and expect to sign an additional distributor in Japan in the near future. We started marketing programs, including advertising in industrial publication to drive our product into a broader customer base.

As everyone knows, litigation continues to be a major part of MPS' cost structure. We believe we're doing the right things to vigorously defend our innovation against those lawsuits. Now, let me turn over the call to Tim Christoffersen for a more detailed review of our performance and outlook. Tim?

Thanks, Michael. Let me open on a brief personal note. As we announced in the press release today, we're commencing a search for a new CFO. As some of you already know, I did not have even the most remote thought that I'd be sitting here today as MPS' CFO when I joined the board as audit committee chairman a year ago, March. We were well into the process of preparing to go public last June when my predecessor left to join another company. Michael approached me about stepping into the CFO role. By that time, I had a deeper grasp of the tremendous business opportunity and the extraordinary pool of talent that Michael and the other key executives had assembled, and I thought it would be fun and a challenge.

I have enjoyed helping MPS through the going-public process in its early days as a public company. We're now in the next stage of putting in place a global and disciplined infrastructure to support what we anticipate will be a continuation of our rapid international expansion. I believe it will be important to my successor to be in place early in this next phase of the Company's development.

Now, let me turn to our financial results for Q1. Our March quarter, as Michael said, exceeded our expectations, both for revenues and for gross margin. As he mentioned, revenues came in at $14.6 million for the quarter. This compares to $6.8 million for the first quarter 2004, an increase of 115%, and compares to $14.8 million for Q4 '04, a decrease of 1%.

Let me give you a summary of the revenue breakdown for the quarter by our four product lines. LCD backlight were $6.5 million in Q1 '05, compared to $3.4 million Q1 '04. DC to DC were $6.3 million in Q1 '05, compared to $2.7 million in Q1 '04. White LED drivers were $1.2 million in Q1 '05, compared to $0.6 -- or $600,000 in Q1 '04. And audio was $600,000 in Q1 '05, compared to $100,000 in Q1 '04.

Again, as Michael mentioned, gross margin came in at 62.2% for the quarter, compared to 51.8% for Q1 last year. Our target operating model for gross margin remains at 58 to 63%.

GAAP-based operating expenses in the March quarter were $11.3 million. This total included $1.6 million for stock compensation expenses, $4.5 million for patent litigation costs and $5.2 million in R&D and SG&A expenses. This compares to GAAP-based operating expenses of $6.4 million in the March quarter of the prior year, which included $3 million for stock compensation expenses, $600,000 for patent litigation, and $2.9 million for R&D and SG&A. R&D increased by $1 million and SG&A increased by $1.3 million. Approximately $500,000 of the increase in SG&A related to costs associated with being a public company, including Sarbanes-Oxley. This was about -- there was about $100,000 in marketing programs, primarily advertising, and almost all the rest was related to headcount growth from last year.

Non GAAP operating expenses, which excludes stock compensation expenses, in the March quarter were $9.7 million. R&D and SG&A, as I mentioned, were $5.2 million and patent litigation was $4.5 million.

GAAP net loss was $1.4 million for the quarter, or $0.05 per share, compared to a loss of $3.2 million for Q1 of 2004, or $0.50 per share. On a non GAAP basis, net income for the first quarter was $310,000, or $0.01 per diluted share.

Turning now to our balance sheet. Cash, cash equivalents and investments increased to $49.6 million in the quarter from $49 million in the December quarter. Accounts receivable ended the quarter at $4.2 million, up from $4 million in the December quarter. Days sales outstanding, or DSOs, were 26 days compared to 24 days in the December quarter. Our inventory levels increased to $6.5 million in the quarter from $5.4 million at the end of December. These are in line with our anticipated increase in sales in Q2.

Now let me briefly address our outlook for the second quarter of 2005. For the June quarter, we are targeting total revenues to be in the range of $17 million to $19 million. We expect to see particular strength in our DC to DC and white LED product segments. We expect normal market growth in our LCD backlight business. Our target model remains 58 to 63% for gross margin. Given our revenue outlook, we expect gross margin should approach the upper end of our target model of 58 to 63%.

In Q2, we expect our non GAAP operating expenses to increase from $9.7 million in Q1 to between $10.5 and $11 million in Q2. With three trials scheduled for Q2, we expect a significant increase in our patent litigation expenses. Lastly, we anticipate our objective tax rate will remain about 25 to 26%. Now we'd like to open the microphone and take your questions.

(Operator Instructions) We'll take our first question from Tore Svanberg with Piper Jaffray.

Good afternoon. Hi, this is actually Jeremy calling for Tore. You mentioned a couple new customers in LCD and also in DC to DC. I was wondering if you could provide a little more color, maybe where these customers are?

I mentioned that we have a new -- some high frequency DC to DC product. We design it in satellite -- we had a design win in the satellite radios and digital video broadcast receivers, and other set top boxes. And at the last conference, I mentioned that we have seen some attraction in LCD TV, too.

And how about on the inverter side?

Oh, the -- on the inverter side, as I said, we -- in Q1, we gained some market share and again some new customers.

Can you just provide a little bit more detail, like are these notebook customers, monitor customers? What types of applications?

Yes. In both notebooks and in LCD monitors.

Great, thanks. And you also mentioned that you're significantly increasing you’re significantly increasing your -- broadening your customer base and getting distribution customers. Is this a new strategy in terms of -- the types of new products you might kind of come out with? Are there more general purpose products down the pipe?

Particularly our DC to DC product, all very general purpose kind of a product. So we have a variety of applications. I -- (indiscernible) -- answer your questions.

Yes. No, that's helpful. And finally, if I could, just could you provide a little bit more detail in terms of maybe when some of these trials might -- when we'd expect a resolution, or other timing of significant events?

It's difficult. As you know, the litigation is uncertain. You know, I think at this point all we can really say definitely is that there are three trials currently scheduled for Q2.

Okay. Great. Thank you very much.

Thanks, Tore -- or, Jeremy.

Next we'll move to Ross Seymore with Deutsche Bank.

Yes, hi, guys. This is actually Tom for Ross. Nice quarter. Wanted to ask you about, overall, as you move toward more distribution, can we expect a different gross margin profile from that? And what percentage of your revenues is DISD (ph)?

Hi, Tom. The first answer is that it will not significantly affect our gross margin model. You know, maybe a couple of years from now, but right now, the answer is no, in that regard. And I think as you know, our primary use of distributors today is in the Taiwan market and in the China market. And so we basically deal directly with our customers, and the distributors significantly are in a logistics capacity.

Okay. But the new ones that you are signing up and anticipate signing up, is that relationship slightly different?

Yes. And these are the mobile sell-through models. And before, we'll call it sell-to models. But we haven't generated any revenue yet, but that's what we intend to do.

Okay.

Just to elaborate a little bit, the major U.S. distributor, it is a large distributor and that is associated with our developing the U.S. market. And that's the market where, as you know, traditionally, you deal with your distributors on a sell-through basis.

Okay, great. And then, just to follow up on an earlier question, in terms of the court dates that are coming up, I believe O2 in sometime late May -- is that still the case? And then we were aware of the Linear date. Who is the third one during the quarter?

The third one is the Sumida, which has been sued -- a customer which has been sued by O2. That scheduled start date is June 6. Just to finish the other two, the scheduled start date in Oakland is May 31, and the scheduled start date of the Linear hearing with the ITC is June 27.

Okay. The 30 -- May 31st was the Oakland O2?

Correct.

Okay. Okay, and then just last question. In terms of the operating expense going to 10.5 to 11, how much of that is expected to be the litigation, and then, you know, and what are the expected changes in R&D and SG&A from the prior quarter?

Broadly, it's comparable. They don't split exactly, but it's definitely significant on the litigation expense.

Can we expect it to, I guess, go up or stay relatively flat compared to this quarter, the first quarter?

I'm sorry, are you referring to the patent litigation?

Yes.

No, it will go up.

It will go up? Okay. All right. And then the R&D and SG&A will be relatively stable.

Well, I -- it's hard. I can't parse it, you know, completely, because the -- you know, for a whole quarter the litigation is somewhat uncertain. There could be a reschedule of the trial. So it's difficult to be real precise. That's, I think the best I can be.

Okay. Thank you.

(Operator Instructions) We'll take our next question from Sang Fururi (ph) with Seligman.

Hey, guys. Good quarter. First question, for litigation, what's a reasonable estimate for the year? With the trials coming in Q2, should we expect a material drop off in the second half?

We really can't go beyond guidance on the second quarter. There are just too many -- well, one, we don't provide guidance beyond the quarter as a practice, but particularly true in litigation. There's just too many uncertainties. But the primary answer is that we don't provide guidance past the quarter, you know, the coming-up quarter.

Okay. And then, with respect to the Q2 guidance -- so you said the white LEDs -- the LED business and the DC to DC business is what's causing the strength?

There, we have expectation of significant growth in those two markets. With growth in all the markets, but, Michael, you might want to comment.

Yes. If you remember, our Rosho (ph) IPO, our Rosho in the first -- our December quarter earnings call. And we indicated we see some –- our -- we did -- in the white LED cellphone market, and those products we were designing in early middle last year. And we've seen volumes are picking up. So this is the fruit of our designing from the middle of last year.

And how early are you in the ramp with LED drivers?

We have a major -- we have a large share in China. Again, our sales force are limited to our growth. And as we sign on more distributors and more sales rep in all of the works, we expect that our product will do well.

And then on the DC to DC side, what are the applications driving the growth in Q2?

In the second half of this year, you mean?

No, I mean in the second quarter. You said you were going to see good growth in the DC to DC business. Just what applications are those primarily driving the growth this quarter?

In the last years, we have many designing in the LCD TVs and portable DVD players and wireless LANs, and there's a variety of our products and there's not much of a difference in the first quarters. But we do see a different attractions in -- from a different market.

And then for the inverter side of the business in Q1, how much of the growth was from the core notebook side and how much are you getting from TVs and LCD monitors? Are you seeing much growth there in Q1 and Q2, or that's later?

You're referring -- let me just check. You're referring to the LCD portion, right?

Yes, the CCFL business from notebook versus non-notebook.

The lion's share of the growth was from market share gain in the notebook segment. We're at a very early stage, just beginning to have a presence in the inverter side of the monitor and LCD TV market. You know, we already are shipping significant amounts of DC to DC product and, in some degree, audio product. So we're at the early end of our penetration of the inverter part of the LCD monitor and TV market.

Okay, thank you. Great quarter, guys.

(Operator Instructions) And you have a follow-up from Ross Seymore.

Yes. Hi, it's Tom again. Just a quick housekeeping question. What was your depreciation and expense during the quarter, as well as revenue breakdown by geography.

I guess the honest answer is I don't have that in front of me, Tom. I'll get back to you.

Okay. All right. And then just sort of a follow up on Sang's question earlier in terms of the LCD TV inverter product, which was introduced recently. Do you have any design activity behind that, or --

Yes. We do have many design activities.

Okay. Okay, thank you.

Anything further, Mr. Seymore?

No, all set. Thanks.

Thank you. And we're done with our questions. I'll turn it back over to our speakers for additional or closing remarks.

Well, we appreciate everybody joining us today. We aren't making any closing remarks, so thank you for joining us. Bye.

That does conclude today's conference. We thank you for your participation. Have a great day.