納微半導體 (NVTS) 2021 Q4 法說會逐字稿

Thank you for standing by, and welcome to Navitas Semiconductor's Fourth Quarter and Full Year 2021 Results Conference Call. (Operator Instructions) Please be advised that today's conference may be recorded. (Operator Instructions)

I would now like to hand the conference over to your host, Vice President of Corporate Marketing and Investor Relations, Stephen Oliver.

Good afternoon, everyone. I'm Stephen Oliver, Vice President of Corporate Marketing and Investor Relations. Thank you for joining Navitas Semiconductor's Fourth Quarter and Full Year 2021 Results Conference Call. I'm joined today by Gene Sheridan, our Chairman, President and CEO; and Todd Glickman, our CFO.

This call is being webcast on the Investor Relations section of our website at ir.navitassemi.com, and a replay will be available about an hour following this call and available for another 30 days. Additional information related to our business is posted on the Investor Relations section of our website.

Our earnings release and this presentation include certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures with the most directly comparable GAAP measures are included in our earnings release and also posted on our website in the Investor Relations section.

In this conference call, we will also make forward-looking statements about future events or about the future financial performance of Navitas. You can identify these statements by words like we expect or we believe or similar terms. We wish to caution you that such forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from expectations expressed in our forward-looking statements. Important factors that can affect Navitas business, including factors that could cause actual results to differ from our forward-looking statements, are described in our earnings release.

Please also refer to the risk factors affecting Navitas discussed in our SEC filings, including the prospectus dated December 6, 2021, as supplemented or amended from time to time. Our estimates or other forward-looking statements may change, and Navitas assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions or other events that may occur except as required by law.

Now over to Gene Sheridan, CEO.

Thanks, Steve, and thank you to everyone for joining us today.

As we close out 2021, I'd like to summarize some of our key accomplishments. In October, we celebrated our IPO within 7 years of founding, we believe a record for any power semiconductor company and the result of intensive focus to establish Navitas as the clear technology and market leader in gallium nitride, or GaN, power ICs. GaN is a next-generation power semiconductor with up to 20x faster operation, and our GaNFast power ICs deliver 3x more power and 3x faster charging in half the size and weight and with up to 40% energy savings compared to traditional silicon chips.

In 2021, annual revenues doubled to $24 million with Q4 revenue growing sequentially by over 30%. At the end of '21, our cumulative unit shipments increased to over 35 million units with 0 GaN-related field failures. While Q1 will see slightly lower revenue compared to Q4, given expected seasonality, we anticipate sequential growth in Q2 of greater than 50% as we expect multiple major new Tier 1 GaN charger launches ramping significantly next quarter. In total, we continue to forecast another doubling of annual revenues for this year.

Our gross margins improved in '21 by over 10 points year-on-year as all customers adopted our Generation 2 in the first half and started ramp of our Generation 3 late in the year, both of which offered Navitas and our customers significant performance improvements and cost reductions. For 2022, we will see the impact of the TSMC 20% wafer price increase, which will limit our margin expansion in the year while we look forward to our Generation 4 ramp in the second half of '22, which will fuel our margin expansion into 2023.

Taking a closer look at some of these new technology developments. Generation 3 with GaNSense technology integrates critical sensing circuits monolithically into GaN for the first time in our industry. Generation 3 unlocks another 10% of energy savings while adding important new protection circuits to set a new standard in reliability. Already in mass production with Lenovo, Xiaomi, Vivo, among others, GaNSense was honored last month in Las Vegas with a CES 2022 Innovation Award.

GaNSense is also a key enabler in the new exciting ultrafast charger category. Hot on the heels of Generation 3, we have Generation 4, which will start sampling next quarter. This will bring further gains in energy savings and cost reduction, and we will give further details when that technology is fully launched later in the year.

With all of these developments in mind, our patent portfolio now totals over 145 patents, pending or issued, reinforcing strong competitive protection for our multiyear lead in GaN IC technology.

Our high-power progress continued with 2 new industry firsts: GaN design centers dedicated to data center and to electric vehicles. And I'm excited to announce today 2 other industry firsts. We have just published the industry's only sustainability report dedicated to quantifying the positive impact GaN is having on decarbonization and on conserving our planet's natural resources. In addition, today, we're announcing the industry's first 20-year warranty for our GaN ICs. I'll explain more about some of these new developments later, but let me first give you an update on our mobile charger business.

At the end of '21, the number of customer chargers released to production increased 75% from the prior year, reaching an all-time high of 171. In addition, we have doubled our design pipeline compared to the prior year with a new high of over 240 customer projects now in development with the vast majority of those expected to launch throughout the year. We announced a new strategic partnership with Anker, a leader in aftermarket fast chargers with a number of GaN chargers already announced and many more in development.

In addition to strong adoption in the aftermarket and accessory charges, our Tier 1 in-box charger introductions doubled in '21 compared to 2020. That list now includes Xiaomi, Vivo, Motorola, Dell, LG, among others. We also announced a new category of ultrafast chargers, which delivers over 100 watts of power using our latest GaNSense technology to charge smartphones from 0 to 100% in less than 20 minutes. This high-power rating in this new category requires an additional PFC circuit, so 2 GaN power ICs are needed, roughly doubling the GaN revenue opportunity per charger. Xiaomi was the first GaNFast launch in this new category with their Note 11 Pro+, and now Vivo has followed with their IQ9. We expect several others to join this exciting new product category later in the year.

And today, we are very excited to announce a major win at a Tier 1 Korean smartphone customer. While we can't share further details until that customer makes more of a public announcement, this is a major step forward in the adoption of GaN across all major mobile players in smartphones, tablets and laptops. In fact, with this new announcement, we are now in mass production with 8 out of the top 10 mobile players. And when considering customer projects in development, Navitas GaN technology has now been adopted by all of the top 10 mobile players.

Next, let me share a few important updates on our market expansion plans. In Q4, as expected, we started sampling our higher-power GaN ICs that are targeted for data center, solar and electric vehicles. Our GaN IC technology is unique compared to our GaN discrete competitors as we integrate 1 or more power devices along with analog circuits that includes drive, control, sensing and protection. This monolithic integration is essential to unlock the full system benefits of GaN by eliminating parasitics, increasing operating frequencies, reducing the size, weight and cost of both passive and mechanical components and maximizing the energy savings while reducing system costs. These benefits are actually magnified as our GaN ICs are applied to higher-power applications such as the ones we target in data center, solar and EV.

As a consequence, the customer response to these new higher-powered GaN ICs has been extraordinary, and we now have dozens of customer engagements well underway towards adopting our GaN technology. To support and accelerate this customer adoption, we announced the opening of 2 new design centers to drive GaN adoption for data centers and for electric vehicles. We believe both of these design centers are a first for our industry and a key ingredient in our unique company strategy to co-develop GaN-based power systems with our customers in each of our target markets.

We have staffed these design centers with impressive industry-recognized technical leaders and engineering teams that have a proven and unique set of capabilities to develop disruptive next-generation GaN-based power systems in each of our target markets. These teams are equipped with advanced tools, along with the technical skills that span all hardware and software needs across power architectures, passive component optimization, thermal/mechanical design, EMI mitigation and system cost and manufacturability considerations.

Last week, Navitas was the first company to publish a sustainability report that comprehensively quantifies the positive impact of GaN power semiconductors on climate change based on global standards. To share some highlights from the report, GaN power ICs have up to 10x smaller CO2 footprint compared to silicon equivalents. Each GaN power IC shipped saves 4 kilograms of CO2 and can reduce customers' carbon footprints, for example, by up to 30% savings for a 65-watt laptop adapter.

Based on third-party reports, adopting GaN in electric vehicles could accelerate EV adoption by up to 3 years and eliminate 20% of road sector CO2 emissions by 2050. It is estimated that GaN can save 2.6 giga tons of CO2 per year by 2050, the critical time frame of the Paris Accord. You can expect to see much more on this front as we look to take a leadership role across the entire semiconductor industry in accelerating the electrification of our world.

In terms of quality and reliability, Navitas is already leading the industry by shipping a cumulative total of over 35 million units without a single reported GaN-related field failure, and we have also completed over 5.8 billion device hours of testing. Given harsh electrical and environmental conditions and the critical need to avoid power failures, which could shut down entire systems, we are pleased to announce another significant development, the industry's first 20-year product warranty. This warranty is unprecedented in our power semiconductor industry and reflects our commitment and confidence in the quality and reliability of our highly protected and integrated GaN ICs. This 20-year warranty supports our plans to extend the lifetime of mobile chargers and consumer power adopters, thereby, further reducing waste and CO2 emissions. And it's also an essential confidence factor and differentiator for Navitas since we look to enable GaN-based data centers, solar installations and electric vehicles. You will see us roll out this warranty across all of our GaN IC product range in the coming weeks.

Before I turn it over to Todd to discuss the financials in more detail, I want to summarize the many exciting industry-first achievements that we've announced recently or in today's earnings call: the first power semiconductor supplier to reach an IPO in 7 years from its founding; the first to monolithically integrate sensing capabilities in GaN; the first GaN company to penetrate 10 of the top 10 mobile players; the first GaN company to reach 35 million units shipped and to do it with no GaN-related field failures; the first 20-year power semiconductor product warranty; the first design center for GaN dedicated to data center and EV; and the first sustainability report dedicated to quantifying GaN's positive impact.

And now over to Todd Glickman, our CFO.

Thanks, Gene, and thanks, everyone, for joining us today. Let me take you through our fourth quarter numbers and guidance for Q1 and 2022.

GAAP revenue for the quarter grew to $7.3 million, representing a 30% sequential growth from the third quarter of 2021. For the full year, we grew revenue to $23.7 million, which represents year-over-year growth of 100%. Mobile demand remained strong throughout the year, despite the fact that our GaN revenue growth was limited in the second half due to our customer supply chain constraints of non-GAN-related components.

Non-GAAP gross margin was 44.3% in the fourth quarter, up from 37.7% in the same quarter of the prior year. For fiscal year 2021, we grew non-GAAP gross margin to 45.4% from 33.2%, which is consistent with our strategy to deliver attractive margin expansion while passing along cost reduction to our customers.

With regard to expenses, we have grown our sales and marketing teams to support our rapid growth in the mobile market and our expansion into data center, solar and EV. We have also invested in legal and accounting infrastructure needed to be a successful public company. Taken together, we have increased our non-GAAP SG&A expense from $3.7 million in the fourth quarter of 2020 to $4.2 million in Q4 of 2021.

Non-GAAP R&D expense grew to $6 million in the fourth quarter of 2021 compared to $4.5 million in Q4 2020 as we continue developing multiple new generations of GaN ICs, and we developed and delivered new high-power GaN ICs for data center, solar and EV. Putting all this together, non-GAAP net loss from operations was $6.9 million compared to a net loss from operations of $6.3 million in the fourth quarter of 2020 as we are in a heavy investment mode in this rapid growth phase of our company.

Turning to the balance sheet. Cash and cash equivalents were $268 million. Inventory was $12 million compared to $11.7 million in the prior quarter as we maintain healthy inventories to support short lead times and significant growth and upside opportunities with our customers.

Moving on to guidance. For the first quarter of 2022, GAAP revenues are expected to be between $6 million and $7 million compared to $5.3 million in the first quarter of 2021. Last year, in the first quarter, we sold our first in-box GaN chargers, which mitigated what would traditionally have been a seasonally lower quarter. For this year and in future years, we expect Q1 to be seasonally similar or lower than Q4.

Q2 is expected to be a significant growth quarter with many spring customer product launches propelling at least 50% sequential growth from the first quarter. I'd also like to mention that we have posted an Excel spreadsheet showing our historical quarterly financials and the seasonality you can see in 2020.

As previously indicated, full year revenue is expected to double from 2021 to $48 million. GAAP and non-GAAP gross margin is expected to be approximately 44%, plus or minus 1%, in the first quarter and for the full year of 2022. TSMC's 20% wafer price increase announced late last year is leading to a 6% gross margin reduction that is factored into our Q1 and full year guidance.

As Gene mentioned, we will launch Generation 4, which will fuel margin expansion into 2023. Our long-term strategy and expectation to achieve system cost parity with silicon in 2023 and deliver 55% gross margins long term is unchanged.

In total, our non-GAAP operating expenses in Q1 are expected to be approximately $13 million, which excludes stock-based compensation and amortization of intangible assets. Full year non-GAAP operating expenses are expected to be approximately $58 million, which includes a full year of expenses associated with being a public company.

Finally, we expect our basic and diluted share count in Q1 to be between 120 million and 124 million. The majority of our shares outstanding are held by major shareholders and executive management and are currently subject to lockups expiring on or before October 2022 and October 2024, respectively.

In summary, 2021 was a pivotal year for Navitas. We doubled our revenues and expanded our non-GAAP gross margins by over 12%. In addition, we have invested in the next-generation technology immediate infrastructure that will allow us to achieve our expansion and scalability goals for 2022 and beyond.

Gene and I are now ready to take your questions. Operator, let's begin the Q&A session.

(Operator Instructions) Our first question comes from the line of Ross Seymore of Deutsche Bank.

Gene, I want to talk first about the supply side of the equation. Last quarter, you mentioned that, that probably cost you 1 million units. Has that gotten better? Is that still a headwind as you look forward into the first half of this year? Just any update there would be helpful.

Sure. Definitely, Ross. Thanks for asking the question and joining us. We don't see a short-term significant impact based on the guidance. We think our customers have adequately factored that into their forecasts as of now and looking forward in the year. And if anything, we see a little progress because we have worked with our customers to approve some of the additional suppliers for the non-GaN components, which creates some flexibility for them. So it seems like the trends are moving in the right direction, and we think we've factored in any of those constraints on a go-forward basis.

And I guess, as my follow-up, just switching over to the margin side of things. I think everybody is well aware of the wafer price increases that the foundries have passed through. Can you just talk a little bit about the magnitude of the offset when you get to Gen 3 and Gen 4? I know it's a couple of years out, so it doesn't have to be precise guidance. But Todd, you mentioned that your 55% target is unchanged. If we got a little bit of linearity between the 44% and the 55% target, any sort of stair step-up timing that we really need to be cognizant of?

I would add, we're ramping Generation 3 now. There's sort of an offset between the Generation 3 cost reduction and the TSMC price increase that results in being kind of margin neutral, as we said, sort of flat into this year from Q4. Gen 4 kind of restarts that margin expansion. We'll start sampling that in Q2, and that will ramp in the latter part of the year and I think ultimately result in this margin expansion into '23. And I think then we could sort of look at that stairstep, as you said, or that linear extrapolation towards the 55% longer-term goal.

Our next question comes from Tristan Gerra of Baird.

This is [Tyler] on for Tristan. Starting off, what engagements or joint ventures do you have in China that you can talk about? And how is China part of your market share plans given the power charger supply chain there?

Yes. Thanks, [Tyler]. Good question. Certainly, China has been fundamental to our strategy from the start. Largely, almost half or 40% of our company footprint is in China. We have an extraordinarily strong local team there, not just in sales and technical support, FAE, but multiple design centers there, both developing GaN chips as well as developing GaN-based power systems. The design centers, as I mentioned, actually, mobile was our first one, which is centered there, supporting customers around the world, but even our data center and our newest EV design center is there.

So it's a very strong team. Those are not formal joint ventures or partnerships per se, but internal capabilities, and that sets us up to really form a strong customer partnership with all the key customers not only in China but globally. So we're in a really strong spot there in China.

Great. And then for my follow-up, in 2020, you shipped about 11 million units into smartphones. What was that figure for 2021?

2021 unit shipments. Do you have an estimate?

The end of '20 was 6.5 million. The end of '21 was 25 million. Yes, so close to 25 million.

It's, let's say, north of 20 million units is our estimate.

Our next question comes from Kevin Cassidy of Rosenblatt Securities.

On the -- you had mentioned the fast charging, the less than 20 minutes takes 2 power ICs. What percentage of designs that you're working on will be using that?

Kevin, thanks for the question. Yes, ultrafast charging, obviously, a big deal there. We're talking about over 100 watts. Anything north of 65 watts actually requires that power factor correction, extra circuit, thereby, doubling the likely GaN content. And we didn't break it out in any specific detail, but it's certainly the fastest-growing part of the fast charger market. And there's certainly many designs coming. The first was Xiaomi. As I mentioned, Vivo has already recently launched. And obviously, we can't talk about the specific customers coming out before they're public. But it is a fast-growing percentage, and there's many new designs in that category to launch later this year.

Okay. Great. And as you look at the design centers in the -- for data center and EV, what's the product road map that you'll be introducing for those markets? Or what time frame, I guess, would you expect to see significant revenue?

Yes. Good question. So data center, we actually announced late last year, and we've already launched our first sort of system-level prototype that acts as a reference design as well as a demonstrator to all of those data center customers to show them what's possible in GaN. From there, we'll quickly expand into different power levels, different form factors and next-generation versions that keeps pushing the energy savings. So we're well on our way to the customer engagements and delivering those exciting new GaN-based platforms.

EV is just starting out. We announced it in January. We're in the process of building out the team, building out the lab. We'll have the core team and core lab in place in Q2. We'll have initial prototypes of onboard chargers, and that's our first application focus. There's many applications in EV, as you know, but we'll start with onboard chargers using our GaN technology. And we'll have that available as a prototype or a platform to demonstrate to our key customers in the second half of this year.

Our next question comes from Quinn Bolton of Needham & Company.

Congratulations on the results and the nice outlook for 2022. I guess I wanted to start there. It sounds like you feel pretty good that the supply chain is starting to improve. But I guess, looking at the doubling in revenue, if I just do some quick math, it sort of implies, on average, maybe $3.5 million of sequential revenue growth each quarter to get to that sort of $48 million level for the year. Is that the right way to be thinking about how you see the business? Is it sort of a linear increase across the 4 quarters of the year? Or do you see sort of a different revenue pattern into the second half?

Great. Thanks, Quinn. I appreciate the question. It's a great question. When you're looking at our business on a quarterly basis, I think the best way to look at it is to look back at 2020 to our -- look at our seasonality. We do expect the first half of the year to be around 30% while the second half will be 70% of our total year revenue.

Got it. But 2020, is it -- is a good proxy for what you might see as normal seasonality in the business.

That's correct.

Yes, '21 -- I'll just add. '21 is a little unusual because we had a major new launch, the Xiaomi 55-watt in-box in December, which is not a common time to launch, and that carried through into significant drivers in Q1, making a little bit nontraditional or nontypical in terms of seasonality. So as Todd described, '20 is a little bit better way to look at it, and he give you a good guidance on how to expect to ramp this year.

Got it. And then just a longer-term question on gross margins following Ross' question. It looks like the data center and solar products are sort of on track to ramp in calendar '23, just as you're starting to see the benefits of the fourth generation technology in the mobile and perhaps the consumer segments. And so I'm wondering, do you see pretty good progress as all of that begin to contribute in 2023? Or are there headwinds to margins that we should be thinking about out in next year?

Yes. I think there are 2 dynamics. As you point out, 1 is market expansion. We generally expect improved higher margins in the higher power markets, data center, solar and EV. At the same time, we think our generational improvements even in the mobile space are going to continue to incrementally expand margins while offering cost reduction to our customers. So I think we'll benefit in '23 and beyond by both of those dynamics, ultimately, combining together to achieve that longer-term goal of 55%.

Great. And then last for you, Gene, maybe a more technical question, but you talked about as you go up in power to 65 watts and above, you need to add that power factor correction stage, which adds a second opportunity for GaN IC. Wondering if you can talk about, are you seeing a transition in architectures from like flyback to active clamp that may further increase the GaN content in some of those higher-power applications? Or does active clamp architecture really play more in either data center or some of the consumer chargers?

Yes, no, that's a great question, a very good observation. In fact, around 100 watts, we see most commonly a single GaN chip in the PFC and a single GaN chip in the traditional flyback, what's called a QR flyback. Actually, as you push that power level up and you want the energy efficiency to go up, say, at 120, 150 watts, even 200 watts, which is a crazy amount of power to be pumping into smartphones and mobile devices, but that's exactly where we're headed. And you can imagine how fast the charging is going to be. But as you do that, you can actually benefit from 2 -- a second GaN switch in the PFC circuit and a second GaN switch in the second stage, the flyback stage.

And as you alluded to, there are alternative topologies beyond QR, which only uses a single GaN switch, whether it's active clamp flyback, LLC or some other variations of those 2 that both employ 2 GaN switches. So we're really headed towards 2 -- 1 to 2 to then to 3 and then eventually 4 GaN switches as we keep pushing the power, the fast charging and the energy efficiency higher and higher.

Our next question comes from Blake Friedman of Bank of America.

Just a quick one on -- with consumer products expected to ramp throughout this year in data center and solar markets ramping in 2023, I was just curious if you can provide any color on how we should think about cash burn through this year as well as any color into next year.

Can we clarify first, Blake, were you looking for further definition on what sort of things are ramping in the markets or more interested in the financial part of your question, the cash flow?

More interested in the financial part.

Sure.

Yes. Thanks, Blake, for the question. So we finished the year at around $268 million in cash, with the doubling of our revenue and OpEx of $58 million on a non-GAAP basis. For 2022, we do expect to use around $40 million of our cash on our balance sheet, leaving us plenty of cash to put to work on strategic and other partnerships in the future.

Got it. Sounds good. And then, actually, just kind of drilling down more on the kind of consumer opportunities ramping this year. Just curious if you can highlight in what areas of the consumer market you are beginning to see early traction and maybe what percentage of revenues this year can come from the consumer markets.

And Blake, when you mentioned consumer, are you lumping in mobile into that or consumer somehow separate from mobile?

Yes, separate from mobile.

Yes. The predominant part of our revenue forecast this year is definitely dominated by mobile. That's fast chargers for phones, tablets, laptops and, frankly, the aftermarket, which could be charging anything that uses a USB-C output. With that said, we also see this year as the start of the nonmobile consumer, as you're alluding to, things that don't have a battery, you're not carrying the charger around, but actually, they still care about power delivery, energy savings, size and weight.

We have pointed to 2 in the past, 2 promising areas that we'll be launching and ramping this year. One is in LED TV. Another is in traditional desktop PCs and PC-related peripherals. We don't have any announcements yet on those. But as those products come to market, we'll share more details about them. They will be a small percentage of that total, but that is a promising and a really important multibillion-dollar opportunity beyond mobile into the broader consumer adapter space.

(Operator Instructions) Our next question comes from the line of Natalia Winkler of Jefferies.

Todd, I think this question is to you. And I wanted to just dive in a little bit more on the gross margin throughout the year. I appreciate kind of how it stacks up longer term. But as I think through the year, can you please kind of walk us the different dynamics with in-box and aftermarket types of revenues? And how should we think about the gross margins for the year?

Sure. So that's a great question. Let me start with the gross margin. So we finished Q4 at 44%. We are guiding to Q1 at 44% as well, so flat, and that's driven by the TSMC price increase. We believe the full year will be at 44%. But you can look at the margins with the understanding that Gen 4 is coming out in the second half of the year. So we do expect a little bump there. So knowing that in mind, you'd be able -- better positioned to determine your margins on a quarter-to-quarter basis.

Understood. That's very helpful. And I guess, the second question is sort of a similar one, for the OpEx. So is it going to be stepping gradually over -- throughout the year? Or is it going to be a significant decrease sequentially into the second quarter and then more linear?

It's more on the stepping gradually throughout the year as we add headcount along with developed new products into the market. So a small step-up each quarter throughout the year to hit the eventual $58 million for full year OpEx.

Thank you. At this time, I'd like to turn the call back over to Gene Sheridan for closing remarks. Sir?

Thank you, operator, and thanks to everyone who joined us today. It's a big time for Navitas, an exciting year for us, and we look forward to a great future later this year as we electrify the world and move the world toward GaN-based electricity. So thanks for joining us.

This concludes today's conference call. Thank you for participating. You may now disconnect.