O2micro International Ltd (OIIM) 2021 Q1 法說會逐字稿

Good morning, and thank you for joining us today to discuss O2Micro's financial results for the first quarter of fiscal year 2021. If you would like a copy of the press release we issued this morning, please call Daniel Meiberg at (408) 987-5920, extension 8888. We'll e-mail you a copy immediately. It is also posted on the O2Micro website at www.o2micro.com under heading Investors. There'll be a replay available through May 14, 2021, 9 a.m. Pacific Time or by visiting the O2Micro website under the heading Investors.

Following the presentation by management, the conference will be open for questions and answers as time permits. Gentlemen, you may begin.

Thank you. Good morning, everyone, and thank you for joining O2Micro's Financial Results Conference Call for the first quarter of 2021 ending March 31, 2021. This is Daniel Meiberg, Corporate Communications for O2Micro.

I would like to remind listeners that the discussions of business outlook for O2Micro contains forward-looking statements. Statements made in this release that are not historical fact are forward-looking statements within the meaning of the federal securities laws. Actual results may differ materially due to numerous risk factors. Such risk factors are enumerated in the company's 20-F annual filings, our annual reports and other documents filed with the SEC from time to time.

Listeners are referred to the O2Micro earnings press release and the documents filed with the SEC to understand these forward-looking statements and the associated risk factors. Statements made herein are dated information. The company assumes no responsibility to provide updates to this information.

With me today are Perry Kuo, CFO and Director; Jim Keim, Head of Marketing and Sales and Director; and Sterling Du, O2's Founder, CEO, and Chairman. After the prepared remarks from these gentlemen, the floor will be open for your questions.

At this point, I would like to introduce Perry Kuo, CFO of O2Micro, for a discussion of the financial highlights of the first quarter of fiscal year 2021 ending March 31, 2020. Perry?

Thank you, Dan. We will now review our financial results for Q1 2021. Please note that financial results will be presented on a GAAP basis unless we designate otherwise. The non-GAAP result excludes stock-based compensation expense, onetime charges, nonrecurring gains and the losses. Our full GAAP results are available in our press release that was issued earlier today.

GAAP revenue in the first quarter of 2021 was $23.2 million. GAAP net income in the first quarter of 2021 was $2.5 million. If we exclude stock-based compensation of $405,000, the non-GAAP net income will be $2.9 million. GAAP net income per fully diluted ADS in the first quarter of 2021 was $0.08. Non-GAAP net income per fully diluted ADS was $0.09.

Gross margin was 51.6% in Q1. The gross margin reflects the current revenue level and the product mix. R&D expense was $4.5 million or 19.3% of revenue. This amount excludes stock-based compensation expense of $91,000.

SG&A expense was $4.7 million or 20.4% of revenue. This amount excludes stock-based compensation expense of $314,000. The nonoperating income was $358,000. Income tax was $244,000 in the first quarter and is mainly based on the estimated effective tax rate of each taxable location. In Q1 2021, there was no stock repurchase.

Q1 2021, revenue by end market breaks down into the following percentages: Consumer was 36% to 38% of revenue; Computer was 2% to 4% of revenue; Industrial was 60% to 62% of revenue; Communications was almost 0.

At this moment, I would like to provide some additional information. O2Micro finished the first quarter with $47.6 million in unrestricted cash and short-term investment, present cash and cash equivalents of $1.68 per ADS. In addition, O2Micro has no debt. Accounts receivable at the end of Q1 was $17.4 million. Our DSO is 66 days.

DSO is more than 60 days, mainly from account mix. Inventory was $14.7 million at the end of the first quarter. This (inaudible) 109 days of inventory and inventory turnover was 3.3x in Q1. Net cash (inaudible) operating activities in the first quarter was about $1.1 million.

Capital expenditure were about $2.4 million in the first quarter for R&D and IT equipment. Depreciation and amortization was $969,000 in Q1. At the end of the first quarter of 2021, O2Micro had 327 employees, 57% of which are engineers.

Based on current market situation and the best updated managerial rolling forecast, the company has the following guidance for Q2 2021: Net revenues are expected to be flat to up 8% or $23.2 million to $25.1 million as compared to Q1 2021. Total gross margin is expected to be in the range of 50% to 52%. R&D expenses, excluding stock-based compensation, are expected to be in the range of $4.3 million to $4.8 million.

SG&A expenses, excluding stock-based compensation, are expected to be in the range of $4.4 million to $4.5 million. Stock-based compensation should be in the range of $400,000 to $500,000. Nonoperating income expected to be in the range of $200,000 to $300,000, excluding foreign exchange gain or loss. Income tax expense expected to be in the range of $200,000 to $300,000.

The goal of our management team and the Board of Directors is to maximize shareholders' value. We have accomplished this by taking the necessary steps, which included managing operating expenses and monetizing asset on the balance sheet.

In regards to our share-repurchase program, we have been active in this program historically. Since 2002, we have repurchased over 20.3 million ADS shares for $101.3 million. As of the end of Q1, we had $7.6 million (inaudible) our share buyback authorization.

There are many dynamic factors associated in the business development. We will carefully plan and execute to target revenue growth and maintain gross margin in the first half 2021.

First is to continue to invest in new products while allocating some resources for the second source development for the capacity support, and the in-house R&D testing center was praised in March quarter and more advanced testers for advanced IC testing ship and will be shipped through 2021. We also monitor the supply chains tightly and have added timing, both more in process level and inventory to support the dynamic demand from accounts in multiple end markets.

Returns to shareholders are very much on our minds and will continue to be a focus in the future. We will provide update to the additional measures to enhance shareholder value throughout this year. Given the uncertain demand and the macro environment, we are prepared to continue to manage cost as needed, although we believe we have aligned current cost based on current and anticipated revenue levels.

I would like to thank everyone for participating and turn the call over to Jim Keim to talk more about our business.

Thank you, Perry. Good morning, everyone. We were pleased with our Q1 2021 revenue growth that was up 49% over the Q1 2020 revenue and 82% over the Q1 2019 revenue. We expect Q2 2021 revenues to remain strong despite ongoing production issues and limitations in the semiconductor supply chain that create many issues for our operations team.

Our revenue growth and resulting profitability continued to be driven by several factors. First, our product groups have successfully developed next-generation products that appeal to top-tier and brand-name OEMs. Secondly, our company's market focus of developing critical new products, enhancing customer mobility, as noted in our company logo of breathing life into mobility.

As stated previously, mobility was thrust into the limelight with the COVID-19 pandemic that helped drive our company revenues upward as the markets we serve experienced a surging demand from a number of factors, including employees being equipped to work from home with computers and monitors; remote learning increasing sales of tablets, notebooks and monitors; stay-at-home mandates; increasing sales of high-end TVs, high-end monitors for gaming; battery-managed garden equipment, power tools and vacuum cleaners; hospitalizations from COVID-19 increasing sales of advanced monitors for diagnosis; travel restraints and social distancing leading to a rapid surge in the sale of e-bikes.

Even as vaccines enable part of our lives to return to a more normal status, we will continue to see increased work from home, education from home and more sophisticated at-home entertainment. Battery-managed power tools, vacuum cleaners, garden tools, e-bikes and e-vehicles are continuing to expand in usage as increased mobility is here to stay.

We continue to express appreciation to our disciplined and dedicated operations team that has worked tirelessly to overcome many COVID-19 obstacles to keep product flowing from wafer fabs to assembly and test with shipment onward to our customers. I will now make some abbreviated remarks about our product lines.

Our intelligent lighting product line has enjoyed excellent growth as a result of our many design wins that include both 4K and 8K TV and expansion of HDR monitors into gaming, medical and industrial applications along with expanded home usage. Our next generation of patent-pending products are focused on HDR, mini-LED applications in key high-volume markets. These HDR mini-LED products are now being introduced to the market and will be highlighted in more detail in ensuing quarters.

While much of our design focus involves leading-edge products, we have not ignored our overall market share and continue to expand design activity in lower-end TV and monitor products using our patented backlighting products with integrated MOSFETs.

Additionally, our intelligent lighting R&D efforts in the industrial and automotive lighting have enabled ongoing progress in design wins. This includes advanced products for robotics and autonomous driving applications where we are seeing good product acceptance. While these design wins take longer to generate revenue, we believe this will help enable long-term growth of our intelligent lighting group.

Our battery management product line also continues to enjoy excellent growth driven by the ongoing expansion of our designs with major OEMs, our tools, e-bikes, e-vehicles, vacuum cleaners, garden tools and energy storage systems. As previously noted, our battery management products include ARM-based microcontroller ICs for market applications where our existing customers need more sophisticated battery management. This has enabled us to engage with higher-end customers, including those in the rapidly growing energy storage market. We continue to see more customers moving forward to design our ARM-based battery management products into their next-generation high-performance systems.

Additionally, we are introducing patent-pending, high-performance digital front-end products for higher cell count applications, including power tool, garden tool, vacuum cleaners that enable enhanced safety features desired by key customers. We already have key design wins with name-brand OEMs for these products. Major OEMs utilizing our battery management products continues to expand and includes Bissell, Black & Decker, Dyson, Electrolux, Lexy, LG, Makita, Murata, Panasonic, Philips, Samsung, Sharp and TTI.

I will now turn the call over to our CEO, Sterling, for closing remarks.

Thank you, Jim, and good morning, everyone. O2Micro reported the first quarter 2021 revenue, $23.2 million. Revenue was up from the previous quarter and up 49% from the same quarter prior year. The gross margin in the first quarter of 2021 was 51.6%. The gross margin was up from the 51.3% of the previous quarter, which is in our company average range, and our revenue was in line guidance publicly released on February 6, 2021.

Our intelligent lighting group since resin demands of all sectors, including TV, monitor and the template of TV market, focused on high-end 4K, 8K HDR local dimming backlighting product to which we continue to be the market leader. Furthermore, the trend for the next advanced technology is the mini-LED, which offers much smaller size, only 1% of the conventional packaged LED size. It means it could deploy 100x more mini-LED unit in the same area if designer wants to.

Therefore, the panel pixel HDR achieve much more fine resolution with much higher contrast ratio. The high-end tablet market will be the first deployment for mini-LED following by high-end TV -- high-end gaming monitor when cost becomes more effective.

Let us talk about a multi scan and mini-LED. Motion blur of LCD display comes from several factors, including the pixel transitions and persistence. A sample in hold display creates very high persistency, and it creates lots of motion blur even if the transition were instantaneously.

Most common way LCD monitor use to refresh pixel in a top-to-bottom fashion. We address this market with multiscale LED backlighting technology. The margin scanned methodology could be a combination of the full scan and all the way up to the 32 scans instead of only one scan.

It reduces the motion blur and halo effect an optimized way. With a market scan local area dimming technology being applied to the mini-LED, the visual experience of panel display improve the crystal ability even the fast-moving object. The global 4K TV market size expect to reach USD 380 billion by 2025 at CAGR about 21% according to the new report from the Grand View Research.

Our battery product revenue grew strongly than all the sectors, such as cordless flow care product, the cordless household appliance, our intra-power system, battery storage system and so on. With energy density improved, the battery management IC require higher-resolution voltage, more current and accurate temperature measurements. Our analog front end and BMU, business management unit, were designed with 14 big high-accuracy A/D converter to meet customer needs. Our high-accuracy CADC reached 15 mini volt resolution performance while well beyond the customers' expectation.

Regarding the power tool in the market, the potential is for it yet to grow from USD 30 billion in 2020 to USD 36.9 billion by 2025. In that key sector, fueling the growth of industrial market, including the increasing adoption of cordless power tool, the resi demands of the fasten tools industrial environment and a growing construction industry in emerging economies.

On the other hand, the power tool are not limited to any single industry from at-home DIY tools got into a seasoned contract power tool help simplify the labor involved in the production and to speed up the production time. And the more utilize the power tool with the connectivity in which expected to grow into the path of the IoT market.

The global e-bike market is project to grow to USD 70 billion by 2027 from the USD 40 billion in 2020. We noticed, not only the unit growth of the e-bike but the number of the battery sales grow to extend the e-bike range. We offer business -- the battery management unit second-level protection ICs and the support cascade design to bring connection up to 20 cell systems.

We continue to grow the business despite a dynamic market situation. We are optimistic for the fundamental of our business. We focus on high-margin, high-performance business as well as operating expense management in order to create the best return for shareholders. We always keep the shareholders' best interest in mind, especially at current dynamic situation.

At this moment, thank you for listening to our conference call. I turn back to Dan. Dan, please.

Thank you, Sterling. Operator, at this point, we'd like to open the call to questions.

(Operator Instructions) Today's first question is coming from Tore Svanberg calling in from Stifel.

Yes. First question, now that industrial is approaching 2/3 of your business, could you give us a little sense for some of the subsegments, how big they are? I assume power tools is still the largest segment. But any more color you can give us there would be great on relative size of the subsegments.

Yes. Well, the battery management activity has indeed continued to grow very quickly. We've really seen an expansion in the whole battery management area. That includes the power tool activity, as you mentioned. We also have seen significant steps forward in some of the energy storage systems that we have mentioned with many design activities going forward. The -- some of the garden tool activity includes things like power mowers at this point in time, heavier-duty products that aren't lumped into that category. So we continue to see larger cell count, higher-content battery management activity going forward. So this is largely driven by the battery management activity.

Great. Thank you, Jim. And a question for you or for Sterling. As we think about the mini-LED market, how should we think about content opportunity for O2Micro? I mean, it sounds like there's going to be so many more LEDs, and they will probably need a driver each. So yes, if you could comment on what sort of content opportunity you can have whether by percentage or factors as you're going from a regular LED monitor to a mini one?

Yes. We could be looking at about 3 factors. Number one is the LED -- the mini-LED is smaller size compared to the packaged conventional LED, so the design will always go for the number of the mini-LED usage will be more, and that also create opportunity for the driver, that's number one.

Number two, because the package of the mini-LED is much smaller, so the driver is not going to be single driver, but one, a driver IC combined with a lot of the driving capability, and that increased the packaging and also the size and the content of our IC for the mini-LED. And that means that the ping is much more than conventional one.

Number three, so when a smaller package of mini-LED coming out, and we cannot -- we have to accommodate the MOSFET, if continue using conventional external MOSFET and thus losing -- actually is not effective as the total solution area use is much smaller, much reduced. So that we see the integrated MOSFET is the trend for that mini-LED. So that also fueled the ASP content for each driver we are going to ship in current design. So with the 3 factor, yes, you are right, that is going to be bigger IC, integrate MOSFET, and also the number of the driver will be increased applicable to this mini-LED market.

That's very helpful, Sterling. Last question for Perry. Perry, assuming that the semi goods industry is going to remain tight on capacity this year, could you just give us an update on your situation, especially some of your foundry suppliers? Are you adding more foundries at this point? Or yes, anything that you could comment on as far as your suppliers would be great.

Yes. We are -- indeed, we -- actually, as I reported that we allocate resources to do the second source, not only on the foundry supplier but also on the back end. And also, we are adding the in-house tester for ourself. This will be happening in 2021 ending quarter. We like to our pulling ASP, even with the HR cost to support our customers' demand in the coming quarters. And also that we also are adding the inventory, as you may see the balance sheet from the inventory level. So we have a higher inventory in Q1 to support Q2 compared to before, so -- compared to earlier quarter. So we are also adding the inventory to support. So we -- whatever that our foundry can offer the incremental part we were just taking as we have long-term relationship with our foundry and [the pay it], we always can get this kind of the extra supply is limited, but it's helpful. This is smart fleet.

Yes. And Perry, you meant -- related to that, you spent $2.4 million in CapEx this quarter. Do you have an estimate for the full year?

For the whole year, I expect that -- it depends on the delivery. But actually, we -- I expect that the CapEx this year will be in the area of $10 million to $15 million based on the delivery and based on the coming requests from our customers.

We'll now go to Theodore O'Neill calling in today from Litchfield Hills Research.

I was wondering, are you seeing -- on the test equipment side, are you seeing any constraints or lead-time issues in getting your test equipment?

Yes.

Yes. Yes, getting longer and longer from our Q1. Sterling, you may add a comment.

Yes. We -- Perry, we comment the same thing, yes. So yes, Perry, please go. Yes.

Yes. I think we received the first shipment, but we start to see the delivery getting longer and longer. But we are in good faith as we also added the in-house testing unit in Wuhan to support our testing program and also in-house testing. So we are in good shape in Q1, yes. It's on schedule. Yes.

Do your customers expect your battery management systems to have a role in minimizing or preventing a thermal runaway? And if so, what trends do you see there?

Yes, could you say again, preventing from runaway?

Yes. In terms of...

Thermal?

Thermal runaway, yes.

Yes, yes. We added -- we got a analog front-end ICs together with the secondary protection ICs. So our analog front end can detect voltage, current and of course, the thermal. So the way we contribute to this thermal management is we provide very finite and very fast responding time to sample the thermal, and it becomes the digital signal and that we can send to the CPU while our secondary protection IC can quickly do the stay machine treatment. They don't need waiting for the CPU extraction, and they can do the so-called over-temperature protection that can trigger the point that we shut down the power or shut down the throughput of the battery. So that's we -- our IC, the functionality in terms of the whole thermal management system. Of course, the whole thermal management system also made up by other parts, but we are a critical one in the whole system.

And do you see any differentiation in the marketplace where that's more important or less important?

Well, this is very important because, when energy density increase and the thermal density also increase that's not only linear. Sometimes it's square functionality so which means that the same cubic, the standard unit space, you go to pack more energy. So when you -- to throughput those battery to a thermal management, the importance is not only just linear sometimes. It's more than that. You're going to handle that by your detection and also your responding speed. So that requirement is continued going up.

We'll now go to Lisa Thompson calling today from Zacks Investment Research.

So I wanted to follow up on the mini-LEDs. Could you just give us a vague idea of a television set that's the same size using mini-LEDs versus conventional? How much is your content? Is it 2x more ASP or 10x? Just give us a vague idea.

Okay. Let me give analytical factor. Number one, mini-LED is still in the expensive range right now, so we don't see any very coming soon that it's going to go to be the TV, especially large TV. So the first mini-LEDs happening is going to be in a tablet and followed by, of course, probably some high-end TV but -- and then into the gaming, the monitor is going to be -- mini-LED is much, much better because gaming monitor, they handle fast-moving object, so from a tablet to the gaming monitor and the high-end TV. Now secondly, if you -- if the LED drop the cost effective so that TV can utilize, which is in the future, and you compare with that, and then we can look at how you combination or set up your mini-LED by the model scan. So we are pioneer in the technology for the model scan, and that depends how many combination of the model scan you're going to use, for example. The 2 scans that will be at the low end of the mini-LED arrangement. But the 32 scan, even 64 scan, and you look at that, it's more -- mini-LED, more high performance, and so the IC, the number of ASP also go up. So that's the second factor we have to look at that.

But just keep it very vague, which is I really doesn't know who is going to be much more popular in the future TV, so the number of our ICs is coming -- becomes bigger IC. Right now, it's small IC, but when you go to the 2 scan, all the way go to 32 scan, 64 scan, the IC grow, so our IC cells, the pin count could be double, okay? That's number one. And number two, because the mini-LED, they pack more and more unit of the mini-LED and separate IC count also go up. So the total silicon area we're providing, I think, will be together to 30% to 80% growth in terms of the silicon area. And how much is going to present, it will really depend on the future. And I will expect, initially, the IC will be expensive, but it will be becomes close to be more effective together with a number of the mini-LED TV or monitor shipment. So that's about a vague idea.

Okay. That didn't help, but yes. I'm just trying to figure out how much you could grow even if you sold the same amount of units -- end-user units? But we don't know until -- as your product, did it first show up in a tablet? Is it already designed in?

Yes. We have design activity going into tablet, and that will, in fact, be a good growth market for us because we see the tablet market really expanding at this point with a lot of focus on tablets, everything from travel to education. We see many, many educational institutions now turning to tablet-type devices. So we do expect that to open up significant market opportunity for us.

Okay. And could you just go back to what you said something about in battery management. You're introducing digital front-end patent-pending with key design wins. Can you talk a little bit more about what that is and where that's going into?

The -- as Jim mentioned, this is relate to the fast responding time to make the positive decision, the digital front end. As a conventional digital front end, they received the analog front end the signal, and they make certain decisions. But what we're providing is we make fast decision without to notify the CPU. That's number one. We don't wait for CPU. Sometimes too late.

And then number two, we also have complicated the algorithm behind the power management decision based on a more complicate factor such as maybe the aging of the battery, maybe only 1 cell the battery has issued, or there are days where certain situation which is not related to battery but from charging current coming.

And number four, of course, we also measure the thermal, which is a temperature, and we do the more complicated and faster responding time. And the -- providing the immediate data for the secondary protection IC to make decision. And that is our so-called patent-pending technology handle the issues.

And what end-user products would we see that in first?

Well, I think we have potential the vacuum cleaner, which is a very fast-growing market segment, and also the e-bike because the e-bike using more battery cell and higher density to reduce the weight and make the battery management more critical, so they need more sophisticated protection IC and also DFE, digital front end.

Okay. And one last question is, you've mentioned again e-vehicles. Can you tell us what's happening in that area as you move up to bigger things?

Yes. We have a plan but still undergoing and right now still in the R&D stage. That's what I can said. And that will be the same thing we do for the e-bike. But in e-vehicle, it's different. Just give you one example. The difference is in the e-vehicle, you need to have the cascade and a lot of stack, so which is will be a lot of small module to made up as the big module and many big modules in the battery pack, then you have several battery pack inside e-vehicle. So communication will be totaled different, so that's we are the technology we are working on, yes.

And we have no further question in the queue. I'm going to turn the call back over to Dan for any additional or closing remarks. Thank you.

Thank you, everyone, for your time and attention this morning. Please feel free to contact me, Daniel Meiberg, at (408) 987-5920, extension 8888, or at ir@o2micro.com with any follow-up questions. I'd like to thank everyone for your time today, and have a great day. Thank you.