Welcome everyone to the MPS First Quarter 2021 Earnings Webinar. Please note that this webinar is being recorded and will be archived for one year on our Investor Relations page at www.monolithicpower.com. My name is Genevieve and I will be the moderator for this webinar.

Joining me today are Michael Hsing, CEO and Founder of MPS; and Bernie Blegen, VP and CFO. In the course of today's conference call, we will be making forward-looking statements and projections that involve risk and uncertainty, which could cause results to differ materially from management's current views and expectations.

Please refer to the Safe Harbor statement contained in the earnings release published today..

Thanks Genevieve. MPS posted record first quarter revenue of $254.5 million 53.5% higher than the first quarter of 2020. The year-over-year revenue increase represented strength in the overall market and more importantly, broad-based market share gains resulting from customer acceptance of our new product introductions.

37% of our first quarter 2021 revenue resulted from new products introduced in the last three years. New product acceptance on this scale has paved the way for accelerated growth. Looking at our revenue by market, first quarter 2021 revenue from consumer markets of $66.2 million increased $28.8 million or 77.1% from the same period of 2020.

The year-over-year revenue increase reflected a broad increase in overall demand. Along with the initial ramp - revenue ramp from our new mobile device charging IC. Consumer revenue represented 26.0% of our Q1 revenue compared with 22.6% contribution in the first quarter of 2020.

First quarter 2021 automotive revenue of $44.9 million grew 92.5% over the same period of 2020. This growth primarily reflected continuing sales growth for infotainment, safety and connectivity application products and first time revenue from products introduced in the 2021 model year.

Automotive revenue represented 17.6% of MPS’ first quarter 2021 revenue compared with 14.1% in the previous year..

Thank you, Bernie. . Our first question comes from Joshua Buchalter of Cowen. Joshua, your line is now open..

Yes, thanks for taking my question and congrats on another set of solid results. I was hoping you could elaborate on the inventory dynamics. You're one of the few companies that invested proactively ahead of the supply issues across the industry, but you're still not near your 180 to 200-day target.

So just wondering how you're thinking about balancing rebuilding the channel versus, taking businesses some of your peers can serve or endorse of your share gains? Thank you..

Well, as we expand, continue to expand our capacities, as we said it earlier - as we said it in last quarters. And I think that - we expected it with a current rate of increase the capacity will be at the end of the year or early next year. So we achieved that type of inventories. So if the demand is not continued to increase this much..

And I think it's notable, Josh, that we did increase both in terms of dollars and days, the amount of inventory we had from Q4 to Q1, which runs counter to the capacity constraints that some peer companies are experiencing..

Got it, thank you that makes sense. And any more granularity you can provide in the guidance by end market for next quarter, any of the buckets moving materially more than the others? Thanks and congrats again..

Yes, I would probably look to computing where there was a couple quarter gap in data center that data center should begin to take off again. I think automotive appears to be continuing to grow nicely both in terms of year-over-year performance and sequentially. And also we're seeing that same continuation in consumer..

Our next question comes from Ross Seymore of Deutsche Bank. Ross, your line is now open..

Hi guys, thanks for letting me ask a question. I want to talk about the sustainability of demand. Recently in this earning season, a lot of semi-stocks have sold off on really good numbers.

And it clearly looks like the market is worried about double ordering those sorts of peak cyclical activities?.

Yes, okay and of course, we concerning a double okay I mean in the past, we said okay, we have a rigorous procedures and okay to prevent that, okay. And we partial - we practicing partial shipments in the last six quarters, and we make sure so like - our customers have a very minimal on hand inventories.

And the same times - we're not preventing their line downs okay their production line downs. To go back to your questions what's the demand and okay we believe and a lot of our demand is sustainable.

The reason we said that, Bernie said earlier in a script and that for us these are Greenfield market, Greenfield product lines, we started to grow and as Bernie said, 37% of our products, we grow all from new products that we released from last three years.

And there is no reason to believe next two years, and next years and not even talking about next six months. I'm talking about next couple years. These products will continue to grow. And at the same times, and with the product that we released in the last two years, that will continue to turn into revenues in the 12 months later.

So we believe our growth is sustainable..

Okay, thanks Michael. I guess for my follow-up a little more specific on one of your segments, the communications area has been very, very volatile. I know there is bans on different customers that can ship at different points in times.

But can you talk a little bit about what's driving the sequential growth that was up so much in the first quarter, admittedly off of a weaker fourth quarter? And then as this year progresses, how do you see that market specifically more at the 5G side of things rather than the networking and gateway sides?.

We see as a matter of fact, I see have talk to - we have a committee casing meetings with the top tiers and a non-Chinese 5G makers okay and that market segment. So we're picking up and we’ll believe, okay they believe this year and in the next year, they're on the delinquency to..

We believe we're very well positioned just as Michael said there, because the reach of new customers that we're addressing the 5G solutions is very broad. So, we think that as the market gains momentum, we're very well positioned to take full advantage of it..

Great thanks, guys and congrats again..

Thank you..

Thank you..

Our next question comes from Tore Svanberg of Stifel. Tore, your line is now open..

Yes, thank you, Michael and Bernie, congrats again on a very strong quarter. First question, I was hoping you could talk a little bit about your share gains especially during times when capacities really tight. So your solutions tend to be more integrated especially versus discrete and a lot of those discretes are in shortage.

So I'm just wondering if you are seeing and acceleration in your share gains during this very tight semiconductor environment?.

Well, if examples and I can give you a couple of example - couple of scenarios and okay, if we were in a - it’s a dual sources and our competitors using - our customers using dual source or triple source. And I was tend to be in a lot more a fewer components, then our competitor.

And that is a one interpretation why the demands and we’re gaining so much demand. And another scenario is for the futures, and we gain a lot of market shares, because just recently, because - for those new - there are new project the shippings, they were putting up production for next six to 12 months. And we have a lot of design win lately..

Great and as my follow-up, and you talked about the contribution from the new products, I know you're not going to give us specific information on pricing.

But is it fair to say that the ASP is now of those new products are considerably higher than perhaps the last year or two?.

Yes for the gross margins we stay on course and we are not looking for a price hiking, price hikes okay I mean and that's probably is not sustainable? So like I think probably protects our models and again and going the same train as before, okay and Bernie..

Yes, and just to add to that yes, certainly the new products that we're introducing, and particularly those that are more heavily integrated. The mix of business does favor higher ASP for those new products..

Yes, that's what I thought. Okay thank you congrats again..

Thank you..

Thank you..

Our next question comes from William Stein of Truist. William, your line is now open..

Great, thanks for taking my questions. Bernie, you think it was you in the opening remarks? You said something about paved the way for accelerated growth? We all know Monolithic done pretty amazing job with regard to growth relative to the industry.

But should we interpret that as meaning perhaps we stay above 20% for a more protracted period of time?.

I think that's all we see announced. And what we see announced and that could be in a year or two years ago. So that can only grow like 8% again mean the last year 30 somethings and that, and this year so far sort of we're in a very high percentage. And so we're look this kind of way it will continue..

Yes, I think that's the message that we've tried to say in the formal comments. And Michael added to that, if you look at the reason for our growth, both last year and this year, it has much more to do with market share gains and new products and having developed our supply chain than it does necessarily rely upon just the broader market.

And so, certainly in 2019, we had high expectations, and we were - we're not immune to downturns in the market. But I think that if we have a more normalized demand, that we can perpetuate this accelerated rate of revenue growth, perhaps in excess of the 20% mark..

And then along these lines, I think a couple of other questions might have even alluded to it with regard to higher ASP, I think of a big driver of that is your transition to selling more of these modules those types of more complex integrated solutions? Is that the case and I'm hoping you might quantify that for us I think in the past you've talked about growth rates at least to offline of the module business maybe you can talk about whether this is reaching a size where it makes sense to disclose revenue from that piece?.

Yes, the module business is doing really well and like I mean and a modules/e-commerce business is doing really well. And I think we're beginning to find a way how to grow that. That business by no mean this is a - full blown business yet again, we haven't really break it out. And but that business announced and okay, IC it in - it's much higher ASP.

And that will start to grow like a two years out will be a significant difference - and a significant contribution to the revenue growth..

One other aspect to add Will is, that if you look at certain of our end markets, and I'll pick automotive as an example, much more of what they're demanding is not for a specific IC, they want to have a system solution. So if you look for example, autonomous driving or ADAS there has to be built in failsafe redundancy.

You have to have system communications throughout and the example I'm using here, that coordinate that the cameras, the sensors and the processor. And so you're buying, you're creating entire chipsets for a dynamic solution. And just by the natural consequence of how you're designing those solutions that have significantly higher ASPs..

Yes, and to elaborate on that, and that these are not restricted to only a semiconductor that we design and we offer an entire solutions. And we design like and MPS don't produce anything, but MPS okay, including semiconductor, we design a semiconductor at the same time, we design other components.

And we'll - now as Bernie said earlier, even in the automotive business, we're selling solutions, rather than in the past, we’re selling a single piece of silicon in a two or three years later. I don't know - how can you specify as MPS is a semiconductor company, but we're a solution providers. And then we sell solutions, much higher, higher ASP..

Yes that's great. Thanks, guys..

Thank you..

Our next question comes from David Williams of Loop Capital. David, your line is now open..

Thank you, and congrats on the quarter..

Thanks, David..

I wanted to touch on the capacity expansion and you had mentioned this earlier.

But how is that progressing? And I guess, is it moving at the same pace as you would have expected just kind of given some of the tightness that we're seeing within the industry - or maybe is that moving - at your the pace you expected and maybe the pricing of that anything surprising there?.

Yes, capacity expansions - we mentioned about six quarters ago. So again I mean we steadily an increase in the last years and we did some extra work okay, to increase the capacity okay and from now on probably pretty continuous - kind of increase okay. And so Bernie, you can comment on that okay..

Yes, I think that we've been clear that in 2020, we brought up the 12-inch fab. And now we're continuing to qualify parts on that. In 2021, we're midstream and bringing up an 8-inch capacity. We're continuing to qualify parts.

One of the underreported stories here is that we have existing relationships with our fab partners that date back as long as 15 to 20 years. And they're excellent relationships. And we have been able to manage both in terms of when there's under capacity and over capacity, where we have very even handed relationships.

So even within our existing foundation or base, that they've been encouraged and been very positive contributors to helping us add capacity as well. So I think the important point here, as we said in our earlier comments, is that continuous investment has always been a part of MPS.

It's a differentiator and that we see it as being able to expand over the next several years in order to keep up with the increased demand that we're anticipate..

Great, and then maybe just on the leverage, do you think that's remaining in the model here? Obviously, there's quite a bit that's embedded but how - we're thinking that gross margin at the brand and maybe even the operating margin.

Where do you think those could go to as you really start to hit on all cylinders and get the revenue acceleration that you've mentioned?.

Well as revenue acceleration, we need to continue to invest. And obviously, as we can't grow out of thin air so many times, okay. And as long - as the growth rate there, can we see the growth rate in the next four years in the next four months. And once we see that we will invest..

Thank you..

Our next question comes from Rick Schafer of Oppenheimer. Rick, your line is now open..

Thanks. Hey guys, I'll add my congratulations as well. Maybe a couple questions by end market I guess the first one is automotive. I think you guys outgrew SAR by 35%, 40% last year. And I know tight component supplies, kind of curved first quarter auto production didn't seem to hurt you guys too much.

I know your auto business I think was up almost 100%? So I guess my question is, do you see that as a as an ongoing risk or something, that could impact your auto growth I'm curious.

You almost doubled it this past quarter I mean, could it have been better if it weren't for components, supply constraints out there, whether they're direct or indirect or I guess any signs things - are things getting better yet in that auto food chain?.

Yes, whether as our growth is restricted by the shortage of a component from our customer size, okay we don't really know okay. I mean but on the other hand, we have total market share is addressable market where MPS is so small, so teeny tiny. And so, we will notice it, and all these Greenfield product growth okay I mean and these are new demand.

And right off the bat okay and these products is just taking off..

Okay thanks sorry Bernie..

I'm sorry, just to add one more quick comment we have seen nothing at this point, to indicate that there's necessarily been a slowdown in ordering and automotive. So again as Michael said, we can't make a guess as far as you know, whether there is a limit on demand. But we see continued strong numbers of our backlog..

Great, thanks. And maybe just a follow-up on hyperscale as you highlighted, Bernie. I think you've mentioned hyperscale spend kind of picking up or data center starting to show signs of life. So I'm curious, just with the launch of Ice Lake and things are - we are picking that up hearing that elsewhere as well, but hyperscale is getting better.

How do you see I guess QSMOD data center? How do you see that ramping this year? I mean, is it relatively linear from here? Are we going to see a second half inflection of some kind? Is that kind of build some inertia? And I'm also curious, I think last quarter, you talked about 48-volt a little bit.

I don't know, is it - is it still much too small to kind of break out or talk about, or can you give a sense of what kind of contribution 48-volt QSMODs is now? Thanks..

Sure. So let me start with the 48-volt question. I believe that there is significant growth opportunity for us in 48-volt. I think we're very well positioned as far as both GPUs and down the road in the eventual..

AI..

Yes AI applications and there are even automotive applications that were positioned there..

And that these are - it’s not in the six months, probably nine months will the revenue will be significantly up..

Yes. So then turning to your other point, the point of inflection for QSMOD, and remember, just for everybody else's benefit that's our dynamic power management for the CPU processor. That really, we see good growth in what we refer to as VR 13.5.

But it's when it goes to seven nanometer VR 14, which is expected for next year that, that's where we might get much more of an uplift market share gains..

Got it thank you, guys..

Our next question is from Quinn Bolton of Needham. Quinn, your line is now open..

Thanks, I will offer for my congratulations. Michael and Bernie, I guess my first question is I think you've sort of said 2020 and 2021 would be investment years, which would somewhat constrain your operating margin.

Here in the near-term, it looks like your revenues is coming stronger than expected? And so even with that investment, your up margin is expanding, and if I'm doing my math right, it looks like up margin will be over 31% in June.

How should we think about your level of investment as revenue continues to come in better than expected? Will you continue to invest or do you think you'll drive further operating leverage going forward?.

I think up to - from now we see the growth opportunity is, even higher than the last - than the three years ago. And so we will continue to invest and okay, as long as we see that okay as long as we can keep up that kind of growth rate. And if not - we’ll definitely slow it down okay and until we regroup okay. So far - we see too much opportunities..

I guess that's a good problem..

Yes..

Yes Quinn, I do think that there are further opportunities for operating margin expansion. But I think that we've tried to be clear on this Quinn. In particular the last 18 months, that we see that there's more value to our shareholders in being able to accelerate the rate of revenue growth.

And that's really where we've been putting most of our emphasis on..

Got it? And the second question is, I think you touched on some of this with your disclosure, that new products were 37% of sales, but obviously, is the investment community worries about how much double ordering may be going on, given the overall industry tightness? I guess I'm wondering, do you guys have a figure you can give us for the percentage of your products that are either sole sourced, and/or new products? Because I think where, you know, the threat of double ordering maybe would be on older products that are dual source? And so I guess I'm trying to figure out, what percent of your revenue today might be from older products, that that could have alternative sources?.

Yes, let me put it that way okay. We have 37% of our products, okay, we have a 4,000, 5,000 products. So think about it and again, and these are 37% and okay of our product in January all these revenue as a portion of our revenue still relatively small. And still in the ramping stage and those products - they are mostly a single source.

And as you say that these are legacy products and okay, once the production volume ramps somewhere into the stabilizer and that they will have a second source. And of course, we clearly, we experienced some urgency for - even double ordering okay.

And as we said we try to keep them very, very minimal, and okay I mean and just prevent them from lying down at the same times and prevent - we prevent them to have - to carry too much of inventory. I don't know if I answer your questions maybe Bernie you can..

Yes that's helpful. I guess my last quick one for you.

Bernie, do you expect to increase your absolute inventory dollars on hand in the June quarter?.

Yes, currently, that's what we're modeling yes. Now again, Michael is careful to add that, this is the supply chain, we have pretty good visibility on the demand. We have to continually try to test and make sure we understand that. So on the supply chain we are looking at continuing to increase the dollar value of inventory sequentially in quarters.

And demand, we just have to continue to reassess. But as Michael also said, our time horizon has more to do on the demand front, over the next 15 to 18 months as opposed to anything that we're concerned about in the next quarter or two..

Got it. Thank you..

Our next question is from Kevin Garrigan of Rosenblatt. Kevin, your line is now open..

Hi guys, let me echo my congratulations on the quarter. Just a quick one from me, you alluded a little to it before, I was just kind of wondering how your MPS now service and e-commerce business did this quarter.

And how that compares to last quarter, which I believe also had some pretty strong growth, and just kind of looking a little further out, as things start to open back up, do you think that business will take a pause?.

I don't think it's a business taking a pause, and we just started - that would be very upsetting us, is simply just taking pause okay. And if we’re taking a pause okay I mean we probably won't. At this time, we're still learning and may take a pause okay I mean and that's something we haven't really figured okay I mean.

But so far as in the last - four, five quarters okay I mean, and the measurements that were in place, and that we’re putting place and okay they are keep going up and orders and the interacting and demand creating the value for the index for demand - creation is to keep increasing.

And I think they were turning to our revenues and okay and turning to a much bigger revenues..

Yes Kevin, if I could add to that a little bit is the e-commerce and the MPS now are just two legs or two aspects of the much larger story of how we transition from an IC company to a solutions provider. That also includes providing fully complete reference designs and a broad array of solutions in all of our different end markets.

So this is really proving the longer-term model. And while we are still learning and the numbers are still relatively small, we're in the early innings of this. Everything is very encouraging that we're headed in the right direction and on to something that is very sustainable..

Got it, that's very helpful. Thanks, guys..

Thank you..

As there are no further questions, I would now like to turn the webinar back over to Bernie..

Thanks, Genevieve. I'd like to thank you all for joining us for the Q1 2021 earnings webinar. I look forward to talking to you again during our second quarter conference call which will likely be in July. Thank you. Have a nice day..