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, I will be the moderator for this webinar. Joining me today are Michael Hsing, CEO and founder of MPS, 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.
Risks, uncertainties, and other factors that could cause actual results to differ are identified in the safe harbor statement contained in the Q1 earnings release, and in our SEC filings, including our Form 10-K filed on March 1, 2021, which is accessible through our website. MPS assumes no obligation to update the information provided on today's call. We will be discussing gross margin, operating expense, R&D, and SG&A expense, operating income, interest and other income, net income, and earnings on both a GAAP and a non-GAAP basis. These non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A table that outlines the reconciliation between the non-GAAP financial measures to GAAP financial measures is included in our earnings release, which we have filed with the SEC.
I would refer investors to the Q1 2020, Q4 2020, and Q1 2021 earnings releases, as well as to the reconciling tables that are posted on our website. I'd also like to remind you that today's conference call is being webcast live over the internet and will be available for replay on our website for one year, along with the earnings release filed with the SEC earlier today. I would like to turn the call over to Bernie Blegen.
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 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's first quarter 2021 revenue, compared with 14.1% in the previous year. In our computing and storage market, first quarter 2021 revenue of $67.5 million increased $15.5 million, or 29.9% year-over-year, due primarily to higher notebook and storage sales. Computing and storage revenue represented 26.5% of MPS's first quarter 2021 revenue, compared with 31.3% in the first quarter of 2020. First quarter 2021 industrial revenue of $39.8 million increased 57.7% from the first quarter of 2020 and accounted for 15.6% of our total first quarter revenue.
The revenue increase over the first quarter of 2020 primarily reflected broad-based gains in all of our major product groups. First quarter 2021 communications revenue, $36.1 million, rose $8.2 million, or 29.4% from the first quarter of 2020. The year-over-year increase primarily reflected higher networking and wireless gateway home router sales. Communication revenue represented 14.2% of MPS's first quarter 2021 revenue, compared with 16.8% in the first quarter of 2020. Our sustainable above-market growth is based on the following. One, we have and are continuously investing in expansion and diversification of our supply chain. Specifically, we executed ahead of market demand. Two, we accelerated the release of advanced products and solutions based on our leading-edge technologies. Three, we've gained increased acceptance of our solutions with first-tier customers globally. Four, we continue to diversify and support a wider number of end product applications. Moving now to a few comments on gross margin.
GAAP gross margin was 55.4%, 10 basis points higher than the fourth quarter of 2020, and 20 basis points higher than the first quarter of 2020. Our GAAP operating income was $46.1 million, compared with $40.0 million reported in the fourth quarter of 2020. For the first quarter of 2021, non-GAAP gross margin was 55.8%, 10 basis points better than the fourth quarter of 2020, and 30 basis points better than the first quarter of 2020. Our non-GAAP operating income was $75.8 million, compared to $66.3 million reported in the fourth quarter of 2020. Let's review our operating expenses. Our GAAP operating expenses were $95.0 million in the first quarter of 2021, compared with $88.9 million in the fourth quarter of 2020. Our non-GAAP first quarter 2021 operating expenses were $66.2 million, up from the $63.6 million reported in the fourth quarter of 2020.
The differences between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are stock compensation expense, and income or loss on an unfunded deferred compensation plan. For the first quarter of 2021, total stock compensation expense, including approximately $816,000 charged to cost of goods sold, was $28.6 million, compared with $23.0 million recorded in the fourth quarter of 2020. Switching to the bottom line, first quarter 2021 GAAP net income was $45.4 million, or $0.95 per fully diluted share, compared with $42.9 million, or $0.90 per share in the fourth quarter of 2020. First quarter 2021 non-GAAP net income was $69.5 million, or $1.46 per fully diluted share, compared with $52.5 million, or $1.31 per fully diluted share in the fourth quarter of 2020. Fully diluted shares outstanding at the end of Q1 2021 were 47.7 million. Now let's look at the balance sheet.
Cash, cash equivalents, and investments were $641.6 million at the end of the first quarter of 2021, compared to $598.0 million at the end of the fourth quarter of 2020. For the quarter, MPS generated operating cash flow of about $77.1 million, compared with operating cash flow of $79.6 million in the fourth quarter of 2020. First quarter 2021 capital spending totaled $19 million. Accounts receivable ended the first quarter of 2021 at $84.1 million, or 30 days of sales outstanding, up four days from 26 days at the end of the fourth quarter of 2020. Our internal inventories at the end of the first quarter of 2021 were $175 million, up from the $157.1 million at the end of the fourth quarter of 2020.
Days of inventory increased to 141 days at the end of Q1 2021, compared with 137 days at the end of the fourth quarter of 2020. Historically, we've calculated days of inventory on-hand as a function of the current quarter's revenue. We believe comparing current inventory levels with the following quarter's revenue provides a better economic match. On this basis, you can see days of inventory increased slightly to 128 days at the end of the first quarter of 2021 from 126 days at the end of the fourth quarter of 2020. I would now like to turn to our outlook for the second quarter of 2021. We are forecasting Q2 revenue in the range of $274-$286 million. We also expect the following. GAAP gross margin in the range of 55.1%-55.7%. Non-GAAP gross margin in the range of 55.5%-56.1%.
GAAP R&D and SG&A expenses between $95.9 million and $99.9 million. Non-GAAP R&D and SG&A expenses to be in the range of $65.5 million-$67.5 million. This estimate excludes stock compensation and litigation expenses. Total stock-based compensation expense of $31.4 million-$33.4 million, including approximately $1 million that would be charged to cost of goods sold. Litigation expenses ranging between $2.3 million-$2.7 million. Interest and other income is expected to range from $1.3 million-$1.7 million before foreign exchange gains or losses. Fully diluted shares to be in the range of 47.3 million-48.3 million shares. In conclusion, we have paved the way to multi-billion dollar revenue. I will now open the webinar for questions.
Thank you, Bernie. Analysts, I would now like to begin our Q&A session. As a reminder, if you would like to ask a question, please click on the participants icon on the menu bar, and then click the Raise Hand button. Our first question comes from Joshua Buchalter of Cowen. Joshua, your line is now open.
Hey, guys. 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-day to 200-day target. Just wondering how you're thinking about balancing rebuilding the channel versus taking business that some of your peers can't serve and also your share gains. Thank you.
As we continue to expand our capacities, as we said it earlier, as we said it in the last quarters, and I think we expected it with the current rate of increase, the capacity will be end of the year or early next year, is when we achieve that type of inventory. If the demand has not continued to increase this much.
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 - Q1, which runs counter to the capacity constraints that some peer companies are experiencing.
Got it. Thank you. That makes sense. 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.
Yeah. 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. 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.
Hey, guys. Thanks for letting me ask a question. I wanted to talk about the sustainability of demand. Recently in this earning season, a lot of semi stocks have sold off on really good numbers. It clearly looks like the market is worried about double ordering, those sorts of peak cyclical activities. Can you talk a little bit about how your visibility has changed, if at all, over the last quarter from the demand side of the equation, and any kind of general puts and takes about how you view the second half of the year? I know you're only guiding for Q2. Any sort of company specifics or general trends that you'd like to highlight in the second half of the year would be helpful.
Yes. Okay. Of course, we're concerning double orders. Okay. In the past, we said that, okay, we have rigorous procedures to prevent that. Okay. We're practicing partial shipments now in the last six quarters. We make sure our customers have very minimal on-hand inventories. At the same time, we're not preventing their line downs, their production line downs. Go back to your questions, what's the demands? Okay. We believe a lot of our demands is sustainable. The reason we said that, Bernie said it earlier in the script, and that for us, these are greenfield market, greenfield product line we started to grow. As Bernie said, 37% of products we grow all from a new product that we released from last three years.
There is no reason to believe next two years and next years, I'm not even talking about next six months, I'm talking about next couple of years. These products will continue to grow. At the same time, the product that we released in the last two years, that will continue to turn into revenues in the 12 months later. We believe our growth is sustainable.
Great. Thanks, Michael. I guess for my follow-up, a little more specific on one of your segments. The communications area has been very volatile. I know there's bans on different customers that can ship at different points in times. 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? As this year progresses, how do you see that market, specifically more of the 5G side of things rather than the networking and gateway sides?
As a matter of fact, we have communication meetings with top tiers and non-Chinese 5G makers. Okay. That market segment is well picking up, and they believe this year and the next year, they're on the delinquency too.
We believe we're very well positioned, just as Michael said there, because the reach of new customers that we're addressing with 5G solutions is very broad. 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 capacity is really tight. Your solutions tend to be more integrated, especially versus discretes. A lot of those discretes are in shortage. I'm just wondering if you are seeing an acceleration in your share gains during this very tight semiconductor environment.
Well, I can give you a couple of scenarios. If it's dual sources, and our customers are using dual source or triple source. Ours tend to be a lot more, a fewer component than our competitor. That is one interpretation why we're gaining so much demand. Another scenario is for the futures. We gained a lot of market shares just recently, because for those new project, the shippings, they were putting a production for next 6-12 months. We have a lot of design wins lately.
Great. I just want to follow up, you talked about the contribution from the new products. I know you're not going to give us specific information on pricing, is it fair to say that the ASPs now of those new products are considerably higher than perhaps the last year or two?
Yeah. For the gross margins, we stay on our course, and we're not looking for a price hike. That probably is not sustainable. I think our products, our models, and going the same trend as before. Bernie?
Yeah. 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 a higher ASP for those new products.
Yeah, 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, I think it was you, in the opening remarks, you said something about paved the way for accelerated growth. We all know Monolithic's done a pretty amazing job with regard to growth relative to the industry, should we interpret that as meaning perhaps we stay above 20% for a more protracted period of time?
I think that's what we see now. What we see now, two years ago, we only grow like 8%. In the last year, 30-somethings, this year so far, we're in a very high percentage. This kind of rate, it will continue.
Yeah, 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. Certainly in 2019, we had high expectations, and we're not immune to downturns in the market. 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% Mike.
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 and those types of more complex integrated solutions. Is that the case? I'm hoping you might quantify that for us. I think in the past, you've talked about growth rates, at least 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. Modules/e-commerce business is doing really well. I think we're beginning to find a way how to grow that business. By no means this is a full-blown business yet. Okay, we haven't really break it out. That business now, I see it in its much higher ASP, and that will start to grow like a two years out. It 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, 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. If you look, for example, at autonomous driving or ADAS, there has to be built-in fail-safe redundancy. You have to have system communications throughout, in the example I'm using here, that coordinate the cameras, the sensors, and the processor. You're creating entire chipsets for a dynamic solution. Just by the natural consequence of how you're designing those solutions, they have significantly higher ASPs.
Yes. To elaborate on that, and that these are not restricted to only a semiconductor. That we designed and we offer entire solutions. We design it. MPS don't produce anything. MPS, including semiconductor, we design the semiconductor. At the same time we design other components, and 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 a silicon. Two or three years later, I don't know how can you specify is MPS a semiconductor company, but we're a solution providers. We sell solutions much higher ASP.
Yep, 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. Congrats on the quarters.
Thanks, David.
Yeah.
Hey, 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? Maybe is that moving at the pace you expected and maybe the pricing of that, anything surprising there?
Yeah, capacity expansions that we mentioned about six quarters ago. We steadily increase. In the last years, we did some extra works to increase the capacities. From now on, probably pretty continuous as kind of increase. Bernie, you can comment on that. Okay.
Yeah, I think that we've been clear that, in 2020, we brought up a 12-inch fab. Now we're continuing to qualify parts on that. In 2021, we're midstream and bringing up an eight-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 - 20 years. 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. Even within our existing foundation or base, they've been encouraged and been very positive contributors to helping us add capacity as well. 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 anticipating.
Great. Maybe just on the leverage you think that's remaining in the model here, obviously there's quite a bit that's embedded, but when we're thinking about gross margin, 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 a revenue acceleration, we need to continue to invest. Obviously, as I said, we can't grow out of thin air, said it many times. As long as the growth rate there. We see the growth rate in the next 12 months. 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. I had maybe a couple questions if I can, Mike. I guess the first one's automotive. I think you guys outgrew SAAR by 35%-40% last year. I know tight component supplies kind of curbed first quarter auto production. Didn't seem to hurt you guys too much. I know your auto business, I think, was up almost 100%. I guess my question is: I mean, do you see that as an ongoing risk or something that could impact your auto growth? I'm curious, you almost doubled it this past quarter. 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 are things getting better yet in that auto food chain?
Yeah. Whether our growth is restricted by the shortage of a component from our customer side, okay, we don't really know. On the other hand, where total market share is addressable market, where MPS is so small, so teeny-tiny. We won't notice that. All these greenfield product growth, these are new demands. These products are just taking off.
Okay. Thanks.
Thank you.
Oh, 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 in automotive. Again, as Michael said, we can't make a guess as far as whether there is a limit on demand. We see continued strong numbers in our backlog.
Great. Thanks. Maybe just a follow-up then on the hyperscale. I think you highlighted, Bernie, I think you've mentioned hyperscale spend kind of picking up or data center starting to show signs of life. I'm curious, just with the launch of Ice Lake and things are, we are picking that up, hearing that elsewhere as well, that hyperscale's getting better. How do you see, I guess, QSMod data center? How do you see that ramping this year? Is it relatively linear from here? Are we going to see a second half inflection of some kind? Does that kind of build some inertia? I'm also curious, I think last quarter you talked about 48 volt a little bit. I don't know, does it feel much too small to kind of break out or talk about?
Can you give a sense of what kind of contribution 48 volt QSMods is now? Thanks.
Sure. 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.
AI
Yeah, AI applications, and there are even automotive applications that we're positioned in.
If it's not in six months, probably nine months, where the revenue will be significantly up.
Yeah. 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 VR13.5. It's when it goes to seven nanometer VR14, 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.
Thanks all for my congratulations. 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 revenue's coming stronger than expected. Even with that investment, your op margin's expanding. If I'm doing my math right, it looks like op 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 from now, we see the growth opportunity is even higher than the last, than the three years ago. We will continue to invest, okay, as long as we see that, as long as we can keep up that kind of growth rate. If not, we're definitely slowing down, okay? Until we regroup. So far we see too much opportunities.
There's no such thing.
I guess that's a good problem.
Yes.
Yeah. 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 during, particularly, 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. That's really where we've been putting most of our emphasis on.
Got it. The second question is, I think you touched on some of this with your disclosure that new products were 37% of sales, but obviously as 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 the threat of double ordering may be would be on older products that are dual sourced. I guess I'm trying to figure out, what percent of your revenue today might be from older products that could have alternative sources?
Yeah. Let me put it that way, okay. We have 37% of our products, okay. We have 4,000 or 5,000 products. Just think about it. These are 37% of a product. Generally, all these revenue, a portion of our revenue is still relatively small and still in the ramping stage. Those products, they are mostly a single source. As you said, these are legacy products. Once the production volume ramps somewhat into the stabilizer, and then they will have a second source. Of course, clearly we experience some urgency for or even double ordering, okay. As we said, we try to keep very minimal. Just preventing them line down the same times and we prevent them to have a carry too much of inventory. I don't know if I answer your questions. Maybe Bernie can.
Yeah, no, that's helpful. I guess last quick one for you, Bernie. Do you expect to increase your absolute inventory dollars on hand in the June quarter?
Yeah. Currently, that's what we're modeling. Yes. Again, Michael was careful to add that the supply chain we have pretty good visibility on. The demand, we have to continually try to test and make sure we understand that. 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. As Michael also said, our time horizon has more to do on the demand front, over the next 15-18 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 for me. You alluded a little to it before, but I was just kind of wondering how your MPSNow service and e-commerce business did this quarter, and how that compares to last quarter, which I believe also had some pretty strong growth. 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. We just started. That would be very upsetting if it's a business taking a pause. All right. If we're taking a pause, well, at this time, we're still learning. It may take a pause. That's something we haven't really figured out. So far as in the last four or five quarters, and the measurements that we put in place, they keep going up, and the orders and the interactings and the demand creation, the value for the index for demand creation keep increasing. I think they will turn into revenues, and turn into much bigger revenues.
Kevin, if I could add to that a little bit, is the e-commerce and the MPSNow are just two legs or two aspects of the much larger story of how we transition from a 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. This is really proving the longer-term model. While we are still learning and the numbers are still relatively small, we're in the early innings of this, everything's very encouraging that we're headed in the right direction onto something that is very sustainable.
Got it. That's very helpful. Thanks, guys.
Yep.
Thank you.
If there are any follow-up questions, analysts, please click the raise hand button. As there are no further questions, I would now like to turn the webinar back over to Bernie.
Thanks, Jen. 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.