Monolithic Power Systems, Inc. (NASDAQ:MPWR) Q1 2024 Earnings Call Transcript

Monolithic Power Systems, Inc. (NASDAQ:MPWR) Q1 2024 Earnings Call Transcript May 1, 2024

Monolithic Power Systems, Inc. beats earnings expectations. Reported EPS is $2.81, expectations were $2.66. MPWR isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator:

Genevieve Cunningham: Welcome everyone to the MPS First Quarter 2024 Earnings Webinar. My name is Genevieve Cunningham, and I will be the moderator for this webinar. Joining me today are Michael Hsing, CEO and Founder of MPS; Bernie Blegen, EVP and CFO; and Tony Balow, VP of Finance. Earlier today, along with our earnings announcement, MPS released written commentary on the results of our operations. Both of these documents can be found on our website. Before we begin, I would like to remind everyone that in the course of today’s presentation, we may make forward-looking statements and projections that involve risk and uncertainty. Risks, uncertainties and other factors that could cause actual results to differ from these forward-looking statements are identified in the Safe Harbor statements contained in the Q1 earnings release, and in our latest SEC filings, including our Form 10-K, which can be found on our website.

Our statements are made as of today, and we assume no obligation to update this information. Now, I’d like to turn the call over to Bernie.

Bernie Blegen: Thanks, Gen. We are doing something a little different with today’s earnings call. As a detailed recital of performance metrics is included in the company’s earnings commentary, accompanying the earnings release, I’ll use this time to provide just a few comments on our Q1 2024 performance and our outlook before opening the call up to Q&A. Our financial performance improved in the first quarter of 2024, with revenue up both sequentially from Q4 2023, and year-over-year from Q1 ’23. Ordering patterns consistently trended upward through the quarter. Visibility into the second-half of 2024 however is limited, and many of our customers remain cautious. Despite this uncertainty around the second-half of 2024, customer engagement across all of our end markets remains high.

And our design win pipeline continues to grow stronger. Additionally, we are continuing to expand our product portfolio, and diversify our supply chain globally. We believe both actions position our company for further growth as the market improves. In summary, we saw consistent improvement through the first quarter, but we continue to be cautious about the second-half of 2024 business conditions. Overall, our proven long-term growth strategy remains intact, and we can swiftly adapt to market changes as they occur. I’ll now open the webinar up for questions.

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Q&A Session

A – Genevieve Cunningham: Thank you, Bernie. Analysts, I would now like to begin our Q&A session. [Operator Instructions] Our first question is from Tore Svanberg of Stifel. Tore, your line is now open.

Tore Svanberg: Yes, thank you, and congratulations on this enviable consistency. I have two questions. My first question is on share gains. And historically, Michael, Monolithic Power tends to really accelerate share gains during downturns. And I know there’s a lot of focus on enterprise data right now, which is a third of your revenue. But can you maybe callout some other verticals or applications where you are seeing more share gains in the current downturn?

Michael Hsing: Well, clearly, we see that we just went through a, [if we haven’t out of] (ph) this downturn, [so like] (ph) you see this, we compare the rest of the industries, so that are like 10% up. And so, that’s really a share gain. And so, in terms of — so, the vertical market is volatile, is a clearly — is the one, we [wouldn’t have] (ph) many sockets in there. And MPS is still small compare all these established — our competitors. And other ones, even other ones, even the servers and the notebooks areas, and these will all gain shares. And the last one is the consumer, as we said a year ago, so, we given up some of the shares because the capacity constraints. Now, so I’m okay, we have lot more capacity now. And you will see some growth in the near futures.

Bernie Blegen: And if I could add one additional comment there, is that we’ve had a number of greenfield opportunities that have been waiting to launch in the — an improved macro environment. So, in addition to the end markets that Michael just referenced, I think that you’ll also see share gains in both Communications and Industrial.

Tore Svanberg: Great, thank you. And for my follow-up question, and specific on enterprise data, which is now a third of your revenues. There’s been some chatter lately about lower power management content in next-generation AI date centers due to liquid cooling and other techniques to lower overall power. Is this impacting MPS broadly or is this kind of more sort of very specific use case in the server power management market?

Michael Hsing: All these cooling systems, the new formant of vertical powers, and MPS involve all of them. And if they transition to those markets, and this systems, and MPS is in the same games, like, we will gain, and we will grow with that. Is there any other comment, or, Tony, sound okay? Yes.

Tony Balow: No, I think that the point that we’ve demonstrated, particularly with enterprise data is the ability to leverage up content as we go into higher value technology. For example, the water-cooled in vertical represent opportunities, not threats. And if you look down the line not far out, we’ll also be going into rack power as well.

Michael Hsing: Excellent, that’s good. That’s good. Yes, good answer.

Tore Svanberg: Great, thank you. I’ll go back in line. Congrats again.

Michael Hsing: Thanks. Okay.

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

Quinn Bolton: Great. I’ll my congratulations on a steady performance in a challenging macro environment. I guess I wanted to follow-up on Tore’s question on enterprise data, lots of your competitors making noise about perhaps gaining share at your largest enterprise data customer, and wondering if you could just address your latest thoughts on competitive landscape in both lateral power, and then perhaps looking forward to vertical power. And then, I’ve got a follow-up.

Michael Hsing: Yes. As you may remember, 2016, we have a power curve versus the power curve, then CPU computing capability and versus the power densities. And we projected it for 2018 or ’19 that would be the crossover point, the MPS product. And for those common footprint and use [indiscernible] couldn’t fit into the peripheral powers. That’s around 700 watts. If you remember that, 2016, we said that. And at that time, we project it was a CPU was wrong. It’s actually turn out to be GPUs. But then, power is a power, power densities. But 2018 or ’19 and is a — that’s pretty much the peripheral powers that reach the limit. And now, from that times, like in — in that everybody goes to a verticals, looking for even higher power AI computations or learning.

So, all of these powers go to verticals. And peripheral powers that reach the limit. And on our — I can’t comment on our competitors, okay, so far, MPS, well, as always, we want to bring the best technologies, and we are not [chanting] (ph) of the volumes, okay, we don’t do that. Whatever we do, we do the best, and not the volumes that have — that we ship. And on — so when the market become normalized or — and became a normal, and not like the last couple of — last year or so. And there will be more solution come onboard. Lot of our competitors start to copy our product, so be it, that’s fine. We stick our MPS model where we have a very diversified growth.

Bernie Blegen: And I think it’s important to keep in mind when you look at our history, as Michael just referenced there, that we’ve always won opportunities due to our innovation. And as we look at the next generation of GPU or TPU or ASIC products that are in this high-power end market, we are enabling technology, meaning that, at the front of the design cycle, we’re consulted, we’re integrated, in fact, with the development of the next generation of products. So, we believe that strategically, that yes, there will be competitive influences the market, but we want to continue to position ourselves as the leader.

Quinn Bolton: Got it. And maybe just a quick follow-up, just any comments you guys have on when you think vertical power may go to volume production. Is that something that happens later in ’24, or is that not in volume until sometime in 2025? And then the follow-up, Bernie, as you look at the consensus estimates, the Street’s modeled up 9% sequential growth. In your December quarter, your typical seasonality, I think, is down 1% to 3%, wondering if you have any comments as to that sort of a seasonal pattern out in Q4. I know you’re not guiding out that far, but wondering if you could make any comments about that, that sort of atypical growth.

Michael Hsing: Hey, I answer the first part of it, and the vertical power is happening now. There’s a multiple of our customers they are launching the vertical power now. So, we are shipping those products.

Bernie Blegen: Yes. I’ll pick up the second part of your question there is that seasonality particularly as you’re exiting a downturn is hard to predict and what we tried to indicate with our prepared comments is that there are signs of optimism from the standpoint of improved ordering patterns but how that translates into the second-half is hard to predict and so we have more of a profile of the guide that we’ve given for Q2, but that really as far as the difference between Q3 and Q4. We see them higher than Q2 perhaps but between the two of them flattish.