Welcome, everyone, to the MPS Third Quarter 2025 Earnings Webinar. My name is Arthur Lee, 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, Vice President of Finance. Earlier today, along with our earnings announcement, MPS released a written commentary on the results of our operations. Both documents can be found on our website. Before we begin, I'd like to remind everyone that in the course of today's presentation, we may make forward-looking statements and projections within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. The 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 Q3 2025 earnings release, our Q3 2025 earnings commentary, and in our 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 would like to turn the call over to Bernie Blegen.

Thanks, Arthur. Good afternoon, and welcome to our Q3 2025 earnings call. In Q3, MPS achieved record quarterly revenue of $737.2 million, 10.9% higher than the second quarter of 2025 and 18.9% higher than Q3 of 2024. This performance reflected the ongoing strength of our diversified market strategy, consistent execution, continued innovation, and relentless customer focus. Let me call out a few highlights from the third quarter. Our diversified market strategy drove year-over-year revenue growth in all of our end markets. We continue to expand our automotive customer base with another major Tier 1 supplier adopting MPS for its next-generation ADAS solution. Additionally, we secured our first design win for a full BMS solution on a robotics platform, which further supports our transformation from being a chip-only semiconductor supplier to a full-service silicon-based solutions provider. Overall, we continue to demonstrate our ability to grow and swiftly adapt to all aspects of our business to the fluid geopolitical and macroeconomic environment. Our proven long-term growth strategy remains intact as MPS focuses on innovation and solving our customers' most challenging problems. We continue to invest in new technology, expand into new markets, and to diversify both our end-market applications and global supply chain. This will allow us to capture future growth opportunities, maintain supply chain stability, and quickly adapt to market changes as they occur. I will now open the webinar up for questions.

Our first question is from Josh Buchalter of Cowen.

Congrats on another beat and raise. I guess to start, maybe you're guiding up about 1%. Can you give us the puts and takes of which end markets you expect to grow more or less? And of note, I think earlier, you mentioned enterprise data was expected to be flat to down 20%. Any updates to the guidance for that segment in particular?

Sure, Josh. When you look at Q3, I think that we saw a little bit better than anticipated performance in both our enterprise data and industrial markets. We had pretty much every other group as we anticipated. Looking ahead, and I know that you're interested in enterprise data, we're seeing a layering of additional customers that began this layering effect in Q4 and is providing this good momentum as we look ahead into the early part of next year.

Well, I should add all this in script readout. Bernie mentioned a list of our market segments; they started growing. And we look back in the last few quarters, all this growth came from greenfield products that were released 2, 3 years ago. And now we see the result. And so in the near future, in the next few quarters, we will see these will continue to enhance our revenues.

Maybe a follow-up on that, Michael. You've expressed some reservations and frustrations with the AI market due to its concentration and visibility. Considering all the significant announcements in that space over the last quarter, could you take a few minutes to discuss your overall philosophical approach to these large forecasts? How do you determine which opportunities to pursue and service, and what are your thoughts on the market, especially given your concerns about it diverting attention from your diversified growth?

Yes, it is somewhat of a distraction. However, business is business, and good money is good money. We don't want to take bad money. Overall, MPS aims to show that in any market segment, we are the best with the best technology and customer service. We are focused on solving problems and have proven our ability to deliver quality and meet shipment demands. In all these categories, we stand out as the leading company. Regarding which AI company is involved, we don't prioritize that. We collaborate with both large and small companies, demonstrating that we have the best technology. Revenue will come when it comes, and with time, everything will become clear.

Our next question is from Ross Seymore of Deutsche Bank.

For my first question, I'd like to discuss the automotive sector. You mentioned achieving an additional design win in the ADAS area. There seems to be a lot of variability in that market across different regions and times, affected by cyclical and geopolitical factors. From a long-term growth standpoint, could you provide insights into how ADAS currently contributes to your revenues compared to user interface or USB technologies? Additionally, how does the increased penetration of ADAS within that market influence growth rates, content, and diversity? I want to get a clearer understanding of the significance of ADAS for your business.

Sure. Let me begin with this. We have a proven track record of establishing a robust presence in various markets through our unique technology. For instance, we started with USB ports for automotive and have now moved to ADAS. This progression has a ripple effect, allowing us to secure adoptions and design wins, which we highlight as they start gaining momentum. This has been more significant for us than the specific SAAR for any given market. Currently, we are focusing on numerous ADAS opportunities, especially in the electric vehicle sector due to their quicker market entry. This has allowed us to showcase our other technologies, and we are beginning to see growth in areas like body electronics and various applications. Looking ahead, we are particularly excited about the automotive market's transformation as it transitions to 48-volt and zonal electronics.

Yes, we don't know the breakdown, okay, to answer your question exactly. I mean, maybe Bernie has some ideas, okay, but I think it's less than half. And I think it's well less than half.

It's considered less than half.

Yes, yes, yes. Okay. And I'm just looking at the number of cars and also our revenues, and it cannot be more than half. But in the ADAS side, more and more cars, including combustion engine cars, they are adopting ADAS. We will see significant growth in the next few years. That's where we anticipate, okay.

As a follow-up, shifting to another point you mentioned in your press release about moving from being a silicon chip-based supplier to a solution provider, how do you view the long-term implications for gross margin? You were at a higher margin a couple of years ago. We have discussed what is necessary to bring you back to the upper 50s from the mid-50s where you currently are. Does this system approach contribute positively, or could it actually hinder gross margin moving forward, despite potentially benefiting operating margin?

I don't foresee any obstacles, and with the large systems we are developing, we're learning how to build them, which has led to some challenges as volume increases. However, I believe things have improved significantly since last year and will continue to get better. We are actually creating our own testing equipment, as many are aware, and we fully utilize our automated testing systems. These products are new to the market, and I believe they will ultimately enhance our yield and gross margins.

Our next question is from Joe Quatrochi of Wells Fargo.

Maybe first, I just wanted to ask, embedded within the 4Q guide, is there any help you can kind of provide in just thinking about the end markets? I think there's some seasonality to maybe like a consumer in the fourth quarter. And then I think enterprise data you guys were previously thinking that would be up somewhere like high single digits sequentially in the December quarter. Is that still the case?

Anticipating market conditions is quite challenging. It's tough to determine which stocks to focus on. However, we have a clear approach to running our business. We strive to develop technology and engage our customers closely, similar to how you choose stocks. We maintain this close customer engagement. Whatever occurs in the market is beyond our control, and we don't attempt to predict it.

And if I could just add to that, that since we last talked about the second half of this year, nothing has fundamentally changed in our positioning.

Okay. That's helpful. Maybe just also following up, but I think in the press release or your prepared remarks, you had a comment around the first design win for a full BMS solution for a robotics platform. Can you talk about what drove that and how you think about the revenue opportunity ramping there and more wins in the future?

We tend to get quite enthusiastic about these developments. Our excitement stems from witnessing advancements in robotics, which we anticipated would happen with the Battery Management System. We've actively engaged in designing this system, and our customers have collaborated with us on its development. We're confident that this type of system will increasingly become a reality, which is why we highlighted it.

Yes. And I'll just add on very specifically on that one. Clearly, we called it out because of the fact it was the first opportunity that we have the design win on. In terms of a revenue ramp, that's really starting in 2026 and it's not in and of itself necessarily a needle move around the model. But I do think it starts the wave of these full solution design wins that we might have going forward.

Yes, that's the same point. We started working on robotics for actuators, integrated circuits for actuators, battery management systems, and wireless charging a few years ago. At that time, we were not aware that robotics would take off. I've been discussing robotics since 2017 or 2018. However, I believe that AI-assisted robots will increasingly gain traction. These are the projects we consider winners, and we're excited to share this progress.

Our next question is from Quinn Bolton of Needham.

Congratulations, Michael, Bernie, and Tony. I just wanted to start with a big picture question, just looking through this earnings season. Intel has talked about shortages of server CPUs, we've seen hyperscalers significantly increasing CapEx. NVIDIA talked about $0.5 trillion of demand in '25, '26. I guess my question is, about a year ago, I think you guys were seeing very, very short lead times in that business and dealing with some level of pricing pressure. I'm wondering as you look into the second half and more importantly into next year, have you started to see any change in customer lead times? Are they giving you better forecasts across the enterprise data segment? And is the pricing on voltage regulators and vertical power, has that changed at all over the last quarter or so?

Thank you for the question. I want to highlight that this market is very dynamic. We're addressing a range of requests regarding orders and customer expectations. In some respects, we're seeing improved predictability as we bring more customers into the fold. However, the market itself is evolving rapidly, especially with the recent significant announcements. Although we can't control our customers directly, we are working to position the company to respond effectively.

And is this sort of dynamic market? I mean if folks are scrambling sort of to get capacity. Has that had any lifting effect on pricing? And then I'll ask my second question.

Any market segment that starts strong and ramps up quickly often leads to supply imbalances. This is evident in the AI sector. However, once the initial surge occurs, the situation tends to stabilize.

Yes. And then being specific to your question, I don't think we've seen any recent or sustainable trends in pricing one way or the other.

Okay. Perfect. And then a second question for you, Bernie. Gross margins have been gradually declining over the last year or two. Can you provide any insight on whether they will remain in the mid-55% to 55.5% range? Is there a point next year where we might see gross margins increase, either due to product mix or new offerings? Or should we anticipate margins to remain relatively flat over the next year or two?

Sure. As I've commented on prior calls, we've seen about 3 or 4 quarters in a row, where I'd say that we have seen a strong uptick in demand, and that continues even today. What makes this cycle different than ones that we've experienced in the past is that the orders are more short-term in nature. We're not seeing a large buildup in backlog in future quarters. And so without that visibility, it limits our capacity to be able to manage the mix of business that we want to be able to have expansion in gross margins. So for the foreseeable future, until the demand profile changes to elongate the buildup of backlog, I believe that we're going to be in sort of the steady range, plus or minus 20, 30 basis points in the mid-55%.

We have a large number of products, several thousand, and around 40,000 to 50,000 customers to engage with, and the margins are quite stable. As we transition towards more solution-oriented services, this process needs to be automated. Over time, we expect margins to improve, although not rapidly. The figures involved are substantial. Currently, we recognize that we’re operating at the lower end of our margin expectations, but we anticipate that long-term improvements will align with our target gross margin range.

Our next question is from Tore Svanberg of Stifel.

Yes. Michael, Bernie, Tony, congrats on another record quarter. By the way, some of that dog food you're referring to must be pretty proprietary stuff. But my first question is on the Enterprise Data segment. So that's about an $800 million business right now. And my understanding is you're on a journey here, right, and you're still selling predominantly chips. You are obviously moving into module subsystems, eventually systems. So I'm not looking for any numbers per se, but could you just sort of let us know where we are in that journey. I mean building an $800 million business with chips and where could we eventually go here with, obviously, more and more subsystem type solutions for enterprise data.

If I understood your question correctly, I can address it this way. We expect to ship multiple millions of units per month. These integrated, highly integrated modules are unprecedented. We need to figure out how to test them and achieve the low single-digit PPM failures, which we've never faced before. We began using our own robotic systems to facilitate this process. Now we've reached very high volumes that are 100% automated, including reliability tests. Our objective is to produce multiple million units a month, aiming for 10 million a month as our near-term goal.

Yes, that's very helpful. And did you also have a response to my question on the enterprise data. Again, where are we in this journey towards delivering more system-level solutions, especially talking about rack level power and so on and so forth?

This is at the very beginning, maybe I think it's module power still less than, way less than 1/3, okay? And less than 1/3 of our revenue and it grew in the last half year. And we expected it to grow. Some got delayed and now started happening in the next years could be much more.

Maybe just to add on to the back of that, Tore, I think as you start talking about some of these solutions for 800 volts as we discussed, those are like '27, '28 revenue ramps. So I think it supports what Michael was saying that we're still at the front end of this opportunity in the data center for us.

No, I believe in the investment communities that having 800 volts technology for data center transformers is not as simple as flipping a switch to turn the light on. It actually takes a couple of years, more than just a couple, to start seeing the revenues. This process can take 3 to 4 years.

Our next question is from Rick Schafer of Oppenheimer.

And I'll add my congratulations to you guys. Just maybe if I could start with an auto question. Kind of a follow-up, but I know we talked about BMS robotics. But I know BMS becomes a bigger contributor for your auto segment next year. And you mentioned a couple of things, Michael, in an earlier question, but I'm just curious if you could give some guide rails or provide some guide rails about potential content trends for MPS as you start ramping some of those BMS opportunities? I mean again, not asking for dollar content per car, but does it double or triple those kinds of numbers? Like what does it do to your potential content per vehicle moving into that BMS space in a more meaningful way? And as part of your answer, I'm curious, where's some of the lowest-hanging fruit is for you guys? I mean, is it 48-volt, is it power isolation, that kind of thing?

It's actually all of them. BMS revenues for auto and for EVs are still developing. Our customers are from a very concentrated market with only a few players, and gradually, all the car makers are looking for BMS solutions. They appreciate that MPS is developing this type of product. In terms of other opportunities, we see 48 volts as a trend. We started developing those products about 5 or 6 years ago, providing integrated solutions instead of discrete ones, resulting in products that are 6 to 7 times smaller. Another area is the 800 volts for EVs, where we are seeing a shift from 400 volts to 800 volts. In the Chinese market, many cars are already using 800 volts. Our silicon carbide solutions are being introduced for traction inverters and control systems. These products will really excel.

And Rick, maybe just to shape you a little bit on timing there to make sure. I think what we said is the layering of opportunities in auto really sort of out of the end of this year and next year starts with design wins that we have, bringing new content to market per vehicle. You start to see zonal designs hit market next year then ramping through into '27. And then the BMS and traction inverter solutions they're really kind of more like '27 and beyond, just to make sure you understand sort of how those revenue opportunities are layering in.

And if I could ask my follow-up just it's on HVDC. And I appreciate the timing and commentary you provided a second ago, Tony. But I'm also curious, I mean, I'm just trying to figure out the right way to think about that emerging market. I mean, like can you give a sense of how HVDA compares to sort of how you've described at your Analyst Day earlier this year. Maybe how you describe the 48-volt accelerator power opportunities or in any terms you want, just to try to give a sense of what that market represents to you guys or what you think it could.

I think the 48-volt system is significant for several reasons. It harks back to telecommunications where 48 volts was standard. On the server side, we've been discussing this for years. As current demands increase, it's reminiscent of how car batteries evolved from 6 volts to 12 volts and now to 48 volts. This shift is important for control systems, and it's being increasingly adopted in data centers as well. That's why I predict that building automation will also transition to 48 volts, creating a DC power solution. The potential is substantial, and as we engage our customers with these building automation systems, we've found a strong demand for this type of product. This is my perspective at the moment.

And Rick, I think part of your question was also on the 800-volt high voltage DC for data center as well, right?

Yes.

And I think on that one, we've been pretty careful about trying to go size the opportunity because, one, it's very far out. Two, we don't know how it will ramp in the market. I think we have said is since we don't play in that part of the market today, the business we get is sort of all accretive to our overall SAM going forward. But I think we want to be careful about sizing the market yet, given how far out it is and not knowing how it will layer into the data centers going forward.

Our next question is from Gary Mobley of Loop Capital.

Let me extend my congratulations on the continued strong growth and continued execution. I appreciate the fact that you still only have about 3 to 4 months of visibility given the capacity that you can support and the quick-turn business you can support. But can you confirm whether bookings continue to improve sequentially and what are the seasonal considerations as we look out into the first quarter?

It's very challenging for us to predict the bookings and their specifics. We manage our inventories, focusing on building them at levels significantly below our models. As new bookings come in, we adapt quickly to meet those changes.

Just to add to that is that we really don't have a lot of visibility into the first half of next year. We can definitely point to the normal drivers as far as both enterprise data and automotive are very well positioned for new revenue ramps, but getting both the timing as well as getting that to balance out, we don't have a strong view on Q1 yet.

Okay. Appreciate that. And if I'm not mistaken, your distribution inventory as of midyear was at the low end of your 5- to 8-week target range and it decreased in the June quarter. What was the trend sequentially for the September quarter? And when might you take that distribution inventory back up to maybe the mid- to upper part of that normal range?

Yes. Currently, the Q3 channel inventory was unchanged in terms of days from where it was in the prior quarter. So we take from that, that we're satisfying real demand at this point, which again is a reflection of the quick turns business that we're working with.

Our next question is from Chris Caso of Wolfe Research.

Yes. The first question is on enterprise data. And what are sort of the puts and takes as you look into next year? And of course, this year, there were some changes in market share in that, which affected that business. But I guess I'm going to assume that things are cleaner as you go from this year into next year? And I mean, one, do you expect to grow that business as you go into next year?

It's cleaner now. This year has been good for us, and as I mentioned earlier, our module business is experiencing growth. This is where MPS technology stands out. The higher the power, the better it performs. We offer products with the highest power density that are a perfect fit for this market. In the coming years, you'll notice that MPS is becoming a significant player in this segment. The market itself is large, and we don't aim to dominate it alone; having multiple competitors is beneficial for the industry.

Yes, I could see enterprise data growing in the range of 30% to 40% in 2026 for us. Much of that, though, would be back in the second half of the year. So while we've seen a number of new players that have been layered in, I think the material ramps are more weighted to the second half of '26.

That's very helpful. If I could follow up on that since you provided a little more insight, Bernie. Regarding the 30% to 40% growth, I know that some of the vertical power designs have more content. What is driving that? Is it fairly broad-based or is it leaning more towards certain ASIC solutions related to vertical power? Any details you can provide about that 30% to 40% expectation would be appreciated.

As a CEO, I don't know how to make a 30% to 40% cost. I don't know. And the opportunity is there, okay? If we didn't deliver 30% to 40%, the stocks I see from $900 to $400, what kind of f***** is that? And so I don't want to make them very hard, just waiting for the numbers, let the numbers show it.

Our last question is from Kelsey Chia of Citi Research.

So my question is on the competitive landscape. And I was hoping if you could share more, especially with regards to material side of things like gallium nitride, silicon carbide. I think your biggest enterprise data customer has been signing a lot of partnerships with all these semiconductor companies and I was just wondering, MPS positioning in those. And if you actually see those materials as being important in the next generation of the power modules and chips.

We manufacture our own silicon carbide and are developing the modules. We are also evaluating some new opportunities, which are still in the very early stages. Additionally, we should not overlook silicon, as silicon power MOSFETs have advanced significantly, and we have engaged in various new developments. A lot of data indicates that these can be quite cost-effective and able to compete with silicon carbide. This is a very recent development.

Yes, I understand. I would like to know how you feel today compared to a quarter ago, especially since you have made significant progress since the beginning of the year amid market share changes and visibility issues with ASIC customers. With all the recent announcements about major partnerships, how do you assess those opportunities? Also, considering the maturity of the supply chain, it seems that the partners are establishing a good rhythm. How do you feel about those recent announcements in relation to your opportunities?

I don't measure quarter by quarters, I measure by multiple years. So I can't tell you that.

I guess the simplest way is we're very broadly indexed across not just the merchant vendors or large ASICs, but medium and small-time opportunities. And all of these need to find their way into the marketplace. And it's right now, we're still very, very early in the process. So as Michael said, it's very hard to sort out in any particular time period. But I think that we're as well indexed amongst all the opportunities as anybody in this market.

Our last question is from Jack Egan of Charter Equity Research.

I have one on enterprise data and then one on modules more broadly. So the shift to modules in vertical power delivery with the custom ASIC ramp should be a pretty big tailwind for MPS. I'm kind of wondering about what the main drivers have been at least so far for those customers that are switching from lateral to module to vertical power. So I'm not really sure if you have this level of granularity, but among the major benefits like higher power density, higher efficiency, smaller footprint on the top side of the board, et cetera, is there any one characteristic that's kind of being cited by your customers as the main reason that they are moving to those modules or vertical power delivery?

Well, we don't see from a chip to module. Whoever stays with the module, stays with module, starts with the module. Whoever stays with the chip, stays with the chip, okay? And so MPS provides both, okay, in both chip solutions and module solutions at this time. And so I don't know if it answered that question for you.

Got it. Okay. And then just kind of on the modules more broadly. I think I believe, if I understood it correctly, last quarter, you mentioned that modules outside enterprise data could be like 10% to 15% of your total revenues. And so I was curious how much of your revenue base or I guess, addressable market outside enterprise data would be eligible for switching to modules. I mean, even if you're looking several years into the future, how high could that mix of modules outside enterprise data go?

That's a good question. We build those modules, which are quite similar to enterprise modules. Since 2017, the adoption in industrial markets has been somewhat slow, but it's actually happening faster than in telecom. These are the two market segments we focus on. To our surprise, the auto industry is also interested in using it because it's easy to implement, and they prefer not to use semi equipment. This is a significant segment that we hadn't realized before. We're now seeing substantial revenues coming from there. I believe that in the next couple of years, this segment will grow faster than it did three or four years ago, and the rate of business increase is picking up.

This concludes our Q&A session. I would now like to turn the webinar back over to Bernie.

I'd like to thank you for all joining us in this conference call. I look forward to talking to you again during our fourth quarter 2025 conference call, which will likely be held in early February. Thank you, and have a nice day.