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OIIM: Agreement With Feit Electric Boosted Q4 Results

02/10/2020

By Lisa Thompson

NASDAQ:OIIM

READ THE FULL OIIM RESEARCH REPORT

O2Micro (NASDAQ:OIIM) reported a positive Q4 boosted by a one-time license fee with Feit Electric. Revenues were $17.9 million compared with $16.9 million in Q4 a year ago, up 8%. While the company did not break out the amount of the license fee per the request of Feit, if we assume that the rest of the revenues were at Q3’s gross margin level, and the fee was at 100% gross margin, we can guesstimate that the fee was around $2.5 million using a little algebra. This pushed the earnings into profitability on an operating level, as well as GAAP, and non-GAAP bases. This is the first operating profit since 2011. Guidance for revenue for the first quarter of 2020 was for revenues between $14.5 and $16.0 million or a midpoint of $15.25 million, which would be growth of 19.5% year over year.

Coronavirus Impact

The guidance for Q1 takes into account the business disruption taking place in China right now due to government imposed shutdowns of travel and business. In addition to extending the Chinese New Year holiday, the government has restricted travel and imposed quarantines in various locations. The rest of these actions is that, customers have been able to produce less products than normal in Q1 and consumers have not been able to go to work or shop for a few days. O2Micro therefore lowered the guidance it would have given because of this and widened the range because it is still unsettled as to what will happen in China for the rest of Q1. Until businesses get back to work, and restrictions are not extended, it is hard to tell what customers will be ordering and when. The good news is, that on an annual basis customers have not changed the amount of product they want, although some Q1 orders may shift to Q2.

Q4 Results

For Q4 the gross margin was exceptionally high at 56.7% due to the 100% margin license deal. This is compared to 50.3% a year ago and 51.4% in Q3 2019. The company said to expect Q1 2020 gross margin to be in the range of 50-52%.

The operating profit in Q4 was $905,000 versus a loss of $1.8 million last year and $1.1 million in Q3. This is the company’s first operating profit since 2011. Adding back depreciation and amortization ($470,000) and stock-based compensation ($378,000,) the adjusted EBITDA looks to be $1.8 million versus a negative $1.3 million in Q4 2018.

The company reported GAAP income of $1.8 million versus last year’s loss of $3.1 million last year. This yielded GAAP EPS of $0.07 versus a loss per share of $0.13 a year ago.

Non-GAAP earnings were $1.4 million, versus a loss of $1.4 million last year. The company reported a non-GAAP EPS of $0.05, versus a loss of $0.05 last year. In Q4 2019, the company repurchased 71,380 ADS units at a cost of $91,000.

On December 31, 2019, the company had $43.4 million in cash and equivalents (or $1.76 per ADS), up $7.9 million sequentially. Net cash generated by operating activities in the quarter was $5.2 million. Capital expenditures were $371,000 and depreciation and amortization was $470,000. The full cash flow statement is not available until the 20-F is filed.

The company believes it can be EBITDA positive between $16 million to $18 million in quarterly revenues, and profitable between $18 million to $20 million in revenues. The company was at cash profitability in Q4 2019.

Its biggest segment, Intelligent lighting, continues to grow driven by to be driven design wins in 4K and 8k TVs, and HDR Monitors. The company has expanded its product offerings in high-end TVs and monitors as well as lower end TV and monitors with a new line of patented backlighting products with integrated MOSFETS.

The company is now providing samples of its new technology for multiple skin LED backlighting, which is the flashing backlight for the LCD display that reduces motion. High end TVs and monitors use many more ICs. For example, 64 O2Micro ICs are in the latest $10,000 Sony 85-Inch 8K HDR Smart Master Series LED TV.

Source: Shutterstock

The company trades at a negative enterprise value of -$1.2 million. At the end of 2019, the company had $46.4 million (or $1.76 per ADS) in cash and equivalents, no debt, and valuable real estate in China and California. In California it owns a 37,180 square foot building where it has its USA operations, which was bought for $4.6 million in May 2004 and believe it is now easily worth more than $7 million. Plus it also owns other real estate in China and Taiwan. Also on the balance sheet are long-term investments in other companies, including 800,000 shares of stock in Excelliance MOS (worth $2.6 million.) The company has a very high liquidation, as well as acquisition, value.

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