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Today, O2Micro (NASDAQ:OIIM) announced record quarterly revenues and expects to beat that number in Q4. As a result we are raising estimates for Q4 and for both 2020 and 2021. For Q4 revenues, O2Micro expects revenues between $22.7 and $24.0 million or a midpoint of $23.4 million, which would be growth of 31% year over year. Usually Q4 and Q3 are flat with each so an increase of over a million dollars is meaningful sign. As a result, our 2020 estimate is going to $78.4 million (up 29%) and a non-GAAP EPS of $0.24. We are also raising 2021 estimates to 20% growth to $94 million in sales and $0.35 non-GAAP fully diluted EPS.
EBITDA Surged as Costs Remained Flat
The restructuring benefits have kicked in and EBITDA surged to $4.6 million or 21% of sales. Although the company burned $1.1 million, mostly funding accounts receivable, it expects to be adding to cash in Q4 and beyond.
Demand Remains Strong
Demand across the board remains strong. We had been worried that during the shut down consumers would have bought their fill of cordless tools and high end TVs and demand would pause, but orders remain strong. In fact, rather than its typical sequentially down Q1, O2Micro expects sales to be flat with Q4 as new customers come on board. The company sells to end user markets that are on fire. 4K and 8K TVs, HDR monitors, lithium ion battery powered cordless everything and even medical monitors. In addition to display backlighting, power management is being a more and more important part of device design as batteries become cheaper and more powerful and devices more sophisticated. In Europe, nickel–cadmium (Ni-Cd) batteries for power tools have been banned. Meanwhile, lithium-ion batteries are becoming more and more economical. What used to cost $1,183 per kWh in 2010 dropped 86% to $156 kWh by 2019. Lithium ion battery production grew from19 GWh in 2010 to 285 GWh this year and could quadruple by 2030.
Revenues were $22.2 million compared with $16.0 million in Q3 a year ago, up 39%. For Q3, the gross margin was 51.8% compared to 51.4% a year ago and 51.2% in Q2 2020. The company said to expect the Q4 2020 gross margin to be in the range of 50-52%.
Operating income in Q3 was $3.1 million versus a loss of $1.1 million last year. Adding back depreciation and amortization ($913,000) and stock-based compensation ($326,000,) and adding the rental income, the adjusted EBITDA looks to be a positive $4.6 million compared to $1.8 million in Q2 2020 and a negative $110,000 in Q3 2019.
The company reported a GAAP net income of $2.9 million versus last year s loss of $200,000 last year. This yielded a fully diluted GAAP EPS of $0.10 versus a loss per share of $0.01 a year ago. Non-GAAP income was $3.4 million, versus a loss of $542,000 last year. This yielded a non-GAAP EPS of $0.12, versus a loss per share of $0.02 last year.
The current average valuation for fabless semiconductor companies of enterprise value to trailing twelve-month sales is 8.9 times. Apply that to OIIM’s trailing 12-month revenues of $73 million, we would calculate an enterprise value of $650 million. Adding to it $40.8 million in cash and equivalents gives us a market cap of $690 million or $23.90 per share using fully diluted shares. We believe that if the company continues to show sustainable revenue growth and cash generation, the market should afford it a valuation closer to this price.
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