UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM
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(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:
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Monolithic Power Systems, Inc. (Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
(Address of principal executive offices)(Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class
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| Trading Symbol |
| Name of each exchange on which registered |
| Common Stock, par value $0.001 per share |
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| The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | Accelerated filer ☐ | Non-accelerated filer ☐ |
| Smaller reporting company | Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
There were
MONOLITHIC POWER SYSTEMS, INC.
For the Quarter Ended September 30, 2024
TABLE OF CONTENTS
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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MONOLITHIC POWER SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Acquisition-related intangible assets, net | ||||||||
| Goodwill | ||||||||
| Deferred tax assets, net | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation and related benefits | ||||||||
| Other accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Income tax liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock and additional paid-in capital: $ par value; shares authorized: ; shares issued and outstanding: and , respectively | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
MONOLITHIC POWER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Revenue |
$ | $ | $ | $ | ||||||||||||
| Cost of revenue |
||||||||||||||||
| Gross profit |
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| Operating expenses: |
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| Research and development |
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| Selling, general and administrative |
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| Total operating expenses |
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| Operating income |
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| Other income, net |
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| Income before income taxes |
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| Income tax expense |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Net income per share: |
||||||||||||||||
| Basic |
$ | $ | $ | $ | ||||||||||||
| Diluted |
$ | $ | $ | $ | ||||||||||||
| Weighted-average shares outstanding: |
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| Basic |
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| Diluted |
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See accompanying notes to unaudited condensed consolidated financial statements.
MONOLITHIC POWER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Changes in unrealized gains and losses on available-for-sale securities, net of tax of $, $, $() and $, respectively | ||||||||||||||||
| Other comprehensive income (loss), net of tax: | ( | ) | ( | ) | ||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
MONOLITHIC POWER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except per-share amounts)
(Unaudited)
| Accumulated | ||||||||||||||||||||
| Common Stock and | Other | Total | ||||||||||||||||||
| Additional Paid-in Capital | Retained | Comprehensive | Stockholders’ | |||||||||||||||||
| Three Months Ended September 30, 2024 | Shares | Amount | Earnings | Loss | Equity | |||||||||||||||
| Balance as of July 1, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net income | - | |||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||
| Dividends and dividend equivalents declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||
| Common stock issued under the employee equity incentive plan | ||||||||||||||||||||
| Common stock issued under the employee stock purchase plan | ||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Accumulated | ||||||||||||||||||||
| Common Stock and | Other | Total | ||||||||||||||||||
| Additional Paid-in Capital | Retained | Comprehensive | Stockholders’ | |||||||||||||||||
| Three Months Ended September 30, 2023 | Shares | Amount | Earnings | Loss | Equity | |||||||||||||||
| Balance as of July 1, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net income | - | |||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||
| Dividends and dividend equivalents declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||
| Common stock issued under the employee equity incentive plan | ||||||||||||||||||||
| Common stock issued under the employee stock purchase plan | ||||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Accumulated | ||||||||||||||||||||
| Common Stock and | Other | Total | ||||||||||||||||||
| Additional Paid-in Capital | Retained | Comprehensive | Stockholders’ | |||||||||||||||||
| Nine Months Ended September 30, 2024 | Shares | Amount | Earnings | Loss | Equity | |||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net income | - | |||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||
| Dividends and dividend equivalents declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||
| Common stock issued under the employee equity incentive plan | ||||||||||||||||||||
| Common stock issued under the employee stock purchase plan | ||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Accumulated | ||||||||||||||||||||
| Common Stock and | Other | Total | ||||||||||||||||||
| Additional Paid-in Capital | Retained | Comprehensive | Stockholders’ | |||||||||||||||||
| Nine Months Ended September 30, 2023 | Shares | Amount | Earnings | Loss | Equity | |||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net income | - | |||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||
| Dividends and dividend equivalents declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||
| Common stock issued under the employee equity incentive plan | ||||||||||||||||||||
| Common stock issued under the employee stock purchase plan | ||||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
MONOLITHIC POWER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended September 30, |
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| 2024 |
2023 |
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| Cash flows from operating activities: |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Amortization of discount on available-for-sale securities |
( |
) | ( |
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| Gain on deferred compensation plan investments |
( |
) | ( |
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| Deferred taxes, net |
( |
) | ||||||
| Stock-based compensation expense |
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| Other |
( |
) | ||||||
| Changes in operating assets and liabilities: |
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| Accounts receivable |
( |
) | ||||||
| Inventories |
( |
) | ||||||
| Other assets |
( |
) | ||||||
| Accounts payable |
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| Accrued compensation and related benefits |
( |
) | ||||||
| Income tax liabilities |
( |
) | ||||||
| Other accrued liabilities |
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| Net cash provided by operating activities |
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| Cash flows from investing activities: |
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| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Cash paid for an assumed lease |
( |
) | ||||||
| Purchases of investments |
( |
) | ( |
) | ||||
| Maturities and sales of investments |
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| Cash paid for acquisition, net of cash acquired |
( |
) | ||||||
| Contributions to deferred compensation plan, net |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
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| Property and equipment purchased on extended payment terms |
( |
) | ( |
) | ||||
| Proceeds from common stock issued under the employee equity incentive plan |
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| Proceeds from common stock issued under the employee stock purchase plan |
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| Repurchases of common stock |
( |
) | ||||||
| Dividends and dividend equivalents paid |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Effect of change in exchange rates |
( |
) | ||||||
| Net increase in cash, cash equivalents and restricted cash |
||||||||
| Cash, cash equivalents and restricted cash, beginning of period |
||||||||
| Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||||
| Supplemental disclosures for cash flow information: |
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| Cash paid for income taxes, net |
$ | $ | ||||||
| Non-cash investing and financing activities: |
||||||||
| Liability accrued for property and equipment purchases |
$ | $ | ||||||
| Liability accrued for dividends and dividend equivalents |
$ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
MONOLITHIC POWER SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared by Monolithic Power Systems, Inc. (the “Company” or “MPS”) in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted in accordance with these accounting principles, rules and regulations. The information in this report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The financial statements contained in this Quarterly Report on Form 10-Q are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other future periods.
Summary of Significant Accounting Policies
There have been no changes to the Company’s significant accounting policies during the three and nine months ended September 30, 2024. In addition to those described in the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2023, the Company is subject to the following significant accounting policy due to its recent acquisition.
Goodwill and Acquisition-Related Intangible Assets
Goodwill represents the excess of fair value of purchase consideration over fair value of net tangible and identifiable intangible assets acquired as of the date of an acquisition. In-process research and development (“IPR&D”) assets represent the fair value of incomplete research and development (“R&D”) projects that had not reached technological feasibility as of the date of acquisition. IPR&D assets are initially capitalized at fair value as intangible assets with indefinite lives. When IPR&D projects are completed, they are reclassified as amortizable intangible assets and are amortized over their estimated useful lives. Alternatively, if IPR&D projects are abandoned, they are impaired and expensed as R&D costs. Acquisition-related intangible assets with finite lives consist of developed technologies, which are amortized on a straight-line basis over their estimated remaining useful lives. The amortization expense is recorded in cost of revenue in the Condensed Consolidated Statements of Operations.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions used in these condensed consolidated financial statements primarily include those related to revenue recognition, inventory valuation, valuation of share-based awards, contingencies and income tax valuation allowances. Actual results could differ from these estimates and assumptions, and any such differences may be material to the Company’s condensed consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted as of September 30, 2024
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which aims to improve disclosures regarding a public entity’s reportable segments, primarily through more comprehensive disclosures around significant segment expenses. The standard is effective for annual periods beginning January 1, 2024 and for interim periods beginning January 1, 2025, and should be applied retroactively to all prior periods presented. The Company is evaluating the potential effect that the updated standard will have on its financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which aims to improve an entity’s income tax disclosures around its effective rate reconciliation, income taxes paid, disaggregation of income before income taxes and income tax expense. The guidance will be effective for annual periods beginning January 1, 2025. The standard should be applied prospectively but retrospective application is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
2. REVENUE RECOGNITION
Revenue from Product Sales
The Company generates revenue primarily from product sales, which include assembled and tested integrated circuits (“ICs”), power modules as well as dies in wafer form. These product sales accounted for
The Company sells its products primarily through third-party distributors, value-added resellers, original equipment manufacturers (“OEMs”), original design manufacturers (“ODMs”) and electronic manufacturing service (“EMS”) providers. For the three months ended September 30, 2024 and 2023,
The Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company excludes taxes assessed by government authorities, such as sales taxes, from revenue.
Product sales consist of a single performance obligation that the Company satisfies at a point in time. The Company recognizes product revenue from distributors and direct end customers when the following events have occurred: (a) the Company has transferred physical possession of the products, (b) the Company has a present right to payment, (c) the customer has legal title to the products, and (d) the customer bears significant risks and rewards of ownership of the products. In accordance with the shipping terms specified in the contracts, these criteria are generally met when the products are shipped from the Company’s facilities (such as the “Ex Works” shipping term) or delivered to the customers’ locations (such as the “Delivered Duty Paid” shipping term).
Under certain consignment agreements, the Company recognizes revenue when the customers consume the products from the consigned inventory locations, at which time control transfers to the customers and the Company issues invoices.
Variable Consideration
The Company accounts for price adjustments and stock rotation rights as variable consideration that reduces the transaction price and recognizes that reduction in the same period the associated revenue is recognized. Certain U.S.-based distributors have price adjustment rights when they sell the Company’s products to their end customers at a price that is lower than the distribution price invoiced by the Company. When the Company receives claims from the distributors that products have been sold to the end customers at the lower price, the Company issues the distributors credit memos for the price adjustments. The Company estimates the price adjustments using the expected value method based on an analysis of historical claims, at both the distributor and product level, as well as an assessment of any known trends of product sales mix. Other U.S. distributors and non-U.S. distributors do not have price adjustment rights. The Company records a credit against accounts receivable for the estimated price adjustments, with a corresponding reduction to revenue.
Certain distributors have limited stock rotation rights that permit the return of a small percentage of the previous nine months’ purchases in accordance with the contract terms. The Company estimates the stock rotation returns using the expected value method based on an analysis of historical returns, and the current level of inventory in the distribution channel. The Company records a liability for the stock rotation reserve, with a corresponding reduction to revenue. In addition, the Company recognizes an asset for product returns which represents the right to recover products from the customers related to stock rotations, with a corresponding reduction to cost of revenue.
Contract Balances
Accounts Receivable:
The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. The Company’s accounts receivables are short-term, with standard payment terms generally ranging from 30 to 90 days. The Company does not require its customers to provide collateral to support accounts receivable. The Company assesses collectability by reviewing accounts receivable on a customer-by-customer basis. To manage credit risk, management performs ongoing credit evaluations of the customers’ financial condition, monitors payment performance, and assesses current economic conditions, as well as reasonable and supportable forecasts of future economic conditions, that may affect collectability of the outstanding receivables. For certain customers, the Company requires standby letters of credit or advance payments prior to shipments of goods. The Company did not recognize any write-offs of accounts receivable or record any allowance for credit losses for the periods presented.
Contract Liabilities:
For customers without credit terms, the Company requires cash payments weeks before the products are scheduled to be shipped to the customers. The Company records these payments received in advance of performance as customer prepayments within current accrued liabilities. As of September 30, 2024 and December 31, 2023, customer prepayments totaled $
Practical Expedients
The Company has elected the practical expedient to expense sales commissions as incurred because the amortization period would have been one year or less.
The Company’s standard payment terms generally require customers to pay
The Company’s unsatisfied performance obligations primarily include products held in consignment arrangements and customer purchase orders for products that the Company has not yet shipped. Because the Company expects to fulfill these performance obligations within one year, the Company has elected not to disclose the amount of these remaining performance obligations.
3. STOCK-BASED COMPENSATION
2014 Equity Incentive Plan
In April 2013, the Board of Directors adopted the Company’s 2014 Equity Incentive Plan (the “2014 Plan”), which the Company’s stockholders approved in June 2013. In October 2014, the Board of Directors approved certain amendments to the 2014 Plan. The amended 2014 Plan became effective on November 13, 2014, and provided for the issuance of up to
Stock-Based Compensation Expense
The Company recognized stock-based compensation expenses as follows (in thousands):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Cost of revenue |
$ | $ | $ | $ | ||||||||||||
| Research and development |
||||||||||||||||
| Selling, general and administrative (“SG&A”) |
||||||||||||||||
| Total stock-based compensation expense |
$ | $ | $ | $ | ||||||||||||
| Tax benefit related to stock-based compensation (1) |
$ | $ | $ | $ | ||||||||||||
| (1) |
Amount reflects the tax benefit related to stock-based compensation recorded for equity awards that are expected to generate tax deductions when they vest in future periods. Equity awards granted to the Company’s executive officers are subject to the tax deduction limitations set by Section 162(m) of the Internal Revenue Code. |
Restricted Stock Units (“RSUs”)
The Company’s RSUs include time-based RSUs, RSUs with performance conditions (“PSUs”), RSUs with market conditions (“MSUs”), and RSUs with both market and performance conditions (“MPSUs”). Vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performance or market goals and the approval of such achievement by the Compensation Committee of the Board of Directors (the “Compensation Committee”). All awards include service conditions which require continued employment with or services to the Company.
A summary of RSU activity is presented in the table below (in thousands, except per-share amounts):
| Time-Based RSUs |
PSUs and MPSUs |
MSUs |
Total |
||||||||||||||||||||||||||||||
| Weighted- |
Weighted- |
Weighted- |
Weighted- |
||||||||||||||||||||||||||||||
| Average |
Average |
Average |
Average |
||||||||||||||||||||||||||||||
| Grant Date |
Grant Date |
Grant Date |
Grant Date |
||||||||||||||||||||||||||||||
| Number of |
Fair Value |
Number of |
Fair Value |
Number of |
Fair Value |
Number of |
Fair Value |
||||||||||||||||||||||||||
| Shares |
Per Share |
Shares |
Per Share |
Shares |
Per Share |
Shares |
Per Share |
||||||||||||||||||||||||||
| Outstanding at January 1, 2024 |
$ | $ | $ | $ | |||||||||||||||||||||||||||||
| Granted |
$ | (1) |
$ | $ | $ | ||||||||||||||||||||||||||||
| Vested |
( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||
| Forfeited |
( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||
| Outstanding at September 30, 2024 |
$ | $ | $ | $ | |||||||||||||||||||||||||||||
| (1) |
Amount reflects the number of awards that may ultimately be earned based on management’s probability assessment of the achievement of performance conditions at each reporting period. |
The intrinsic value related to vested RSUs was $
Time-Based RSUs:
For the nine months ended September 30, 2024, the Compensation Committee granted
2024 PSUs:
In February 2024, the Compensation Committee granted
In February 2024, the Compensation Committee granted
The 2024 Executive PSUs and the 2024 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $
2004 Employee Stock Purchase Plan (as amended and restated, the “2004 ESPP”)
On August 16, 2023, the 2004 ESPP was amended and restated to, among other changes, provide for the issuance of up to
For the three months ended September 30, 2024 and 2023,
The intrinsic value of the shares issued was $
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Expected term (in years) | 0.5 | 0.5 | 0.5 | 0.5 | ||||||||||||
| Expected volatility | 47.8 | % | 50.8 | % | 45.1 | % | 53.3 | % | ||||||||
| Risk-free interest rate | 5.0 | % | 5.5 | % | 5.2 | % | 5.3 | % | ||||||||
| Dividend yield | 0.6 | % | 0.8 | % | 0.6 | % | 0.8 | % | ||||||||
Cash proceeds from the shares issued under the 2004 ESPP were $
4. ACQUISITION
On January 3, 2024 (the “Acquisition Date”), the Company acquired
Purchase Consideration
The purchase consideration was $
In connection with the acquisition, the Company incurred $
Purchase Price Allocation
The purchase price allocation for Axign is as follows (in thousands):
| Inventory |
$ | |||
| Other tangible assets acquired, net of liabilities assumed |
||||
| Intangible assets: |
||||
| Developed technology |
||||
| IPR&D |
||||
| Total identifiable net assets acquired |
||||
| Goodwill |
||||
| Total net assets acquired |
$ |
The intangible asset acquired with a finite life includes the core developed technology with an estimated remaining useful life of eight years. The acquired intangible asset with an indefinite life includes an incomplete R&D project that had not reached technological feasibility as of the Acquisition Date. The fair values of the developed technology and the IPR&D were determined using the income approach.
The goodwill arising from the acquisition was primarily attributed to the assembled workforce and synergies that are anticipated to enable the Company to develop solutions with lower power consumption in the consumer and automotive markets using Axign’s digital feedback technology. The goodwill is not expected to be deductible for tax purposes.
5. BALANCE SHEET COMPONENTS
Inventories
Inventories consist of the following (in thousands):
| September 30, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Raw materials |
$ | $ | ||||||
| Work in process |
||||||||
| Finished goods |
||||||||
| Total |
$ | $ | ||||||
Other Current Assets
Other current assets consist of the following (in thousands):
| September 30, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Prepaid wafer purchases (1) |
$ | $ | ||||||
| Prepaid expenses |
||||||||
| RSU tax withholding proceeds receivable |
||||||||
| Other receivables (1) |
||||||||
| Restricted cash (2) |
- |
|
||||||
| Other |
||||||||
| Total |
$ | $ | ||||||
| (1) |
The Company held $ |
| (2) |
The restricted cash included in other current assets as of December 31, 2023 was related to preliminary purchase consideration held in a trust account in connection with the Company’s acquisition of Axign and was paid in January 2024. See Note 4 for further details. |
Other Long-Term Assets
Other long-term assets consist of the following (in thousands):
| September 30, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Deferred compensation plan assets |
$ | $ | ||||||
| Prepaid wafer purchases (1) |
||||||||
| Operating lease right-of-use (“ROU”) and related assets (2) |
||||||||
| Other |
||||||||
| Total |
$ | $ | ||||||
| (1) |
Prepaid wafer purchases relate to a deposit made to a supplier under a long-term wafer supply agreement. See Note 9 for details about the supply agreement. |
| (2) |
The operating lease ROU and related assets as of September 30, 2024 includes a fair value measurement related to favorable market terms on a building lease. |
Other Accrued Liabilities
Other accrued liabilities consist of the following (in thousands):
| September 30, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Dividends and dividend equivalents |
$ | $ | ||||||
| Stock rotation and sales returns |
||||||||
| Warranty |
||||||||
| Customer prepayments |
||||||||
| Income tax payable |
||||||||
| Other |
||||||||
| Total |
$ | $ | ||||||
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in thousands):
| September 30, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Deferred compensation plan liabilities |
$ | $ | ||||||
| Operating lease liabilities |
||||||||
| Dividend equivalents |
||||||||
| Total |
$ | $ | ||||||
6. LEASES
Lessee
The Company has operating leases primarily for administrative, sales and marketing offices, manufacturing operations and R&D facilities, employee housing units and certain equipment. These leases have remaining lease terms from less than year to
The following table summarizes the balances of operating lease ROU assets and liabilities (in thousands):
| September 30, | December 31, | ||||||||
| Financial Statement Line Item | 2024 | 2023 | |||||||
| Operating lease ROU assets |
| $ | $ | ||||||
| Operating lease liabilities |
| $ | $ | ||||||
|
| $ | $ | |||||||
The following tables summarize certain information related to the leases (in thousands, except percentages and years):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Lease costs: |
||||||||||||||||
| Operating lease costs |
$ | $ | $ | $ | ||||||||||||
| Other |
||||||||||||||||
| Total lease costs |
$ | $ | $ | $ | ||||||||||||
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: |
||||||||||||||||
| Operating cash flows for operating leases |
$ | $ | $ | $ | ||||||||||||
| ROU assets obtained in exchange for new operating lease liabilities |
$ | $ | $ | $ | ||||||||||||
| September 30, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Weighted-average remaining lease term (in years) |
||||||||
| Weighted-average discount rate |
% | % | ||||||
As of September 30, 2024, the maturities of the lease liabilities were as follows (in thousands):
| 2024 (remaining three months) |
$ | |||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| 2028 |
||||
| Thereafter |
||||
| Total remaining lease payments |
||||
| Less: imputed interest |
( |
) | ||
| Total lease liabilities |
$ |
As of September 30, 2024, operating leases that have not yet commenced are material.
Lessor
The Company owns certain office buildings and leases a portion of these properties to third parties under arrangements that are classified as operating leases. These leases have remaining lease terms ranging from less than year to years. Some of these leases include a tenant option to renew the lease term for up to years.
For the three months ended September 30, 2024 and 2023, income related to lease payments was $
| 2024 (remaining three months) |
$ | |||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| 2028 |
||||
| Thereafter |
||||
| Total |
$ |
7. NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share reflects the potential dilution that would occur if outstanding securities or other contracts to issue common stock were exercised or converted into shares of common stock, and calculated using the treasury stock method. Contingently issuable shares, including equity awards with performance conditions or market conditions, are considered outstanding shares of common stock and included in the basic net income per share as of the date that all necessary conditions to earn the awards have been satisfied. Prior to the end of the contingency period, the number of contingently issuable shares included in the diluted net income per share is based on the number of shares, if any, that would be issuable under the terms of the arrangement at the end of the reporting period.
The Company’s RSUs contain forfeitable rights to receive cash dividend equivalents, which are accumulated and paid to the employees when the underlying RSUs vest. Dividend equivalents accumulated on the underlying RSUs are forfeited if the employees do not fulfill the requisite service requirement and, as a result, the awards do not vest. Accordingly, these awards are not treated as participating securities in the net income per share calculation.
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per-share amounts):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Numerator: |
||||||||||||||||
| Net income |
$ | $ | $ | $ | ||||||||||||
| Denominator: |
||||||||||||||||
| Weighted-average outstanding shares — basic |
||||||||||||||||
| Effect of dilutive securities |
||||||||||||||||
| Weighted-average outstanding shares — diluted |
||||||||||||||||
| Net income per share: |
||||||||||||||||
| Basic |
$ | $ | $ | $ | ||||||||||||
| Diluted |
$ | $ | $ | $ | ||||||||||||
Anti-dilutive common stock equivalents were not material in any of the periods presented.
Stock Repurchase Program
In October 2023, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $
Stock repurchased under the program may be made through open market repurchases, privately negotiated transactions or other structures in accordance with applicable state and federal securities laws, at times and in amounts as management deems appropriate. The timing and the number of any repurchased common stock will be determined by the Company’s management based on its evaluation of market conditions, legal requirements, share price, and other factors. The repurchase program does not obligate the Company to purchase any particular number of shares, and may be suspended, modified, or discontinued at any time without prior notice.
The U.S. Inflation Reduction Act of 2022 requires a 1% excise tax based on the value of certain stock repurchases in excess of stock issued for employee compensation made after December 31, 2022. This provision did not have an impact on the Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2024.
8. SEGMENT, SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company operates in reportable segment that includes the design, development, marketing and sale of high-performance, semiconductor-based power electronics solutions for the enterprise data, storage and computing, automotive, communications, consumer and industrial markets. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company derives a majority of its revenue from sales to customers located outside North America, with geographic revenue based on the customers’ ship-to locations.
The Company sells its products primarily to third-party distributors and value-added resellers, and directly to OEMs, ODMs and EMS providers. The following table summarizes those customers with sales equal to 10% or more of the Company’s total revenue:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| Customer | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Distributor A | % | % | % | % | ||||||||||||
| Distributor B | % | % | % | % | ||||||||||||
| Distributor C | * | 11 | % | * | % | |||||||||||
* Represents less than 10%
The Company’s agreements with these third-party customers were made in the ordinary course of business and may be terminated with or without cause by these customers with advance notice. Although the Company may experience a short-term disruption in the distribution of its products and a short-term decline in revenue if its agreement with any of the distributors were terminated, the Company believes that such termination would not have a material adverse effect on its financial statements because it would be able to engage alternative distributors, resellers and other distribution channels to deliver its products to end customers within a short period following any termination of the agreement with a distributor.
The following table summarizes those customers with accounts receivable equal to 10% or more of the Company’s total accounts receivable:
| September 30, |
December 31, |
|||||||
| Customer |
2024 |
2023 |
||||||
| Distributor A |
% | % | ||||||
| Distributor B |
% | % | ||||||
| Distributor C |
% | % | ||||||
The following is a summary of revenue by geographic region (in thousands):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| Country or Region |
2024 |
2023 |
2024 |
2023 |
||||||||||||
| China |
$ | $ | $ | $ | ||||||||||||
| Taiwan |
||||||||||||||||
| South Korea |
||||||||||||||||
| Europe |
||||||||||||||||
| United States |
||||||||||||||||
| Southeast Asia |
||||||||||||||||
| Japan |
||||||||||||||||
| Other |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
In the second quarter of 2024, the Company reclassified certain products in its product families. The prior periods in the table below have been updated to conform with the new methodology.
The following is a summary of revenue by product family (in thousands):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| Product Family |
2024 |
2023 |
2024 |
2023 |
||||||||||||
| Direct Current (“DC”) to DC |
$ | $ | $ | $ | ||||||||||||
| Lighting Control |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
The following is a summary of long-lived assets by geographic region (in thousands):
| September 30, |
December 31, |
|||||||
| Country |
2024 |
2023 |
||||||
| China |
$ | $ | ||||||
| United States |
||||||||
| Taiwan |
||||||||
| Other |
||||||||
| Total |
$ | $ | ||||||
9. COMMITMENTS AND CONTINGENCIES
Product Warranties
The Company generally provides either a - or -year warranty against defects in materials and workmanship and will repair the products, provide replacements at no charge to customers or issue a refund. As they are considered assurance-type warranties, the Company does not account for them as separate performance obligations. Warranty reserve requirements are generally based on a specific assessment of the products sold with warranties when a customer asserts a claim for warranty or for a product defect.
The changes in warranty reserves are as follows (in thousands):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Balance at beginning of period |
$ | $ | $ | $ | ||||||||||||
| Warranties issued |
||||||||||||||||
| Repairs, replacement and refund |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Changes in liability for pre-existing warranties |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Balance at end of period |
$ | $ | $ | $ | ||||||||||||
Changes in liability for pre-existing warranties result from changes in estimates for warranties issued in prior periods.
Purchase Commitments
The Company has outstanding purchase obligations with its suppliers and other parties that require the purchases of goods or services. The purchase obligations primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction of manufacturing and R&D facilities, purchases of production and other equipment, and license arrangements.
In May 2022, the Company entered into a long-term supply agreement in order to secure manufacturing production capacity for silicon wafers over a four-year period. As of September 30, 2024, the Company had remaining prepayments under this agreement of $
Total estimated future unconditional purchase commitments to all suppliers and other parties, net of the $120.0 million prepayment, as of September 30, 2024 were as follows (in thousands):
| 2024 (remaining three months) |
$ | |||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| Total |
$ |
Litigation
The Company is a party to actions and proceedings in the ordinary course of business, including challenges to the enforceability or validity of its intellectual property, claims that the Company’s products infringe on the intellectual property rights of others, and employment matters. The Company may also be subject to litigation initiated by its stockholders. These proceedings often involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. The Company defends itself vigorously against any such claims. As of September 30, 2024, there were no material pending legal proceedings to which the Company was a party.
10. CASH, CASH EQUIVALENTS, INVESTMENTS AND RESTRICTED CASH
The following is a summary of the Company’s cash, cash equivalents and debt investments (in thousands):
| September 30, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Cash |
$ | $ | ||||||
| Money market funds |
||||||||
| Certificates of deposit |
||||||||
| Corporate debt securities |
||||||||
| U.S. treasuries and government agency bonds |
||||||||
| Auction-rate securities backed by student-loan notes |
||||||||
| Total |
$ | $ | ||||||
| September 30, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Reported as: |
||||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Short-term investments |
||||||||
| Investment within other long-term assets |
||||||||
| Total |
$ | $ | ||||||
The following table summarizes the contractual maturities of the short-term and long-term available-for-sale investments as of September 30, 2024 (in thousands):
| Amortized Cost |
Fair Value |
|||||||
| Due in less than 1 year |
$ | $ | ||||||
| Due in 1 - 5 years |
||||||||
| Due in greater than 5 years |
||||||||
| Total |
$ | $ | ||||||
Gross realized gains and losses recognized on the sales of available-for-sale investments were not material for the periods presented.
The following tables summarize the unrealized gain and loss positions related to the available-for-sale investments (in thousands):
| September 30, 2024 |
||||||||||||||||
| Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Fair Value |
|||||||||||||
| Money market funds |
$ | $ | $ | $ | ||||||||||||
| Certificates of deposit |
||||||||||||||||
| Corporate debt securities |
( |
) | ||||||||||||||
| U.S. treasuries and government agency bonds |
( |
) | ||||||||||||||
| Auction-rate securities backed by student-loan notes |
( |
) | ||||||||||||||
| Total |
$ | $ | $ | ( |
) | $ | ||||||||||
| December 31, 2023 |
||||||||||||||||
| Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Fair Value |
|||||||||||||
| Money market funds |
$ | $ | $ | $ | ||||||||||||
| Certificates of deposit |
||||||||||||||||
| Corporate debt securities |
( |
) | ||||||||||||||
| U.S. treasuries and government agency bonds |
( |
) | ||||||||||||||
| Auction-rate securities backed by student-loan notes |
( |
) | ||||||||||||||
| Total |
$ | $ | $ | ( |
) | $ | ||||||||||
The following tables present information about the available-for-sale investments that had been in a continuous unrealized loss position for less than 12 months and for greater than 12 months (in thousands):
| September 30, 2024 |
||||||||||||||||||||||||
| Less than 12 Months |
Greater than 12 Months |
Total |
||||||||||||||||||||||
| Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
|||||||||||||||||||
| Corporate debt securities |
$ | $ | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||
| U.S. treasuries and government agency bonds |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Auction-rate securities backed by student-loan notes |
( |
) | ( |
) | ||||||||||||||||||||
| Total |
$ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
| December 31, 2023 |
||||||||||||||||||||||||
| Less than 12 Months |
Greater than 12 Months |
Total |
||||||||||||||||||||||
| Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
|||||||||||||||||||
| Corporate debt securities |
$ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
| U.S. treasuries and government agency bonds |
( |
) | ( |
) | ||||||||||||||||||||
| Auction-rate securities backed by student-loan notes |
( |
) | ( |
) | ||||||||||||||||||||
| Total |
$ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
An impairment exists when the fair value of an investment is less than its amortized cost basis. As of September 30, 2024 and December 31, 2023, the Company did not consider the impairment of its investments to be a result of credit losses. The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. When evaluating a debt security for impairment, management reviews factors such as the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortized cost basis, the extent to which the fair value of the security is less than its cost, the financial condition of the issuer and the credit quality of the investment.
Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Condensed Consolidated Balance Sheets to the amounts reported on the Condensed Consolidated Statements of Cash Flows (in thousands):
| September 30, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Restricted cash included in other current assets (1) |
||||||||
| Restricted cash included in other long-term assets (2) |
||||||||
| Total cash, cash equivalents and restricted cash reported on the Condensed Consolidated Statements of Cash Flows |
$ | $ | ||||||
| (1) |
The restricted cash included in other current assets as of December 31, 2023 was related to preliminary purchase consideration held in a trust account in connection with the Company’s acquisition of Axign and was paid in January 2024. |
| (2) |
The restricted cash included in other long-term assets as of September 30, 2024 and December 31, 2023 was related to a security deposit that is set aside in a bank account and cannot be withdrawn by the Company under the terms of a lease agreement. The restriction will end upon the expiration of the lease. |
11. FAIR VALUE MEASUREMENTS
Fair Value Hierarchy
The Company has estimated the fair value of its financial assets by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
| ● | Level 1 —includes instruments with quoted prices in active markets for identical assets. |
| ● | Level 2 —includes instruments for which the valuations are based upon quoted market prices in active markets involving similar assets or inputs other than quoted prices that are observable for the assets. The market inputs used to value these instruments generally consist of market yields, recently executed transactions, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Pricing sources may include industry standard data providers, security master files from large financial institutions, and other third-party sources used to determine a daily market value. |
| ● | Level 3 —includes instruments for which the valuations are based on inputs that are unobservable and significant to the overall fair value measurement. |
Financial Assets Measured at Fair Value on a Recurring Basis
The following tables summarize the fair value of the Company’s financial assets measured on a recurring basis (in thousands):
| September 30, 2024 |
||||||||||||||||
| Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
| Money market funds |
$ | $ | $ | $ | ||||||||||||
| Certificates of deposit |
||||||||||||||||
| Corporate debt securities |
||||||||||||||||
| U.S. treasuries and government agency bonds |
||||||||||||||||
| Auction-rate securities backed by student-loan notes |
||||||||||||||||
| Mutual funds and money market funds under deferred compensation plan |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| December 31, 2023 |
||||||||||||||||
| Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
| Money market funds |
$ | $ | $ | $ | ||||||||||||
| Certificates of deposit |
||||||||||||||||
| Corporate debt securities |
||||||||||||||||
| U.S. treasuries and government agency bonds |
||||||||||||||||
| Auction-rate securities backed by student-loan notes |
||||||||||||||||
| Mutual funds and money market funds under deferred compensation plan |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
Redemptions and changes in the fair value of the auction-rate securities classified as Level 3 assets were not material for the periods presented.
12. DEFERRED COMPENSATION PLAN
The following table summarizes the deferred compensation plan balances on the Condensed Consolidated Balance Sheets (in thousands):
| September 30, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Deferred compensation plan asset components: |
||||||||
| Cash surrender value of corporate-owned life insurance policies |
$ | $ | ||||||
| Fair value of mutual funds and money market funds |
||||||||
| Total |
$ | $ | ||||||
| Deferred compensation plan assets reported in: |
||||||||
| Other long-term assets |
$ | $ | ||||||
| Deferred compensation plan liabilities reported in: |
||||||||
| Accrued compensation and related benefits (short-term) |
$ | $ | ||||||
| Other long-term liabilities |
||||||||
| Total |
$ | $ | ||||||
13. OTHER INCOME, NET
The components of other income, net, are as follows (in thousands):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Interest income |
$ | $ | $ | $ | ||||||||||||
| Amortization of discount on available-for-sale securities |
||||||||||||||||
| Gain (loss) on deferred compensation plan investments |
( |
) | ||||||||||||||
| Charitable contributions |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other |
( |
) | ( |
) | ||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
14. INCOME TAXES
The income tax provision or benefit for interim periods is generally determined using an estimate of the Company’s annual effective tax rate and adjusted for discrete items, if any, in the relevant period. Each quarter the estimate of the annual effective tax rate is updated, and if the Company’s estimated tax rate changes, a cumulative adjustment is made.
The income tax expense for the three months ended September 30, 2024 was $
The income tax expense for the three months ended September 30, 2023 was $
On December 27, 2023, the Bermuda Corporate Income Tax Act of 2023 (the “Bermuda CIT Act”) was enacted and signed into law. It includes a 15% CIT applicable to Bermuda businesses that are multinational enterprises (“MNE”) with annual revenue of €750M or more beginning in 2025. The Bermuda CIT Act also includes an Economic Transition Adjustment (“ETA”) that requires MNEs to revalue their assets and liabilities, excluding goodwill, at their fair value as of September 30, 2023. There is an election to opt out of the ETA. As the Bermuda CIT Act is not effective until January 1, 2025, the Company is evaluating whether or not to adopt this ETA. Based on the information available, the Company has not recorded any changes to income tax expense related to the Bermuda CIT Act as of September 30, 2024.
In September 2024, a subsidiary of the Company was granted a tax credit with a ten-year life by a foreign jurisdiction. The tax credit may be utilized beginning in tax year 2025 to offset income tax liabilities in that jurisdiction, subject to various criteria as outlined by the granting authorities. As of September 30, 2024, the Company has evaluated the sources of income necessary to benefit from the tax credit and has determined that it currently does not meet the more likely than not criteria for realization of this deferred tax asset. As a result, the Company has recorded a full valuation allowance on this deferred tax asset. The Company is evaluating the steps necessary, some of which are not within its immediate control, to generate sufficient future taxable income in the required jurisdiction and will reassess the realizability of this deferred tax asset each reporting period.
15. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the changes in accumulated other comprehensive loss (in thousands):
| Unrealized |
||||||||||||
| Losses on |
Foreign Currency |
|||||||||||
| Available-for-Sale |
Translation |
|||||||||||
| Securities |
Adjustments |
Total |
||||||||||
| Balance as of January 1, 2024 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
| Other comprehensive income (loss) before reclassifications |
( |
) | ( |
) | ||||||||
| Tax effect |
||||||||||||
| Net current period other comprehensive income (loss) |
( |
) | ( |
) | ||||||||
| Balance as of March 31, 2024 |
( |
) | ( |
) | ( |
) | ||||||
| Other comprehensive income (loss) before reclassifications |
( |
) | ( |
) | ||||||||
| Amounts reclassified from accumulated other comprehensive loss |
||||||||||||
| Tax effect |
( |
) | ( |
) | ||||||||
| Net current period other comprehensive income (loss) |
( |
) | ( |
) | ||||||||
| Balance as of June 30, 2024 |
( |
) | ( |
) | ( |
) | ||||||
| Other comprehensive income before reclassifications |
||||||||||||
| Tax effect |
( |
) | ( |
) | ||||||||
| Net current period other comprehensive income |
||||||||||||
| Balance as of September 30, 2024 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
The amount reclassified from accumulated other comprehensive loss for the period presented was recorded in other income, net, on the Condensed Consolidated Statements of Operations.
16. DIVIDENDS AND DIVIDEND EQUIVALENTS
Cash Dividend Program
The Company has a dividend program approved by its Board of Directors, pursuant to which the Company intends to pay quarterly cash dividends on its common stock. Based on the Company’s historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividends when and if declared by the Board of Directors, which are payable to the stockholders in the following month. The Board of Directors declared the following cash dividends (in thousands, except per-share amounts):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Dividend declared per share |
$ | $ | $ | $ | ||||||||||||
| Total amount |
$ | $ | $ | $ | ||||||||||||
As of September 30, 2024 and December 31, 2023, accrued dividends totaled $
The declaration of any future cash dividends is at the discretion of the Board of Directors and will depend on, among other things, the Company’s financial condition, results of operations, capital requirements, business conditions, and other factors that the Board of Directors may deem relevant, as well as a determination that cash dividends are in the best interests of the Company’s stockholders.
The Company anticipates that cash used for future dividend payments will come from its domestic cash, cash generated from ongoing U.S. operations, and cash repatriated from its Bermuda subsidiary. The Company also anticipates that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.
Cash Dividend Equivalent Rights
The Company’s RSUs contain rights to receive cash dividend equivalents, which entitle employees who hold RSUs to the same dividend value per share as holders of common stock. The dividend equivalents are accumulated and paid to the employees when the underlying RSUs vest. Dividend equivalents accumulated on the underlying RSUs are forfeited if the employees do not fulfill the requisite service requirement and, as a result, the awards do not vest. As of September 30, 2024 and December 31, 2023, accrued dividend equivalents totaled $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that have been made pursuant to and in reliance on the provisions of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements concerning:
| • |
the above-average industry growth of product and market areas that we have targeted; |
| • |
our plan to increase our revenue through the introduction of new products within our existing product families as well as in new product categories and families; |
| • |
our mission statement to reduce energy and material consumption to improve all aspects of quality of life and create a sustainable future; |
| • |
the effects of macroeconomic factors, including global economic uncertainties, the Russia-Ukraine conflict and the Middle East conflict on the semiconductor industry and our business; |
| • |
the effect that liquidity of our investments has on our capital resources; |
| • |
the continuing application of our products in the enterprise data, storage and computing, automotive, communications, consumer and industrial markets; |
| • |
estimates of our future liquidity requirements; |
| • |
the cyclical nature of the semiconductor industry; |
| • |
our belief that we may incur significant legal expenses that vary with the level of activity in each of our current or future legal proceedings; |
| • |
expectations regarding protection of our proprietary technology; |
| • |
business outlook for the remainder of 2024 and beyond; |
| • |
the factors that we believe will impact our business, operations and financial condition, as well as our ability to achieve revenue growth; |
| • |
the expected percentage of our total revenue from various end markets; |
| • |
our ability to identify, acquire and integrate companies, businesses and products, and achieve the anticipated benefits from such acquisitions and integrations; |
| • |
the expected impact of various U.S. and international tax laws and regulations on our income tax provision, financial position and cash flows; |
| • |
our plan to repatriate cash from our subsidiary in Bermuda; |
| • |
our intention and ability to continue our stock repurchase program and pay cash dividends and dividend equivalents; |
| • |
the factors that differentiate us from our competitors; and |
| • |
our ability to adequately remediate our material weakness. |
In some cases, words such as “would,” “could,” “may,” “should,” “predict,” “potential,” “targets,” “continue,” “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “will,” the negative of these terms or other variations of such terms and similar expressions relating to the future identify forward-looking statements. All forward-looking statements are based on our current outlook, expectations, estimates, projections, beliefs and plans or objectives about our business, our industry and the global economy, including our expectations regarding the potential impacts of macroeconomic factors, such as global economic uncertainties, the Russia-Ukraine conflict and the Middle East conflict on the semiconductor industry and our business. These statements are not guarantees of future performance and are subject to significant risks and uncertainties. Actual events or results could differ materially and adversely from those expressed in any such forward-looking statements. Risks and uncertainties that could cause actual results to differ materially include those set forth throughout this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K including, in particular, in the sections entitled “Risk Factors.” Except as required by law, we disclaim any duty, and undertake no obligation, to update any forward-looking statements, whether as a result of new information relating to existing conditions, future events or otherwise or to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q and entail significant risks. Readers should carefully review future reports and documents that we file from time to time with the SEC, such as our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.
Overview
We are a fabless global company that provides high-performance, semiconductor-based power electronics solutions. MPS’s mission is to reduce energy and material consumption to improve all aspects of quality of life and create a sustainable future. Founded in 1997 by our CEO Michael Hsing, MPS has three core strengths: deep system-level knowledge, strong semiconductor design expertise, and innovative proprietary technologies in the areas of semiconductor processes, system integration, and packaging. These combined advantages are designed to enable MPS to deliver reliable, compact, and monolithic solutions that are highly energy-efficient, cost-effective, and environmentally responsible while providing a consistent return on investment to our stockholders.
We operate in the cyclical semiconductor industry. We are subject to industry downturns, but we have targeted product and market areas that we believe have the ability to offer above average industry performance over the long term. Historically, our revenue has generally been higher in the second half of the year than in the first half although various factors, such as market conditions and the timing of key product introductions, could impact this trend.
We work with third parties to manufacture and assemble our ICs. This has enabled us to limit our capital expenditures and fixed costs, while focusing our engineering and design resources on our core strengths.
Following the introduction of a product, our sales cycle generally takes a number of quarters after we receive an initial customer order for a new product to ramp up. Typical supply chain lead times for orders are generally 16 to 26 weeks. These factors, combined with the fact that our customers can cancel or reschedule orders without significant penalty to the customer, make the forecasting of our orders, revenue and expenses difficult.
We derive most of our revenue from sales through distribution arrangements and direct sales to customers in Asia, where our products are incorporated into end-user products. Our revenue from sales to customers in Asia was 94% and 89% of our total revenue for the three months ended September 30, 2024 and 2023, respectively, and 93% and 86% of our total revenue for the nine months ended September 30, 2024 and 2023, respectively. Our revenue from indirect sales to one customer, which primarily comprised power management solutions for artificial intelligence (“AI”) applications, was 15% and 12% of our total revenue for the three months ended September 30, 2024 and 2023, respectively, and 18% and 7% of our total revenue for the nine months ended September 30, 2024 and 2023, respectively.
We derive a majority of our revenue from the sales of our DC to DC converter products which serve the enterprise data, storage and computing, automotive, communications, consumer and industrial markets. We believe our ability to achieve revenue growth will depend, in part, on our ability to develop new products, enter new market segments, gain market share, manage litigation risk, diversify our customer base and continue to secure manufacturing capacity.
Macroeconomic Conditions and Regulations
The semiconductor industry has historically been impacted by various macro-economic challenges including fluctuations in consumer spending, fluctuations in demand for semiconductors, rising inflation, increased interest rates, and fluctuations in currency rates. We remain cautious in light of continued challenging macroeconomic conditions and will continue to monitor the potential impact on our operations. The extent and duration of the direct and indirect impact of macroeconomic events on our business, results of operations and overall financial position remain uncertain and depend on future developments.
We closely monitor changes to export control laws, trade regulations and other trade requirements. To date, no restrictions have had a material impact on our revenue and operations. We will continue to monitor any changes to export control laws, trade regulations and other trade requirements and are committed to complying with all applicable trade laws, regulations and other requirements.
Critical Accounting Policies and Estimates
In preparing our condensed consolidated financial statements in accordance with GAAP, we are required to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and the accompanying disclosures. Estimates and judgments used in the preparation of our condensed consolidated financial statements are, by their nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control, including demand for our products, economic conditions and other current and future events, such as macroeconomic factors, including the impact of global economic uncertainties, Russia-Ukraine conflict and the Middle East conflict. Actual results could differ from these estimates and assumptions, and any such differences may be material to our condensed consolidated financial statements.
Results of Operations
The table below sets forth the data on the Condensed Consolidated Statements of Operations as a percentage of revenue:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||||||||||||||||||
| (In thousands, except percentages) |
||||||||||||||||||||||||||||||||
| Revenue |
$ | 620,119 | 100.0 | % | $ | 474,867 | 100.0 | % | $ | 1,585,435 | 100.0 | % | $ | 1,367,060 | 100.0 | % | ||||||||||||||||
| Cost of revenue |
276,676 | 44.6 | 211,326 | 44.5 | 708,973 | 44.7 | 597,064 | 43.7 | ||||||||||||||||||||||||
| Gross profit |
343,443 | 55.4 | 263,541 | 55.5 | 876,462 | 55.3 | 769,996 | 56.3 | ||||||||||||||||||||||||
| Operating expenses: |
||||||||||||||||||||||||||||||||
| Research and development |
85,051 | 13.7 | 64,787 | 13.6 | 238,986 | 15.1 | 192,184 | 14.1 | ||||||||||||||||||||||||
| Selling, general and administrative |
94,364 | 15.2 | 63,188 | 13.3 | 261,425 | 16.5 | 205,645 | 15.0 | ||||||||||||||||||||||||
| Total operating expenses |
179,415 | 28.9 | 127,975 | 26.9 | 500,411 | 31.6 | 397,829 | 29.1 | ||||||||||||||||||||||||
| Operating income |
164,028 | 26.5 | 135,566 | 28.6 | 376,051 | 23.7 | 372,167 | 27.2 | ||||||||||||||||||||||||
| Other income, net |
10,278 | 1.6 | 2,289 | 0.5 | 27,330 | 1.7 | 14,129 | 1.1 | ||||||||||||||||||||||||
| Income before income taxes |
174,306 | 28.1 | 137,855 | 29.1 | 403,381 | 25.4 | 386,296 | 28.3 | ||||||||||||||||||||||||
| Income tax expense |
29,876 | 4.8 | 16,692 | 3.6 | 66,044 | 4.1 | 55,827 | 4.1 | ||||||||||||||||||||||||
| Net income |
$ | 144,430 | 23.3 | % | $ | 121,163 | 25.5 | % | $ | 337,337 | 21.3 | % | $ | 330,469 | 24.2 | % | ||||||||||||||||
Revenue
The following table summarizes our revenue by end market:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
| End Market |
2024 |
% of Revenue |
2023 |
% of Revenue |
2024 |
% of Revenue |
2023 |
% of Revenue |
||||||||||||||||||||||||
| (In thousands, except percentages) |
||||||||||||||||||||||||||||||||
| Enterprise Data |
$ | 184,459 | 29.7 | % | $ | 98,938 | 20.8 | % | $ | 521,397 | 32.9 | % | $ | 194,083 | 14.2 | % | ||||||||||||||||
| Storage and Computing |
143,993 | 23.2 | 129,462 | 27.3 | 365,069 | 23.0 | 373,827 | 27.3 | ||||||||||||||||||||||||
| Automotive |
111,344 | 18.0 | 95,171 | 20.0 | 285,629 | 18.0 | 304,907 | 22.3 | ||||||||||||||||||||||||
| Communications |
71,884 | 11.6 | 46,786 | 9.9 | 162,095 | 10.2 | 163,985 | 12.0 | ||||||||||||||||||||||||
| Consumer |
64,401 | 10.4 | 62,369 | 13.1 | 144,704 | 9.1 | 190,919 | 14.0 | ||||||||||||||||||||||||
| Industrial |
44,038 | 7.1 | 42,141 | 8.9 | 106,541 | 6.8 | 139,339 | 10.2 | ||||||||||||||||||||||||
| Total |
$ | 620,119 | 100.0 | % | $ | 474,867 | 100.0 | % | $ | 1,585,435 | 100.0 | % | $ | 1,367,060 | 100.0 | % | ||||||||||||||||
Revenue for the three months ended September 30, 2024 was $620.1 million, an increase of $145.2 million, or 30.6%, from $474.9 million for the three months ended September 30, 2023. The increase in revenue was primarily due to higher shipment volume.
For the three months ended September 30, 2024, revenue from the enterprise data market increased $85.5 million, or 86.4%, from the same period in 2023. This increase was primarily due to higher sales of our power management solutions for AI applications. Revenue from the storage and computing market for the three months ended September 30, 2024 increased $14.5 million, or 11.2%, from the same period in 2023. This increase was primarily due to higher sales of commercial notebook and storage applications. Third quarter 2024 automotive revenue increased $16.2 million, or 17.0%, from the same period in 2023. This increase was primarily due to higher sales of applications supporting advanced driver assistance systems and lighting, partially offset by lower sales of applications supporting infotainment. Revenue from the communications market increased $25.1 million, or 53.6%, from the same period in 2023. This increase was primarily driven by higher demand for infrastructure related products and wireless applications. Third quarter 2024 revenue from the consumer market increased $2.0 million, or 3.3%, from the same period in 2023. Revenue from the industrial market increased $1.9 million, or 4.5%, from the same period in 2023.
Revenue for the nine months ended September 30, 2024 was $1,585.4 million, an increase of $218.3 million, or 16.0%, from $1,367.1 million for the nine months ended September 30, 2023. The increase in revenue was primarily due to higher average selling prices resulting primarily from product mix.
For the nine months ended September 30, 2024, revenue from the enterprise data market increased $327.3 million, or 168.6%, from the same period in 2023. This increase was primarily due to higher sales of our power management solutions for AI applications. Revenue from the storage and computing market for the first nine months of 2024 decreased $8.8 million, or 2.3%, from the same period in 2023. This decrease was primarily due to lower sales of storage, graphic card and other applications, partially offset by higher sales of commercial notebooks. Revenue from the automotive market for the first nine months of 2024 decreased $19.3 million, or 6.3%, from the same period in 2023. This decrease was primarily due to lower sales of applications supporting infotainment, body electronics and USB connectors, partially offset by higher sales of applications supporting advanced driver assistance systems. Revenue from the communications market decreased $1.9 million, or 1.2%, from the same period in 2023. For the nine months ended September 30, 2024, consumer revenue decreased $46.2 million, or 24.2%, from the same period in 2023. This decrease was broad-based and primarily driven by lower sales of products for gaming, home appliances and mobile devices. Revenue from the industrial market decreased $32.8 million, or 23.5%, from the same period in 2023. This decrease was mainly driven by lower sales of products related to industrial meter, security and instrumentation applications.
Cost of Revenue and Gross Margin
Cost of revenue primarily consists of costs incurred to manufacture, assemble and test our products, as well as warranty costs, inventory-related and other overhead costs, and stock-based compensation expenses.
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (In thousands, except percentages) |
||||||||||||||||
| Cost of revenue |
$ | 276,676 | $ | 211,326 | $ | 708,973 | $ | 597,064 | ||||||||
| As a percentage of revenue |
44.6 | % | 44.5 | % | 44.7 | % | 43.7 | % | ||||||||
| Gross profit |
$ | 343,443 | $ | 263,541 | $ | 876,462 | $ | 769,996 | ||||||||
| Gross margin |
55.4 | % | 55.5 | % | 55.3 | % | 56.3 | % | ||||||||
Cost of revenue was $276.7 million, or 44.6% of revenue, for the three months ended September 30, 2024, and $211.3 million, or 44.5% of revenue, for the three months ended September 30, 2023. The $65.4 million increase in cost of revenue was primarily driven by higher shipment volume, particularly of power management solutions for AI applications.
Gross margin was 55.4% for the three months ended September 30, 2024, compared with 55.5% for the three months ended September 30, 2023. The decrease in gross margin was mainly driven by an increase in inventory write-downs as a percentage of revenue, partially offset by lower warranty expenses as a percentage of revenue and product mix.
Cost of revenue was $709.0 million, or 44.7% of revenue, for the nine months ended September 30, 2024, and $597.1 million, or 43.7% of revenue, for the nine months ended September 30, 2023. The $111.9 million increase in cost of revenue was primarily driven by higher average costs due to product mix.
Gross margin was 55.3% for the nine months ended September 30, 2024, compared with 56.3% for the nine months ended September 30, 2023. The decrease in gross margin was mainly driven by an increase in inventory write-downs and warranty expenses as a percentage of revenue, partially offset by lower manufacturing overhead costs.
Research and Development
R&D expenses primarily consist of cash compensation and benefits, stock-based compensation and deferred compensation for design and product engineers, expenses related to new product development and supplies, and facility costs.
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (In thousands, except percentages) |
||||||||||||||||
| R&D expenses |
$ | 85,051 | $ | 64,787 | $ | 238,986 | $ | 192,184 | ||||||||
| As a percentage of revenue |
13.7 | % | 13.6 | % | 15.1 | % | 14.1 | % | ||||||||
R&D expenses were $85.1 million, or 13.7% of revenue, for the three months ended September 30, 2024, and $64.8 million, or 13.6% of revenue, for the three months ended September 30, 2023. The $20.3 million increase in R&D expenses was primarily due to a $6.9 million increase in cash compensation and benefits, a $3.5 million increase in new product development expenses, a $3.0 million increase in stock-based compensation expenses and related payroll taxes, a $1.9 million increase in expense related to changes in the value of deferred compensation plan liabilities, and a $0.9 million increase in laboratory supplies.
R&D expenses were $239.0 million, or 15.1% of revenue, for the nine months ended September 30, 2024, and $192.2 million, or 14.1% of revenue, for the nine months ended September 30, 2023. The $46.8 million increase in R&D expenses was primarily due to a $22.2 million increase in cash compensation and benefits, a $9.0 million increase in stock-based compensation expenses and related payroll taxes, a $3.2 million increase in new product development expenses, a $1.9 million increase in expense related to changes in the value of deferred compensation plan liabilities, and $1.9 million increase in laboratory supplies.
Selling, General and Administrative
SG&A expenses primarily include cash compensation and benefits, stock-based compensation and deferred compensation for sales, marketing and administrative personnel, sales commissions, travel expenses, facilities costs, third party service fees and legal expenses.
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (In thousands, except percentages) |
||||||||||||||||
| SG&A expenses |
$ | 94,364 | $ | 63,188 | $ | 261,425 | $ | 205,645 | ||||||||
| As a percentage of revenue |
15.2 | % | 13.3 | % | 16.5 | % | 15.0 | % | ||||||||
SG&A expenses were $94.4 million, or 15.2% of revenue, for the three months ended September 30, 2024, and $63.2 million, or 13.3% of revenue, for the three months ended September 30, 2023. The $31.2 million increase in SG&A expenses was primarily driven by a $14.4 million increase in stock-based compensation expenses, a $5.5 million increase in cash compensation and benefits, a $2.8 million increase in expense related to changes in the value of deferred compensation plan liabilities, a $2.6 million increase in sales commissions, and a $2.2 million increase in legal expenses.
SG&A expenses were $261.4 million, or 16.5% of revenue, for the nine months ended September 30, 2024, and $205.6 million, or 15.0% of revenue, for the nine months ended September 30, 2023. The $55.8 million increase in SG&A expenses was primarily driven by a $32.7 million increase in stock-based compensation expenses, a $6.9 million increase in cash compensation and benefits, a $3.9 million increase in professional services, and a $2.7 million increase in expense related to changes in the value of deferred compensation plan liabilities.
Other Income, Net
Other income, net, was $10.3 million for the three months ended September 30, 2024, compared with $2.3 million for the three months ended September 30, 2023. The increase in other income was primarily due to an increase in amortization of discount on available-for-sale securities, and an increase in income related to changes in the value of deferred compensation plan investments.
Other income, net, was $27.3 million for the nine months ended September 30, 2024, compared with $14.1 million for the nine months ended September 30, 2023. The increase in other income was primarily due to an increase in amortization of discount on available-for-sale securities, and an increase in income related to changes in the value of deferred compensation plan investments, partially offset by an increase in charitable contributions.
Income Tax Expense
The income tax provision for interim periods is generally determined using an estimate of our annual effective tax rate and adjusted for discrete items, if any, in the relevant period. Each quarter the estimate of the annual effective tax rate is updated, and if our estimated tax rate changes, a cumulative adjustment is made.
The income tax expense for the three months ended September 30, 2024 was $29.9 million, or 17.1% of pre-tax income. The income tax expense for the nine months ended September 30, 2024 was $66.0 million, or 16.4% of pre-tax income. The effective tax rates were lower than the federal statutory rate of 21% primarily due to foreign income from our subsidiaries in Bermuda and China being taxed at lower statutory tax rates, and excess tax benefits from stock-based compensation. The decrease in the effective tax rates relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax.
The income tax expense for the three months ended September 30, 2023 was $16.7 million, or 12.1% of pre-tax income. The income tax expense for the nine months ended September 30, 2023 was $55.8 million, or 14.5% of pre-tax income. The effective tax rates were lower than the federal statutory rate of 21% primarily due to foreign income from our subsidiaries in Bermuda and China being taxed at lower statutory tax rates, and excess tax benefits from stock-based compensation. The decrease in the effective tax rates relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax.
The Organization for Economic Co-operation and Development enacted model rules for a new global minimum tax framework, also known as Pillar Two, and certain governments globally have enacted, or are in the process of enacting, legislation considering these model rules. These rules did not have a material impact on our taxes for the three and nine months ended September 30, 2024.
In December 2023, the Bermuda CIT Act was enacted and signed into law. See Note 14 for further details.
In September 2024, one of our subsidiaries was granted a tax credit with a ten-year life by a foreign jurisdiction. The tax credit may be utilized beginning in tax year 2025 to offset income tax liabilities in that jurisdiction, subject to various criteria as outlined by the granting authorities. As of September 30, 2024, we have evaluated the sources of income necessary to benefit from the tax credit and have determined that we currently do not meet the more likely than not criteria for realization of this deferred tax asset. As a result, we have recorded a full valuation allowance on this deferred tax asset. We are evaluating the steps necessary, some of which are not within our immediate control, to generate sufficient future taxable income in the required jurisdiction and will reassess the realizability of this deferred tax asset each reporting period. A release of the valuation allowance could result in a significant one-time noncash tax benefit.
Liquidity and Capital Resources
| September 30, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| (In thousands, except percentages) |
||||||||
| Cash and cash equivalents |
$ | 700,347 | $ | 527,843 | ||||
| Short-term investments |
762,003 | 580,633 | ||||||
| Total cash, cash equivalents and short-term investments |
$ | 1,462,350 | $ | 1,108,476 | ||||
| Percentage of total assets |
51.2 | % | 45.5 | % | ||||
| Total current assets |
$ | 2,160,450 | $ | 1,819,499 | ||||
| Total current liabilities |
(336,588 | ) | (235,035 | ) | ||||
| Working capital |
$ | 1,823,862 | $ | 1,584,464 | ||||
As of September 30, 2024, we had cash and cash equivalents of $700.3 million and short-term investments of $762.0 million, compared with cash and cash equivalents of $527.8 million and short-term investments of $580.6 million as of December 31, 2023. As of September 30, 2024, $506.5 million of cash and cash equivalents and $725.5 million of short-term investments were held by our international subsidiaries. We have repatriated and will likely repatriate cash from our Bermuda subsidiary to fund our expenditures. We anticipate that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.
Summary of Cash Flows
The following table summarizes our cash flow activities:
| Nine Months Ended September 30, |
||||||||
| 2024 |
2023 |
|||||||
| (In thousands) |
||||||||
| Net cash provided by operating activities |
$ | 620,729 | $ | 484,900 | ||||
| Net cash used in investing activities |
(296,128 | ) | (212,695 | ) | ||||
| Net cash used in financing activities |
(186,853 | ) | (129,311 | ) | ||||
| Effect of change in exchange rates |
1,552 | (10,323 | ) | |||||
| Net increase in cash, cash equivalents and restricted cash |
$ | 139,300 | $ | 132,571 | ||||
For the nine months ended September 30, 2024, the $135.8 million increase in cash provided by operating activities compared to the same period in 2023 was primarily due to increased accounts receivable collections and the collection of $50.0 million of other receivables related to a long-term wafer supply agreement, partially offset by increased inventory purchases. This increase was also affected by changes in other working capital.
For the nine months ended September 30, 2024, the $83.4 million increase in cash used in investing activities compared to the same period in 2023 was primarily due to an increase of $37.2 million in purchases of property and equipment and the $33.3 million acquisition in the nine months ended September 30, 2024.
For the nine months ended September 30, 2024, the $57.5 million increase in cash used in financing activities compared to the same period in 2023 was primarily due to an increase of $43.5 million in dividend and dividend equivalent payments.
Cash Requirements
Although consequences of economic uncertainties and macroeconomic conditions and other factors could adversely affect our liquidity and capital resources in the future, and our cash requirements may fluctuate based on the timing and extent of many factors such as those discussed above, we believe that our balances of cash, cash equivalents and short-term investments of $1,462.4 million as of September 30, 2024, along with cash generated by ongoing operations, will be sufficient to satisfy our liquidity requirements for the next 12 months and beyond.
Our material cash requirements include the following contractual and other obligations:
Purchase Obligations
Purchase obligations represent commitments to our suppliers and other parties requiring the purchases of goods or services. Our purchase obligations primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction of manufacturing and R&D facilities, purchases of production and other equipment, and license arrangements.
In May 2022, we entered into a long-term supply agreement in order to secure manufacturing production capacity for silicon wafers over a four-year period. As of September 30, 2024, we had remaining prepayments under this agreement of $120.0 million, of which $60.0 million was classified as short-term.
As of September 30, 2024, total estimated future unconditional purchase commitments to all suppliers and other parties, net of the $120.0 million prepayment, were $586.9 million, of which $470.9 million was classified as short-term.
Transition Tax Liability
The transition tax liability represents the one-time, mandatory deemed repatriation tax imposed on previously deferred foreign earnings under the U.S. Tax Cuts and Jobs Act enacted in December 2017 (the “2017 Tax Act”). As permitted by the 2017 Tax Act, we have elected to pay the tax liability in installments on an interest-free basis through 2025. As of September 30, 2024, the remaining liability totaled $6.2 million, all of which was classified as short-term.
Operating Leases
Operating lease obligations represent the undiscounted remaining lease payments primarily for our leased facilities and equipment. As of September 30, 2024, these obligations totaled $16.3 million, of which $2.8 million was classified as short-term.
Capital Return to Stockholders
In October 2023, our Board of Directors approved a stock repurchase program authorizing us to repurchase up to $640.0 million in the aggregate of our common stock through October 29, 2026. Shares are retired upon repurchase. We repurchased 6,000 and 19,000 shares of our common stock for an aggregate purchase price of $5.5 million and $14.2 million during the three and nine months ended September 30, 2024, respectively. As of September 30, 2024, $622.1 million remained available for future repurchases under the program.
We currently have a dividend program approved by our Board of Directors, pursuant to which we intend to pay quarterly cash dividends on our common stock. Based on our historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividends when and if declared by the Board of Directors, which are payable to the stockholders in the following month. As of September 30, 2024, accrued dividends totaled $61.0 million. The declaration of any future cash dividends is at the discretion of our Board of Directors and will depend on, among other things, our financial condition, results of operations, capital requirements, business conditions and other factors that our Board of Directors may deem relevant, as well as a determination that cash dividends are in the best interests of our stockholders.
Other Long-Term Obligations
Other long-term obligations primarily include payments for deferred compensation plan liabilities and accrued dividend equivalents. As of September 30, 2024, these obligations totaled $88.3 million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion of market risks, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2023. During the three and nine months ended September 30, 2024, there were no material changes or developments that would have materially altered, or were reasonably likely to materially alter, the market risk assessment performed as of December 31, 2023.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, and due to the finding of the material weakness described below, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2023, during the year-end financial reporting process of fiscal year 2023, a material weakness was identified in internal control over financial reporting within the Company’s demand forecast process regarding excess and obsolete inventory. The material weakness resulted from ineffective design of the controls related to management’s review and documentation of the Company’s inventory demand information and other assumptions used to determine the inventory carrying value adjustments necessary to record such quantities at the lower of their cost or net realizable value.
A material weakness is a deficiency, or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. This material weakness did not result in a misstatement to the audited consolidated financial statements for the year ended December 31, 2023.
Notwithstanding the material weakness in internal control over financial reporting described above, management believes and has concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
Ongoing Remediation of Previously Identified Material Weakness
With respect to the material weakness described above, management, under the oversight of the Audit Committee, has implemented measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. However, the weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. The Company will monitor the effectiveness of its remediation plan and refine its remediation plan as appropriate.
Changes in Internal Control over Financial Reporting
As described above, we are taking steps to remediate the material weakness in our internal control over financial reporting. Other than in connection with the remediation process described above, no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
We are a party to actions and proceedings in the ordinary course of business, including challenges to the enforceability or validity of our intellectual property, claims that our products infringe on the intellectual property rights of others, and employment matters. We may also be subject to litigation initiated by our stockholders. These proceedings often involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. We defend ourselves vigorously against any such claims. As of September 30, 2024, there were no material pending legal proceedings to which we were a party.
The Company’s business, reputation, results of operations, financial condition and stock price can be affected by a number of factors, whether currently known or unknown, including those described in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2023 under the heading “Risk Factors.” When any one or more of these risks materialize from time to time, the Company’s business, reputation, results of operations, financial condition and stock price can be materially and adversely affected. There have been no material changes to the Company’s risk factors since the filing of the Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
In October 2023, our Board of Directors approved a stock repurchase program authorizing us to repurchase up to $640.0 million in the aggregate of our common stock through October 29, 2026. Shares are retired upon repurchase. We repurchased 6,000 and 19,000 shares of our common stock for an aggregate purchase price of $5.5 million and $14.2 million during the three and nine months ended September 30, 2024, respectively.
Stock repurchases under the program may be made through open market repurchases, privately negotiated transactions or other structures in accordance with applicable state and federal securities laws, at times and in amounts as management deems appropriate. The timing and the number of shares of any repurchased common stock will be determined by our management based on the evaluation of market conditions, legal requirements, stock price, and other factors. The repurchase program does not obligate us to purchase any particular number of shares and may be suspended, modified, or discontinued at any time without prior notice.
The following table represents details of our stock repurchase transactions during the three months ended September 30, 2024:
| Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Program |
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program |
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| (In thousands, except per share amounts) |
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| July 1, 2024 – July 31, 2024 |
2 | $ | 837.82 | 2 | $ | 625,790 | ||||||||||
| August 1, 2024 – August 31, 2024 |
2 | $ | 872.16 | 2 | $ | 623,871 | ||||||||||
| September 1, 2024 – September 30, 2024 |
2 | $ | 885.99 | 2 | $ | 622,100 | ||||||||||
| Total |
6 | $ | 864.68 | 6 | ||||||||||||
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Certain of our executive officers have entered into trading plans pursuant to Rule 10b5-1(c) of the Securities Exchange Act of 1934, as amended. A trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of our common stock, including the exercise and sale of shares acquired pursuant to the 2004 ESPP, and upon vesting of RSUs.
The following table summarizes the adoption of trading plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) during the three months ended September 30, 2024:
| Name and Title | Adoption Date | Plan Duration | Intended Sale Amount (in shares) | |||
| , |
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| to | |||
| , * |
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| to | |||
| , |
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| to | |||
| , |
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| to |
*On behalf of the Sciammas Family 2020 Irrevocable Trust.
During the three months ended September 30, 2024, trading plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) were modified or terminated, and other written trading arrangements that are not intended to qualify for the Rule 10b5-1(c) affirmative defense were adopted, modified, or terminated.
| Exhibit No. |
Description |
| 31.1 |
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| 31.2 |
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| 32.1* |
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| 101.INS |
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * |
This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. |
MONOLITHIC POWER SYSTEMS, INC
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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MONOLITHIC POWER SYSTEMS, INC. |
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| Dated: November 6, 2024 |
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By: |
/s/ T. Bernie Blegen |
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T. Bernie Blegen |
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Executive Vice President and Chief Financial Officer |
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(Duly Authorized Officer and Principal |
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Financial and Accounting Officer) |
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