MONOLITHIC POWER SYSTEMS, INC. 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 belief that we may incur significant legal expenses that vary with the
level of activity in each of our current or future legal proceedings,
• the effect that liquidity of our investments has on our capital resources,
• the continuing application of our products in the storage and computing,
enterprise data, automotive, industrial, communications and consumer markets,
• estimates of our future liquidity requirements,
• the cyclical nature of the semiconductor industry,
• the effects of the COVID-19 pandemic and the conflict between Ukraine and
Russia on the global economy, the semiconductor industry and our business,
• protection of our proprietary technology,
• business outlook for the remainder of 2022 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 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 impact of various 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 pay cash dividends and dividend equivalents, and
• the factors that differentiate us from our competitors.
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 the COVID-19 pandemic and the conflict in
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Table of Contents Overview
We are a global company that provides high-performance, semiconductor-based power electronics solutions. Incorporated in 1997, our three core strengths include deep system-level knowledge, strong semiconductor design expertise, and innovative proprietary semiconductor process and system integration technologies. These combined strengths enable us to deliver highly integrated monolithic products that offer energy-efficient, cost-effective, easy-to-use solutions for systems found in storage and computing, enterprise data, automotive, industrial, communications and consumer applications. Our mission is to reduce total energy and material consumption in our customers' systems with green, practical and compact solutions. We believe that we differentiate ourselves by offering solutions that are more highly integrated, smaller in size, more energy-efficient, more accurate with respect to performance specifications and, consequently, more cost-effective than many competing solutions. We plan to continue to introduce new products within our existing product families, as well as in new innovative product categories.
We operate in the cyclical semiconductor industry where there is seasonal demand for certain products. We are not immune from current and future 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.
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 lead times for orders are generally 16 to 26 weeks. Recently, we have experienced high customer demand, which has resulted in longer than usual lead times. These factors, combined with the fact that orders in the semiconductor industry can typically be cancelled or rescheduled without significant penalty to the customer, make the forecasting of our orders and revenue difficult.
We derive most of our revenue from sales through distribution arrangements and
direct sales to customers in
Impact of COVID-19 on Our Business
The COVID-19 pandemic has had, and continues to have, a significant impact
around the world. Our primary focus is to continue to execute our business plan
and mitigate the effect of the COVID-19 pandemic on our financial position and
operations, while actively taking all necessary precautions to ensure the safety
of our employees, our suppliers and our customers. The pandemic did not
materially and adversely impact our overall operating results or business
operations for the three months ended
In recent months,
We have worked, and are continuing to actively work, with our stakeholders, including customers, suppliers and employees, to address the impact of the pandemic. We will continue to monitor the situation, to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences to the extent feasible. A prolonged economic slowdown as a result of the pandemic, or otherwise, could materially and adversely impact our business, results of operations and financial condition for the remainder of 2022 and beyond.
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Table of Contents
Conflict between
As the conflict between
Cybersecurity Risk Management
We are committed to protecting our information technology ("IT") assets, including computers, systems, corporate networks and sensitive data, from unauthorized access or attack. We have established an internal global IT policy handbook as well as IT security management control procedures designed to:
? Create information security awareness and define responsibilities among our
employees and business partners; ? Implement controls to identify IT risks and monitor the use of our systems and information resources; ? Establish key policies and processes to adequately and timely respond to
security threats; ? Maintain disaster recovery and business continuity plans; and ? Ensure compliance with applicable laws and regulations regarding the management
of information security.
We require all new employees to attend an IT security training orientation. In addition, on an as-needed basis, our IT team provides trainings and updates to employees related to our policies and procedures.
Our
Our Audit Committee of the Board of Directors, which consists of three independent members, is responsible for the oversight of our cybersecurity risk program. On a regular basis, the Audit Committee reviews reports and updates from our Chief Financial Officer and IT senior management about major risk exposures, their potential impact on our business operations, and management's strategies to assess, monitor and mitigate those risks. The Audit Committee also provides updates of their oversight and findings to the Board of Directors.
We believe we have adequate resources and sufficient policies, procedures and oversight in place to identify and manage our IT security risks to our business operations. To date, we do not believe we have experienced any material information security breaches and have not incurred significant operating expenses related to information security breaches.
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 the impact of the COVID-19 pandemic and the
conflict between
As of the date of issuance of these condensed consolidated financial statements,
we are not aware of any specific event or circumstance that would require our
management to update the significant estimates and assumptions used in the
preparation of the condensed consolidated financial statements, as compared to
those disclosed in the Annual Report on Form 10-K for the year ended
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Table of Contents 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 March 31,
2022 2021
(in thousands, except percentages)
Revenue $ 377,714 100.0 % $ 254,455 100.0 %
Cost of revenue 158,834 42.1 113,396 44.6
Gross profit 218,880 57.9 141,059 55.4
Operating expenses:
Research and development 54,104 14.3 41,892 16.5
Selling, general and administrative 67,153 17.8 51,453 20.2
Litigation expense 1,489 0.3 1,628 0.6
Total operating expenses 122,746 32.4 94,973 37.3
Operating income 96,134 25.5 46,086 18.1
Other income (expense), net (634 ) (0.2 ) 2,587 1.0
Income before income taxes 95,500 25.3 48,673 19.1
Income tax expense 15,934 4.2 3,260 1.3
Net income $ 79,566 21.1 % $ 45,413 17.8 %
Revenue
In the first quarter of 2022, we reorganized our end markets and broke out Computing and Storage into two new end markets: (1) Storage and Computing, and (2) Enterprise Data. All prior-period amounts have been restated to reflect the changes. The following table summarizes our revenue by end market:
Three Months Ended March 31,
% of % of
End Market 2022 Revenue 2021 Revenue Change
(in thousands, except percentages)
Storage and Computing $ 96,586 25.6 % $ 51,312 20.2 % 88.2 %
Enterprise Data 42,509 11.2 16,183 6.3 162.7 %
Automotive 54,546 14.4 44,867 17.6 21.6 %
Industrial 48,538 12.9 39,788 15.6 22.0 %
Communications 55,574 14.7 36,070 14.2 54.1 %
Consumer 79,961 21.2 66,235 26.1 20.7 %
Total $ 377,714 100.0 % $ 254,455 100.0 % 48.4 %
Revenue for the three months ended
For the three months ended
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Table of Contents
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 March 31,
2022 2021 Change
(in thousands, except percentages)
Cost of revenue $ 158,834 $ 113,396 40.1 %
As a percentage of revenue 42.1 % 44.6 %
Gross profit $ 218,880 $ 141,059 55.2 %
Gross margin 57.9 % 55.4 %
Cost of revenue was
Gross margin was 57.9% for the three months ended
Research and Development ("R&D")
R&D expenses primarily consist of salary and benefit expenses, bonuses,
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 March 31,
2022 2021 Change
(in thousands, except percentages)
R&D expenses $ 54,104 $ 41,892 29.2 %
As a percentage of revenue 14.3 % 16.5 %
R&D expenses were
Selling, General and Administrative ("SG&A")
SG&A expenses primarily include salary and benefit expenses, bonuses, stock-based compensation and deferred compensation for sales, marketing and administrative personnel, sales commissions, travel expenses, facilities costs, and professional service fees.
Three Months Ended March 31,
2022 2021 Change
(in thousands, except percentages)
SG&A expenses $ 67,153 $ 51,453 30.5 %
As a percentage of revenue 17.8 % 20.2 %
SG&A expenses were
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Table of Contents Litigation Expense
Litigation expense was
Other Income (Expense), Net
Other expense, net, was
Income Tax Expense
The income tax provision or benefit 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
The income tax expense for the three months ended
The increase in the effective tax rate for the three months ended
Liquidity and Capital Resources
March 31, December 31,
2022 2021
(in thousands, except percentages)
Cash and cash equivalents $ 260,604 $ 189,265
Short-term investments 512,908 535,817
Total cash, cash equivalents and short-term
investments $ 773,512 $ 725,082
Percentage of total assets 45.1 % 45.7 %
Total current assets $ 1,247,136 $ 1,124,852
Total current liabilities (272,528 ) (226,944 )
Working capital $ 974,608 $ 897,908
As of
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