MONOLITHIC POWER SYSTEMS INC

Previous wording

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 direct and indirect sales to customers in Asia was 93% and 84% of our total revenue for the three months ended March 31, 2024 and 2023, respectively.

Current wording

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 direct and indirect sales to customers in Asia was 93% and 85% of our total revenue for the three months ended June 30, 2024 and 2023, respectively, and 93% and 84% of our total revenue for the six months ended June 30, 2024 and 2023, respectively. Our revenue from indirect sales to one customer, which primarily comprised power management solutions for AI applications, was 21% and 5% of our total revenue for the three months ended June 30, 2024 and 2023, respectively, and 19% and 4% of our total revenue for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

The semiconductor industry continues to face a number of macro-economic challenges including reduced 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.

Current wording

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.

Previous wording

Revenue for the three months ended March 31, 2024 was $457.9 million, an increase of $6.8 million, or 1.5%, from $451.1 million for the three months ended March 31, 2023. The increase in revenue was primarily due to higher average selling prices resulting primarily from product mix, which was partially offset by lower shipment volume.

Current wording

Revenue for the six months ended June 30, 2024 was $965.3 million, an increase of $73.1 million, or 8.2%, from $892.2 million for the six months ended June 30, 2023. The increase in revenue was primarily due to higher average selling prices resulting primarily from product mix, which was partially offset by lower shipment volume.

Previous wording

For the three months ended March 31, 2024, revenue from the enterprise data market increased $102.6 million, or 217.5%, 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 decreased $13.7 million, or 11.4%, from the same period in 2023. This decrease was primarily due to lower sales of storage applications, partially offset by higher sales of commercial notebooks. Revenue from the automotive market decreased $18.3 million, or 17.3%, from the same period in 2023. This decrease was primarily due to lower sales of our highly integrated applications supporting infotainment, USB connector and body electronics. Revenue from the communications market decreased $21.3 million, or 31.3%, from the same period in 2023. This decrease was primarily driven by lower demand for infrastructure related products. Revenue from the consumer market decreased $25.3 million, or 39.9%, from the same period in 2023. This decrease was broad-based and primarily driven by lower sales of products for home appliances and gaming. Revenue from the industrial market decreased $17.2 million, or 36.3%, from the same period in 2023. This decrease was mainly driven by lower sales of security and industrial meters applications.

Current wording

For the six months ended June 30, 2024, revenue from the enterprise data market increased $241.8 million, or 254.1%, from the same period in 2023. This increase was primarily due to higher sales of our power management solutions for AI applications. First half 2024 revenue from the storage and computing market decreased $23.3 million, or 9.5%, from the same period in 2023. This decrease was primarily due to lower sales of storage and graphic card applications, partially offset by higher sales of commercial notebooks. Revenue from the automotive market for the first six months of 2024 decreased $35.5 million, or 16.9%, from the same period in 2023. This decrease was primarily due to lower sales of applications supporting digital cockpits, body electronics and USB connectors. Revenue from the communications market decreased $27.0 million, or 23.0%, from the same period in 2023. This decrease was primarily driven by lower demand for infrastructure related products. For the six months ended June 30, 2024, consumer revenue decreased $48.2 million, or 37.5%, from the same period in 2023. This decrease was broad-based and primarily driven by lower sales of products for gaming and home appliances. Revenue from the industrial market decreased $34.7 million, or 35.7%, from the same period in 2023. This decrease was mainly driven by lower sales of products related to industrial meter, security and power source applications.

Previous wording

Gross margin was 55.1% for the three months ended March 31, 2024, compared with 57.4% for the three months ended March 31, 2023. The decrease in gross margin was mainly driven by an increase in inventory write-downs and warranty expenses as a percentage of revenue.

Current wording

Gross margin was 55.3% for the three months ended June 30, 2024, compared with 56.1% for the three months ended June 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.

Previous wording

Cost of revenue was $205.4 million, or 44.9% of revenue, for the three months ended March 31, 2024, and $192.3 million, or 42.6% of revenue, for the three months ended March 31, 2023. The $13.2 million increase in cost of revenue was primarily driven by product mix, higher inventory write-downs and higher warranty expenses, partially offset by lower shipment volume.

Current wording

Cost of revenue was $432.3 million, or 44.8% of revenue, for the six months ended June 30, 2024, and $385.7 million, or 43.2% of revenue, for the six months ended June 30, 2023. The $46.6 million increase in cost of revenue was primarily driven by increases in the average costs due to product mix, higher inventory write-downs and higher warranty expenses, partially offset by lower shipment volume.

Previous wording

R&D expenses were $76.0 million, or 16.6% of revenue, for the three months ended March 31, 2024, and $63.7 million, or 14.1% of revenue, for the three months ended March 31, 2023. The $12.3 million increase in R&D expenses was primarily due to a $5.8 million increase in cash compensation expenses, a $3.5 million increase in stock-based compensation expenses and related employer payroll taxes, and a $1.1 million increase in third party service fees.

Current wording

R&D expenses were $77.9 million, or 15.3% of revenue, for the three months ended June 30, 2024, and $63.7 million, or 14.4% of revenue, for the three months ended June 30, 2023. The $14.3 million increase in R&D expenses was primarily due to a $9.0 million increase in cash compensation and benefits and a $2.4 million increase in stock-based compensation expenses.

Previous wording

SG&A expenses were $81.0 million, or 17.7% of revenue, for the three months ended March 31, 2024, and $70.8 million, or 15.7% of revenue, for the three months ended March 31, 2023. The $10.2 million increase in SG&A expenses was driven by a $10.5 million increase in stock-based compensation expenses and related employer payroll taxes.

Current wording

SG&A expenses were $86.1 million, or 17.0% of revenue, for the three months ended June 30, 2024, and $71.7 million, or 16.2% of revenue, for the three months ended June 30, 2023. The $14.4 million increase in SG&A expenses was primarily driven by an $11.5 million increase in stock-based compensation expenses and a $1.8 million increase in sales commissions.

Previous wording

Other income, net, was $9.5 million for the three months ended March 31, 2024, compared with $5.3 million for the three months ended March 31, 2023. The increase in other income was primarily due to an increase of $6.5 million in net interest income and $1.5 million in income related to changes in the value of deferred compensation plan investments, partially offset by an increase in charitable contributions.

Current wording

Other income, net, was $7.5 million for the three months ended June 30, 2024, compared with $6.5 million for the three months ended June 30, 2023. The increase in other income was primarily due to an increase in net interest income, partially offset by a decrease in income related to changes in the value of deferred compensation plan investments.

Previous wording

The income tax expense for the three months ended March 31, 2024 was $12.5 million, or 11.9% of pre-tax income. The effective tax rate was 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 rate relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax.

Current wording

The income tax expense for the three months ended June 30, 2024 was $23.7 million, or 19.1% of pre-tax income. The income tax expense for the six months ended June 30, 2024 was $36.2 million, or 15.8% 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.

Previous wording

The income tax expense for the three months ended March 31, 2023 was $19.8 million, or 15.3% of pre-tax income. The effective tax rate was 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 rate relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax.

Current wording

The income tax expense for the three months ended June 30, 2023 was $19.4 million, or 16.3% of pre-tax income. The income tax expense for the six months ended June 30, 2023 was $39.1 million, or 15.8% 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.

Previous wording

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 months ended March 31, 2024.

Current wording

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 six months ended June 30, 2024.

Previous wording

As of March 31, 2024, we had cash and cash equivalents of $488.3 million and short-term investments of $798.1 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 March 31, 2024, $310.3 million of cash and cash equivalents and $769.4 million of short-term investments were held by our international subsidiaries. We have repatriated and may continue to repatriate cash from our Bermuda subsidiary to fund our expenditures in future periods. We anticipate that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.

Current wording

As of June 30, 2024, we had cash and cash equivalents of $550.5 million and short-term investments of $756.8 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 June 30, 2024, $335.3 million of cash and cash equivalents and $715.1 million of short-term investments were held by our international subsidiaries. We have repatriated and may continue to repatriate cash from our Bermuda subsidiary to fund our expenditures in future periods. We anticipate that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.

Previous wording

For the three months ended March 31, 2024, the $29.2 million increase in cash provided by operating activities compared to the same period in 2023 was primarily due to 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.

Current wording

For the six months ended June 30, 2024, the $80.0 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.

Previous wording

For the three months ended March 31, 2024, the $278.3 million increase in cash used in investing activities compared to the same period in 2023 was primarily due to an increase of $236.5 million in purchases of investments and $33.3 million paid for the acquisition of Axign.

Current wording

For the six months ended June 30, 2024, the $269.6 million increase in cash used in investing activities compared to the same period in 2023 was primarily due to an increase of $378.2 million in purchases of investments, partially offset by an increase of $188.3 million in sales of investments.

Previous wording

For the three months ended March 31, 2024, the $17.7 million increase in cash used in financing activities compared to the same period in 2023 was primarily due to an increase of $12.8 million in dividend and dividend equivalent payments.

Current wording

For the six months ended June 30, 2024, the $41.4 million increase in cash used in financing activities compared to the same period in 2023 was primarily due to an increase of $31.7 million in dividend and dividend equivalent payments.

Previous wording

Although consequences of economic uncertainty 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 $1,286.4 million as of March 31, 2024, along with cash generated by ongoing operations, will be sufficient to satisfy our liquidity requirements for the next 12 months and beyond.

Current wording

Although consequences of economic uncertainty 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 $1,307.2 million as of June 30, 2024, along with cash generated by ongoing operations, will be sufficient to satisfy our liquidity requirements for the next 12 months and beyond.

Previous wording

As of March 31, 2024, total estimated future unconditional purchase commitments to all suppliers and other parties, net of the $120.0 million prepayment, were $630.2 million, of which $341.3 million was classified as short-term.

Current wording

As of June 30, 2024, total estimated future unconditional purchase commitments to all suppliers and other parties, net of the $120.0 million prepayment, were $571.6 million, of which $394.1 million was classified as short-term.

Previous wording

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 March 31, 2024, the remaining liability totaled $11.1 million, of which $4.9 million was classified as short-term.

Current wording

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 June 30, 2024, the remaining liability totaled $6.2 million, all of which was classified as short-term.

Previous wording

Operating lease obligations represent the undiscounted remaining lease payments primarily for our leased facilities and equipment. As of March 31, 2024, these obligations totaled $8.6 million, of which $2.6 million was classified as short-term.

Current wording

Operating lease obligations represent the undiscounted remaining lease payments primarily for our leased facilities and equipment. As of June 30, 2024, these obligations totaled $15.5 million, of which $2.4 million was classified as short-term.

Previous wording

In October 2023, our Board of Directors approved a new 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 6,100 shares of our common stock for an aggregate purchase price of $4.1 million during the three months ended March 31, 2024. As of March 31, 2024, $632.2 million remained available for future repurchases under the program.

Current wording

In October 2023, our Board of Directors approved a new 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 6,300 and 12,400 shares of our common stock for an aggregate purchase price of $4.5 million and $8.6 million during the three and six months ended June 30, 2024, respectively. As of June 30, 2024, $627.6 million remained available for future repurchases under the program.

Previous wording

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 March 31, 2024, accrued dividends totaled $60.8 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.

Current wording

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 June 30, 2024, accrued dividends totaled $60.9 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.

Previous wording

Other long-term obligations primarily include payments for deferred compensation plan liabilities and accrued dividend equivalents. As of March 31, 2024, these obligations totaled $81.0 million.

Current wording

Other long-term obligations primarily include payments for deferred compensation plan liabilities and accrued dividend equivalents. As of June 30, 2024, these obligations totaled $83.6 million.