MONOLITHIC POWER SYSTEMS, INC.

Previous wording

Item 2. Management**’s Discussion and Analysis of Financial Condition and Results of Operations

Current wording

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 sales to customers in Asia was 92% and 94% of our total revenue for the three months ended March 31, 2026 and 2025, respectively. We believe our ability to achieve revenue growth will depend, in part, on our ability to develop new products, enter new markets, gain market share, manage litigation risk, diversify our customer base and continue to secure manufacturing capacity.

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 sales to direct customers in Asia was 94% and 93% of our total revenue for the three months ended June 30, 2026 and 2025, respectively. Our revenue from sales to direct customers in Asia was 93% of our total revenue for each of the six months ended June 30, 2026 and 2025. We believe our ability to achieve revenue growth will depend, in part, on our ability to develop new products, enter new markets, gain market share, manage litigation risk, diversify our customer base and continue to secure manufacturing capacity.

Previous wording

There have been no material changes during the three months ended March 31, 2026 to our critical accounting estimates from the information provided in the “Critical Accounting Estimates” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2025.

Current wording

There have been no material changes during the six months ended June 30, 2026 to our critical accounting estimates from the information provided in the “Critical Accounting Estimates” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2025.

Previous wording

Revenue for the three months ended March 31, 2026 was $804.2 million, an increase of $166.6 million, or 26.1%, from $637.6 million for the three months ended March 31, 2025. The increase in revenue was primarily due to higher shipment volume and higher average selling prices resulting primarily from product mix.

Current wording

Revenue for the three months ended June 30, 2026 was $980.6 million, an increase of $316.1 million, or 47.6%, from $664.6 million for the three months ended June 30, 2025. The increase in revenue was primarily due to increased demand for products serving our enterprise data and communications end markets. In addition, a higher product mix of power solutions, which generally carry higher average selling prices than discrete ICs, also contributed to the increase in year over year revenue.

Previous wording

By end market, first quarter 2026 revenue for enterprise data increased $129.9 million, or 97.7%, from the same period in 2025. This increase was primarily due to higher sales of power solutions for artificial intelligence (“AI”) and server applications. Revenue from the storage and computing market of $174.4 million decreased $14.1 million, or 7.5%, from the same period in 2025 primarily due to decreased sales of power solutions for notebooks and graphics cards, partially offset by increased sales of memory and storage applications. First quarter 2026 automotive revenue of $152.3 million increased $7.4 million, or 5.1%, from the same period in 2025. Communications revenue of $111.5 million increased $39.8 million, or 55.5%, from the same period in 2025 due to higher sales of power solutions for optical modules and switches. First quarter 2026 consumer revenue decreased $2.4 million, or 4.2%, from the same period in 2025. Revenue of $48.6 million from the industrial market increased $6.0 million, or 14.2%, from the same period in 2025.

Current wording

By end market, second quarter 2026 revenue for the enterprise data end market increased $236.6 million, or 164.3%, from the same period in 2025. This increase was primarily due to higher sales of power management solutions for artificial intelligence (“AI”) and server applications. Revenue from the storage and computing end market of $199.8 million increased $4.5 million, or 2.3%, from the same period in 2025. Second quarter 2026 automotive end market revenue of $157.1 million increased $11.9 million, or 8.2%, from the same period in 2025 due to higher sales of applications supporting infotainment and lighting systems. Communications end market revenue of $131.6 million increased $57.8 million, or 78.3%, from the same period in 2025 due to higher sales of power solutions for optical modules and switches. Second quarter 2026 consumer end market revenue decreased $2.9 million, or 4.8%, from the same period in 2025. Revenue of $54.8 million from the industrial end market increased $8.1 million, or 17.3%, from the same period in 2025.

Previous wording

Cost of revenue was $359.1 million, or 44.7% of revenue, for the three months ended March 31, 2026, and $284.3 million, or 44.6% of revenue, for the three months ended March 31, 2025. The $74.8 million increase in cost of revenue was primarily driven by product mix and higher shipment volume.

Current wording

Cost of revenue was $439.6 million, or 44.8% of revenue, for the three months ended June 30, 2026, and $298.6 million, or 44.9% of revenue, for the three months ended June 30, 2025. The $141.0 million increase in cost of revenue was primarily driven by higher shipment volume and product mix.

Previous wording

R&D expenses were $100.6 million, or 12.4% of revenue, for the three months ended March 31, 2026, and $92.2 million, or 14.4% of revenue, for the three months ended March 31, 2025. The $8.4 million increase in R&D expenses was primarily due to a $4.3 million increase in cash-based compensation and benefits, a $1.3 million increase in laboratory and other supplies, and a $1.3 million increase in facilities costs.

Current wording

R&D expenses were $118.6 million, or 12.1% of revenue, for the three months ended June 30, 2026, and $96.3 million, or 14.5% of revenue, for the three months ended June 30, 2025. The $22.3 million increase in R&D expenses was primarily due to an $11.2 million increase in cash-based compensation and benefits, a $6.6 million increase in new product development expenses, and a $1.3 million increase in facilities costs.

Previous wording

SG&A expenses were $103.3 million, or 12.9% of revenue, for the three months ended March 31, 2026, and $92.2 million, or 14.5% of revenue, for the three months ended March 31, 2025. The $11.1 million increase in SG&A expenses was primarily driven by a $10.0 million increase in cash-based compensation and benefits, a $5.1 million increase in stock-based compensation related payroll taxes, and a $4.4 million increase in legal expenses, partially offset by an $11.1 million decrease in stock-based compensation.

Current wording

SG&A expenses were $118.6 million, or 12.1% of revenue, for the three months ended June 30, 2026, and $105.0 million, or 15.8% of revenue, for the three months ended June 30, 2025. The $13.6 million increase in SG&A expenses was primarily driven by an $11.5 million increase in cash-based compensation and benefits and a $5.7 million increase in legal expenses, partially offset by a $6.8 million decrease in stock-based compensation.

Previous wording

The income tax expense for the three months ended March 31, 2026 and 2025, was $54.0 million and $38.8 million respectively, or an effective tax rate of 21.8% and 22.3% respectively. The reduction in rate was primarily due to a reduction in non-deductible stock-based compensation.

Current wording

The income tax expense for the three and six months ended June 30, 2026 was $64.4 million and $118.4 million, respectively, or an effective tax rate of 20.0% and 20.8%, respectively. The income tax expense for the three and six months ended June 30, 2025 was $42.0 million and $80.8 million, respectively, or an effective tax rate of 23.7% and 23.0%, respectively. The reduction in rates from the comparable periods was primarily due to the impact of higher non-deductible stock-based compensation reported in the periods in 2025 than in 2026.

Previous wording

As of March 31, 2026, we had cash and cash equivalents of $1,062.9 million and short-term investments of $304.2 million, compared with cash and cash equivalents of $1,099.3 million and short-term investments of $157.2 million as of December 31, 2025. As of March 31, 2026, $683.0 million of cash and cash equivalents and $304.2 million of short-term investments were held by our foreign subsidiaries. We may continue to repatriate cash from certain of our foreign subsidiaries to the U.S. 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, 2026, we had cash and cash equivalents of $1,005.6 million and short-term investments of $408.2 million, compared with cash and cash equivalents of $1,099.3 million and short-term investments of $157.2 million as of December 31, 2025. As of June 30, 2026, $659.5 million of cash and cash equivalents and $309.2 million of short-term investments were held by our foreign subsidiaries. For the six months ended June 30, 2026, we repatriated $140 million from certain foreign subsidiaries to the U.S. with minimal tax impact. We anticipate that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.

Previous wording

For the three months ended March 31, 2026, the $6.1 million decrease in net cash provided by operating activities compared to the same period in 2025 was primarily due to increased inventory purchases and other changes in working capital, partially offset by increased accounts receivable collections.

Current wording

For the six months ended June 30, 2026, the $15.9 million decrease in net cash provided by operating activities, compared to the same period in 2025, was primarily due to an overall increase in working capital needs.

Previous wording

For the three months ended March 31, 2026, the $45.2 million decrease in net cash used in investing activities compared to the same period in 2025 was primarily due to $69.2 million higher net purchases of investments, partially offset by $24.1 million higher purchases of property and equipment.

Current wording

For the six months ended June 30, 2026, the $123.6 million increase in net cash used in investing activities, compared to the same period in 2025, was primarily due to $67.4 million higher net purchases of investments and $64.8 million higher net purchases of property and equipment.

Previous wording

For the three months ended March 31, 2026, the $19.4 million increase in net cash used in financing activities compared to the same period in 2025 was primarily due to an increase of $18.4 million in dividend and dividend equivalent payments.

Current wording

For the six months ended June 30, 2026, the $43.3 million increase in net cash used in financing activities, compared to the same period in 2025, was primarily due to an increase of $44.4 million in dividend and dividend equivalent payments.

Previous wording

Although consequences of economic uncertainties and macroeconomic conditions, including tariffs and retaliatory measures and announcements regarding the same, and many other factors could adversely affect our liquidity and capital resources in the future, and 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 $1,367.1 million as of March 31, 2026, along with cash generated by ongoing operations, will be sufficient to satisfy our liquidity requirements for the next 12 months.

Current wording

Although consequences of economic uncertainties and macroeconomic conditions, including tariffs and retaliatory measures and announcements regarding the same, and many other factors could adversely affect our liquidity and capital resources in the future, and 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 $1,413.8 million as of June 30, 2026, along with cash generated by ongoing operations, will be sufficient to satisfy our liquidity requirements for the next 12 months.

Previous wording

As of March 31, 2026, total estimated future unconditional purchase commitments to all suppliers and other parties were $588.7 million, of which $557.5 million was due within a year.

Current wording

As of June 30, 2026, total estimated future unconditional purchase commitments to all suppliers and other parties were $571.0 million, of which $542.1 million was due within a year.

Previous wording

In February 2025, our Board of Directors approved a new stock repurchase program authorizing us to repurchase up to $500.0 million of our common stock through February 2028. Shares are retired upon repurchase. The Company did not make any repurchases under this program during the three months ended March 31, 2026. As of March 31, 2026, $493.4 million remained available for future repurchases under the program.

Current wording

In February 2025, our Board of Directors approved a new stock repurchase program authorizing us to repurchase up to $500.0 million of our common stock through February 2028. Shares are retired upon repurchase. We repurchased 3,000 shares of our common stock for an aggregate purchase price of $4.0 million during the three and six months ended June 30, 2026. As of June 30, 2026, $489.3 million remained available for future repurchases under the program. In July 2026, our Board of Directors increased the authorized amount of the repurchase program by an additional $500.0 million.

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, 2026, accrued dividends totaled $98.3 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, 2026, accrued dividends totaled $98.3 million.

Previous wording

Other long-term obligations primarily include deferred compensation plan liabilities and accrued dividend equivalents. As of March 31, 2026, these obligations totaled $99.2 million.

Current wording

Other long-term obligations primarily include deferred compensation plan liabilities and accrued dividend equivalents. As of June 30, 2026, these obligations totaled $108.6 million.