10-Q 1 mpwr20210930_10q.htm FORM 10-Q mpwr20210930_10q.htm
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Table of Contents



 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 


 

FORM 10-Q

 


 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 000-51026

 

 


 

Monolithic Power Systems, Inc.

(Exact name of registrant as specified in its charter)

 


 

 

Delaware

77-0466789

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

5808 Lake Washington Blvd. NE, Kirkland, Washington 98033

(Address of principal executive offices)(Zip Code)

 

(425) 296-9956

(Registrant’s telephone number, including area code) 

 

 


 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

MPWR

 

The NASDAQ Global Select Market

 

 

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.    Yes  ☒    No  ☐

 

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).    Yes  ☒    No  ☐

 

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.

 

Large accelerated filer

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company

Emerging growth company

 

 

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      No  ☒

 

There were 46,093,000 shares of the registrant’s common stock issued and outstanding as of November 1, 2021.

 



 

 

 

 

MONOLITHIC POWER SYSTEMS, INC.

 

 

TABLE OF CONTENTS

PAGE

PART I. FINANCIAL INFORMATION

4

ITEM 1.

FINANCIAL STATEMENTS (Unaudited)

4

 

CONDENSED CONSOLIDATED BALANCE SHEETS

4

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

5

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

6

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

7

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

8

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

24

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

32

ITEM 4.

CONTROLS AND PROCEDURES

32

PART II. OTHER INFORMATION

32

ITEM 1.

LEGAL PROCEEDINGS

32

ITEM1A.

RISK FACTORS

32

ITEM 6.

EXHIBITS

51

 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

 

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(unaudited)

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $226,091  $334,944 

Short-term investments

  515,947   260,169 

Accounts receivable, net

  79,859   66,843 

Inventories

  208,062   157,062 

Other current assets

  34,535   22,980 

Total current assets

  1,064,494   841,998 

Property and equipment, net

  340,060   281,528 

Goodwill

  6,571   6,571 

Deferred tax assets, net

  17,726   18,556 

Other long-term assets

  67,050   59,838 

Total assets

 $1,495,901  $1,208,491 
         

LIABILITIES AND STOCKHOLDERS EQUITY

        

Current liabilities:

        

Accounts payable

 $72,092  $38,169 

Accrued compensation and related benefits

  75,815   45,840 

Other accrued liabilities

  79,756   62,960 

Total current liabilities

  227,663   146,969 

Income tax liabilities

  41,019   37,062 

Other long-term liabilities

  64,506   57,873 

Total liabilities

  333,188   241,904 

Commitments and contingencies

          

Stockholders’ equity:

        

Common stock and additional paid-in capital: $0.001 par value; shares authorized: 150,000; shares issued and outstanding: 46,091 and 45,267, respectively

  769,858   657,701 

Retained earnings

  381,193   298,746 

Accumulated other comprehensive income

  11,662   10,140 

Total stockholders’ equity

  1,162,713   966,587 

Total liabilities and stockholders’ equity

 $1,495,901  $1,208,491 

 

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,

 
   

2021

   

2020

   

2021

   

2020

 

Revenue

  $ 323,522     $ 259,422     $ 871,294     $ 611,409  

Cost of revenue

    137,211       116,382       379,709       274,329  

Gross profit

    186,311       143,040       491,585       337,080  

Operating expenses:

                               

Research and development

    49,468       37,717       136,113       95,346  

Selling, general and administrative

    56,291       43,503       164,982       116,550  

Litigation expense

    3,421       1,841       6,645       6,264  

Total operating expenses

    109,180       83,061       307,740       218,160  

Income from operations

    77,131       59,979       183,845       118,920  

Other income, net

    793       2,494       6,411       5,980  

Income before income taxes

    77,924       62,473       190,256       124,900  

Income tax expense

    9,154       6,907       20,904       3,412  

Net income

  $ 68,770     $ 55,566     $ 169,352     $ 121,488  
                                 

Net income per share:

                               

Basic

  $ 1.50     $ 1.24     $ 3.70     $ 2.72  

Diluted

  $ 1.44     $ 1.18     $ 3.55     $ 2.59  

Weighted-average shares outstanding:

                               

Basic

    45,970       44,970       45,754       44,737  

Diluted

    47,852       46,955       47,772       46,819  

 

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,

 
  

2021

  

2020

  

2021

  

2020

 

Net income

 $68,770  $55,566  $169,352  $121,488 

Other comprehensive income (loss), net of tax:

                

Foreign currency translation adjustments

  (371)  6,936   2,592   5,072 

Change in unrealized gain (loss) on available-for-sale securities, net of tax of $32, $30, $177 and $(321), respectively

  (268)  (368)  (1,070)  2,888 

Other comprehensive income (loss), net of tax

  (639)  6,568   1,522   7,960 

Comprehensive income

 $68,131  $62,134  $170,874  $129,448 

 

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, 2021

 

Shares

  

Amount

  

Earnings

  

Income

  

Equity

 

Balance as of July 1, 2021

  45,917  $733,672  $341,382  $12,301  $1,087,355 

Net income

  -   -   68,770   -   68,770 

Other comprehensive loss

  -   -   -   (639)  (639)

Dividends and dividend equivalents declared ($0.60 per share)

  -   -   (28,959)  -   (28,959)

Common stock issued under the employee equity incentive plan

  167   2,227   -   -   2,227 

Common stock issued under the employee stock purchase plan

  7   2,377   -   -   2,377 

Stock-based compensation expense

  -   31,582   -   -   31,582 

Balance as of September 30, 2021

  46,091  $769,858  $381,193  $11,662  $1,162,713 

 

              

Accumulated

     
  

Common Stock and

      

Other

  

Total

 
  

Additional Paid-in Capital

  

Retained

  

Comprehensive

  

Stockholders

 

Three Months Ended September 30, 2020

 

Shares

  

Amount

  

Earnings

  

Income (Loss)

  

Equity

 

Balance as of July 1, 2020

  44,911  $605,165  $247,864  $(4,084) $848,945 

Net income

  -   -   55,566   -   55,566 

Other comprehensive income

  -   -   -   6,568   6,568 

Dividends and dividend equivalents declared ($0.50 per share)

  -   -   (23,777)  -   (23,777)

Common stock issued under the employee equity incentive plan

  173   2,347   -   -   2,347 

Common stock issued under the employee stock purchase plan

  12   1,927   -   -   1,927 

Stock-based compensation expense

  -   22,993   -   -   22,993 

Balance as of September 30, 2020

  45,096  $632,432  $279,653  $2,484  $914,569 

 

              

Accumulated

     
  

Common Stock and

      

Other

  

Total

 
  

Additional Paid-in Capital

  

Retained

  

Comprehensive

  

Stockholders

 

Nine Months Ended September 30, 2021

 

Shares

  

Amount

  

Earnings

  

Income

  

Equity

 

Balance as of January 1, 2021

  45,267  $657,701  $298,746  $10,140  $966,587 

Net income

  -   -   169,352   -   169,352 

Other comprehensive income

  -   -   -   1,522   1,522 

Dividends and dividend equivalents declared ($1.80 per share)

  -   -   (86,905)  -   (86,905)

Common stock issued under the employee equity incentive plan

  807   15,147   -   -   15,147 

Common stock issued under the employee stock purchase plan

  17   4,670   -   -   4,670 

Stock-based compensation expense

  -   92,340   -   -   92,340 

Balance as of September 30, 2021

  46,091  $769,858  $381,193  $11,662  $1,162,713 

 

              

Accumulated

     
  

Common Stock and

      

Other

  

Total

 
  

Additional Paid-in Capital

  

Retained

  

Comprehensive

  

Stockholders

 

Nine Months Ended September 30, 2020

 

Shares

  

Amount

  

Earnings

  

Income (Loss)

  

Equity

 

Balance as of January 1, 2020

  43,616  $549,517  $229,450  $(5,476) $773,491 

Net income

  -   -   121,488   -   121,488 

Other comprehensive income

  -   -   -   7,960   7,960 

Dividends and dividend equivalents declared ($1.50 per share)

  -   -   (71,285)  -   (71,285)

Common stock issued under the employee equity incentive plan

  1,452   16,457   -   -   16,457 

Common stock issued under the employee stock purchase plan

  28   3,819   -   -   3,819 

Stock-based compensation expense

  -   62,639   -   -   62,639 

Balance as of September 30, 2020

  45,096  $632,432  $279,653  $2,484  $914,569 

 

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,

 
   

2021

   

2020

 

Cash flows from operating activities:

               

Net income

  $ 169,352     $ 121,488  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    20,376       13,785  

Amortization of premium on available-for-sale securities

    3,231       1,984  

Gain on deferred compensation plan investments

    (2,640 )     (1,420 )

Deferred taxes, net

    1,004       3,400  

Stock-based compensation expense

    92,282       62,581  

Other

    (8 )     15  

Changes in operating assets and liabilities:

               

Accounts receivable

    (13,033 )     (40,826 )

Inventories

    (50,968 )     (20,533 )

Other assets

    (14,051 )     (6,376 )

Accounts payable

    30,032       19,811  

Accrued compensation and related benefits

    30,030       21,780  

Income tax liabilities

    4,088       (1,805 )

Other accrued liabilities

    22,109       14,271  

Net cash provided by operating activities

    291,804       188,155  

Cash flows from investing activities:

               

Purchases of property and equipment

    (76,849 )     (44,129 )

Purchases of short-term investments

    (354,171 )     (270,797 )

Proceeds from maturities and sales of short-term investments

    94,192       182,355  

Proceeds from sales of long-term investments

    400       250  

Contributions to deferred compensation plan, net

    (1,917 )     (1,116 )

Purchases of intangible assets

    (793 )     -  

Net cash used in investing activities

    (339,138 )     (133,437 )

Cash flows from financing activities:

               

Property and equipment purchased on extended payment terms

    (2,049 )     (4,437 )

Proceeds from common stock issued under the employee equity incentive plan

    15,147       16,457  

Proceeds from common stock issued under the employee stock purchase plan

    4,670       3,819  

Dividends and dividend equivalents paid

    (80,725 )     (65,477 )

Net cash used in financing activities

    (62,957 )     (49,638 )

Effect of change in exchange rates

    1,431       1,432  

Net increase (decrease) in cash, cash equivalents and restricted cash

    (108,860 )     6,512  

Cash, cash equivalents and restricted cash, beginning of period

    335,071       173,076  

Cash, cash equivalents and restricted cash, end of period

  $ 226,211     $ 179,588  

Supplemental disclosures for cash flow information:

               

Cash paid for taxes

  $ 16,217     $ 1,036  

Non-cash investing and financing activities:

               

Liability accrued for property and equipment purchases

  $ 7,144     $ 9,355  

Liability accrued for dividends and dividend equivalents

  $ 31,911     $ 26,429  

 

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 accounting principles generally accepted in the United States (“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, 2020, filed with the SEC on  March 1, 2021.

 

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, 2021 or for any other future periods.

 

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. 

 

The COVID-19 pandemic did not materially and adversely impact the Company's overall operating results or business operations during the three and nine months ended September 30, 2021. As of the date of issuance of these condensed consolidated financial statements, the Company is not aware of any specific event or circumstance related to the COVID-19 pandemic that would require 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 December 31, 2020. As new events continue to evolve and additional information becomes available, any changes to these estimates and assumptions will be recognized in the condensed consolidated financial statements as soon as they become known.

 

Recently Adopted Accounting Pronouncement

 

In  December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard became effective for annual reporting periods beginning after  December 15, 2020. The standard is generally applied prospectively, with certain exceptions. The Company adopted the standard in the first quarter of 2021 and the adoption did not have a material impact on its condensed 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”), as well as dies in wafer form. These product sales accounted for 96% and 97% of the Company’s total revenue for the three months ended September 30, 2021 and 2020, respectively, and 96% and 98% of the Company’s total revenue for the nine months ended September 30, 2021 and 2020, respectively. The remaining revenue primarily includes royalty revenue from licensing arrangements and revenue from wafer testing services performed for third parties, which have not been significant in all periods presented. See Note 7 for the disaggregation of the Company’s revenue by geographic regions and by product families.

 

9

 

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, 2021 and 2020, 89% and 75%, respectively, of the Company’s product sales were made through distribution arrangements. For the nine months ended September 30, 2021 and 2020, 89% and 79%, respectively, of the Company’s product sales were made through distribution arrangements. These distribution arrangements contain enforceable rights and obligations specific to those distributors and not the end customers. Purchase orders, which are generally governed by sales agreements or the Company's standard terms of sale, set the final terms for unit price, quantity, shipping and payment agreed by both parties. The Company considers purchase orders to be the contracts with customers. The unit price as stated on the purchase orders is considered the observable, stand-alone selling price for the arrangements.

 

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, revenue is not recognized when the products are shipped and delivered to be held at customers’ designated locations because the Company continues to control the products and retain ownership, and the customers do not have an unconditional obligation to pay. The Company recognizes revenue when the customers consume the products from the consigned inventory locations or, in some cases, after a 60-day period from the delivery date has passed, at which time control transfers to the customers and the Company invoices them for payment.

 

Variable Consideration

 

The Company accounts for price adjustment 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. Four 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, which make up the majority of the Company’s total sales to 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 six 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. As of September 30, 2021 and December 31, 2020, accounts receivable totaled $79.9 million and $66.8 million, respectively. The Company's accounts receivable 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 the 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 high-risk customers, the Company requires standby letters of credit or advance payment prior to shipments of goods. The Company did not recognize any write-offs of accounts receivable in any of the periods presented. As of September 30, 2021 and December 31, 2020, the Company did not record any allowance for credit losses.

 

10

 

Contract Liabilities:

 

For certain customers located in Asia, the Company requires cash payments two 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, 2021 and December 31, 2020, customer prepayments totaled $6.7 million and $7.2 million, respectively. The decrease in the customer prepayment balance for the nine months ended September 30, 2021 resulted from a decrease in unfulfilled customer orders for which the Company has received payments. For the nine months ended September 30, 2021, the Company recognized $7.1 million of revenue that was included in the customer prepayment balance as of December 31, 2020.

 

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 30 to 90 days after the Company satisfies the performance obligations. For those customers who are required to pay in advance, the Company satisfies the performance obligations generally within a quarter. The Company has elected not to determine whether contracts with customers contain significant financing components.

 

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 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 5.5 million shares. In  April 2020, the Board of Directors further amended and restated the amended 2014 Plan (the “Amended and Restated 2014 Plan”), which the Company's stockholders approved in  June 2020. The Amended and Restated 2014 Plan became effective on  June 11, 2020 and provides for the issuance of up to 10.5 million shares. The Amended and Restated 2014 Plan will expire on  June 11, 2030. As of September 30, 2021, 5.6 million shares remained available for future issuance under the Amended and Restated 2014 Plan.  

 

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,

 
  

2021

  

2020

  

2021

  

2020

 

Cost of revenue

 $922  $707  $2,622  $1,906 

Research and development

  6,646   5,334   19,564   14,666 

Selling, general and administrative

  24,004   16,934   70,096   46,009 

Total stock-based compensation expense

 $31,572  $22,975  $92,282  $62,581 

Tax benefit related to stock-based compensation (1)

 $488  $512  $1,299  $1,450 

 


(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. 

 

11

 

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 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 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

 
  

Number of

Shares

  

Weighted-

Average Grant

Date Fair

Value Per

Share

  

Number of

Shares

  

Weighted-

Average Grant

Date Fair

Value Per

Share

  

Number of

Shares

  

Weighted-

Average Grant

Date Fair

Value Per

Share

  

Number of

Shares

  

Weighted-

Average Grant

Date Fair

Value Per

Share

 

Outstanding at January 1, 2021

  161  $151.62   1,390  $132.60   1,554  $40.40   3,105  $87.42 

Granted

  43  $375.33   365(1) $352.37   -  $-   408  $354.79 

Vested

  (60) $142.13   (504) $91.73   (243) $23.57   (807) $74.95 

Forfeited

  (9) $199.05   (12) $100.25   (9) $68.48   (30) $118.31 

Outstanding at September 30, 2021

  135  $223.71   1,239  $214.52   1,302  $43.33   2,676  $131.68 

 


(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 $76.8 million and $45.9 million for the three months ended  September 30, 2021 and 2020, respectively. The intrinsic value related to vested RSUs was $297.7 million and $267.8 million for the nine months ended September 30, 2021 and 2020, respectively. As of  September 30, 2021, the total intrinsic value of all outstanding RSUs was $1.3 billion, based on the closing stock price of $484.68. As of  September 30, 2021, unamortized compensation expense related to all outstanding RSUs was $186.7 million with a weighted-average remaining recognition period of approximately two years.

 

Cash proceeds from vested PSUs with a purchase price requirement totaled $15.1 million and $16.5 million for the nine months ended September 30, 2021 and 2020, respectively. 

 

Time-Based RSUs:

 

For the nine months ended  September 30, 2021, the Compensation Committee granted 43,000 RSUs with service conditions to non-executive employees and non-employee directors. The RSUs generally vest over four years for employees and one year for directors, subject to continued service with the Company.

 

2021 PSUs:

 

In  February 2021, the Compensation Committee granted 80,000 PSUs to the executive officers, which represent a target number of shares that can be earned subject to the achievement of two sets of performance goals (“2021 Executive PSUs”). For the first goal, the executive officers can earn up to 300% of the target number of the 2021 Executive PSUs based on the achievement of the Company’s average two-year (2021 and 2022) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association. 50% of the 2021 Executive PSUs will vest in the first quarter of 2023 if the pre-determined revenue goal is met during the performance period. The remaining 2021 Executive PSUs will vest over the following two years on a quarterly basis. For the second goal, the executive officers can earn an additional 100% of the target number of the 2021 Executive PSUs based on the achievement of certain environmental objectives under the environmental, social and governance (“ESG”) initiatives with a performance period through December 31, 2023. The 2021 Executive PSUs related to the ESG goal will fully vest upon achievement of the goal, but no earlier than December 31, 2022. All vested shares related to the ESG goal will be subject to a post-vesting sales restriction period of one year. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2021 Executive PSUs is $114.4 million.

 

12

 

In  February 2021, the Compensation Committee granted 14,000 PSUs to certain non-executive employees, which represent a target number of shares that can be earned subject to the achievement of the Company’s 2022 revenue goals for certain regions or product line divisions, or based on the achievement of the Company’s average two-year (2021 and 2022) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2021 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2021 Non-Executive PSUs, depending on the job classification of the employee. 50% of the 2021 Non-Executive PSUs will vest in the first quarter of 2023 if the pre-determined performance goals are met during the performance period. The remaining 2021 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2021 Non-Executive PSUs is $12.2 million.

 

The 2021 Executive PSUs and the 2021 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. The $30 purchase price requirement is deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time between the grant date and December 31, 2022 is $30 higher than the grant date stock price of $374.57. This market condition was achieved in the third quarter of 2021. The Company determined the grant date fair value of the 2021 Executive PSUs and the 2021 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $374.57, simulation term of 4.0 years, expected volatility of 41.4%, risk-free interest rate of 0.3%, and expected dividend yield of 0.6%. In addition, the grant date fair value for the 2021 Executive PSUs subject to the ESG goal included an illiquidity discount of 9.8% to account for the post-vesting sales restrictions.

 

2004 Employee Stock Purchase Plan (ESPP)

 

For the three months ended September 30, 2021 and 2020, 7,000 and 12,000 shares, respectively, were issued under the ESPP. For the nine months ended September 30, 2021 and 2020, 17,000 and 28,000 shares, respectively, were issued under the ESPP. As of September 30, 2021, 4.5 million shares were available for future issuance under the ESPP.

 

The intrinsic value of the shares issued was $1.0 million and $1.5 million for the three months ended September 30, 2021 and 2020, respectively. The intrinsic value of the shares issued was $2.4 million and $2.5 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, the unamortized expense was $0.6 million, which will be recognized through the first quarter of 2022. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions: 

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Expected term (in years)

  0.5   0.5   0.5   0.5 

Expected volatility

  43.0%  66.4%  43.2%  48.9%

Risk-free interest rate

  0.1%  0.1%  0.1%  0.8%

Dividend yield

  0.5%  0.7%  0.6%  0.9%

 

Cash proceeds from the shares issued under the ESPP were $4.7 million and $3.8 million for the nine months ended September 30, 2021 and 2020, respectively.  

 

 

 

4. BALANCE SHEET COMPONENTS

 

Inventories 

 

Inventories consist of the following (in thousands): 

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

Raw materials

 $17,254  $25,503 

Work in process

  112,922   77,100 

Finished goods

  77,886   54,459 

Total

 $208,062  $157,062 

 

13

 

Other Current Assets

 

Other current assets consist of the following (in thousands):

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

RSU tax withholding proceeds receivable

 $16,075  $12,504 

Prepaid expense

  10,638   5,032 

Accrued interest receivable

  4,094   1,914 

Assets for product returns

  2,059   1,684 

Other

  1,669   1,846 

Total

 $34,535  $22,980 

 

Other Long-Term Assets

 

Other long-term assets consist of the following (in thousands):

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

Deferred compensation plan assets

 $50,641  $46,146 

Operating lease right-of-use (“ROU”) assets

  6,292   3,719 

Prepaid expense

  2,256   2,340 

Debt investment

  2,501   2,861 

Equity investment in a privately held company

  3,215   3,400 

Other

  2,145   1,372 

Total

 $67,050  $59,838 

 

Other Accrued Liabilities

 

Other accrued liabilities consist of the following (in thousands): 

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

Dividends and dividend equivalents

 $32,044  $26,435 

Stock rotation and sales returns

  7,695   6,005 

Accrued purchases of property and equipment

  1,033   5,841 

Income tax payable

  3,884   3,755 

Customer prepayments

  6,690   7,238 

Commissions

  1,347   1,107 

Operating lease liabilities

  2,425   1,406 

Warranty

  17,776   6,895 

Other

  6,862   4,278 

Total

 $79,756  $62,960 

 

14

 

Other Long-Term Liabilities

 

Other long-term liabilities consist of the following (in thousands):

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

Deferred compensation plan liabilities

 $52,707  $48,280 

Dividend equivalents

  8,444   7,871 

Operating lease liabilities

  3,355   1,693 

Other

  -   29 

Total

 $64,506  $57,873 

 

 

 

5. LEASES

 

Lessee

 

The Company has operating leases primarily for administrative and sales and marketing offices, manufacturing operations and research and development facilities, employee housing units and certain equipment. These leases have remaining lease terms from less than a year to five years. Some of these leases include options to renew the lease term for up to two years or on a month-to-month basis. The Company does not have finance lease arrangements.

 

As of September 30, 2021 and December 31, 2020, operating lease ROU assets totaled $6.3 million and $3.7 million, respectively. As of September 30, 2021 and December 31, 2020, operating lease liabilities totaled $5.8 million and $3.1 million, respectively. The following tables summarize certain information related to the leases (in thousands, except percentages):

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Lease costs:

                

Operating lease costs

 $623  $364  $1,694  $1,093 

Other

  140   87   387   235 

Total lease costs

 $763  $451  $2,081  $1,328 

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Cash paid for amounts included in the measurement of lease liabilities:

                

Operating cash flows from operating leases

 $612  $394  $1,622  $1,097 

ROU assets obtained in exchange for new operating lease liabilities

 $793  $-  $4,477  $1,796 

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

Weighted-average remaining lease term (in years)

  3.0   2.7 

Weighted-average discount rate

  2.1%  2.7%

 

15

 

As of September 30, 2021, the maturities of the lease liabilities were as follows (in thousands):

 

2021 (remaining three months)

 $664 

2022

  2,342 

2023

  1,505 

2024

  834 

2025

  645 

Thereafter

  8 

Total remaining lease payments

  5,998 

Less: imputed interest

  (218)

Total lease liabilities

 $5,780 

Reported as:

    

Current liabilities

 $2,425 

Long-term liabilities

 $3,355 

 

As of September 30, 2021, the Company had operating leases that have not yet commenced with future lease obligations of $4.2 million. The leases are expected to commence in the fourth quarter of 2021 with contractual lease terms ranging from two to five years.

 

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 one year to five years. Some of these leases include options to renew the lease term for up to five years.

 

For the three months ended September 30, 2021 and 2020, income related to lease payments was $0.7 million and $0.5 million, respectively. For the nine months ended September 30, 2021 and 2020, income related to lease payments was $1.7 million and $1.3 million, respectively. As of  September 30, 2021, future income related to lease payments was as follows (in thousands):

 

2021 (remaining three months)

 $594 

2022

  2,293 

2023

  1,621 

2024

  631 

2025

  110 

Thereafter

  21 

Total

 $5,270 

 

 

 

6. NET INCOME PER SHARE

 

Basic net income per share is computed by dividing net income by the weighted-average number of common shares 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 common shares, and calculated using the treasury stock method. Contingently issuable shares, including equity awards with performance conditions or market conditions, are considered outstanding common shares 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. 

 

16

 

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,

 
  

2021

  

2020

  

2021

  

2020

 

Numerator:

                

Net income

 $68,770  $55,566  $169,352  $121,488 
                 

Denominator:

                

Weighted-average outstanding shares - basic

  45,970   44,970   45,754   44,737 

Effect of dilutive securities

  1,882   1,985   2,018   2,082 

Weighted-average outstanding shares - diluted

  47,852   46,955   47,772   46,819 
                 

Net income per share:

                

Basic

 $1.50  $1.24  $3.70  $2.72 

Diluted

 $1.44  $1.18  $3.55  $2.59 

 

Anti-dilutive common stock equivalents were not material in any of the periods presented.

 

 

 

7. SEGMENT, SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION

 

The Company operates in one reportable segment that includes the design, development, marketing and sale of high-performance, semiconductor-based power electronics solutions for the computing and storage, automotive, industrial, communications and consumer 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 through 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

 

2021

  

2020

  

2021

  

2020

 

Distributor A

  24%  22%  26%  23%

Distributor B

  15%  11%  16%  * 

Distributor C

  12%  *   *   * 

Direct customer A

  *   14%  *   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 was 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 the termination of the agreement with the 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

 

2021

  

2020

 

Distributor A

  17%  24%

Distributor B

  18%  21%

Value-added reseller A

  15%  13%

Direct customer A

  *   10%

 


* Represents less than 10%.

 

17

 

The following is a summary of revenue by geographic regions (in thousands):

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 

Country or Region

 

2021

  

2020

  

2021

  

2020

 

China

 $184,796  $157,215  $509,072  $375,708 

Taiwan

  47,048   40,782   125,756   79,644 

Europe

  21,328   14,255   62,498   40,770 

South Korea

  24,442   20,935   62,721   44,452 

Southeast Asia

  14,820   11,854   38,506   32,256 

Japan

  20,944   9,433   47,546   25,079 

United States

  10,091   4,880   24,935   13,298 

Other

  53   68   260   202 

Total

 $323,522  $259,422  $871,294  $611,409 

 

The following is a summary of revenue by product family (in thousands):

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 

Product Family

 

2021

  

2020

  

2021

  

2020

 

DC to DC

 $307,368  $247,561  $827,605  $580,549 

Lighting Control

  16,154   11,861   43,689   30,860 

Total

 $323,522  $259,422  $871,294  $611,409 

 

The following is a summary of long-lived assets by geographic regions (in thousands):

 

  

September 30,

  

December 31,

 

Country

 

2021

  

2020

 

China

 $192,485  $151,752 

United States

  113,310   101,768 

Taiwan

  19,187   18,797 

Other

  15,078   9,211 

Total

 $340,060  $281,528 

 

 

 

8. COMMITMENTS AND CONTINGENCIES

 

Product Warranties

 

The Company generally provides one to two-year warranties 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 a product defect.

 

The changes in warranty reserves are as follows (in thousands):

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Balance at beginning of period

 $10,873  $1,174  $6,895  $1,139 

Warranty provision for product sales

  7,757   3,324   12,954   4,364 

Settlements made

  (770)  (254)  (1,739)  (760)

Unused warranty provision

  (84)  (345)  (334)  (844)

Balance at end of period

 $17,776  $3,899  $17,776  $3,899 

 

Purchase Commitments

 

The Company has outstanding purchase commitments with its suppliers and other parties that require the future purchases of goods or services, which primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction or purchases of property and equipment, and license arrangements. As of September 30, 2021, the Company’s outstanding purchase obligations totaled approximately $197.8 million. 

 

18

 

Litigation

 

The Company is a party to actions and proceedings in the ordinary course of business, including potential litigation initiated by its stockholders, 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. 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, 2021, there were no material pending legal proceedings to which the Company was a party.

 

 

 

9. 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,

 
  

2021

  

2020

 

Cash

 $212,622  $300,609 

Money market funds

  13,469   34,335 

Certificates of deposit

  139,361   - 

Corporate debt securities

  369,094   249,671 

Commercial paper

  -   2,999 

U.S. treasuries and government agency bonds

  7,492   7,499 

Auction-rate securities backed by student-loan notes

  2,501   2,861 

Total

 $744,539  $597,974 

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

Reported as:

        

Cash and cash equivalents

 $226,091  $334,944 

Short-term investments

  515,947   260,169 

Debt investment within other long-term assets

  2,501   2,861 

Total

 $744,539  $597,974 

 

The following table summarizes the contractual maturities of the short-term and long-term available-for-sale investments as of September 30, 2021 (in thousands):  

 

  

Amortized Cost

  

Fair Value

 

Due in less than 1 year

 $113,987  $114,265 

Due in 1 - 5 years

  401,166   401,682 

Due in greater than 5 years

  2,620   2,501 

Total

 $517,773  $518,448 

 

Gross realized gains and losses recognized on the sales of available-for-sale investments were not material for any of the periods presented. 

 

The following tables summarize the unrealized gain and loss positions related to the available-for sale investments (in thousands):  

 

  

September 30, 2021

 
  

Amortized Cost

  

Unrealized Gains

  

Unrealized Losses

  

Fair Value

 

Money market funds

 $13,469  $-  $-  $13,469 

Certificates of deposit

  139,361   -   -   139,361 

Corporate debt securities

  368,298   1,122   (