MONOLITHIC POWER SYSTEMS INC [MPWR] Filings

10-Q 1 mpwr20240630_10q.htm FORM 10-Q mpwr20240630_10q.htm

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 June 30, 2024

☐	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

Table of Contents

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 48,752,000 shares of the registrant’s common stock issued and outstanding as of July 26, 2024.

Table of Contents

MONOLITHIC POWER SYSTEMS, INC.

Form 10-Q

For the Quarter Ended June 30, 2024

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	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION		36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

	*June 30,*			*December 31,*
	*2024*			*2023*
ASSETS
Current assets:
Cash and cash equivalents	$	550,475		$	527,843
Short-term investments		756,770			580,633
Accounts receivable, net		157,890			179,858
Inventories		426,751			383,702
Other current assets		105,547			147,463
Total current assets		1,997,433			1,819,499
Property and equipment, net		400,534			368,952
Acquisition-related intangible assets, net		10,512			-
Goodwill		26,080			6,571
Deferred tax assets, net		29,707			28,054
Other long-term assets		183,866			211,277
Total assets	$	2,648,132		$	2,434,353

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	99,894		$	62,958
Accrued compensation and related benefits		63,917			56,286
Other accrued liabilities		131,348			115,791
Total current liabilities		295,159			235,035
Income tax liabilities		60,440			60,724
Other long-term liabilities		96,675			88,655
Total liabilities		452,274			384,414
Commitments and contingencies
Stockholders’ equity:
Common stock and additional paid-in capital: $0.001 par value; shares authorized: 150,000; shares issued and outstanding: 48,698 and 48,028, respectively		1,224,144			1,129,937
Retained earnings		1,016,208			947,064
Accumulated other comprehensive loss		(44,494	)		(27,062	)
Total stockholders’ equity		2,195,858			2,049,939
Total liabilities and stockholders’ equity	$	2,648,132		$	2,434,353

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per-share amounts)

(Unaudited)

	*Three Months Ended June 30,*				*Six Months Ended June 30,*
	*2024*		*2023*		*2024*		*2023*
Revenue	$	507,431	$	441,128	$	965,316	$	892,193
Cost of revenue		226,853		193,453		432,297		385,738
Gross profit		280,578		247,675		533,019		506,455
Operating expenses:
Research and development		77,945		63,688		153,935		127,397
Selling, general and administrative		86,097		71,662		167,061		142,457
Total operating expenses		164,042		135,350		320,996		269,854
Operating income		116,536		112,325		212,023		236,601
Other income, net		7,512		6,543		17,052		11,840
Income before income taxes		124,048		118,868		229,075		248,441
Income tax expense		23,682		19,364		36,168		39,135
Net income	$	100,366	$	99,504	$	192,907	$	209,306

Net income per share:
Basic	$	2.06	$	2.10	$	3.96	$	4.42
Diluted	$	2.05	$	2.04	$	3.94	$	4.30
Weighted-average shares outstanding:
Basic		48,687		47,489		48,660		47,361
Diluted		48,945		48,756		48,935		48,705

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2024*			*2023*			*2024*			*2023*
Net income	$	100,366		$	99,504		$	192,907		$	209,306
Other comprehensive loss, net of tax:
Foreign currency translation adjustments		(4,313	)		(26,180	)		(18,135	)		(23,261	)
Change in unrealized gains and losses on available-for-sale securities, net of tax of $50, $158, $(198) and $469, respectively		368			728			703			2,941
Other comprehensive loss, net of tax:		(3,945	)		(25,452	)		(17,432	)		(20,320	)
Comprehensive income	$	96,421		$	74,052		$	175,475		$	188,986

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

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 June 30, 2024	*Shares*			*Amount*			*Earnings*			*Loss*			*Equity*
Balance as of April 1, 2024		48,667		$	1,176,382		$	977,724		$	(40,549	)	$	2,113,557
Net income		-			-			100,366			-			100,366
Other comprehensive loss		-			-			-			(3,945	)		(3,945	)
Dividends and dividend equivalents declared ($1.25 per share)		-			-			(61,882	)		-			(61,882	)
Common stock issued under the employee equity incentive plan		37			-			-			-			-
Repurchases of common stock		(6	)		(4,550	)		-			-			(4,550	)
Stock-based compensation expense		-			52,312			-			-			52,312
Balance as of June 30, 2024		48,698		$	1,224,144		$	1,016,208		$	(44,494	)	$	2,195,858

								*Accumulated*
	*Common Stock and*							*Other*			*Total*
	*Additional Paid-in Capital*				*Retained*			*Comprehensive*			*Stockholders’*
Three Months Ended June 30, 2023	*Shares*		*Amount*		*Earnings*			*Loss*			*Equity*
Balance as of April 1, 2023		47,411	$	1,017,131	$	777,075		$	(17,945	)	$	1,776,261
Net income		-		-		99,504			-			99,504
Other comprehensive loss		-		-		-			(25,452	)		(25,452	)
Dividends and dividend equivalents declared ($1.00 per share)		-		-		(49,223	)		-			(49,223	)
Common stock issued under the employee equity incentive plan		200		4		-			-			4
Stock-based compensation expense		-		37,995		-			-			37,995
Balance as of June 30, 2023		47,611	$	1,055,130	$	827,356		$	(43,397	)	$	1,839,089

										*Accumulated*
	*Common Stock and*									*Other*			*Total*
	*Additional Paid-in Capital*						*Retained*			*Comprehensive*			*Stockholders’*
Six Months Ended June 30, 2024	*Shares*			*Amount*			*Earnings*			*Loss*			*Equity*
Balance as of January 1, 2024		48,028		$	1,129,937		$	947,064		$	(27,062	)	$	2,049,939
Net income		-			-			192,907			-			192,907
Other comprehensive loss		-			-			-			(17,432	)		(17,432	)
Dividends and dividend equivalents declared ($2.50 per share)		-			-			(123,763	)		-			(123,763	)
Common stock issued under the employee equity incentive plan		671			-			-			-			-
Common stock issued under the employee stock purchase plan		11			4,606			-			-			4,606
Repurchases of common stock		(12	)		(8,626	)		-			-			(8,626	)
Stock-based compensation expense		-			98,227			-			-			98,227
Balance as of June 30, 2024		48,698		$	1,224,144		$	1,016,208		$	(44,494	)	$	2,195,858

								*Accumulated*
	*Common Stock and*							*Other*			*Total*
	*Additional Paid-in Capital*				*Retained*			*Comprehensive*			*Stockholders’*
Six Months Ended June 30, 2023	*Shares*		*Amount*		*Earnings*			*Loss*			*Equity*
Balance as of January 1, 2023		47,107	$	975,276	$	716,403		$	(23,077	)	$	1,668,602
Net income		-		-		209,306			-			209,306
Other comprehensive loss		-		-		-			(20,320	)		(20,320	)
Dividends and dividend equivalents declared ($2.00 per share)		-		-		(98,353	)		-			(98,353	)
Common stock issued under the employee equity incentive plan		495		1,114		-			-			1,114
Common stock issued under the employee stock purchase plan		9		3,737		-			-			3,737
Stock-based compensation expense		-		75,003		-			-			75,003
Balance as of June 30, 2023		47,611	$	1,055,130	$	827,356		$	(43,397	)	$	1,839,089

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	*Six Months Ended June 30,*
	*2024*			*2023*
Cash flows from operating activities:
Net income	$	192,907		$	209,306
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		16,942			19,940
Amortization of premium (discount) on available-for-sale securities		(10,040	)		56
Gain on deferred compensation plan investments		(5,285	)		(5,022	)
Gain on sale of equity investments		-			(1,424	)
Deferred taxes, net		(5,821	)		(984	)
Stock-based compensation expense		98,232			75,001
Other		77			-
Changes in operating assets and liabilities:
Accounts receivable		21,951			13,544
Inventories		(42,350	)		19,847
Other assets		60,590			(4,881	)
Accounts payable		30,725			12,653
Accrued compensation and related benefits		8,353			(20,613	)
Income tax liabilities		7,459			(14,802	)
Other accrued liabilities		15,286			6,371
Net cash provided by operating activities		389,026			308,992
Cash flows from investing activities:
Purchases of property and equipment		(47,498	)		(16,681	)
Cash paid for an assumed lease		(18,175	)		-
Purchases of investments		(589,615	)		(211,407	)
Maturities and sales of investments		420,514			232,206
Cash paid for acquisition, net of cash acquired		(33,283	)		-
Contributions to deferred compensation plan, net		(1,309	)		(3,855	)
Net cash provided by (used in) investing activities		(269,366	)		263
Cash flows from financing activities:
Property and equipment purchased on extended payment terms		(2,010	)		(1,192	)
Proceeds from common stock issued under the employee equity incentive plan		-			1,114
Proceeds from common stock issued under the employee stock purchase plan		4,606			3,737
Repurchases of common stock		(8,626	)		-
Dividends and dividend equivalents paid		(117,608	)		(85,863	)
Net cash used in financing activities		(123,638	)		(82,204	)
Effect of change in exchange rates		(6,603	)		(8,696	)
Net increase (decrease) in cash, cash equivalents and restricted cash		(10,581	)		218,355
Cash, cash equivalents and restricted cash, beginning of period		561,181			288,729
Cash, cash equivalents and restricted cash, end of period	$	550,600		$	507,084
Supplemental disclosures for cash flow information:
Cash paid for income taxes, net	$	34,064		$	58,216
Non-cash investing and financing activities:
Liability accrued for property and equipment purchases	$	7,488		$	2,586
Liability accrued for dividends and dividend equivalents	$	62,949		$	51,037

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

MONOLITHIC POWER SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by Monolithic Power Systems, Inc. (the “Company” or “MPS”) in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted in accordance with these accounting principles, rules and regulations. The information in this report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The financial statements contained in this Quarterly Report on Form 10-Q are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other future periods.

Summary of Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies during the three and six months ended June 30, 2024. In addition to those described in the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2023, the Company is subject to the following significant accounting policy due to the recent acquisition.

Goodwill and Acquisition-Related Intangible Assets

Goodwill represents the excess of fair value of purchase consideration over fair value of net tangible and identifiable intangible assets acquired as of the date of an acquisition. In-process research and development (“IPR&D”) assets represent the fair value of incomplete research and development (“R&D”) projects that had not reached technological feasibility as of the date of acquisition. IPR&D assets are initially capitalized at fair value as intangible assets with indefinite lives. When IPR&D projects are completed, they are reclassified as amortizable intangible assets and are amortized over their estimated useful lives. Alternatively, if IPR&D projects are abandoned, they are impaired and expensed as R&D costs. Acquisition-related intangible assets with finite lives consist of developed technologies, which are amortized on a straight-line basis over their estimated remaining useful lives. The amortization expense is recorded in cost of revenue in the Condensed Consolidated Statements of Operations.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions used in these condensed consolidated financial statements primarily include those related to revenue recognition, inventory valuation, valuation of share-based awards, contingencies and income tax valuation allowances. Actual results could differ from these estimates and assumptions, and any such differences may be material to the Company’s condensed consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted as of June 30, 2024

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which aims to improve disclosures regarding a public entity’s reportable segments, primarily through more comprehensive disclosures around significant segment expenses. The standard is effective for annual periods beginning January 1, 2024 and for interim periods beginning January 1, 2025, and should be applied retroactively to all prior periods presented. The Company is evaluating the potential effect that the updated standard will have on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which aims to improve an entity’s income tax disclosures around its effective rate reconciliation, income taxes paid, disaggregation of income before income taxes and income tax expense. The guidance will be effective for annual periods beginning January 1, 2025. The standard should be applied prospectively but retrospective application is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

Table of Contents

2. REVENUE RECOGNITION

Revenue from Product Sales

The Company generates revenue primarily from product sales, which include assembled and tested integrated circuits (“ICs”), power modules as well as dies in wafer form. These product sales accounted for 99% of the Company’s total revenue for each of the three and six months ended June 30, 2024 and 2023. The remaining revenue primarily includes royalty revenue from licensing arrangements and revenue from wafer testing services performed for third parties. See Note 8 for the disaggregation of the Company’s revenue by geographic region and by product family.

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 June 30, 2024 and 2023, 90% and 80%, respectively, of the Company’s product sales were made through distribution arrangements. For the six months ended June 30, 2024 and 2023, 87% and 80%, 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 between the Company and the customer. 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, the Company recognizes revenue when the customers consume the products from the consigned inventory locations, at which time control transfers to the customers and the Company issues invoices.

Table of Contents

Variable Consideration

The Company accounts for price adjustments and stock rotation rights as variable consideration that reduces the transaction price and recognizes that reduction in the same period the associated revenue is recognized. Certain U.S.-based distributors have price adjustment rights when they sell the Company’s products to their end customers at a price that is lower than the distribution price invoiced by the Company. When the Company receives claims from the distributors that products have been sold to the end customers at the lower price, the Company issues the distributors credit memos for the price adjustments. The Company estimates the price adjustments using the expected value method based on an analysis of historical claims, at both the distributor and product level, as well as an assessment of any known trends of product sales mix. Other U.S. distributors and non-U.S. distributors do not have price adjustment rights. The Company records a credit against accounts receivable for the estimated price adjustments, with a corresponding reduction to revenue.

Certain distributors have limited stock rotation rights that permit the return of a small percentage of the previous 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. The Company’s accounts receivables are short-term, with standard payment terms generally ranging from 30 to 90 days. The Company does not require its customers to provide collateral to support accounts receivable. The Company assesses collectability by reviewing accounts receivable on a customer-by-customer basis. To manage credit risk, management performs ongoing credit evaluations of the customers’ financial condition, monitors payment performance, and assesses current economic conditions, as well as reasonable and supportable forecasts of future economic conditions, that may affect collectability of the outstanding receivables. For certain customers, the Company requires standby letters of credit or advance payments prior to shipments of goods. The Company did not recognize any write-offs of accounts receivable or record any allowance for credit losses for the periods presented.

Contract Liabilities:

For customers without credit terms, the Company requires cash payments 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 June 30, 2024 and December 31, 2023, customer prepayments totaled $5.6 million and $2.8 million, respectively. The increase in the customer prepayment balance for the six months ended June 30, 2024 resulted from an increase in unfulfilled customer orders for which the Company had received payments.

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. For these reasons, 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.

Table of Contents

3. STOCK-BASED COMPENSATION

2014 Equity Incentive Plan

In April 2013, the Board of Directors adopted the Company’s 2014 Equity Incentive Plan (the “2014 Plan”), which the Company’s stockholders approved in June 2013. In October 2014, the Board of Directors approved certain amendments to the 2014 Plan. The amended 2014 Plan became effective on November 13, 2014, and provided for the issuance of up to 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 cease being available for new awards on June 11, 2030. As of June 30, 2024, 3.9 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 June 30,*				*Six Months Ended June 30,*
	*2024*		*2023*		*2024*		*2023*
Cost of revenue	$	1,611	$	1,150	$	3,009	$	2,297
Research and development		11,682		9,313		22,129		17,927
Selling, general and administrative (“SG&A”)		39,013		27,529		73,094		54,777
Total stock-based compensation expense	$	52,306	$	37,992	$	98,232	$	75,001
Tax benefit related to stock-based compensation ⁽¹⁾	$	798	$	663	$	1,506	$	1,086

(1)

Amount reflects the tax benefit related to stock-based compensation recorded for equity awards that are expected to generate tax deductions when they vest in future periods. Equity awards granted to the Company’s executive officers are subject to the tax deduction limitations set by Section 162(m) of the Internal Revenue Code.

Restricted Stock Units (“RSUs”)

The Company’s RSUs include time-based RSUs, RSUs with performance conditions (“PSUs”), RSUs with market conditions (“MSUs”), and RSUs with both market and performance conditions (“MPSUs”). Vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performance or market goals and the approval of such achievement by the Compensation Committee of the Board of Directors (the “Compensation Committee”). All awards include service conditions which require continued employment with or services to the Company.

A summary of RSU activity is presented in the table below (in thousands, except per-share amounts):

	*Time-Based RSUs*					*PSUs and MPSUs*						*MSUs*					*Total*
				*Weighted-*						*Weighted-*					*Weighted-*					*Weighted-*
				*Average*						*Average*					*Average*					*Average*
				*Grant Date*						*Grant Date*					*Grant Date*					*Grant Date*
	*Number of*			*Fair Value*		*Number of*				*Fair Value*		*Number of*			*Fair Value*		*Number of*			*Fair Value*
	*Shares*			*Per Share*		*Shares*				*Per Share*		*Shares*			*Per Share*		*Shares*			*Per Share*
Outstanding at January 1, 2024		102		$	411.11		482			$	397.77		1,502		$	152.89		2,086		$	222.04
Granted		30		$	635.67		344		⁽¹⁾	$	593.33		-		$	-		374		$	596.68
Vested		(31	)	$	363.82		(77	)		$	307.93		(563	)	$	68.48		(671	)	$	109.62
Forfeited		(3	)	$	465.22		(1	)		$	396.40		(1	)	$	270.15		(5	)	$	412.40
Outstanding at June 30, 2024		98		$	493.16		748			$	496.84		938		$	203.33		1,784		$	342.19

(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.

Table of Contents

The intrinsic value related to vested RSUs was $25.5 million and $98.1 million for the three months ended June 30, 2024 and 2023, respectively. The intrinsic value related to vested RSUs was $428.6 million and $239.7 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the total intrinsic value of all outstanding RSUs was $1.4 billion, based on the closing stock price of $821.68. As of June 30, 2024, unamortized compensation expense related to all outstanding RSUs was $350.8 million with a weighted-average remaining recognition period of approximately two years.

Time-Based RSUs:

For the six months ended June 30, 2024, the Compensation Committee granted 30,000 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.

2024 PSUs:

In February 2024, the Compensation Committee granted 50,000 PSUs to the executive officers, which represent a target number of shares that can be earned based on the degree of achievement of three sets of performance goals (“2024 Executive PSUs”). For the first goal, the executive officers can earn up to 300% of the target number of the 2024 Executive PSUs based on the achievement of the Company’s average three-year (2024 through 2026) revenue growth rate in excess of the analog industry’s average three-year revenue growth rate as published by the Semiconductor Industry Association (the “SIA”). For the second goal, the executive officers can earn an additional 100% of the target number of the 2024 Executive PSUs if the Company achieves a reduction in 2026 of 25% global combined Scope 1 and Scope 2 greenhouse gas emissions against the 2022 baseline. For the third goal, the executive officers can earn 50% of the target number of the 2024 Executive PSUs if more than one-third of the Company’s total 2026 revenue in the automotive market is generated from Electronic Vehicle (“EV”) automakers. In addition, for the third goal, the executive officers can earn 50% of the target number of the 2024 Executive PSUs if total 2026 revenue from products enabling EV powertrains and EV 48V systems grows to 200% of the 2023 baseline. For the first goal, a percentage of the 2024 Executive PSUs will fully vest on December 31, 2026, depending on the degree to which the pre-determined goal is met during the performance period. The 2024 Executive PSUs related to the second and the third goal will fully vest on December 31, 2026 if the pre-determined goals are met during the performance period. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2024 Executive PSUs will be $154.3 million.

In February 2024, the Compensation Committee granted 11,000 PSUs to certain non-executive employees, which represent a target number of shares that can be earned based on the degree of achievement of the Company’s 2025 revenue goals for certain regions or product line divisions, or based on the degree of achievement of the Company’s average two-year (2024 and 2025) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the SIA (“2024 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2024 Non-Executive PSUs, depending on the job classification of the employee. 50% of the 2024 Non-Executive PSUs will vest in the first quarter of 2026 depending on the degree to which the pre-determined goals are met during the performance period. The remaining 2024 Non-Executive PSUs will vest over the following two years on a quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2024 Non-Executive PSUs will be $17.7 million.

The 2024 Executive PSUs and the 2024 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 Company’s stock price on the last trading day of the performance period is $30 higher than the grant date stock price of $632.98. The Company determined the grant date fair value of the 2024 Executive PSUs and the 2024 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $632.98, simulation term of three years, expected volatility of 49.4%, risk-free interest rate of 4.1%, and expected dividend yield of 0.8%. There is no illiquidity discount because the awards do not contain any post-vesting sales restrictions.

Table of Contents

2004 Employee Stock Purchase Plan (as amended and restated, the “2004 ESPP”)

On August 16, 2023, the 2004 ESPP was amended and restated to, among other changes, provide for the issuance of up to 4.4 million shares of the Company’s common stock. The 2004 ESPP will expire on August 16, 2038.

No shares were issued under the 2004 ESPP for the three months ended June 30, 2024 and 2023. For the six months ended June 30, 2024 and 2023, 11,000 and 9,000 shares were issued under the 2004 ESPP, respectively. As of June 30, 2024, 4.4 million shares were available for future issuance under the 2004 ESPP.

The intrinsic value of the shares issued was $3.5 million and $0.7 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the unamortized expense was $0.4 million, which will be recognized through the third quarter of 2024. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions:

	*Six Months Ended June 30,*
	*2024*			*2023*
Expected term (in years)		0.5			0.5
Expected volatility		42.4	%		55.8	%
Risk-free interest rate		5.3	%		5.0	%
Dividend yield		0.7	%		0.8	%

Cash proceeds from the shares issued under the 2004 ESPP were $4.6 million and $3.7 million for the six months ended June 30, 2024 and 2023, respectively.

4. ACQUISITION

On January 3, 2024 (the “Acquisition Date”), the Company acquired 100% of the outstanding capital stock of Axign B.V. (“Axign”), a Dutch company that designs and develops class-D audio ICs, targeting applications ranging from portable consumer speakers to automotive and professional-grade multi-speaker systems. Commencing on the Acquisition Date, Axign became a wholly-owned subsidiary of the Company and its results of operations have been included in the Company’s consolidated financial statements.

Purchase Consideration

The purchase consideration was $33.4 million in cash. Cash paid at the Acquisition Date included $3.8 million that is being held in an escrow account for a one-year period as recourse in the event of a breach of Axign’s representations and warranties.

In connection with the acquisition, the Company incurred $0.4 million in transaction costs that were expensed as incurred and included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

Purchase Price Allocation

The purchase price allocation for Axign is as follows (in thousands):

Inventory	$	720
Other tangible assets acquired, net of liabilities assumed		1,487
Intangible assets:
Developed technology		9,184
IPR&D		2,147
Total identifiable net assets acquired		13,538
Goodwill		19,860
Total net assets acquired	$	33,398

The intangible asset acquired with a finite life includes the core developed technology with an estimated remaining useful life of eight years. The acquired intangible asset with an indefinite life includes an incomplete R&D project that had not reached technological feasibility as of the Acquisition Date. The fair values of the developed technology and the IPR&D were determined using the income approach.

The goodwill arising from the acquisition was primarily attributed to the assembled workforce and synergies that are anticipated to enable the Company to develop solutions with lower power consumption in the consumer and automotive markets using Axign’s digital feedback technology. The goodwill is not expected to be deductible for tax purposes.

Table of Contents

5. BALANCE SHEET COMPONENTS

Inventories

Inventories consist of the following (in thousands):

	*June 30,*		*December 31,*
	*2024*		*2023*
Raw materials	$	93,435	$	118,917
Work in process		164,116		112,750
Finished goods		169,200		152,035
Total	$	426,751	$	383,702

Other Current Assets

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

	*June 30,*		*December 31,*
	*2024*		*2023*
Prepaid wafer purchases	$	60,000	$	-
Prepaid expenses		27,570		28,964
RSU tax withholding proceeds receivable		71		20,141
Other receivables		-		50,000
Restricted cash		-		33,204
Other		17,906		15,154
Total	$	105,547	$	147,463

The Company held $60 million in prepaid wafer purchases as of June 30, 2024 and $50 million in other receivables as of December 31, 2023 related to deposits made to a supplier under a long-term wafer supply agreement. See Note 9 for details about the supply agreement. The restricted cash included in other current assets as of December 31, 2023 was related to preliminary purchase consideration held in a trust account in connection with the Company’s acquisition of Axign and was paid in January 2024. See Note 4 for further details.

Table of Contents

Other Long-Term Assets

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

	*June 30,*		*December 31,*
	*2024*		*2023*
Deferred compensation plan assets	$	84,975	$	78,381
Prepaid wafer purchases		60,000		120,000
Operating lease right-of-use (“ROU”) and related assets		33,681		8,355
Other		5,210		4,541
Total	$	183,866	$	211,277

Prepaid wafer purchases relate to a deposit made to a supplier under a long-term wafer supply agreement. See Note 9 for details about the supply agreement. The operating lease ROU and related assets as of June 30, 2024 includes a fair value measurement related to favorable market terms on a building lease.

Other Accrued Liabilities

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

	*June 30,*		*December 31,*
	*2024*		*2023*
Dividends and dividend equivalents	$	62,524	$	57,697
Stock rotation and sales returns		21,716		18,843
Warranty		14,702		16,906
Customer prepayments		5,564		2,792
Accrued legal expenses		4,249		1,277
Income tax payable		9,641		8,063
Other		12,952		10,213
Total	$	131,348	$	115,791

Other Long-Term Liabilities

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

	*June 30,*		*December 31,*
	*2024*		*2023*
Deferred compensation plan liabilities	$	80,115	$	80,903
Operating lease liabilities		13,045		5,565
Dividend equivalents		3,515		2,187
Total	$	96,675	$	88,655

Table of Contents

6. LEASES

Lessee

The Company has operating leases primarily for administrative, sales and marketing offices, manufacturing operations and R&D facilities, employee housing units and certain equipment. These leases have remaining lease terms from less than one year to 20 years. Some of these leases include options to renew the lease term for up to five years or on a month-to-month basis. The Company does not have finance lease arrangements.

The following table summarizes the balances of operating lease ROU assets and liabilities (in thousands):

		*June 30,*		*December 31,*
	*Financial Statement Line Item*	*2024*		*2023*
Operating lease ROU assets	Other long-term assets	$	15,956	$	8,355

Operating lease liabilities	Other accrued liabilities	$	2,446	$	2,303
	Other long-term liabilities	$	13,045	$	5,565

The following tables summarize certain information related to the leases (in thousands, except percentages and years):

	*Three Months Ended June 30,*				*Six Months Ended June 30,*
	*2024*		*2023*		*2024*		*2023*
Lease costs:
Operating lease costs	$	1,014	$	759	$	1,911	$	1,475
Other		648		554		1,198		1,092
Total lease costs	$	1,662	$	1,313	$	3,109	$	2,567

	*Three Months Ended June 30,*				*Six Months Ended June 30,*
	*2024*		*2023*		*2024*		*2023*
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	1,027	$	774	$	1,700	$	1,638
ROU assets obtained in exchange for new operating lease liabilities	$	7,809	$	290	$	9,271	$	4,835

	*June 30,*			*December 31,*
	*2024*			*2023*
Weighted-average remaining lease term (in years)		12.1			4.7
Weighted-average discount rate		5.4	%		4.3	%

As of June 30, 2024, the maturities of the lease liabilities were as follows (in thousands):

2024 (remaining six months)	$	1,617
2025		2,997
2026		2,249
2027		2,012
2028		1,380
Thereafter		12,534
Total remaining lease payments		22,789
Less: imputed interest		(7,298	)
Total lease liabilities	$	15,491

As of June 30, 2024, operating leases that have not yet commenced are not material.

Table of Contents

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 a tenant option to renew the lease term for up to five years.

For the three months ended June 30, 2024 and 2023, income related to lease payments was $0.2 million and $0.3 million, respectively. For the six months ended June 30, 2024 and 2023, income related to lease payments was $0.4 million and $0.8 million, respectively. As of June 30, 2024, future income related to lease payments was as follows (in thousands):

2024 (remaining six months)	$	525
2025		578
2026		402
2027		373
2028		384
Thereafter		129
Total	$	2,391

7. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share reflects the potential dilution that would occur if outstanding securities or other contracts to issue common stock were exercised or converted into shares of common stock, and calculated using the treasury stock method. Contingently issuable shares, including equity awards with performance conditions or market conditions, are considered outstanding shares of common stock and included in the basic net income per share as of the date that all necessary conditions to earn the awards have been satisfied. Prior to the end of the contingency period, the number of contingently issuable shares included in the diluted net income per share is based on the number of shares, if any, that would be issuable under the terms of the arrangement at the end of the reporting period.

The Company’s RSUs contain forfeitable rights to receive cash dividend equivalents, which are accumulated and paid to the employees when the underlying RSUs vest. Dividend equivalents accumulated on the underlying RSUs are forfeited if the employees do not fulfill the requisite service requirement and, as a result, the awards do not vest. Accordingly, these awards are not treated as participating securities in the net income per share calculation.

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per-share amounts):

	*Three Months Ended June 30,*				*Six Months Ended June 30,*
	*2024*		*2023*		*2024*		*2023*
Numerator:
Net income	$	100,366	$	99,504	$	192,907	$	209,306

Denominator:
Weighted-average outstanding shares — basic		48,687		47,489		48,660		47,361
Effect of dilutive securities		258		1,267		275		1,344
Weighted-average outstanding shares — diluted		48,945		48,756		48,935		48,705

Net income per share:
Basic	$	2.06	$	2.10	$	3.96	$	4.42
Diluted	$	2.05	$	2.04	$	3.94	$	4.30

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

Stock Repurchase Program

In October 2023, the Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to $640.0 million in the aggregate of its common stock through October 29, 2026. Shares are retired upon repurchase. The Company repurchased 6,300 and 12,400 shares of its 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.

Stock repurchased under the program may be made through open market repurchases, privately negotiated transactions or other structures in accordance with applicable state and federal securities laws, at times and in amounts as management deems appropriate. The timing and the number of any repurchased common stock will be determined by the Company’s management based on its evaluation of market conditions, legal requirements, share price, and other factors. The repurchase program does not obligate the Company to purchase any particular number of shares, and may be suspended, modified, or discontinued at any time without prior notice.

The U.S. Inflation Reduction Act of 2022 requires a 1% excise tax based on the value of certain stock repurchases in excess of stock issued for employee compensation made after December 31, 2022. This provision did not have an impact on the Company’s condensed consolidated financial statements for the three and six months ended June 30, 2024.

Table of Contents

8. 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 enterprise data, storage and computing, automotive, communications, consumer and industrial markets. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company derives a majority of its revenue from sales to customers located outside North America, with geographic revenue based on the customers’ ship-to locations.

The Company sells its products primarily to third-party distributors and value-added resellers, and directly to OEMs, ODMs and EMS providers. The following table summarizes those customers with sales equal to 10% or more of the Company’s total revenue:

	Three Months Ended June 30,						Six Months Ended June 30,
Customer	2024			2023			2024			2023
Distributor A		38	%		22	%		40	%		21	%
Distributor B		17	%		20	%		15	%		21	%
Distributor C		*			11	%		*			10	%

The Company’s agreements with these third-party customers were made in the ordinary course of business and may be terminated with or without cause by these customers with advance notice. Although the Company may experience a short-term disruption in the distribution of its products and a short-term decline in revenue if its agreement with any of the distributors were terminated, the Company believes that such termination would not have a material adverse effect on its financial statements because it would be able to engage alternative distributors, resellers and other distribution channels to deliver its products to end customers within a short period following any termination of the agreement with a distributor.

The following table summarizes those customers with accounts receivable equal to 10% or more of the Company’s total accounts receivable:

	*June 30,*			*December 31,*
Customer	*2024*			*2023*
Distributor A		41	%		42	%
Distributor B		24	%		13	%
Distributor C		*			10	%

* Represents less than 10%

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

	*Three Months Ended June 30,*				*Six Months Ended June 30,*
Country or Region	*2024*		*2023*		*2024*		*2023*
China	$	282,514	$	216,172	$	545,554	$	441,224
Taiwan		127,396		70,212		227,846		119,045
South Korea		39,513		40,669		75,050		86,349
Europe		19,105		36,348		36,847		79,451
United States		13,927		27,571		28,747		58,588
Southeast Asia		11,352		21,708		24,591		48,140
Japan		13,552		28,288		26,500		59,103
Other		72		160		181		293
Total	$	507,431	$	441,128	$	965,316	$	892,193

Table of Contents

In the second quarter of 2024, the Company reclassified certain products in its product families. The prior periods in the table below have been updated to conform with the new methodology.

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

	*Three Months Ended June 30,*				*Six Months Ended June 30,*
Product Family	*2024*		*2023*		*2024*		*2023*
Direct Current (“DC”) to DC	$	501,302	$	418,175	$	947,367	$	843,356
Lighting Control		6,129		22,953		17,949		48,837
Total	$	507,431	$	441,128	$	965,316	$	892,193

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

	*June 30,*		*December 31,*
Country	*2024*		*2023*
China	$	207,614	$	184,685
United States		124,000		119,430
Taiwan		37,071		39,419
Other		31,849		25,418
Total	$	400,534	$	368,952

9. COMMITMENTS AND CONTINGENCIES

Product Warranties

The Company generally provides either a one- or two-year warranty against defects in materials and workmanship and will repair the products, provide replacements at no charge to customers or issue a refund. As they are considered assurance-type warranties, the Company does not account for them as separate performance obligations. Warranty reserve requirements are generally based on a specific assessment of the products sold with warranties when a customer asserts a claim for warranty or for a product defect.

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

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2024*			*2023*			*2024*			*2023*
Balance at beginning of period	$	12,873		$	19,726		$	16,906		$	24,082
Warranties issued		2,225			580			2,325			942
Repairs, replacement and refund		(116	)		(1,581	)		(4,130	)		(2,253	)
Changes in liability for pre-existing warranties		(280	)		(1,071	)		(399	)		(5,117	)
Balance at end of period	$	14,702		$	17,654		$	14,702		$	17,654

Changes in liability for pre-existing warranties result from changes in estimates for warranties issued in prior periods.

Purchase Commitments

The Company has outstanding purchase obligations with its suppliers and other parties that require the purchases of goods or services. The purchase obligations primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction of manufacturing and R&D facilities, purchases of production and other equipment, and license arrangements.

In May 2022, the Company entered into a long-term supply agreement in order to secure manufacturing production capacity for silicon wafers over a four-year period. As of June 30, 2024, the Company had remaining prepayments under this agreement of $120.0 million, of which $60.0 million was classified as short-term.

Table of Contents

Total estimated future unconditional purchase commitments to all suppliers and other parties, net of the $120.0 million prepayment, as of June 30, 2024 were as follows (in thousands):

2024 (remaining six months)	$	151,590
2025		388,949
2026		1,572
2027		29,476
Total	$	571,587

Litigation

The Company is a party to actions and proceedings in the ordinary course of business, including challenges to the enforceability or validity of its intellectual property, claims that the Company’s products infringe on the intellectual property rights of others, and employment matters. The Company may also be subject to litigation initiated by its stockholders. These proceedings often involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. The Company defends itself vigorously against any such claims. As of June 30, 2024, there were no material pending legal proceedings to which the Company was a party.

10. CASH, CASH EQUIVALENTS, INVESTMENTS AND RESTRICTED CASH

The following is a summary of the Company’s cash, cash equivalents and debt investments (in thousands):

	*June 30,*		*December 31,*
	*2024*		*2023*
Cash	$	357,743	$	392,329
Money market funds		192,732		135,514
Certificates of deposit		165,120		127,123
Corporate debt securities		22,729		95,101
U.S. treasuries and government agency bonds		568,921		358,409
Auction-rate securities backed by student-loan notes		345		567
Total	$	1,307,590	$	1,109,043

		*June 30,*				*December 31,*