10-Q 1 mpwr20240331_10q.htm FORM 10-Q mpwr20240331_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 March 31, 2024

 

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 48,672,000 shares of the registrant’s common stock issued and outstanding as of April 26, 2024.

  

 

 

MONOLITHIC POWER SYSTEMS, INC.

 

 

Form 10-Q

For the Quarter Ended March 31, 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.

Managements 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

 

  

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

MONOLITHIC POWER SYSTEMS, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $488,273  $527,843 

Short-term investments

  798,116   580,633 

Accounts receivable, net

  194,428   179,858 

Inventories

  395,990   383,702 

Other current assets

  99,685   147,463 

Total current assets

  1,976,492   1,819,499 

Property and equipment, net

  375,573   368,952 

Acquisition-related intangible assets, net

  9,518   - 

Goodwill

  27,311   6,571 

Deferred tax assets, net

  32,784   28,054 

Other long-term assets

  157,023   211,277 

Total assets

 $2,578,701  $2,434,353 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current liabilities:

        

Accounts payable

 $103,471  $62,958 

Accrued compensation and related benefits

  70,541   56,286 

Other accrued liabilities

  137,868   115,791 

Total current liabilities

  311,880   235,035 

Income tax liabilities

  66,337   60,724 

Other long-term liabilities

  86,927   88,655 

Total liabilities

  465,144   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: 48,667 and 48,028, respectively

  1,176,382   1,129,937 

Retained earnings

  977,724   947,064 

Accumulated other comprehensive loss

  (40,549)  (27,062)

Total stockholders’ equity

  2,113,557   2,049,939 

Total liabilities and stockholders’ equity

 $2,578,701  $2,434,353 

 

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 March 31,

 
  

2024

  

2023

 

Revenue

 $457,885  $451,065 

Cost of revenue

  205,444   192,285 

Gross profit

  252,441   258,780 

Operating expenses:

        

Research and development

  75,990   63,709 

Selling, general and administrative

  80,964   70,795 

Total operating expenses

  156,954   134,504 

Operating income

  95,487   124,276 

Other income, net

  9,540   5,297 

Income before income taxes

  105,027   129,573 

Income tax expense

  12,486   19,771 

Net income

 $92,541  $109,802 
         

Net income per share:

        

Basic

 $1.90  $2.32 

Diluted

 $1.89  $2.26 

Weighted-average shares outstanding:

        

Basic

  48,635   47,234 

Diluted

  48,928   48,655 

 

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 March 31,

 
  

2024

  

2023

 

Net income

 $92,541  $109,802 

Other comprehensive income (loss), net of tax:

        

Foreign currency translation adjustments

  (13,822)  2,919 

Change in unrealized gains and losses on available-for-sale securities, net of tax of $(248) and $311, respectively

  335   2,213 

Other comprehensive income (loss), net of tax:

  (13,487)  5,132 

Comprehensive income

 $79,054  $114,934 

 

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 March 31, 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

  -   -   92,541   -   92,541 

Other comprehensive loss

  -   -   -   (13,487)  (13,487)

Dividends and dividend equivalents declared ($1.25 per share)

  -   -   (61,881)  -   (61,881)

Common stock issued under the employee equity incentive plan

  634   -   -   -   - 

Common stock issued under the employee stock purchase plan

  11   4,606   -   -   4,606 

Repurchases of common stock

  (6)  (4,076)  -   -   (4,076)

Stock-based compensation expense

  -   45,915   -   -   45,915 

Balance as of March 31, 2024

  48,667  $1,176,382  $977,724  $(40,549) $2,113,557 

 

              

Accumulated

     
  

Common Stock and

      

Other

  

Total

 
  

Additional Paid-in Capital

  

Retained

  

Comprehensive

  

Stockholders’

 

Three Months Ended March 31, 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

  -   -   109,802   -   109,802 

Other comprehensive income

  -   -   -   5,132   5,132 

Dividends and dividend equivalents declared ($1.00 per share)

  -   -   (49,130)  -   (49,130)

Common stock issued under the employee equity incentive plan

  295   1,110   -   -   1,110 

Common stock issued under the employee stock purchase plan

  9   3,737   -   -   3,737 

Stock-based compensation expense

  -   37,008   -   -   37,008 

Balance as of March 31, 2023

  47,411  $1,017,131  $777,075  $(17,945) $1,776,261 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

  

 

MONOLITHIC POWER SYSTEMS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 

Cash flows from operating activities:

        

Net income

 $92,541  $109,802 

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

        

Depreciation and amortization

  8,251   9,987 

Amortization of premium (discount) on available-for-sale securities

  (4,123)  260 

Gain on deferred compensation plan investments

  (4,019)  (2,534)

Deferred taxes, net

  248   (622)

Stock-based compensation expense

  45,926   37,009 

Other

  (63)  - 

Changes in operating assets and liabilities:

        

Accounts receivable

  (14,578)  (1,558)

Inventories

  (11,596)  16,063 

Other assets

  74,477   213 

Accounts payable

  35,934   (880)

Accrued compensation and related benefits

  14,698   13,422 

Income tax liabilities

  3,011   20,137 

Other accrued liabilities

  7,344   17,508 

Net cash provided by operating activities

  248,051   218,807 

Cash flows from investing activities:

        

Purchases of property and equipment

  (15,991)  (8,854)

Purchases of investments

  (365,856)  (129,321)

Maturities and sales of investments

  149,766   152,698 

Cash paid for acquisition, net of cash acquired

  (33,284)  - 

Contributions to deferred compensation plan, net

  (650)  (2,209)

Net cash provided by (used in) investing activities

  (266,015)  12,314 

Cash flows from financing activities:

        

Property and equipment purchased on extended payment terms

  (978)  (374)

Proceeds from common stock issued under the employee equity incentive plan

  -   1,110 

Proceeds from common stock issued under the employee stock purchase plan

  4,606   3,737 

Repurchases of common stock

  (4,076)  - 

Dividends and dividend equivalents paid

  (49,553)  (36,725)

Net cash used in financing activities

  (50,001)  (32,252)

Effect of change in exchange rates

  (4,818)  1,497 

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

  (72,783)  200,366 

Cash, cash equivalents and restricted cash, beginning of period

  561,181   288,729 

Cash, cash equivalents and restricted cash, end of period

 $488,398  $489,095 

Supplemental disclosures for cash flow information:

        

Cash paid (refunded) for income taxes, net

 $725  $(1,300)

Non-cash investing and financing activities:

        

Liability accrued for property and equipment purchases

 $5,995  $2,482 

Liability accrued for dividends and dividend equivalents

 $61,892  $49,219 

 

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 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 months ended March 31, 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  March 31, 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.

 

9

 

 

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 both the three months ended March 31, 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 March 31, 2024 and 2023, 85% and 81% of the Company’s product sales were made through distribution arrangements, respectively. 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.

 

10

 

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 March 31, 2024 and December 31, 2023, customer prepayments totaled $2.7 million and $2.8 million, respectively. For the three months ended March 31, 2024, the Company recognized all revenue that was included in the customer prepayment balance as of December 31, 2023.

 

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.

 

11

 

 

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 March 31, 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 March 31,

 
  

2024

  

2023

 

Cost of revenue

 $1,398  $1,147 

Research and development

  10,447   8,614 

Selling, general and administrative (“SG&A”)

  34,081   27,248 

Total stock-based compensation expense

 $45,926  $37,009 

Tax benefit related to stock-based compensation (1)

 $708  $423 

 


(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

  21  $632.98   240 

(1)

 $609.22   -  $-   261  $610.67 

Vested

  (14) $372.30   (57)  $287.31   (563) $68.48   (634) $94.76 

Forfeited

  (2) $467.30   -   $-   -  $-   (2) $423.45 

Outstanding at March 31, 2024

  107  $458.67   665   $489.68   939  $203.38   1,711  $330.53 

 


(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.

 

12

 

The intrinsic value related to vested RSUs was $403.0 million and $141.6 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the total intrinsic value of all outstanding RSUs was $1.1 billion, based on the closing stock price of $677.42. As of March 31, 2024, unamortized compensation expense related to all outstanding RSUs was $339.5 million with a weighted-average remaining recognition period of approximately two years.

 

Time-Based RSUs:

 

For the three months ended March 31, 2024, the Compensation Committee granted 21,000 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.

 

13

 

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.

 

For the three months ended March 31, 2024 and 2023, 11,000 and 9,000 shares were issued under the 2004 ESPP, respectively. As of March 31, 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 three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the unamortized expense was $1.1 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:

 

  

Three Months Ended March 31,

 
  

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 three months ended March 31, 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 preliminary purchase consideration was approximately $33.7 million in cash and includes an estimated working capital adjustment and other adjustments.

 

Cash paid at the Acquisition Date included $3.8 million that is being held in an escrow account for a one-year period until Axign’s satisfaction of certain 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.

 

Preliminary Purchase Price Allocation

 

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

 

  

Preliminary

 
  

Estimated Net Asset

 
  

Fair Value

 

Inventory

 $720 

Other tangible assets acquired, net of liabilities assumed

  1,948 

Intangible assets:

    

Developed technology

  8,337 

IPR&D

  1,612 

Total identifiable net assets acquired

  12,617 

Goodwill

  21,066 

Total net assets acquired

 $33,683 

 

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.

 

The Company is still in the process of determining the final fair values of the assets acquired and liabilities assumed. As a result, the purchase price allocation for Axign is not complete as of March 31, 2024. The Company expects to finalize the allocation by the quarter ending June 30, 2024. Final determination of the fair values could result in an adjustment to the preliminary purchase price allocation with a corresponding adjustment to goodwill.

 

14

 

 

5. BALANCE SHEET COMPONENTS

 

Inventories

 

Inventories consist of the following (in thousands):

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Raw materials

 $108,425  $118,917 

Work in process

  141,703   112,750 

Finished goods

  145,862   152,035 

Total

 $395,990  $383,702 

 

Other Current Assets

 

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

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Prepaid wafer expenses

 $60,000  $- 

Prepaid expenses

  21,588   28,964 

RSU tax withholding proceeds receivable

  15   20,141 

Other receivables

  -   50,000 

Restricted cash

  

-

   

33,204

 

Other

  18,082   15,154 

Total

 $99,685  $147,463 

 

As of March 31, 2024 and December 31, 2023, the Company held $60 million in prepaid wafer expenses and $50 million in other receivables, respectively, related to deposits made to a supplier under a long-term wafer supply agreement. See Note 9 for further details. 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.

 

15

 

Other Long-Term Assets

 

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

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Deferred compensation plan assets

 $83,050  $78,381 

Prepaid wafer purchases

  60,000   120,000 

Other

  13,973   12,896 

Total

 $157,023  $211,277 

 

Prepaid wafer purchases relate to a deposit made to a supplier under a long-term wafer supply agreement. See Note 9 for further details.

 

Other Accrued Liabilities

 

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

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Dividends and dividend equivalents

 $69,291  $57,697 

Stock rotation and sales returns

  30,208   18,843 

Warranty

  12,873   16,906 

Income tax payable

  8,032   8,063 

Other

  17,464   14,282 

Total

 $137,868  $115,791 

 

As of March 31, 2024, stock rotation and sales returns included a $24.7 million stock rotation reserve, compared with a $16.7 million reserve as of December 31, 2023. The change in the reserve is affected by the timing of customer returns and the level of inventory in the distribution channel.

 

Other Long-Term Liabilities

 

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

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Deferred compensation plan liabilities

 $78,085  $80,903 

Operating lease liabilities

  5,920   5,565 

Dividend equivalents

  2,922   2,187 

Total

 $86,927  $88,655 

 

16

 

 

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 seven 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 right-of-use (“ROU”) assets and liabilities (in thousands):

 

   

March 31,

  

December 31,

 
 

Financial Statement Line Item

 

2024

  

2023

 

Operating lease ROU assets

Other long-term assets

 $8,910  $8,355 
          

Operating lease liabilities

Other accrued liabilities

 $2,635  $2,303 
 

Other long-term liabilities

 $5,920  $5,565 

 

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

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 

Lease costs:

        

Operating lease costs

 $897  $716 

Other

  550   538 

Total lease costs

 $1,447  $1,254 

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 

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

        

Operating cash flows for operating leases

 $673  $864 

ROU assets obtained in exchange for new operating lease liabilities

 $1,462  $4,545 

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Weighted-average remaining lease term (in years)

  4.3   4.7 

Weighted-average discount rate

  4.5%  4.3%

 

As of March 31, 2024, the maturities of the lease liabilities were as follows (in thousands):

 

2024 (remaining nine months)

 $2,244 

2025

  2,411 

2026

  1,636 

2027

  1,418 

2028

  771 

Thereafter

  868 

Total remaining lease payments

  9,348 

Less: imputed interest

  (793)

Total lease liabilities

 $8,555 

 

As of March 31, 2024, operating leases that have not yet commenced are not material.

 

 

17

 

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 two years. One of these leases includes a tenant option to renew the lease term for up to five years.

 

For the three months ended March 31, 2024 and 2023, income related to lease payments was $0.2 million and $0.5 million, respectively. As of March 31, 2024, future income related to lease payments was as follows (in thousands):

 

2024 (remaining nine months)

 $554 

2025

  228 

2026

  40 

Total

 $822 

  

 

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 March 31,

 
  

2024

  

2023

 

Numerator:

        

Net income

 $92,541  $109,802 
         

Denominator:

        

Weighted-average outstanding shares — basic

  48,635   47,234 

Effect of dilutive securities

  293   1,421 

Weighted-average outstanding shares — diluted

  48,928   48,655 
         

Net income per share:

        

Basic

 $1.90  $2.32 

Diluted

 $1.89  $2.26 

 

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 6,100 shares of its common stock for an aggregate purchase price of $4.1 million during the three months ended March 31, 2024
 
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 months ended  March 31, 2024.

 

18

 

 

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 March 31,

 

Customer

 

2024

  

2023

 

Distributor A

  41%  20%

Distributor B

  13%  21%

 

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:

 

  

March 31,

  

December 31,

 

Customer

 

2024

  

2023

 

Distributor A

  49%  42%

Distributor B

  14%  13%

Distributor C

  *   10%

 


* Represents less than 10%

 

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

 

  

Three Months Ended March 31,

 

Country or Region

 

2024

  

2023

 

China

 $263,040  $225,052 

Taiwan

  100,450   48,833 

South Korea

  35,537   45,680 

Europe

  17,742   43,103 

United States

  14,820   31,017 

Southeast Asia

  13,239   26,432 

Japan

  12,948   30,815 

Other

  109   133 

Total

 $457,885  $451,065 

 

19

 

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

 

  

Three Months Ended March 31,

 

Product Family

 

2024

  

2023

 

Direct Current (“DC”) to DC

 $415,975  $425,181 

Lighting Control

  41,910   25,884 

Total

 $457,885  $451,065 

 

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

 

  

March 31,

  

December 31,

 

Country

 

2024

  

2023

 

China

 $188,698  $184,685 

United States

  121,775   119,430 

Taiwan

  38,084   39,419 

Other

  27,016   25,418 

Total

 $375,573  $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 March 31,

 
  

2024

  

2023

 

Balance at beginning of period

 $16,906  $24,082 

Warranties issued

  100   362 

Repairs, replacement and refund

  (4,015)  (672)

Changes in liability for pre-existing warranties

  (118)  (4,046)

Balance at end of period

 $12,873  $19,726 

 

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 March 31, 2024, the Company had remaining prepayments under this agreement of $120.0 million, of which $60.0 million was classified as short-term.

 

20

 

Total estimated future unconditional purchase commitments to all suppliers and other parties, net of the $120.0 million prepayment, as of March 31, 2024 were as follows (in thousands):

 

2024 (remaining nine months)

 $269,531 

2025

  329,050 

2026

  1,600 

2027

  29,993 

Total

 $630,174 

 

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 March 31, 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):

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Cash

 $363,038  $392,329 

Money market funds

  125,235   135,514 

Certificates of deposit

  166,157   127,123 

Corporate debt securities

  60,380   95,101 

U.S. treasuries and government agency bonds

  571,579   358,409 

Auction-rate securities backed by student-loan notes

  518   567 

Total

 $1,286,907  $1,109,043 

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Reported as:

        

Cash and cash equivalents

 $488,273  $527,843 

Short-term investments

  798,116   580,633 

Investment within other long-term assets

  518   567 

Total

 $1,286,907  $1,109,043 

 

The following table summarizes the contractual maturities of the short-term and long-term available-for-sale investments as of March 31, 2024 (in thousands):

 

  

Amortized Cost

  

Fair Value

 

Due in less than 1 year

 $738,665  $737,861 

Due in 1 - 5 years

  60,667   60,255 

Due in greater than 5 years

  525   518 

Total

 $799,857  $798,634 

 

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

 

21

 

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

 

  

March 31, 2024

 
  

Amortized Cost

  

Unrealized Gains

  

Unrealized Losses

  

Fair Value

 

Money market funds

 $125,235  $-  $-  $125,235 

Certificates of deposit

  166,157   -   -   166,157 

Corporate debt securities

  61,353   1   (974)  60,380 

U.S. treasuries and government agency bonds

  571,822   7   (250)  571,579 

Auction-rate securities backed by student-loan notes

  525   -   (7)  518 

Total

 $925,092  $8  $(1,231) $923,869 

 

  

December 31, 2023

 
  

Amortized Cost

  

Unrealized Gains

  

Unrealized Losses

  

Fair Value

 

Money market funds

 $135,514  $-  $-  $135,514 

Certificates of deposit

  127,123   -   -   127,123 

Corporate debt securities

  96,636   4   (1,539)  95,101 

U.S. treasuries and government agency bonds

  358,177   327   (95)  358,409 

Auction-rate securities backed by student-loan notes

  574   -   (7)  567 

Total

 $718,024  $331  $(1,641) $716,714 

 

The following tables present information about the available-for-sale investments that had been in a continuous unrealized loss position for less than 12 months and for greater than 12 months (in thousands):

 

  

March 31, 2024

 
  

Less than 12 Months

  

Greater than 12 Months

  

Total

 
  

Fair Value

  

Unrealized Losses

  

Fair Value

  

Unrealized Losses

  

Fair Value

  

Unrealized Losses

 

Corporate debt securities

 $5,436  $(9) $51,943  $(965) $57,379  $(974)

U.S. treasuries and government agency bonds

  509,959   (250)  -   -   509,959   (250)

Auction-rate securities backed by student-loan notes

  -   -   518   (7)  518   (7)

Total

 $515,395  $(259) $52,461  $(972) $567,856  $(1,231)

 

  

December 31, 2023

 
  

Less than 12 Months

  

Greater than 12 Months

  

Total

 
  

Fair Value

  

Unrealized Losses

  

Fair Value

  

Unrealized Losses

  

Fair Value

  

Unrealized Losses

 

Corporate debt securities

 $20,792  $(19) $70,806  $(1,520) $91,598  $(1,539)

U.S. treasuries and government agency bonds

  97,599   (95)  -   -   97,599   (95)

Auction-rate securities backed by student-loan notes

  -   -   567   (7)  567   (7)

Total

 $118,391  $(114) $71,373  $(1,527) $189,764  $(1,641)

 

An impairment exists when the fair value of an investment is less than its amortized cost basis. As of March 31, 2024 and December 31, 2023, the Company did not consider the impairment of its investments to be a result of credit losses. The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. When evaluating a debt security for impairment, management reviews factors such as the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortized cost basis, the extent to which the fair value of the security is less than its cost, the financial condition of the issuer and the credit quality of the investment.

 

22

 

Restricted Cash

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Condensed Consolidated Balance Sheets to the amounts reported on the Condensed Consolidated Statements of Cash Flows (in thousands):

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Cash and cash equivalents

 $488,273  $527,843 

Restricted cash included in other current assets

  -   33,204 

Restricted cash included in other long-term assets

  125   134 

Total cash, cash equivalents and restricted cash reported on the Condensed Consolidated Statements of Cash Flows

 $488,398  $561,181 

 

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 additional information. As of March 31, 2024 and  December 31, 2023, restricted cash included in other long-term assets was related to a security deposit that is set aside in a bank account and cannot be withdrawn by the Company under the terms of a lease agreement. The restriction will end upon the expiration of the lease.

 

23

 

 

11. FAIR VALUE MEASUREMENTS

 

Fair Value Hierarchy

 

The Company has estimated the fair value of its financial assets by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

 

Level 1 —includes instruments with quoted prices in active markets for identical assets.
Level 2 —includes instruments for which the valuations are based upon quoted market prices in active markets involving similar assets or inputs other than quoted prices that are observable for the assets. The market inputs used to value these instruments generally consist of market yields, recently executed transactions, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Pricing sources may include industry standard data providers, security master files from large financial institutions, and other third-party sources used to determine a daily market value.
Level 3 —includes instruments for which the valuations are based on inputs that are unobservable and significant to the overall fair value measurement.

 

Financial Assets Measured at Fair Value on a Recurring Basis

 
The following tables summarize the fair value of the Company’s financial assets measured on a recurring basis (in thousands):

 

  

March 31, 2024

 
  

Total

  

Level 1

  

Level 2

  

Level 3

 

Money market funds

 $125,235  $125,235  $-  $- 

Certificates of deposit

  166,157   -   166,157   - 

Corporate debt securities

  60,380   -   60,380   - 

U.S. treasuries and government agency bonds

  571,579   -   571,579   - 

Auction-rate securities backed by student-loan notes

  518   -   -   518 

Mutual funds and money market funds under deferred compensation plan

  57,373   57,373   -   - 

Total

 $981,242  $182,608  $798,116  $518 

 

  

December 31, 2023

 
  

Total

  

Level 1

  

Level 2

  

Level 3

 

Money market funds

 $135,514  $135,514  $-  $- 

Certificates of deposit

  127,123   -   127,123   - 

Corporate debt securities

  95,101   -   95,101   - 

U.S. treasuries and government agency bonds

  358,409   -   358,409   - 

Auction-rate securities backed by student-loan notes

  567   -   -   567 

Mutual funds and money market funds under deferred compensation plan

  54,836   54,836   -   - 

Total

 $771,550  $190,350  $580,633  $567 

 

Redemptions and changes in the fair value of the auction-rate securities classified as Level 3 assets were not material for the periods presented.

 

24

 

 

12. DEFERRED COMPENSATION PLAN

 

The following table summarizes the deferred compensation plan balances on the Condensed Consolidated Balance Sheets (in thousands):

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Deferred compensation plan asset components:

        

Cash surrender value of corporate-owned life insurance policies

 $25,677  $23,545 

Fair value of mutual funds and money market funds

  57,373   54,836 

Total

 $83,050  $78,381 
         

Deferred compensation plan assets reported in:

        

Other long-term assets

 $83,050  $78,381 
         

Deferred compensation plan liabilities reported in:

        

Accrued compensation and related benefits (short-term)

 $7,534  $384 

Other long-term liabilities

  78,085   80,903 

Total

 $85,619  $81,287 

  

 

13. OTHER INCOME, NET

 

The components of other income, net, are as follows (in thousands):

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 

Interest income

 $6,914  $4,808 

Amortization of discount (premium) on available-for-sale securities

  4,123   (260)

Gain on deferred compensation plan investments

  4,019   2,534 

Charitable contributions

  (5,850)  (2,000)

Other

  334   215 

Total

 $9,540  $5,297 

 

25

 

 

14. INCOME TAXES

 

The income tax provision or benefit for interim periods is generally determined using an estimate of the Company’s annual effective tax rate and adjusted for discrete items, if any, in the relevant period. Each quarter the estimate of the annual effective tax rate is updated, and if the Company’s estimated tax rate changes, a cumulative adjustment is made.

 

The income tax expense for the three months ended March 31, 2024 was $12.5 million, or 11.9% of pre-tax income. The effective tax rate was lower than the federal statutory rate of 21% primarily due to foreign income from the Company’s subsidiaries in Bermuda and China being taxed at lower statutory tax rates, and excess tax benefits from stock-based compensation. The decrease in the effective tax rate relative to the federal statutory rate was partially offset by the inclusion of the global intangible low-taxed income (“GILTI”) tax

 

The income tax expense for the three months ended  March 31, 2023 was $19.8 million, or 15.3% of pre-tax income. The effective tax rate was lower than the federal statutory rate of 21% primarily due to foreign income from the Company’s subsidiaries in Bermuda and China being taxed at lower statutory tax rates, and excess tax benefits from stock-based compensation. The decrease in the effective tax rate relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax.

 

On December 27, 2023, the Bermuda Corporate Income Tax Act of 2023 (the “Bermuda CIT Act”) was enacted and signed into law. It includes a 15% CIT applicable to Bermuda businesses that are multinational enterprises (“MNE”) with annual revenue of €750M or more beginning in 2025. The Bermuda CIT Act also includes an Economic Transition Adjustment (ETA) that requires MNEs to revalue their assets and liabilities, excluding goodwill, at their fair value as of September 30, 2023. There is an election to opt out of the ETA. As the Bermuda CIT Act is not effective until January 1, 2025, the Company is evaluating whether or not to adopt this ETA. Based on the information available, the Company has not recorded any changes to income tax expense related to the Bermuda CIT Act as of  March 31, 2024.

 

 

15. ACCUMULATED OTHER COMPREHENSIVE LOSS

 

The following table summarizes the changes in accumulated other comprehensive loss (in thousands):

 

  

Unrealized

         
  

Losses on

  

Foreign Currency

     
  

Available-for-Sale

  

Translation

     
  

Securities

  

Adjustments

  

Total

 

Balance as of January 1, 2024

 $(2,184) $(24,878) $(27,062)

Other comprehensive income (loss) before reclassifications

  87   (13,822)  (13,735)

Tax effect

  248   -   248 

Net current period other comprehensive income (loss)

  335   (13,822)  (13,487)

Balance as of March 31, 2024

 $(1,849) $(38,700) $(40,549)

 

26

 

 

16. DIVIDENDS AND DIVIDEND EQUIVALENTS

 

Cash Dividend Program

 

The Company has a dividend program approved by the Board of Directors, pursuant to which the Company intends to pay quarterly cash dividends on its common stock. Based on the Company’s historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividends when and if declared by the B