Monolithic Power Systems, Inc.: Form 10-Q for the period ended Mar 31, 2025

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that have been made pursuant to and in reliance on the provisions of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements concerning:

• the above-average industry growth of product and market areas that we have targeted;
• our plans to grow revenue in a diversified way across regions and increase revenue through the introduction of new products within our existing product families as well as in new product categories, families and segments;
• our mission statement to reduce energy and material consumption to improve all aspects of quality of life and create a sustainable future;
• the effects of macroeconomic factors, global economic uncertainties, geopolitical tensions and global tariffs and retaliatory measures on the semiconductor industry and our business;
• the effect that liquidity of our investments has on our capital resources;
• the continuing application of our products in the storage and computing, enterprise data, automotive, industrial, communications and consumer end markets;
• estimates of our future liquidity requirements;
• the cyclical nature of the semiconductor industry;
• our belief that we may incur significant legal expenses that vary with the level of activity in each of our current or future legal proceedings;
• expectations regarding protection of our proprietary technology;
• the business outlook for the remainder of 2025 and beyond;
• the factors that we believe will impact our business, operations and financial condition, as well as our ability to achieve revenue growth;
• the expected percentage of our total revenue from various end markets;
• our ability to identify, acquire and integrate companies, businesses and products, and achieve the anticipated benefits from such acquisitions and integrations;
• the expected impact of various U.S. and international tax laws and regulations on our income tax provision, financial position and cash flows;
• our plan to repatriate cash from our foreign subsidiaries;
• our intention and ability to execute our stock repurchase program and pay cash dividends and dividend equivalents; and
• the factors that differentiate us from our competitors.

These forward-looking statements generally are identified by the words “would,” “could,” “may,” “should,” “predict,” “potential,” “targets,” “continue,” “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “will,” and similar expressions. All forward-looking statements are based on our current outlook, expectations, estimates, projections, beliefs and plans or objectives about our business, our industry and the global economy, including our expectations regarding the potential impacts of macroeconomic factors, global economic uncertainties, including tariffs and retaliatory measures, and geopolitical tensions on the semiconductor industry and our business. These statements are not guarantees of future performance and are subject to significant risks and uncertainties. Actual events or results could differ materially and adversely from those expressed in any such forward-looking statements. Risks and uncertainties that could cause actual results to differ materially include those set forth throughout this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K including, in particular, in the sections entitled “Risk Factors.” Except as required by law, we disclaim any duty, and undertake no obligation, to update any forward-looking statements, whether as a result of new information relating to existing conditions, future events or otherwise or to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q and entail significant risks. Readers should carefully review future reports and documents that we file from time to time with the SEC, such as our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

Unless stated otherwise or the context otherwise requires, references to “we,” “our,” and “us” mean Monolithic Power Systems, Inc. and its consolidated subsidiaries.

Overview

We are a fabless global company that provides high-performance, semiconductor-based power electronics solutions. Our mission is to reduce energy and material consumption to improve all aspects of quality of life and create a sustainable future. Founded in 1997 by our CEO Michael Hsing, we have three core strengths: deep system-level knowledge, strong semiconductor design expertise, and innovative proprietary technologies in the areas of semiconductor processes, system integration, and packaging. These combined advantages are designed to enable us to deliver reliable, compact, and monolithic solutions that are highly energy-efficient, cost-effective, and environmentally responsible while providing a consistent return on investment to our stockholders.

We operate in the cyclical semiconductor industry. We are subject to industry downturns, but we have targeted product and market areas that we believe allow us to operate at above average industry performance levels over the long term. Historically, our revenue has generally been higher in the second half of the year than in the first half although various factors, such as market conditions and the timing of key product introductions, could impact this trend.

We work with third parties to manufacture and assemble our ICs. This has enabled us to limit our capital expenditures and fixed costs, while focusing our engineering and design resources on our core strengths.

Following the introduction of a product, our sales cycle generally takes a number of quarters after we receive an initial customer order for a new product to ramp up. Typical supply chain lead times for orders are generally 16 to 26 weeks. These factors, combined with the fact that our customers can cancel or reschedule orders without incurring a significant penalty, make the forecasting of our orders, revenue and expenses difficult.

We derive most of our revenue from sales through distribution arrangements and direct sales to customers in Asia, where our products are incorporated into end-user products. Our revenue from sales to customers in Asia was 94% and 93% of our total revenue for the three months ended March 31, 2025 and 2024, respectively.

We believe our ability to achieve revenue growth will depend, in part, on our ability to develop new products, enter new market segments, gain market share, manage litigation risk, diversify our customer base and continue to secure manufacturing capacity.

Macroeconomic Conditions and Regulations

The semiconductor industry has historically been impacted by various macroeconomic challenges including fluctuations in consumer spending, fluctuations in demand for semiconductors, rising inflation, increased interest rates, and fluctuations in currency rates. We remain cautious in light of continued challenging macroeconomic conditions and will continue to monitor the potential impact on our operations. The extent and duration of the direct and indirect impact of macroeconomic events on our business, results of operations and overall financial position remain uncertain and depend on future developments.

We closely monitor changes to export control laws, tariffs, trade regulations and other trade requirements. To date, no restrictions or requirements have had a material impact on our revenue and operations. We believe that our diverse, agile and resilient supply chain is structured in a way to minimize the impact of tariffs; however, such restrictions or requirements can be enacted quickly and unexpectedly and could impact our business in the future. To the extent tariffs or trade regulations affecting us are implemented, we will seek to take mitigating actions in the near- and medium-term, as necessary, and are committed to complying with all applicable trade laws, regulations and other requirements.

Critical Accounting Estimates

In preparing our condensed consolidated financial statements in accordance with GAAP, we are required to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and the accompanying disclosures. Estimates and judgments used in the preparation of our financial statements are, by their nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control, including demand for our products, economic conditions and other current and future events, such as macroeconomic factors, global economic uncertainties, geopolitical tensions and global tariffs and counter measures. Actual results could differ from these estimates and assumptions, and any such differences may be material to our condensed consolidated financial statements.

Results of Operations

The table below sets forth the data on the Condensed Consolidated Statements of Operations as a percentage of revenue:

(In thousands, except percentages)

Revenue

The following table summarizes our revenue by end market:

(In thousands, except percentages)

Revenue for the three months ended March 31, 2025 was $637.6 million, an increase of $179.7 million, or 39.2%, from $457.9 million for the three months ended March 31, 2024. The increase in revenue was primarily due to higher shipment volume.

For the three months ended March 31, 2025, revenue from the storage and computing market increased $82.4 million, or 77.6%, from the same period in 2024. This increase was primarily due to higher sales of storage applications and products for notebooks. Revenue from the automotive market increased $57.8 million, or 66.4%, from the same period in 2024. This increase was primarily due to higher sales of applications supporting advanced driver assistance systems, infotainment and USB connectors. Revenue from the enterprise data market decreased $16.8 million, or 11.2%, from the same period in 2024. This decrease was primarily due to lower sales of our power management solutions for AI applications, partially offset by higher sales of our cloud-based and on-premises CPU server and workstation applications. Revenue from the communications market increased $25.0 million, or 53.7%, from the same period in 2024. This increase was primarily driven by higher sales of power solutions for optical modules and routers. Revenue from the consumer market increased $18.9 million, or 49.6%, from the same period in 2024. This increase was primarily driven by higher sales in home appliances and smart TVs. Revenue from the industrial market increased $12.4 million, or 40.9%, from the same period in 2024. This increase was broad-based and primarily due to higher sales for power sources.

Cost of Revenue and Gross Margin

Cost of revenue primarily consists of costs incurred to manufacture, assemble and test our products, as well as warranty costs, inventory-related and other overhead costs, and stock-based compensation expenses.

(In thousands, except percentages)

Cost of revenue was $284.3 million, or 44.6% of revenue, for the three months ended March 31, 2025, and $205.4 million, or 44.9% of revenue, for the three months ended March 31, 2024. The $78.9 million increase in cost of revenue was primarily driven by higher shipment volume.

Gross margin was 55.4% for the three months ended March 31, 2025, compared with 55.1% for the three months ended March 31, 2024. The increase in gross margin was mainly driven by lower inventory write-downs and warranty expenses as a percentage of revenue, partially offset by product mix and higher manufacturing overhead costs as a percentage of revenue.

Research and Development

R&D expenses primarily consist of cash compensation and benefits, stock-based compensation and deferred compensation for design and product engineers, expenses related to new product development and supplies, and facility costs.

(In thousands, except percentages)

R&D expenses were $92.2 million, or 14.4% of revenue, for the three months ended March 31, 2025, and $76.0 million, or 16.6% of revenue, for the three months ended March 31, 2024. The $16.2 million increase in R&D expenses was primarily due to a $10.4 million increase in cash compensation expenses and benefits, a $4.1 million increase in new product development expenses, and a $1.5 million increase in laboratory and other supplies, partially offset by a $1.9 million benefit related to changes in the value of deferred compensation plan liabilities.

Selling, General and Administrative

SG&A expenses primarily include cash compensation and benefits, stock-based compensation and deferred compensation for sales, marketing and administrative personnel, sales and sales representative commissions, travel expenses, facilities costs, third party service fees and legal expenses.

(In thousands, except percentages)

SG&A expenses were $92.2 million, or 14.5% of revenue, for the three months ended March 31, 2025, and $81.0 million, or 17.7% of revenue, for the three months ended March 31, 2024. The $11.3 million increase in SG&A expenses was primarily driven by a $5.9 million increase in cash compensation and benefits, a $3.6 million increase in sales and sales representative commissions, a $2.2 million increase in stock-based compensation expenses, and a $1.0 million increase consisting of software licensing fees and advertising expenses, partially offset by a $2.9 million benefit related to changes in the value of deferred compensation plan liabilities.

Other Income, Net

Other income, net, was $5.1 million for the three months ended March 31, 2025, compared with $9.5 million for the three months ended March 31, 2024. The decrease in other income, net was primarily due to an increase of $5.4 million in expense related to changes in the value of the deferred compensation plan investments and a decrease of $3.4 million in amortization of the discount on available-for-sale securities, partially offset by a decrease in charitable commitments.

Income Tax Expense

The income tax provision for interim periods is generally determined using an estimate of our 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 our estimated tax rate changes, a cumulative adjustment is made.

The income tax expense for the three months ended March 31, 2025 was $40.1 million, or 23.1% of pre-tax income. The effective tax rate was higher than the federal statutory rate of 21% primarily due to the U.S. impact of foreign earnings and non-deductible stock-based compensation. The higher effective tax rate relative to the federal statutory rate was partially offset by income generated by our subsidiaries in lower tax jurisdictions, foreign tax credits, and U.S. R&D credits.

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 lower statutory tax rates at certain of our foreign subsidiaries, and excess tax benefits from stock-based compensation. The lower effective tax rate relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax.

In January 2025, the OECD released new Administrative Guidance on the application of the GLoBE Model Rules. We will continue to evaluate the impact of this release and of other future guidance on our future global tax provision.

In December 2023, the Bermuda CIT Act was enacted and signed into law. See Note 13 for further details.

Liquidity and Capital Resources

(In thousands, except percentages)

As of March 31, 2025, we had cash and cash equivalents of $637.4 million and short-term investments of $389.3 million, compared with cash and cash equivalents of $691.8 million and short-term investments of $171.1 million as of December 31, 2024. As of March 31, 2025, $521.0 million of cash and cash equivalents and $179.1 million of short-term investments were held by our foreign subsidiaries. For the three months ended March 31, 2025, we repatriated $275 million of cash from certain of our foreign subsidiaries to the U.S. with minimal tax impact. We may repatriate additional cash from certain of our foreign subsidiaries in future periods to fund our expenditures. We anticipate that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.

Summary of Cash Flows

The following table summarizes our cash flow activities:

(In thousands)

For the three months ended March 31, 2025, the $8.3 million increase in net cash provided by operating activities compared to the same period in 2024 was primarily due to increased accounts receivable collections, partially offset by increased inventory purchases and changes in other working capital.

For the three months ended March 31, 2025, the $8.5 million decrease in net cash used in investing activities compared to the same period in 2024 was primarily due to a $33.3 million acquisition made in 2024, partially offset by an increase of $24.4 million in purchases of property and equipment.

For the three months ended March 31, 2025, the $5.9 million increase in net cash used in financing activities compared to the same period in 2024 was primarily due to an increase of $10.5 million in dividend and dividend equivalent payments, partially offset by repurchases of common stock made only in 2024.

Cash Requirements

Although consequences of economic uncertainties and macroeconomic conditions, including tariffs and retaliatory measures, and other factors could adversely affect our liquidity and capital resources in the future, and cash requirements may fluctuate based on the timing and extent of many factors such as those discussed above, we believe that our balances of cash, cash equivalents and short-term investments of $1,026.7 million as of March 31, 2025, along with cash generated by ongoing operations, will be sufficient to satisfy our liquidity requirements for the next 12 months and beyond.

Our material cash requirements include the following contractual and other obligations:

Purchase Obligations

Purchase obligations represent commitments to our suppliers and other parties requiring the purchases of goods or services. Our 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, we 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, 2025, we had remaining prepayments under this agreement of $60.0 million reported in other current assets on the Condensed Consolidated Balance Sheets.

As of March 31, 2025, total estimated future unconditional purchase commitments to all suppliers and other parties, net of the $60.0 million prepayment, were $546.5 million, of which $497.7 million was due within a year.

Transition Tax Liability

The transition tax liability represents the one-time, mandatory deemed repatriation tax imposed on previously deferred foreign earnings under the U.S. Tax Cuts and Jobs Act enacted in December 2017 (the “2017 Tax Act”). As permitted by the 2017 Tax Act, we have elected to pay the tax liability in installments on an interest-free basis through 2025. As of March 31, 2025, the remaining liability totaled $6.2 million, all of which was short-term.

Operating Leases

Operating lease obligations represent the undiscounted remaining lease payments primarily for our leased facilities. As of March 31, 2025, these obligations totaled $17.8 million, of which $3.3 million was short-term.

Capital Return to Stockholders

In February 2025, our Board of Directors approved a stock repurchase program authorizing us to repurchase up to $500.0 million of our common stock through February 2028. As of March 31, 2025, $500.0 million remained available for future repurchases under the program.

We currently have a dividend program approved by our Board of Directors, pursuant to which we intend to pay quarterly cash dividends on our common stock. Based on our historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividends when and if declared by the Board of Directors, which are payable to the stockholders in the following month. As of March 31, 2025, accrued cash dividends totaled $74.7 million. The declaration of any future cash dividends is at the discretion of our Board of Directors and will depend on, among other things, our financial condition, results of operations, capital requirements, business conditions and other factors that our Board of Directors may deem relevant, as well as a determination that cash dividends are in the best interests of our stockholders.

Other Long-Term Obligations

Other long-term obligations primarily include payments for deferred compensation plan liabilities and accrued dividend equivalents. As of March 31, 2025, these obligations totaled $91.3 million.

For a discussion of market risks, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2024. During the three months ended March 31, 2025, there were no material changes or developments that would have materially altered, or were reasonably likely to materially alter, the market risk assessment performed as of December 31, 2024.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2025, our disclosure controls and procedures were designed at a reasonable assurance level and were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2025, there were no changes in our internal control over financial reporting that would have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Our business, reputation, results of operations, financial condition and stock price can be affected by a number of factors, whether currently known or unknown, including those described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 under the heading “Risk Factors.” When any one or more of these risks materialize from time to time, our business, reputation, results of operations, financial condition and stock price can be materially and adversely affected. There have been no material changes to our risk factors since the filing of our Annual Report on Form 10-K for the year ended December 31, 2024.