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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-Q


 

(Mark One)

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

 

For the quarterly period ended September 30, 2014

 

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)

 

79 Great Oaks Boulevard, San Jose, CA 95119

(Address of principal executive offices)(Zip code)

 

  (408) 826-0600

(Registrant’s telephone number, including area code)


  

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes      No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐

Accelerated filer           

Non-accelerated filer  ☐  

Smaller reporting company  ☐

 

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 38,745,011 shares of the registrant’s common stock issued and outstanding as of October 24, 2014.

 



 

 
 

 

 

MONOLITHIC POWER SYSTEMS, INC.

 

 

TABLE OF CONTENTS

PAGE

PART I. FINANCIAL INFORMATION

3

ITEM 1.

FINANCIAL STATEMENTS (Unaudited)

3

 

CONDENSED CONSOLIDATED BALANCE SHEETS

3

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

4

 

    CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

5

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

6

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7

ITEM 2.

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

21

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

28

ITEM 4.

CONTROLS AND PROCEDURES

28

PART II. OTHER INFORMATION

29

ITEM 1.

LEGAL PROCEEDINGS

29

ITEM 1A.

RISK FACTORS

29

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

44

ITEM 6.

EXHIBITS

45

 

 
2

 

 

 

 PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(Unaudited)

 

   

September 30,

   

December 31,

 
   

2014

   

2013

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 101,812     $ 101,213  

Short-term investments

    126,849       125,126  

Accounts receivable, net

    24,274       23,730  

Inventories

    41,587       39,737  

Prepaid expenses and other current assets

    2,788       2,280  

Total current assets

    297,310       292,086  

Property and equipment, net

    63,428       64,837  

Long-term investments

    9,795       9,860  

Goodwill

    6,571       -  

Acquisition-related intangible assets, net

    7,178       -  

Deferred income tax assets, net

    477       481  

Other long-term assets

    7,940       1,644  

Total assets

  $ 392,699     $ 368,908  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               

Current liabilities:

               

Accounts payable

  $ 14,793     $ 10,694  

Accrued compensation and related benefits

    6,607       10,419  

Accrued liabilities

    15,528       17,376  

Total current liabilities

    36,928       38,489  

Income tax liabilities

    4,746       5,542  

Other long-term liabilities

    9,364       1,478  

Total liabilities

    51,038       45,509  

Commitments and contingencies (Notes 8 and 12)

               

Stockholders' equity:

               

Common stock, $0.001 par value; shares authorized: 150,000; shares issued and outstanding: 38,804 and 38,291 as of September 30, 2014 and December 31, 2013, respectively

    238,602       234,201  

Retained earnings

    97,398       82,938  

Accumulated other comprehensive income

    5,661       6,260  

Total stockholders’ equity

    341,661       323,399  

Total liabilities and stockholders’ equity

  $ 392,699     $ 368,908  

  

See accompanying notes to unaudited condensed consolidated financial statements.

 

 
3

 

 

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

  

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2014

   

2013

   

2014

   

2013

 

Revenue

  $ 78,335     $ 65,347     $ 206,832     $ 174,531  

Cost of revenue

    35,872       30,053       95,173       80,924  

Gross profit

    42,463       35,294       111,659       93,607  

Operating expenses:

                               

Research and development

    14,679       12,643       43,649       37,246  

Selling, general and administrative

    17,006       13,891       49,968       40,941  

Litigation expense (benefit), net

    332       104       (8,093 )     (455 )

Total operating expenses

    32,017       26,638       85,524       77,732  

Income from operations

    10,446       8,656       26,135       15,875  

Interest and other income (expense), net

    202       (59 )     686       149  

Income before income taxes

    10,648       8,597       26,821       16,024  

Income tax provision (benefit)

    (573 )     1,187       186       625  

Net income

  $ 11,221     $ 7,410     $ 26,635     $ 15,399  
                                 

Net income per share:

                               

Basic

  $ 0.29     $ 0.20     $ 0.69     $ 0.42  

Diluted

  $ 0.28     $ 0.19     $ 0.67     $ 0.40  

Weighted-average shares outstanding:

                               

Basic

    38,785       37,910       38,646       37,079  

Diluted

    39,727       39,009       39,618       38,419  
                                 

Cash dividends declared per common share

  $ 0.15     $ -     $ 0.30     $ -  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 
4

 

 

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2014

   

2013

   

2014

   

2013

 

Net income

  $ 11,221     $ 7,410     $ 26,635     $ 15,399  

Other comprehensive income (loss), net of tax:

                               

Change in unrealized gains (losses) on auction-rate securities, net of $0 tax for the three and nine months ended September 30, 2014 and 2013

    (53 )     149       (65 )     117  

Change in unrealized gains (losses) on other available-for-sale securities, net of $0 tax for the three and nine months ended September 30, 2014 and 2013

    (28 )     34       (16 )     12  

Foreign currency translation adjustments

    (98 )     431       (518 )     1,595  

Total other comprehensive income (loss), net of tax

    (179 )     614       (599 )     1,724  

Comprehensive income

  $ 11,042     $ 8,024     $ 26,036     $ 17,123  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 
5

 

 

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

   

Nine Months Ended September 30,

 
   

2014

   

2013

 
                 

Cash flows from operating activities:

               

Net income

  $ 26,635     $ 15,399  

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

               

Depreciation and amortization

    9,688       8,960  

Amortization and realized gain/loss on investments

    197       320  

Stock-based compensation

    24,872       15,081  

Changes in operating assets and liabilities, net of effects of an acquisition:

               

Accounts receivable

    (516 )     (2,573 )

Inventories

    (1,800 )     (10,851 )

Prepaid expenses and other assets

    (1,868 )     463  

Accounts payable

    3,864       1,164  

Accrued liabilities

    (2,885 )     3,492  

Accrued income taxes payable and noncurrent tax liabilities

    (801 )     (215 )

Accrued compensation and related benefits

    (3,789 )     (1,002 )

Net cash provided by operating activities

    53,597       30,238  
                 

Cash flows from investing activities:

               

Property and equipment purchases

    (7,730 )     (15,424 )

Purchases of short-term investments

    (100,706 )     (62,374 )

Proceeds from sale of short-term investments

    98,752       55,700  

Proceeds from sale of long-term investments

    -       25  

Investments related to deferred compensation plan

    (4,860 )     (309 )

Cash paid for an acquisition, net of cash acquired

    (11,590 )     -  

Net cash used in investing activities

    (26,134 )     (22,382 )
                 

Cash flows from financing activities:

               

Property and equipment purchased on extended payment terms

    (250 )     -  

Proceeds from issuance of common shares

    10,403       32,654  

Proceeds from employee stock purchase plan

    2,078       2,145  

Repurchases of common shares

    (32,976 )     (7,973 )

Dividends and dividend equivalents paid

    (5,817 )     -  

Net cash provided by (used in) financing activities

    (26,562 )     26,826  
                 

Effect of change in exchange rates

    (302 )     660  

Net increase in cash and cash equivalents

    599       35,342  

Cash and cash equivalents, beginning of period

    101,213       75,104  

Cash and cash equivalents, end of period

  $ 101,812     $ 110,446  
                 

Supplemental disclosures for cash flow information:

               

Cash paid for taxes

  $ 981     $ 847  

Supplemental disclosures of non-cash investing and financing activities:

               

Liability accrued for property and equipment purchases

    783       2,081  

Liability accrued for dividends and dividend equivalents

    6,359       -  

Fair value of contingent consideration related to an acquisition

    2,507       -  

  

See accompanying notes to unaudited condensed consolidated financial statements.

 

 
6

 

 

MONOLITHIC POWER SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared by Monolithic Power Systems, Inc. (the “Company” or “MPS”) in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted in accordance with these 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, 2013, filed with the SEC on March 10, 2014.

 

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 Form 10-Q are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 or for any other future period.

 

Summary of Significant Accounting Policies

 

Other than the adoption of the following new significant accounting policies, there have been no changes to the Company’s significant accounting policies during the three and nine months ended September 30, 2014 as compared 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, 2013.

 

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

 

Recent Accounting Pronouncements

 

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The standard gives guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists, with the purpose of reducing diversity in practice. This new standard requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. The Company adopted this standard in the first quarter of 2014 prospectively and the adoption did not have an impact on its consolidated financial position, results of operations or cash flows.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The standard’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under the new standard, entities will apply the following five-step model when evaluating revenue contracts with customers:

 

 

Identify the contract with a customer

 

Identify the performance obligations in the contract

 

Determine the transaction price

 

Allocate the transaction price to the performance obligations in the contract

 

Recognize revenue when the entity satisfies a performance obligation

 

 

 

 

 

The new standard is effective for annual and interim reporting periods beginning after December 15, 2016. Entities have the option of using either a full retrospective or a modified retrospective application in the adoption of this standard. The Company will adopt the standard in the first quarter of 2017 and is evaluating the transition method and the impact of the adoption on its consolidated financial position, results of operations and cash flows.

 

2. STOCK-BASED COMPENSATION

 

Stock Plans

 

As of September 30, 2014, approximately 4.4 million shares were available for future issuance under the 2004 Equity Incentive Plan (the “2004 Plan”). The 2004 Plan will expire on November 12, 2014. Once the 2004 Plan expires, the Company will no longer be able to grant equity awards under the 2004 Plan, and any shares otherwise remaining available for future grants under the 2004 Plan will no longer be available for issuance.

 

The Company’s Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”) in April 2013, and the Company’s stockholders approved it in June 2013. In October 2014, the Board of Directors approved certain amendments to the 2014 Plan. The 2014 Plan will become effective on November 13, 2014, the day after the 2004 Plan expires. The 2014 Plan provides for the issuance of up to 5,500,000 shares and will expire on November 13, 2024.

 

Stock-Based Compensation Expense

 

The Company recognized stock-based compensation expenses as follows (in thousands):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2014

   

2013

   

2014

   

2013

 

Cost of revenue

  $ 246     $ 163     $ 669     $ 465  

Research and development

    2,388       1,491       6,638       4,557  

Selling, general and administrative

    6,225       3,577       17,565       10,059  

Tax benefit

    -       (80 )     -       (175 )

Total stock-based compensation expense

  $ 8,859     $ 5,151     $ 24,872     $ 14,906  

 

Restricted Stock

 

The Company’s restricted stock units (“RSUs”) include time-based RSUs, performance-based RSUs (“PSUs”) and market-based RSUs (“MSUs”). A summary of the RSUs is presented in the table below:

 

   

Time-Based RSUs

   

Weighted-

Average Grant

Date Fair

Value Per

Share

   

PSUs

         

Weighted-

Average Grant

Date Fair

Value Per

Share

 

MSUs

   

Weighted-

Average Grant

Date Fair

Value Per

Share

   

Total

   

Weighted-

Average Grant

Date Fair

Value Per

Share

 

Outstanding at January 1, 2014

    754,306     $ 19.41