UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2022

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

1

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

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

Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐
Smaller reporting company ☐	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

There were 46,789,000 shares of the registrant’s common stock issued and outstanding as of July 29, 2022. 

2

MONOLITHIC POWER SYSTEMS, INC.

Form 10-Q

For the Quarter Ended June 30, 2022

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION		4
Item 1.	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income	6
	Condensed Consolidated Statements of Stockholders' Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
PART II. OTHER INFORMATION		33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53

3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(unaudited)

	June 30,			December 31,
	2022			2021
ASSETS
Current assets:
Cash and cash equivalents	$	342,867		$	189,265
Short-term investments		469,012			535,817
Accounts receivable, net		125,508			104,813
Inventories		359,647			259,417
Other current assets		35,055			35,540
Total current assets		1,332,089			1,124,852
Property and equipment, net		356,687			362,962
Goodwill		6,571			6,571
Deferred tax assets, net		23,961			21,917
Other long-term assets		66,385			69,523
Total assets	$	1,785,693		$	1,585,825
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	77,925		$	83,027
Accrued compensation and related benefits		85,238			62,635
Other accrued liabilities		91,324			81,282
Total current liabilities		254,487			226,944
Income tax liabilities		47,350			47,669
Other long-term liabilities		60,734			67,227
Total liabilities		362,571			341,840
Commitments and contingencies
Stockholders’ equity:
Common stock and additional paid-in capital: $0.001 par value; shares authorized: 150,000; shares issued and outstanding: 46,787 and 46,256, respectively		891,888			803,226
Retained earnings		545,920			424,879
Accumulated other comprehensive income (loss)		(14,686	)		15,880
Total stockholders’ equity		1,423,122			1,243,985
Total liabilities and stockholders’ equity	$	1,785,693		$	1,585,825

See accompanying notes to unaudited condensed consolidated financial statements.

4

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per-share amounts)

(unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2022			2021		2022			2021
Revenue	$	461,004		$	293,317	$	838,718		$	547,772
Cost of revenue		190,043			129,102		348,877			242,498
Gross profit		270,961			164,215		489,841			305,274
Operating expenses:
Research and development		57,131			44,753		111,234			86,645
Selling, general and administrative		70,668			57,238		137,822			108,691
Litigation expense		1,274			1,596		2,763			3,224
Total operating expenses		129,073			103,587		251,819			198,560
Operating income		141,888			60,628		238,022			106,714
Other income (expense), net		(5,092	)		3,031		(5,726	)		5,618
Income before income taxes		136,796			63,659		232,296			112,332
Income tax expense		22,117			8,490		38,051			11,750
Net income	$	114,679		$	55,169	$	194,245		$	100,582
Net income per share:
Basic	$	2.46		$	1.20	$	4.17		$	2.20
Diluted	$	2.37		$	1.16	$	4.02		$	2.11
Weighted-average shares outstanding:
Basic		46,675			45,796		46,550			45,647
Diluted		48,286			47,754		48,268			47,732

See accompanying notes to unaudited condensed consolidated financial statements.

5

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Net income	$	114,679		$	55,169		$	194,245		$	100,582
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(23,585	)		5,437			(23,763	)		2,963
Change in unrealized loss on available-for-sale securities, net of tax of $170, $21, $735 and $145, respectively		(1,403	)		(148	)		(6,803	)		(802	)
Other comprehensive income (loss), net of tax		(24,988	)		5,289			(30,566	)		2,161
Comprehensive income	$	89,691		$	60,458		$	163,679		$	102,743

See accompanying notes to unaudited condensed consolidated financial statements.

6

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per-share amounts)

(unaudited)

								Accumulated
	Common Stock and							Other			Total
	Additional Paid-in Capital				Retained			Comprehensive			Stockholders’
Three Months Ended June 30, 2022	Shares		Amount		Earnings			Income (Loss)			Equity
Balance as of April 1, 2022		46,625	$	847,966	$	467,844		$	10,302		$	1,326,112
Net income		-		-		114,679			-			114,679
Other comprehensive loss		-		-		-			(24,988	)		(24,988	)
Dividends and dividend equivalents declared ($0.75 per share)		-		-		(36,603	)		-			(36,603	)
Common stock issued under the employee equity incentive plan		162		1,013		-			-			1,013
Stock-based compensation expense		-		42,909		-			-			42,909
Balance as of June 30, 2022		46,787	$	891,888	$	545,920		$	(14,686	)	$	1,423,122

								Accumulated
	Common Stock and							Other		Total
	Additional Paid-in Capital				Retained			Comprehensive		Stockholders’
Three Months Ended June 30, 2021	Shares		Amount		Earnings			Income		Equity
Balance as of April 1, 2021		45,737	$	699,359	$	315,206		$	7,012	$	1,021,577
Net income		-		-		55,169			-		55,169
Other comprehensive income		-		-		-			5,289		5,289
Dividends and dividend equivalents declared ($0.60 per share)		-		-		(28,993	)		-		(28,993	)
Common stock issued under the employee equity incentive plan		180		2,176		-			-		2,176
Stock-based compensation expense		-		32,137		-			-		32,137
Balance as of June 30, 2021		45,917	$	733,672	$	341,382		$	12,301	$	1,087,355

								Accumulated
	Common Stock and							Other			Total
	Additional Paid-in Capital				Retained			Comprehensive			Stockholders’
Six Months Ended June 30, 2022	Shares		Amount		Earnings			Income (Loss)			Equity
Balance as of January 1, 2022		46,256	$	803,226	$	424,879		$	15,880		$	1,243,985
Net income		-		-		194,245			-			194,245
Other comprehensive loss		-		-		-			(30,566	)		(30,566	)
Dividends and dividend equivalents declared ($1.50 per share)		-		-		(73,204	)		-			(73,204	)
Common stock issued under the employee equity incentive plan		524		3,331		-			-			3,331
Common stock issued under the employee stock purchase plan		7		2,786		-			-			2,786
Stock-based compensation expense		-		82,545		-			-			82,545
Balance as of June 30, 2022		46,787	$	891,888	$	545,920		$	(14,686	)	$	1,423,122

								Accumulated
	Common Stock and							Other		Total
	Additional Paid-in Capital				Retained			Comprehensive		Stockholders’
Six Months Ended June 30, 2021	Shares		Amount		Earnings			Income		Equity
Balance as of January 1, 2021		45,267	$	657,701	$	298,746		$	10,140	$	966,587
Net income		-		-		100,582			-		100,582
Other comprehensive income		-		-		-			2,161		2,161
Dividends and dividend equivalents declared ($1.20 per share)		-		-		(57,946	)		-		(57,946	)
Common stock issued under the employee equity incentive plan		640		12,920		-			-		12,920
Common stock issued under the employee stock purchase plan		10		2,293		-			-		2,293
Stock-based compensation expense		-		60,758		-			-		60,758
Balance as of June 30, 2021		45,917	$	733,672	$	341,382		$	12,301	$	1,087,355

See accompanying notes to unaudited condensed consolidated financial statements. 

7

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2022			2021
Cash flows from operating activities:
Net income	$	194,245		$	100,582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		18,675			12,649
Amortization of premium on available-for-sale securities		2,580			1,926
(Gain) loss on deferred compensation plan investments		7,277			(3,039	)
Deferred taxes, net		(1,383	)		1,005
Stock-based compensation expense		82,726			60,710
Other		15			5
Changes in operating assets and liabilities:
Accounts receivable		(20,710	)		(10,719	)
Inventories		(100,434	)		(20,237	)
Other assets		51			(4,109	)
Accounts payable		6,138			12,791
Accrued compensation and related benefits		24,526			9,398
Income tax liabilities		(1,751	)		1,640
Other accrued liabilities		701			11,401
Net cash provided by operating activities		212,656			174,003
Cash flows from investing activities:
Purchases of property and equipment		(38,721	)		(58,268	)
Purchases of short-term investments		(16,243	)		(255,343	)
Purchases of long-term investments		(2,085	)		-
Maturities and sales of short-term investments		65,793			62,789
Sales of long-term investments		200			300
Contributions to deferred compensation plan, net		(2,275	)		(1,686	)
Net cash provided by (used in) investing activities		6,669			(252,208	)
Cash flows from financing activities:
Property and equipment purchased on extended payment terms		(1,190	)		(1,140	)
Proceeds from common stock issued under the employee equity incentive plan		3,331			12,920
Proceeds from common stock issued under the employee stock purchase plan		2,786			2,293
Dividends and dividend equivalents paid		(65,294	)		(52,222	)
Net cash used in financing activities		(60,367	)		(38,149	)
Effect of change in exchange rates		(5,362	)		1,615
Net increase (decrease) in cash, cash equivalents and restricted cash		153,596			(114,739	)
Cash, cash equivalents and restricted cash, beginning of period		189,389			335,071
Cash, cash equivalents and restricted cash, end of period	$	342,985		$	220,332
Supplemental disclosures for cash flow information:
Cash paid for taxes	$	41,137		$	9,023
Non-cash investing and financing activities:
Liability accrued for property and equipment purchases	$	2,968		$	10,719
Liability accrued for dividends and dividend equivalents	$	38,260		$	30,564

See accompanying notes to unaudited condensed consolidated financial statements.

8

MONOLITHIC POWER SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by Monolithic Power Systems, Inc. (the “Company” or “MPS”) in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted in accordance with these accounting principles, rules and regulations. The information in this report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended  December 31, 2021, filed with the SEC on  February 25, 2022.

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, 2022 or for any other future periods.

Use of Estimates

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

Neither the COVID-19 pandemic nor the conflict between Ukraine and Russia materially and adversely impacted the Company's overall operating results or business operations for the three and six months ended June 30, 2022. As of the date of issuance of these condensed consolidated financial statements, the Company is not aware of any specific event or circumstance related to the pandemic or the conflict between Ukraine and Russia that would require management to update the significant estimates and assumptions used in the preparation of the condensed consolidated financial statements. As new events continue to evolve and additional information becomes available, any changes to these estimates and assumptions will be recognized in the condensed consolidated financial statements as soon as they become known.

2. REVENUE RECOGNITION

Revenue from Product Sales

The Company generates revenue primarily from product sales, which include assembled and tested integrated circuits (“ICs”), as well as dies in wafer form. These product sales accounted for 98% and 96% of the Company’s total revenue for the three months ended June 30, 2022 and 2021, respectively, and 98% and 97% of the Company’s total revenue for the six months ended June 30, 2022 and 2021, respectively. The remaining revenue primarily includes royalty revenue from licensing arrangements and revenue from wafer testing services performed for third parties, which have not been significant for the periods presented. See Note 7 for the disaggregation of the Company’s revenue by geographic region and by product family.

9

 

The Company sells its products primarily through third-party distributors, value-added resellers, original equipment manufacturers (“OEMs”), original design manufacturers (“ODMs”) and electronic manufacturing service (“EMS”) providers. For the three months ended June 30, 2022 and 2021, 85% and 88%, respectively, of the Company’s product sales were made through distribution arrangements. For the six months ended June 30, 2022 and 2021, 84% and 89%, respectively, of the Company’s product sales were made through distribution arrangements. These distribution arrangements contain enforceable rights and obligations specific to those distributors and not the end customers. Purchase orders, which are generally governed by sales agreements or the Company's standard terms of sale, set the final terms for unit price, quantity, shipping and payment agreed by both parties. The Company considers purchase orders to be the contracts with customers. The unit price as stated on the purchase orders is considered the observable, stand-alone selling price for the arrangements.

The Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company excludes taxes assessed by government authorities, such as sales taxes, from revenue.

Product sales consist of a single performance obligation that the Company satisfies at a point in time. The Company recognizes product revenue from distributors and direct end customers when the following events have occurred: (a) the Company has transferred physical possession of the products, (b) the Company has a present right to payment, (c) the customer has legal title to the products, and (d) the customer bears significant risks and rewards of ownership of the products. In accordance with the shipping terms specified in the contracts, these criteria are generally met when the products are shipped from the Company’s facilities (such as the “Ex Works” shipping term) or delivered to the customers’ locations (such as the “Delivered Duty Paid” shipping term).

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

Variable Consideration

The Company accounts for price adjustment and stock rotation rights as variable consideration that reduces the transaction price and recognizes that reduction in the same period the associated revenue is recognized. Four U.S.-based distributors have price adjustment rights when they sell the Company’s products to their end customers at a price that is lower than the distribution price invoiced by the Company. When the Company receives claims from the distributors that products have been sold to the end customers at the lower price, the Company issues the distributors credit memos for the price adjustments. The Company estimates the price adjustments using the expected value method based on an analysis of historical claims, at both the distributor and product level, as well as an assessment of any known trends of product sales mix. Other U.S. distributors and non-U.S. distributors 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 in connection with stock rotations, with a corresponding reduction to cost of revenue.

Contract Balances

Accounts Receivable:

The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. As of June 30, 2022 and December 31, 2021, accounts receivable totaled $125.5 million and $104.8 million, respectively. The Company's accounts receivable are short-term, with standard payment terms generally ranging from 30 to 90 days. The Company does not require its customers to provide collateral to support accounts receivable. The Company assesses the collectability by reviewing accounts receivable on a customer-by-customer basis. To manage credit risk, management performs ongoing credit evaluations of the customers’ financial condition, monitors payment performance, and assesses current economic conditions, as well as reasonable and supportable forecasts of future economic conditions, that may affect collectability of the outstanding receivables. For certain high-risk customers, the Company requires standby letters of credit or advance payment prior to shipments of goods. The Company did not recognize any write-offs of accounts receivable or record any allowance for credit losses for the periods presented.

10

 

Contract Liabilities:

For certain customers located in Asia, the Company requires cash payments two weeks before the products are scheduled to be shipped to the customers. The Company records these payments received in advance of performance as customer prepayments within current accrued liabilities. As of June 30, 2022 and December 31, 2021, customer prepayments totaled $4.8 million and $4.3 million, respectively. The increase in the customer prepayment balance for the six months ended June 30, 2022 resulted from an increase in unfulfilled customer orders for which the Company had received payments. For the six months ended June 30, 2022, the Company recognized $4.0 million of revenue that was included in the customer prepayment balance as of December 31, 2021.

Practical Expedients

The Company has elected the practical expedient to expense sales commissions as incurred because the amortization period would have been one year or less. 

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

The Company’s unsatisfied performance obligations primarily include products held in consignment arrangements and customer purchase orders for products that the Company has not yet shipped. Because the Company expects to fulfill these performance obligations within one year, the Company has elected not to disclose the amount of these remaining performance obligations.

3. STOCK-BASED COMPENSATION

2014 Equity Incentive Plan

In  April 2013, the Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which the Company's stockholders approved in  June 2013. In  October 2014, the Board of Directors approved certain amendments to the 2014 Plan. The amended 2014 Plan became effective on  November 13, 2014 and provided for the issuance of up to 5.5 million shares. In  April 2020, the Board of Directors further amended and restated the amended 2014 Plan (the “Amended and Restated 2014 Plan”), which the Company's stockholders approved in  June 2020. The Amended and Restated 2014 Plan became effective on  June 11, 2020 and provides for the issuance of up to 10.5 million shares. The Amended and Restated 2014 Plan will expire on  June 11, 2030. As of June 30, 2022, 5.0 million shares remained available for future issuance under the Amended and Restated 2014 Plan.  

Stock-Based Compensation Expense

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Cost of revenue	$	1,198	$	885	$	2,505	$	1,700
Research and development		9,187		6,752		17,588		12,918
Selling, general and administrative		32,530		24,489		62,633		46,092
Total stock-based compensation expense	$	42,915	$	32,126	$	82,726	$	60,710
Tax benefit related to stock-based compensation (1)	$	652	$	381	$	1,225	$	811

(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.

11

 

Restricted Stock Units (“RSUs”)

The Company’s RSUs include time-based RSUs, RSUs with performance conditions (“PSUs”), RSUs with market conditions (“MSUs”), and RSUs with both market and performance conditions (“MPSUs”). Vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performance goals and the approval of such achievement by the Compensation Committee of the Board of Directors (the “Compensation Committee”). All awards include service conditions which require continued employment with the Company. A summary of RSU activity is presented in the table below (in thousands, except per-share amounts):

	Time-Based RSUs					PSUs and MPSUs					MSUs					Total
	Number of Shares			Weighted- Average Grant Date Fair Value Per Share		Number of Shares			Weighted- Average Grant Date Fair Value Per Share		Number of Shares			Weighted- Average Grant Date Fair Value Per Share		Number of Shares			Weighted- Average Grant Date Fair Value Per Share
Outstanding at January 1, 2022		125		$	235.82		1,166		$	222.78		1,218		$	44.59		2,509		$	136.87
Granted		40		$	394.57		442	(1)	$	370.19		120		$	270.15		602		$	351.88
Vested		(43	)	$	183.18		(319	)	$	143.36		(162	)	$	23.57		(524	)	$	109.63
Forfeited		(4	)	$	297.83		-		$	-		(5	)	$	207.45		(9	)	$	255.02
Outstanding at June 30, 2022		118		$	307.08		1,289		$	293.00		1,171		$	69.93		2,578		$	192.21

(1) Amount reflects the number of awards that  may ultimately be earned based on management’s probability assessment of the achievement of performance conditions at each reporting period.

The intrinsic value related to vested RSUs was $64.0 million and $61.7 million for the three months ended  June 30, 2022 and 2021, respectively. The intrinsic value related to vested RSUs was $215.7 million and $220.9 million for the six months ended June 30, 2022 and 2021, respectively. As of  June 30, 2022, the total intrinsic value of all outstanding RSUs was $1.0 billion, based on the closing stock price of $384.04. As of  June 30, 2022, unamortized compensation expense related to all outstanding RSUs was $284.0 million with a weighted-average remaining recognition period of approximately two years.

Cash proceeds from vested PSUs with a purchase price requirement totaled $3.3 million and $12.9 million for the six months ended June 30, 2022 and 2021, respectively. 

Time-Based RSUs:

For the six months ended  June 30, 2022, the Compensation Committee granted 40,000 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.

2022 PSUs:

In February 2022, the Compensation Committee granted 81,000 PSUs to the executive officers, which represent a target number of shares that can be earned subject to the achievement of two sets of performance goals (“2022 Executive PSUs”). For the first goal, the executive officers can earn up to 300% of the target number of the 2022 Executive PSUs based on the achievement of the Company’s average two-year (2022 and 2023) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association. 50% of the 2022 Executive PSUs will vest in the first quarter of 2024 if the pre-determined revenue goal is met during the performance period. The remaining 2022 Executive PSUs will vest over the following two years on a quarterly basis. For the second goal, the executive officers can earn up to an additional 200% of the target number of the 2022 Executive PSUs if the Company secures additional wafer capacity during a three-year performance period. The 2022 Executive PSUs related to the second goal will fully vest in the first quarter of 2025 if the pre-determined goal is met during the performance period. In addition, all vested shares related to the second goal will be subject to a post-vesting sales restriction period of one year. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2022 Executive PSUs is $148.6 million.

In February 2022, the Compensation Committee granted 14,000 PSUs to certain non-executive employees, which represent a target number of shares that can be earned subject to the achievement of the Company’s 2023 revenue goals for certain regions or product line divisions, or based on the achievement of the Company’s average two-year (2022 and 2023) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2022 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2022 Non-Executive PSUs, depending on the job classification of the employee. 50% of the 2022 Non-Executive PSUs will vest in the first quarter of 2024 if the pre-determined goals are met during the performance period. The remaining 2022 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2022 Non-Executive PSUs is $13.7 million.

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The 2022 Executive PSUs and the 2022 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. The $30 purchase price requirement is deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time during 2022 and 2023 is $30 higher than the grant date stock price of $393.16. This market condition was achieved in the first quarter of 2022. The Company determined the grant date fair value of the 2022 Executive PSUs for the first goal and the 2022 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $393.16, simulation term of four years, expected volatility of 44.6%, risk-free interest rate of 1.5%, and expected dividend yield of 0.8%. In addition, for the 2022 Executive PSUs related to the second goal, the fair value was determined based on the closing stock price at the end of each reporting period, adjusted for accrued dividends and an illiquidity discount of 10.3% to account for the post-vesting sales restrictions.

2022 MSUs:

In February 2022, the Compensation Committee granted 24,000 MSUs to certain non-executive employees, which represent a target number of shares that can be earned upon achievement of stock price targets (“2022 MSUs”). The maximum number of shares that an employee can earn is 500% of the target number of the 2022 MSUs if the Company achieves five stock price targets ranging from $472 to $590 during a performance period from February 3, 2022 to February 3, 2025. The 2022 MSUs will vest in equal amounts on each of the first, second and third anniversaries of February 3, 2025. The total stock-based compensation cost for the 2022 MSUs is $31.5 million.

The Company determined the grant date fair value of the 2022 MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $393.16, simulation term of six years, expected volatility of 39.0%, risk-free interest rate of 1.7%, and expected dividend yield of 0.8%.

2004 Employee Stock Purchase Plan (“ESPP”)

No shares were issued under the ESPP for the three months ended June 30, 2022 and 2021. For the six months ended June 30, 2022 and 2021, 7,000 and 10,000 shares, respectively, were issued under the ESPP. As of June 30, 2022, 4.5 million shares were available for future issuance under the ESPP.

The intrinsic value of the shares issued was $0.7 million and $1.4 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, the unamortized expense was $0.2 million, which will be recognized through the third quarter of 2022. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions: 

	Six Months Ended June 30,
	2022			2021
Expected term (in years)		0.5			0.5
Expected volatility		38.1	%		43.3	%
Risk-free interest rate		0.7	%		0.1	%
Dividend yield		0.6	%		0.6	%

Cash proceeds from the shares issued under the ESPP were $2.8 million and $2.3 million for the six months ended June 30, 2022 and 2021, respectively.  

4. BALANCE SHEET COMPONENTS

Inventories 

Inventories consist of the following (in thousands): 

	June 30,		December 31,
	2022		2021
Raw materials	$	53,478	$	29,478
Work in process		147,956		130,029
Finished goods		158,213		99,910
Total	$	359,647	$	259,417

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Other Current Assets

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

	June 30,		December 31,
	2022		2021
RSU tax withholding proceeds receivable	$	12,630	$	16,224
Prepaid expenses		9,664		9,526
Accrued interest receivable		7,073		5,440
Assets for product returns		1,936		1,596
Other		3,752		2,754
Total	$	35,055	$	35,540

Other Long-Term Assets

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

	June 30,		December 31,
	2022		2021
Deferred compensation plan assets	$	48,128	$	53,172
Prepaid expenses		3,494		2,311
Other		14,763		14,040
Total	$	66,385	$	69,523

Other Accrued Liabilities

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

	June 30,		December 31,
	2022		2021
Dividends and dividend equivalents	$	40,391	$	32,364
Warranty		25,209		20,989
Stock rotation and sales returns		8,478		5,748
Customer prepayments		4,780		4,300
Income tax payable		3,460		4,921
Other		9,006		12,960
Total	$	91,324	$	81,282

Other Long-Term Liabilities

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

	June 30,		December 31,
	2022		2021
Deferred compensation plan liabilities	$	49,905	$	55,489
Dividend equivalents		8,352		8,470
Other		2,477		3,268
Total	$	60,734	$	67,227

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5. LEASES

Lessee

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

The following table summarizes the balances of operating lease right-of-use (“ROU”) assets and liabilities (in thousands):

		June 30,		December 31,
	Financial Statement Line Item	2022		2021
Operating lease ROU assets	Other long-term assets	$	5,549	$	6,297
Operating lease liabilities	Other accrued liabilities	$	2,560	$	2,539
	Other long-term liabilities	$	2,477	$	3,268

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Lease costs:
Operating lease costs	$	676	$	578	$	1,405	$	1,071
Other		438		120		805		247
Total lease costs	$	1,114	$	698	$	2,210	$	1,318

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	533	$	698	$	1,466	$	1,010
ROU assets obtained in exchange for new operating lease liabilities	$	48	$	744	$	1,058	$	3,684

	June 30,			December 31,
	2022			2021
Weighted-average remaining lease term (in years)		2.4			2.8
Weighted-average discount rate		2.0	%		2.0	%

As of June 30, 2022, the maturities of the lease liabilities were as follows (in thousands):

2022 (remaining six months)	$	1,407
2023		2,102
2024		1,024
2025		623
2026		8
Total remaining lease payments		5,164
Less: imputed interest		(127	)
Total lease liabilities	$	5,037

As of June 30, 2022, the Company had no operating leases that had not yet commenced.

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

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For the three months ended June 30, 2022 and 2021, income related to lease payments was $0.5 million and $0.6 million, respectively. For the six months ended June 30, 2022 and 2021, income related to lease payments was $1.1 million and $0.9 million, respectively. As of  June 30, 2022, future income related to lease payments was as follows (in thousands):

2022 (remaining six months)	$	1,101
2023		1,569
2024		612
2025		105
2026		19
Total	$	3,406

6. NET INCOME PER SHARE

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

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Numerator:
Net income	$	114,679	$	55,169	$	194,245	$	100,582
Denominator:
Weighted-average outstanding shares - basic		46,675		45,796		46,550		45,647
Effect of dilutive securities		1,611		1,958		1,718		2,085
Weighted-average outstanding shares - diluted		48,286		47,754		48,268		47,732
Net income per share:
Basic	$	2.46	$	1.20	$	4.17	$	2.20
Diluted	$	2.37	$	1.16	$	4.02	$	2.11

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

7. SEGMENT, SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION

The Company operates in one reportable segment that includes the design, development, marketing and sale of high-performance, semiconductor-based power electronics solutions for the storage and computing, enterprise data, automotive, industrial, communications and consumer markets. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company derives a majority of its revenue from sales to customers located outside North America, with geographic revenue based on the customers’ ship-to locations.  

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

	Three Months Ended June 30,						Six Months Ended June 30,
Customer	2022			2021			2022			2021
Distributor A		24	%		28	%		24	%		27	%
Distributor B		18	%		17	%		18	%		17	%
Distributor C		11	%		*			11	%		*

* Represents less than 10%.

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

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

	June 30,			December 31,
	2022			2021
Distributor A		19	%		26	%
Distributor B		16	%		17	%
Value-added reseller A		21	%		12	%

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

	Three Months Ended June 30,				Six Months Ended June 30,
Country or Region	2022		2021		2022		2021
China	$	249,778	$	170,893	$	455,858	$	324,276
Taiwan		69,668		48,262		126,105		78,708
Europe		31,179		20,790		56,394		41,170
South Korea		43,046		18,992		83,418		38,279
Southeast Asia		21,114		12,188		38,002		23,686
Japan		22,136		14,552		41,291		26,602
United States		23,973		7,542		37,419		14,844
Other		110		98		231		207
Total	$	461,004	$	293,317	$	838,718	$	547,772

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

	Three Months Ended June 30,				Six Months Ended June 30,
Product Family	2022		2021		2022		2021
Direct Current (“DC”) to DC	$	442,250	$	278,808	$	801,099	$	520,237
Lighting Control		18,754		14,509		37,619		27,535
Total	$	461,004	$	293,317	$	838,718	$	547,772

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

	June 30,		December 31,
Country	2022		2021
China	$	209,016	$	211,973
United States		113,065		113,805
Taiwan		18,587		19,607
Other		16,019		17,577
Total	$	356,687	$	362,962

8. COMMITMENTS AND CONTINGENCIES

Product Warranties

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

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Balance at beginning of period	$	23,833		$	9,941		$	20,989		$	6,895
Warranty provision for product sales		5,650			1,588			10,390			5,197
Settlements made		(139	)		(656	)		(1,519	)		(969	)
Unused warranty provision		(4,135	)		-			(4,651	)		(250	)
Balance at end of period	$	25,209		$	10,873		$	25,209		$	10,873

For the three and six months ended June 30, 2022, the warranty and unused warranty provisions for product sales included net adjustments for changes in estimates to pre-existing claims of $1.0 million and $5.2 million, respectively. For the three and six months ended June 30, 2021, the amounts were not material.

Purchase Commitments

The Company has outstanding purchase obligations with its suppliers and other parties that require the future purchases of goods or services, which primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction of manufacturing and research and development 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 the next four years. Under the terms of the agreement, the Company may be required to make prepayments of up to $220 million in August 2022.

Total estimated future unconditional purchase commitments to all suppliers and other parties as of June 30, 2022 were as follows (in thousands):

2022 (remaining six months)	$	304,275
2023		415,582
2024		343,394
2025		411,376
Total	$	1,474,627

Litigation

The Company is a party to actions and proceedings in the ordinary course of business, including potential litigation initiated by its stockholders, challenges to the enforceability or validity of its intellectual property, claims that the Company’s products infringe on the intellectual property rights of others, and employment matters. These proceedings often involve complex questions of fact and law and  may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. The Company intends to defend itself vigorously against any such claims. As of June 30, 2022, there were no material pending legal proceedings to which the Company was a party.

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9. CASH, CASH EQUIVALENTS, INVESTMENTS AND RESTRICTED CASH

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

	June 30,		December 31,
	2022		2021
Cash	$	274,475	$	174,937
Money market funds		68,392		14,328
Certificates of deposit		134,374		141,478
Corporate debt securities		327,358		386,883
U.S. treasuries and government agency bonds		7,280		7,456
Auction-rate securities backed by student-loan notes		2,219		2,401
Total	$	814,098	$	727,483

	June 30,		December 31,
	2022		2021
Reported as:
Cash and cash equivalents	$	342,867	$	189,265
Short-term investments		469,012		535,817
Investment within other long-term assets		2,219		2,401
Total	$	814,098	$	727,483

The following table summarizes the contractual maturities of the short-term and long-term available-for-sale investments as of June 30, 2022 (in thousands):  

	Amortized Cost		Fair Value
Due in less than 1 year	$	275,261	$	273,257
Due in 1 - 5 years		202,543		195,755
Due in greater than 5 years		2,320		2,219
Total	$	480,124	$	471,231

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

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

	June 30, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Money market funds	$	68,392	$	-	$	-		$	68,392
Certificates of deposit		134,374		-		-			134,374
Corporate debt securities		335,934		9		(8,585	)		327,358
U.S. treasuries and government agency bonds		7,496		-		(216	)		7,280
Auction-rate securities backed by student-loan notes		2,320		-		(101	)		2,219
Total	$	548,516	$	9	$	(8,902	)	$	539,623

	December 31, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Money market funds	$	14,328	$	-	$	-		$	14,328
Certificates of deposit		141,478		-		-			141,478
Corporate debt securities		388,081		570		(1,768	)		386,883
U.S. treasuries and government agency bonds		7,495		-		(39	)		7,456
Auction-rate securities backed by student-loan notes		2,520		-		(119	)		2,401
Total	$	553,902	$	570	$	(1,926	)	$	552,546

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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): 

	June 30, 2022
	Less than 12 Months					Greater than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate debt securities	$	284,630	$	(7,859	)	$	33,521	$	(726	)	$	318,151	$	(8,585	)
U.S. treasuries and government agency bonds		7,280		(216	)		-		-			7,280		(216	)
Auction-rate securities backed by student-loan notes		-		-			2,219		(101	)		2,219		(101	)
Total	$	291,910	$	(8,075	)	$	35,740	$	(827	)	$	327,650	$	(8,902	)

	December 31, 2021
	Less than 12 Months					Greater than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate debt securities	$	285,954	$	(1,765	)	$	4,760	$	(3	)	$	290,714	$	(1,768	)
U.S. treasuries and government agency bonds		7,456		(39	)		-		-			7,456		(39	)
Auction-rate securities backed by student-loan notes		-		-			2,401		(119	)		2,401		(119	)
Total	$	293,410	$	(1,804	)	$	7,161	$	(122	)	$	300,571	$	(1,926	)

An impairment exists when the fair value of an investment is less than its amortized cost basis. As of June 30, 2022 and December 31, 2021, 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.

The Company’s auction-rate securities are backed by pools of student loans supported by guarantees by the U.S. Department of Education. The underlying maturities of these securities are up to 24 years. The Company has received all scheduled interest payments on a timely basis pursuant to the terms and conditions of the securities. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities, before recovery of its amortized cost basis. To date, the Company has redeemed $41.0 million, or 95% of the original portfolio in these auction-rate securities, at par without any realized losses.

Non-Marketable Equity Investment

In  November 2020, the Company made an equity investment in a privately held Swiss company (the “Investee”) that is accounted for under the measurement alternative. In April 2022, the Company made an investment in a convertible loan that will convert into additional shares. One member of the Company’s Board of Directors is an executive officer of a company that has a commercial relationship with the Investee. In addition, the Company’s Chief Executive Officer has a personal investment in the Investee and currently serves on the Investee's board of directors. As of  June 30, 2022 and December 31, 2021, the Company’s investment in the Investee, which is denominated in CHF, had a carrying value of $5.2 million and $3.3 million, respectively. The Company did not record any impairment or adjustments resulting from observable price changes for the three and six months ended June 30, 2022.

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):   

	June 30,		December 31,
	2022		2021
Cash and cash equivalents	$	342,867	$	189,265
Restricted cash included in other long-term assets		118		124
Total cash, cash equivalents and restricted cash reported on the Consolidated Statements of Cash Flows	$	342,985	$	189,389

As of June 30, 2022 and December 31, 2021, restricted cash included 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.

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10. FAIR VALUE MEASUREMENTS

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