mpwr20220930

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, 2022

☐	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

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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 46,942,000 shares of the registrant’s common stock issued and outstanding as of November 2, 2022.

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MONOLITHIC POWER SYSTEMS, INC.

Form 10-Q

For the Quarter Ended September 30, 2022

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		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	31
Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION		32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	52

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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,
	2022			2021
ASSETS
Current assets:
Cash and cash equivalents	$	316,210		$	189,265
Short-term investments		419,837			535,817
Accounts receivable, net		153,404			104,813
Inventories		397,435			259,417
Other current assets		36,571			35,540
Total current assets		1,323,457			1,124,852
Property and equipment, net		343,123			362,962
Goodwill		6,571			6,571
Deferred tax assets, net		23,905			21,917
Other long-term assets		234,165			69,523
Total assets	$	1,931,221		$	1,585,825

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	78,673		$	83,027
Accrued compensation and related benefits		103,253			62,635
Other accrued liabilities		109,062			81,282
Total current liabilities		290,988			226,944
Income tax liabilities		49,963			47,669
Other long-term liabilities		59,561			67,227
Total liabilities		400,512			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: 46,941 and 46,256, respectively		938,993			803,226
Retained earnings		633,640			424,879
Accumulated other comprehensive income (loss)		(41,924	)		15,880
Total stockholders’ equity		1,530,709			1,243,985
Total liabilities and stockholders’ equity	$	1,931,221		$	1,585,825

See accompanying notes to unaudited condensed consolidated financial statements.

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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,
	2022		2021		2022			2021
Revenue	$	495,418	$	323,522	$	1,334,136		$	871,294
Cost of revenue		204,516		137,211		553,393			379,709
Gross profit		290,902		186,311		780,743			491,585
Operating expenses:
Research and development		67,263		49,468		178,497			136,113
Selling, general and administrative		69,717		56,291		207,538			164,982
Litigation expense		2,051		3,421		4,815			6,645
Total operating expenses		139,031		109,180		390,850			307,740
Operating income		151,871		77,131		389,893			183,845
Other income (expense), net		5		793		(5,720	)		6,411
Income before income taxes		151,876		77,924		384,173			190,256
Income tax expense		27,539		9,154		65,591			20,904
Net income	$	124,337	$	68,770	$	318,582		$	169,352

Net income per share:
Basic	$	2.66	$	1.50	$	6.83		$	3.70
Diluted	$	2.57	$	1.44	$	6.60		$	3.55
Weighted-average shares outstanding:
Basic		46,829		45,970		46,643			45,754
Diluted		48,349		47,852		48,295			47,772

See accompanying notes to unaudited condensed consolidated financial statements.

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MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Net income	$	124,337		$	68,770		$	318,582		$	169,352
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(26,081	)		(371	)		(49,844	)		2,592
Change in unrealized loss on available-for-sale securities, net of tax of $130, $32, $865 and $177, respectively		(1,157	)		(268	)		(7,960	)		(1,070	)
Other comprehensive income (loss), net of tax:		(27,238	)		(639	)		(57,804	)		1,522
Comprehensive income	$	97,099		$	68,131		$	260,778		$	170,874

See accompanying notes to unaudited condensed consolidated financial statements.

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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 September 30, 2022	*Shares*		*Amount*		*Earnings*			*Loss*			*Equity*
Balance as of July 1, 2022		46,787	$	891,888	$	545,920		$	(14,686	)	$	1,423,122
Net income		-		-		124,337			-			124,337
Other comprehensive loss		-		-		-			(27,238	)		(27,238	)
Dividends and dividend equivalents declared ($0.75 per share)		-		-		(36,617	)		-			(36,617	)
Common stock issued under the employee equity incentive plan		147		1,014		-			-			1,014
Common stock issued under the employee stock purchase plan		7		3,091		-			-			3,091
Stock-based compensation expense		-		43,000		-			-			43,000
Balance as of September 30, 2022		46,941	$	938,993	$	633,640		$	(41,924	)	$	1,530,709

								Accumulated
	*Common Stock and*							*Other*			*Total*
	*Additional Paid-in Capital*				*Retained*			*Comprehensive*			*Stockholders*’
Three Months Ended September 30, 2021	*Shares*		*Amount*		*Earnings*			*Income*			*Equity*
Balance as of July 1, 2021		45,917	$	733,672	$	341,382		$	12,301		$	1,087,355
Net income		-		-		68,770			-			68,770
Other comprehensive loss		-		-		-			(639	)		(639	)
Dividends and dividend equivalents declared ($0.60 per share)		-		-		(28,959	)		-			(28,959	)
Common stock issued under the employee equity incentive plan		167		2,227		-			-			2,227
Common stock issued under the employee stock purchase plan		7		2,377		-			-			2,377
Stock-based compensation expense		-		31,582		-			-			31,582
Balance as of September 30, 2021		46,091	$	769,858	$	381,193		$	11,662		$	1,162,713

								Accumulated
	*Common Stock and*							*Other*			*Total*
	*Additional Paid-in Capital*				*Retained*			*Comprehensive*			*Stockholders*’
Nine Months Ended September 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		-		-		318,582			-			318,582
Other comprehensive loss		-		-		-			(57,804	)		(57,804	)
Dividends and dividend equivalents declared ($2.25 per share)		-		-		(109,821	)		-			(109,821	)
Common stock issued under the employee equity incentive plan		671		4,345		-			-			4,345
Common stock issued under the employee stock purchase plan		14		5,877		-			-			5,877
Stock-based compensation expense		-		125,545		-			-			125,545
Balance as of September 30, 2022		46,941	$	938,993	$	633,640		$	(41,924	)	$	1,530,709

								Accumulated
	*Common Stock and*							*Other*		*Total*
	*Additional Paid-in Capital*				*Retained*			*Comprehensive*		*Stockholders*’
Nine Months Ended September 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		-		-		169,352			-		169,352
Other comprehensive income		-		-		-			1,522		1,522
Dividends and dividend equivalents declared ($1.80 per share)		-		-		(86,905	)		-		(86,905	)
Common stock issued under the employee equity incentive plan		807		15,147		-			-		15,147
Common stock issued under the employee stock purchase plan		17		4,670		-			-		4,670
Stock-based compensation expense		-		92,340		-			-		92,340
Balance as of September 30, 2021		46,091	$	769,858	$	381,193		$	11,662	$	1,162,713

See accompanying notes to unaudited condensed consolidated financial statements.

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MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2022			2021
Cash flows from operating activities:
Net income	$	318,582		$	169,352
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		28,349			20,376
Amortization of premium on available-for-sale securities		3,682			3,231
(Gain) loss on deferred compensation plan investments		8,607			(2,640	)
Deferred taxes, net		(1,217	)		1,004
Stock-based compensation expense		125,723			92,282
Other		97			(8	)
Changes in operating assets and liabilities:
Accounts receivable		(48,608	)		(13,033	)
Inventories		(138,241	)		(50,968	)
Other assets		(172,050	)		(14,051	)
Accounts payable		6,274			30,032
Accrued compensation and related benefits		45,054			30,030
Income tax liabilities		5,734			4,088
Other accrued liabilities		12,485			22,109
Net cash provided by operating activities		194,471			291,804
Cash flows from investing activities:
Purchases of property and equipment		(46,002	)		(76,849	)
Purchases of short-term investments		(16,243	)		(354,171	)
Purchases of long-term investments		(2,084	)		-
Maturities and sales of short-term investments		104,666			94,192
Sales of long-term investments		325			400
Contributions to deferred compensation plan, net		(2,993	)		(1,917	)
Purchases of intangible assets		-			(793	)
Net cash provided by (used in) investing activities		37,669			(339,138	)
Cash flows from financing activities:
Property and equipment purchased on extended payment terms		(1,587	)		(2,049	)
Proceeds from common stock issued under the employee equity incentive plan		4,345			15,147
Proceeds from common stock issued under the employee stock purchase plan		5,877			4,670
Dividends and dividend equivalents paid		(101,564	)		(80,725	)
Net cash used in financing activities		(92,929	)		(62,957	)
Effect of change in exchange rates		(12,275	)		1,431
Net increase (decrease) in cash, cash equivalents and restricted cash		126,936			(108,860	)
Cash, cash equivalents and restricted cash, beginning of period		189,389			335,071
Cash, cash equivalents and restricted cash, end of period	$	316,325		$	226,211
Supplemental disclosures for cash flow information:
Cash paid for taxes	$	61,430		$	16,217
Non-cash investing and financing activities:
Liability accrued for property and equipment purchases	$	4,710		$	7,144
Liability accrued for dividends and dividend equivalents	$	39,672		$	31,911

See accompanying notes to unaudited condensed consolidated financial statements.

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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 generally accepted accounting principles 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 Russia-Ukraine conflict materially and adversely impacted the Company’s overall operating results or business operations for the three and nine months ended September 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 Russia-Ukraine conflict 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 September 30, 2022 and 2021, respectively, and 98% and 96% of the Company’s total revenue for the nine months ended September 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.

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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 September 30, 2022 and 2021, 83% and 89% of the Company’s product sales were made through distribution arrangements, respectively. For the nine months ended September 30, 2022 and 2021, 83% and 89% of the Company’s product sales were made through distribution arrangements, respectively. These distribution arrangements contain enforceable rights and obligations specific to those distributors and not the end customers. Purchase orders, which are generally governed by sales agreements or the Company’s standard terms of sale, set the final terms for unit price, quantity, shipping and payment agreed 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 prices, 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 September 30, 2022 and December 31, 2021, accounts receivable totaled $153.4 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.

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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 September 30, 2022 and December 31, 2021, customer prepayments totaled $3.4 million and $4.3 million, respectively. The decrease in the customer prepayment balance for the nine months ended September 30, 2022 resulted from a decrease in unfulfilled customer orders for which the Company had received payments. For the nine months ended September 30, 2022, the Company recognized $4.1 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 September 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Cost of revenue	$	1,186	$	922	$	3,691	$	2,622
Research and development		9,287		6,646		26,875		19,564
Selling, general and administrative		32,524		24,004		95,157		70,096
Total stock-based compensation expense	$	42,997	$	31,572	$	125,723	$	92,282
Tax benefit related to stock-based compensation (1)	$	654	$	488	$	1,879	$	1,299

(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.

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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		44		$	396.77		442	(1)	$	363.74		120		$	270.15		606		$	347.57
Vested		(53	)	$	188.73		(375	)	$	141.02		(243	)	$	23.57		(671	)	$	102.22
Forfeited		(6	)	$	308.76		(1	)	$	374.87		(6	)	$	216.37		(13	)	$	268.11
Outstanding at September 30, 2022		110		$	318.11		1,232		$	298.24		1,089		$	73.23		2,431		$	198.26

(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 $62.3 million and $76.8 million for the three months ended September 30, 2022 and 2021, respectively. The intrinsic value related to vested RSUs was $277.9 million and $297.7 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, the total intrinsic value of all outstanding RSUs was $881.1 million, based on the closing stock price of $363.40. As of September 30, 2022, unamortized compensation expense related to all outstanding RSUs was $239.3 million with a weighted-average remaining recognition period of approximately two years.

Cash proceeds from vested PSUs with a purchase price requirement totaled $4.3 million and $15.1 million for the nine months ended September 30, 2022 and 2021, respectively.

Time-Based RSUs:

For the nine months ended September 30, 2022, the Compensation Committee granted 44,000 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 represented a target number of shares that could be earned subject to the achievement of two sets of performance goals ( “February 2022 Executive PSUs”). For the first goal, the executive officers could earn up to 300% of the target number of the February 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 February 2022 Executive PSUs would vest in the first quarter of 2024 if the pre-determined revenue goal was met during the performance period. The remaining February 2022 Executive PSUs would vest over the following two years on a quarterly basis. For the second goal, the executive officers could earn up to an additional 200% of the target number of the February 2022 Executive PSUs if the Company secured additional wafer capacity during a three-year performance period. The February 2022 Executive PSUs related to the second goal would fully vest in the first quarter of 2025 if the pre-determined goal was met during the performance period. In addition, all vested shares related to the second goal would 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 February 2022 Executive PSUs would be $145.7 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 February 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 February 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 February 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.

In October 2022, the Compensation Committee cancelled the February 2022 Executive PSUs and granted the executive officers MSUs as replacement awards, which can now be earned subject to the achievement of both stock price targets and total stockholder return performance compared to the companies comprising the Philadelphia Semiconductor Sector Index over a three-year performance period ( “October 2022 Executive MSUs”). The October 2022 Executives MSUs will vest at the end of the three-year performance period depending on the degree to which the pre-determined goals are met. Under modification accounting, the Company will continue to recognize stock-based compensation cost for the February 2022 Executive PSUs and any incremental cost of the October 2022 Executive MSUs over the vesting period of the October 2022 Executive MSUs. The Company will determine the grant date fair value of the October 2022 Executive MSUs using a Monte Carlo simulation model, which has not been finalized as of the issuance of this Quarterly Report on Form 10-Q; therefore, we are not able to quantify the impact of the modification at this time.

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. Two stock price targets were achieved during the third quarter of 2022. 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 $31.3 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”)

For each of the three months ended September 30, 2022 and 2021, 7,000 shares were issued under the ESPP. For the nine months ended September 30, 2022 and 2021, 14,000 and 17,000 shares, respectively, were issued under the ESPP. As of September 30, 2022, 4.5 million shares were available for future issuance under the ESPP.

The intrinsic value of the shares issued was $0.9 million and $1.0 million for the three months ended September 30, 2022 and 2021, respectively. The intrinsic value of the shares issued was $1.6 million and $2.4 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, the unamortized expense was $1.1 million, which will be recognized through the first quarter of 2023. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Expected term (in years)		0.5			0.5			0.5			0.5
Expected volatility		63.2	%		43.0	%		50.6	%		43.2	%
Risk-free interest rate		3.1	%		0.1	%		1.9	%		0.1	%
Dividend yield		0.6	%		0.5	%		0.6	%		0.6	%

Cash proceeds from the shares issued under the ESPP were $5.9 million and $4.7 million for the nine months ended September 30, 2022 and 2021, respectively.

4. BALANCE SHEET COMPONENTS

Inventories

Inventories consist of the following (in thousands):

	September 30,		December 31,
	2022		2021
Raw materials	$	83,313	$	29,478
Work in process		155,904		130,029
Finished goods		158,218		99,910
Total	$	397,435	$	259,417

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Other Current Assets

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

	September 30,		December 31,
	2022		2021
RSU tax withholding proceeds receivable	$	11,957	$	16,224
Prepaid expenses		9,197		9,526
Accrued interest receivable		7,676		5,440
Assets for product returns		4,969		1,596
Other		2,772		2,754
Total	$	36,571	$	35,540

Other Long-Term Assets

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

	September 30,		December 31,
	2022		2021
Deferred compensation plan assets	$	47,516	$	53,172
Prepaid expenses		173,229		2,311
Other		13,420		14,040
Total	$	234,165	$	69,523

As of September 30, 2022, prepaid expenses included $170.0 million relating to a deposit made to a vendor under a long-term wafer supply agreement. See Note 8 for further details.

Other Accrued Liabilities

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

	September 30,		December 31,
	2022		2021
Dividends and dividend equivalents	$	40,823	$	32,364
Warranty		22,644		20,989
Stock rotation and sales returns		22,757		5,748
Customer prepayments		3,417		4,300
Income tax payable		8,296		4,921
Other		11,125		12,960
Total	$	109,062	$	81,282

As of September 30, 2022, stock rotation and sales returns included a $22.4 million stock rotation reserve, compared with a $5.5 million reserve as of December 31, 2021. The change in the reserve can be affected by the timing of returns and the level of inventory in the distribution channel.

Other Long-Term Liabilities

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

	September 30,		December 31,
	2022		2021
Deferred compensation plan liabilities	$	49,417	$	55,489
Dividend equivalents		8,267		8,470
Other		1,877		3,268
Total	$	59,561	$	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 one 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):

		September 30,		December 31,
	Financial Statement Line Item	2022		2021
Operating lease ROU assets	Other long-term assets	$	4,617	$	6,297

Operating lease liabilities	Other accrued liabilities	$	2,263	$	2,539
	Other long-term liabilities	$	1,877	$	3,268

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Lease costs:
Operating lease costs	$	656	$	623	$	2,061	$	1,694
Other		454		140		1,259		387
Total lease costs	$	1,110	$	763	$	3,320	$	2,081

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	649	$	612	$	2,115	$	1,622
ROU assets obtained in exchange for new operating lease liabilities	$	13	$	793	$	1,071	$	4,477

	September 30,			December 31,
	2022			2021
Weighted-average remaining lease term (in years)		2.3			2.8
Weighted-average discount rate		2.0	%		2.0	%

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

2022 (remaining three months)	$	674
2023		1,999
2024		967
2025		590
2026		7
Total remaining lease payments		4,237
Less: imputed interest		(97	)
Total lease liabilities	$	4,140

As of September 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 September 30, 2022 and 2021, income related to lease payments was $0.6 million and $0.7 million, respectively. For both the nine months ended September 30, 2022 and 2021, income related to lease payments was $1.7 million. As of September 30, 2022, future income related to lease payments was as follows (in thousands):

2022 (remaining three months)	$	554
2023		1,557
2024		607
2025		102
2026		18
Total	$	2,838

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator:
Net income	$	124,337	$	68,770	$	318,582	$	169,352

Denominator:
Weighted-average outstanding shares - basic		46,829		45,970		46,643		45,754
Effect of dilutive securities		1,520		1,882		1,652		2,018
Weighted-average outstanding shares - diluted		48,349		47,852		48,295		47,772

Net income per share:
Basic	$	2.66	$	1.50	$	6.83	$	3.70
Diluted	$	2.57	$	1.44	$	6.60	$	3.55

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 September 30,						Nine Months Ended September 30,
Customer	2022			2021			2022			2021
Distributor A		25	%		24	%		24	%		26	%
Distributor B		18	%		15	%		18	%		16	%
Distributor C		10	%		12	%		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:

	September 30,			December 31,
	2022			2021
Distributor A		27	%		26	%
Distributor B		18	%		17	%
Value-added reseller A		*			12	%

* Represents less than 10%.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
Country or Region	2022		2021		2022		2021
China	$	265,053	$	184,796	$	720,911	$	509,072
Taiwan		58,920		47,048		185,025		125,756
Europe		44,885		21,328		101,279		62,498
South Korea		52,613		24,442		136,031		62,721
Southeast Asia		26,458		14,820		64,460		38,506
Japan		22,399		20,944		63,690		47,546
United States		24,965		10,091		62,384		24,935
Other		125		53		356		260
Total	$	495,418	$	323,522	$	1,334,136	$	871,294

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

	Three Months Ended September 30,				Nine Months Ended September 30,
Product Family	2022		2021		2022		2021
Direct Current (“DC”) to DC	$	462,982	$	307,368	$	1,264,081	$	827,605
Lighting Control		32,436		16,154		70,055		43,689
Total	$	495,418	$	323,522	$	1,334,136	$	871,294

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

	September 30,		December 31,
Country	2022		2021
China	$	194,811	$	211,973
United States		112,982		113,805
Taiwan		18,787		19,607
Other		16,543		17,577
Total	$	343,123	$	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 September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Balance at beginning of period	$	25,209		$	10,873		$	20,989		$	6,895
Warranty provision for product sales		1,141			7,757			11,531			12,954
Settlements made		(306	)		(770	)		(1,825	)		(1,739	)
Unused warranty provision		(3,400	)		(84	)		(8,051	)		(334	)
Balance at end of period	$	22,644		$	17,776		$	22,644		$	17,776

The warranty and unused warranty provisions for product sales included net adjustments for changes in estimates to pre-existing claims of $(3.4) million and $1.4 million for the three months ended September 30, 2022 and 2021, respectively, and $1.9 million and $2.2 million for the nine months ended September 30, 2022 and 2021, respectively.

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. As of September 30, 2022, the Company had made prepayments under this agreement of $170.0 million.

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

2022 (remaining three months)	$	303,070
2023		420,883
2024		285,813
2025		353,952
Total	$	1,363,718

Litigation

The Company is a party to actions and proceedings in the ordinary course of business, including challenges to the enforceability or validity of its intellectual property, claims that the Company’s products infringe on the intellectual property rights of others, and employment matters. The Company may also be subject to litigation initiated by its stockholders. These proceedings often involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. The Company intends to defend itself vigorously against any such claims. As of September 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):

	September 30,		December 31,
	2022		2021
Cash	$	245,051	$	174,937
Money market funds		71,159		14,328
Certificates of deposit		126,532		141,478
Corporate debt securities		286,065		386,883
U.S. treasuries and government agency bonds		7,240		7,456
Auction-rate securities backed by student-loan notes		2,083		2,401
Total	$	738,130	$	727,483

	September 30,		December 31,
	2022		2021
Reported as:
Cash and cash equivalents	$	316,210	$	189,265
Short-term investments		419,837		535,817
Investment within other long-term assets		2,083		2,401
Total	$	738,130	$	727,483

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

	Amortized Cost		Fair Value
Due in less than 1 year	$	316,904	$	313,134
Due in 1 - 5 years		113,002		106,703
Due in greater than 5 years		2,195		2,083
Total	$	432,101	$	421,920

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):

	September 30, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Money market funds	$	71,159	$	-	$	-		$	71,159
Certificates of deposit		126,532		-		-			126,532
Corporate debt securities		295,877		-		(9,812	)		286,065
U.S. treasuries and government agency bonds		7,497		-		(257	)		7,240
Auction-rate securities backed by student-loan notes		2,195		-		(112	)		2,083
Total	$	503,260	$	-	$	(10,181	)	$	493,079

	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