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, 2023

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 47,778,000 shares of the registrant’s common stock issued and outstanding as of July 28, 2023.

2

MONOLITHIC POWER SYSTEMS, INC.

Form 10-Q

For the Quarter Ended June 30, 2023

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	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
PART II. OTHER INFORMATION		35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	56

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,
	2023			2022
ASSETS
Current assets:
Cash and cash equivalents	$	506,959		$	288,607
Short-term investments		433,527			449,266
Accounts receivable, net		169,180			182,714
Inventories		427,432			447,290
Other current assets		95,253			42,742
Total current assets		1,632,351			1,410,619
Property and equipment, net		341,911			357,157
Goodwill		6,571			6,571
Deferred tax assets, net		35,755			35,252
Other long-term assets		204,032			249,286
Total assets	$	2,220,620		$	2,058,885
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	70,614		$	61,461
Accrued compensation and related benefits		66,817			88,260
Other accrued liabilities		113,410			113,679
Total current liabilities		250,841			263,400
Income tax liabilities		54,032			53,509
Other long-term liabilities		76,658			73,374
Total liabilities		381,531			390,283
Commitments and contingencies
Stockholders’ equity:
Common stock and additional paid-in capital: $0.001 par value; shares authorized: 150,000; shares issued and outstanding: 47,611 and 47,107, respectively		1,055,130			975,276
Retained earnings		827,356			716,403
Accumulated other comprehensive loss		(43,397	)		(23,077	)
Total stockholders’ equity		1,839,089			1,668,602
Total liabilities and stockholders’ equity	$	2,220,620		$	2,058,885

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,
	2023		2022			2023		2022
Revenue	$	441,128	$	461,004		$	892,193	$	838,718
Cost of revenue		193,453		190,043			385,738		348,877
Gross profit		247,675		270,961			506,455		489,841
Operating expenses:
Research and development		63,688		57,131			127,397		111,234
Selling, general and administrative		71,662		71,942			142,457		140,585
Total operating expenses		135,350		129,073			269,854		251,819
Operating income		112,325		141,888			236,601		238,022
Other income (expense), net		6,543		(5,092	)		11,840		(5,726	)
Income before income taxes		118,868		136,796			248,441		232,296
Income tax expense		19,364		22,117			39,135		38,051
Net income	$	99,504	$	114,679		$	209,306	$	194,245
Net income per share:
Basic	$	2.10	$	2.46		$	4.42	$	4.17
Diluted	$	2.04	$	2.37		$	4.30	$	4.02
Weighted-average shares outstanding:
Basic		47,489		46,675			47,361		46,550
Diluted		48,756		48,286			48,705		48,268

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,
	2023			2022			2023			2022
Net income	$	99,504		$	114,679		$	209,306		$	194,245
Other comprehensive loss, net of tax:
Foreign currency translation adjustments		(26,180	)		(23,585	)		(23,261	)		(23,763	)
Change in unrealized gain (loss) on available-for-sale securities, net of tax of $158, $170, $469 and $735, respectively		728			(1,403	)		2,941			(6,803	)
Other comprehensive loss, net of tax:		(25,452	)		(24,988	)		(20,320	)		(30,566	)
Comprehensive income	$	74,052		$	89,691		$	188,986		$	163,679

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, 2023	Shares		Amount		Earnings			Loss			Equity
Balance as of April 1, 2023		47,411	$	1,017,131	$	777,075		$	(17,945	)	$	1,776,261
Net income		-		-		99,504			-			99,504
Other comprehensive loss		-		-		-			(25,452	)		(25,452	)
Dividends and dividend equivalents declared ($1.00 per share)		-		-		(49,223	)		-			(49,223	)
Common stock issued under the employee equity incentive plan		200		4		-			-			4
Stock-based compensation expense		-		37,995		-			-			37,995
Balance as of June 30, 2023		47,611	$	1,055,130	$	827,356		$	(43,397	)	$	1,839,089

								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’
Six Months Ended June 30, 2023	Shares		Amount		Earnings			Loss			Equity
Balance as of January 1, 2023		47,107	$	975,276	$	716,403		$	(23,077	)	$	1,668,602
Net income		-		-		209,306			-			209,306
Other comprehensive loss		-		-		-			(20,320	)		(20,320	)
Dividends and dividend equivalents declared ($2.00 per share)		-		-		(98,353	)		-			(98,353	)
Common stock issued under the employee equity incentive plan		495		1,114		-			-			1,114
Common stock issued under the employee stock purchase plan		9		3,737		-			-			3,737
Stock-based compensation expense		-		75,003		-			-			75,003
Balance as of June 30, 2023		47,611	$	1,055,130	$	827,356		$	(43,397	)	$	1,839,089

								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

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,
	2023			2022
Cash flows from operating activities:
Net income	$	209,306		$	194,245
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		19,940			18,690
Amortization of premium on available-for-sale securities		56			2,580
(Gain) loss on deferred compensation plan investments		(5,022	)		7,277
Gain on sales of equity investment		(1,424	)		-
Deferred taxes, net		(984	)		(1,383	)
Stock-based compensation expense		75,001			82,726
Changes in operating assets and liabilities:
Accounts receivable		13,544			(20,710	)
Inventories		19,847			(100,434	)
Other assets		(4,881	)		51
Accounts payable		12,653			6,138
Accrued compensation and related benefits		(20,613	)		24,526
Income tax liabilities		(14,802	)		(1,751	)
Other accrued liabilities		6,371			701
Net cash provided by operating activities		308,992			212,656
Cash flows from investing activities:
Purchases of property and equipment		(16,681	)		(38,721	)
Purchases of investments		(211,407	)		(18,328	)
Maturities and sales of investments		232,206			65,993
Contributions to deferred compensation plan, net		(3,855	)		(2,275	)
Net cash provided by investing activities		263			6,669
Cash flows from financing activities:
Property and equipment purchased on extended payment terms		(1,192	)		(1,190	)
Proceeds from common stock issued under the employee equity incentive plan		1,114			3,331
Proceeds from common stock issued under the employee stock purchase plan		3,737			2,786
Dividends and dividend equivalents paid		(85,863	)		(65,294	)
Net cash used in financing activities		(82,204	)		(60,367	)
Effect of change in exchange rates		(8,696	)		(5,362	)
Net increase in cash, cash equivalents and restricted cash		218,355			153,596
Cash, cash equivalents and restricted cash, beginning of period		288,729			189,389
Cash, cash equivalents and restricted cash, end of period	$	507,084		$	342,985
Supplemental disclosures for cash flow information:
Cash paid for income taxes, net	$	58,216		$	41,137
Non-cash investing and financing activities:
Liability accrued for property and equipment purchases	$	2,586		$	2,968
Liability accrued for dividends and dividend equivalents	$	51,037		$	38,260

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 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, 2022, filed with the SEC on February 24, 2023.

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, 2023 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.

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 99% of the Company’s total revenue for both the three and six months ended June 30, 2023, and 98% of the Company’s total revenue for both the three and six months ended June 30, 2022. 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.

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, 2023 and 2022, 80% and 85% of the Company’s product sales were made through distribution arrangements, respectively. For the six months ended June 30, 2023 and 2022, 80% and 84% 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, at which time control transfers to the customers and the Company invoices them for payment.

9

 

Variable Consideration

The Company accounts for price adjustments and stock rotation rights as variable consideration that reduces the transaction price and recognizes that reduction in the same period the associated revenue is recognized. 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 related to stock rotations, with a corresponding reduction to cost of revenue.

Contract Balances

Accounts Receivable:

The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. As of June 30, 2023 and December 31, 2022, accounts receivable totaled $169.2 million and $182.7 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 payments prior to shipments of goods. The Company did not recognize any write-offs of accounts receivable or record any allowance for credit losses for the periods presented.

Contract Liabilities:

For 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, 2023 and December 31, 2022, customer prepayments totaled $2.7 million and $3.6 million, respectively. The decrease in the customer prepayment balance for the six months ended June 30, 2023 resulted from a decrease in unfulfilled customer orders for which the Company had received payments. For the six months ended June 30, 2023, the Company recognized substantially all of the revenue that was included in the customer prepayment balance as of December 31, 2022.

Practical Expedients

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

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

10

 

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, 2023, 4.2 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,
	2023		2022		2023		2022
Cost of revenue	$	1,150	$	1,198	$	2,297	$	2,505
Research and development		9,313		9,187		17,927		17,588
Selling, general and administrative		27,529		32,530		54,777		62,633
Total stock-based compensation expense	$	37,992	$	42,915	$	75,001	$	82,726
Tax benefit related to stock-based compensation (1)	$	663	$	652	$	1,086	$	1,225

(1) Amount reflects the tax benefit related to stock-based compensation recorded for equity awards that are expected to generate tax deductions when they vest in future periods. Equity awards granted to the Company’s executive officers are subject to the tax deduction limitations set by Section 162(m) of the Internal Revenue Code.

Restricted Stock Units (“RSUs”)

The Company’s RSUs include time-based RSUs, RSUs with performance conditions (“PSUs”), RSUs with market conditions (“MSUs”), and RSUs with both market and performance conditions (“MPSUs”). Vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performance/market goals and the approval of such achievement by the Compensation Committee of the Board of Directors (the “Compensation Committee”). All awards include service conditions which require continued employment with 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, 2023		106		$	327.13		748		$	275.70		1,805		$	126.57		2,659		$	176.50
Granted		38		$	467.77		230	(1)	$	449.23		-		$	-		268		$	450.48
Vested		(35	)	$	277.81		(298	)	$	294.82		(162	)	$	23.57		(495	)	$	204.90
Forfeited		(3	)	$	365.67		(2	)	$	287.76		(5	)	$	139.15		(10	)	$	236.17
Outstanding at June 30, 2023		106		$	392.85		678		$	327.00		1,638		$	136.72		2,422		$	201.23

(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.

11

 

The intrinsic value related to vested RSUs was $98.1 million and $64.0 million for the three months ended June 30, 2023 and 2022, respectively. The intrinsic value related to vested RSUs was $239.7 million and $215.7 million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, the total intrinsic value of all outstanding RSUs was $1.3 billion, based on the closing stock price of $540.23. As of June 30, 2023, unamortized compensation expense related to all outstanding RSUs was $269.9 million with a weighted-average remaining recognition period of approximately two years.

Cash proceeds from vested PSUs with a purchase price requirement totaled $1.1 million and $3.3 million for the six months ended June 30, 2023 and 2022, respectively.

Time-Based RSUs:

For the six months ended June 30, 2023, the Compensation Committee granted 38,000 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.

2023 PSUs:

In February 2023, the Compensation Committee granted 69,000 PSUs to the executive officers, which represent a target number of shares that can be earned based on the degree of achievement of two sets of performance goals (“2023 Executive PSUs”). For the first goal, the executive officers can earn up to 300% of the target number of the 2023 Executive PSUs based on the achievement of the Company’s average three-year (2023 through 2025) revenue growth rate in excess of the analog industry’s average three-year revenue growth rate as published by the Semiconductor Industry Association (the “SIA”). For the second goal, the executive officers can earn up to an additional 200% of the target number of the 2023 Executive PSUs if the Company secures additional manufacturing capacity outside of Mainland China during a three-year performance period. For both goals, a percentage of the 2023 Executive PSUs will fully vest on December 31, 2025, depending on the degree to which the pre-determined goals are met during the performance periods. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2023 Executive PSUs is $156.2 million.

In February 2023, the Compensation Committee granted 13,000 PSUs to certain non-executive employees, which represent a target number of shares that can be earned based on the degree of achievement of the Company’s 2024 revenue goals for certain regions or product line divisions, or based on the degree of achievement of the Company’s average two-year (2023 and 2024) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the SIA (“2023 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2023 Non-Executive PSUs, depending on the job classification of the employee. 50% of the 2023 Non-Executive PSUs will vest in the first quarter of 2025 depending on the degree to which the pre-determined goals are met during the performance period. The remaining 2023 Non-Executive PSUs will vest over the following two years on a quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2023 Non-Executive PSUs is $14.2 million.

The 2023 Executive PSUs and the 2023 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. The $30 purchase price requirement is deemed satisfied and waived if the Company's stock price on the last trading day of the performance period is $30 higher than the grant date stock price of $467.62. The Company determined the grant date fair value of the 2023 Executive PSUs and the 2023 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $467.62, simulation term of four years, expected volatility of 51.0%, risk-free interest rate of 3.9%, and expected dividend yield of 0.9%. There is no illiquidity discount because the awards do not contain any post-vesting sales restrictions.

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2004 Employee Stock Purchase Plan (the “2004 ESPP”)

No shares were issued under the 2004 ESPP for the three months ended June 30, 2023 and 2022. For the six months ended June 30, 2023 and 2022, 9,000 and 7,000 shares were issued under the 2004 ESPP, respectively. As of June 30, 2023, 4.5 million shares were available for future issuance under the 2004 ESPP.

The intrinsic value of the shares issued was $0.7 million for both the six months ended June 30, 2023 and 2022. As of June 30, 2023, the unamortized expense was $0.4 million, which will be recognized through the third quarter of 2023. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions:

	Six Months Ended June 30,
	2023			2022
Expected term (in years)		0.5			0.5
Expected volatility		55.8	%		38.1	%
Risk-free interest rate		5.0	%		0.7	%
Dividend yield		0.8	%		0.6	%

Cash proceeds from the shares issued under the 2004 ESPP were $3.7 million and $2.8 million for the six months ended June 30, 2023 and 2022, respectively.

4. BALANCE SHEET COMPONENTS

Inventories

Inventories consist of the following (in thousands):

	June 30,		December 31,
	2023		2022
Raw materials	$	126,606	$	126,760
Work in process		106,455		134,071
Finished goods		194,371		186,459
Total	$	427,432	$	447,290

Other Current Assets

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

	June 30,		December 31,
	2023		2022
Prepaid wafer purchase	$	50,000	$	-
RSU tax withholding proceeds receivable		17,767		14,480
Prepaid expenses		15,444		11,045
Accrued interest receivable		4,421		8,752
Other		7,621		8,465
Total	$	95,253	$	42,742

Prepaid wafer purchase of $50.0 million relates to a deposit made to a supplier under a long-term wafer supply agreement. See Note 8 for further details.

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Other Long-Term Assets

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

	June 30,		December 31,
	2023		2022
Prepaid wafer purchase	$	120,000	$	170,000
Deferred compensation plan assets		71,900		63,022
Other		12,132		16,264
Total	$	204,032	$	249,286

Prepaid wafer purchase relates to a deposit made to a supplier 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):

	June 30,		December 31,
	2023		2022
Dividends and dividend equivalents	$	59,553	$	42,170
Warranty		17,654		24,082
Stock rotation and sales returns		19,444		14,931
Income tax payable		252		15,595
Other		16,507		16,901
Total	$	113,410	$	113,679

As of June 30, 2023, stock rotation and sales returns included a $17.2 million stock rotation reserve, compared with a $14.3 million reserve as of December 31, 2022. The change in the reserve is 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):

	June 30,		December 31,
	2023		2022
Deferred compensation plan liabilities	$	70,071	$	64,863
Dividend equivalents		1,953		6,847
Other		4,634		1,664
Total	$	76,658	$	73,374

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5. LEASES

Lessee

The Company has operating leases primarily for administrative, 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 eight 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	2023		2022
Operating lease ROU assets	Other long-term assets	$	7,167	$	4,288
Operating lease liabilities	Other accrued liabilities	$	1,947	$	2,133
	Other long-term liabilities	$	4,634	$	1,664

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Lease costs:
Operating lease costs	$	759	$	676	$	1,475	$	1,405
Other		554		438		1,092		805
Total lease costs	$	1,313	$	1,114	$	2,567	$	2,210

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	774	$	533	$	1,638	$	1,466
ROU assets obtained in exchange for new operating lease liabilities	$	290	$	48	$	4,835	$	1,058

	June 30,			December 31,
	2023			2022
Weighted-average remaining lease term (in years)		5.1			2.1
Weighted-average discount rate		3.6	%		2.1	%

As of June 30, 2023, the maturities of the lease liabilities were as follows (in thousands):

2023 (remaining six months)	$	1,098
2024		1,746
2025		1,157
2026		863
2027		871
Thereafter		1,432
Total remaining lease payments		7,167
Less: imputed interest		(586	)
Total lease liabilities	$	6,581

As of June 30, 2023, the Company had no operating leases that had not yet commenced.

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

For the three months ended June 30, 2023 and 2022, income related to lease payments was $0.3 million and $0.5 million, respectively. For the six months ended June 30, 2023 and 2022, income related to lease payments was $0.8 million and $1.1 million, respectively. As of June 30, 2023, future income related to lease payments was as follows (in thousands):

2023 (remaining six months)	$	679
2024		612
2025		107
2026		20
Total	$	1,418

6. NET INCOME PER SHARE

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

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Numerator:
Net income	$	99,504	$	114,679	$	209,306	$	194,245
Denominator:
Weighted-average outstanding shares - basic		47,489		46,675		47,361		46,550
Effect of dilutive securities		1,267		1,611		1,344		1,718
Weighted-average outstanding shares - diluted		48,756		48,286		48,705		48,268
Net income per share:
Basic	$	2.10	$	2.46	$	4.42	$	4.17
Diluted	$	2.04	$	2.37	$	4.30	$	4.02

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

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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 electronic 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.

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	2023			2022			2023			2022
Distributor A		22	%		24	%		21	%		24	%
Distributor B		20	%		18	%		21	%		18	%
Distributor C		11	%		11	%		10	%		11	%

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

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

	June 30,			December 31,
Customer	2023			2022
Distributor A		27	%		29	%
Distributor B		22	%		23	%

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	2023		2022		2023		2022
China	$	216,172	$	249,778	$	441,224	$	455,858
Taiwan		70,212		69,668		119,045		126,105
South Korea		40,669		43,046		86,349		83,418
Europe		36,348		31,179		79,451		56,394
United States		27,571		23,973		58,588		37,419
Japan		28,288		22,136		59,103		41,291
Southeast Asia		21,708		21,114		48,140		38,002
Other		160		110		293		231
Total	$	441,128	$	461,004	$	892,193	$	838,718

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

	Three Months Ended June 30,				Six Months Ended June 30,
Product Family	2023		2022		2023		2022
Direct Current (“DC”) to DC	$	418,175	$	442,250	$	843,356	$	801,099
Lighting Control		22,953		18,754		48,837		37,619
Total	$	441,128	$	461,004	$	892,193	$	838,718

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

	June 30,		December 31,
Country	2023		2022
China	$	184,186	$	200,508
United States		116,816		113,996
Taiwan		19,093		20,074
Other		21,816		22,579
Total	$	341,911	$	357,157

8. COMMITMENTS AND CONTINGENCIES

Product Warranties

The Company generally provides either a one- or two-year warranty against defects in materials and workmanship and will repair the products, provide replacements at no charge to customers or issue a refund. As they are considered assurance-type warranties, the Company does not account for them as separate performance obligations. Warranty reserve requirements are mainly based on a specific assessment 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,
	2023			2022			2023			2022
Balance at beginning of period	$	19,726		$	23,833		$	24,082		$	20,989
Warranties issued		580			475			942			475
Repairs, replacements and refunds		(1,581	)		(139	)		(2,253	)		(1,519	)
Changes in liability for pre-existing warranties		(1,071	)		1,040			(5,117	)		5,264
Balance at end of period	$	17,654		$	25,209		$	17,654		$	25,209

Changes in liability for pre-existing warranties result from changes in estimates for warranties issued in prior periods.

Purchase Commitments

The Company has outstanding purchase obligations with its suppliers and other parties that require the future purchases of goods or services. The purchase obligations primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction of manufacturing and 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 a four-year period. As of June 30, 2023, the Company had made prepayments under this agreement of $170.0 million, of which $50.0 million was classified as short-term.

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Total estimated future unconditional purchase commitments to all suppliers and other parties as of June 30, 2023 were as follows (in thousands):

2023 (remaining six months)	$	160,296
2024		297,556
2025		293,702
Total	$	751,554

Litigation

The Company is a party to actions and proceedings in the ordinary course of business, including challenges to the enforceability or validity of its intellectual property, claims that the Company’s products infringe on the intellectual property rights of others, and employment matters. The Company may also be subject to litigation initiated by its stockholders. These proceedings often involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. The Company defends itself vigorously against any such claims. As of June 30, 2023, there were no material pending legal proceedings to which the Company was a party.

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,
	2023		2022
Cash	$	459,145	$	273,145
Money market funds		47,814		15,462
Certificates of deposit		124,043		130,467
Corporate debt securities		183,695		292,586
Commercial paper		11,376		17,928
U.S. treasuries and government agency bonds		114,413		8,285
Auction-rate securities backed by student-loan notes		649		1,711
Total	$	941,135	$	739,584

	June 30,		December 31,
	2023		2022
Reported as:
Cash and cash equivalents	$	506,959	$	288,607
Short-term investments		433,527		449,266
Investment within other long-term assets		649		1,711
Total	$	941,135	$	739,584

The following table summarizes the contractual maturities of the short-term and long-term available-for-sale investments as of June 30, 2023 (in thousands):

	Amortized Cost		Fair Value
Due in less than 1 year	$	250,915	$	248,256
Due in 1 - 5 years		187,435		185,271
Due in greater than 5 years		650		649
Total	$	439,000	$	434,176

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

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

	June 30, 2023
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Money market funds	$	47,814	$	-	$	-		$	47,814
Certificates of deposit		124,043		-		-			124,043
Corporate debt securities		187,961		1		(4,267	)		183,695
Commercial paper		11,376		-		-			11,376
U.S. treasuries and government agency bonds		114,970		11		(568	)		114,413
Auction-rate securities backed by student-loan notes		650		-		(1	)		649
Total	$	486,814	$	12	$	(4,836	)	$	481,990

	December 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Money market funds	$	15,462	$	-	$	-		$	15,462
Certificates of deposit		130,467		-		-			130,467
Corporate debt securities		300,529		18		(7,961	)		292,586
Commercial paper		17,928		-		-			17,928
U.S. treasuries and government agency bonds		8,487		-		(202	)		8,285
Auction-rate securities backed by student-loan notes		1,770		-		(59	)		1,711
Total	$	474,643	$	18	$	(8,222	)	$	466,439

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, 2023
	Less than 12 Months					Greater than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate debt securities	$	30,126	$	(103	)	$	151,567	$	(4,164	)	$	181,693	$	(4,267	)
U.S. treasuries and government agency bonds		106,771		(530	)		3,461		(38	)		110,232		(568	)
Auction-rate securities backed by student-loan notes		-		-			649		(1	)		649		(1	)
Total	$	136,897