Monolithic Power Systems, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Unaudited, GAAP financial statements. MPS designs and sells high-performance analog and power-management semiconductors; it reports one segment.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $186.2m | $151.0m | $352.0m | $292.4m |
| Gross profit / margin | $102.6m / 55.1% | $83.2m / 55.1% | $194.0m / 55.1% | $161.2m / 55.1% |
| Operating income / margin | $28.0m / 15.0% | $20.1m / 13.3% | $58.9m / 16.7% | $41.8m / 14.3% |
| Net income / diluted EPS | $30.2m / $0.64 | $20.7m / $0.45 | $65.9m / $1.41 | $46.9m / $1.03 |
| Operating cash flow | Not separately reported | Not separately reported | $110.7m | $82.9m |
Quarterly revenue grew 23.3%; six-month revenue grew 20.4%. Q2 unit shipments fell 2% year over year while average selling prices rose 25%, primarily due to a richer product mix. For the first half, shipments rose 1% and average selling prices rose 18%. Gross margin was unchanged year over year in both comparisons. Operating expenses increased, including litigation expense of $2.1m in Q2 and $4.4m for the half. The six-month income tax benefit was $3.5m, compared with $0.5m of tax expense in the prior-year period.
Liquidity, cash flow and balance sheet
At June 30, 2020, cash and cash equivalents were $156.5m and short-term investments were $355.8m, totaling $512.3m, versus $455.4m at December 31, 2019. Working capital was $612.1m, up from $557.0m. Current assets were $748.9m and current liabilities $136.8m. Total assets were $1,071.2m and total liabilities $222.2m. The balance sheet presents no borrowings; lease liabilities were $3.4m.
For the first half, operating activities generated $110.7m; investing activities used $96.1m, including $24.5m of property and equipment purchases and $70.9m of net short-term investment purchases; financing activities used $30.3m, including $42.3m of dividends paid. Cash, cash equivalents and restricted cash decreased $16.5m to $156.6m. Inventory rose to $152.1m from $127.5m at year-end.
Material changes and business drivers
- Computing and storage revenue rose 54.1% in Q2, communications rose 37.0%, industrial rose 18.5%, and consumer rose 8.8%. Automotive revenue fell 16.2%, as automakers temporarily shut production during the pandemic.
- DC-to-DC products generated $176.1m, or nearly all Q2 revenue; lighting-control revenue was $10.1m. China accounted for $112.8m of Q2 revenue. Sales to customers in Asia represented 90% of revenue.
- The largest distributor accounted for 26% of Q2 revenue and 24% for the first half. Product sales through distributors were 83% of Q2 product sales.
- Other income was $5.2m in Q2, including a $3.6m gain on deferred-compensation plan investments; for the first half, other income was $3.5m, including a $0.2m loss on those investments.
Outlook, risks and contingencies
- The filing provides no specific revenue or earnings guidance. Management said cash from operations, cash balances and short-term investments should cover liquidity needs for the next 12 months.
- Management reported no material adverse effect from COVID-19 on overall Q2 operations, with facilities operating and no major supply-chain issues. Automotive demand declined; a prolonged economic slowdown could materially harm results, and the duration and effect of the pandemic remained uncertain.
- Key exposures include semiconductor cyclicality, customer and distributor concentration, dependence on Asian markets and third-party manufacturing capacity, inventory and demand forecasting, and U.S.–China trade/export restrictions. Customer orders may be cancelled or rescheduled on short notice.
- Litigation expense increased primarily due to an ongoing patent-infringement lawsuit. The company reported no material pending legal proceedings at June 30, 2020. Supplier and other purchase commitments totaled approximately $101.0m; the outstanding one-time transition-tax liability was $20.7m.
- The board declared a Q2 dividend of $0.50 per share. Future dividends remain at the board’s discretion. Stock-based compensation expense was $21.0m in Q2 and $39.6m for the first half.
Important facts for investors to verify
- Whether revenue growth and higher average selling prices are sustainable, particularly across computing, communications and China-related demand.
- Automotive recovery and the continuing effects of COVID-19 on customer demand, operations and supply chains.
- Inventory growth, inventory write-downs and the company’s ability to match supplier commitments to customer orders.
- Exposure to the largest distributor, Asian markets, and trade or export restrictions affecting China.
- Future litigation costs and outcomes, dividend decisions, and the availability and liquidity of investment holdings.