Monolithic Power Systems, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; filed March 1, 2019. The company designs and sells high-performance power-management semiconductors, principally through a fabless manufacturing model. FY2018 results are annual; fourth-quarter figures are noted separately.
Financial performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $582.4 million | $470.9 million |
| Gross profit / margin | $322.7 million / 55.4% | $258.3 million / 54.8% |
| Operating income / margin | $113.5 million / 19.5% | $77.4 million / 16.4% |
| Net income / diluted EPS | $105.3 million / $2.36 | $65.2 million / $1.50 |
| Operating cash flow | $141.5 million | $133.8 million |
| Cash, cash equivalents and short-term investments | $377.3 million | $299.1 million |
| Working capital | $500.4 million | $383.3 million |
Revenue grew 23.7%; operating income increased 46.6% and net income 61.4%. Gross-margin improvement reflected a richer mix of higher-margin products and lower overhead as a share of revenue, partly offset by increased inventory write-downs. R&D was $93.5 million and SG&A was $113.8 million. Stock-based compensation was $60.6 million. The balance sheet reports no borrowings; total liabilities were $153.3 million.
Fourth-quarter revenue was $153.5 million versus $129.4 million in Q4 2017, while net income was $27.6 million versus $12.1 million. Q4 2018 revenue and net income were below Q3 2018 ($160.0 million and $31.6 million, respectively). Q4 gross margin was approximately 55.1% and operating margin approximately 21.5%.
Business mix and changes
- End-market revenue grew in computing and storage (57.9%), automotive (48.6%), industrial (40.7%) and communications (11.0%). Consumer revenue declined 3.0% amid softness in high-volume products, particularly in greater China.
- Computing and storage became a larger share of revenue (27.3%, up from 21.4%); consumer fell to 31.6% from 40.3%. DC-to-DC products remained 92% of revenue. Asia represented 88% of revenue.
- Unit shipments rose 19% and average selling prices rose 4%. Inventories increased to $136.4 million from $99.3 million; management cited strategic wafer and die inventory and finished goods to support demand and growth.
- FY2018 operating cash flow rose modestly, while investing cash outflow narrowed to $14.7 million from $134.1 million, largely reflecting lower property purchases and investment activity. Financing outflow was $34.6 million, including $47.5 million of dividends and dividend equivalents.
Outlook, risks and notable items
- Management expects cash from operations and existing cash and investments to cover liquidity needs for the next 12 months. No specific revenue or earnings guidance is provided. The company plans to develop new products and markets, diversify customers and regions, and secure manufacturing capacity.
- Key risks include semiconductor cyclicality and demand uncertainty; dependence on Asia and China; customer and distributor concentration (the largest distributor was 22% of FY2018 revenue and 25% of year-end receivables); and reliance on four wafer suppliers and external assembly and test providers.
- Trade tensions and tariffs, inventory forecasting and obsolescence, product quality and warranty exposure, competition and falling industry selling prices, and intellectual-property litigation could affect results. The filing reported no material pending legal proceedings at year-end, but litigation expense was $1.9 million in FY2018.
- The 2017 Tax Act materially affected taxes. FY2018 effective tax rate was 11.2%, including GILTI-related tax effects. The company finalized its transition-tax accounting; $22.1 million remained payable in installments through 2025. It plans ongoing cash repatriation from Bermuda and expects other foreign subsidiary earnings to remain reinvested.
- In February 2019, the board raised the quarterly dividend from $0.30 to $0.40 per share and the company agreed to buy a Kirkland office building and land for $53.0 million. These are subsequent events, not FY2018 operating results.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. The company reported effective disclosure controls and internal controls as of year-end.
Investor verification priorities
- Assess whether growth in computing, automotive and industrial markets can offset consumer softness and the company’s geographic and distributor concentration.
- Track inventory levels, write-downs, warranty provisions and cash conversion as shipments and demand change.
- Review wafer capacity, supplier commitments and the ability to meet customer demand without excess inventory.
- Evaluate the sustainability of margins and earnings, including stock-based compensation, tax effects and litigation costs.
- Confirm the timing and funding of the dividend increase, Bermuda cash repatriation, transition-tax installments and the $53.0 million property purchase.