Monolithic Power Systems, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited results; comparisons are with Q1 2021 unless noted. MPS designs and sells semiconductor-based power electronics solutions and reports one operating segment.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $377.7 million | $254.5 million | +48.4% |
| Gross profit / margin | $218.9 million / 57.9% | $141.1 million / 55.4% | Margin +2.5 percentage points |
| Operating income / margin | $96.1 million / 25.5% | $46.1 million / 18.1% | Income +108.6% |
| Net income | $79.6 million | $45.4 million | +75.2% |
| Diluted EPS | $1.65 | $0.95 | +73.7% |
| Operating cash flow | $107.4 million | $77.1 million | +$30.4 million |
| Capital expenditures | $26.9 million | $19.0 million | +$7.9 million |
Management attributed revenue growth to a 20% increase in unit shipments and approximately 23% higher average selling prices, primarily reflecting product mix. Gross-margin improvement reflected favorable mix and lower inventory write-downs as a percentage of revenue. Operating cash flow less capital expenditures was approximately $80.5 million, a derived measure.
Liquidity, balance sheet and cash flow
- Cash and cash equivalents were $260.6 million and short-term investments $512.9 million at March 31, 2022; together, $773.5 million, versus $725.1 million at December 31, 2021. $479.2 million of cash and short-term investments was held by international subsidiaries.
- Working capital was $974.6 million; current assets were $1,247.1 million and current liabilities $272.5 million.
- Total liabilities were $387.9 million and stockholders’ equity $1,326.1 million. The balance sheet lists no borrowings; operating lease liabilities were $5.8 million. Purchase obligations totaled $204.1 million, about $193.9 million short-term.
- Cash increased by $71.3 million in the quarter. Investing activities used $11.6 million, compared with $182.9 million in Q1 2021, largely because investment purchases were substantially lower. Financing activities used $24.2 million, including $28.8 million of dividends paid.
- Available-for-sale securities had $7.4 million of gross unrealized losses at quarter-end; the quarter’s other comprehensive loss included $5.4 million after tax from unrealized investment losses.
Material changes and business mix
- Growth was broad-based: enterprise data revenue rose 162.7% to $42.5 million; storage and computing rose 88.2% to $96.6 million; communications rose 54.1% to $55.6 million. Automotive, industrial and consumer revenue grew 21.6%, 22.0% and 20.7%, respectively.
- DC-to-DC products generated $358.8 million, about 95% of revenue. Asia represented 90% of revenue; China alone contributed $206.1 million.
- Three distributors each represented at least 10% of revenue: 24%, 18% and 11%. The largest accounted for 20% of accounts receivable at quarter-end.
- R&D expense increased 29.2% to $54.1 million and SG&A increased 30.5% to $67.2 million, but both declined as a percentage of revenue. Stock-based compensation expense rose to $39.8 million from $28.6 million.
- Income tax expense increased to $15.9 million from $3.3 million; the effective rate was 16.7% versus 6.7%, mainly reflecting lower excess stock-compensation tax benefits and higher GILTI tax, including effects from required R&D cost capitalization.
Outlook, risks and unusual items
- No specific quarterly or full-year revenue or earnings guidance is provided. Management said cash, cash equivalents and short-term investments, together with operating cash generation, should meet liquidity needs for the next 12 months and beyond.
- Management reported that COVID-19 and the Ukraine-Russia conflict had not materially adversely affected Q1 operations or results. It highlighted Shanghai-area COVID restrictions and logistics challenges as potential sources of future disruption; effects and duration were uncertain. Russia revenue was not material, and Russian customers’ outstanding receivables had been paid.
- High demand had extended lead times beyond the usual 16–26 weeks. Management noted that capacity constraints could limit sales, while customer orders may be cancelled or rescheduled on short notice, making forecasts difficult. Supplier capacity, China exposure, geopolitical/trade risks, semiconductor cyclicality, customer concentration, inventory management and competition are key risks.
- Warranty reserve rose to $23.8 million from $9.9 million a year earlier; Q1 2022 warranty provision included $4.2 million of net adjustments to pre-existing claims. The filing reported no material pending legal proceedings, though ordinary-course litigation and patent-related exposure remain.
- The board declared a quarterly dividend of $0.75 per share, up from $0.60. Future dividends remain at the board’s discretion. Purchase commitments, leases, transition-tax liability and deferred compensation/dividend-equivalent obligations are additional cash requirements.
Important facts for investors to verify
- Whether wafer and supplier capacity can support demand and reduce extended lead times without materially increasing unit costs.
- Whether revenue growth and higher average selling prices persist, particularly in light of customer order flexibility and distributor concentration.
- Inventory growth to $311.0 million from $259.4 million and its alignment with customer demand and supply commitments.
- Investment portfolio valuation and liquidity, including unrealized losses and the long-dated auction-rate securities.
- Future warranty claims and the significant increase in reserves, including adjustments for prior claims.
- Tax-rate developments, China/Asia operating exposure and the potential impact of pandemic restrictions, trade controls or geopolitical developments.