10-QPeriod: Q3 FY2010

MONOLITHIC POWER SYSTEMS INC Quarterly Report for Q3 Ended Sep 30, 2010

Filed November 3, 2010For Securities:MPWR

Summary

Monolithic Power Systems Inc. (MPWR) reported a strong financial performance for the nine months ended September 30, 2010, with revenue increasing by 45% year-over-year to $171.8 million. This growth was primarily driven by a significant surge in demand for their DC to DC converters, which saw a 61.1% increase in revenue. The company also experienced growth in lighting control products. However, audio amplifier sales declined, impacting the overall product mix. The company generated substantial operating cash flow, enabling it to increase its investment in property and equipment and initiate a stock repurchase program. Despite revenue growth, gross margins experienced a year-over-year decline due to shifts in product mix and increased product costs. Operating expenses, particularly R&D and SG&A, also increased, partly due to higher stock-based compensation expenses. Litigation expenses decreased significantly compared to the prior year, largely due to the resolution of a key lawsuit. MPWR's balance sheet shows a healthy increase in working capital, supported by strong short-term investments. The company's outlook appears positive, with management expressing confidence in its ability to meet liquidity needs and continue its growth trajectory, though risks related to litigation and the cyclical nature of the semiconductor industry remain.

Financial Highlights

27 data points
Beta

Revenue

$65.84M

54.7% Gross Margin

Net Income

$13.22M

20.1% Net Margin

EPS (Diluted)

$0.35

Cash & Equivalents

$44.27M

Free Cash Flow

$9.68M

Financial Statements
Beta
Revenue$65.84M
Cost of Revenue$29.86M
Gross Profit$35.99M
R&D Expenses$11.29M
SG&A Expenses$10.30M
Operating Expenses$22.55M
Operating Income$13.44M
Net Income$13.22M
EPS (Basic)$0.37
EPS (Diluted)$0.35
Shares Outstanding (Basic)36K
Shares Outstanding (Diluted)38K

Key Highlights

  • 1Revenue grew 45.0% year-over-year to $171.8 million for the first nine months of 2010, driven by strong demand for DC to DC converters.
  • 2Gross margin decreased to 56.9% for the nine months ended September 30, 2010, from 59.4% in the prior year, attributed to product mix changes and higher costs.
  • 3Operating cash flow significantly improved, reaching $38.3 million for the nine months ended September 30, 2010, compared to $15.6 million in the prior year.
  • 4The company initiated a $50 million stock repurchase program in July 2010.
  • 5Litigation expenses decreased by 32.9% year-over-year for the nine months ended September 30, 2010, due to the resolution of a significant lawsuit.
  • 6Short-term investments increased substantially to $140.7 million as of September 30, 2010, from $118.9 million at the end of 2009, contributing to robust working capital.
  • 7The company continues to derive the majority of its revenue (approximately 89% in Q3 2010) from customers in Asia.

Frequently Asked Questions

The primary driver of revenue growth was a significant increase in demand for their DC to DC converters, which experienced a 61.1% year-over-year increase for the nine-month period. This was bolstered by higher demand for electronic products in the consumer and communications markets.

The company expressed confidence in its liquidity, stating that cash generated from operations, along with existing cash and short-term investments, is expected to be sufficient to meet liquidity requirements for at least the next 12 months. They also initiated a $50 million stock repurchase program, indicating a positive view of their financial health.

Key risks include the cyclical nature of the semiconductor industry, potential adverse outcomes from ongoing litigation (which requires significant resources), dependence on Asian markets for revenue, the illiquidity of certain investments in auction-rate securities, and the potential impact of new product development and market penetration challenges.

Gross margin declined year-over-year, falling to 56.9% for the nine months ended September 30, 2010, from 59.4% in the prior year. This decline is attributed to changes in the product mix, higher product costs, an increase in inventory reserves, and declining average selling prices for certain products.