10-QPeriod: Q2 FY2011

MONOLITHIC POWER SYSTEMS INC Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 9, 2011For Securities:MPWR

Summary

Monolithic Power Systems, Inc. (MPWR) reported a decrease in revenue for the three and six months ended June 30, 2011, compared to the same periods in the prior year. This decline was primarily attributed to reduced sales in their DC to DC converter products, stemming from lost customers in Korea due to production capacity issues in 2010. Additionally, audio amplifier sales were down due to a shift in product mix and declining average selling prices. The company's gross margin also saw a year-over-year decrease, impacted by falling average selling prices, product mix changes, and increased inventory reserves and product costs. Despite the revenue and gross margin pressure, MPWR's balance sheet shows a strong cash position, with cash and cash equivalents significantly increasing from the prior year-end. However, the company is facing ongoing legal proceedings related to intellectual property, and significant potential tax liabilities stemming from an IRS audit. Management believes it has adequate resources to meet its liquidity needs for the next 12 months.

Financial Highlights

43 data points
Beta

Revenue

$51.63M

51.4% Gross Margin

Net Income

$3.48M

6.7% Net Margin

EPS (Diluted)

$0.10

Total Assets

$263.16M

Cash & Equivalents

$97.69M

Free Cash Flow

$11.07M

Financial Statements
Beta
Revenue$51.63M
Cost of Revenue$25.07M
Gross Profit$26.56M
R&D Expenses$11.24M
SG&A Expenses$10.34M
Operating Expenses$22.52M
Operating Income$4.04M
Net Income$3.48M
EPS (Basic)$0.10
EPS (Diluted)$0.10
Shares Outstanding (Basic)34K
Shares Outstanding (Diluted)35K

Key Highlights

  • 1Revenue decreased by 7.3% for the three months ended June 30, 2011, and 9.3% for the six months ended June 30, 2011, compared to the prior year periods.
  • 2Gross profit margin declined to 51.4% for the three months and 50.8% for the six months ended June 30, 2011, from 58.2% and 58.3%, respectively, in the prior year.
  • 3Cash and cash equivalents increased significantly to $97.7 million as of June 30, 2011, from $48.0 million as of December 31, 2010.
  • 4Operating expenses decreased year-over-year, driven by reductions in R&D and SG&A expenses, partly due to lower stock-based compensation.
  • 5Litigation expense decreased significantly in the current periods compared to the prior year.
  • 6The company is involved in an IRS audit with a potential federal and state income tax liability increase of up to $37.0 million, plus interest and penalties.
  • 7MPWR repurchased $38.5 million of its common stock during the six months ended June 30, 2011, as part of an expanded $70 million repurchase program.

Frequently Asked Questions

The revenue decline was primarily driven by reduced sales of DC to DC converter products, largely due to losing key customers in Korea in 2010 because of production capacity shortages. Additionally, sales of audio amplifiers decreased due to changes in product mix and lower average selling prices.

As of June 30, 2011, MPWR reported strong liquidity with $97.7 million in cash and cash equivalents and $65.6 million in short-term investments. Management believes that cash generated from operations, combined with existing cash and investments, will be sufficient to meet liquidity requirements for at least the next 12 months.

MPWR is subject to ongoing litigation concerning intellectual property. Additionally, an IRS audit could potentially result in an increased federal and state income tax liability of up to $37.0 million, plus interest and penalties, although the company believes its tax positions are correct and intends to contest any proposed adjustments.

The decline in gross margin was attributed to decreasing average selling prices, changes in product mix, and higher product costs. The company plans to develop new products and improve its gross margin, but has acknowledged that achieving margins similar to or better than historical levels may be challenging. The company is also actively managing its stock repurchase program.