10-QPeriod: Q2 FY2012

MONOLITHIC POWER SYSTEMS INC Quarterly Report for Q2 Ended Jun 30, 2012

Filed July 30, 2012For Securities:MPWR

Summary

Monolithic Power Systems, Inc. (MPWR) reported solid revenue growth in the second quarter and first half of 2012, with a 13.5% increase year-over-year for both periods. This growth was primarily driven by strong demand for their DC to DC converters, which represent the majority of their sales. The company also saw an improvement in gross profit margin, reaching 53.2% in Q2 2012 compared to 51.4% in Q2 2011, attributed to cost efficiencies and a favorable product mix. Financially, MPWR maintained a healthy liquidity position with robust working capital and significant cash and short-term investments. Operating activities generated positive cash flow, though investing activities used a substantial amount due to investments in short-term securities and building improvements. The company successfully navigated litigation expenses, which significantly decreased year-over-year due to settlement income. However, ongoing IRS audits and risks associated with auction-rate securities warrant investor attention.

Financial Highlights

42 data points
Beta

Revenue

$58.61M

53.2% Gross Margin

Net Income

$6.59M

11.2% Net Margin

EPS (Diluted)

$0.18

Total Assets

$310.07M

Cash & Equivalents

$81.64M

Free Cash Flow

-$2.24M

Financial Statements
Beta
Revenue$58.61M
Cost of Revenue$27.43M
Gross Profit$31.17M
SG&A Expenses$12.17M
Operating Expenses$24.39M
Operating Income$6.78M
Net Income$6.59M
EPS (Basic)$0.19
EPS (Diluted)$0.18
Shares Outstanding (Basic)35K
Shares Outstanding (Diluted)36K

Key Highlights

  • 1Revenue increased by 13.5% to $58.6 million for the three months ended June 30, 2012, compared to $51.6 million for the same period in 2011.
  • 2Gross profit margin improved to 53.2% for the three months ended June 30, 2012, from 51.4% in the prior year period, driven by cost efficiencies and product mix.
  • 3Net income for the three months ended June 30, 2012, was $6.6 million, a significant increase from $3.5 million in the same period of 2011.
  • 4The company ended the quarter with $81.6 million in cash and cash equivalents and $103.0 million in short-term investments, demonstrating a strong liquidity position.
  • 5Operating activities generated $12.3 million in cash for the six months ended June 30, 2012, compared to $21.5 million in the prior year, with the decrease attributed to inventory and accounts receivable increases.
  • 6Litigation expenses saw a significant decrease due to payments received from a settlement and license agreement, turning into a net benefit for the period.
  • 7The company continues to invest in research and development, with R&D expenses representing 21.3% of revenue for Q2 2012.

Frequently Asked Questions

The primary driver of Monolithic Power Systems' revenue growth is increased demand for their DC to DC converters, which also constitute the largest portion of their product sales.

Profitability has improved. The gross profit margin increased to 53.2% in Q2 2012 from 51.4% in Q2 2011, due to cost efficiencies and a better product mix. Net income also saw a substantial increase, rising from $3.5 million to $6.6 million year-over-year for the quarter.

MPWR maintains a strong financial position with working capital of $202.6 million as of June 30, 2012. They also have substantial liquidity, with $81.6 million in cash and cash equivalents and $103.0 million in short-term investments.

Investors should be aware of ongoing IRS audits concerning tax years 2000-2007, with a revised potential adjustment of $10.5 million plus interest and penalties. The company also notes that while litigation expenses have decreased due to settlement income, they continue to be involved in intellectual property disputes, and the outcome of the O2 Micro patent litigation, including potential appeals, is ongoing. The company also holds $11.7 million in auction-rate securities, which are subject to market risks and illiquidity.