Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that have been made pursuant to and in reliance on the provisions of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements concerning:

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the above-average industry growth of product and market areas that we have targeted;

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our plans to increase revenue in a diversified way across regions and through the introduction of new products within our existing product families as well as in new product categories and families;

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our mission statement to reduce energy and material consumption to improve all aspects of quality of life and create a sustainable future;

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the effects of macroeconomic factors, global economic uncertainties, current and potential global conflicts and global tariffs, export controls and retaliatory measures on the semiconductor industry and our business;

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the effect of changes in laws or economic policies in China or the U.S.;

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the effect that liquidity of our investments has on our capital resources;

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the continuing application of our products in the storage and computing, enterprise data, automotive, industrial, communications and consumer end markets;

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estimates of our future liquidity requirements and the sufficiency of our cash, cash equivalents and short-term investments to operate our business;

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the cyclical nature of the semiconductor industry;

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our belief that we may incur significant legal expenses that vary with the level of activity in each of our current or future legal proceedings;

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expectations regarding protection of our proprietary technology;

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our business outlook for the remainder of 2026 and beyond;

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the factors that we believe will impact our business, operations and financial condition, as well as our ability to achieve revenue growth;

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the expected percentage of our total revenue from various end markets;

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our ability to identify, acquire and integrate companies, businesses and products, and achieve the anticipated benefits from such acquisitions and integrations;

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the expected impact of various U.S. and international tax laws and regulations on our income tax provision, financial position and cash flows;

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our plan to repatriate cash from our foreign subsidiaries;

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our ability to fulfill our customers' evolving needs, enter new market segments and obtain design wins;

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our ability to forecast demand accurately and align inventory levels accordingly;

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our ability to develop and leverage process technologies as key strategic components of our future growth;

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our expectation to capitalize on the length of product life cycles to reduce manufacturing intensity and related emissions;

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our ability to recruit and retain application and design engineering personnel;

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our expectation to continue devoting significant resources to research and development including related increased expenses;

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our ability to engage additional supply chain partners to support future growth and to leverage a diversified and resilient supply chain to reduce exposure to trade- and tariff-related risks;

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our intention and ability to execute our stock repurchase program and pay cash dividends and dividend equivalents;

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the factors that differentiate us from our competitors; and

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our ability to timely and adequately remediate our material weakness.

These forward-looking statements generally are identified by the words "would," "could," "may," "should," "predict," "potential," "targets," "continue," "anticipate," "expect," "intend," "plan," "believe," "seek," "estimate," "project," "forecast," "will," and similar expressions. All forward-looking statements are based on our current outlook, expectations, estimates, projections, beliefs and plans or objectives about our business, our industry and the global economy, including our expectations regarding the potential impacts of macroeconomic factors, global economic uncertainties, including tariffs, export controls and retaliatory measures, and geopolitical tensions on the semiconductor industry and our business. These statements are not guarantees of future performance and are subject to significant risks and uncertainties. Actual events or results could differ materially and adversely from those expressed in any such forward-looking statements. Risks and uncertainties that could cause actual results to differ materially include those set forth throughout this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K including, in particular, in the sections entitled "Risk Factors." Except as required by law, we disclaim any duty, and undertake no obligation, to update any forward-looking statements, whether as a result of new information relating to existing conditions, future events or otherwise or to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q and entail significant risks. Readers should carefully review future reports and documents that we file from time to time with the SEC, such as our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

Unless stated otherwise or the context otherwise requires, references to the terms "Monolithic Power Systems," "MPS," "Registrant," the "Company," "we," "our," and "us" as used herein are references to Monolithic Power Systems, Inc. and its consolidated subsidiaries.

Overview

We are a fabless global company that provides high-performance, semiconductor-based power electronics solutions. Our mission is to reduce energy and material consumption to improve all aspects of quality of life and create a sustainable future. Founded in 1997 by our CEO Michael Hsing, we have three core strengths: deep system-level knowledge, strong semiconductor design expertise, and innovative proprietary technologies in the areas of semiconductor processes, system integration, and packaging. These combined advantages enable us to deliver reliable, compact, and monolithic solutions that are highly energy-efficient, cost-effective, and environmentally responsible while providing a consistent return on investment to our stockholders.

We operate in the cyclical semiconductor industry. We are subject to industry downturns, but we have targeted product and market areas that we believe allow us to operate at above average industry performance levels over the long term.

We work with third parties to manufacture, assemble and test our ICs. This has enabled us to limit our capital expenditures and fixed costs, while focusing our engineering and design resources on our core strengths.

Following the introduction of a product, our sales cycle generally takes a number of quarters after we receive an initial customer order for a new product to ramp up. Typical supply chain lead times for orders are generally 16 to 26 weeks. These factors, combined with the fact that our customers can cancel or reschedule orders without incurring a significant penalty, make the forecasting of our orders, revenue and expenses difficult.

We derive most of our revenue from sales through distribution arrangements and direct sales to customers in Asia, where our products are incorporated into end-user products. Our revenue from sales to customers in Asia was 92% and 94% of our total revenue for the three months ended March 31, 2026 and 2025, respectively. We believe our ability to achieve revenue growth will depend, in part, on our ability to develop new products, enter new markets, gain market share, manage litigation risk, diversify our customer base and continue to secure manufacturing capacity.

Macroeconomic Conditions and Regulations

The semiconductor industry is impacted by various macroeconomic challenges including fluctuations in consumer spending, fluctuations in demand for semiconductors, rising inflation, global tariffs and retaliatory measures and announcements regarding the same, increased interest rates, and fluctuations in currency rates. We remain cautious in light of continued challenging global macroeconomic conditions and will continue to monitor the potential impact on our operations. The extent and duration of the direct and indirect impact of macroeconomic events on our business, results of operations and overall financial position remain uncertain and depend on future developments.

We closely monitor changes to export control laws, tariffs, trade regulations and other trade requirements. For the three months ended March 31, 2026 and through the date we filed this Quarterly Report on Form 10-Q, no restrictions or requirements have had a material impact on our revenue and operations. We believe that our diverse, agile and resilient supply chain is structured in a way to minimize the impact of tariffs; however, such restrictions or requirements can be enacted quickly and unexpectedly and could impact our business in the future. To the extent tariffs, trade regulations or retaliatory measures or announcements regarding the same that affect us are implemented, we will seek to take mitigating actions in the near- and medium-term, as necessary, but there can be no assurance we will be successful. We are committed to complying with all applicable trade laws, regulations and other requirements.

Critical Accounting Estimates

In preparing our condensed consolidated financial statements in accordance with U.S. GAAP, we are required to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and the accompanying disclosures.

Estimates and judgments used in the preparation of our financial statements are, by their nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control. These factors include demand for our products, economic conditions and other current and future events, such as macroeconomic factors, global economic uncertainties, current and potential global conflicts and global tariffs, export controls and retaliatory measures and announcements regarding the same. Actual results could differ from these estimates and assumptions, and any such differences may be material to our condensed consolidated financial statements.

There have been no material changes during the three months ended March 31, 2026 to our critical accounting estimates from the information provided in the "Critical Accounting Estimates" section of Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2025.

Results of Operations

The table below sets forth the data on the Condensed Consolidated Statements of Operations as a percentage of revenue for the periods presented:

		Three Months Ended March 31,
		2026								2025
		(In thousands, except percentages)
Revenue		$	804,185				100.0	%		$	637,554				100.0	%
Cost of revenue			359,120				44.7				284,324				44.6
Gross profit			445,065				55.3				353,230				55.4
Operating expenses:
Research and development			100,566				12.4				92,227				14.4
Selling, general and administrative			103,347				12.9				92,244				14.5
Total operating expenses			203,913				25.3				184,471				28.9
Operating income			241,152				30.0				168,759				26.5
Other income, net			6,030				0.7				5,131				0.8
Income before income taxes			247,182				30.7				173,890				27.3
Income tax expense			53,956				6.7				38,838				6.1
Net income		$	193,226				24.0	%		$	135,052				21.2	%

Revenue

The following table summarizes our revenue by end market for the periods presented:

		Three Months Ended March 31,
End Market		2026				% of Revenue				2025				% of Revenue
		(In thousands, except percentages)
Enterprise Data		$	262,823				32.7	%		$	132,924				20.8	%
Storage and Computing			174,394				21.7				188,511				29.6
Automotive			152,346				18.9				144,904				22.7
Communications			111,457				13.9				71,671				11.3
Consumer			54,540				6.8				56,947				8.9
Industrial			48,625				6.0				42,597				6.7
Total		$	804,185				100.0	%		$	637,554				100.0	%

Revenue for the three months ended March 31, 2026 was $804.2 million, an increase of $166.6 million, or 26.1%, from $637.6 million for the three months ended March 31, 2025. The increase in revenue was primarily due to higher shipment volume and higher average selling prices resulting primarily from product mix.

By end market, first quarter 2026 revenue for enterprise data increased $129.9 million, or 97.7%, from the same period in 2025. This increase was primarily due to higher sales of power solutions for artificial intelligence ("AI") and server applications. Revenue from the storage and computing market of $174.4 million decreased $14.1 million, or 7.5%, from the same period in 2025 primarily due to decreased sales of power solutions for notebooks and graphics cards, partially offset by increased sales of memory and storage applications. First quarter 2026 automotive revenue of $152.3 million increased $7.4 million, or 5.1%, from the same period in 2025. Communications revenue of $111.5 million increased $39.8 million, or 55.5%, from the same period in 2025 due to higher sales of power solutions for optical modules and switches. First quarter 2026 consumer revenue decreased $2.4 million, or 4.2%, from the same period in 2025. Revenue of $48.6 million from the industrial market increased $6.0 million, or 14.2%, from the same period in 2025.

Cost of Revenue and Gross Margin

Cost of revenue primarily consists of costs incurred to manufacture, assemble and test our products, as well as warranty costs, inventory-related and other overhead costs, and stock-based compensation expenses.

		Three Months Ended March 31,
		2026				2025
		(In thousands, except percentages)
Cost of revenue		$	359,120			$	284,324
As a percentage of revenue			44.7	%			44.6	%
Gross profit		$	445,065			$	353,230
Gross margin			55.3	%			55.4	%

Cost of revenue was $359.1 million, or 44.7% of revenue, for the three months ended March 31, 2026, and $284.3 million, or 44.6% of revenue, for the three months ended March 31, 2025. The $74.8 million increase in cost of revenue was primarily driven by product mix and higher shipment volume.

Gross margin was 55.3% for the three months ended March 31, 2026, compared with 55.4% for the three months ended March 31, 2025. The decrease in gross margin was mainly driven by higher warranty expenses as a percentage of revenue, partially offset by lower manufacturing overhead costs as a percentage of revenue.

Research and Development

R&D expenses primarily consist of cash-based compensation and benefits, stock-based compensation and deferred compensation for design and product engineers, expenses related to new product development and supplies, and facilities costs.

		Three Months Ended March 31,
		2026				2025
		(In thousands, except percentages)
R&D expenses		$	100,566			$	92,227
As a percentage of revenue			12.4	%			14.4	%

R&D expenses were $100.6 million, or 12.4% of revenue, for the three months ended March 31, 2026, and $92.2 million, or 14.4% of revenue, for the three months ended March 31, 2025. The $8.4 million increase in R&D expenses was primarily due to a $4.3 million increase in cash-based compensation and benefits, a $1.3 million increase in laboratory and other supplies, and a $1.3 million increase in facilities costs.

Selling, General and Administrative

SG&A expenses primarily include cash-based compensation and benefits, stock-based compensation and deferred compensation for sales, marketing and administrative personnel, travel expenses, facilities costs, third-party service fees and legal expenses.

		Three Months Ended March 31,
		2026				2025
		(In thousands, except percentages)
SG&A expenses		$	103,347			$	92,244
As a percentage of revenue			12.9	%			14.5	%

SG&A expenses were $103.3 million, or 12.9% of revenue, for the three months ended March 31, 2026, and $92.2 million, or 14.5% of revenue, for the three months ended March 31, 2025. The $11.1 million increase in SG&A expenses was primarily driven by a $10.0 million increase in cash-based compensation and benefits, a $5.1 million increase in stock-based compensation related payroll taxes, and a $4.4 million increase in legal expenses, partially offset by an $11.1 million decrease in stock-based compensation.

Other Income, Net

Other income, net, was $6.0 million for the three months ended March 31, 2026, compared with $5.1 million for the three months ended March 31, 2025.

Income Tax Expense

The income tax expense for the three months ended March 31, 2026 and 2025, was $54.0 million and $38.8 million respectively, or an effective tax rate of 21.8% and 22.3% respectively. The reduction in rate was primarily due to a reduction in non-deductible stock-based compensation.

Liquidity and Capital Resources

		March 31,				December 31,
		2026				2025
		(In thousands, except percentages)
Cash and cash equivalents		$	1,062,930			$	1,099,302
Short-term investments			304,179				157,243
Total cash, cash equivalents and short-term investments		$	1,367,109			$	1,256,545
Percentage of total assets			30.7	%			30.0	%
Total current assets		$	2,331,095			$	2,183,802
Total current liabilities			(486,958	)			(369,365	)
Working capital		$	1,844,137			$	1,814,437

As of March 31, 2026, we had cash and cash equivalents of $1,062.9 million and short-term investments of $304.2 million, compared with cash and cash equivalents of $1,099.3 million and short-term investments of $157.2 million as of December 31, 2025. As of March 31, 2026, $683.0 million of cash and cash equivalents and $304.2 million of short-term investments were held by our foreign subsidiaries. We may continue to repatriate cash from certain of our foreign subsidiaries to the U.S. to fund our expenditures in future periods. We anticipate that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.

Summary of Cash Flows

The following table summarizes our cash flow activities for the periods presented:

		Three Months Ended March 31,
		2026				2025
		(In thousands)
Net cash provided by operating activities		$	250,253			$	256,387
Net cash used in investing activities			(212,322	)			(257,485	)
Net cash used in financing activities			(75,266	)			(55,916	)
Effect of change in exchange rates			961				2,555
Net decrease in cash, cash equivalents and restricted cash		$	(36,374	)		$	(54,459	)

For the three months ended March 31, 2026, the $6.1 million decrease in net cash provided by operating activities compared to the same period in 2025 was primarily due to increased inventory purchases and other changes in working capital, partially offset by increased accounts receivable collections.

For the three months ended March 31, 2026, the $45.2 million decrease in net cash used in investing activities compared to the same period in 2025 was primarily due to $69.2 million higher net purchases of investments, partially offset by $24.1 million higher purchases of property and equipment.

For the three months ended March 31, 2026, the $19.4 million increase in net cash used in financing activities compared to the same period in 2025 was primarily due to an increase of $18.4 million in dividend and dividend equivalent payments.

Cash Requirements

Although consequences of economic uncertainties and macroeconomic conditions, including tariffs and retaliatory measures and announcements regarding the same, and many other factors could adversely affect our liquidity and capital resources in the future, and cash requirements may fluctuate based on the timing and extent of many factors such as those discussed above, we believe that our balances of cash, cash equivalents and short-term investments of $1,367.1 million as of March 31, 2026, along with cash generated by ongoing operations, will be sufficient to satisfy our liquidity requirements for the next 12 months.

Our material cash requirements include the following contractual and other obligations:

Purchase Obligations

Purchase obligations represent commitments to our suppliers and other parties requiring the purchases of goods or services. Our purchase obligations primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction of manufacturing and R&D facilities, purchases of production and other equipment, and license arrangements.

As of March 31, 2026, total estimated future unconditional purchase commitments to all suppliers and other parties were $588.7 million, of which $557.5 million was due within a year.

Capital Return to Stockholders

In February 2025, our Board of Directors approved a new stock repurchase program authorizing us to repurchase up to $500.0 million of our common stock through February 2028. Shares are retired upon repurchase. The Company did not make any repurchases under this program during the three months ended March 31, 2026. As of March 31, 2026, $493.4 million remained available for future repurchases under the program.

We currently have a dividend program approved by our Board of Directors, pursuant to which we intend to pay quarterly cash dividends on our common stock. Based on our historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividends when and if declared by the Board of Directors, which are payable to the stockholders in the following month. As of March 31, 2026, accrued dividends totaled $98.3 million. The declaration of any future cash dividends is at the discretion of our Board of Directors and will depend on, among other things, our financial condition, results of operations, capital requirements, business conditions and other factors that our Board of Directors may deem relevant, as well as a determination that cash dividends are in the best interests of our stockholders.

Other Long-Term Obligations

Other long-term obligations primarily include deferred compensation plan liabilities and accrued dividend equivalents. As of March 31, 2026, these obligations totaled $99.2 million.