MPS(MPWR) - 2022 Q4 - Annual Report

Part I Business MPS is a fabless semiconductor company specializing in high-performance power electronic solutions, with DC to DC products as its main revenue source - MPS is a fabless semiconductor company providing high-performance power electronic solutions, focusing on system integration, energy efficiency, and compact design[17] Revenue by End Market (2020-2022) | End Markets | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Storage and computing | 25.3% | 21.2% | 21.4% | | Enterprise Data | 14.0% | 9.6% | 8.6% | | Automotive | 16.7% | 16.9% | 12.9% | | Industrial | 12.2% | 15.3% | 14.2% | | Communications | 14.0% | 13.6% | 16.8% | | Consumer | 17.8% | 23.4% | 26.1% | - The DC to DC product family is the company's main revenue driver, accounting for 95% of total revenue in 2022, 2021, and 2020, with Lighting Control accounting for the remaining 5%[22][23] - The company has a significant concentration of sales in Asia, accounting for 86% of revenue in 2022, with its largest distributor representing 24% of total revenue in 2022[26][29] - As of December 31, 2022, MPS held 1,557 patents/applications issued or pending, including 546 US patents, operating a fabless model with third-party foundries in Asia[37][39][40] - The company's employee count grew from 2,773 at the end of 2021 to 3,247 at the end of 2022[49] Risk Factors The company faces risks from Asian market dependence, industry cyclicality, supply chain, cybersecurity, and intellectual property - A significant portion of revenue, 86% in 2022, is derived from customers in Asia, exposing the company to geopolitical, regulatory, and economic risks, particularly in China, Taiwan, and Hong Kong[65][82][83] - The business is subject to risks from U.S. and China trade policies, including tariffs and export restrictions, which could limit sales and increase costs[79][80] - Dependence on a limited number of distributors and customers is a key risk, as the loss of a major customer could adversely affect financial results[96] - The company relies on third-party suppliers for wafers and assembly, and any disruption, capacity constraint, or price increase could negatively impact revenue and gross margins[103][108][112] - The semiconductor industry is highly cyclical and competitive, with MPS facing competition from larger companies and risks from industry consolidation[115][116][117] - Cybersecurity threats, data protection breaches, and system failures pose significant risks to operations, reputation, and financial stability, compounded by complex data protection laws like GDPR and PIPL[123][127] - The loss of key personnel, particularly experienced analog engineers and key executives, could materially harm the business due to specialized skill requirements[153] Unresolved Staff Comments The company reports no unresolved staff comments - None[173] Properties MPS owns and leases global facilities for executive, R&D, sales, and manufacturing operations, deemed adequate - The company owns major facilities in Kirkland, WA (principal executive office), San Jose, CA, and multiple locations in Chengdu, China for manufacturing and R&D[174] - Key leased properties include manufacturing and warehouse space in Chengdu, China, and R&D facilities in Barcelona, Spain, and Hsinchu, Taiwan[174] Legal Proceedings As of December 31, 2022, the company reported no material pending legal proceedings in the ordinary course of business - As of December 31, 2022, the company had no material pending legal proceedings[175] Mine Safety Disclosures This item is not applicable to the company - Not applicable[176] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "MPWR", with a dividend program for quarterly cash dividends - Common stock is traded on the Nasdaq Global Select Market under the symbol "MPWR"[179] - The company has a dividend program and intends to pay quarterly cash dividends, with future declarations at the discretion of the Board of Directors[180][181] [Reserved] This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations MPS achieved $1.79 billion revenue in 2022, with improved gross margin and doubled operating income, maintaining strong liquidity Results of Operations For 2022, revenue increased 48.5% to $1.79 billion, with gross profit up 53.0% and operating income surging 100.8% Consolidated Results of Operations (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenue | $1,794,148 | $1,207,798 | $844,452 | | Gross profit | $1,048,552 | $685,459 | $465,954 | | Operating income | $526,785 | $262,417 | $158,882 | | Net income | $437,672 | $242,023 | $164,375 | Revenue by End Market (in thousands) | End Market | 2022 | 2021 | % Change (2021 to 2022) | | :--- | :--- | :--- | :--- | | Storage and Computing | $452,594 | $255,933 | 76.8% | | Enterprise Data | $251,415 | $116,345 | 116.1% | | Automotive | $300,016 | $204,335 | 46.8% | | Industrial | $219,179 | $184,784 | 18.6% | | Communications | $251,452 | $164,091 | 53.2% | | Consumer | $319,492 | $282,310 | 13.2% | | Total | $1,794,148 | $1,207,798 | 48.5% | - Gross margin increased to 58.4% in 2022 from 56.8% in 2021, primarily due to lower warranty expenses and a favorable product mix[221] - R&D expenses increased by $49.6 million (26.0%) in 2022, and SG&A expenses increased by $47.4 million (21.0%), both primarily due to higher compensation costs[223][225] Liquidity and Capital Resources As of December 31, 2022, the company held $737.9 million in cash and investments, with $1.15 billion working capital, sufficient for liquidity Key Liquidity Metrics (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $288,607 | $189,265 | | Short-term investments | $449,266 | $535,817 | | Total cash, cash equivalents and short-term investments | $737,873 | $725,082 | | Working capital | $1,147,219 | $897,908 | Summary of Cash Flows (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $246,674 | $320,010 | $267,803 | | Net cash used in investing activities | $(12,510) | $(378,886) | $(39,177) | | Net cash used in financing activities | $(128,785) | $(90,206) | $(71,557) | - The company has material cash requirements, including total estimated future unconditional purchase commitments of $1.1 billion as of December 31, 2022[241][242] - In May 2022, MPS entered a long-term supply agreement for silicon wafers, making a prepayment of $170.0 million[242] - In February 2023, the Board of Directors approved an increase in the quarterly cash dividend from $0.75 to $1.00 per share[246] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates and foreign currency exchange, with interest rate fluctuations posing a notable impact - The company's investments are subject to interest rate risk, where a hypothetical 100 basis point increase would cause a $3.2 million decline in fair value as of year-end 2022[250] - Foreign currency exchange risk exists due to international operations, but fluctuations have not materially impacted operating results for the periods presented[252] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2022, along with detailed notes and supplementary data Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $1,410,619 | $1,124,852 | | Total assets | $2,058,885 | $1,585,825 | | Total current liabilities | $263,400 | $226,944 | | Total liabilities | $390,283 | $341,840 | | Total stockholders' equity | $1,668,602 | $1,243,985 | Consolidated Statement of Operations Data (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Revenue | $1,794,148 | $1,207,798 | | Gross profit | $1,048,552 | $685,459 | | Operating income | $526,785 | $262,417 | | Net income | $437,672 | $242,023 | | Diluted EPS | $9.05 | $5.05 | - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[258][269] - A critical audit matter identified was the valuation of inventory, specifically estimates for excess and obsolete inventory, due to subjective judgment in demand forecasting[263][264] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[445] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that disclosure controls and procedures were effective as of December 31, 2022[447] - Management concluded that internal control over financial reporting was effective as of December 31, 2022, an assessment concurred by Ernst & Young LLP[448][449] Other Information The company reports no other information for this item - None[452] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[453] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Required information is incorporated by reference from the company's 2023 Proxy Statement[455] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2023 Proxy Statement - Required information is incorporated by reference from the company's 2023 Proxy Statement[456] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and equity compensation plans is incorporated by reference from the 2023 Proxy Statement - Required information is incorporated by reference from the company's 2023 Proxy Statement[457] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2023 Proxy Statement - Required information is incorporated by reference from the company's 2023 Proxy Statement[458] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2023 Proxy Statement - Required information is incorporated by reference from the company's 2023 Proxy Statement[459] Part IV Exhibits and Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including consolidated financial statements and a comprehensive exhibit list - All required financial statements are included in the report[460] - Financial statement schedules have been omitted as the required information is not present or is included elsewhere in the report[461] - A comprehensive list of exhibits is provided, including corporate governance documents, material contracts, and Sarbanes-Oxley certifications[462][464] Form 10-K Summary The company provides no summary for this item - None[469]