Monolithic Power Systems, Inc.

The sequential quarterly revenue increase reflected earlier than normal sales of gaming console products. Consumer revenue represented 25.9% of MPS's second quarter 2021 revenue, compared with 25.6% in the second quarter of 2020. Second quarter automotive revenue of $48.7 million increased 8.5% from the first quarter of 2021, primarily due to increased sales of infotainment products. Second quarter 2021 revenue was up 173.9% year over year. Automotive revenue represented 16.6% of MPS's second quarter 2021 revenue, compared with 9.5% in the second quarter of 2020. Second quarter 2021 industrial revenue of $43.3 million increased 8.9% from the first quarter of 2021, reflecting increased sales of products for power source applications. Industrial revenue represented 14.8% of our total second quarter 2021 revenue compared with 14.3% in the second quarter of 2020. Second quarter 2021 communications revenue of $37.5 million was up 3.9% from the first quarter of 2021. Most of this sequential revenue increase was due to higher product sales for networking and wireless applications. Communication sales represented 12.8% of our total second quarter 2021 revenue, compared with 16.2% in the second quarter of 2020. Our sustainable above-market growth is based on the following. We have and are continuously investing in the expansion and diversification of our supply chain. We accelerated the release of advanced products and solutions based on our new technologies. Three, we have gained increased acceptance of our solutions with first tier customers globally. And four, we continue to diversify and support a wider number of end product applications. With our planned capacity expansion in place, And as we release more parts into production, we are well positioned to accelerate our future revenue growth. Moving now to a few comments on gross margin. Gap gross margin was 56.0%, 60 basis points higher than the first quarter of 2021 and 90 basis points higher than the second quarter of 2020. Our GAAP operating income was $60.6 million compared to $46.1 million reported in the first quarter of 2021 and $28.0 million reported in the second quarter of 2020. Non-GAAP gross margin from the second quarter of 2021 was 56.3%, up 50 basis points from the gross margin reported for the first quarter of 2021. and 60 basis points higher than the second quarter from a year ago. The increase in non-GAAP gross margin as a percent of revenue reflected lower proportional overhead costs. Our non-GAAP operating income was $94.9 million compared to $75.8 million reported in the prior quarter, and $53.0 million reported in the second quarter of 2020 representing a 79% year-over-year increase in operating income. Let's review our operating expenses. Our GAAP operating expenses were $103.6 million in the second quarter of 2021 compared with $95.0 million in the first quarter of 2021 and $74.6 million in the second quarter of 2020. Our non-GAAP operating Second quarter 2021 operating expenses were $70.3 million. Up from the $66.2 million we spent in the first quarter of 2021 and up from the $50.7 million reported in the second quarter of 2020. The difference between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are stock compensation expense and income or loss on an unfunded deferred compensation plan. For the second quarter of 2021, total stock compensation expense including approximately $885,000 charged cost of goods sold was $32.1 million compared with $28.6 million recorded in the first quarter of 2021. Switching to the bottom line, Second quarter 2021 GAAP net income was $55.2 million, or $1.16 per fully diluted share, compared with $45.4 million, or $0.95 per share in the first quarter of 2021, and $30.2 million, or $0.64 per share in the second quarter of 2020. Q2 non-GAAP net income was $86.5 million, or $1.81 per fully diluted share, compared with $69.5 million, or $1.46 per share, in the first quarter of 2021, and $50.6 million, or $1.08 per share, in the second quarter of 2020. Fully diluted shares outstanding at the end of Q2 2021. were $47.8 million. Now let's look at the balance sheet. Cash equivalents and investments were $672.9 million at the end of the second quarter of 2021, compared to $641.6 million at the end of the first quarter of 2021. For the quarter, MPS generated operating cash flow of about $96.9 million compared with Q1 2021 operating cash flow of $77.1 million. Second quarter 2021 capital spending totaled $39.3 million. Accounts receivable ended the second quarter of 2021 at $77.6 million representing 24 days of sales outstanding. which was six days lower than the 30 days reported at the end of the first quarter of 2021 and three days lower than the 27 days reported in the second quarter of 2020. Our internal inventories at the end of the second quarter of 2021 were $177.3 million, up from the $175.2 million at the end of the first quarter of 2021. days of inventory of 125 days at the end of the second quarter of 2021 were 16 days lower than at the end of the first quarter of 2021. Historically, we have calculated days of inventory on hand as a function of the current quarter revenue. We believe comparing current inventory levels with following quarters revenue provides a better economic match. On this basis, you can see days of inventory of 117 days at the end of the second quarter of 2021 were seven days lower than the 124 days at the end of the first quarter of 2021 and two days lower than the 119 days at the end of the second quarter of 2020. I would now like to turn to our outlook for the third quarter of 2021. We are forecasting Q3 revenue in the range of 309 to $321 million. Gross margin on both a GAAP and non-GAAP basis is expected to include a one-time benefit from a $4 million litigation settler. Including this benefit, GAAP gross margin will be in the range of 57.3% to 57.9%, and non-GAAP gross margin will be in the range of 57.6% to 58.2%. Excluding this one-time event, non-GAAP gross margin will be in the range of 56.3 to 56.9%. Total stock-based compensation expense should be in the range of $31.2 million to $33.2 million, including approximately $950,000 that would be charged to cost of goods sold. GAAP, R&D, and SG&A expenses should be between $104.1 million and $108.1 million. Non-GAAP R&D and SG&A expenses will be in the range of $73.9 million to $75.9 million. Litigation expense should range between $2.3 and $2.7 million. Interest income is expected to range from $1.0 to $1.4 million. fully diluted shares to be in the range of 47.4 to 48.4 million shares. In conclusion, with our planned capacity expansion in place and as we release more parts into production, we are well positioned to accelerate our future revenue growth. I'll now open up the webinar for questions.

Thank you, Bernie. Analysts, I would now like to begin our Q&A session. As a reminder, if you would like to ask a question, please click on the participants icon on the menu bar and then click the raise hand button. Our first question comes from Tori Svanberg of Stiefel. Tori, your line is now open.

Yes. Thank you, Michael. Bernie, congrats again on another strong and record quarter. I was hoping you could update us on your capacity plans. You know, I know you've done a pretty good job here the last 18 months. Your inventory seems to be in good shape, perhaps a bit at the lower end. But, yeah, maybe you could help us understand a little bit more what you specifically are doing on the capacity side.