Monolithic Power Systems Announces Record Third Quarter Revenue and Net Income Results

Monolithic Power Systems Announces Record Third Quarter Revenue and Net Income
Results

SAN JOSE, Calif., Oct. 23 /PRNewswire-FirstCall/ -- Monolithic Power
Systems (MPS) (Nasdaq: MPWR), a leading fabless manufacturer of high-
performance analog and mixed-signal semiconductors, today announced financial
results for the three and nine months ended September 30, 2008.
The results for the quarter ended September 30, 2008 are as follows:
-- Net revenues of $48.9 million, up 21.7% from $40.2 million in the
third quarter of 2007 and up 17.8% sequentially from $41.5 million
in the second quarter of 2008
-- Gross margin of 62.8%, compared to 63.5% in the third quarter of
2007 and 63.0% in the second quarter of 2008
-- GAAP operating expenses of $20.1 million, including $19.0 million
for research and development and selling, general and administrative
expenses, which includes $3.3 million for stock-based compensation,
and $1.1 million for patent litigation expenses
-- Non-GAAP(1) operating expenses of $16.8 million, excluding $3.3
million for stock-based compensation
-- GAAP net income of $10.5 million, with GAAP EPS of $0.29 per diluted
share
-- Non-GAAP(1) net income of $12.1 million, or $0.33 per diluted share,
excluding stock-based compensation and related tax effects

The results for the nine months ended September 30, 2008 are as follows:
-- Net revenues of $125.8 million, compared to $95.5 million for the
nine months ended September 30, 2007, an increase of 31.7%
-- Gross margin of 62.9%, compared to 63.5% for the nine months ended
September 30, 2007
-- GAAP operating expenses of $58.9 million, including $52.8 million
for research and development and selling, general and administrative
expenses, which includes $9.2 million for stock-based compensation
and $6.1 million for patent litigation expenses
-- Non-GAAP(1) operating expenses of $49.7 million, excluding $9.2
million for stock-based compensation
-- GAAP net income of $21.0 million, with GAAP EPS of $0.58 per diluted
share
-- Non-GAAP(1) net income of $26.9 million, or $0.74 per diluted share,
excluding stock-based compensation and related tax effects

"MPS saw very strong results this quarter, particularly in our DC to DC
product segment," said Michael Hsing, chief executive officer and founder of
MPS. "We are well-positioned to continue to capture opportunities in this
market with our tremendous slate of new products. As our revenue approached
$50M this quarter, MPS is becoming a major player in the Power Management
segment of the analog semiconductor market."
"While MPS has been doing well and we continue to deliver innovative
products, we recognize that the last few weeks have seen a deterioration in
general demand for electronic products, as a result of the worldwide financial
crisis and associated macro-economic slowdown. Despite excellent execution,
MPS is affected by the current economic crisis. For the fourth quarter of
2008, our normal seasonality in the consumer segment typically means that the
fourth quarter is somewhat down sequentially from the third quarter. We have
noticed some cancelations and delays in new projects. On the other hand, we
also see many of our new products starting to ramp up to volume production.
Therefore, our fourth quarter revenue is very uncertain compared with prior
years. Our fourth quarter revenue guidance is in a wider range of 39 to 43
million dollars," said Mr. Hsing.
Business Outlook
The following are MPS' financial targets for the fourth quarter ending
December 31, 2008: -- Revenues in the range of $39.0 million to $43.0
million
-- Gross margin in the mid to upper end of the company's target range
of 60% to 63%
-- Research and development and selling, general and administrative
expenses between $18.6 million and $19.6 million. Non-GAAP(1)
research and development and selling, general and administrative
expenses between $15.2 million and $15.8 million. This excludes an
estimate of stock-based compensation expense in the range of $3.4
million to $3.8 million
-- Litigation expense in the range of $0.7 million to $1.0 million

(1) Non-GAAP net income, non-GAAP operating expenses and non-GAAP research
and development and selling, general and administrative expense differ from
net income, operating expenses, and research and development and selling,
general and administrative expense determined in accordance with GAAP
(Generally Accepted Accounting Principles in the United States). Non-GAAP net
income for the quarter and nine months ended September 30, 2008 and 2007
excludes the effect of stock-based compensation expense and a patent
litigation settlement amount and their related tax effects. Non-GAAP operating
expenses for the quarter and nine months ended September 30, 2008 and 2007
exclude the effect of stock-based compensation expense and a patent litigation
settlement amount, and include a reversal of our lease write-off that was
recorded previously. Projected non-GAAP research and development and selling,
general and administrative expenses exclude the effect of stock-based
compensation expense and related tax effects. A schedule reconciling these
amounts is included in this news release. Non-GAAP financial measures should
not be considered as a substitute for, or superior to, measures of financial
performance prepared in accordance with GAAP. MPS utilizes both GAAP and non-
GAAP financial measures to assess what it believes to be its core operating
performance and to evaluate and manage its internal business and assist in
making financial operating decisions. MPS believes that the inclusion of non-
GAAP financial measures, together with GAAP measures, provides investors with
an alternative presentation useful to investors' understanding of MPS' core
operating results and trends. Additionally, MPS believes that the inclusion of
non-GAAP measures, together with GAAP measures, provides investors with an
additional dimension of comparability to similar companies. However, investors
should be aware that non-GAAP financial measures utilized by other companies
are not likely to be comparable in most cases to the non-GAAP financials
measures used by MPS.
Conference Call
MPS plans to conduct a management teleconference covering its three and
nine months ended September 30, 2008 results at 2:00 p.m. PT / 5:00 p.m. ET
today, October 23, 2008. To access the conference call and following replay,
go to http://ir.monolithicpower.com and click the webcast link. From this
site, you can listen to the teleconference, assuming that your computer system
is configured properly. In addition to the webcast replay, which will be
archived for all investors for one year on the MPS website, a phone replay
will be available for seven days after the live call at 617-801-6888, code
number 46174185. This press release and any other information related to the
call will also be posted on the website.
Safe Harbor Statement
This press release contains forward-looking statements regarding targeted
revenues, gross margin, GAAP and non-GAAP research and development and
selling, general and administrative expenses, stock-based compensation expense
and litigation expense for the three months ending December 31, 2008, our
positioning to capture opportunities in the market in which we operate and
volume production ramp up of certain products. These statements are not
historical facts or guarantees of future performance or events, are based on
current expectations, estimates, beliefs, assumptions, goals, and objectives,
and involve known and unknown risks, uncertainties and other factors that may
cause actual results to be materially different from the results expressed by
these statements. Readers of this press release and listeners to the
accompanying conference call are cautioned not to place undue reliance on any
forward-looking statements. Factors that could cause actual results to differ
include, but are not limited to, the risks, uncertainties and costs of
litigation in which the company is involved; the outcome of any upcoming
trials, hearings, motions, and appeals; any market disruptions or
interruptions in MPS' schedule of new product release development; adverse
changes in production and testing efficiency; adverse changes in government
regulations in foreign countries where MPS has offices; acceptance of, or
demand for, MPS' products being lower than expected; the adverse impact on
MPS' financial performance if its tax and litigation provisions are
inadequate; difficulty in predicting or budgeting for future expenses and
financial contingencies; and other important risk factors identified in MPS'
SEC filings, including, but not limited to, its Form 10-Q filed on July 31,
2008.
The forward-looking statements in this press release represent MPS'
targets, not predictions of actual performance. MPS assumes no obligation to
update the information in this press release or in the accompanying conference
call.
About Monolithic Power Systems, Inc.
Monolithic Power Systems, Inc. (MPS) develops and markets proprietary,
advanced analog and mixed-signal semiconductors. The company combines advanced
process technology with its highly experienced analog designers to produce
high-performance power management integrated circuits (ICs) for DC to DC
converters, LED drivers, Cold Cathode Fluorescent Lamp (CCFL) backlight
controllers, Class D audio amplifiers, and Linear ICs. MPS products are used
extensively in computing and network communications products, LCD monitors and
TVs, and a wide variety of consumer and portable electronics products. MPS
partners with world-class manufacturing organizations to deliver top quality,
ultra-compact, high-performance solutions through the most productive, cost-
efficient channels. Founded in 1997 and headquartered in San Jose, California,
the company has expanded its global presence with sales offices in Taiwan,
China, Korea, Japan, and Europe, which operate under MPS International, Ltd.

Monolithic Power Systems, MPS, and the MPS logo are registered trademarks
of Monolithic Power Systems, Inc. in the U.S. and trademarked in certain other
countries.

Consolidated Balance Sheet
(Unaudited, in thousands, except par value)

September 30, December 31,
2008 2007
ASSETS
Current assets:
Cash and cash equivalents $75,917 $83,114
Short-term investments 8,711 27,765
Accounts receivable, net of
allowances of $0 in 2008 and $227 in
2007 18,781 8,239
Inventories 22,305 17,487
Deferred income tax asset-current 76 72
Prepaid expenses and other current
assets 3,840 4,733
Restricted assets 13,512 7,350
Total current assets 143,142 148,760
Property and equipment, net 14,474 14,175
Long-term investments 36,825 -
Deferred income tax asset-long term 776 776
Other assets 598 539
Restricted assets 7 8,340
Total assets $195,822 $172,590

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $8,155 $6,154
Accrued compensation and related
benefits 6,377 8,299
Accrued liabilities 14,150 14,959
Total current liabilities 28,682 29,412

Deferred rent and other liabilities 38 323
Non-current income tax liability 5,316 5,318
Total liabilities 34,036 35,053
Stockholders' equity:
Common stock, $0.001 par value, $34
and $33 in 2008 and 2007,
respectively; shares authorized:
150,000,000; shares issued and
outstanding: 33,927,788 and
33,454,595 in 2008 and 2007,
respectively 148,353 143,890
Deferred stock compensation - (3)
Retained earnings (accumulated
deficit) 14,178 (6,815)
Accumulated other comprehensive
income (loss) (745) 465
Total stockholders' equity 161,786 137,537
Total liabilities and stockholders'
equity $195,822 $172,590

Consolidated Income Statement
(Unaudited, in thousands, except per share amounts)

Three months ended Nine months ended

September September
30, 2007 30, 2007
(as (as
restated, restated,
September see Note September see Note
30, 2008 10) 30, 2008 10)

Revenue $48,891 $40,188 $125,802 $95,517
Cost of revenue* 18,201 14,662 46,620 34,873

Gross profit 30,690 25,526 79,182 60,644
Operating expenses:
Research and development* 9,420 7,489 25,594 19,849
Selling, general and
administrative* 9,560 8,071 27,200 21,387
Lease abandonment - - - (496)
Patent litigation settlement - - - 9,800
Provision for litigation expense 1,090 1,452 6,120 8,327

Total operating expenses 20,070 17,012 58,914 58,867

Income from operations 10,620 8,514 20,268 1,777
Other income (expense):
Interest and other income 684 1,223 2,928 3,399
Interest and other expense (389) 8 (507) (21)

Total other income, net 295 1,231 2,421 3,378

Income before income taxes 10,915 9,745 22,689 5,155
Income tax provision 458 752 1,697 2,857

Net income $10,457 $8,993 $20,992 $2,298
Basic net income per share $0.31 $0.28 $0.63 $0.07
Diluted net income per share $0.29 $0.25 $0.58 $0.07

Weighted average common shares
outstanding 33,869 31,995 33,482 31,293
Stock options and restricted stock 2,733 3,958 2,850 3,697
Diluted weighted-average common
equivalent shares outstanding 36,602 35,953 36,332 34,990

* Stock-based compensation has
been included in the following
line items:
Cost of revenue $76 $149 $249 $373
Research and development 1,471 1,326 4,074 3,379
Selling, general and
administrative 1,787 1,748 5,141 4,296
Total $3,334 $3,223 $9,464 $8,048

RECONCILIATION OF NET INCOME TO NON-GAAP NET INCOME
(in thousands, except per share amounts)

Net income $10,457 $8,993 $20,992 $2,298

Adjustments to reconcile net income to
non-GAAP net income
Stock-based compensation $3,334 $3,223 $9,464 $8,048
Patent litigation settlement - - - 9,800
Reversal of lease write-off - - - (540)
Tax effect (1,679) (2,490) (3,603) (3,108)
Non-GAAP net income $12,112 $9,726 $26,853 $16,498

Non-GAAP earnings per share, excluding
stock-based compensation and related
tax effects:
Basic $0.36 $0.30 $0.80 $0.53
Diluted $0.33 $0.27 $0.74 $0.47

Shares used in the calculation of non-
GAAP earnings per share:
Basic 33,869 31,995 33,482 31,293
Diluted 36,602 35,953 36,332 34,990

RECONCILIATION OF OPERATING EXPENSES TO NON-GAAP
OPERATING EXPENSES
(in thousands, except per share amounts)

Total operating expenses $20,070 $17,012 $58,914 $58,867

Adjustments to reconcile total
operating expenses to non-GAAP total
operating expenses
Stock-based compensation $(3,258) $(3,074) $(9,215) $(7,675)
Patent litigation settlement - - - (9,800)
Reversal of lease write-off - - - 496
Non-GAAP total operating expenses $16,812 $13,938 $49,699 $41,888

2008 Fourth Quarter Outlook

RECONCILIATION OF R&D AND SG&A EXPENSES TO NON-GAAP R&D AND SG&A EXPENSES
(in thousands)

Three months ended
December 31, 2008
Low High
R&D and SG&A $18,600 $19,600

Adjustments to reconcile R&D and SG&A
to non-GAAP R&D and SG&A
Stock-based compensation (3,400) (3,800)
Non-GAAP R&D and SG&A $15,200 $15,800

SOURCE Monolithic Power Systems

Rick Neely, Chief Financial Officer of Monolithic Power Systems, Inc.,
+1-408-826-0777, investors@monolithicpower.com