Monolithic Power Systems, Inc.
MONOLITHIC POWER SYSTEMS INC (Form: 10-Q, Received: 05/05/2017 17:15:42)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-Q


 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2017

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 000-51026

 


Monolithic Power Systems, Inc.

(Exact name of registrant as specified in its charter)


 

Delaware

77-0466789

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

79 Great Oaks Boulevard, San Jose, CA 95119

(Address of principal executive offices)(Zip code)

 

   (408) 826-0600

(Registrant’s telephone number, including area code)


  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☒

Accelerated filer  

Non-accelerated filer  ☐

Smaller reporting company  ☐

Emerging growth company  ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

 

There were 41,265,113 shares of the registrant’s common stock issued and outstanding as of May 1, 2017 .

 



 

 

 

 

MONOLITHIC POWER SYSTEMS, INC.

 

 

TABLE OF CONTENTS

PAGE

PART I. FINANCIAL INFORMATION

3

ITEM 1.

FINANCIAL STATEMENTS (Unaudited)

3

 

CONDENSED CONSOLIDATED BALANCE SHEETS

3

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

4

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

5

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

6

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

21

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

27

ITEM 4.

CONTROLS AND PROCEDURES

27

PART II. OTHER INFORMATION

28

ITEM 1.

LEGAL PROCEEDINGS

28

ITEM 1A.

RISK FACTORS

28

ITEM 6.

EXHIBITS

45

 

 
2

 

 

  PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(unaudited)

 

   

March 31,

2017

   

December 31,

2016

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 76,826     $ 112,703  

Short-term investments

    201,815       155,521  

Accounts receivable, net

    38,115       34,248  

Inventories

    78,535       71,469  

Other current assets

    11,045       9,043  

Total current assets

    406,336       382,984  

Property and equipment, net

    85,617       85,171  

Long-term investments

    5,342       5,354  

Goodwill

    6,571       6,571  

Acquisition-related intangible assets, net

    2,489       3,002  

Deferred tax assets, net

    641       633  

Other long-term assets

    29,808       27,411  

Total assets

  $ 536,804     $ 511,126  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               

Current liabilities:

               

Accounts payable

  $ 22,637     $ 17,427  

Accrued compensation and related benefits

    10,454       12,578  

Accrued liabilities

    22,917       22,916  

Total current liabilities

    56,008       52,921  

Income tax liabilities

    4,111       3,870  

Other long-term liabilities

    25,557       23,219  

Total liabilities

    85,676       80,010  

Commitments and contingencies

               

Stockholders' equity:

               

Common stock and additional paid-in capital, $0.001 par value; shares authorized: 150,000; shares issued and outstanding: 41,239 and 40,793 as of March 31, 2017 and December 31, 2016, respectively

    334,222       315,969  

Retained earnings

    119,613       119,362  

Accumulated other comprehensive loss

    (2,707 )     (4,215 )

Total stockholders’ equity

    451,128       431,116  

Total liabilities and stockholders’ equity

  $ 536,804     $ 511,126  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 
3

 

 

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per-share amounts)

(unaudited)

  

   

Three Months Ended March 31,

 
   

2017

   

2016

 

Revenue

  $ 100,362     $ 84,512  

Cost of revenue

    45,520       39,002  

Gross profit

    54,842       45,510  

Operating expenses:

               

Research and development

    18,894       17,321  

Selling, general and administrative

    22,092       17,768  

Litigation expense

    286       45  

Total operating expenses

    41,272       35,134  

Income from operations

    13,570       10,376  

Interest and other income, net

    1,381       543  

Income before income taxes

    14,951       10,919  

Income tax provision

    474       344  

Net income

  $ 14,477     $ 10,575  
                 

Net income per share:

               

Basic

  $ 0.35     $ 0.26  

Diluted

  $ 0.33     $ 0.25  

Weighted-average shares outstanding:

               

Basic

    41,047       40,028  

Diluted

    43,268       41,646  
                 

Cash dividends declared per common share

  $ 0.20     $ 0.20  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 
4

 

 

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 

Net income

  $ 14,477     $ 10,575  

Other comprehensive income, net of tax:

               

Foreign currency translation adjustments, net of $0 tax in 2017 and 2016

    1,306       498  

Change in unrealized gain on available-for-sale securities, net of $0 tax in 2017 and 2016

    202       210  

Total other comprehensive income, net of tax

    1,508       708  

Comprehensive income

  $ 15,985     $ 11,283  

  

See accompanying notes to unaudited condensed consolidated financial statements.

 

 
5

 

 

MONOLITHIC POWER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 
                 

Cash flows from operating activities:

               

Net income

  $ 14,477     $ 10,575  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization of intangible assets

    4,044       3,320  

(Gain) loss on sales or write-off of property and equipment

    (3 )     58  

Amortization of premium on available-for-sale investments, net

    507       171  

Gain on employee deferred compensation plan investments

    (733 )     (302 )

Deferred taxes, net

    -       11  

Stock-based compensation expense

    11,662       8,979  

Changes in operating assets and liabilities:

               

Accounts receivable

    (3,865 )     1,998  

Inventories

    (7,057 )     851  

Other assets

    (1,465 )     (181 )

Accounts payable

    4,927       3,342  

Accrued compensation and related benefits

    (2,251 )     (270 )

Accrued liabilities

    2,402       344  

Income tax liabilities

    (753 )     (26 )

Net cash provided by operating activities

    21,892       28,870  

Cash flows from investing activities:

               

Property and equipment purchases

    (3,424 )     (5,346 )

Proceeds from sales of property and equipment

    3       -  

Purchases of short-term investments

    (71,989 )     (66,803 )

Proceeds from maturities and sales of short-term investments

    25,400       37,353  

Contributions to employee deferred compensation plan, net

    (1,233 )     (1,030 )

Net cash used in investing activities

    (51,243 )     (35,826 )

Cash flows from financing activities:

               

Property and equipment purchased on extended payment terms

    (250 )     -  

Proceeds from exercise of stock options

    61       464  

Proceeds from shares issued under the employee stock purchase plan

    1,382       1,285  

Dividends and dividend equivalents paid

    (8,179 )     (7,974 )

Net cash used in financing activities

    (6,986 )     (6,225 )

Effect of change in exchange rates

    460       129  

Net decrease in cash and cash equivalents

    (35,877 )     (13,052 )

Cash and cash equivalents, beginning of period

    112,703       90,860  

Cash and cash equivalents, end of period

  $ 76,826     $ 77,808  
                 

Supplemental disclosures for cash flow information:

               

Cash paid for taxes and interest

  $ 1,220     $ 349  

Supplemental disclosures of non-cash investing and financing activities:

               

Liability accrued for property and equipment purchases

  $ 1,208     $ 840  

Liability accrued for dividends and dividend equivalents

  $ 8,902     $ 8,700  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 
6

 

 

MONOLITHIC POWER SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared by Monolithic Power Systems, Inc. (the “Company” or “MPS”) in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted in accordance with these accounting principles, rules and regulations. The information in this report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 1, 2017.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The financial statements contained in this Form 10-Q are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or for any other future periods.

 

Summary of Significant Accounting Policies

 

Other than those discussed in “Recent Accounting Pronouncements” below, there have been no changes to the Company’s significant accounting policies during the three months ended March 31, 2017 as compared to the significant accounting policies described in the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2016.

 

Recent Accounting Pronouncements

  

Stock-Based Compensation:

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Board (“ASU”) No. 2016-09,  Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,  which changes how entities account for certain aspects of share-based payment awards, including the accounting for excess tax benefits and tax deficiencies, forfeitures, statutory tax withholding requirements, as well as classification of excess tax benefits in the statements of cash flows. The Company adopted the standard on January 1, 2017 and the primary impact of the adoption was as follows:

 

 

The Company elected to account for forfeitures of equity awards when they occur. The change was applied on a modified retrospective basis and the Company recorded a cumulative-effect adjustment of $5.1 million to retained earnings on January 1, 2017 (with a corresponding offset to additional paid-in capital).

 

 

Excess tax benefits are recognized in the income tax provision in the Condensed Consolidated Statements of Operations prospectively, rather than in additional paid-in capital in the Condensed Consolidated Balance Sheets. The Company applied the modified retrospective method and there was no net cumulative-effect adjustment to retained earnings on January 1, 2017, as the increase in deferred tax assets was fully offset by a valuation allowance.  Diluted weighted-average outstanding shares increased by approximately 0.5 million shares for the three months ended March 31, 2017, as excess tax benefits are excluded from assumed proceeds in the diluted earnings per share computation.

 

 

The Company is presenting excess tax benefits as an operating activity in the Condensed Consolidated Statements of Cash Flows on a prospective basis.

 

 
7

 

 

Revenue Recognition:

 

In May 2014, the FASB issued ASU No. 2014-09,  Revenue from Contracts with Customers (Topic 606),  which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The standard’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard defines a five-step process in order to achieve this core principle and requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and estimates used by management. The standard will be effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted for reporting periods beginning after December 15, 2016. The Company does not plan to early adopt, and accordingly, the Company will adopt the new standard effective January 1, 2018.

 

While the Company continues to assess the impact of the new standard on its accounting policies, processes and system requirements, the primary effects include the timing of recognition of revenue with certain distributors in the U.S. Currently, sales to these distributors are made under agreements which provide these distributors with price adjustment and other rights. The Company determines that uncertainties on the sales price exist under these arrangements primarily because the amount of price adjustments to be claimed by the distributors is not fixed or determinable. As a result, revenue and costs related to these sales are deferred until the Company receives notification from the distributors that products have been sold to the end customers and the amount of price adjustments is finalized. Under the new standard, the transaction price takes into consideration the effect of variable consideration, which is estimated at the time the promised goods are transferred to the customers. Accordingly, the Company will be required to recognize revenue at the time of shipment to the distributors, adjusted for an estimate of the price adjustments based on the information available at the time. Revenue from non-U.S. distributors, which make up the majority of the Company’s total distributor sales, is currently recognized at the time of shipment to the distributors because these arrangements do not contain price adjustments, or other amounts that are not fixed or determinable.

 

The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. The Company has not yet made a final decision regarding the adoption method.

 

While the Company continues to assess the potential impact of the provisions in the new standard, including the areas described above, the Company cannot reasonably estimate quantitative information related to the impact of the new standard on its financial statements at this time.

 

Others:

 

In February 2016, the FASB issued ASU No. 2016-02,  Leases (Topic 842),  which requires entities to recognize a right-of-use asset and a lease liability on the balance sheets for substantially all leases with a lease term greater than 12 months, including leases currently accounted for as operating leases. The standard requires modified retrospective adoption and will be effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is evaluating the impact of the adoption on its consolidated financial position, results of operations, cash flows and disclosures.

 

In June 2016, the FASB issued ASU No. 2016-13,  Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,  which introduces a model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In addition, for available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The standard will be effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted for annual reporting periods beginning after December 15, 2018. Entities will apply the standard by recording a cumulative-effect adjustment to retained earnings. The Company is evaluating the impact of the adoption on its consolidated financial position, results of operations, cash flows and disclosures.

 

In January 2017, the FASB issued ASU No. 2017-04,  Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment,  which simplifies the accounting for goodwill impairment. The guidance removes step two of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The standard will be applied prospectively, and is effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted after January 1, 2017. The Company is evaluating the impact of the adoption on its annual goodwill impairment test.

 

 
8

 

 

2. STOCK-BASED COMPENSATION

 

2014 Equity Incentive Plan (the “2014 Plan”)

 

The Board of Directors adopted the 2014 Plan in April 2013, and the stockholders approved it in June 2013. In October 2014, the Board of Directors approved certain amendments to the 2014 Plan. The 2014 Plan became effective on November 13, 2014 and provides for the issuance of up to 5.5 million shares. The 2014 Plan will expire on November 13, 2024. As of March 31, 2017, 3.2 million shares remained available for future issuance under the 2014 Plan. 

 

Stock-Based Compensation Expense

 

The Company recognized stock-based compensation expenses as follows (in thousands):

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 

Cost of revenue

  $ 358     $ 434  

Research and development

    3,498       3,698  

Selling, general and administrative

    7,806       4,847  

Total

  $ 11,662     $ 8,979  

 

In the first quarter of 2016, the Company’s then Chief Financial Officer retired. As the service or performance conditions for her outstanding restricted stock units (“RSUs”) had not been satisfied at the time of her departure, the Company reversed previously accrued stock-based compensation expenses of approximately $2.9 million associated with the unvested shares and recorded the credit in selling, general and administrative expenses for the three months ended March 31, 2016.

 

RSUs

 

The Company’s RSUs include time-based RSUs, RSUs with performance conditions (“PSUs”), RSUs with market and performance conditions (“MPSUs”), and RSUs with market conditions (“MSUs”). Vesting of all awards requires continued service for the Company. In addition, vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performance goals. A summary of RSU activity is presented in the table below (in thousands, except per-share amounts): 

 

   

Time-Based RSUs

   

Weighted-Average Grant Date Fair Value Per Share

   

PSUs and MPSUs

   

Weighted-Average Grant Date Fair Value Per Share

   

MSUs

   

Weighted-Average Grant Date Fair Value Per Share

   

Total

   

Weighted-Average Grant Date Fair Value Per Share

 

Outstanding at January 1, 2017

    366     $ 51.35       2,284     $ 43.24       1,620     $ 23.57       4,270     $ 36.47  

Granted

    47     $ 89.37       527 (1)   $ 62.86       -     $ -       574     $ 65.02  

Released

    (61 )   $ 46.83       (360 )   $ 43.71       -     $ -       (421 )   $ 44.16  

Forfeited

    (5 )   $ 60.85       (3 )   $ 52.30       -     $ -       (8 )   $ 57.51  

Outstanding at March 31, 2017

    347     $ 57.12       2,448     $ 47.38       1,620     $ 23.57       4,415     $ 39.41  

 


(1)

Amount reflects the number of PSUs and MPSUs that may ultimately be earned based on management’s probability assessment of the performance conditions at each reporting period. In addition, MPSUs are subject to the achievement of market conditions.

 

The intrinsic value related to awards released was $37.4 million and $29.1 million for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, the total intrinsic value of all outstanding awards was $373.3 million, based on the closing stock price of $92.10. As of March 31, 2017, unamortized compensation expense related to all outstanding awards was approximately $110.1 million with a weighted-average remaining recognition period of approximately four years. 

 

 
9

 

 

Time-Based RSUs:

 

For the three months ended March 31, 2017, the Board of Directors granted 47,000 RSUs with service conditions to non-executive employees and non-employee directors. The RSUs generally vest over four years for employees and one year for directors, subject to continued employment with the Company.

  

2017 PSUs:

 

In February 2017, the Board of Directors granted 200,000 PSUs to the executive officers, which represent a target number of shares to be awarded based on the Company’s average two-year (2017 and 2018) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2017 Executive PSUs”). The maximum number of shares that an executive officer can earn is 300% of the target number of the 2017 Executive PSUs. 50% of the 2017 Executive PSUs will vest in the first quarter of 2019 if the pre-determined performance goals are met during the performance period and approved by the Board of Directors. The remaining 2017 Executive PSUs will vest over the following two years on a quarterly basis. Vesting is subject to the employees’ continued employment with the Company. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2017 Executive PSUs is approximately $36.3 million.

 

In February 2017, the Board of Directors granted 48,000 PSUs to certain non-executive employees, which represent a target number of shares to be awarded based on the Company’s 2018 revenue goals for certain regions or product line divisions, or the Company’s average two-year (2017 and 2018) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2017 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2017 Non-Executive PSUs, depending on the job classification of the employee. 50% of the 2017 Non-Executive PSUs will vest in the first quarter of 2019 if the pre-determined performance goals are met during the performance period and approved by the Board of Directors. The remaining 2017 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Vesting is subject to the employees’ continued employment with the Company. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2017 Non-Executive PSUs is approximately $7.2 million.

 

The 2017 Executive PSUs and the 2017 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. Shares that do not vest will not be subject to the purchase price payment. The Company determined the grant date fair value of the 2017 Executive PSUs and the 2017 Non-Executive PSUs using the Black-Scholes model with the following assumptions: stock price of $89.37, expected term of 2.6 years, expected volatility of 28.6% and risk-free interest rate of 1.3%. 

 

2015 MPSUs:

 

On December 31, 2015, the Board of Directors granted 127,000 MPSUs to the executive officers and certain key employees, which represent a target number of shares to be awarded upon achievement of both market conditions and performance conditions (“2015 MPSUs”). The maximum number of shares that an employee can earn is 500% of the target number of the 2015 MPSUs. The 2015 MPSUs consist of four separate tranches with various performance periods ending on December 31, 2019. The first tranche contains market conditions only, which require the achievement of five MPS stock price targets ranging from $71.36 to $95.57 with a performance period from January 1, 2016 to December 31, 2019.

 

The second, third and fourth tranches contain both market conditions and performance conditions. Each tranche requires the achievement of five MPS stock price targets measured against a base price equal to the greater of: (1) the average closing stock price during the 20 consecutive trading days immediately before the start of the measurement period for that tranche, or (2) the closing stock price immediately before the start of the measurement period for that tranche. The MPS stock price targets for the second tranche range from $89.56 to $106.81 with a performance period from January 1, 2017 to December 31, 2019. The stock price targets for the third tranche will be determined on December 31, 2017 with a performance period from January 1, 2018 to December 31, 2019. The stock price targets for the fourth tranche will be determined on December 31, 2018 with a performance period from January 1, 2019 to December 31, 2019.

 

In addition, each of the second, third and fourth tranches requires the achievement of one of following six operating metrics:

 

 

1.

Successful implementation of full digital solutions vs. current analog topology for certain products.

 

2.

Successful implementation, and adoption by a key player, of an integrated, software-based field-oriented-control  with sensors to motor drivers.

 

3.

Successful implementation of certain advanced power analog processes.

 

4.

Successful design wins and achievement of a specific level of revenue with a global networking customer.

 

5.

Achievement of a specific level of revenue with a global electronics manufacturer.

 

6.

Achievement of a specific level of market share with certain core power products.

 

 
10

 

 

Subject to the employees’ continued employment with the Company, the 2015 MPSUs will fully vest on January 1, 2020 if the pre-determined individual market and performance goals in each tranche are met during the performance periods and approved by the Board of Directors. In addition, the 2015 MPSUs contain post-vesting sales restrictions on the vested shares by employees for up to two years.

 

The Company determined the grant date fair value of the 2015 MPSUs using a Monte Carlo simulation model with the following weighted-average assumptions: stock price of $61.35, expected volatility of 33.2%, risk-free interest rate of 1.3%, and an illiquidity discount of 7.8% to account for the post-vesting sales restrictions. In March 2016, the Company cancelled 13,000 2015 MPSUs as a result of the departure of its then Chief Financial Officer. Assuming the achievement of all of the required market and performance goals, the total stock-based compensation cost for the 2015 MPSUs is approximately $24.6 million to be recognized as follows: $8.3 million for the first tranche, $4.5 million for the second tranche, $5.2 million for the third tranche, and $6.6 million for the fourth tranche.

 

For the first tranche, stock-based compensation expense is recognized over the requisite service period even if the market conditions are not satisfied. For the second, third and fourth tranches, stock-based compensation expense for each tranche is recognized depending upon the number of the operating metrics management deems probable of being achieved in each reporting period. As of March 31, 2017, based on management’s assessment, three of the six operating metrics were considered probable of being achieved during the performance periods. Accordingly, stock-based compensation expense is being recognized for the second, third and fourth tranches over the requisite service period.

 

Stock Options

 

No options were granted for the three months ended March 31, 2017 and 2016. Total intrinsic value of options exercised was $0.3 million and $1.1 million for the three months ended March 31, 2017 and 2016, respectively. The net cash proceeds from the exercise of stock options were $0.1 million and $0.5 million for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, there was no unamortized compensation expense and outstanding options were not material.

 

Employee Stock Purchase Plan (“ESPP”)

  

For the three months ended March 31, 2017 and 2016, 22,000 and 29,000 shares, respectively, were issued under the ESPP. As of March 31, 2017, 4.6 million shares were available for future issuance.

 

The intrinsic value of shares issued was $0.5 million and $0.4 million for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, the unamortized expense was $0.3 million, which will be recognized through the third quarter of 2017. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions: 

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 

Expected term (years)

    0.5       0.5  

Expected volatility

    23.4 %     29.7 %

Risk-free interest rate

    0.7 %     0.4 %

Dividend yield

    0.9 %     1.4 %

 

Cash proceeds from the shares issued under the ESPP were $1.4 million and $1.3 million for the three months ended March 31, 2017 and 2016, respectively. 

 

 
11

 

 

3. BALANCE SHEET COMPONENTS

 

Inventories 

 

Inventories consist of the following (in thousands): 

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 

Raw materials

  $ 15,640     $ 14,599  

Work in process

    32,903       26,048  

Finished goods

    29,992       30,822  

Total

  $ 78,535     $ 71,469  

 

Other Current Assets

 

Other current assets consist of the following (in thousands):

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 

Prepaid wafer purchase

  $ 5,000     $ 5,000  

Other prepaid expense

    3,281       2,249  

Interest receivable

    1,295       966  

Other

    1,469       828  

Total

  $ 11,045     $ 9,043  

 

Other Long-Term Assets

 

Other long-term assets consist of the following (in thousands):

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 

Deferred compensation plan assets

  $ 22,001     $ 20,288  

Prepaid wafer purchase

    5,000       5,000  

Other prepaid expense

    1,235       1,117  

Other

    1,572       1,006  

Total

  $ 29,808     $ 27,411  

 

Accrued Liabilities

 

Accrued liabilities consist of the following (in thousands): 

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 

Dividends and dividend equivalents

  $ 9,437     $ 8,946  

Deferred revenue and customer prepayments

    5,496       6,799  

Stock rotation reserve

    3,481       1,937  

Warranty

    1,346       1,030  

Commissions

    1,007       1,008  

Income tax payable

    259       1,239  

Other

    1,891       1,957  

Total

  $ 22,917     $ 22,916  

 

 
12

 

  

A roll-forward of the warranty reserve is as follows (in thousands):

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 

Balance at beginning of period

  $ 1,030     $ 289  

Warranty provision for product sales

    791       85  

Settlements made

    (296 )     -  

Unused warranty provision

    (179 )     (38 )

Balance at end of period

  $ 1,346     $ 336  

 

Other Long-Term Liabilities

 

Other long-term liabilities consist of the following (in thousands):

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 

Deferred compensation plan liabilities

  $ 21,777     $ 19,836  

Dividend equivalents

    3,708       3,294  

Other

    72       89  

Total

  $ 25,557     $ 23,219  

 

4. GOODWILL AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET

 

There have been no changes in the balance of goodwill during the three months ended March 31, 2017.

 

Acquisition-related intangible assets consist of the following (in thousands):

 

   

March 31, 2017

 
   

Gross Amount

   

Accumulated Amortization

   

Net Amount

 

Know-how

  $ 1,018     $ (551 )   $ 467  

Developed technologies

    6,466       (4,444 )     2,022  

Total

  $ 7,484     $ (4,995 )   $ 2,489  

 

   

December 31, 2016

 
   

Gross Amount

   

Accumulated Amortization

   

Net Amount

 

Know-how

  $ 1,018     $ (500 )   $ 518  

Developed technologies

    6,466       (3,982 )     2,484  

Total

  $ 7,484     $ (4,482 )   $ 3,002  

 

Amortization expense is recorded in cost of revenue in the Condensed Consolidated Statements of Operations. For both the three months ended March 31, 2017 and 2016, amortization expense totaled $0.5 million.

 

As of March 31, 2017, the estimated future amortization expense was as follows (in thousands):

 

2017 (remaining nine months)

  $ 1,538  

2018

    841  

2019

    110  

Total

  $ 2,489  

 

 
13

 

 

5. NET INCOME PER SHARE

  

Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that would occur if outstanding securities or other contracts to issue common stock were exercised or converted into common stock, and calculated using the treasury stock method. Contingently issuable shares, including equity awards with performance conditions or market conditions, are considered outstanding common shares and included in the basic net income per share as of the date that all necessary conditions to earn the awards have been satisfied. Prior to the end of the contingency period, the number of contingently issuable shares included in the diluted net income per share is based on the number of shares, if any, that would be issuable under the terms of the arrangement at the end of the reporting period.  

 

The Company’s outstanding RSUs contain forfeitable rights to receive cash dividend equivalents, which are accumulated and paid to the employees when the underlying RSUs vest. Dividend equivalents accumulated on the underlying RSUs are forfeited if the employees do not fulfill their service requirement and the awards do not vest. Accordingly, these awards are not treated as participating securities in the net income per share calculation. 

 

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per-share amounts):

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 

Numerator:

               

Net income

  $ 14,477     $ 10,575  
                 

Denominator:

               

Weighted-average outstanding shares used to compute basic net income per share

    41,047       40,028  

Effect of dilutive securities

    2,221       1,618  

Weighted-average outstanding shares used to compute diluted net income per share

    43,268       41,646  
                 

Net income per share:

               

Basic

  $ 0.35     $ 0.26  

Diluted

  $ 0.33     $ 0.25  

 

6. SEGMENT AND GEOGRAPHIC INFORMATION

 

The Company operates in one reportable segment that includes the design, development, marketing and sale of high-performance analog solutions for the consumer, industrial, computing and storage, and communications markets. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company derives a majority of its revenue from sales to customers located outside North America, with geographic revenue based on the customers’ ship-to locations. 

 

The Company sells its products primarily through third-party distributors and value-added resellers, and directly to original equipment manufacturers, original design manufacturers and electronic manufacturing service providers. The following table summarizes two customers with sales greater than 10% of the Company's total revenue: 

 

   

Three Months Ended March 31,

 

Customer

 

2017

   

2016

 

Distributor A

    18 %     20 %

Distributor B

    10 %     *  

 


* Represents less than 10%.

 

 
14

 

 

The following table summarizes two customers with accounts receivable balances greater than 10% of the Company’s total accounts receivable:

 

   

March 31,

   

December 31,

 

Customer

 

2017

   

2016

 

Distributor A

    20 %     19 %

Distributor B

    13 %     17 %

 

Both of the customers are third-party distributors. The Company’s agreements with these distributors were made in the ordinary course of business and may be terminated with or without cause by these distributors with advance notice. Although the Company may experience a short-term disruption in the distribution of its products and a short-term decline in revenue if its agreement with either of these distributors was terminated, the Company believes that such termination would not have a material adverse effect on its financial statements because it would be able to engage alternative distributors, resellers and other distribution channels to deliver its products to end customers within a few quarters following the termination of an agreement with the distributor. 

 

The following is a summary of revenue by geographic regions (in thousands):

  

   

Three Months Ended March 31,

 

Country or Region

 

2017

   

2016

 

China

  $ 56,084     $ 52,388  

Taiwan

    14,875       8,855  

Korea

    8,161       7,093  

Europe

    7,907       6,985  

Southeast Asia

    6,372       4,338  

Japan

    4,825       2,650  

United States

    2,042       2,146  

Other

    96       57  

Total

  $ 100,362     $ 84,512  

 

The following is a summary of revenue by product family (in thousands):

 

   

Three Months Ended March 31,

 

Product Family

 

2017

   

2016

 

DC to DC

  $ 91,424     $ 77,118  

Lighting Control

    8,938       7,394  

Total

  $ 100,362     $ 84,512  

 

The following is a summary of long-lived assets by geographic regions (in thousands):

 

   

March 31,

   

December 31,

 

Country

 

2017

   

2016

 

United States

  $ 52,270     $ 50,242  

China

    45,339       45,728  

Bermuda

    9,060       9,573  

Taiwan

    9,576       8,919  

Other

    433       571  

Total

  $ 116,678     $ 115,033  

 

7. LITIGATION

 

The Company is a party to actions and proceedings in the ordinary course of business, including potential litigation initiated by its shareholders, challenges to the enforceability or validity of its intellectual property, claims that the Company’s products infringe on the intellectual property rights of others, and employment matters. These proceedings often involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. The Company defends itself vigorously against any such claims.

 

 
15

 

 

As of March 31, 2017, there were no material pending legal proceedings to which the Company was a party.

  

8. CASH, CASH EQUIVALENTS AND INVESTMENTS

 

The following is a summary of the Company’s cash, cash equivalents and short-term and long-term investments (in thousands): 

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 

Cash, cash equivalents and investments:

               

Cash

  $ 68,552     $ 87,747  

Money market funds

    8,274       24,956  

Certificates of deposit

    7,256       -  

Corporate debt securities

    170,389       109,644  

U.S. treasuries and government agency bonds

    24,170       45,877  

Auction-rate securities backed by student-loan notes

    5,342       5,354  

Total

  $ 283,983     $ 273,578  

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 

Reported as:

               

Cash and cash equivalents

  $ 76,826     $ 112,703  

Short-term investments

    201,815       155,521  

Long-term investments

    5,342       5,354  

Total

  $ 283,983     $ 273,578  

  

The contractual maturities of the Company’s short-term and long-term available-for-sale investments are as follows (in thousands):

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 

Due in less than 1 year

  $ 61,688     $ 47,568  

Due in 1 - 5 years

    140,127       107,953  

Due in greater than 5 years

    5,342       5,354  

Total

  $ 207,157     $ 160,875  

 

The following tables summarize the unrealized gain and loss positions related to the Company’s investments in marketable securities designated as available-for sale (in thousands): 

 

   

March 31, 2017

 
   

Amortized Cost

   

Unrealized Gains

   

Unrealized Losses

   

Total Fair Value

   

Fair Value of Investments in Unrealized Loss Position

 

Money market funds

  $ 8,274     $ -     $ -     $ 8,274     $ -  

Certificates of deposit

    7,256       -       -       7,256       -  

Corporate debt securities

    170,959       75       (645 )     170,389       129,006  

U.S. treasuries and government agency bonds

    24,193       3       (26 )     24,170       21,180  

Auction-rate securities backed by student-loan notes

    5,570       -       (228 )     5,342       5,342  

Total

  $ 216,252     $ 78     $ (899 )   $ 215,431     $ 155,528  

 

 
16

 

 

   

December 31, 2016

 
   

Amortized Cost

   

Unrealized Gains

   

Unrealized Losses

   

Total Fair Value

   

Fair Value of Investments in Unrealized Loss Position

 

Money market funds

  $ 24,956     $ -     $ -     $ 24,956     $ -  

Corporate debt securities

    110,429       65       (850 )     109,644       91,938  

U.S. treasuries and government agency bonds

    45,899       -       (22 )     45,877       39,275  

Auction-rate securities backed by student-loan notes

    5,570       -       (216 )     5,354       5,354  

Total

  $ 186,854     $ 65     $ (1,088 )   $ 185,831     $ 136,567  

 

9. FAIR VALUE MEASUREMENTS  

 

The following table details the fair value measurement of the financial assets (in thousands):

 

   

Fair Value Measurement at March 31, 2017

 
           

Quoted Prices in Active Markets for Identical Assets

   

Significant Other Observable Inputs

   

Significant Unobservable Inputs

 
   

Total

   

Level 1

   

Level 2

   

Level 3

 

Money market funds

  $ 8,274     $ 8,274     $ -     $ -  

Certificates of deposit

    7,256       -       7,256       -  

Corporate debt securities

    170,389       -       170,389       -  

U.S. treasuries and government agency bonds

    24,170       -       24,170       -  

Auction-rate securities backed by student-loan notes

    5,342       -       -       5,342  

Mutual funds under deferred compensation plan

    13,514       13,514       -       -  

Total

  $ 228,945     $ 21,788     $ 201,815     $ 5,342  

 

   

Fair Value Measurement at December 31, 2016

 
           

Quoted Prices in Active Markets for Identical Assets

   

Significant Other Observable Inputs

   

Significant Unobservable Inputs

 
   

Total

   

Level 1

   

Level 2

   

Level 3

 

Money market funds

  $ 24,956     $ 24,956     $ -     $ -  

Corporate debt securities

    109,644       -       109,644       -  

U.S. treasuries and government agency bonds

    45,877       -       45,877       -  

Auction-rate securities backed by student-loan notes

    5,354       -       -       5,354  

Mutual funds under deferred compensation plan

    12,108       12,108       -       -  

Total

  $ 197,939     $ 37,064     $ 155,521     $ 5,354  

 


Level 1—includes instruments with quoted prices in active markets for identical assets.

Level 2—includes instruments for which the valuations are based upon quoted market prices in active markets involving similar assets or inputs other than quoted prices that are observable for the assets. The market inputs used to value these instruments generally consist of market yields, recently executed transactions, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Pricing sources may include industry standard data providers, security master files from large financial institutions, and other third party sources used to determine a daily market value.

Level 3—includes instruments for which the valuations are based on inputs that are unobservable and significant to the overall fair value measurement.

 

The Company’s level 3 assets consist of government-backed student loan auction-rate securities, which became illiquid in 2008. The following table provides a rollforward of the fair value of the auction-rate securities (in thousands):  

 

Balance at January 1, 2017

  $ 5,354  

Change in unrealized loss included in other comprehensive income

    (12 )

Balance at March 31, 2017

  $ 5,342  

 

 
17

 

 

The Company determined the fair value of the auction-rate securities using a discounted cash flow model with the following assumptions:

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 

Time-to-liquidity (months)

    24         24    

Discount rate

  4.2% - 9.2%     4.3% - 9.3%  

 

10. DEFERRED COMPENSATION PLAN

 

The Company has a non-qualified, unfunded deferred compensation plan, which provides certain key employees, including executive management, with the ability to defer the receipt of compensation in order to accumulate funds for retirement on a tax deferred basis. The Company does not make contributions to the plan or guarantee returns on the investments. The Company is responsible for the plan’s administrative expenses. Participants’ deferrals and investment gains and losses remain as the Company’s liabilities and the underlying assets are subject to claims of general creditors.

 

The liabilities for compensation deferred under the plan are recorded at fair value in each reporting period. Changes in the fair value of the liabilities are included in operating expense (credit) in the Condensed Consolidated Statements of Operations. The Company manages the risk of changes in the fair value of the liabilities by electing to match the liabilities with investments in corporate-owned life insurance policies and mutual funds that offset a substantial portion of the exposure. The investments are recorded at the cash surrender value of the corporate-owned life insurance policies and at the fair value of the mutual funds, which are classified as trading securities. Changes in the cash surrender value of the corporate-owned life insurance policies and the fair value of mutual fund investments are included in interest and other income, net in the Condensed Consolidated Statements of Operations.  The following table summarizes the deferred compensation plan balances in the Condensed Consolidated Balance Sheets (in thousands):

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 

Deferred compensation plan asset components:

               

Cash surrender value of corporate-owned life insurance policies

  $ 8,487     $ 8,180  

Fair value of mutual funds

    13,514       12,108  

Total

  $ 22,001     $ 20,288  
                 

Deferred compensation plan assets reported in:

               

Other long-term assets

  $ 22,001     $ 20,288  
                 

Deferred compensation plan liabilities reported in:

               

Accrued compensation and related benefits (short-term)

  $ 341     $ 479  

Other long-term liabilities

    21,777       19,836  

Total

  $ 22,118     $ 20,315  

 

 
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11. INTEREST AND OTHER INCOME, NET

 

The components of interest and other income, net are as follows (in thousands):

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 

Interest income

  $ 1,264     $ 489  

Amortization of premium on available-for-sale investments

    (507 )     (171 )

Gain on employee deferred compensation plan investments

    733       302  

Foreign currency exchange loss

    (109 )     (83 )

Other

    -       6  

Total

  $ 1,381     $ 543  

 

12. INCOME TAXES

 

The income tax provision for the three months ended March 31, 2017 was $0.5 million, or 3.2% of pre-tax income. The effective tax rate differed from the federal statutory rate primarily because foreign income generated by the Company’s subsidiaries in Bermuda and China was taxed at lower rates. In addition, the effective tax rate was impacted by changes in the valuation allowance primarily related to stock-based compensation .

 

The income tax provision for the three months ended March 31, 2016 was $0.3 million, or 3.2% of pre-tax income. The effective tax rate differed from the federal statutory rate primarily because foreign income generated by the Company’s subsidiaries in Bermuda and China was taxed at lower rates, and because of the benefit that the Company realized from the release of RSUs. In addition, the effective tax rate was impacted by changes in the valuation allowance primarily related to stock-based compensation.  

 

On July 27, 2015, in  Altera Corp. v. Commissioner , the U.S. Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision was issued in December 2015, and the Internal Revenue Service (“IRS”) appealed the decision in February 2016. At this time, the U.S. Department of the Treasury has not withdrawn the requirement from its regulations to include stock-based compensation. Due to the uncertainty surrounding the status of the current regulations, questions related to the scope of potential benefits, and the risk of the Tax Court’s decision being overturned upon appeal, the Company has not recorded any adjustments as of March 31, 2017. The Company will continue to monitor developments related to this opinion and the potential impact on its financial statements.

 

Adoption of ASU No. 2016-09

 

Upon adoption of ASU No. 2016-09 on January 1, 2017, excess tax benefits are now recognized in the income tax provision in the Condensed Consolidated Statements of Operations prospectively, rather than in additional paid-in capital in the Condensed Consolidated Balance Sheets. The Company applied the modified retrospective method and there was no net cumulative-effect adjustment to retained earnings on January 1, 2017, as the increase in deferred tax assets for previously unrecognized excess tax benefits was fully offset by a valuation allowance.  For the three months ended March 31, 2017, the Company was in a taxable loss position and accordingly, there was no discrete benefit recorded in the income tax provision related to the excess tax benefits upon vesting of the equity awards.

 

Unrecognized Tax Benefits 

 

As of March 31, 2017, the Company had $15.0 million of unrecognized tax benefits, $3.8 million of which would affect its effective tax rate if recognized after considering the valuation allowance. As of December 31, 2016, the Company had $14.4 million of unrecognized tax benefits, $3.5 million of which would affect its effective tax rate if recognized after considering the valuation allowance.

 

Uncertain tax positions relate to the allocation of income and deductions among the Company’s global entities and to the determination of the research and development tax credit. It is reasonably possible that over the next twelve-month period, the Company may experience increases or decreases in its unrecognized tax benefits. However, it is not possible to determine either the magnitude or the range of increases or decreases at this time.

 

The Company recognizes interest and penalties, if any, related to uncertain tax positions in its income tax provision. As of March 31, 2017 and December 31, 2016, the Company has approximately $0.4 million and $0.3 million of accrued interest related to uncertain tax positions, respectively, which were recorded in long-term income tax liabilities in the Condensed Consolidated Balance Sheets. 

 

 
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13. ACCUMULATED OTHER COMPREHENSIVE LOSS

 

The following table summarizes the changes in accumulated other comprehensive loss (in thousands):

 

   

Unrealized Losses on Available-for-Sale Securities

   

Foreign Currency Translation Adjustments

   

Total

 

Balance as of January 1, 2017

  $ (1,023 )   $ (3,192 )   $ (4,215 )

Other comprehensive income before reclassifications

    202       1,306       1,508  

Amounts reclassified from accumulated other comprehensive loss

    -       -       -  

Net current period other comprehensive income

    202       1,306       1,508  

Balance as of March 31, 2017

  $ (821 )   $ (1,886 )   $ (2,707 )

 

14. STOCK REPURCHASE

 

In February 2016, the Board of Directors approved a stock repurchase program (the “2016 Program”) that authorized the Company to repurchase up to $50 million in the aggregate of its common stock through December 31, 2016. In December 2016, the Board of Directors approved an extension of the 2016 Program through December 31, 2017.

  

For the three months ended March 31, 2017 and 2016, the Company did not repurchase any shares under the 2016 Program. As of March 31, 2017, $50 million remained available for future repurchases. Shares will be retired upon repurchase.

 

15. DIVIDENDS AND DIVIDEND EQUIVALENTS

 

Cash Dividend Program

 

In June 2014, the Board of Directors approved a dividend program pursuant to which the Company intends to pay quarterly cash dividends on its common stock. Based on the Company’s 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 our Board of Directors, which are payable to the stockholders in the following month.  For the three months ended March 31, 2017, the Board of Directors declared a cash dividend of $0.20 per share for a total of $8.2 million. For the three months ended March 31, 2016, the Board of Directors declared a cash dividend of $0.20 per share for a total of $8.0 million. As of both March 31, 2017 and December 31, 2016, accrued dividends totaled $8.2 million.

 

The declaration of any future cash dividends is at the discretion of the Board of Directors and will depend on, among other things, the Company’s financial condition, results of operations, capital requirements, business conditions, statutory requirements of Delaware law, compliance with the terms of future indebtedness and credit facilities and other factors that the Board of Directors may deem relevant, as well as a determination that cash dividends are in the best interests of the stockholders. The Company anticipates that the cash used for future dividends will come from its current domestic cash and cash generated from ongoing U.S. operations. If cash held by the Company’s international subsidiaries is needed for the payment of dividends, the Company may be required to accrue and pay U.S. taxes to repatriate the funds. 

 

Cash Dividend Equivalent Rights

 

Under the Company’s stock plans, outstanding RSUs contain rights to receive cash dividend equivalents, which entitle employees who hold RSUs to the same dividend value per share as holders of common stock. The dividend equivalents are accumulated and paid to the employees when the underlying RSUs vest. Dividend equivalents accumulated on the underlying RSUs are forfeited if the employees do not fulfill their service requirement and the awards do not vest. As of March 31, 2017 and December 31, 2016, accrued dividend equivalents totaled $4.9 million and $4.1 million, respectively.  

 

 
20

 

 

ITEM 2. 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 other things, statements concerning:

 

 

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

 

 

our plan to increase our revenue through the introduction of new products within our existing product families as well as  in new product categories and families,

 

 

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,

 

 

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

 

 

the continuing application of our products in the consumer, industrial, computing and storage, and communications markets,

 

 

estimates of our future liquidity requirements,

 

 

the cyclical nature of the semiconductor industry,

 

 

protection of our proprietary technology,

 

 

business outlook for the remainder of 2017 and beyond,

 

 

the factors that we believe will impact our ability to achieve revenue growth,

 

 

the percentage of our total revenue from various market segments,

 

 

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

 

 

our intention and ability to repurchase shares under our stock repurchase program and pay future cash dividends, and,

 

 

the factors that differentiate us from our competitors.

 

In some cases, words such as “would,” “could,” “may,” “should,” “predict,” “potential,” “targets,” “continue,” “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “will,” the negative of these terms or other variations of such terms and similar expressions relating to the future identify forward-looking statements. All forward-looking statements are based on our current outlook, expectations, estimates, projections, beliefs and plans or objectives about our business and our industry. These statements are not guarantees of future performance and are subject to 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 particular, in the section entitled “Item 1A. Risk Factors.” Except as required by law, we disclaim any duty to 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. Readers should carefully review future reports and documents that we file from time to time with the Securities and Exchange Commission, such as our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K. 

 

The following management’s discussion and analysis should be read in connection with the information presented in our unaudited condensed consolidated financial statements and related notes for the three months ended March 31, 2017 included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes for the year ended December 31, 2016 included in our Annual Report on Form 10-K.

 

 
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Overview

 

We are a leading company that designs, develops and markets high-performance power solutions. Founded in 1997, MPS’s core strengths include deep system-level and applications knowledge, strong analog design expertise and an innovative proprietary process technology. These combined strengths enable MPS to deliver highly integrated monolithic products that offer energy efficient, cost-effective, easy-to-use solutions for systems found in industrial applications, telecommunication infrastructures, cloud computing, automotive, and consumer applications. Our mission is to reduce total energy consumption in our customers' systems with green, practical and compact solutions. We believe that we differentiate ourselves by offering solutions that are more highly integrated, smaller in size, more energy efficient, more accurate with respect to performance specifications and, consequently, more cost-effective than many competing solutions. We plan to continue to introduce new products within our existing product families, as well as in new innovative product categories.

 

We operate in the cyclical semiconductor industry where there is seasonal demand for certain products. We are not immune from current and future industry downturns, but we have targeted product and market areas that we believe have the ability to offer above average industry performance over the long term.

 

We work with third parties to manufacture and assemble our integrated circuits (“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 lead time for orders is fewer than 90 days. These factors, combined with the fact that orders in the semiconductor industry can typically be cancelled or rescheduled without significant penalty to the customer, make the forecasting of our orders and revenue difficult.

  

We derive most of our revenue from sales through distribution arrangements and direct sales to customers in Asia, where the products we produce are incorporated into end-user products.  For the three months ended March 31, 2017 and 2016, 90% and 89% of our revenue, respectively, was from customers in Asia. We derive a majority of our revenue from the sales of our DC to DC converter products which serve the consumer, industrial, computing and storage, and communications markets. We believe our ability to achieve revenue growth will depend, in part, on our ability to develop new products, enter new market segments, gain market share, manage litigation risk, diversify our customer base and successfully secure manufacturing capacity.

   

Critical Accounting Policies and Estimates

 

Other than those discussed in “Recent Accounting Pronouncements” in Note 1 to Condensed Consolidated Financial Statements, there have been no significant changes in our critical accounting policies and estimates used in the preparation of our financial statements during the three months ended March 31, 2017, as compared to those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2016.

 

 
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Results of Operations

 

The table below sets forth the data in the Condensed Consolidated Statements of Operations as a percentage of revenue:  

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 
   

(in thousands, except percentages)

 

Revenue

  $ 100,362       100.0

%

  $ 84,512       100.0

%

Cost of revenue

    45,520       45.4       39,002       46.1  

Gross profit

    54,842       54.6       45,510       53.9  

Operating expenses:

                               

Research and development

    18,894       18.8       17,321       20.5  

Selling, general and administrative

    22,092       22.0       17,768       21.0  

Litigation expense

    286       0.3       45       0.1  

Total operating expenses

    41,272       41.1       35,134       41.6  

Income from operations

    13,570       13.5       10,376       12.3  

Interest and other income, net

    1,381       1.4       543       0.6  

Income before income taxes

    14,951       14.9       10,919       12.9  

Income tax provision

    474       0.5       344       0.4  

Net income

  $ 14,477       14.4

%

  $ 10,575       12.5

%

 

Revenue

 

The following table summarizes our revenue by market segments:

 

   

Three Months Ended March 31,

         

Market Segment

 

2017

   

% of Revenue

   

2016

   

% of Revenue

   

Change

 
   

(in thousands, except percentages)

 

Consumer

  $ 35,611       35.5 %   $ 33,807       40.0 %     5.3 %

Industrial

    27,685       27.6 %     18,437       21.8 %     50.2 %

Computing and storage

    20,617       20.5 %     15,393       18.2 %     33.9 %

Communications

    16,449       16.4 %     16,875       20.0 %     (2.5 )%

Total

  $ 100,362       100.0 %   $ 84,512       100.0 %     18.8 %

 

Revenue for the three months ended March 31, 2017 was $100.4 million, an increase of $15.9 million, or 18.8%, from $84.5 million for the three months ended March 31, 2016. This increase was driven by higher sales in the consumer, industrial and computing and storage segments, as overall unit shipments increased 8% due to higher market demand with current customers and design wins with new customers, coupled with an 11% increase in average sales prices. 

 

Revenue from the consumer segment for the three months ended March 31, 2017 increased $1.8 million, or 5.3%, from the same period in 2016. This increase was primarily driven by higher demand in battery management systems, home appliances and other high value consumer products. Revenue from the industrial segment for the three months ended March 31, 2017 increased $9.2 million, or 50.2%, from the same period in 2016. This increase was primarily driven by higher sales in automotive applications, smart meters and power sources. Revenue from the computing and storage segment for the three months ended March 31, 2017 increased $5.2 million, or 33.9%, from the same period in 2016. This increase was primarily driven by strength in the solid-state drive storage, high-performance notebook and server markets. Revenue from the communications segment for the three months ended March 31, 2017 was essentially flat compared to the same period in 2016.

 

 
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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. In addition, cost of revenue includes amortization for acquisition-related intangible assets.

 

   

Three Months Ended March 31,

         
   

2017

   

2016

   

Change

 
   

(in thousands, except percentages)

 

Cost of revenue

  $ 45,520     $ 39,002       16.7 %

As a percentage of revenue

    45.4 %     46.1 %        

Gross profit

  $ 54,842     $ 45,510       20.5 %

Gross margin

    54.6 %     53.9 %        

 

Cost of revenue was $45.5 million, or 45.4% of revenue, for the three months ended March 31, 2017, and $39.0 million, or 46.1% of revenue, for the three months ended March 31, 2016. The $6.5 million increase in cost of revenue was primarily due to an 8% increase in overall unit shipments, coupled with a 9% increase in the average direct cost of units shipped. The increase in cost of revenue was also driven by an increase in warranty expenses and inventory write-downs.

 

Gross margin was 54.6% for the three months ended March 31, 2017, compared with 53.9% for the three months ended March 31, 2016. The increase in gross margin was primarily due to increased sales of higher margin products and lower direct and overhead costs as a percentage of revenue. This increase was partially offset by higher warranty expenses and inventory write-downs.

 

Research and Development

 

Research and development (“R&D”) expenses primarily consist of salary and benefit expenses, bonuses and stock-based compensation expenses for design and product engineers, expenses related to new product development and supplies, and facility costs. 

 

   

Three Months Ended March 31,

         
   

2017

   

2016

   

Change

 
   

(in thousands, except percentages)

 

R&D expenses

  $ 18,894     $ 17,321       9.1 %

As a percentage of revenue

    18.8 %     20.5 %        

 

R&D expenses were $18.9 million, or 18.8% of revenue, for the three months ended March 31, 2017 and $17.3 million, or 20.5% of revenue, for the three months ended March 31, 2016. The $1.6 million increase in R&D expenses was primarily due to an increase of $0.7 million in cash compensation expenses, which include salary, benefits and bonuses, an increase of $0.4 million in new product development expenses, and an increase of $0.2 million in expenses related to changes in the value of the employee deferred compensation plan liabilities. Our R&D headcount was 577 employees as of March 31, 2017, compared with 512 employees as of March 31, 2016.  

 

Selling, General and Administrative

 

Selling, general and administrative (“SG&A”) expenses primarily include salary and benefit expenses, bonuses and stock-based compensation expenses for sales, marketing and administrative personnel, sales commissions, travel expenses, facilities costs, and professional service fees.  

 

   

Three Months Ended March 31,

         
   

2017

   

2016

   

Change

 
   

(in thousands, except percentages)

 

SG&A expenses

  $ 22,092     $ 17,768       24.3 %

As a percentage of revenue

    22.0 %     21.0 %        

 

SG&A expenses were $22.1 million, or 22.0% of revenue, for the three months ended March 31, 2017 and $17.8 million, or 21.0% of revenue, for the three months ended March 31, 2016. The $4.3 million increase in SG&A expenses was primarily due to an increase of $0.4 million in cash compensation expenses, which include salary, benefits and bonuses, and an increase of $0.4 million in expenses related to changes in the value of the employee deferred compensation plan liabilities. In addition, contributing to the increase in SG&A expenses for the three months ended March 31, 2017 was a stock-based compensation credit recorded in the three months ended March 31, 2016 due to the retirement of our then Chief Financial Officer. As the service or performance conditions for her outstanding restricted stock units had not been satisfied at the time of her departure, we reversed previously accrued stock-based compensation expenses of approximately $2.9 million associated with the unvested shares and recorded the credit in SG&A expenses for the three months ended March 31, 2016. Our SG&A headcount was 357 employees as of March 31, 2017, compared with 319 employees as of March 31, 2016.

 

 
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Litigation Expense, Net

 

Litigation expense was $0.3 million for the three months ended March 31, 2017, compared with $45,000 for the three months ended March 31, 2016. The expense was higher due to increased litigation activity.

 

Interest and Other Income, Net

 

Interest and other income, net, was $1.4 million for the three months ended March 31, 2017, compared with $0.5 million for the three months ended March 31, 2016. The increase was primarily due to an increase of $0.8 million in interest income and an increase of $0.4 million in income related to changes in the value of the employee deferred compensation plan assets, partially offset by an increase of $0.3 million in amortization of premium on investments.

 

Income Tax Provision

 

The income tax provision for the three months ended March 31, 2017 was $0.5 million, or 3.2% of pre-tax income. The effective tax rate differed from the federal statutory rate primarily because foreign income generated by our subsidiaries in Bermuda and China was taxed at lower rates. In addition, the effective tax rate was impacted by changes in the valuation allowance primarily related to stock-based compensation .

 

The income tax provision for the three months ended March 31, 2016 was $0.3 million, or 3.2% of pre-tax income. The effective tax rate differed from the federal statutory rate primarily because foreign income generated by our subsidiaries in Bermuda and China was taxed at lower rates, and because of the benefit that the Company realized from the release of RSUs. In addition, the effective tax rate was impacted by changes in the valuation allowance primarily related to stock-based compensation.  

 

On July 27, 2015, in  Altera Corp. v. Commissioner , the U.S. Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision was issued in December 2015, and the IRS appealed the decision in February 2016. At this time, the U.S. Department of the Treasury has not withdrawn the requirement from its regulations to include stock-based compensation. Due to the uncertainty surrounding the status of the current regulations, questions related to the scope of potential benefits, and the risk of the Tax Court’s decision being overturned upon appeal, we have not recorded any adjustments as of March 31, 2017. We will continue to monitor developments related to this opinion and the potential impact on our financial statements.

 

Liquidity and Capital Resources

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 
   

(in thousands, except percentages)

 

Cash and cash equivalents

  $ 76,826     $ 112,703  

Short-term investments

    201,815       155,521  

Total cash, cash equivalents and short-term investments

  $ 278,641     $ 268,224  

Percentage of total assets

    51.9 %     52.5 %
                 

Total current assets

  $ 406,336     $ 382,984  

Total current liabilities

    (56,008 )     (52,921 )

Working capital

  $ 350,328     $ 330,063  

 

As of March 31, 2017, we had cash and cash equivalents of $76.8 million and short-term investments of $201.8 million, compared with cash and cash equivalents of $112.7 million and short-term investments of $155.5 million as of December 31, 2016. As of March 31, 2017, $59.3 million of cash and cash equivalents and $94.5 million of short-term investments were held by our international subsidiaries. If these funds are needed for our operations in the U.S., we may be required to accrue and pay U.S. taxes to repatriate these funds. However, our intent is to indefinitely reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate these funds to fund our U.S. operations.

 

 
25

 

 

The significant components of our working capital are cash and cash equivalents, short-term investments, accounts receivable, inventories and other current assets, reduced by accounts payable, accrued compensation and related benefits, and other accrued liabilities. As of March 31, 2017, we had working capital of $350.3 million, compared with working capital of $330.1 million as of December 31, 2016. The $20.2 million increase in working capital was due to a $23.3 million increase in current assets, partially offset by a $3.1 million increase in current liabilities. The increase in current assets was primarily due to an increase in short-term investments, accounts receivable and inventories, partially offset by a decrease in cash and cash equivalents. The increase in current liabilities was primarily due to an increase in accounts payable, partially offset by a decrease in accrued compensation and related benefits.

 

Summary of Cash Flows

 

The following table summarizes our cash flow activities:

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 
   

(in thousands)

 

Net cash provided by operating activities

  $ 21,892     $ 28,870  

Net cash used in investing activities

    (51,243 )     (35,826 )

Net cash used in financing activities

    (6,986 )     (6,225 )

Effect of exchange rate changes on cash and cash equivalents

    460       129  

Net decrease in cash and cash equivalents

  $ (35,877 )   $ (13,052 )

 

For the three months ended March 31, 2017, net cash provided by operating activities was $21.9 million, primarily due to our net income adjusted for certain non-cash items, including depreciation and amortization and stock-based compensation, and a net decrease of $8.1 million from the changes in our operating assets and liabilities. The increase in accounts receivable was primarily driven by the timing of shipments. The increase in inventories was primarily driven by increased purchases to meet current demand and future growth. The increase in accounts payable was primarily driven by increased inventory and capital asset purchases to meet expected future demand. For the three months ended March 31, 2016, net cash provided by operating activities was $28.9 million, primarily due to our net income adjusted for certain non-cash items, including depreciation and amortization and stock-based compensation, and a net increase of $6.1 million from the changes in our operating assets and liabilities. The increase in accounts payable was primarily driven by increased inventory and capital asset purchases to meet expected future growth. The decrease in accounts receivable was primarily driven by lower shipments during the quarter.

   

For the three months ended March 31, 2017, net cash used in investing activities was $51.2 million, primarily due to purchases of property and equipment of $3.4 million, net purchases of investments of $46.6 million, and net contributions to the employee deferred compensation plan of $1.2 million. For the three months ended March 31, 2016, net cash used in investing activities was $35.8 million, primarily due to net purchases of investments of $29.5 million, purchases of property and equipment of $5.3 million, and net contributions to the employee deferred compensation plan of $1.0 million.

 

For the three months ended March 31, 2017, net cash used in financing activities was $7.0 million, primarily reflecting $8.2 million used to pay dividends to our stockholders and dividend equivalents to our employees who hold RSUs, partially offset by $1.4 million of cash proceeds from stock option exercises and issuance of shares through our employee stock purchase plan. For the three months ended March 31, 2016, net cash used in financing activities was $6.2 million, primarily reflecting $8.0 million used to pay dividends to our stockholders and dividend equivalents to our employees who hold RSUs, partially offset by $1.7 million of cash proceeds from stock option exercises and issuance of shares through our employee stock purchase plan.

 

In June 2014, our Board of Directors approved a dividend program pursuant to which we intend to pay quarterly cash dividends on our common stock. In addition, outstanding RSU awards contain rights to receive dividend equivalents, which entitle employees who hold RSUs to the same dividend value per share as holders of common stock. The dividend equivalents are accumulated and paid to the employees when the underlying RSUs vest. Dividend equivalents accumulated on the underlying RSUs are forfeited if the employees do not fulfill their service requirement and the awards do not vest. For the three months ended March 31, 2017, we paid dividends and dividend equivalents totaling $8.2 million. For the three months ended March 31, 2016, we paid dividends and dividend equivalents totaling $8.0 million.   

 

 
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Although cash requirements will fluctuate based on the timing and extent of many factors such as those discussed above, we believe that cash generated from operations, together with the liquidity provided by existing cash balances and short-term investments, will be sufficient to satisfy our liquidity requirements for the next 12 months. 

 

We anticipate the cash used for future dividends, dividend equivalents and the stock repurchase program will come from our current domestic cash and cash generated from ongoing U.S. operations. If cash held by our international subsidiaries is needed for these payments, we may be required to accrue and pay U.S. taxes to repatriate these funds. In the future, in order to strengthen our financial position, respond to changes in our circumstance or unforeseen events or conditions, or fund our growth, we may need to discontinue paying dividends and dividend equivalents or repurchasing shares, and may need to raise additional funds by any one or a combination of the following: issuing equity securities, issuing debt or convertible debt securities, incurring indebtedness secured by our assets, or selling certain product lines and/or portions of our business. Accordingly, we cannot ensure that we will continue to pay dividends and dividend equivalents or repurchase shares in the future, and there can be no guarantee that we will be able to raise additional funds on terms acceptable to us, or at all.

 

From time to time, we have engaged in discussions with third parties concerning potential acquisitions of product lines, technologies, businesses and companies, and we continue to consider potential acquisition candidates. Any such transactions could involve the issuance of a significant number of new equity securities, assumptions of debt, and/or payment of cash consideration. We may also be required to raise additional funds to complete any such acquisitions, through either the issuance of equity and debt securities or incurring indebtedness secured by our assets. If we raise additional funds or acquire businesses or technologies through the issuance of equity securities or convertible debt securities, our existing stockholders may experience significant dilution. 

 

Contractual Obligations

 

Our outstanding purchase commitments primarily consist of wafer purchases from our foundries, assembly services and license arrangements. As of March 31, 2017, the outstanding balance under our purchase commitments was $60.3 million, compared with $46.3 million as of December 31, 2016.

  

Other long-term obligations include long-term liabilities reflected in our Condensed Consolidated Balance Sheets, which primarily consist of the employee deferred compensation plan liabilities and accrued dividend equivalents. As of March 31, 2017, the outstanding obligations was $25.6 million, compared with $23.2 million as of December 31, 2016.

 

Our other contractual obligations have not changed significantly from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

For a discussion of market risks, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2016. During the three months ended March 31, 2017, there were no material changes or developments that would materially alter the market risk assessment performed as of December 31, 2016.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. 

 

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2017, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

 
27

 

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on Effectiveness of Controls and Procedures

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.      

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are a party to actions and proceedings in the ordinary course of business, including potential litigation initiated by our shareholders, challenges to the enforceability or validity of our intellectual property, claims that our products infringe on the intellectual property rights of others, and employment matters. These proceedings often involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. We defend ourselves vigorously against any such claims.

 

As of March 31, 2017, there were no material pending legal proceedings to which we were a party.

 

ITEM 1A. RISK FACTORS

 

Our business involves risks and uncertainties. You should carefully consider the risks described below, together with all of the other information in this Quarterly Report on Form 10-Q and other filings with the